CreditAccess Grameen Ltd Management Discussions

I. Micro finance Industry: A Broad Perspective

A. Industry Overview: (Data as of March 31, 2024)

The Indian microfinance industry is on a sustainable growth trajectory, registering 24.5% YoY growth in gross loan portfolio to H 4.34 trillion catering to 78 million unique borrowers. The NBFC-MFI segment stands as the leader with a 39.4% share of the universe portfolio followed by Banks at 33.2%, SFBs at 17.1%, and NBFCs/Others at 10.3%. A total of 229 lending institutions served microfinance borrowers – 87 NBFC-MFIs, 14 Banks, 10 SFBs, 81 NBFCs, and 36 others across the country. The Reserve Bank of India and self-regulatory organisations (MFIN and Sa-Dhan) continue to play an active role in fostering an inclusive financial ecosystem.

The RBIs new guidelines have given significant importance to client-centricity and responsible lending. The entire household considered as a single entity for the cashflow analysis gives better visibility leading to improved underwriting. The microfinance sectors resilience, a key differential among various asset classes, is driven by the involvement of customers in multiple income-generation activities giving large-scale credit advancing opportunities. Microfinance remains the funnel for many to enter the formal credit system by building a credit history based on the premise of disciplined lending and regular literacy programmes. With growing competition and the need to serve households, NBFC-MFIs are transcending their traditional roles by diversifying their product basket and meeting the increasing credit requirements of the customers.

Given the growth momentum, microfinance is poised to become the fourth largest retail segment in FY25 after housing loans, personal loans, and agriculture loans reflecting its mainstream integration. The microfinance contribution to various Sustainable Development Goals (SDGs) is notable by reducing poverty, encouraging good health/wellbeing, and gender equality, among others.

B. NBFC-MFI

NBFC-MFIs continue to hold market leadership given strong growth momentum during FY24. The GLP grew 23.6% YoY to H 1.71 trillion while the borrower base grew 34.5% YoY to 39 million, attributed to growth in branch addition and expansion into new geographies by various players. During FY24, a total of H 1.38 trillion was disbursed by the NBFC-MFIs, a 24.4% increase in YoY growth.

The NBFC-MFIs currently operate through 20,348 branches, a 19.4% increase YoY and spread across the country, providing employment opportunities to 183,842 people. The self-reported data of 48 NBFC-MFIs published in the MFIN Micrometer is categorised as Large, Medium, and Small according to their GLP. Companies with a GLP of more than H 20,000 million fall under the large category whereas companies having a GLP between H 5,000 million to H 20,000 million and GLP of less than H 5,000 million are categorised as medium and small entities respectively. Accordingly, there are 16 large, 11 medium, and 21 small entities operating of which 91.8% of the NBFC-MFI segment portfolio is held by large entities.

A profile of NBFC-MFIs is given below:

• Top Ten MFIs GLP contribute to 77.5% of the NBFC-MFI segment. As of March 31 2024, rural portfolio contribution stood at 83.4%.

• Loans for Agri-Allied activities account for 66.4% of the GLP. Trade/services and manufacturing loans account for 30.1% while household finance loans account for 3.5% of GLP.

• Region-wise distribution of the portfolio is provided below.

• South : 27%

• West : 16%

• North : 16%

• Central : 9%

• East and North-East : 32%

• Top 5 States - Bihar, Uttar Pradesh, Tamil Nadu, Karnataka, and Maharashtra account for 57.9% of GLP. The top 10 States account for 85.8% of the total industry loan amount outstanding.

II. Competitive Strengths and Strategies

A. Higher Rural Penetration

CreditAccess Grameen Limited predominantly focuses on customers in rural parts of India who lack access to formal credit and present a latent opportunity for upbringing their livelihood. This borrower base stood at 86.0% at the end of March 2024. We have followed a strategy of contiguous district-based expansion across regions where we cover up to 30 kms radius from each branch.

