MFI Analysis: Cashpor


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Created as a midterm project for a Johns Hopkins School of Advanced International Studies (SAIS) graduate-level course on Microfinance and Development. Task was to analyze a microfinance institution and discuss its history, business model, and provide an overview of its financial position. Created Summer 2008.

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  • Look up the difference b/w NGO and NBFI according to Mix Market
  • MFI Analysis: Cashpor

    1. 1. CASHPOR Micro Credit
    2. 2. CASHPOR Financial and Technical Services (CFTS) <ul><li>Founded September 1996 as a financial company </li></ul><ul><li>Designed to give access to financial services, specifically microcredit, to poor rural women. </li></ul><ul><li>Alternative to existing money lenders. </li></ul><ul><li>First operations in India took place in mid 1997 in the Mirzapur District of Uttar Pradesh. </li></ul>
    3. 3. CASHPOR Micro Credit <ul><li>CASHPOR Micro Credit (CMC) was created in December 2002 as result of a need to become a Section 25 nonprofit. </li></ul><ul><li>CMC is a registered NGO, structured with a nine-person Board of Directors </li></ul><ul><li>The Board is absolutely independent and active in decision-making on all important policy matters. </li></ul>
    4. 4. CASHPOR TRUST CASHPOR Financial and Technical Services, Ltd. (CFTS) CASHPOR Micro Credit (CMC) CASHPOR Financial Services (CFS) <ul><li>BOARD OF DIRECTORS, CASHPOR MICRO CREDIT </li></ul><ul><ul><li>Prof. David S. Gibbons, Chairman </li></ul></ul><ul><ul><li>J. S. Tomar, formerly with Oriental Bank of Commerce and Ex -OSD </li></ul></ul><ul><ul><li>Sanjay Das Gupta, People's Institute for Development & Training (PIDT) </li></ul></ul><ul><ul><li>S. K. Soni, Centurion Bank of Punjab </li></ul></ul><ul><ul><li>Moumita Sen Sarma, ABN AMRO Bank </li></ul></ul><ul><ul><li>A. R. Samal, Small Industries Development Bank of India (SIDBI) </li></ul></ul><ul><ul><li>Somnath Ghosh, Indian Institutes of Management </li></ul></ul><ul><ul><li>Vijay Lakshmi Das, Friends of Women’s World Banking </li></ul></ul><ul><ul><li>J. N. L. Srivastava, Indian Farmers Fertilizer Cooperative Foundation </li></ul></ul>CASHPOR Group
    5. 5. CASHPOR Mission and Vision <ul><li>Mission: Significantly reduce hard-core poverty in the Asian region </li></ul><ul><ul><li>Scale-up existing credit and savings programs </li></ul></ul><ul><ul><li>Focus on women below the poverty line </li></ul></ul><ul><ul><li>Focus on rural areas </li></ul></ul><ul><ul><li>Promote new, sustainable Grameen Bank-type replications </li></ul></ul><ul><ul><li>Deliver financial services in an honest, timely, and efficient manner </li></ul></ul><ul><li>Goal: Serve 1 million women by 2010 </li></ul>
    6. 6. To Target or Not to Target <ul><li>How does CASHPOR target the poor in a cost-effective way? </li></ul><ul><ul><li>“ It costs too much to do” argument </li></ul></ul><ul><ul><ul><li>Rural villages </li></ul></ul></ul><ul><ul><ul><li>Higher transaction costs </li></ul></ul></ul><ul><ul><ul><li>Least profitable clients </li></ul></ul></ul>
    7. 7. Achieving Institutional Financial Self-Sufficiency (IFS) <ul><li>In order to achieve IFS, the targeting methodology must: </li></ul><ul><ul><li>Exhibit innovation and creativity </li></ul></ul><ul><ul><li>Be based on experience </li></ul></ul><ul><ul><ul><li>Raising awareness and providing motivation </li></ul></ul></ul><ul><ul><li>Be cost-efficient </li></ul></ul><ul><ul><ul><li>Utilization of technology </li></ul></ul></ul>
    8. 8. The CASHPOR House Index (CHI): Visual Indicators of Poverty <ul><li>Identify high-density poverty areas </li></ul><ul><li>Eliminate obvious non-poor households </li></ul><ul><li>Map the community’s poor households </li></ul><ul><li>Administer the “Net Worth” test </li></ul>The CASHPOR House Index (CHI) uses external housing conditions as a proxy for poverty
