analysis of operational risks in cahspor micro credit

of 62
CASHPOR MICRO CREDIT
ANALYSIS OF OPERATIONAL RISKS IN CASHPOR MICRO CREDIT
Submitted by:
Meghna Jaiswal
Roll no- 19423MB022
Institute of Management Studies, Banaras Hindu University

of 62
ACKNOWLEDGEMENT
I would like to sincerely thank IM-BHU, Varanasi for giving me the opportunity of taking up this
project which has enhanced my knowledge about Operational Risks in MFIs.
I take this opportunity to express my gratitude to the people who have been instrumental in
the successful completion of my report.
I would like to acknowledge my project mentor, Mr. B. B. Singh (CFO, Cashpor Micro Credit) –
for giving me a bright opportunity to carry out my project in Cashpor Micro Credit. I also extend
my sincere gratitude to all the staff at Cashpor Micro Credit for their support and guidance.
My acknowledgement would be incomplete without mentioning the kind support and guidance
provided by the Miss Manpreet Kaur (Sr. Finance Manager) for her wise suggestions and ideas
to improve my work.
Above all I want to thank Almighty God for all his blessings for the completion of my project and
my family who have been supporting me throughout the period of the project.

of 62
DECLARATION
I the undersigned solemnly declare that the report of the project work entitled “Analysis of
Operational Risks in Cashpor Micro Credit” is based on my own work carried out during the
course of my internship under the supervision of Mr. B. B. Singh, CFO, Cashpor Micro Credit,
Varanasi. I assert that statements made and the conclusions drawn are an outcome of the
project work. I further declare to the best of my knowledge and belief that the project does not
contain any part of any work which has been submitted for the award of any other
degree/diploma/certificate in any university.
Meghna Jaiswal
(Signature)

of 62
CERTIFICATE BY MENTOR
“Analysis of Operational Risks in Cashpor Micro Credit” is a work carried out by Miss Meghna
Jaiswal. The project report is submitted towards the course of Summer Internship for
fulfillment of the two year, full time ‘Master of Business Administration’ of Institute of
Management Studies, Banaras Hindu University Varanasi.
Prof Ashish Bajpai Dr. Harsh Pradhan
Institute of Management Studies Institute of Management Studies
Banaras Hindu University Banaras Hindu University

of 62
CERTIFICATE BY ORGANISATION

of 62
EXECUTIVE SUMMARY
This internship is a bridge between the institute and organization. This training program is
designed to give the future manager a feel about the corporate happenings and work culture of
an organization. These real life situations are entirely different from the stipulated exercise
enacted in an artificial environment inside the classroom and it is precisely because of this
reason that this summer training program is designed, so that managers of tomorrow get ideas
about the real time business operations.
This summer internship program helps us to apply our theoretical knowledge into the practical
field. Operational risk summarizes the uncertainties and hazards a company faces when it
attempts to do its day-to-day business activities within a given field or industry. A type
of business risk, it can result from breakdowns in internal procedures, people and systems—as
opposed to problems incurred from external forces, such as political or economic events, or
inherent to the entire market or market segment, known as systematic risk.
Operational risk focuses on how things are accomplished within an organization and not
necessarily what is produced or inherent within an industry. These risks are often associated
with active decisions relating to how the organization functions and what it prioritizes. While
the risks are not guaranteed to result in failure, lower production, or higher overall costs, they
are seen as higher or lower depending on various internal management decisions. Because it
reflects man-made procedures and thinking processes, operational risk can be summarized as a
human risk; it is the risk of business operations failing due to human error. It changes from
industry to industry and is an important consideration to make when looking at potential
investment decisions. Industries with lower human interaction are likely to have lower
operational risk.

of 62
TABLE OF CONTENTS
ACKNOWLEDGEMENT...................................................................................................................................2
DECLARATION ...............................................................................................................................................3
CERTIFICATE BY MENTOR..............................................................................................................................4
CERTIFICATE BY ORGANISATION...................................................................................................................5
EXECUTIVE SUMMARY..................................................................................................................................6
TABLE OF CONTENTS.....................................................................................................................................7
1. INDUSTRY AND COMPANY OVERVIEW...............................................................................................10
1.1 BRIEF HISTORY OF MICROFINANCE INSTITUTIONS...........................................................................10
1.2 GLOBAL SCENARIO............................................................................................................................10
1.3 INDIAN SCENARIO.............................................................................................................................13
1.4 COMPANY PROFILE ...........................................................................................................................14
1.5 VISION AND MISSION........................................................................................................................14
1.6 CAPITAL STRUCTURE.........................................................................................................................14
1.7 BOARD OF DIRECTORS ......................................................................................................................14
1.8 BUSINESS FOCUS...............................................................................................................................15
1.9 LOAN PRODUCTS...............................................................................................................................15
1.10 BUSINESS CORRESPONDENT SERVICES...........................................................................................16
1.11 SWOT ANALYSIS..............................................................................................................................17
2. INTRODUCTION TO THE TOPIC ...............................................................................................................18
2.1 RISK ...................................................................................................................................................18
2.1.1 CREDIT RISK................................................................................................................................18
2.1.2 MARKET RISK..............................................................................................................................19
2.1.3 OPERATIONAL RISK ....................................................................................................................19
2.2 OPERATIONAL RISK MANAGEMENT .................................................................................................20
2.2.1 BENEFITS OF OPERATIONAL RISK MANAGEMENT.....................................................................20
2.2.2 WORKING OF OPERATIONAL RISK MANAGEMENT....................................................................20
2.2.3 STAGES OF OPERATIONAL RISK MANAGEMENT........................................................................21
2.3 RBI GUIDELINES ON OPERATIONAL RISK MANAGEMENT.................................................................21

of 62
2.3.1 DEFINITION.................................................................................................................................21
2.3.2 ORGANIZATIONAL SET UP AND KEY RESPONSIBILITIES FOR OPERATIONAL RISK MANAGEMENT
............................................................................................................................................................22
2.3.3 IDENTIFICATION AND ASSESSMENT OF OPERATIONAL RISK.....................................................24
2.3.4 CAPITAL ALLOCATION UNDER OPERATIONAL RISK....................................................................25
2.4 LITERATURE REVIEW.........................................................................................................................27
3. DESIGN OF THE STUDY............................................................................................................................29
3.1 BACKGROUND...................................................................................................................................29
3.2 MANAGEMENT PROBLEM.................................................................................................................29
3.3 OBJECTIVES .......................................................................................................................................30
3.4 RESEARCH METHODOLOGY ..............................................................................................................30
3.5 SOURCES OF DATA............................................................................................................................30
4. ANALYSIS AND INTERPRETATION............................................................................................................31
4.1 OPERATIONAL RISKS INVOLVED IN CASHPOR MICRO CREDIT..........................................................31
4.1.1 INTERNAL FRAUDS .....................................................................................................................31
4.1.2 EXTERNAL FRAUDS.....................................................................................................................31
4.1.3 EMPLOYMENT PRACTICES AND WORKPLACE SAFETY ...............................................................31
4.1.4 CLIENTS, PRODUCTS AND BUSINESS PRACTICES .......................................................................31
4.1.5 DAMAGE TO PHYSICAL ASSETS ..................................................................................................32
4.1.6 BUSINESS DISRUPTIONS AND SYSTEM FAILURES.......................................................................32
4.1.7 EXECUTION, DELIVERY AND PROCESS MANAGEMENT..............................................................32
4.2 PROCESS CONTROL MECHANISMS ...................................................................................................33
4.2.1 SELECTION OF VILLAGES ............................................................................................................33
4.2.2 GROUP FORMATION ..................................................................................................................36
4.2.3 LOAN DISBURSEMENT PROCESS................................................................................................37
4.2.4 CASH COLLECTION PROCESS AT BRANCHES ..............................................................................38
4.2.5 LOAN UTILIZATION CHECKING (LUC) .........................................................................................39
4.3 OPERATIONAL RISK MANAGEMENT PROCESS IN CASHPOR MICRO CREDIT ....................................40
4.3.1 ORGANIZATIONAL STRUCTURE..................................................................................................40
4.3.2 RISK DEPARTMENT.....................................................................................................................41
4.3.3 AUDIT COMMITTEE....................................................................................................................43
4.4 RISK MANAGEMENT TOOLS..............................................................................................................48

of 62
4.4.1 PORTFOLIO AT RISK....................................................................................................................48
4.4.2 REPAYMENT RATE......................................................................................................................50
4.6 RATIO ANALYSIS................................................................................................................................50
4.6.1 WRITE OFF RATIO.......................................................................................................................50
4.6.2 OPERATING EXPENSE RATIO......................................................................................................51
4.6.3 OPERATIONAL SELF SUFFICIENCY RATIO ...................................................................................52
4.6.4 RETURN ON ASSETS ...................................................................................................................53
4.6.5 RETURN ON EQUITY...................................................................................................................54
4.6.6 NUMBER OF ACTIVE CLIENTS.....................................................................................................55
4.6.7 CAPITAL ADEQUACY RATIO........................................................................................................55
4.6.8 COST PER BORROWER................................................................................................................56
4.6.9 PERSONNEL PRODUCTIVITY .......................................................................................................57
4.6.10 LOAN OFFICER PRODUCTIVITY.................................................................................................58
5. RECOMMENDATIONS AND SUGGESTIONS .............................................................................................60
6. LEARNINGS FROM THE INTERNSHIP .......................................................................................................61
REFERENCES................................................................................................................................................62

