Moneyboxx Finance Ltd Management Discussions.

OUR BUSINESS

Moneyboxx Finance Limited (MFL, Moneyboxx or the Company) is a BSE-listed, NonDeposit taking, Non-Systemically Important Non-Banking Financial Company (NBFC-ND- NSI) registered with the Reserve Bank of India (RBI). It is a subsidiary of Moneyboxx Capital Private Limited and is engaged in the business of providing small-ticket business loans to micro and small enterprises. With financial inclusion at its heart, Moneyboxx caters to unmet credit needs of micro and small enterprises in Tier-III and beyond cities and rural areas.

With 22 branches spread across four states (Rajasthan, Madhya Pradesh, Haryana, and Punjab), it caters to credit needs of micro entrepreneurs in important and essential segments (livestock, kirana, retail traders, micro-manufacturers) by extending business loans ranging from INR 50,000 to 3,00,000 with tenure ranging from 6-36 months.

OPERATING ENVIRONMENT

Global economic rebound continues after once-in-a-century pandemic shock.

Outbreak of COVID-19 pandemic in 2020 took a heavy toll on lives and livelihoods of millions of people around the globe. Pandemic-induced lockdowns and restrictions brought economic activity to a standstill in the early part of 2020 and sent shockwaves throughout the global financial markets.

However, governments and central banks around the world, having learnt lessons from the Global Financial Crisis of 200809, responded quickly with an unprecedented amount of fiscal and monetary stimulus, averting a global meltdown and leading to a strong and quick rebound in economic activity in the second half of 2020. Approval of vaccines in the later part of 2020 led to improvement in sentiments and supported economic rebound. The pace of vaccinations across the globe remains slow and uneven.

To top this up, uncertainties about subsequent waves and virus mutations exists.

Despite this, prospects of economic rebound and recovery look brighter with continuous support from policy makers, availability of vaccines, and better preparedness of the healthcare infrastructure after previous waves.

The Indian economy is projected to grow by 9.5% in 2021 and 8.5% in 2022 after a contraction of 7.3% in 2020 as per IMF projections.

India: Fast and equitable growth imperative

India had a quick rebound in economy activity after a sharp contraction in activity in Q1 of FY21 with GDP contracting by 24.4% compared to prior year. With gradual lifting of restrictions and reopening of the economy, the pace of contraction moderated to 7.4% in Q2, and GDP returned to positive terrain in Q3 of FY21. The economic rebound was supported by various measures taken by the Government and RBI. Overall, the total support announced by the RBI for the economy since February 6, 2020 (up to May 5, 2021) amounted to INR 15.7 trillion (8.0 per cent of 2020-21 nominal GDP).

Notwithstanding the short-term challenges posed by the pandemic, India is an emerging economic power with great potential given its large population base, young and educated workforce, and natural endowments of resources. While India is the worlds third largest economy by GDP in purchasing power parity terms, it ranks low both in terms of per capita income at 155th position (GDP per capita in PPP terms of USD 6,454 in 2020) and Human Development Index with a rank of 131 out of 189 countries and classified under medium human development category.

VITAL ROLE OF MSMEs

Indias 63.4 million Micro, Small and Medium Enterprises (MSMEs) play an important role in the economy with a 28.9% contribution to GDP and 48.1% to countrys exports. MSMEs play a vital role in inclusive growth and economic empowerment with 51% of them situated in rural areas and 99.5% being micro enterprises.

WHY CHOSE USRs.

Huge Market Opportunity

While MSMEs play a crucial role in achieving fast and equitable economic growth, they face a huge credit gap estimated at INR 25.8 trillion in 2018 as per IFC Report.

• Lack of credit history

• Inability to provide collateral

• Lack of formal documentation

Inhibit the flow of credit to micro and small enterprises (MSEs).

Banks and NBFCs perceive lending to MSEs as high risk, expensive proposition considering small average credit size, high transaction costs (due diligence, collection) Credit underwriting is difficult due to lack of information and predictable cash flow analysis.

Outdated underwriting: Focuses more on collateral and unable to assess true repayment capacity of the borrower.

Lack of innovative products: Inflexible loan terms (tenure, payment structure) and rigid collateral requirements.