    9. 9. Choosing and Mapping a Community <ul><li>CASHPOR’s Target: Women </li></ul><ul><ul><ul><li>Relative marginalization and poverty </li></ul></ul></ul><ul><ul><ul><li>Loan utilization </li></ul></ul></ul><ul><ul><ul><li>Credit discipline </li></ul></ul></ul><ul><ul><ul><li>Accessibility </li></ul></ul></ul><ul><ul><ul><li>Repayment </li></ul></ul></ul><ul><li>Existing Data </li></ul><ul><ul><ul><li>National and Local Government </li></ul></ul></ul><ul><ul><ul><li>NGOs </li></ul></ul></ul><ul><ul><ul><li>Other sources </li></ul></ul></ul><ul><ul><ul><li>The Malaysian experience </li></ul></ul></ul>
    10. 10. CASHPOR House Index <ul><li>CASHPOR House Index </li></ul><ul><li>Structural condition: </li></ul><ul><li>Category Points </li></ul><ul><li>Dilapidated 0 </li></ul><ul><li>Average 2 </li></ul><ul><li>Good 6 Adaptation to South India </li></ul><ul><li>Quality of walls: Height and materials of walls: </li></ul><ul><li>Category Points Category Points </li></ul><ul><li>Poor 0 < 4 feet mud 0 </li></ul><ul><li>Average 2 4 feet mud 2 </li></ul><ul><li>Good 6 > 5 feet 6 </li></ul><ul><li>Quality of roof: Quality of roof: </li></ul><ul><li>Category Points Category Points </li></ul><ul><li>Thatch/Leaves 0 Thatch/Leaves 0 </li></ul><ul><li>Tin Iron sheets 2 Tin/Iron sheets 2 </li></ul><ul><li>Permanent roof 6 Tiles and other 6 </li></ul><ul><li>good materials </li></ul><ul><li>Field Staff conduct walk-through </li></ul><ul><ul><li>Visual indicators </li></ul></ul><ul><ul><li>Indexing/scoring </li></ul></ul><ul><ul><li>Establishing cut-offs </li></ul></ul><ul><li>The following cut-off points can be a suitable guide in determining eligibility: </li></ul><ul><li>3 or less: Likely to be Very Poor </li></ul><ul><li>4 to 6: Poor </li></ul><ul><li>Greater than 6: Unlikely To Be Poor </li></ul>
    11. 11. The “Net Worth” Test <ul><li>House visits by field staff </li></ul><ul><li>Individual interview and evaluation of productive assets </li></ul><ul><li>Field staff establish cut-off </li></ul><ul><li>Eligibility notification and motivation </li></ul>
    12. 12. Motivation and Building Good Credit Habits <ul><li>Provide personal and frequent interaction </li></ul><ul><ul><li>Develop relationship </li></ul></ul><ul><ul><li>Build trust </li></ul></ul><ul><ul><li>Increase transparency </li></ul></ul><ul><li>Introduce services </li></ul><ul><ul><li>80% of clients are first time borrowers </li></ul></ul><ul><li>Mobilize eligible individuals </li></ul><ul><li>Assuage fears </li></ul>
    13. 13. Adapting to Specific Contexts <ul><li>CHALLENGE </li></ul><ul><li>RESPONSE </li></ul>CHI is only as accurate as the link between poverty and housing CHI is reliant on externally visible characteristics Adapt criteria for selection and eligibility based on local contexts Accommodate for non-visible characteristics through Net Worth test and appeal process
    14. 14. Optimal Ignorance <ul><li>MFIs do not need to be exact in their poverty assessment </li></ul><ul><li>Goal is reasonable confidence of measure of poverty </li></ul><ul><li>Cost of last few percentage points outweighs the benefit </li></ul><ul><li>Minimum amount of information needed to achieve the minimum level of accuracy desired </li></ul>
    15. 15. Grameen-Based Group Lending <ul><li>Once potential clients are identified, CASHPOR uses Grameen-based group lending methodology </li></ul><ul><li>Additional self-help group (SHG) component </li></ul><ul><li>Collective Responsibility Fund in one district (Mirzapur) </li></ul><ul><ul><li>Unnecessary for repayment: PAR higher in district with CRF </li></ul></ul>