of 62
1.INDUSTRY AND COMPANY OVERVIEW
1.1 BRIEF HISTORY OF MICROFINANCE INSTITUTIONS
The history of micro financing can be traced back as long to the middle of the 1800s when the theorist
Lysander Spooner was writing over the benefits from small credits to entrepreneurs and farmers as a
way getting the people out of poverty. But it was at the end of World War II with the Marshall plan the
concept had a big impact.
The today use of the expression micro financing has its roots in the 1970s when organizations, such as
Grameen Bank of Bangladesh with the microfinance pioneer Mohammad Yunus, where starting and
shaping the modern industry of micro financing. Another pioneer in this sector is Akhtar Hameed Khan.
At that time a new wave of microfinance initiatives introduced many new innovations into the sector.
Many pioneering enterprises began experimenting with loaning to the underserved people. The main
reason why microfinance is dated to the 1970s is that the programs could show that people can be
relied on to repay their loans and that it´s possible to provide financial services to poor people through
market based enterprises without subsidy. Shorebank was the first microfinance and community
development bank founded 1974 in Chicago.
The year 2005 was proclaimed as the International year of Microcredit by The Economic and Social
Council of the United Nations in a call for the financial and building sector to “fuel” the strong
entrepreneurial spirit of the poor people around the world.
The International year of Microcredit consists of five goals:
• Assess and promote the contribution of microfinance to the MFIs
• Make microfinance more visible for public awareness and understanding as a very important part of
the development situation.
• The promotion should be inclusive the financial sector
• Make a supporting system for sustainable access to financial services
• Support strategic partnerships by encouraging new partnerships and innovation to build and expand
the outreach and success of microfinance for all
The economics professor Mohammad Yunus and the founder of Grameen Bank were awarded the Nobel
Prize 2006 for his efforts.
Micro-credit has proved to be an important liberating force in societies where women in particular have
to struggle against repressive social and economic conditions. Economic growth and political democracy
cannot achieve their full potential unless the female half of humanity participates on an equal footing
with the male.
1.2 GLOBAL SCENARIO
Microfinance market worldwide is projected to grow by US$365.9 Million, guided by a compounded
growth of 14.3%.
Staying on top of trends is essential for decision makers to leverage this emerging opportunity. The
report addresses this very need and provides the latest scoop on all major market segments.
Microfinance, one of the segments analyzed and sized in this study, displays the potential to grow at

of 62
over 14.3%. The shifting dynamics supporting this growth makes it critical for businesses in this space to
keep abreast of the changing pulse of the market.
Poised to reach over US$602.9 Million by the year 2025, Microfinance will bring in healthy gains adding
significant momentum to global growth.
While global megatrends sweeping through the market influence the primary direction of growth,
regional markets are swayed by more granular locally unique business drivers. Representing the
developed world, the United States will maintain a 12% growth momentum.
Within Europe, which continues to remain an important element in the world economy, Germany will
add over US$13.7 Million to the region's size and clout in the next 5 to 6 years. Over US$20
Million worth of projected demand in the region will come from other emerging Eastern European
markets.
In Japan, Microfinance will reach a market size of US$29.4 Million by the close of the analysis period. As
the world's second largest economy and the new game changer in global markets, China exhibits the
potential to grow at 20.5% over the next couple of years and add approximately US$106.6 Million in
terms of addressable opportunity for the picking by aspiring businesses and their astute leaders.
Several macroeconomic factors and internal market forces will shape growth and development of
demand patterns in emerging countries in Asia-Pacific, Latin America and the Middle East.
Some Global Bodies Working in the Field of Microfinance:
 Microfinance Information Exchange (MIX) - Microfinance Information Exchange (MIX) is a non-
profit organization incorporated in 2002 with headquarters in Washington, DC and regional
offices in Azerbaijan, India, Senegal, and Peru. MIX is the premier source for objective, qualified
and relevant microfinance performance data and analysis. Committed to strengthening financial
inclusion and the microfinance sector by promoting transparency, MIX provides performance
information on microfinance institutions (MFIs), funders, networks and service providers
dedicated to serving the financial sector needs for low-income clients. MIX fulfills its mission
through a variety of platforms and one of the platform being the MIX Market. On MIX Market,
they provide instant access to financial and social performance information covering
approximately 2,000 MFIs around the world (http://www.mixmarket.org).
 Consultative Group to Assist the Poor (CGAP) - CGAP is an independent research and policy
organization dedicated to expanding access to finance for poor people around the world.
Housed at the World Bank, CGAP was created in 1995 by a group of leading donors and
practitioners with the mandate to develop and share best practices, set standards, and develop
technical tools to support the development of the field. CGAP combines a pragmatic approach
to market development with an evidence-based advocacy platform to advance poor people’s
access to finance. Today, CGAP is supported by more than 30 development agencies and private
foundations that share a common vision to foster development and alleviate poverty by
advancing access to financial services. CGAP works toward a world in which poor people are
considered valued clients of their country’s financial system. In their vision, microfinance will be

of 62
integrated into mainstream financial systems that will eventually serve all the unbanked,
including very poor and harder-to-reach clients with ever more high-quality, convenient, and
affordable financial services. Moreover, they view that all actors in the field will be more
focused on responsible finance, with the well-being and needs of clients at the center of
strategy and operations (http://www.cgap.org; CGAP, 2012).
 Foundation for International Community Assistance (FINCA) - Based in Washington DC, FINCA
provides financial services to the world's lowest-income entrepreneurs so that they can create
jobs, build assets and improve their standard of living. It is an anti-poverty organization founded
by Dr. John Hatch in 1984 whose work is aimed at creating employment, raising family incomes,
and reducing poverty worldwide. The organization offers small loans and other products to
those turned down by traditional banks, believing that even the poor have a right to financial
services. With these loans, families can invest in, and build, their own small businesses and their
income-earning capacity. Worldwide, their clients post repayment rates over 97 percent. FINCA
pioneered the “Village Banking Model” of credit delivery, now used by hundreds of
organizations worldwide. FINCA programs reach the poor in more diverse countries than any
other microfinance provider. At present, FINCA operates Village Banking programs in 22
countries of Africa, Eurasia, the Greater Middle East and Latin America, serving nearly one
million people, 70 percent of whom are women (http://www.finca.org).
 Americans for Community Co-operation in Other Nations (ACCION) - ACCION is a global non-
profit organization dedicated to creating economic opportunity by connecting people to the
financial tools they need to improve their lives. A world pioneer in microfinance, it was
established in 1961 in 22 shanty towns 1 in Venezuela and issued their first microloan in 1973.
Over the years, ACCION has helped build 63 microfinance institutions in 32 countries on four
continents – Africa, Asia, Latin America and the U.S. These institutions are currently reaching
millions of clients. The ACCION U.S. Network is the largest microfinance network in the country
and since its beginning, has served hundreds of thousands of clients with loans and support
(http://www.accion.org).
 Grameen Foundation - Grameen Foundation began in 1997 to harness the underappreciated
strengths of the poor, an approach inspired by Nobel Laureate Professor Muhammad Yunus and
the Grameen Bank in Bangladesh. Grameen Foundation helps the world’s poorest people reach
their full potential. Their collaborative approach to poverty alleviation recognizes the
multidimensional and complex nature of global poverty. They provide access to essential
financial services and information on agriculture and health, assistance that addresses the
specific needs of poor households and communities. They also develop tools to improve the
effectiveness of poverty-focused Microfinance Organizations. Moreover, they also work with
private sector companies, non-governmental organizations, government agencies and others in
order to achieve lasting impact in the regions where they work (Grameen foundation, 2012;
Grameen foundation, 2013).

of 62
1.3 INDIAN SCENARIO
India is a country with a long history of indigenous banking and money lending. Evidence regarding the
existence of money lending operations in India is found in the literature of the Vedic times, i.e., 2000 to
1400 B.C. The literature of the Buddhist period, e.g., the Jatakas, and recent archaeological discoveries
supply evidence of the existence of Sresthis or Bankers. From the laws of Manu, it appears that money
lending and allied problems had assumed considerable importance in ancient India (Reddy, 1999). But
the heyday for the growth of indigenous banking in India is the medieval period ranges from the
beginning of the mid-thirteenth century to the beginning of British rule during the eighteenth century.
The merchant bankers grew enormously during this period accompanied by growth of highly monetized
economy and domestic and international long-distance trade. Individual firms joint family firms and
partnership firms – all within the same BANIYA caste but differentiated into numerous sub-castes used
to run these types of institutions. Their customers included European private merchants and trading
companies.
The establishment of the Reserve Bank of India in 1935 played an important role in addressing factors
discouraging the flow of credit to the rural sector, absence of collateral among the poor, the high cost of
servicing geographically dispersed customers and lack of trained and motivated staff. The policy
response included special credit programs for channeling subsidized credit to the rural sector,
operationalizing the concept of priority sector in the late 1960s and focusing attention on the credit
needs of neglected sectors and under privileged borrowers.
In recent years, microfinance has gained growing recognition as an effective tool in improving the
quality of life and living standards of the poorest of the poor. This recognition has given rise to a
movement that now has a global outreach and has penetrated in the remote rural areas, besides slums
and towns. Microfinance is the provision of financial services such as saving, loans and insurance for the
poor segment of the society who are unable to obtain such services from the formal financial sector. In
India, NABARD found that Self Help Group (SHG) linkage model suits best in the Indian conditions where
a vast network of rural bank branches exists and as because microfinance is gathering momentum to
become a significant force in the India overall financial system. The lending to rural people especially to
women through SHG approach without collateral has become an accepted part of rural finance in India.
The origin of modern microfinance movement in India can be traced back to the 1970s when initiative
was undertaken by Ela Bhatt for providing banking services to the poor women employed in the
unorganized sector of Ahmedabad city in Gujarat. To this end, Shri Mahila SEWA (Self Employed
Women’s Association) Sahakari Bank was set up in 1974 by registering it as an urban cooperative bank.
Since then the bank has been providing banking services to self-employed working poor people like
hawkers, street vendors and domestic servants, etc. (Rao, 2008). This MFI model has not been replicated
elsewhere in the country, though the Working Women’s Forum (WWF) was promoting working
women’s cooperative societies in Tamil Nadu since 1980. Shreyas in Kerala has been actively involved in
microfinance operations since 1988 with the objectives of promoting people’s cooperatives, inculcating
habits of thrift and self-managing a people’s bank (HDFC, 1997). The basic aim of these movements was
to alleviate poverty by delivering financial services to the poor so that they can have an asset base and
initiate income generating activities.

