CASHPOR Micro Credit

CASHPOR Financial and Technical Services (CFTS)

Founded September 1996 as a financial company

Designed to give access to financial services, specifically

microcredit, to poor rural women.

Alternative to existing money lenders.

First operations in India took place in mid 1997 in the Mirzapur District of Uttar Pradesh.

CASHPOR Micro Credit

CASHPOR Micro Credit (CMC) was created in December 2002 as result of a need to become a Section 25 nonprofit.

CMC is a registered NGO, structured with a nine-person Board of Directors

The Board is absolutely independent and active in decision-making on all important policy matters.

CASHPOR TRUSTCASHPOR TRUST

CASHPOR Financial and Technical Services, Ltd. (CFTS)

CASHPOR Financial and Technical Services, Ltd. (CFTS)

CASHPOR Micro Credit (CMC)

CASHPOR Micro Credit (CMC)

CASHPOR Financial Services (CFS)

CASHPOR Financial Services (CFS)

BOARD OF DIRECTORS, CASHPOR MICRO CREDIT • Prof. David S. Gibbons, Chairman• J. S. Tomar, formerly with Oriental Bank of Commerce and Ex -OSD • Sanjay Das Gupta, People's Institute for Development & Training (PIDT)• S. K. Soni, Centurion Bank of Punjab • Moumita Sen Sarma, ABN AMRO Bank• A. R. Samal, Small Industries Development Bank of India (SIDBI)• Somnath Ghosh, Indian Institutes of Management• Vijay Lakshmi Das, Friends of Women’s World Banking• J. N. L. Srivastava, Indian Farmers Fertilizer Cooperative Foundation

CASHPOR Group

CASHPOR Mission and Vision

Mission: Significantly reduce hard-core poverty in the Asian regiono Scale-up existing credit and savings programso Focus on women below the poverty lineo Focus on rural areaso Promote new, sustainable Grameen Bank-type

replicationso Deliver financial services in an honest, timely, and

efficient manner Goal: Serve 1 million women by 2010

To Target or Not to Target

How does CASHPOR target the poor in a cost-effective way?

• “It costs too much to do” argument Rural villages Higher transaction costs Least profitable clients

Achieving Institutional Financial Self-Sufficiency (IFS)

In order to achieve IFS, the targeting methodology must:• Exhibit innovation and creativity• Be based on experience

Raising awareness and providing motivation

• Be cost-efficient Utilization of technology

The CASHPOR House Index (CHI): Visual Indicators of Poverty

1. Identify high-density poverty areas

2. Eliminate obvious non-poor households

3. Map the community’s poor households

4. Administer the “Net Worth” test

The CASHPOR House Index (CHI) uses external housing conditions as a proxy for poverty

Choosing and Mapping a Community

CASHPOR’s Target: Women Relative marginalization and poverty Loan utilization Credit discipline Accessibility Repayment

Existing Data National and Local Government NGOs Other sources The Malaysian experience

CASHPOR House Index

CASHPOR House Index

Structural condition:Category PointsDilapidated 0Average 2Good 6 Adaptation to South India

Quality of walls: Height and materials of walls:Category Points Category PointsPoor 0 < 4 feet mud 0Average 2 4 feet mud 2Good 6 > 5 feet 6

Quality of roof: Quality of roof:Category Points Category PointsThatch/Leaves 0 Thatch/Leaves 0Tin Iron sheets 2 Tin/Iron sheets 2Permanent roof 6 Tiles and other 6

good materials

CASHPOR House Index

Structural condition:Category PointsDilapidated 0Average 2Good 6 Adaptation to South India

Quality of walls: Height and materials of walls:Category Points Category PointsPoor 0 < 4 feet mud 0Average 2 4 feet mud 2Good 6 > 5 feet 6

Quality of roof: Quality of roof:Category Points Category PointsThatch/Leaves 0 Thatch/Leaves 0Tin Iron sheets 2 Tin/Iron sheets 2Permanent roof 6 Tiles and other 6

good materials

Field Staff conduct walk-througho Visual indicatorso Indexing/scoringo Establishing cut-offs

The following cut-off points can be a suitable guide in determining eligibility:

i.3 or less: Likely to be Very Poorii.4 to 6: Pooriii.Greater than 6: Unlikely To Be Poor