    16. 16. Non-ICICI Affiliations <ul><li>Start: $30k from CASHPOR Technical Services in September 1996 </li></ul><ul><li>Long-term, low-cost subordinated financing </li></ul><ul><ul><li>Grameen Trust (Bangladesh), Grameen Foundation (USA), Calvert Foundation </li></ul></ul><ul><li>Semi-commercial financing </li></ul><ul><ul><li>NABARD, SIDBI </li></ul></ul><ul><li>Grant </li></ul><ul><ul><li>$1.8 million from USAID </li></ul></ul><ul><li>Commercial financing </li></ul><ul><ul><li>Friends of Women’s World Banking, ABN AMRO Bank, HDFC Bank, UTI Bank, and ICICI Bank </li></ul></ul>
    17. 17. Objectives for Partnership <ul><li>ICICI BANK </li></ul><ul><li>India’s largest private bank. Second largest bank in India overall. </li></ul><ul><li>Goals: </li></ul><ul><ul><li>Meet priority sector lending quota </li></ul></ul><ul><ul><li>Improve its overall image </li></ul></ul><ul><ul><li>Be the market leader in untapped markets </li></ul></ul><ul><li>CASHPOR </li></ul><ul><li>Presence in under-served provinces in India </li></ul><ul><li>Goals: </li></ul><ul><ul><li>Reliable, uninterrupted flow of funds </li></ul></ul>
    18. 18. Partnership Model <ul><li>CASHPOR acts as a service agent </li></ul><ul><li>ICICI approves loans based on CASHPOR’s recommendations </li></ul><ul><li>ICICI advances funds in an uninterrupted manner </li></ul><ul><li>Income </li></ul><ul><ul><li>ICICI earns the interest </li></ul></ul><ul><ul><li>CASHPOR earns the fees </li></ul></ul><ul><li>ICICI shares in the credit risk with CASHPOR </li></ul>
    19. 19. Stipulations of MOU between ICICI and CASHPOR <ul><li>CASHPOR acts as a service agent on behalf of ICICI to set up and manage SHGs </li></ul><ul><li>CASHPOR ensures that members of SHGs in districts under MOU use ICICI’s finance only </li></ul><ul><li>ICICI signs off on all loans and advances the funds to SHGs </li></ul><ul><li>ICICI ensures that CASHPOR has uninterrupted funds flow </li></ul><ul><li>Cashpor collects an upfront fee (6%); ICICI earns the interest </li></ul><ul><li>Cashpor assumes credit risk/loan losses of up to 12% </li></ul>
    20. 20. PARTNERSHIP MECHANICS: RISK MANAGEMENT <ul><li>ICICI’s selection criteria </li></ul><ul><ul><li>Substantial outreach, high quality microfinance portfolio, functional account and information systems </li></ul></ul><ul><li>Close performance monitoring </li></ul><ul><li>Deficiency guarantee </li></ul>
    21. 21. PARTNERSHIP MECHANICS: METHODOLOGICAL ADJUSTMENTS <ul><li>ICICI is flexible with CASHPOR </li></ul><ul><li>Changes made to pricing structure and loan documentation </li></ul>
    22. 22. PARTNERSHIP MECHANICS: FLOW OF FUNDS <ul><li>Change to the original MOU stipulation </li></ul><ul><li>“ Pipeline interest” is borne by CASHPOR </li></ul><ul><li>Consolidated repayments made monthly to ICICI, regardless of whether the client repaid on time. </li></ul>
    23. 23. PARTNERSHIP MECHANICS: DOCUMENTATION <ul><li>The end result: </li></ul><ul><ul><li>1-page loan agreement signed by 3 SHG officers; each member signs to acknowledge the loan amount personally attributable to them. </li></ul></ul><ul><ul><li>Each member of SHG signs a 1-page declaration re: interest rate which includes detail of what is paid to ICICI and what is paid to CASHPOR. </li></ul></ul><ul><ul><li>Each member of SHG signs a promissory note to ICICI (a half-page, perforated) and a receipt of promissory note (the other half of the perforated page) </li></ul></ul><ul><ul><li>CASHPOR’s unit manager and credit officer also sign the receipt of the promissory note. </li></ul></ul><ul><li>Needed simplification for MFI clients </li></ul>
    24. 24. LESSONS LEARNED: ELEMENTS OF THE PARTNERSHIP’S SUCCESS <ul><li>Commitment of senior management of both institutions </li></ul><ul><li>Communication between the two institutions that allowed mutual trust to develop </li></ul><ul><li>Flexibility within both institutions that allowed the partnership to adapt to changing circumstances. </li></ul>