of 62
1.4 COMPANY PROFILE
Cashpor Micro Credit was incorporated on 10th
December 2002 and registered with Registrar of
Companies, Kanpur (UP) under Section 25 of Indian Companies Act, 1956 (now Section 8 of Indian
Companies Act , 2013).
Cashpor operates in most backward districts of five states viz Uttar Pradesh, Bihar, Jharkhand,
Chhattisgarh and Madhya Pradesh. It also operates in Bundelkhand region which is a drought affected
region and have tough living conditions. Cashpor, since beginning realized that illiteracy, illness and in-
accessibility to financial services are major impediments in breaking the intergenerational poverty.
Therefore, Cashpor has holistic approach to achieve its vision and mission by providing different nature
of services.
1.5 VISION AND MISSION
VISION: “We see all BPL women in rural areas of eastern Uttar Pradesh, Madhya Pradesh/ Bundelkhand,
Chhattisgarh, Jharkhand and Bihar having access to microfinance services, and many utilizing them to lift
themselves and their families out of poverty. At the same time, we see that their families have become
healthy, and their children are in school.”
MISSION: “Our Mission is to identify and motivate BPL women in rural areas of eastern Uttar Pradesh,
Madhya Pradesh/ Bundelkhand, Chhattisgarh, Jharkhand and Bihar, and to deliver financial and other
vital Health and Education services to them in an honest, timely and efficient manner, so that our Vision
is realized, and CASHPOR itself remains a financially sustainable microfinance institution for the poor.”
1.6 CAPITAL STRUCTURE
Cashpor Financial & Technical Services (CFTS) is the holding company of Cashpor Micro Credit and holds
99.99% of the share capital of the company. Rest of the shares is held by individuals.
Name of the Investors No. of shares % of Holding
CASHPOR Financial and Technical Services Private Ltd 5389993 99.99
Mr. Rakesh Kumar Dubey 1 0.00
Mrs. Shashi Singh 1 0.00
Mrs. Kirti Yadav 1 0.00
Mrs. Sarita Singh 1 0.00
Mrs. Archana Shukla 1 0.00
Mrs. Snowlata Maurya 1 0.00
Mrs. Vandana Srivastava 1 0.00
Total 5390000 100.00
1.7 BOARD OF DIRECTORS
CASHPOR is following the best practices of corporate governance. CASHPOR Micro Credit is governed by
its Board of Director. At present CASHPOR have 9 members on its Board with experts in the field of
Microfinance, accounts, corporate law and finance. The Board has adequate representation from
corporate, administration and microfinance sectors.

of 62
 Prof. David S. Gibbons (Chairman)
 Mr. Bahram Navroz Vakil (Honourable Vice-Chairman)
 Mr. Mukul Jaiswal (Managing Director)
 Moumita Sen Sarma
 Mr.Abhijit Sen (DirectorMr. Suhail Chander (Nominee Director, IndusInd Bank)
 Mr. Saneesh Singh (Nominee Director, Dia-Vikas
 Mr. Rajiv Kumar (Nominee Director, SIDBI)
 Mr. Sudarshan Sen, Additional Director
1.8 BUSINESS FOCUS
Cashpor works on Joint Liability Group (JLG) model under which BPL women are selected through our
poverty selection tools named Cashpor House Index (CHI) and Progress out of Poverty Index (PPI). The
households securing lower marks under these measurement tools are eligible to become member of JLG
group. Size of group ranges from 10 to 25 members. Once group is formed, the group selects a group/
center leader from amongst the targeted members and group starts holding of weekly group meetings
where loan proposals are taken and loan installment are collected. Loans are given to individual
members as per requirement of activities undertaken or proposed to be undertaken by the client/
member.
The loan amount taken by clients are generally repaid on weekly installments. However, following the
RBI guidelines, the repayment can be done on fortnightly and monthly basis as per choice of the
borrower. Installment is collected in the center meetings where the center manager facilitates collection
of weekly installments and the center leader deposits the collected amount at the Branch. The company
is providing micro credit & other services for undertaking income generating activities and improvement
of social infrastructure by providing credit to construct toilets, purchasing smokeless stoves, LPG
connections etc. The company has the membership of Highmark and Equifax credit bureaus and
regularly making enquiries for ensuring that client is not availing credit from more than 2 MFIs as per RBI
guidelines.
1.9 LOAN PRODUCTS
OWN PRODUCT
Income Generating
Loans (IGL)
Amount Repayment
Frequency
Loan
Tenure
Grace
Period
Interest
rate
Processing
Fee
(%)
First Cycle Rs. 5,000-
30,000/-
Weekly/
Fortnightly/
Monthly
52 Weeks 2 weeks 18.00% 1.00%+ GST
Second Cycle Up to
30,000/-
Weekly/
Fortnightly/
Monthly
104
Weeks
2 weeks 18.05% 1.00%+ GST
Third Cycle onwards Up to
1,00,000/-
Weekly/
Fortnightly/
Monthly
104
Weeks
2 weeks 18.05% 1.00%+ GST
Flexi Loans Rs. 5,000- Weekly/ Max. 100 2 weeks 18.00% 1.00%+ GST

of 62
IGL/Non-IGL 30,000/- Fortnightly/
Monthly
weeks
Non IGL Loans
CASHPOR Health Loan
(Construction of new
toilets
hand-pump, Repair
renovation of hand
pump/old toilets
Rs.1000/- to
Rs.15000/-
Weekly 52 Weeks 2 Weeks 18.00% Nil
2. CASHPOR Urja
(Energy) Loan
(Smokeless Stove
/Solar Lamp/any Solar
Energy based devices.)
up to
Rs.5000/-
Weekly 52 Weeks 2 Weeks 18.00% 1.00%+ GST
Emergency Loans
CASHPOR Mahila
Suraksha(Safety)Loan
(combat emergency
situations like natural
calamity, Epidemic,
Serious Accident,
Confinement
up to
Rs.10,000/-)
Weekly 26 Weeks 5 Weeks 15.94% Nil
1.10 BUSINESS CORRESPONDENT SERVICES
Cashpor partnered with four banks IndusInd Bank, ICICI Bank, IDBI Bank & Kotak Bank to provide
Business Correspondent micro-credit services. Being Business Correspondent (BC) for banks on the
credit side has helped the company increase its outreach. The loans up to Rs 1 lakhs is being disbursed
to clients through these BC Banks. As a business correspondent the company provides various credit and
saving services to the clients at reliable interest rates and in turn earn a part of total interest in the form
of commission. As of April 2020 comprised of about 48% of the Company’s total portfolio.
The company has is also providing saving services as Business Correspondent (BC) of IndusInd and ICICI
Bank, to offer saving services with no frill account facility to our clients as well as non-clients.
Cashpor has recently made an agreement with SIDBI to act as its partner for providing Micro Enterprises
Loans to its client that will exclusively be granted to such clients who are running the business under the
Micro Enterprises category (Except for Agricultural activities or Animal Husbandry/ Activities allied to
agriculture). Loan of amount from Rs 50,000/- to Rs. 200,000/- will be provided in multiples of Rs.
10,000/- at 14.06% Interest rate. The tenor for the loan will be for a period of 2 years with a grace
period of 4 weeks.

of 62
1.11 SWOT ANALYSIS
Strengths  Providing saving and credit facilities to poor and unreached people.
 Reduced dependence of poor people on informal money-lenders and non-
institutional sources.
 Employment and income generation through micro enterprises.
 Diversification of non-farm activities.
 Enhancing rural economic productivity through easy finances.
 Providing wide range of services like saving, credit, insurance, training,
counselling etc.
 Building up support system through non-financial assistance like technical
support, skill development, training etc.
 Increase in the standard of living of people.
 Women empowerment through saving mobilisation and capacity building.
 Strengthening SHGs or community groups to address their problems and
promoting leadership qualities among the members.
 Establishing the linkages between banks and marginalised citizens especially
women.
Weaknesses  Regional disparity in disbursement of credit across the country.
 Financial illiteracy of the people.
 Indiscipline among the borrowers for e.g. Dropout and migration of group
members.
Opportunities  Large number of people and areas in India are still uncovered.
 Various regions still untapped.
 Government and Banks support to the programme.
 Members can be helped to invest in asset creation, diversify their occupation
and improve their risk bearing capacities
Threats  Cut throat competitions among MFIs.
 Loans being provided for unproductive or unfeasible projects.
 Multiple loans to the same borrower lead to unrecovered loans.