Debt Demand by Total MSME Debt Formal Debt Supply MSME Demand

Moneyboxx addressing the credit needs of Missing Middle

• Bottom of the pyramid borrowers in India are adequately addressed by numerous MFIs providing small group loans (MFI loans outstanding of INR 2.59 trillion as of March 2021)

• Secured loans with higher credit size (INR 300,000+) and salaried individuals and enterprises with documentary proof too are actively pursued by Banks and Fintech NBFCs

• However, unsecured business loans to Individuals in INR 50,000 to 300,000 ticket- size range is a severely underserved segment, presenting a huge market opportunity. Though, few MFIs and SFBs have selectively started giving individual unsecured loans of up to INR 100,000 the percentage is minuscule

• Additionally, there is growing credit needs of microfinance borrowers graduating to individual loans

• Fintech companies are unable to serve this segment effectively due to lack of data and addressing this segment requires on-ground presence for effective underwriting and collection efficiency

Moneyboxx is addressing the credit needs of these underserved micro and small enterprises overlooked by Banks and NBFCs.

CREDIT FLOWS TO MSMEs: Small-ticket Loan is a Severely

Underserved Segment

Commercial loans classified based on credit exposure aggregated at entity level.

Micro segment includes Very Small (<INR 10L), Micro1 (INR 10-50L) and Micro2 (INR 50L - 1 Crore) segments.

Huge Lending Opportunity

• Small-ticket loans (INR 50,000 to 10L) with credit outstanding of INR 1.02 trillion is a severely underserved segment compared to microfinance loans (INR 10,000 to 50,000) market at INR 2.59 trillion, thus presenting a huge lending opportunity. Moreover, there is additional demand from borrowers graduating from group loans to individual loans

• Notwithstanding the short-term challenges posed by the pandemic, given the huge unmet credit demand of micro enterprise estimated at around INR 8 trillion, and supportive policy framework, micro enterprise lending represents a huge opportunity which Moneyboxx is well positioned to benefit from given its direct-to-customer approach through branch presence and deployment of technology in credit assessment, delivery, and analytics

MSME LENDING - TRENDS IN FY21

High Disbursements to MSMEs driven by ECLGS

Disbursements to MSMEs grew by 40% to INR 9.48 trillion in FY21 and the sharp jump in MSME lending was supported by ECLGS (Emergency Credit Line Guarantee Scheme) of the Government which provided 100% credit guarantee to lenders.

High Disbursements to MSMEs driven by ECLGS

Disbursements by Credit Size (INR trillion) Mar20 Mar21 YOY %
Micro: < Rs. 1 Crore 1.61 2.05 27.0%
Small: Rs. 1-10 Crore 2.64 3.86 46.1%
Medium: Rs. 10-50 Crore 2.51 3.56 42.0%
MSME Total 6.77 9.48 40.0%

Strong Rebound in Credit Demand and Policy Support

MSME credit outstanding grew by 6.5% YoY to INR 20.21 trillion as of March21. The strong rebound in credit demand, accompanied by equally strong credit supply and ECLGS support, led to growth in the credit outstanding amount of MSME sector to INR 20.21 trillion (lakh crores) and this credit growth was observed across all the subsegments of MSME lending as shown in the below table.

Commercial Credit by Segments (INR trillion) Mar19 Mar20 Mar21 YOY % CAGR %
Micro: < Rs. 1 Crore 4.53 4.83 5.16 6.8% 6.7%
Small: Rs. 1-10 Crore 7.44 7.64 8.17 6.9% 4.8%
Medium: Rs. 10-50 Crore 6.61 6.50 6.88 5.8% 2.0%
MSME Total 18.58 18.97 20.21 6.5% 4.3%

As per TransUnion CIBIL MSME Pulse, June 2021 Report, lending to New-to-Bank (NTB) MSMEs recovered back to pre-COVID levels, while lending to Existing-to-Bank (ETB) continues to be buoyant as of March21. Credit disbursals to NTB MSMEs had dropped by 90% in April20 compared to pre-COVID levels and has gradually returned back to 5% higher than pre-COVID levels in March21. Credit disbursals to ETB MSMEs jumped to 75% over pre-COVID levels in June20 due to ECLGS, and since then has sustained at pre-COVID levels.

The significant surge in MSME credit demand post unlocks reasserts Indias growth story. Governments pro-growth initiatives like extending ECLGS support to the tune of INR -4.5 lac crores, regulatory reforms like restructuring of loans and the swift implementation of these initiatives by banks and credit institutions using data analytics has paved the way for fortifying MSMEs. With these progressive policies and support, Indias MSME sector is set on a definite resurgence trajectory, and this bodes well for the future strength and growth of our economy, states TransUnion CIBIL MSME Pulse June 2021 Report.