The “Net Worth” Test House visits by field

staff Individual interview

and evaluation of productive assets

Field staff establish cut-off

Eligibility notification and motivation

Motivation and Building Good Credit Habits

Provide personal and frequent interaction• Develop relationship• Build trust• Increase transparency

Introduce services• 80% of clients are first time borrowers

Mobilize eligible individuals Assuage fears

Adapting to Specific Contexts

CHALLENGE RESPONSE

CHI is only as accurate as the link between poverty and housing

CHI is only as accurate as the link between poverty and housing

CHI is reliant on externally visible characteristics

CHI is reliant on externally visible characteristics

Adapt criteria for selection and eligibility based on local contexts

Adapt criteria for selection and eligibility based on local contexts

Accommodate for non-visible characteristics through Net Worth test and appeal process

Accommodate for non-visible characteristics through Net Worth test and appeal process

Optimal Ignorance

MFIs do not need to be exact in their poverty assessment

Goal is reasonable confidence of measure of poverty

Cost of last few percentage points outweighs the benefit

Minimum amount of information needed to achieve the minimum level of accuracy desired

Grameen-Based Group Lending

Once potential clients are identified, CASHPOR uses Grameen-based group lending methodology

Additional self-help group (SHG) component Collective Responsibility Fund in one district

(Mirzapur)

• Unnecessary for repayment: PAR higher in district with CRF

Non-ICICI Affiliations

Start: $30k from CASHPOR Technical Services in September 1996

Long-term, low-cost subordinated financing Grameen Trust (Bangladesh), Grameen Foundation (USA), Calvert

Foundation

Semi-commercial financing NABARD, SIDBI

Grant $1.8 million from USAID

Commercial financing Friends of Women’s World Banking, ABN AMRO Bank, HDFC Bank,

UTI Bank, and ICICI Bank

Objectives for PartnershipICICI BANK

India’s largest private bank. Second largest bank in India overall.

Goals: Meet priority sector

lending quota Improve its overall

image Be the market leader

in untapped markets

ICICI BANKIndia’s largest private

bank. Second largest bank in India overall.

Goals: Meet priority sector

lending quota Improve its overall

image Be the market leader

in untapped markets

CASHPORPresence in under-served

provinces in India

Goals: Reliable, uninterrupted

flow of funds

CASHPORPresence in under-served

provinces in India

Goals: Reliable, uninterrupted

flow of funds

Partnership Model

CASHPOR acts as a service agent ICICI approves loans based on CASHPOR’s

recommendations ICICI advances funds in an uninterrupted

manner Income

• ICICI earns the interest

• CASHPOR earns the fees

ICICI shares in the credit risk with CASHPOR

Stipulations of MOU between ICICI and CASHPOR CASHPOR acts as a service agent on behalf of ICICI to set up and

manage SHGs

CASHPOR ensures that members of SHGs in districts under MOU use ICICI’s finance only

ICICI signs off on all loans and advances the funds to SHGs

ICICI ensures that CASHPOR has uninterrupted funds flow

Cashpor collects an upfront fee (6%); ICICI earns the interest

Cashpor assumes credit risk/loan losses of up to 12%

PARTNERSHIP MECHANICS:RISK MANAGEMENT

ICICI’s selection criteria Substantial outreach, high quality

microfinance portfolio, functional account and information systems

Close performance monitoring

Deficiency guarantee

PARTNERSHIP MECHANICS:METHODOLOGICAL ADJUSTMENTS

ICICI is flexible with CASHPOR

Changes made to pricing structure and loan documentation

PARTNERSHIP MECHANICS:FLOW OF FUNDS

Change to the original MOU stipulation

“Pipeline interest” is borne by CASHPOR

Consolidated repayments made monthly to ICICI, regardless of whether the client repaid on time.

PARTNERSHIP MECHANICS:DOCUMENTATION

The end result: 1-page loan agreement signed by 3 SHG officers; each member signs to

acknowledge the loan amount personally attributable to them. 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.

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)

CASHPOR’s unit manager and credit officer also sign the receipt of the promissory note.

The end result: 1-page loan agreement signed by 3 SHG officers; each member signs to

acknowledge the loan amount personally attributable to them. 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.