of 62
2. INTRODUCTION TO THE TOPIC
2.1 RISK
Risk is defined in financial terms as the chance that an outcome or investment's actual gains will differ
from an expected outcome or return. Risk includes the possibility of losing some or all of an original
investment.
Quantifiably, risk is usually assessed by considering historical behaviors and outcomes. In finance,
standard deviation is a common metric associated with risk. Standard deviation provides a measure of
the volatility of asset prices in comparison to their historical averages in a given time frame.
Overall, it is possible and prudent to manage investing risks by understanding the basics of risk and how
it is measured. Learning the risks that can apply to different scenarios and some of the ways to manage
them holistically will help all types of investors and business managers to avoid unnecessary and costly
losses.
Generally risks faced by MFIs are grouped into clearly identifiable categories, which include:
 Credit risk
 Market risk
 Operational Risk
2.1.1 CREDIT RISK
Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet
contractual obligations. Traditionally, it refers to the risk that a lender may not receive the owed
principal and interest, which results in an interruption of cash flows and increased costs for
collection. Excess cash flows may be written to provide additional cover for credit risk.
Traditionally, it refers to the risk that a lender may not receive the owed principal and interest, which
results in an interruption of cash flows and increased costs for collection. When a lender faces
heightened credit risk, it can be mitigated via a higher coupon rate, which provides for greater cash
flows.
Types of Credit Risk:
1. Concentration risk - Concentration risk, also known as industry risk, is the risk arising from gaining too
much exposure to any one industry or sector. For example, an investor who lent money to battery
manufacturers, tire manufacturers, and oil companies is extremely vulnerable to shocks affecting the
automobile sector.
2. Institutional risk - Institutional risk is the risk associated with the breakdown of the legal structure or
of the entity that supervises the contract between the lender and the debtor. For example, a lender who
gave money to a property developer operating in a politically unstable country needs to account for the

of 62
fact that a change in the political regime could drastically increase the default probability and the loss
rate.
2.1.2 MARKET RISK
Market risk is the possibility of an investor experiencing losses due to factors that affect the overall
performance of the financial markets in which he or she is involved. Market risk, also called "systematic
risk," cannot be eliminated through diversification, though it can be hedged against in other ways.
Sources of market risk include recessions, political turmoil, change in interest rates, natural disasters
and terrorist attacks. Systematic or market risk tends to influence the entire market at the same time.
There are four major types of market risk.
1. Interest Rate Risk - Interest rate risk arises when the value of security might fall because of the
increase and a decrease in the prevailing and long-term interest rates. It is a broader term and
comprises multiple components like basis risk, yield curve risk, options risk, and re pricing risk.
2. Foreign Exchange Risk - Foreign exchange risk arises because of the fluctuations in the exchange rates
between the domestic currency and the foreign currency. The most affected by this risk is the MNCs that
operate across geographies and have their payments coming in different currencies.
3. Commodity Price Risk - Like foreign exchange risk, commodity price risk arises because of fluctuations
in the prices of commodities like crude, gold, silver, etc. However, unlike foreign exchange risk,
commodity risks not only affect the multinational companies but also the common people like farmers,
small business enterprises, commercial traders, exporters, and governments.
4. Equity Price Risk - The last component of market risk is the equity price risk which refers to the
change in the stock prices in the financial products. As equity is most sensitive to any change in the
economy, equity price risk is one of the biggest parts of the market risk.
2.1.3 OPERATIONAL RISK
Operational risk summarizes the uncertainties and hazards a company faces when it attempts to do its
day-to-day business activities within a given field or industry. A type of business risk, it can result from
breakdowns in internal procedures, people and systems—as opposed to problems incurred from
external forces, such as political or economic events, or inherent to the entire market or market
segment, known as systematic risk.
Operational risk focuses on how things are accomplished within an organization and not necessarily
what is produced or inherent within an industry. These risks are often associated with active decisions
relating to how the organization functions and what it prioritizes. While the risks are not guaranteed to
result in failure, lower production, or higher overall costs, they are seen as higher or lower depending on
various internal management decisions.
Because it reflects man-made procedures and thinking processes, operational risk can be summarized as
a human risk; it is the risk of business operations failing due to human error. It changes from industry to

of 62
industry and is an important consideration to make when looking at potential investment decisions.
Industries with lower human interaction are likely to have lower operational risk.
The Basel Committee defines the operational risk as the "risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events".
This definition includes human error, fraud and malice, failures of information systems, problems
related to personnel management, commercial disputes, accidents, fires, floods... In other words, its
scope seems so wide you do not immediately perceive the practical application.
2.2 OPERATIONAL RISK MANAGEMENT
Operational Risk Management is a methodology for organizations looking to put into place real
oversight and strategy when it comes to managing risks. Every business faces circumstances or
fundamental changes in their situation that can be seen as presenting varying levels of risk to that
business, from minor inconveniences to potentially putting its very existence in jeopardy.
The Basel Committee on Banking Supervision has described operational risk as: “the risk of loss resulting
from inadequate or failed internal processes, people, and systems, or from external events. As such,
operational risk captures business continuity plans, environmental risk, crisis management, process
systems, and operations risk, people related risks and health and safety, and information technology
risks.”
All of these risks need to be managed and the more sophisticated the approach to risk management, the
more chance the business has to thrive and grow.
2.2.1 BENEFITS OF OPERATIONAL RISK MANAGEMENT
Here are the main benefits of Operational Risk Management:
 Improving the reliability of business operations
 Improving the effectiveness of the risk management operations
 Strengthening the decision-making process where risks are involved
 Reduction in losses caused by poorly-identified risks
 Early identification of unlawful activities
 Lower compliance costs
 Reduction in potential damage from future risks
2.2.2 WORKING OF OPERATIONAL RISK MANAGEMENT
The first stage of any Operational Risk Management strategy is of course to understand the nature of
your business and the particular risks associated with it. If you manage a company that runs water ski
lessons, there will be risks your business will face that are very different to a company that creates
technology for vending machines. Spending time worrying about risks that are nothing to do with you is
just wasting time.
There are three levels of Operational Risk Management that you can choose to embark upon, and these
are as follows:

of 62
 In-depth: As the name suggests, this is the kind of risk management that we would all be
undertaking in an ideal world, as it will deliver the best results and practically make risk a thing of
the past (not completely, of course, as not every risk is foreseeable). We don’t live in an ideal world,
but there are still many situations when you can take the time to plan for a new project or business
venture with in-depth Operational Risk Management, which can include staff training or and the
implementation of new policies and procedures.
 Deliberate: This is still not ‘panic stations’ in the world of risk management but is undertaken at
various stages during the life cycle of a project or a business and can come in the form of routine
safety checks or performance reviews.
 Time-Critical: This kind of Operational Risk Management involves more urgency as it is usually done
in the midst of operational change when there is only a limited amount of time for it to be done
before the potential consequences of any non-identified risks might start to be felt. The US Navy has
the following processes for time-critical ORM: Assess the situation; Balance your resources:
Communicate risks and intentions; and do and debrief.
2.2.3 STAGES OF OPERATIONAL RISK MANAGEMENT
 Risk Identification: As mentioned earlier, understanding the risks specific to your business is key,
but there are also many potential risks that affect any kind of business and you need to identify all
of them, both those that are recurring and those that can be one-off events. The identification
process needs to involve staff from all levels of the business if possible, bringing a variety of
backgrounds and experiences to make a cohesive result. Risks that can be identified by work floor
staff will be very different and no less critical than those identified from the boardroom.
 Risk Assessment: Once the risks have been identified, they need to be assessed. This needs to be
done from both a quantitative and qualitative perspective and factors like the frequency and
severity of occurrence need to be taken into consideration. The assessment needs to prioritize the
management of these risks in relation to those factors.
 Measurement and Mitigation: Mitigating these risks (if not actually eliminating them altogether) is
the next stage, with controls put in place that should limit the company’s exposure to the risks and
the potential damage caused by them.
 Monitoring and Reporting: Any Operational Risk Management plan must have something in place
for the ongoing monitoring and reporting of these risks if only to demonstrate how effective the
plan has been. Most of all, it’s to ensure that the solutions put in place are continuing to be effective
and doing their job in managing the risks.
2.3 RBI GUIDELINES ON OPERATIONAL RISK MANAGEMENT
2.3.1 DEFINITION
Operational risk has been defined by the Basel Committee on Banking Supervision1 as the risk of loss
resulting from inadequate or failed internal processes, people and systems or from external events. This

of 62
definition includes legal risk, but excludes strategic and reputational risk. This definition is based on the
underlying causes of operational risk. It seeks to identify why a loss happened and at the broadest level
includes the breakdown by four causes: people, processes, systems and external factors.
The Basel Committee has identified the following types of operational risk events as having the potential
to result in substantial losses:
• Internal fraud - For example, intentional misreporting of positions, employee theft, and insider trading
on an employee’s own account.
• External fraud - For example, robbery, forgery, cheque kiting, and damage from computer hacking.
• Employment practices and workplace safety - For example, workers compensation claims, violation of
employee health and safety rules, organized labor activities, discrimination claims, and general liability.
•Clients, products and business practices - For example, fiduciary breaches, misuse of confidential
customer information, improper trading activities on the bank’s account, money laundering, and sale of
unauthorized products.
• Damage to physical assets - For example, terrorism, vandalism, earthquakes, fires and floods.
•Business disruption and system failures - For example, hardware and software failures,
telecommunication problems, and utility outages.
•Execution, delivery and process management - For example: data entry errors, collateral management
failures, incomplete legal documentation, and unauthorized access given to client accounts, non-client
counterparty misperformance, and vendor disputes.
2.3.2 ORGANIZATIONAL SET UP AND KEY RESPONSIBILITIES FOR OPERATIONAL
RISK MANAGEMENT
Organizational set up and culture
Ideally, the organizational set-up for operational risk management should include the following:
 Board of Directors
 Risk Management Committee of the Board
 Operational Risk Management Committee
 Operational Risk Management Department
 Operational Risk Managers
 Support Group for operational risk management

of 62
A typical organization chart for supporting operational risk management function could be as under:
BOARD OF DIRECTORS
(Decide overall risk management policy and strategy)
RISK MANAGEMENT COMMITTEE
Board Sub-Committee including CEO and Heads of Credit,
Market and Operational Risk Management Committees (Policy
and Strategy for Integrated Risk Management)
CREDIT RISK
MANAGEMENT
COMMITTEE
MARKET RISK
MANAGEMENT
COMMITTEE
OPERATIONAL RISK
MANAGEMENT
COMMITTEE
Chief Risk Officer
Credit Risk
Management
Department
Operational Risk
Management
Department
Market Risk
Management
Department
Business Operational
Risk Manager
Operational Risk
Management
Specialist
Department Heads

