Ujjivan Small Finance Bank Annual Report FY13 Notes

This is the seventh post of the series, where I will share notes taken by me while reading the annual reports of this business. I will be sharing an excel sheet at the end of the series which will capture all the relevant data throughout the years of its operation. Notes will mostly contain intangible non-financial data which will reveal subjective characteristics of the business and management. I have restrained from adding my comments and recommendations on specific subjects as I do not want to introduce my biases in this exercise. Shorthand abbreviations are used from time to time and should be logical. For any clarification, please use the comments section. This is not a buy or sell stock recommendation, just an exercise in researching and understanding the business.

Ujjivan Ranks #7 - India’s Best Companies To Work For 2013

Awarded by The Great Place to Work Institute & Economic Times

Ujjivan Ranks # 2 - in Financial Services

Ujjivan Ranks # 2 - in Rewards & Recognition Practice

Ujjivan Ranks # 3 - in Engaging Frontline Staff

Letter from MD

Growth in the loan portfolio, customers and profitability of many MFIs testify to the revival of the industry after AP crisis 32 months ago. Customers in AP have no choice but to return to money lenders as government legislation banks MFIs from operating there.

The environment has emerged more stable as over-exuberant lending practices of the years culminating in 2010-11 have given way to a more disciplined approach. This is guided by the Reserve Bank of India (RBI) rules that limit the number of MFIs lending to a particular customer to two and restrict the total exposure per customer to Rs.50,000.

There has been an impressive implementation by NBFC-MFIs, led by Micro Finance Institutions Network (MFIN), of credit bureau integration. Within just two years, the MFIs have provided the credit bureaus with 70 million loan records. The credit bureau data is updated monthly and utilized as a tool for approving all loans made by NBFC-MFIs.

The industry is going through consolidation at a customer level. The ceilings imposed by RBI through margin and interest rate caps are forcing MFIs to become more efficient. In order to remain viable, each must bring in economies of scale. This is marginalizing the smaller MFIs, which are not able to raise adequate levels of debt or capital. The market is now being dominated by medium and large MFIs along with a number of banks which have recently entered the microfinance arena.

Government’s planned ten-state roll-out of the National Rural Livelihood Scheme (highly subsidized Self Help Group loans funded by the World Bank) is likely to adversely impact the sector. Such initiatives are populist palliatives which are politically motivated. Over the last 60 years, they have actually had a very limited impact on poverty alleviation. They are, unfortunately, likely to create tensions between the State-run programs and the Microfinance industry.

The future of the Microfinance industry lies in its resolve and capability to reinvent itself and become a full-service financial provider for the poor. This most critical step will lead to the real financial inclusion of the poor. This will demand the customization of loan products to meet the specific needs of the customer: micro-enterprise loans, housing loans, higher education loans etc.; reliable savings and investment products for the poor; a wider range of insurance products, along with safe and economical remittance services; pension and financial literacy programs. The recent collapse of a ponzi scheme in the East highlights the need for reliable savings and investment products.

Why did the crisis happen and what can we learn from it?

The unorganized money lending is a hugely lucrative business; the government-sponsored programs have political dividends. The unorganized deposit-taking business is also massive and produces extraordinary profits. Powerful businessmen, politicians, bureaucrats, celebrities and media organizations are involved in these businesses. As one followed what transpired during the collapse of the Saradha Group of Companies in West Bengal, this fact became immediately apparent. The tentacles of these types of businesses reach right across India at a much larger scale than what is visible. If the Microfinance industry is to seriously take on such competitors, we must first become recognized providers of financial services and, hence, receive appropriate regulatory protection. We have come a long way with our recognition as NBFC-MFIs by the RBI. Secondly, we need to ensure that the MFI legislation, currently stalled, is passed by the Parliament. Finally, we cannot operate naïvely or in the throes of self-centered greed. We must fight the competition with maturity and unity. In our sails, we need the wind of support from our vast customer base.

We have enhanced our relationships with customers by being the only MFI to launch a Customer Care division, reflecting our dedication to protecting our most important stakeholders. While we could barely break-even last year, in 2012-13 we are the second most profitable company among the NBFC - MFIs; fifth in terms of the loan book and we serve the sixth largest customer base. With a presence in 20 states, Ujjivan has the widest geographical reach of any MFI in India.