Stable NPA Rates for MSME Portfolios

NPA rates remained stable due to high credit growth and various support measures from government and regulator. NPA rates for MSMEs remained stable at 12.5% for March21 compared to 12.6% for March20. NPA rates jumped across subsegments in June20 and reduced by September20 before inching up again in March21. Within the MSME subsegments, the NPA rates are higher for subsegments with larger ticket sizes and lowest for Micro loans.

Opportunity for NBFCs to gain market share from PSU

Private banks gained market share in new originations at the expense of PSU banks while the market share of NBFCs remained stable in FY21. Low market share of NBFCs at around 11% presents an opportunity to gain market share from PSUs.

CREDIT DELIVERY AND FINANCIAL INCLUSION POLICY INITIATIVES OF RBI AND THE GOVERNMENT

In the face of challenges due to COVID-19 pandemic, the RBI focused on strengthening the credit delivery mechanisms to ensure adequate and timely flow of credit to all productive sectors of the economy, especially agriculture and micro, small and medium enterprises (MSMEs).

Major initiatives taken by the Government of India and RBI during FY21 were:

Review of Priority Sector Lending Guidelines

RBI reviewed its priority sector lending (PSL) guidelines with an objective to harmonize instructions issued to banks and various financial institutions and bring sharper focus on inclusive development. Through PSL targets for banks, the RBI aims to enable sections of society, which though creditworthy, are unable to access the formal banking system, for adequate and timely credit.

New MSME Definition

The Government of India notified new definition for classifying enterprises as MSMEs, using composite criteria of investment and turnover, effective July 1, 2020, bringing more enterprises under the eligibility net for MSME-specific programs and support measures.

Enterprise Investment in plant and machinery or equipment Turnover
Micro Up to INR 1 crore Up to INR 5 crore
Small Up to INR 10 crore Up to INR 50 crore
Medium Up to INR 50 crore Up to INR 250 crore

Introduction of Co-lending Model

To provide greater operational flexibility to banks and NBFCs for reaching out to priority sector, a revised scheme, renamed as co-lending model (CLM) was introduced, effective November 5, 2020. The primary focus of the revised scheme is to improve the flow of credit to the unserved and underserved sectors of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the comparative advantage of lower cost of funds of banks and greater reach of NBFCs. While the earlier scheme of co-origination allowed banks to partner with only nondeposit taking systemically important NBFCs (NBFCs-ND-SI), the revised scheme allows co-lending with all registered NBFCs (including housing finance companies) based on a prior agreement.

Financial Inclusion Plans

To achieve a planned and structured approach to further financial inclusion, banks have been advised to prepare Financial Inclusion Plans (FIPs) and report the progress made to RBI monthly.

Multi-decade Opportunity

Lending to micro enterprises is a sustainable and high growth opportunity given the huge unmet credit needs of the micro enterprises and the continuous focus and efforts of the Government of India and RBI on improving on financial inclusion.

MONEYBOXX: FY21 PERFORMANCE REVIEW

Performance at a glance FY20 FY21 % YOY
Operations
Branches 11 22 100.0%
Active Customers 2,885 6,800 135.7%
Employees 121 228 88.4%
Business (INR crore)
Disbursements during the year 33.91 55.44 63.5%
Loan Book as of 31st March 29.28 61.88 111.3%
Income & Profitability (INR crore)
Total Income from Operations 3.75 10.97 192.4%
Profit (Loss) Before Taxes -3.41 -3.89
Profit (Loss) After Taxes -3.55 -2.97
Fund Raise (INR crore)
Equity raised during the year 11.65 -
Debt raised during the year 17.50 41.50
Debt repaid during the year -1.54 -12.45
Capital Position (INR crore)
Equity as of 31st March 27.13 24.15
Debt as of 31st March 15.96 45.01

Business Expansion: Further Penetration in Existing Clusters and States

Moneyboxx expanded its operations in FY21 by adding 11 new branches during Q3FY21, spread across Rajasthan, Haryana, Punjab, and Madhya Pradesh. It expanded its presence to leverage its position in these states drawing comfort from its robust asset quality and high collection efficiency.

Moneyboxx expanded its presence in existing clusters and states to seize growth opportunities with focus on essential sectors and services.