of 62
Board Responsibilities:
 The Board of Directors should be aware of the major aspects of the bank’s operational risks as a
distinct risk category that should be managed, and it should approve an appropriate operational risk
management framework for the bank and review it periodically.
 The Board of Directors should provide senior management with clear guidance and direction.
 The Framework should be based on appropriate definition of operational risk which clearly
articulates what constitutes operational risk in the bank and covers the bank’s appetite and
tolerance for operational risk. The framework should also articulate the key processes the bank
needs to have in place to manage operational risk.
 The Board of Directors should be responsible for establishing a management structure capable of
implementing the bank's operational risk management framework. Since a significant aspect of
managing operational risk relates to the establishment of strong internal controls, it is particularly
important that the Board establishes clear lines of management responsibility, accountability and
reporting. In addition, there should be separation of responsibilities and reporting lines between
operational risk control functions, business lines and support functions in order to avoid conflicts of
interest.
Senior Management Responsibilities:
 To translate operational risk management framework established by the Board of Directors into
specific policies, processes and procedures that can be implemented and verified within the
different business units.
 To clearly assign authority, responsibility and reporting relationships to encourage and maintain this
accountability, and ensure that the necessary resources are available to manage operational risk
effectively.
 To assess the appropriateness of the management oversight process in light of the risks inherent in a
business unit’s policy.
 To ensure bank’s activities are conducted by qualified staff with the necessary experience, technical
capabilities and access to resources, and that staff responsible for monitoring and enforcing
compliance with the institution’s risk policy have authority independent from the units they
oversee.
 To ensure that the bank’s operational risk management policy has been clearly communicated to
staff at all levels in the units that incur material operational risk.
2.3.3 IDENTIFICATION AND ASSESSMENT OF OPERATIONAL RISK
The types of control break-downs may be grouped into five categories:
 Lack of Control Culture - Management’s inattention and laxity in control culture, insufficient
guidance and lack of clear management accountability.
 Inadequate recognition and assessment of the risk of certain banking activities, whether on-or-off-
balance sheet. Failure to recognize and assess the risks of new products and activities or update the
risk assessment when significant changes occur in business conditions or environment. Many recent

of 62
cases highlight the fact that control systems that function well for traditional or simple products are
unable to handle more sophisticated or complex products.
 Absence/failure of key control structures and activities, such as segregation of duties, approvals,
verifications, reconciliations and reviews of operating performance.
 Inadequate communication of information between levels of management within the bank –
upward, downward or cross-functional.
 Inadequate / ineffective audit/monitoring programs.
Assessment of Operational Risk:
Effective risk assessment allows a bank to better understand its risk profile and most effectively target
risk management resources. Amongst the possible tools that may be used by banks for assessing
operational risk are:
 Self-Risk Assessment: A bank assesses its operations and activities against a menu of potential
operational risk vulnerabilities. This process is internally driven and often incorporates checklists
and/or workshops to identify the strengths and weaknesses of the operational risk environment.
Scorecards, for example, provide a means of translating qualitative assessments into quantitative
metrics that give a relative ranking of different types of operational risk exposures. Some scores
may relate to risks unique to a specific business line while others may rank risks that cut across
business lines. Scores may address inherent risks, as well as the controls to mitigate them.
 Risk Mapping: In this process, various business units, organizational functions or process flows are
mapped by risk type. This exercise can reveal areas of weakness and help prioritize subsequent
management action.
 Key Risk Indicators: Key risk indicators are statistics and/or metrics, often financial, which can
provide insight into a bank’s risk position. These indicators should be reviewed on a periodic basis
(such as monthly or quarterly) to alert banks to changes that may be indicative of risk concerns.
Such indicators may include the number of failed trades, staff turnover rates and the frequency
and/or severity of errors and omissions.
2.3.4 CAPITAL ALLOCATION UNDER OPERATIONAL RISK
The Basel Committee has put forward a framework consisting of three options for calculating
operational risk capital charges in a ‘continuum’ of increasing sophistication and risk sensitivity. These
are, in the order of their increasing complexity, viz., (i) the Basic Indicator Approach (ii) the Standardized
Approach and (iii) Advanced Measurement Approaches. Though the Reserve Bank proposes to initially
allow banks to use the Basic Indicator Approach for computing regulatory capital for operational risk,
some banks are expected to move along the range toward more sophisticated approaches as they
develop more sophisticated operational risk management systems and practices which meet the
prescribed qualifying criteria.
The Basic Indicator Approach - Reserve Bank has proposed that, at the minimum, all banks in India
should adopt this approach while computing capital for operational risk while implementing Basel II.
Under the Basic Indicator Approach, banks have to hold capital for operational risk equal to a fixed

of 62
percentage (alpha) of a single indicator which has currently been proposed to be “gross income”. This
approach is available for all banks irrespective of their level of sophistication. The charge may be
expressed as follows:
KBIA = [∑ (GI* α)]/n,
where
KBIA = the capital charge under the Basic Indicator Approach.
GI = annual gross income, where positive, over the previous three years
α = 15% set by the Committee, relating the industry-wide level of required capital to the industry-wide
level of the indicator.
n = number of the previous three years for which gross income is positive.
The Standardized Approach - In the Standardized Approach, banks‘ activities are divided into eight
business lines: corporate finance, trading & sales, retail banking, commercial banking, payment &
settlement, agency services, asset management, and retail brokerage. The total capital charge is
calculated as the simple summation of the regulatory capital charges across each of the business lines.
The total capital charge may be expressed as:
KTSA = {Σ 1-3 years max *∑ (GI1-8* β 1-8 ),0]}/3
Where:
KTSA = the capital charge under the Standardized Approach
GI1-8 = annual gross income in a given year, for each business lines
β1-8 = a fixed percentage, set by the Committee, relating the level of required capital to the level of the
gross income for each of the 8 business lines. The values of the β are detailed below:
Business Line Beta Factor
Corporate finance 18%
Trading and sales 18%
Retail banking 12%
Commercial banking 15%
Payment and settlement 18%
Agency services 15%
Asset Management 12%
Retail Brokerage 12%
Advanced Measurement Approach - Under AMA the banks are allowed to develop their own empirical
model to quantify required capital for operational risk. Banks can use this approach only subject to
approval from their local regulators. Once a bank has been approved to adopt AMA, it cannot revert to a

of 62
simpler approach without supervisory approval. Also, according to section 664 of original Basel Accord,
in order to qualify for use of the AMA a bank must satisfy its supervisor that, at a minimum:
 Its board of directors and senior management, as appropriate, are actively involved in the oversight
of the operational risk management framework;
 It has an operational risk management system that is conceptually sound and is implemented with
integrity; and
 It has sufficient resources in the use of the approach in the major business lines as well as the
control and audit areas.
AMA framework must include the use of four data elements: (i) Internal loss data (ILD), (ii) External data
(ED), (iii) Scenario analysis (SBA), and (iv) Business environment and internal control factors (BEICFs).
2.4 LITERATURE REVIEW
Crouhy, Gala, Marick have summarized the core principles of Enterprise wide Risk Management. As per
the authors Risk Management culture should percolate from the Board Level to the lowest level
employee. Firms will be required to make significant investment necessary to comply with the latest
best practices in the new generation of Risk Regulation and Management. Corporate Governance
regulation with the advent of Sarbanes-Oxley Act in US and several other legislations in various
countries also provide the framework for sound Risk Management structures.
Carl Felsenfeld outlined the patterns of international Banking regulation and the sources of governing
law. He reviewed the present practices and evolving changes in the field of control systems and
regulatory environment. The book dealt a wide area of regulatory aspects of Banking in the United
States, regulation of international Banking, international Bank services and international monetary
exchange. The work attempted in depth analysis of all aspects of Bank Regulation and Supervision.
Hannan and Hanweck felt that the insolvency for Banks become true when current losses exhaust
capital completely. It also occurs when the return on assets (ROA) is less than the negative capital-asset
ratio. The probability of insolvency is explained in terms of an equation p, 1/(2(Z2 ). The help of Z-
statistics is commonly employed by Academicians in computing probabilities.
Daniele Nouy elaborates the Basel Core Principles for effective Banking Supervision, its innovativeness,
content and the challenges of quality implementation. Core Principles are a set of supervisory
guidelines aimed at providing a general framework for effective Banking supervision in all countries.
They are innovative in the way that they were developed by a mixed drafting group and they were
comprehensive in coverage, providing a checklist of the principal features of a well-designed supervisory
system.
Patrick Honohan explains the use of budgetary funds to help restructure a large failed Bank/Banking
system and the various consequences associated with it. The article discusses how instruments can best
be designed to restore Bank capital, liquidity and incentives. It considers how recapitalization can be
modeled to ensure right incentives for new operators/managers to operate in a prudent manner
ensuring good subsequent performance It discusses how Government’s budget and the interest of the

of 62
tax payer can be protected and suggest that monetary policy should respond to the recapitalization
rather determine its design.
Jacques de Larosiere, former Managing Director of the International Monetary Fund discusses the
implications of the new Prudential Framework. He explains at length how the new Regulatory code
could have some dangerous side effects. The increased capital requirements as decided by the Basel
Committee on Banking Supervision in September 2010 will affect the amount of own funds would affect
the profitability of the Banks. The consequences of such increased capital requirements would
incentivize the Banks to transfer certain operations that are heavily taxed in terms of capital
requirements to shadow banking to avoid the scope of regulation. The risks of such a practice might
affect the financial stability.
William Allen of Cass Business School, City University London strongly criticizes the Basel Committee on
Banking Supervision announcement increasing the capital requirements as part of Basel III. The aims of
increasing the capital are two-fold. Firstly the objective is to increase the amount of liquid assets held
by Banks and reduce their reliance on short term funding. It also aims at limiting the extent to which
Banks can achieve maturity transformation.
Abel Mateus which appeared also in the IUP Journal of Banking & Insurance Law, Vol. VIII, Nos.1 & 2,
2010 made a thorough study of the Regulatory reform requirements in the modern context after the
global meltdown. He starts by summarizing the basic principles that should be covered in the financial
reforms. He reviews the progress achieved by the Financial Stability Board (FSB) and Basel Committee
on Banking Supervision. He discusses the unresolved issues like the relationship between competition
policy and financial stabilization policies. He throws particular light on the oft quoted ‘Too-Big-To-Fail’
(TBTF) concept.
Bessone, Biagio feels that Banks are special as they not only accept and deploy large amounts of
uncollateralized public funds in a fiduciary capacity, but also leverage such funds through credit
creation. Thus Banks have a fiduciary responsibility. Banks play a crucial role in deploying funds
mobilized through deposits for financing economic activity and providing the lifeline for the payments
system. A well regulated Banking System is very central to the country’s economy. The author
examines the way Banking and other financial institutions interact with each other during different
stages of economic development.
Rekha Arunkumar and Koteshwar feel that the Credit Risk is the oldest and biggest risk that Banks, by
virtue of their very nature of business inherit. The pre-dominance of credit risk is the main component
in the capital allocation. As per their estimate credit risk takes the major part of the Risk Management
apparatus accounting for over 70 per cent of all Risks. As per them the Market Risk and Operational Risk
are important, but more attention needs to be paid to the Credit Risk Management in Banks.