We have improved field staff efficiency and EoS to reduce OPEX from 17% last year to 10.6%. We remain a viable business in the regime of interest and margin caps.

The cumulative repayment rate has moved up to 99.73% as of March 31st, 2013.

At the behest of the previous Finance Minister, applications are being sought by the RBI for fresh banking licenses in the endeavour to promote financial inclusion. If regular commercial banks could be the vehicle used to achieve this goal, the problem would have been resolved long ago. Being a banker for over thirty years, I can assure you that they neither have the inclination nor the capacity to provide financial services to the poor. The Governor of RBI has stated in the latest Credit Policy announcements that a study will be conducted to determine the ideal organization to serve the poor. Perhaps the choice will be the ‘small banks’ recommended by the Raghuram Rajan Committee a few years ago, or limited license banks which successfully provide financial services to the poor in regions around the world, including our neighbouring SAARC countries.

an independent impact assessment survey, conducted with customers across 9 states over a period of three years. In February 2013 we returned to the nearly 1500 customers from the original 2010 sample of 3200 who are still active Ujjivan borrowers. 87% defined their current state of well-being as “Positive” vs. 60% three years ago. 96% percent of this group reported that they believe that their lives will continue to improve in the next three years. There has been remarkable progress in income growth, especially among our self-employed/small business owners. Monthly incomes for this group rose by 85%. Looking at other quality of life indicators, 63% now have bank accounts and 57% hold Aadhar cards. Validating women’s tendency to invest in the family’s future welfare, 40% have now enrolled their children in private schools compared to 28% three years ago.

Company Profile

In the endeavour to attain full financial inclusion for India’s poor, we chose to complement the existing microfinance institutions (MFIs) by serving the Urban and Semi-Urban populations. We have succeeded in being the only MFI to serve this group at a national scale.

Goals:

§ Provide a full range of financial services required by the customers to “Build a Better Life”

§ Build an institution which is best in class in all aspects: customer service and protection, innovation, efficiency, workplace engagement, leadership, governance and reputation

§ Operate a viable business to satisfy investors with positive returns

§ Attract and retain quality talent and provide professionally rewarding career paths

§ Holistically approach poverty reduction in partnership with Parinaam Foundation through social welfare programs in education, health care, vocational training, community development, shelter and disaster relief, to enable customers to lead a better life.

Customers

We are proud to say that we are the only MFI that has created a Customer Service & Protection Division. This has enhanced our customer relations. Customers are encouraged to speak up and have a designated Customer Service Representative to engage with. Access is also provided via a Toll-Free Help Line. At Ujjivan, we listen to the customers we serve. Their input contributes to the evolution of our business model, from service styles to new product launches.

Ujjivan’s customers are industrious, hard-working women from India’s urban and semi-urban areas.82% are self-employed, owning small shops and tailoring businesses while the remainder, are employed as housemaids or piece rate workers in garment factories.

In accordance with the new directions from the Reserve Bank of India, benefits are being shared with our customers in the form of reduced interest rates. Effective December 15th, 2012, Ujjivan’s interest rates have been reduced from 26% to 25% for all new group loans. For repeat loans to existing customers, including individual loans to finance cattle purchases, rates have been dropped from 26% to 24%. Repeat loans constitute a majority of Ujjivan’s loan portfolio.

Micro-Pension

While credible products, such as Government-sponsored schemes, do exist to address the pension needs of the Poor, structured information dissemination and training is lacking. Recognizing this information gap amidst active market demand led us to seek potential solutions in the form of savings through pension contributions. Encouraging a disciplined behaviour of regular investing and savings in the productive years will go a long way in easing the financial strain that comes with old age. Ujjivan has entered into a strategic and symbiotic partnership with IIMPS (Invest India Micro-Pensions Services), a company that provides specialized Micro-Pension services to underprivileged customers. Ujjivan believes that leveraging IIMPS’ expertise in offering specific product solutions for future planning will be embraced by our market. This latest expansion of our portfolio will foster a sense of financial security and independence for our customers upon entering their senior years.