Active Borrowers	FY2020	FY2021	FY2022	FY2023	FY2024
Rural	86%	85%	84%	85%	86%
Urban	14%	15%	16%	15%	14%

B. Market Leadership

As of March 31, 2024, the Company holds a 6.2% market share in the overall microfinance industry. The Companys market share across its top four states of business operations was 20.1% in Karnataka, 16.9% in Maharashtra, 9.2% in Tamil Nadu, and 6.2% in Madhya Pradesh. Within the NBFC-MFI segment, the Company preserved its position as the largest NBFC-MFI, with a 15.6% share of the total GLP.

C. Customer Connect

Holding the traditional Grameen model in place, employees interact with customers at Kendra meetings held every week, which serve as a convention for various products and services. We engage in meaningful conversations beyond repayment collection involving financial literacy, responsible borrowing practices, hygiene, legal rights, etc. Additional programs such as Jagruti, Social Awareness Campaigns, and training are pivotal practices to enhance customers overall exposure and financial resilience.

D. Product Design

Our products are designed based on the philosophy of "Evolve with Customers" which involves catering to their diverse needs. We focus on nurturing a relationship-based model with better visibility. As a starting point in their credit journey, we have income-generating loans surrounded by other loans such as primary education, higher education, medical emergencies, home improvement, emergency, water, and sanitation. For our graduated customers, we are offering individual unsecured, two-wheeler, loan against property, and recently launched affordable housing loan. The company strictly abides by cost optimization and promoting sustainability. Our ethos on social aspects guides us to be the affordable lender for our clientele.

E. Employee Friendly Organisation

We believe in nurturing our work culture by embracing diversity among the employees. We encourage a healthy environment where everyone is appreciated for their efforts. Training, effective compensation schemes, monetary and non-monetary benefits, etc. are a few of the many schemes implemented by the company. Internal job promotions are also provided to take up important roles upon gaining sufficient experience. We follow a 5-day work policy which has proved to enhance employee satisfaction and boost productivity. The Company also provides other facilities like guest house arrangements for its entire field force and conducts various employee connect initiatives wherein we actively listen and obtain feedback to continually improve their experience. This has resulted in being awarded as the "Great Place to Work" consecutively for the fifth time.

F. Seasoned and Stable Management Team

The exemplary leadership and rich experience have been significant in driving growth and expansion. i.e., our core operations leadership team has been associated with us over the last two decades manifests our strong culture. Their on-ground hands experience provides significant leverage to any issue faced by the organisation. This is complemented by strong corporate governance standards in gaining business prosperity and advancing the inclusion agenda.

. Opportunities and Threats

A. Opportunities

Microfinance has deepened the reach of the formal sector through doorstep services. Given the overall current penetration levels of over 40%, it has a huge potential in the coming decade for credit-advancing opportunities, especially in Rural/Semi-Urban India.

The industry through its ‘observe, learn and adapt approach has proved to be a catalyst under the changing contours. The growing prospects of the microfinance industry have led to exploring asset-light models such as co-lending helping MFIs have access to lower-cost funds and simultaneously helping banks meet their priority sector lending obligations.

The new regulations allow building up to 25% non-qualifying assets. This poses an opportunity to devise suitable products like two-wheeler loans, affordable housing loans, etc. for graduated customers and increase wallet share per household.

The need for incorporating environmental, social, and governance (ESG) practices in the culture has escalated. Given the nature of the business, MFIs can attract ESG funding in the form of social loan, gender loan, and green loan through international developmental financial institutions (DFIs). This will also bring new lenders under the ambit of the Indian microfinance space.

B. Threats

Client connection through the centre meetings is paramount. With the rise in digital payments and individual loans, the culture of regular meetings conducted should not be diluted. A continuous thrust on a tech and touch approach should be the way forward.

Global warming has led to widespread natural disasters witnessed across the country from floods, heatwaves, and rise in sea level. The low-income borrowers being vulnerable to withstand these calamities, are also the strongest to return to normalcy, given their high entrepreneurship skills and multiple income sources with the continuous support of microfinance services.

The attrition rates are usually higher for feet-on-street employees. With various learning & development programs complemented by career progression opportunities, attrition above a certain level can be arrested.

The long-term sustainable growth requires moving beyond saturated districts and not competing in the same geography for the same set of clients. The thrust should be sourcing new-to-credit and newer clients as a part of a resilient expansion strategy. This would lead to wider access to credit across the country.