of 62
3. DESIGN OF THE STUDY
3.1 BACKGROUND
Operational Risk has gained importance in MFI business. With the burgeoning growth in the
Microfinance business, the good impact of micro-lending to the masses is coming at a cost of higher
operational risks.
The various risks that the micro-lending business is exposed can be broadly categorized as Market Risk,
Credit Risk, Operational Risk, and Strategic risk. Of these, market and credit risk which can together be
classified as financial risks, are the apparent risks and mostly caused by external factors. Amongst the
other risks, the key ones are Operational Risk and Strategic risk.
With the unearthing of financial scams and frauds and increasing usage of technology, the concept and
identification of operational risks have gained tremendous importance. Basel Committee on Banking
Supervision defines operational risk as the risk of direct or indirect loss resulting from inadequate or
failed internal processes, people and systems or from external events.
Microfinance bodies are built on the business model of taking financial risks and attaining the return
tantamount to that risk. Financial risk cannot be avoided but monitored and mitigated to attain the
required return. The amount of financial risk is also dependent on market factors.
Operational risks, however, arise from poor processes, resources, policies, and failure of control
systems. These risks when they go undetected and unchecked can lead to heavy unplanned losses.
Globally, there is now a greater emphasis on how financial and operational risks are interlinked.
Operational risk events that can create massive financial and credibility issues cannot be ignored.
3.2 MANAGEMENT PROBLEM
Cashpor works on Joint Liability Group (JLG) model under which BPL women are selected through our
poverty selection tools named Cashpor House Index (CHI) and Progress out of Poverty Index (PPI). The
households securing lower marks under these measurement tools are eligible to become member of JLG
group. Size of group ranges from 10 to 25 members. Once group is formed, the group selects a group/
center leader from amongst the targeted members and group starts holding of weekly group meetings
where loan proposals are taken and loan installment are collected. Loans are given to individual
members as per requirement of activities undertaken or proposed to be undertaken by the client/
member.
The entire process of loan disbursement and collection of installments happen away from the office.
There are various operational risks that Cashpor has to manage. Risks of internal frauds, external frauds,
pipelining, system failures etc. are prevalent. Thus the management needs to keep a check upon the
entire process from the forming of JLG to loan disbursement and then collection of installments to avoid
operational risks like these.

of 62
3.3 OBJECTIVES
 To bring to light the various Operational risks involved in Cashpor Micro Credit.
 To understand the process control mechanism of Cashpor Micro Credit.
 To understand the process of Operational Risk Management in Cashpor Micro Credit.
 To analyze the financial statements of Cashpor Micro Credit to assess its true financial position by
the use of ratios.
3.4 RESEARCH METHODOLOGY
Research methodology is the specific procedures or techniques used to identify, select, process, and
analyze information about a topic. The methodology section allows the reader to critically evaluate a
study’s overall validity and reliability.
The research methodology used here is Qualitative Research and Descriptive Research.
Qualitative research is a process that is about inquiry. It helps create in-depth understanding of
problems or issues in their natural settings. This is a non-statistical method.
Qualitative research is heavily dependent on the experience of the researchers and the questions used
to probe the sample. The sample size is usually restricted to 6-10 people. Open-ended questions are
asked in a manner that encourages answers that lead to another question or group of questions. The
purpose of asking open-ended questions is to gather as much information as possible from the sample.
3.5 SOURCES OF DATA
Sound research depends upon the existence of facts or directly related to problem studied. To fulfill a
foresaid objective of study, the information was gathered from primary as well as secondary sources.
 Primary Data Sources- One on one interview with the employees of Cashpor Micro Credit.
 Secondary Data Sources- Content analysis of various documents and website of Cashpor Micro
Credit.

of 62
4. ANALYSIS AND INTERPRETATION
4.1 OPERATIONAL RISKS INVOLVED IN CASHPOR MICRO CREDIT
4.1.1 INTERNAL FRAUDS
Internal Frauds refers to losses due to acts of a type intended to defraud, misappropriate property or
circumvent regulations, the law or company policy, excluding a diversity / discrimination event, which
involves at least one internal party.
Internal frauds can be classified as:
 Unauthorized activities like transactions not reported (intentional), Trans type unauthorized
(monetary loss) and mismarking of position (intentional).
 Theft and Fraud activities like fraud/ credit fraud /worthless deposits, theft / extortion /
embezzlement / robbery, misappropriation of assets, malicious destruction of assets, forgery,
Cheque kiting, Smuggling, Account take-over / impersonation /etc., Tax non-compliance /evasion
(willful), bribes/ kickbacks and Insider trading (not on bank’s account).
4.1.2 EXTERNAL FRAUDS
External Frauds refers to Fraud losses due to acts of a type intended to defraud, misappropriate
property or circumvent the law, by a third party.
External frauds can be classified as:
 Theft and Frauds like theft/ robbery, forgery and Cheque kiting.
 Systems Security like hacking damage and theft of information.
4.1.3 EMPLOYMENT PRACTICES AND WORKPLACE SAFETY
Employment Practices and Workplace Safety includes losses arising from acts inconsistent with
employment, health or safety laws or agreements, from payment of personal injury claims, or from
diversity / discrimination events.
Employment Practices and Workplace Safety risks can be classified as:
 Employee Relations risks like Compensation, benefit and termination issues and Organized
labor activity
 Environmental safety risks like General liability (Workplace accidents - slip & fall etc),
Employee health & safety rules events and Workers compensation
 Diversity and discrimination risks
4.1.4 CLIENTS, PRODUCTS AND BUSINESS PRACTICES
Clients, Products & Business Practices risks refers to the losses arising from an unintentional or negligent
failure to meet a professional obligation to specific clients (including fiduciary and suitability
requirements), or from the nature or design of a product.

of 62
Clients, Products & Business Practices risks can be classified as:
 Suitability, Disclosure & Fiduciary risks like Fiduciary breaches / guideline violations, Suitability /
disclosure issues (KYC etc), Retail consumer disclosure violations, Breach of privacy, Aggressive sales,
Account churning, misuse of confidential information and Lender Liability.
 Improper Business or Market Practices risks like antitrust, Improper trade / market practices, market
manipulation, Insider trading, unlicensed activity and money laundering.
 Product flaws like product defects (unauthorized etc.) and Model errors.
 Selection, Sponsorship & Exposure risks like Failure to investigate client per guidelines and
exceeding client exposure limits.
 Advisory activities like disputes over performance of advisory activities.
4.1.5 DAMAGE TO PHYSICAL ASSETS
Damage to Physical assets refers to losses arising from loss or damage to physical assets from natural
disasters or other events. It also includes human losses from external sources (terrorism, vandalism).
4.1.6 BUSINESS DISRUPTIONS AND SYSTEM FAILURES
Business Disruptions and system failure risks refers to losses arising due to disruption of business or
system failures. System failures include hardware, software, telecommunications and utility outrage /
disruptions.
4.1.7 EXECUTION, DELIVERY AND PROCESS MANAGEMENT
Execution, delivery and process management risk refers to losses from failed transactions processing or
process management, from relations with trade counterparties and vendors.
Execution, delivery and process management risk can be classified as:
 Transaction Capture, Execution Maintenance risks like miscommunication, data entry, maintenance
or loading error, missed deadline or responsibility, model / system misoperation, accounting error /
entity attribution error, delivery failure, collateral management failure and reference data
maintenance.
 Monitoring and Reporting risks like failed mandatory reporting obligation and inaccurate external
report (loss incurred).
 Customer intake and documentation risks like client permissions /disclaimers missing and Legal
documents missing / incomplete.
 Customer -client account management risks like unapproved access given to accounts and incorrect
client records (loss incurred).
 Trade Counterparties risks like non client counterparty misperformance and misc. non-client
counterparty disputes.
 Vendors & Suppliers risks like outsourcing and vendor disputes.

of 62
High Priority Risks- Internal Frauds; Execution, delivery and process management.
Medium Priority Risks- External Frauds; Clients, Products and Business Practices; Business disruptions
and system failures.
Low Priority Risks- Employment Practices and Workplace safety; Damage to Physical Assets.
Types of Operational Risks
Unit
Internal
Fraud
External
Fraud
Employment
Practices &
Workplace
Safety
Clients,
Products
and
Business
Practices
Damage to
Physical
Assets
Business
Disruption
s &
System
Failures
Execution,
Delivery and
Process
Management
Management H L H H L L L
Front Office L H L M L L H
Accounting H L M L M H L
IT H L M L M H L
Administration L L L L H M L
HR M L H L L L H
Finance H L L M L L H
4.2 PROCESS CONTROL MECHANISMS
4.2.1 SELECTION OF VILLAGES
Following the Cashpor Training Manual on Cost-effective Targeting, work is started in villages that have
a sufficient number of poor households to make possible the establishment of a full Centre comprising
20-25 poor women. Only about half of poor households are expected to become clients, there should be
at least forty to fifty poor households in the village.
Identification & Classification of Poor Households: The number of poor households in a village is
determined by using CASHPOR House Index (CHI). Each house in a village is viewed systematically from
the roadside. Large (pucca) houses made of brick or concrete and having re-enforced concrete or tile
roofs that are unlikely to contain poor households are excluded. Small (kacha) houses made from
inexpensive materials and not having a permanent roof, that is, houses that score 4 or less on the CHI
are listed. The whole village is covered in this way, and the number of potentially poor households is
determined. If this number is forty or more, the next step in our process of cost-effective targeting of
the poor can commence.