Ujjivan creates awareness and promotes Micro-Pension accounts/services through a detailed customer engagement process. We offer a prepaid card solution in collaboration with IIMPS and VISA, to facilitate disciplined and timely investments into Micro-Pension accounts for those customers who have yet to open a bank account. The corpus of the customer account will grow over time and benefit from market investments managed by the leading Pensions fund managers. The two products offered under the program include the Government sponsored NPS-LITE (National Pensions Scheme - Lite) and UTI-RBPF, managed by the Unit Trust of India. The Micro-Pensions program received excellent response from target customers and shall be extended nationally in FY13-14.

Cashless Disbursement

At the close of FY 12-13, 25% of our monthly disbursements were being facilitated through direct account transfers. In addition to adding convenience to the transaction process, Cashless Disbursements eliminate the potential risks of cash handling. The loan amount is credited after deducting loan processing charges; hence the customer need not carry actual cash to or from the branch during loan disbursement. This initiative has also helped the Ujjivan team establish rapport with a range of bank officials. As the percent of transactions represented by direct transfers to bank accounts increases, all stakeholders seem to agree that this initiative is a “win-win.” We have leveraged our current field process to communicate the importance of having a bank account and the advantages of subscribing to other banking services like ATMs and SMS alerts. As an incentive, customers opting for Cashless Disbursement are approved for an additional Rs.2000 for their current loan. Also, encourage all customers to link their bank A/Cs with their Aadhaar.

Home improvement loans have been introduced with assistance from IFC. A research agency is working on an in-depth assessment.

Diksha programs for financial literacy helps customers understand difference b/w wants and needs, cash flow management, how to borrow judiciously, form saving habits, and how not to borrow again for routine expenses and only borrow for emergencies and CAPEX.  Developed and executed by Parinaam, our NGO partner, we have 64500 enrolled customers, funded by Citi and Dell foundation. Received external recognition from RBI which has adopted much of the content for it own FLP. We are committed to continuing the program until our entire customer base is financially literate.

The Ujjivan IT team collaborates with IT teams from other MFIs in India and overseas, i.e. Bangladesh, Indonesia and Africa, to share their experiences and best practices.

CBS - The CBS is highly secure and capable of handling large transactions while working with low internet bandwidth. The loan modules are fully integrated with financial accounting and have a strong built-in MIS. In addition, they support mobile transactions at the field level. BR.Net is based on open delivery concept allowing a more secure interface to third-party delivery channels such as ATM, SWIFT and Internet Banking. All 301 Ujjivan branches are online following successful collaboration between IT and Operations.

We are using IBM FileNet, the most robust software for DMS, Content Management, Workflow and Process Management. This technology helps in eliminating movement of customer documents between

departments for loan processing. With the implementation of Workflow Management, the scanned images will move among departments based on a set of logical rules. It can lead to improved turnaround time. It also facilitates the measurement of productivity per staff. The branch can view the online status of the application using the system. Implementation of the Workflow and Document Management System for Loan Processing has already been completed in the South Region (National roll-out is projected to be completed by October 2013).

Customer Relationship Manager (CRM) Tool For Customer Care & Help Desk

This tool is comprehensive in nature and covers both external and internal customer complaints/queries under 4 different categories with Automated Escalation based on defined TAT and provides Automated Dashboards.

Management Information Services

We have a dedicated team of Management Information Specialists who work on developing Management Information System business requirements for both internal and external stakeholders. In collaboration with Women’s World Banking, the team has initiated the use of analytics for decision making.

Future Innovations

Mobile Transactions at Field

Currently, at 26%, mobile phone penetration in India is projected to increase to 72% in 2016 (as per Gartner Report). Ujjivan, led by its IT team, is harnessing this platform in the endeavour to benefit all stakeholders. All transactions completed via mobile devices will be posted in real-time. This dynamic will prove to be of tremendous value in the supervising and monitoring of collection and disbursal processes both at the field and in the back office.