Disbursements during FY21 grew strongly by 63.5% to INR 55.44 crores, though were very negatively impacted by COVID-19 in H1FY21 with nil disbursement in Q1.

Business momentum picked up in the second half of the financial year. Disbursements during Q4FY21 were INR 25.07 crore, registering a growth of 27.6% compared to Q3FY21, driven by growth at existing and launch of new branches.

Fast scaling up operations in 2 years since the launch of first branch in Bharatpur, Rajasthan in Feb 2019.

Expanding Income with Growing Scale

Total Income from Operations for FY21 was INR 10.97 crore compared to INR 3.75 crore in FY20, reporting a growth of 192.4% despite the impact of the pandemic which led to almost NIL growth in AUM in H1FY21, but helped by improving business at existing branches and addition of new branches.

Loss before tax for FY21 was INR 3.89 crore compared to Loss before tax of INR 3.41 crore in FY20. With recognition of deferred tax assets of INR 0.91 crore in FY21, Net Loss for FY21 was INR 2.97 crore compared to a Net Loss of INR 3.55 crore last year. The losses are attributed to build-out stage costs in the first two years of operations, though the losses would have been negligible in FY21 had the pandemic not hit.

Moneyboxx is committed to building a scalable and sustainable business model and the Management has outlined a clear path to profitability with growing scale and AUM, rising employee productivity and benefits of operating leverage.

Diversified Operations

Companys AUM grew by 111.3% in FY21 to INR 61.88 crore and AUM is well diversified across geographies and sectors with focus on essential sectors and services, thus lending stability to portfolio quality. Most livestock borrowers have more than one sources of income such as agriculture income, small kirana shop or small job which provides additional stability in income. Once COVID situation improves, exposure to non-livestock segment expected to go back to pre-COVID levels of about ~50%.

High Collection Efficiency and Robust Asset Quality

Moneyboxx grew its loan book with a focus on borrowers in essential sectors (viz. Livestock, Kirana) helping it build a strong book with negligible NPAs and maintain high collection efficiency even during the pandemic. High collection efficiency of 97.4% during the moratorium period March-August 2020 and cumulative collection efficiency of 99.6% up to March 2021 despite the pandemic is a testimony of very strong underwriting standards and collection efficiency at Moneyboxx.

Exceptionally strong asset quality with 99.36% of loan portfolio in current category as of 31 March 2021 and negligible write-offs of INR 10.53 Lakhs during FY21 (0.17% of Closing AUM).

Portfolio Mar-20 Mar-21
On-time 29.28 100% 61.49 99.36%
Delinquent - - 0.39 0.64%
Days past due (DPD)
1-30 DPD - - 0.13 0.20%
31-60 DPD - - 0.05 0.09%
61-90 DPD - - 0.08 0.13%
91-120 DPD - - 0.07 0.11%
121-150 DPD - - 0.06 0.10%
Total (INR crore) 29.28 100% 61.88 100%
Asset Quality Ratios FY20 FY21
Cumulative Collection Efficiency % 100.00% 99.64%
Gross NPA % Nil 0.21%
Net NPA % Nil 0.11%
ECL Provisions (% of Loans) 1.04% 0.49%

Gross NPA (INR 13.2 Lakhs) was 0.21% of Loans as of 31.03.2021 compared to Nil as of 31.03.2020. Net NPA (INR 6.6 Lakhs) was 0.11% as of 31.03.2021 compared to Nil as of 31.03.2020. Expected Credit Loss (ECL) provisions stood at INR 30.32 Lakhs (0.49% of Loan Book) as of 31.03.2021 compared to INR 30.32 Lakhs (1.04% of Loan Book) as of 31.03.2020 which is adequate based on management assessment of very low delinquent assets.

Strong Capitalization and Diversification of Funding Sources

Moneyboxx is adequately capitalized with a Capital Adequacy Ratio of 39.4% (of which Tier-I 39.02%) as of 31.03.2021 compared to 93.65% (of which Tier-I 92.62%) as of 31.03.2020. The Company had strengthened its capital base just before the start of pandemic by raising INR 11.65 crore Equity Capital in Feb 2020.