of 62
Housing Index for Identification & Classification of the Poor
If any household member has any type of motor vehicle, like a motor bike, car, jeep, van, tractor, hand
tractor, etc.; or a Pucca house built with brick walls and a re-enforced concrete roof (excluding the
Government allotted houses), then automatically the household is not eligible for our program. No
Form No.1 is to be filled-in for such cases, unless they appeal that despite their motor vehicle or big
house they are below the poverty-line income (BPL). In such cases, complete the PPI. If the household
scores less than 25, tell them they are eligible and fill-in Form No.1.
The revised Housing Index has only two indicators:
Height of the Walls and Materials Used:
i) More than 5 feet and made of brick
ii) More than 8 feet and made of Mud
iii) Less than or equal to 8 feet but more than 4 feet Mud
Score
4
2
1
Materials of Roof:
i) Concrete/Pucca/Patia/New Tiles/GI Sheet
ii) Old Tiles/GI Sheet
iii) Thatch/ Straw/ Plastic/Leaves
Score
2
1
0
Maximum Score 6
Poverty Status
i) Non Poor
ii) Moderately Poor (MP)
iii) Very Poor (VP)
4 or more
3
2 or less
If the House Index Score is equal to or less than 4 and for the occupants of Government allotted
houses, then administer the Progress-Out-of-Poverty Index (PPI)
Progress Out of Poverty (PPI)
S.No Indicator Value Points Score
1. How many people aged 0 to 17
are in the household?
A. Four or more
B. Three
C. Two
D. One
E. Zero
0
7
11
17
26
2. What is the general education
of the male head/spouse?
A No male head/spouse
B. Not literate, no formal school, or
primary of below
C. Middle
D. Secondary or higher secondary
E. Diploma/certificate course,
0
0
3
5
7

of 62
graduate or postgraduate & above
3. What is the household type? A. Labor (agricultural, casual or
other)
B. Self-employed (agriculture or non-
agriculture), regular wage/salary-
earning, or others
0
5
4. What is the primary source of
energy for cooking?
A. Firewood and chips, dung cake,
kerosene, charcoal, coke or coal,
gobar gas or others
B.LPG or electricity
C. No cooking arrangement
0
3
9
5. Does the household possess
any casseroles, thermos or
thermoware?
A. No
B. Yes
0
5
6. Does the household possess a
television and a VCR/VCD/DVD
player?
A. No
B. Yes, only one
C. Yes, both
0
4
9
mobile handset and a
telephone instrument
(landline)?
A. No, neither one
B. Yes, only a mobile
C. Yes, a landline, regardless of
mobile
0
9
15
8. Does the household own a
sewing machine?
A. No
B. Yes
0
1
9. Does the household own an
almirah/dressing table
A. No
B. Yes
0
5
bicycle, motorcycle/scooter or
motor car/jeep?
A. No, none
B. Yes, bicycle only, no
motorcycle/scooter or car
C. Motorcycle/scooter, but no car
(regardless of bicycle)
D. Motor car/Jeep (regardless of
others).
0
1
13
18
Households that score 24 points or less on the PPI have a 90.2% likelihood of having an income of less
than US$1.50 per person per day at 2005 prices (purchasing power parity), and are eligible for Cashpor’s
services. They should be informed immediately of their eligibility, and asked to form a Centre with
minimum 15 eligible BPL women in the village, whom they can trust in financial matters.

of 62
4.2.2 GROUP FORMATION
Centre Manager will select the potential village in their operational area on the basis of number of poor
(BPL) households which will be ascertained through quick village walk-about and general discussion with
villagers. They should begin with the harijan basti if any, and walk around it applying the CASHPOR
House Index. Eligible houses should be visited to administer the Progress Out of Poverty Index (PPI)
questions. CMs will motivate BPL households to form a Centre of at least 15 eligible women. After the
Centre is formed they will start group training (CGT), which will be of five days duration. Centers should
be filled, with 25 members, within 6 months of formation, and maintained at that level thereafter.
Continuous Group Training (CGT): CGT will be held for 1 hr. for five consecutive days on the same time
at same place and CM will minute the training proceedings in the Centre Attendance Register. The
components of the CGT are given below day-wise:
 First Day: Centre Manager will motivate centre members to purchase a Centre Attendance
Register through contribution of all the potential members. Then s/he will explain the Vision and
Mission of the Company and will start training them on how to write their signature. Center
Manager will also explain the different products (Credit, Savings, PFRDA) and its features.
 Second Day: CM will conduct financial literacy program and make them literate on financial
issues such as Credit (Sources of credit, good loan and bad loan), Savings (Sources of savings,
importance of Savings, banking terms i.s nominee, pin, Okekey etc.) Pension (Importance of
pension plan).
 Third Day: CM will train about rules and regulations of the Company viz. name of the Company,
loan eligibility criteria, the annual effective cost of funds to them in rupees per hundred per
month and weekly installments of different loan amount. As well as CM will train them about
guarantors, compulsory attendance in weekly meeting and no cash policy.
 Fourth Day: CM will train them about weekly repayments, pre-payments, collective
responsibility of centre members in case of delinquency at the Centre, eligibility for loan re-
scheduling and grievance redressal procedure, pointing out explicitly that it can be used in any
cases of suffering from harsh collection tactics or words. Center Manager will also trained them
on different process of Savings and Pension such as deposit, withdrawal, interest, and important
rules and regulation.
 Fifth Day: CM will repeat the entire training contents and if s/he find things satisfactory the
Centre Leader and Deputy Centre Leader will be elected, trainee clients will be asked to wait at
their house for the BM for GRT on the appointed day.
Conducting the Group Recognition Test (GRT): GRT is the final stage of quality control in targeting of
the poor. It is a check on the identification of poor households and on the quality of client training under
CGT. GRT can be carried out only by an authorized officer of the rank of Branch Manager/Area Manager
or higher. It is to be carried out at times and in places acceptable to the prospective clients.
GRT Procedure: On the day of GRT, CM will take the BM/AM to the houses of the trainee clients,
starting with that of the Centre Leader who will be asked to accompany them to the houses of the other
trainees. BM will visit the houses of every member to verify the poverty status through the PPI, and he

of 62
will also secure the agreement of the husband as guarantor. All the clients of the Centre will be
guarantor for each and every client and there will be guarantee agreement for JLG, which has to be
signed at the time of loan disbursement by each and every loan client for each and every loan
disbursement. For execution of JLG agreement, BM will rely on the CM and CM need to take the
signature of all clients on JLG agreement prior to each and every loan disbursement, after reading the
contents of the guarantee sheet before them. The JLG agreement will require a revenue stamp of one
rupee. After all houses have been visited, and only if all households are in the poverty group that is
below 25 on the PPI the CM and CL will gather all the trainees. First of all, BM checks their seating
arrangements as they required to sit in U-shape, then check the Centre Attendance Register and see
whether all the rules and regulation regarding the credit program have been taught or not. After that,
BM will ask the name of the Institution they are going to borrow from, amount of loan they are
requesting, weekly installments of the loan requested, interest rate in rupees per hundred per month,
number of installments to be repaid, loan duration, grace period, importance of timely weekly
repayments and no tolerance of arrears policy (NTAP), role of Centre members in case of non-payments
of weekly installment of any of the Centre members, project/activity for which they will require money,
who will run the project and their experience, their ability to repay from current source of income,
guarantors and their role in case of non-payments of loan installments etc.
All questions must be put to prospective clients. The Client Pledge must be recited individually by each
prospective client, and the Group cannot pass until its members can do so. After having got satisfactory
response on all topics, BM will give his/her decision on recognition of the group as a CASHPOR Centre. If
the group fails to get recognition, the reasons should be given by the BM, and re-training should be
scheduled.
Loan Approval: If the group has been recognized as a Centre, then the first loanees should be selected
and their loan proposals approved. BM will approve the first loans up to Rs.10,000/-, second loans up to
Rs.14,000/-, third loans up to Rs. 18,000/- and subsequent loans up to Rs.25,000/- respectively. Any
loans will be approved by BM. Loan sizes should conform to pre-printed pass book amounts and such
passbooks should be used for all normal loans, and whenever possible in cases of re-habilitation. Blank
passbooks can be used only in special cases and with the permission of the AM. The appropriate loan
passbooks will be distributed. No loan can be disbursed without a passbook. The Know Your Client (KYC)
details must filled-in with the assistance of the CM and BM.
4.2.3 LOAN DISBURSEMENT PROCESS
 Loan disbursement takes place at the Branch Offices usually but not always on the afternoon of the
Centre Meeting day, commencing at 2:00 pm.
 As collection at Branches will be done daily on a cash basis and completed by 1:00 pm,
disbursement should also be in cash, so as to minimize the cash-in-hand in the Branch. It should
begin at 2:00 pm. Due disbursement that is not likely to be covered by collections must be drawn
from the servicing bank, according to instructions.