Hand-Held Devices 

As an MFI, Ujjivan performs diverse field level activities daily, including the filing of customer loan applications, the posting of transactions and so on. We are in the process of implementing the use of Hand-Held Devices / Touch Screen Tablets for data collection and processing of individual loan applications. By investing in a seasoned team of passionate IT specialists and state of the art infrastructure, Ujjivan has elevated both its position within the Microfinance sector and its impact on the communities it serves. Ujjivan continues to adopt cutting-edge technology applications which increase scalability, efficient control and cost benefits. This, in turn, results in consistent service of the highest quality to all of our stakeholders – our customers, our employees and our investors.

Customer Retention

High customer dropout rates are a serious threat to financial inclusion goal of MFIs, Ujjivan emphasizes on a long-term relationship with customers, as the same is imperative to have a meaningful impact while helping them alleviate poverty through financial services Some customers are lost due to rejection after CB check.

Exit Interviews for dormant and dropout customers have been conducted through Customer Care Representatives (CCRs) who are appointed at all matured branches. The objectives of the interviews were to understand why customers are dropping out and retain those who are creditworthy after resolving their concerns or service defects if any. This will enable us to have a relook at our products, processes and quality of services.

Ujjivan was, therefore, able to improve the customer retention rate from 78% in March 2008 to 86% in March 2009. Later retention rate dipped by 21% over a period of next 3 years, especially half of this accounted during post-AP crisis period due to selective credit and tight controls on multiple borrowing. Ujjivan was able to reclaim customer retention rate from 65% to 72% during FY 2012-13 with the help of a number of efficiency projects and focused customer retention programs.

We have also made requisite changes in our various documents such loan cards/agreements, pricing charts, compulsory group training brochures etc to incorporate transparency standards and disseminated the same to customers in local languages. Major disclosures made in these documents include our commitment to transparency and fair lending practices of not collecting security deposits, late payment charges, prepayment charges, not sharing and disclosing client data, non-discrimination policy, ethical staff behaviour and collection practices - debt-rescheduling policy in case of genuine hardships.

Global Accreditation of our Client Protection Program: Ujjivan is one among first few MFIs to meet global standards of customer protection. Assessment and Certification were completed by leading rating agency M-CRIL on behalf of Smart Campaign. Smart Campaign certified that Ujjivan meets standards of care in implementing all of the Client Protection Principles through its operations, product offerings and treatment of clients.

Ujjivan’s report card:

§ 95.24% in disclosure to clients

§ 92.42% in client engagement

§ 93.75% in Institutional processes

§ 100% in transparency and

§ 100% in previous record on violations

Operational Efficiency

Reduced Loan Turnaround Time (TAT)

Ujjivan has significantly improved its loan turnaround time, decreasing it from 17.79 days in July 2012 to 7.94 days as of March 2013. With a key focus on enhancing efficiency, the loan TAT components underwent a granular analysis through monitoring of timelines for each and every activity, from customer application date to disbursement date. This resulted in process improvements at both branch and back office levels. The positive impact on our customers is evident, as we have delivered to them the timely service they have asked for. Significant contributors to a reduction in TAT include the successful implementation of Pre-Approved Loans with respect to repeat loans, and the adoption of Cashless Disbursements. Ujjivan initiated the practice of facilitating direct credit to customer bank accounts in July 2012. The practice reduced cash handling at the branches, as well as in transit handling. Both staff and customers have a greater sense of safety and security as the risk of theft and fraud has significantly diminished. Cashless disbursements were rolled out for the higher cycle customers of group lending and made mandatory for all individual lending.

We aspire to facilitate savings and Cashless Disbursement for at least 40% of our customer base in the coming year. Cashless Disbursements have enabled cost savings by reducing third party cash management services in 40 branches.

Pre-Approved Loans

With the integration of the pre-approval dynamics into the process of repeat loan disbursements, TAT for these loans is now nearly “zero”. When the field staff initiates discussions with customers they cover not just current, but projected future needs as well. By doing so, the formal processes of verification and approvals related to the customer’s next loan are set in motion- even before the closure of the current loan. Gaps and delays, therefore, are minimized and enable timely, quality service with minimal TAT. The project was launched in July 2012 and by year-end, 63% of our repeat loans were Pre- Approved Loans. The reduced TAT (from nearly 18 days in March 2012 to 7.94 days in March 2013) is a testament to the success of this project.