New Initiatives

A. New Product Introduction

Our products are always designed keeping customers in mind. Housing remains amongst the top priorities of our customers as they move up the economic ladder. On the same thought process, we piloted and launched ‘Affordable Housing Loans in February 2024 with a ticket size of H 5 lakh to H 20 lakh to meet the increasing needs of our graduated customers.

B. Process and Technology Improvements

Our technology domain is highly receptive to evolving business requirements and achieving growth targets. We have upgraded our Core Banking Solution (CBS) taking care of current and future requirements. Robotic Process Automation (RPA) was introduced into the system focusing on regional processing centres, insurance, customer loan disbursement and remittance process, thus narrowing the scope of manual data entry. A business rule engine has also been introduced to automate credit decision-making as we focus on newer products to meet household needs.

C. Opening of New Branches

The Company opened 194 new branches in FY24 across Andhra Pradesh (32 branches in 9 districts), Bihar (20 branches in 17 districts), Chhattisgarh (5 branches in 3 districts), Gujarat (6 branches in 4 districts), Karnataka (30 branches in 20 districts), Kerala (3 branches in 2 districts), Madhya Pradesh (2 branches in 2 district), Maharashtra (12 branches in 10 districts), Rajasthan (14 branches in 10 districts), Tamil Nadu (9 branches in 9 districts), Telangana (13 branches in 8 districts), Uttar Pradesh (23 branches in 14 districts), and West Bengal (25 branches in 9 districts). The branch expansion was in line with the companys contiguous district-based expansion strategy, primarily focusing on new geographies.

IV. The Companys Operational Perspective

A. Customers Profile

The homogeneous nature of the customers in a group to provide mutual guarantees for each other is the foundation on which microfinance thrives. Vintage acts as a bridge between the customers belief and the companys efficiency to provide need-based products. The details of the borrower vintage are mentioned below:

Borrower Vintage	FY2020	FY2021	FY2022	FY2023	FY2024
Less than 1 year	17%	13%	15%	25%	26%
1-3 years	48%	52%	35%	22%	31%
3-6 years	23%	23%	33%	36%	25%
6 years and above	12%	12%	17%	17%	18%

B. Profitability

For the period ended March 31, 2024, the Companys pre-provision operating profit grew 58.7% to H 23,909.54 million as against H 15,064.45 million during the same period in the previous year. The Companys profit after tax for FY24 stood at H 14,459.28 million as against H 8,260.60 million for the previous year, an increase of 75.0%. Total revenue from operations for FY24 grew at a healthy pace of 45.7% to H 51,726.52 million as against H 35,507.90 million during the same period in the previous year. Total expenses stood at H 32,334.68 million at the end of FY24 as compared to H 24,453.65 million during the same period in the previous year, an increase of 32.2%.

C. Financial Performance

As of March 31, 2024, the portfolio yield stood at 20.9% as against 18.9% during the same previous financial year. The cost-to-income ratio at the end of March 2024 was 30.5% as against 35.6% during the same period in the previous year. The operating cost to Gross Loan Portfolio ratio for FY24 declined to 4.5%, compared to 4.7% during the previous financial year.

D. Funding Trends

The changes in the outstanding borrowings from different sources during FY2024 in comparison to previous years can be seen in the below table:

In H Million	FY2020	FY2021	FY2022	FY2023	FY2024
Public Sector Banks	15,897.77	25,052.30	30,470.70	28,847.42	32,906.64
Private and Foreign Banks	44,770.53	46,017.22	60,819.18	80,688.30	97,196.12
Securitization/ Direct Assignment (sold portion)	6,186.70	12,685.01	11,904.41	16,278.61	10,045.34
NCDs (FPIs) and ECBs	9,362.48	9,811.94	10,097.94	23,395.15	40,860.57
NBFCs, FIs, NCDs (Domestic) and Others	24,099.44	27,790.65	27,212.19	28,481.12	46,270.54
Total	100,316.92	121,357.12	140,504.42	177,690.60	227,279.19

E. Treasury and Cash Management System

The Company has an integrated Treasury and Cash Management system that secures funds from multiple sources, operates the complete cash/bank transactions, maintains strong relationships with the industry players and regulators, handles pooling of excess funds from branches and funding disbursement, debt repayment, payments to vendors, employees for salaries, and investment of surplus funds, if any.