    25. 25. <ul><li>ICICI </li></ul><ul><li>High-quality microfinance portfolio yielding good returns </li></ul><ul><li>One of market leaders in microfinance </li></ul><ul><li>Contribution to priority sector lending quota </li></ul><ul><li>Volume and quality of lending meets expectations </li></ul><ul><li>Building image and name recognition </li></ul><ul><li>CASHPOR </li></ul><ul><li>Developed a trust-based business relationship and secured an uninterrupted flow of funds. </li></ul>LESSONS LEARNED: MEASURES OF THE PARTNERSHIP’S SUCCESS
    27. 27. <ul><li>Institutional capacity and staff development </li></ul><ul><li>Obstacles at local branches that do not share CASHPOR’s vision </li></ul>PARTNERSHIP CHALLENGES: INSTITUTIONAL CAPACITY DEVELOPMENT
    28. 28. <ul><li>Short-term structure of the agreement creates uncertainty for CASHPOR </li></ul><ul><li>Need to look for other potential partners </li></ul>PARTNERSHIP CHALLENGES: EXIT STRATEGY
    29. 29. <ul><li>CASHPOR’s capital eroded to build a balance sheet for ICICI </li></ul><ul><li>Commercial rate is used to fund the reduction in capital </li></ul>PARTNERSHIP CHALLENGES: CAPITAL ADEQUACY
    30. 30. <ul><li>ICICI has the better end of the deal </li></ul><ul><li>CASHPOR should negotiate to reduce ICICI’s spread/ rates of funding operational deficits </li></ul>PARTNERSHIP CHALLENGES: EQUITABLE ALIGNMENT OF COSTS AND BENEFITS
    31. 31. Current Performance Data <ul><li>303,245 active borrowers </li></ul><ul><li>Gross Loan Portfolio: $36,688,976 (USD) </li></ul><ul><li>PAR > 30 day: 1.75% </li></ul>All financial data current as of March 31, 2008. Data from MIX Market unless otherwise noted..
    32. 32. Market Position <ul><li>Among MIX Market-listed MFIs in India: </li></ul><ul><ul><li>9 th by gross loan portfolio </li></ul></ul><ul><ul><li>10 th by number of active borrowers </li></ul></ul><ul><li>Among MIX Market-listed NGO MFIs in India: </li></ul><ul><ul><li>3 rd by gross loan portfolio and by number of active borrowers </li></ul></ul>
    33. 33. FINANCIAL INDICATORS: PROFITABILITY AND SUSTAINABILITY <ul><li>Operationally self-sufficient as of March 31, 2008. </li></ul>
    34. 34. FINANCIAL INDICATORS: PROFITABILITY AND SUSTAINABILITY <ul><li>Return on Assets Ratio went positive for the first time in 2008. </li></ul><ul><li>CASHPOR estimates the ROA will continue to grow steadily. </li></ul>
    35. 35. FINANCIAL INDICATORS: EFFICIENCY/PRODUCTIVITY <ul><li>Operational efficiency ratios declined from 2005 to 2008, indicating that CASHPOR has become more efficient in its operations. </li></ul>
    36. 36. FINANCIAL INDICATORS: EFFICIENCY/PRODUCTIVITY <ul><li>Staff productivity has also improved; ratio of clients to staff members is 225, up from 146 in 2005. </li></ul><ul><li>Cost per borrower has declined nearly half from $27.20 in 2005 to $15.00 in 2008. </li></ul>
    37. 37. FINANCIAL INDICATORS: PORTFOLIO QUALITY <ul><li>PAR > 30 Ratio declined from 4.06% (2005) to 1.76% (2008). </li></ul><ul><li>Driven by decreased delinquency as well as growth in loan portfolio </li></ul>
    38. 38. FINANCIAL INDICATORS: ASSET/LIABILITY MANAGEMENT <ul><li>CASHPOR has a very low equity position. </li></ul><ul><li>Debt/Equity Ratio has increased from 2234% in 2005 to 16168% in 2008. </li></ul><ul><li>Despite this, CASHPOR has not had difficulty attracting financing. </li></ul>
    39. 39. Expected Future Financial Performance <ul><li>CASHPOR expects to become financial self-sufficient in 2009; currently 93% financially self-sustaining. </li></ul><ul><li>Administrative costs expected to decline to 9% in 2010. </li></ul><ul><li>Probably will not reach 1M women by 2010 </li></ul>