Elimination of Manual Registers

Automation of Cash Reports and other Registers helped remove the laborious practice of manual register maintenance, saving 12 - 15% in productive man-hours per day.

New Loan Card with Photograph

Roll-out of new system-generated loan cards which house customer photographs (captured and stored on the live CBS) has reduced costs with a total saving of Rs.0.75 Million in this FY. The practice also simplified the disbursement process via easier identification of customers at centre meetings.

Even Form Flow

An efficient Cash Management initiative involving the phasing out of disbursements across weeks has led to better synchronization with collections. Now repayment proceeds can be channelled immediately for disbursements (“netting off”), minimizing cash deposit charges and cash handling risk. By year end, 32% of our collections had been netted off with disbursements facilitating a total savings of Rs.12.4 Million in bank charges and cash management charges. Bank charges were reduced by 75% and Cash Management charges were reduced by 31% over last year.

Standardization of Efficiency Benchmarks across Branches and Field Staff

All mature branches are encouraged to handle >4K borrowers and >Rs.40 Million OSP and field staff greater than 700 borrowers for optimum efficiency, economies of scale and better productivity. Currently, 26% of our branches meet both standards. Our key focus for next year will be to ensure that 80% of our branches attain these standards.

Update of Projects launched in FY 2011-12

The roll-out of bringing all Ujjivan branches online and into the Core Banking System has been completed and has led to substantial reduction of expenses. Simultaneously, the cash tally slip updating process has reduced TAT to zero. The Repayment Window Extension has been implemented across all our branches. 44% of our borrowers as of March 2013 have shifted to new windows, with 29% of the borrowers in the 3rd window, 15% in the 1st window and the balance in the standard window. We hope to achieve an even distribution across all windows by FY2013-14 for greater efficiency and better cash management. 13 branches were merged as part of our consolidation strategy for better economic viability, improvement in productivity, portfolio quality and growth prospects.

Impact of our Business Efficiency Initiatives

Our persistence in improving our efficiency significantly enhanced our key efficiency metrics. The dip in our OER by 288 bps, the dramatic reduction in TAT and improved branch and field staff productivity metrics are standing testimonies to the efficacy of our initiatives.

Our key focus areas for next year are automated loan processing, the rollout of pre-printed customer profiles and loan application forms, online tracking of individual business loans (to reduce TAT to 10 days), Cashless Disbursement utilization to reach 40% of customers and the improved productivity of our mature branches and field staff.

Awards

§ Unitus Accelerator Award 2007

First-ever recipient Ujjivan recognized for its role in accelerating the microfinance industry with its innovative approach & for the positive impact it has on customers’ lives

§ Microfinance Process Excellence Award (MPEA) 2008 for South Region Sponsored by ABN-AMRO & RBS in partnership with PlaNet Finance India

§ Unitus Inspiring Leader Award 2009: Samit Ghosh Ujjivan Managing Director & CEO is the first-ever recipient

§ #1 Best Company to Work For 2009 (Microfinance Industry) Presented by the Great Place to Work Institute /India & Economic Times

§ Gold Award for Social Performance 2009 & 2010 Sponsored by CGAP, Michael & Susan Dell Foundation, Ford Foundation, Social Performance Task Force & Presented by MIX (Microfinance Information Exchange)

§ Srijan MFI Transparency Award 2010 (Established MFIs) Sponsored by Intellecap

§ 5 Diamond Ranking for Transparency & Quality of Information 2010 Determined by MIX Market

§ Microfinance India Organization of the Year 2011 (Large Organizations) India’s most prestigious MFI award

§ #1 Best Company to Work For 2011 (Microfinance Industry) Presented by the Great Place to Work Institute/India & Economic Times

§ Platinum Award for Social Performance 2011 Sponsored by CGAP, Michael & Susan Dell Foundation, Ford Foundation, Social Performance Task Force & Presented by MIX

§ #2 Best Company to Work For 2012 (Financial Services) #16 Best Company to Work For 2012 (Among Large Organizations) #3 Best Company in Leadership Development 2012 Presented by the Great Place to Work Institute/India & Economic Times