of 62
 Only due disbursements listed in the appropriate Centre file and found in the mobile phone of the
concerned CM can be made.
 Clients must be identified against photos on the back of their GRT form/front of their Loan
Passbook, and signatures on its front. The concerned CM and Centre Leader/Deputy Centre
Leader/deputed sister client of the same Centre must be present as witnesses, and sign on the
Disbursement Register.
 The BM must make the disbursement directly to the client, making the following statement, “Please
be reminded i) to use the loan only for the activity approved, ii) to repay weekly to keep your record
clean so that you will be able to get a subsequent loan, iii) that any pre-payment must be for the full
balance owing and can be made only in person at this office in presence of BM only with BM signing
the receipt, and iv) if you have any grievances/complaints that are not settled at this office, you can
telephone our Head Office at the number on your Centre file/Loan Passbook.” Then both the BM
and the CM sign on the Disbursement Register for each and every disbursement.
 AM/DRM/RM present at the disbursement will sign on the Disbursement Register at the end of the
disbursement, as a witness of it. BM must ensure that he has all the required documents in front of
him before making any disbursement.
4.2.4 CASH COLLECTION PROCESS AT BRANCHES
 Centre Managers will take their mobile phone to the scheduled Centre meetings each day, and will
enter any due collections not received (after making all proper efforts at collection). Collections
made are to be indicated in the Passbooks of the clients by affixing the initials of the CM with the
appropriate date. Compute the total collected, write it on the Attendance Register and the double
receipt, affixing his/her initials. Hand the collection to the Centre Representative (CR), and take a
receipt giving a copy to CR. Field staff cannot carry any collection cash to the branch or anywhere
else, without written permission of the RM.
 CM will carry all copies of the collection receipts back to the Branch office after completing the
Centre Meetings for the day.
 If the CR arrives at the Branches before the CM returns, the BM will accept the collection, provided
it is the same as the amount on the receipt carried by the CR.
 If there is any discrepancy, it must be settled immediately with the CR, after which the carbon copy
of the Branch receipt should be given to the CR, with the original retained.
 Amounts realized at the Branches office are to be entered immediately on the white/blackboard,
next to the appropriate due collection. Please note that the white/blackboard is for the use of the
Branch staff to monitor the collection. It should not be on public display.

of 62
 When the Centre representatives come to the branch with weekly due collection they must be
served courteously and in the order that they came. A covered area and bench must be provided for
Centre Representatives to wait for their turn.
 Cash must be kept in a locked drawer, arranged according to denomination, immediately after the
collection is complete.
 Daily Closing of the CASH Book: The cash book cannot be closed until and unless it is ensured by BM
that due collection from all the Centers scheduled to meet that particular day, has been received. If
due to some problems, the collection of any Centre was not received in full by 1:00 PM, then after
any scheduled disbursement, the BM along with the CM concerned must go to the Centre
concerned, and ensure that the due collection is received in full.
 At the end of the collection of that particular day BM will total the collections due in his/her mobile
phone, and tally the cash with the total. Any cash shortage arising on account of errors in cash
collection is to be made-up immediately by the two officer concerned with 60% being paid by the
BM and 40% by the deputed CM. Then the cash collection is to be entered in the Cash Book which is
to be signed by both staff. If there is to be disbursement that day, then the cash can be kept in the
locked cash drawer. After any disbursement, the Cash Book will be closed, and signed by both
officers.
Cash Holding Limit & Excess Cash : On days of no or small disbursement the collection (cash) should be
deposited in the servicing bank by the BM when it exceeds Rs.15,000/- meaning BM cannot keep more
than Rs 15,000/- cash overnight. If the bank is closed for any reason (bank strike or weekly non-banking
day), and no disbursement is due, amounts of more than Rs. 15,000 may have to be kept over-night. On
such occasions, the BM and all CM are jointly-responsible for guarding the total amount, and none of
them are permitted to leave the station.
4.2.5 LOAN UTILIZATION CHECKING (LUC)
Loan utilization checking is an important job for the CM and BM. It is mandatory for them to carry out
LUC which is to be done in accordance with most recent staff circular, with the required Report being
completed and entered into the data base.

of 62
4.3 OPERATIONAL RISK MANAGEMENT PROCESS IN CASHPOR MICRO CREDIT
4.3.1 ORGANIZATIONAL STRUCTURE

of 62
4.3.2 RISK DEPARTMENT
Responsibilities of Risk Department
The general responsibilities of Risk Department are mentioned below:
(A) Risk governance:
 Risk team will be reporting & working directly with Board level Risk Committee ( BLRC )
 Checking adherence to the processes, identification of risks in entering new geographies and a
limited credit appraisal. Risk Department will be involved in proactive risk identification and
assessment/ review of control system, processes and policies across all departments of the
company.
 Coordinating with ICT for designing system alert on control violation and also for developing
reporting system for the Risk Department.
 Identifying the steps taken and evaluating the Risks of different department with in the entire
company along with the preparation & implementation of policy to measure the Risk identified.
 Defining Risk Guidelines for IT, Insurance, HR, Liquidity, Administration, HEST, Accounting
processes, Finance & Market related Risks & other departments etc.
 Introducing additional checks identify Key Risks Indicators for various Risk events in the
Organization and also self-assessment process for the identification of Risk and assessment of
corresponding control systems.
(B) Credit & Operational Risks:
 Designing a Credit Risk Scoring Tool and get integrated with MIS to incorporate observation
made by Risk Functionaries.
 Formulation of a policy to define steps in case the clients after availing the loan under NGS &
giving undertaking for not borrowing from other MFIs , still takes loans from other MFI .
 Carry out Risk control self-assessment process and identification of key Risks indicators on
regular basis.
 Data mining on parameters such as temporal analysis of LUC, loan rejections/reduction in loan
size by various authorities and their reasons, comparison of data among various loan cycles,
loan sizes, BC vs OWN and across geographies ,branches and such other socio-economic
parameters to provide inputs for credit scoring and expansion plans.
 Capturing reasons for loan rejections/loan reduction for providing valuable insights on the
quality of loan applications and appraisal as well as for identification of risk at various
Branches/geographies.
 Coordinate ICT to introduce system logic to auto reject or hold loan applications for cases not
meeting the required borrowing conditions and capturing the data for rejected/hold
applications to analyse the emerging trends and issues.
 To familiarize its entire staff with the vision & Mission of the Company , Operation Manual of
CMC and its official Business Plans from time to time.
 Verification of Audit Compliance done by branches.

of 62
 To search and suggest the ways to prevent the leakage in targeting, Pipelining of loans, clients’
borrowing from other MFIs, the danger of over indebtedness, fraud /theft incidences.
 Designing an effective Risk Mitigation Tool and processes so as to weed out such practices out
from the system and implement the same.
(C) Liquidity and Interest rate Risk:
Since Cashpor’s dependence on Banks as a sector is high, therefore Risk department will carry out
Scenario analysis and stress tests on its liquidity to assess liquidity risk and segregate its sources of funds
in terms of their consistency and Plan for contingencies.
Reporting structure in Risk department: For Control & Management of Operational Risk, the Risk
department will be operating in all branches of five zones of CMC and will be headed by Chief Risk
Officer (CRO), who will be assisted by one Executive Assistant at head office & five Zonal Risk Officer
(ZRO) who will handle five Zones. Three Area Risk officer (ARO) are posted in each region and thus each
DRO will be supervising Area Risk officer (ARO) of the Concerned two Regions under his jurisdiction. ARO
will participate in the fortnightly meetings convened by Cluster Heads- Impact & Business and will
discuss his findings/observations during branch visits and suggest measures to mitigate the risk, if any,
found.
At Regional level all the Six Area Risk officers (ARO) will report to the Divisional Risk officer. All Divisional
Risk officer (DRO) will reside near the Regional office in their concerned region. The DRO will assist the
AROs in identifying and managing the risks. The findings of AROs and steps taken will be recorded by
DRO on the note Pad on priority basis. Serious type risks that cannot be managed by DRO will be
escalated to a Zonal Risk Officer (ZRO) who will report to the Chief Risk officer (CRO) at Head office. DRO
must attend the monthly meetings, chaired by Regional Managers operations. For this purpose the
concern Regional Manager will organize monthly meeting with consultation by Divisional Risk officer
(DRO) and also DRO will ensure that the monthly meeting of two regions not to be clash on same day.
Divisional risk officer (DRO) will participate in the monthly meeting of region and for this he must share
his agenda & important critical findings / suggestions at least three days prior to Region’s monthly
meeting, must ensure that the action has been taken , if not taken then escalate this findings with both
chain of supervisors of Risk department & operations .Regional Manager & Divisional risk officer (DRO)
must ensure that the functional coordination between the operation & Risk Vertical are fine and there
must not be information gap . Also the Chief Risk officer (CRO), Executive Assistant & all Five ZRO shall
be the members of the fortnightly HOT meetings. Executive Assistant will summarise the Agenda shared
by the Five Zonal Risk officers (ZROs) and important critical findings / suggestions and must ensure the
action taken in this regard & if action is not taken then escalate the matter in Management Level Risk
Committee & give this in knowledge of Managing Director & Chairman. Executive Assistant will share
this summarized Agenda of Risk department with the Executive Assistant HOT for the discussion in the
fortnightly HOT meeting. Serious Risk related findings will be reported by the CRO to the chairperson of
the Risk Committee of the Board. Reporting officer of CRO will be the Chairperson of Risk Committee of
the board.

of 62
Risk Monitors:
 Loan Utilization Checked By CM(Centre Manager)
 Utilization Check By Branch Manager
 Centre visit of CM by BM
 Portfolio at Risk (PAR) >30
 Rejection Ratio of Loan Approval
 Cash Carry from Centres
4.3.3 AUDIT COMMITTEE
Organizational Structure of Internal Audit Department (IAD):
The Internal Audit Department comprises of 66 staff officers of various categories, having experience of
the organization, qualification of Graduation with average age of 35 years .The entire IAD staff consists
of one IAD Head and by 02 Deputy Heads (One on hold), assisted by 03 Zonal Heads, one EA & 02 Inquiry
officers at IAD Head office level and 57 auditors posted in the field in 29 Regions. Each Region is headed
Chairperson of Audit Committee
Head of Audit
Inquiry Officers EA-IAD
Deputy Head Deputy Head Deputy Head
Zonal
Head
Zonal
Head
Zonal
Head
Zonal
Head
Zonal
Head
Zonal
Head
Regional Audit Manager (RAM)
Audit Subordinate

analysis of operational risks in cahspor micro credit

analysis of operational risks in cahspor micro credit

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to analysis of operational risks in cahspor micro credit

Similar to analysis of operational risks in cahspor micro credit (20)

Recently uploaded

Recently uploaded (20)

analysis of operational risks in cahspor micro credit