Ratios:

Interest Coverage Ratio	FY2024	FY2023
PBT	19,391.85	11,054.24
nterest expense I	17,324.42	12,128.84
EBIT	36,716.27	23,183.08
I nterest expense	17,324.42	12,128.84
Interest coverage ratio	2.12	1.91
Debt Equity Ratio
Debt	218,410.13	163,122.57
Equity (incl. minority interest)	65,699.76	51,069.70
Ratio	3.32	3.19
Interest income	49,001.08	33,271.33
Income from direct assignment	919.37	1,190.62
Finance cost	17,324.42	12,128.84
Operating Profit (before other expenses)	32,596.03	22,333.11
Total Revenue from operations	51,726.52	35,507.90
Operating profit margin (before operating expenses)	63.01%	62.89%
Profit after tax	14,459.28	8,260.60
Net Profit Margin	27.95%	23.26%
Current Ratio
Current assets	180,682.94	130,458.17
Current liabilities	101,953.03	83,133.15
Current Ratio	1.77	1.57
Return on Equity (PAT / Quarterly Average Total Equity)	24.85%	17.97%

F. Operational Trends

Particulars	FY2020	FY2021	FY2022	FY2023	FY2024	CAGR* (%)
Branches	1,393	1,424	1,635	1,786	1,967	9.01%
Districts	248	265	319	352	383	11.48%
Borrowers	4,055,486	3,911,619	3,823,724	4,264,269	4,918,147	4.94%
Loans disbursed (H Millions)	103,892	110,112	154,663	185,390	231,337	22.16%
Gross AUM (H Millions)	119,961	135,869	165,994	210,313	267,144	22.16%
Field Officers	9,688	9,559	10,770	11,490	13,191	8.02%
Total Staff	14,496	14,399	15,667	16,759	19,395	7.55%
Repayment Rate:	98.61%	92.21%1	93.19%	97.31%	98.55%	-
PAR (H Millions):	3,671	9,040	8,088	3,124	4,551	-
Funds availed during the year (H Millions)	81,011	80,658	101,114	134,324	154,741	17.56%

Our borrower retention rate of over 84% in the past 5 years is a testament to our approach of creating women entrepreneurs by providing them with suitable and affordable products. Our attrition rate has been largely arrested as we continue to foray into the hinterlands.

	FY2020	FY2021	FY2022	FY2023	FY2024
Borrower Retention Rate	85%	87%	84%	88%	88%

G. Gross AUM and Borrower Distribution:

The Company has an operational presence in Karnataka (KA), Maharashtra (MH), Tamil Nadu (TN), Chhattisgarh (CG), Madhya Pradesh (MP), Kerala (KL), Odisha (OD), Goa (GA), Puducherry (PY), Jharkhand (JH), Gujarat (GJ), Rajasthan (RJ), Bihar (BR), Uttar Pradesh (UP), West Bengal (WB), Andhra Pradesh and (AP) Telangana (TL). Our expansion approach is centered around a contiguous district strategy enabling cultural familiarity.