§ Client Protection Certified 2013 Presented by The Smart Campaign

§ The Winning Edge in Risk Management Award 2013: Sudha Suresh, Ujjivan CFO Presented by The CFO Institute & CFO India Magazine

§ #7 Best Company to Work For 2013 (All Companies) #2 Best Company to Work For 2013(Financial Services) #3 Best Company For Engaging Frontline Staff 2013 #2 Best Company for Rewards & Recognition 2013 Presented by the Great Place to Work Institute /India, Edenred & Economic Times

MD&A

Key areas of focus included new initiative pilots, such as Housing, Micro-Pensions, IL, support systems innovations and efficiency measures that dramatically improved our loan turnaround time (TAT). Additionally, we gratefully welcomed the inclusion of IFC as a valuable new investor in our company. We initiated business consolidation and experienced significant growth with the resumption of expansion activities in North and West.

Milestones - 1 mn customers, 1000 cr loan portfolio, We achieved an Operating Expense Ratio (OER) of 10.6% compared to 13.5% in FY2011-12.

Ujjivan disbursed Rs.15,409 Millions, a 42% growth over the previous year, enabled by high acquisitions, increased proportion of pre-approved loans and higher ticket sizes across all regions.

Customer Retention

Retaining quality clients was a major priority this year. A national campaign to both convert idle customers and reinstate dropouts was executed. We created an internal competition to motivate field staff and awarded those branches reporting the most conversions. We were very encouraged to see an overall 31% conversion rate resulting from this 5-month push.

New Branches

After a 2-year pause Ujjivan resumed geographical expansion. We stretched our footprint in Punjab by opening 7 new branches. In both Kerala and the Ahmednagar area of Maharashtra the doors of 2 new branches were opened.

New Initiatives

Ujjivan re-launched the Home Improvement product in Q2 of FY12-13 with operational & capacity building assistance from International Finance Corporation (IFC).

Credit Performance

Ujjivan undertook a major portfolio clean-up exercise this year, writing-off outstanding dues worth Rs.72 Million (post-crisis remnants). Our Portfolio at Risk (PAR) stood at a 5-year low of 0.25%, while our default rate hit an all-time low of 0.1% of total disbursements. Our repayment rate reached a record high of 99.73% in March 2013. Building towards the mandatory 1% provisioning required by the RBI regulation we increased the provisioning on standard assets from 0.25% to 0.65%.

Interest Rate Cuts

In order to pass on benefits of Ujjivan’s increased profitability to our customers, we reduced interest rates on fresh group loans by 1%, to 25%, and on repeat loans by 2%, to 24%, in Dec 2012.

Regulatory Compliance

The company is in compliance with the RBI notifications (dated 3rd May 2011 and subsequent amendments dated 2nd Dec 2011 and 3rd August 2012) for Bank Loans to the MFIs and is qualified for the NBFC-MFI status. Ujjivan has filed its application for NBFC-MFI status with the RBI and the same is currently with the Central Office. Further, the RBI notification of 31st May 2013 permits all NBFCs to operate within a margin cap of 12 % for the FY 2012- 13 and FY 2013-14. Ujjivan is well within the above regulatory norm.

Risk Management

Credit Risk

For FY 2012-13, our credit management initiatives were directed towards portfolio clean-up, collections, prudent credit assessment and robust branch-wise policies. Knowing that lower TAT is positively correlated to lower credit risk, we aligned our salient credit initiatives this year to our efficiency objective to lower loan TAT. As customers value speed of service, lower TAT attracts the best quality customers and mitigates the risk of default. Ujjivan launched the 3-step customer filtering process at the field, GRT and credit approval stages to weed-out customers not qualified for MFI loans. This reduced rejections at the credit bureau, improving loan processing time and cutting costs. The Automation of Credit Bureau reviews also contributed to lower loan disbursement TAT as it shrank the credit approval window. We added the services of a 2nd credit bureau, Equifax, which strengthened association tie-ups and reduced single-bureau dependency. Ujjivan now utilizes two robust databases to analyse borrower trade lines and to make more informed loan decisions.