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)

CASHPOR’s unit manager and credit officer also sign the receipt of the promissory note.

Needed simplification for MFI clients

LESSONS LEARNED:ELEMENTS OF THE PARTNERSHIP’S SUCCESS

Commitment of senior management of both institutions

Communication between the two institutions that allowed mutual trust to develop

Flexibility within both institutions that allowed the partnership to adapt to changing circumstances.

ICICI High-quality microfinance

portfolio yielding good returns

One of market leaders in microfinance

Contribution to priority sector lending quota

Volume and quality of lending meets expectations

Building image and name recognition

ICICI High-quality microfinance

portfolio yielding good returns

One of market leaders in microfinance

Contribution to priority sector lending quota

Volume and quality of lending meets expectations

Building image and name recognition

CASHPOR Developed a trust-based

business relationship and secured an uninterrupted flow of funds.

CASHPOR Developed a trust-based

business relationship and secured an uninterrupted flow of funds.

LESSONS LEARNED:MEASURES OF THE PARTNERSHIP’S SUCCESS

Savings

PARTNERSHIP CHALLENGES:INTRODUCTION OF NEW PRODUCTS

Institutional capacity and staff development

Obstacles at local branches that do not share CASHPOR’s vision

PARTNERSHIP CHALLENGES: INSTITUTIONAL CAPACITY DEVELOPMENT

Short-term structure of the agreement creates uncertainty for CASHPOR

Need to look for other potential partners

PARTNERSHIP CHALLENGES:EXIT STRATEGY

CASHPOR’s capital eroded to build a balance sheet for ICICI

Commercial rate is used to fund the reduction in capital

PARTNERSHIP CHALLENGES:CAPITAL ADEQUACY

ICICI has the better end of the deal

CASHPOR should negotiate to reduce ICICI’s spread/ rates of funding operational deficits

PARTNERSHIP CHALLENGES:EQUITABLE ALIGNMENT OF COSTS AND BENEFITS

Current Performance Data

303,245 active borrowers

Gross Loan Portfolio: $36,688,976 (USD)

PAR > 30 day: 1.75%

All financial data current as of March 31, 2008. Data from MIX Market unless otherwise noted..

Gross Loan Portfolio (in US$)

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

2005 2006 2007 2008

Fiscal Year

Market Position

Among MIX Market-listed MFIs in India: 9th by gross loan portfolio 10th by number of active borrowers

Among MIX Market-listed NGO MFIs in India: 3rd by gross loan portfolio and by number of

active borrowers

FINANCIAL INDICATORS: PROFITABILITY AND SUSTAINABILITY

Operationally self-sufficient as of March 31, 2008.

FINANCIAL INDICATORS:PROFITABILITY AND SUSTAINABILITY Return on Assets Ratio went positive for the first time in 2008. CASHPOR estimates the ROA will continue to grow steadily.

Return on Assets (ROA)

-16.00%

-14.00%

-12.00%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

2005 2006 2007 2008

FINANCIAL INDICATORS:EFFICIENCY/PRODUCTIVITY

Operational efficiency ratios declined from 2005 to 2008, indicating that CASHPOR has become more efficient in its operations.

Operational Efficiency Ratios

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2005 2006 2007 2008

Operating Expense / Total Assets (%)

Operating Expense / Loan Portfolio (%)

FINANCIAL INDICATORS:EFFICIENCY/PRODUCTIVITY

Staff productivity has also improved; ratio of clients to staff members is 225, up from 146 in 2005.

Cost per borrower has declined nearly half from $27.20 in 2005 to $15.00 in 2008.

FINANCIAL INDICATORS:PORTFOLIO QUALITY

PAR > 30 Ratio declined from 4.06% (2005) to 1.76% (2008).

Driven by decreased delinquency as well as growth in loan portfolio

FINANCIAL INDICATORS:ASSET/LIABILITY MANAGEMENT

CASHPOR has a very low equity position.

Debt/Equity Ratio has increased from 2234% in 2005 to 16168% in 2008.

Despite this, CASHPOR has not had difficulty attracting financing.

Expected Future Financial Performance

CASHPOR expects to become financial self-sufficient in 2009; currently 93% financially self-sustaining.

Administrative costs expected to decline to 9% in 2010.

Probably will not reach 1M women by 2010