State Wise Gross AUM Distribution

	Figures
	FY2020		FY2021		FY2022		FY2023		FY2024
(In H Million) State	Gross AUM	% age	Gross AUM	% age	Gross AUM	% age	Gross AUM	% age	Gross AUM	% age
KA	48,020	40.0%	51,941	38.2%	59,639	35.9%	69,774	33.2%	84,823	31.8%
MH	28,969	24.1%	31,863	23.5%	35,684	21.5%	43,896	20.9%	55,075	20.6%
TN	23,894	19.9%d>	25,167	18.5%	34,581	20.8%	42,498	20.2%	53,650	20.1%
MP	9,141	7.6%	11,132	8.2%	12,238	7.4%	14,104	6.7%	16,774	6.3%
OD	2,408	2.0%	3,380	2.5%	5,026	3.0%	6,255	3.0%	8,111	3.0%
BR	2,028	1.7%	3,156	2.3%	5,138	3.1%	9,343	4.4%	14,850	5.6%
CG	2,428	2.0%	2,683	2.0%	2,962	1.8%	4,341	2.1%	5,633	2.1%
KL	1,789	1.5%	2,440	1.8%	3,200	1.9%	5,242	2.5%	6,361	2.4%
JH	394	0.3%	1,207	0.9%	2,267	1.4%	3,594	1.7%	4,583	1.7%
RJ	176	0.1%	660	0.5%	1,605	1.0%	3,072	1.5%	3,739	1.4%
GJ	167	0.1%	601	0.4%	1,071	0.6%	2,208	1.0%	3,060	1.1%
UP	72	0.1%	441	0.3%	1,579	1.0%	4,159	2.0%	6,243	2.3%
WB	42	0.0%	363	0.3%	519	0.3%	1,221	0.6%	2,961	1.1%
PY	413	0.3%	362	0.3%	419	0.2%	488	0.2%	647	0.2%
GA	19	0.0%	22	0.0%	67	0.0%	119	0.1%	188	0.1%
AP	0	0.0%	0	0.0%	0	0.0%	0	0.0%	232	0.1%
TL	0	0.0%	0	0.0%	0	0.0%	0	0.0%	206	0.1%
Total	119,961		135,869		165,994		210,313		267,144

State Wise Borrowers Distribution

	Figures
	FY2020		FY2021		FY2022		FY2023		FY2024
State	Borrowers	% age	Borrowers	% age	Borrowers	% age	Borrowers	% age	Borrowers	% age
KA	1,261,247	31.1%	1,165,415	29.8%	1,077,335	28.2%	1,121,392	26.3%	1,229,532	25.0%
MH	903,757	22.3%	841,370	21.5%	791,560	20.7%	849,969	19.9%	965,238	19.6%
TN	1,113,385	27.5%	996,722	25.5%	911,649	23.8%	920,211	21.6%	996,425	20.2%
MP	323,098	8.0%	325,060	8.3%	312,475	8.2%	325,666	7.6%	361,035	7.3%
OD	121,438	3.0%	139,619	3.6%	149,699	3.9%	167,934	3.9%	183,065	3.7%
BR	93,610	2.3%	130,165	3.3%	158,135	4.1%	234,518	5.5%	329,838	6.7%
CG	100,228	2.5%	89,670	2.3%	83,297	2.2%	101,870	2.4%	126,640	2.6%
KL	85,987	2.1%	98,408	2.5%	99,741	2.6%	121,665	2.9%	144,158	2.9%
JH	14,329	0.4%	37,559	1.0%	70,224	1.8%	97,573	2.3%	108,999	2.2%
RJ	6,182	0.2%	21,286	0.5%	51,256	1.3%	96,791	2.3%	122,241	2.5%
GJ	6,164	0.2%	19,673	0.5%	37,448	1.0%	66,586	1.6%	90,778	1.9%
UP	2,762	0.1%	14,803	0.4%	45,376	1.2%	107,713	2.5%	156,368	3.2%
WB	1,366	0.0%	11,857	0.3%	18,936	0.5%	39,015	0.9%	77,354	1.6%
PY	21,123	0.5%	19,180	0.5%	14,909	0.4%	10,436	0.2%	12,264	0.3%
GA	810	0.0%	832	0.0%	1,684	0.0%	2,930	0.1%	3,999	0.1%
AP	0	0.0%	0	0.0%	0	0.0%	0	0.0%	4,962	0.1%
TL	0	0.0%	0	0.0%	0	0.0%	0	0.0%	5,251	0.1%
Total	4,055,486		3,911,619		3,823,724		4,264,269		4,918,147