Our credit risk was further contained by the roll-out of the following new processes and guidelines: Pre-Approved Loans and graduation of clients to Revised Group Lending, removal of financial guarantee in higher cycles, branch-wise credit policies aligned to occupation, income levels, credit history, and external risk (including political & socio-economic factors). Further, the portfolio clean-up exercise helped us shed the baggage of past non-collectables while we reinforced collection management practices. Overdue tracking mechanisms ensured a solid portfolio quality with minimal default risk of 0.1% of total loans disbursed during this year and a healthy repayment rate of 99.73% (vs. last year’s 98.32%).

We witnessed minimal incremental defaults and closed with an all-time low credit cost. However, we have increased the provision on standard assets to meet RBI norms of 1% provision on the total portfolio. Way forward, our focus is to implement DMS (credit underwriting through the online interface) to improve efficiencies and to also re-engineer individual lending credit policies by adopting good practices from NBFCs, especially for open market clients.

Operational Risk

High staff turnover, fraud and theft vulnerability, cash handling security and allied risks will continue as focus areas of Risk Management this year. Ujjivan’s Vigilance function has a proactive role. It not only addresses issues ex-post facto but also works as a preventative mechanism. Experienced specialists have joined the Vigilance team, each cluster of our operations has a dedicated panel of reputed lawyers, and retired senior police officers are serving as consultants in high-risk areas to ensure alignment to business.

Prudent day-to-day cash management continues to be a priority, along with the monitoring of idle funds and management of timely investments. Disbursements are synchronized with collections in order to optimize the window for immediate redirect of repayment proceeds. This strategy minimizes the risks of cash handling while facilitating cost savings, as the need for third-party cash management services is removed. The successful national roll-out of Cashless Disbursements has produced similarly valuable dual benefits. As a result of our encouragement and assistance in opening bank accounts, customers gain security and safety, as well as the opportunity to execute new savings behaviour.

Sector Risk

The creation of a separate category – “NBFC-MFIs” – within the financial services sector along with the drafting of new RBI Regulations has brought in a lot of regulatory clarity. The Microfinance Bill which has yet to be formally enacted aims to broaden the scope of services provided by the MFIs. The intention is to go beyond microcredit by adding savings products, remittances, pensions, insurance and more to their product portfolios. And, wide powers are to be given to RBI for regulating the sector.

Consolidation of the industry is in progress. MFIs will consider inorganic expansion to strengthen their portfolios. The small floundering players will make attractive buyout targets for the larger players. Cautious and controlled growth built on responsible lending is the current mantra, as aggressive expansion plans of the pre-crisis regime have been dismissed.

The key to survival in what is now a hugely competitive and regulated environment will include the restructuring of traditional operation models along with investment in technology to improve operating efficiencies while streamlining costs. Fundamental operational changes being implemented by MFIs include conversions to Cashless Disbursements, to minimize loan processing time, utilization of mobile technology for real-time reports of customer transaction activity, and the use of biometric scanners to verify collections. With the disclosure of pricing and lending norms now mandatory, transparency has been enhanced in the sector.

Ensuring Right Hiring:

What keeps our employee engagement scores & motivations levels one of the highest (at 95% compared to India’s Best at 88% in the Great Places To Work Report 2012) is the work we do and the impact we can see on the lives of the working poor. Ujjivan therefore, strongly believes that bringing the right people in is the primary key to creating this culture. Instead of just hiring people based on referrals from existing employees, we asked our customers to refer potential candidates to us. Over 63% of the field staff hired during the year was through employee and customer referral programs. These employees were comfortable working in a tough environment such as urban slums.

Overall, being a good employer is the way of doing business at Ujjivan.

An employee died after he was shot and the collection amount looted from him. Entire Ujjivan staff and management came through for his family both monetarily and emotionally. They formed a trust with employee donations, matched by the company, to invest and provide a regular income for the family. Education of his children was taken up by Parinaam.

After listening to employee's concerns Ujjivan took a Life Term cover from Birla Sun Life Insurance of Rs.3,00,000 for staff and Rs.5,00,000 for officers and managers.

During the year based on internal study and approved by the Board of Directors, the company has revised its estimates, which has resulted in provision being higher by Rs.45,014,498/- and profit for the year lower by that amount to such extent. Provisions are 100% for sub-standard and doubtful assets.