Product Wise Split of Gross AUM

	Figures
(In H Million)	FY2020		FY2021		FY2022		FY2023		FY2024
Products	Gross AUM	% age	Gross AUM	% age	Gross AUM	% age	Gross AUM	% age	Gross AUM	% age
Income Generation Loans	105,470	87.9%	128,384	94.5%	159,490	96.1%	200,895	95.5%	247,407	92.6%
Family Welfare Loans	1,678	1.4%	232	0.2%	377	0.2%	668	0.3%	824	0.3%
Home Improvement Loans	7,696	6.4%	3,108	2.3%	4,144	2.5%	6,977	3.3%	11,782	4.4%
Emergency Loans	126	0.1%	17	0.0%	28	0.0%	86	0.0%	49	0.0%
Retail Finance Loans	4,991	4.2%	4,128	3.0%	1,955	1.2%	1,683	0.8%	7,082	2.7%
Total	119,961		135,869		165,994		210,313		267,144

Number of Districts State-Wise Distribution

	Figures
	FY2020	FY2021	FY2022	FY2023	FY2024
KA	30	31	31	31	31
MH	32	32	32	32	32
TN	36	37	37	37	37
MP	36	37	43	45	45
OD	24	24	24	24	24
BR	15	18	31	36	36
CG	19	19	20	22	22
KL	8	8	12	12	12
JH	14	17	19	21	21
RJ	11	16	22	26	27
GJ	8	10	20	25	25
UP	7	8	18	27	35
WB	4	4	6	10	15
PY	2	2	2	2	2
GA	2	2	2	2	2
AP	0	0	0	0	9
TL	0	0	0	0	8
Total	248	265	319

Number of Districts District Exposure As % of Gross AUM

	Figures
	FY2020	FY2021	FY2022	FY2023	FY2024
<0.5%	186	205	281	290	320
0.5-1%	28	28	27	38	41
1-2%	27	27	9	20	19
2-4%	7	5	2	4	3
>4%	0	0	0	0	0
Total	248	265	319	352	383

Number of Districts District Exposure As % of Borrowers

	Figures
	FY2020	FY2021	FY2022	FY2023	FY2024
<0.5%	177	195	252	282	321
0.5-1%	40	46	45	52	49
1-2%	27	21	19	16	12
2-4%	4	3	3	2	1
>4%	0	0	0	0	0
Total	248	265	319	352	383

H. Human Resources (HR)

Dignity in the workplace and trust are the principles of the company. A constant effort is put to improvise the monetary benefits, rewards, recognition along with non-monetary benefits to its employees and their families. Supporting internal stakeholders using technology such as mobile apps and HRIS support systems has increased the solidarity within the organization. Many initiatives towards employee engagement including ‘Paathashaala for career development, ‘Kreeda Utsav for sports, Online library, Health check-ups, Blood donation, ‘Parivartan for monthly feedback from new hires, etc are in place.

HR Highlights

• 19,395 permanent employees as on March 31, 2024 with an attrition rate of 30.8%

• No pending concerns under labour compliances, sexual harassment, and disciplinary issues

In-house Training

Learning and development plays a crucial part in nurturing our employees. The in-house training effectively helps employees to increase their potential on an individual and organization level. Significant focus is provided on trainings related to Client Protection, Code of Conduct, Anti Sexual harassment policy and Phishing Awareness. Details on some of the training programs provided to employees are as follows:

Training Type	Number of Hours	Number of Staff Trained
Induction Training	936	14,849
New Product - Expansion	152	37,050
Other Trainings	95	1,411
Process Training	456	22,396
Skill Enhancement Program	64	132
Training on Behavioural Skill	208	4,814
Grand Total	1,911	80,652

I. Internal Controls and its Adequacy

CA Grameen strongly believes in Internal audit being a constantly reiterating process and facilitating the comfort to organisational growth. Our three-tier defense system enhances business operations by improved client connect, extensive field risk assessment and regular internal audits. The processes are supported by analytics and experienced staff which result in improved efficiency, thus rejuvenating audit activities into strategic intelligence to the company.

J. Risk Management

Our highly perceptive risk management system stands as a safeguard against the dynamic external environment and progressing operational challenges. We integrated risk management across all our business processes by taking various initiatives, while perpetually adapting to the best industry practices enhancing competence. A business rule engine enabling agile credit underwriting has been implemented leveraging the power of data analytics. This has enabled us to apply complex credit decision rules for existing and new lending products by optimising efficiency and data quality.