Moneyboxx also reduced funding cost and diversified its funding sources by adding 12 new lenders in FY21, taking the total lender count to 14 as of March 2021. New lenders in FY21 included reputed names - AU Small Finance Bank, Ambit Finvest, Ashv Finance, BlackSoil Capital, Caspian Debt, Hinduja Leyland Finance, Capri Global, InCred, UC Inclusive Credit and others. Total debt raise was INR 41.5 crore in FY21 which was lower than expected due to general risk aversion of lenders amidst the pandemic. Continued support from existing lenders and addition of 12 new lenders demonstrates the confidence of the lenders in Moneyboxxs credit processes, asset quality, collection efficiency and the management team.

MONEYBOXXS DIFFERENTIATED ‘PHYGITAL MODEL

Building a Scalable and Profitable business with Financial Inclusion at heart

Moneyboxx is engaged in the business of providing small-ticket loans to micro and small enterprises in Tier III and beyond towns. It started its operations in February 2019 and in a span of two years, successfully scaled up its presence to 22 branches across four states (Rajasthan, Haryana, Punjab, and Madhya Pradesh) as of March 2021. The Company aims to build a scalable and profitable business model with financial inclusion at its heart.

M ission: To deliver easy, cost efficient and technology-driven financing solutions to aspiring micro enterprises

Vision: To be "The Lender of Choice" for deserving micro enterprises in India

Target Market and Product Strategy: Moneyboxx is addressing credit needs of under-served Micro and Small Enterprises (MSEs) overlooked by Banks and NBFCs. The Company follows a phygital business model with on-ground presence for better understanding of customers and leverages technology right from credit assessment to approval, disbursement, collection, reporting and analytics.

Strong Management

Moneyboxx is promoted by a team of professionals with decades of experience in finance industry. We are run by promoter management having senior level experience at HSBC, JP Morgan, Bank of America, Deutsche Bank, KPMG, and decade long experience of running own boutique IB firm. In addition to strong and dynamic management team, it has veteran and coveted independent directors on its Board. The co-founders are supported by experienced professionals from micro-loans industry.

Our Unique Approach

Moneyboxx is at the cusp of acquiring significant scale of operations and is well poised to benefit from the tremendous lending opportunity in the micro and small segment with its differentiated approach.

• Direct-to-customer: Reaching out to customers directly without third-party agents, hence focusing on relationship-based business and not product-based approach

• Strong Underwriting Capabilities: Robust credit underwriting backed by nontraditional and non-financial alternative data sources and sector specific inputs

• Unique Credit Methodology: Customers enterprise is analyzed in-depth, and the trades are continuously monitored incorporating the changes in the credit evaluation tool accordingly. Unique methodology for a diverse set of micro enterprises focusing on ones in manufacturing, trading, services and livestock segment

• Leveraging IT in Decision-Making: Combination of human knowledge and technology to acquire and understand customers in the underserved micro enterprises space

• Analytics: Crunching of data points at backend for segmental understanding of small but valued businesses. Supervised Machine Learning Algorithms Like Random Forest and Logistic regression for predictive analysis, customer sentiment analysis

• Cluster Approach: We focus scaling up in particular geographies, thereby maximizing the value we can extract from localized economic development

• Leverage local team and intelligence

• Strong Collection Mechanism

TECHNOLOGY

Digital processes and tech-enabled decision making

Moneyboxx is at the forefront of deploying technology and continues to make significant investments in IT infrastructure to leverage the power of technology in digitizing processes and analytics and decision making.

IT Infra building has always been a focal point for us. Technology has been deployed to support the implementation of partnerships for business generation and collections, operational efficiencies, and compliance with regulations.

- Implemented enterprise platforms such as Microsoft NAV and Tableau BI tool hosted on a cloud platform with industry standard BCP framework. Regular assessments are done to improve the efficiency of the key IT applications keeping in mind changing business requirements

- Automated business controls and report generations, thereby reducing manual dependency

- Focus on UI/UX (User Interface/User Experience), such as tracking time spent by user in each screen, optimizing screen usage time to reduce TAT in terms of filling loan application

- Stress-testing of Application to understand the gaps in the product

- Product re-designing using Scrum framework as we move to more agile methodology

- Automated MIS reports, real-time data update and dashboard upgradation

Risk Management and Internal Controls

The Company has put in place an adequate internal control system to safeguard all its assets and ensure operational excellence. The Company also has a team of internal auditors to conduct an internal audit which provides that all transactions are correctly authorized and reported. The Audit Committee of the Board reviews the reports and wherever necessary, strengthening of internal control systems and corrective actions are initiated.

Human Resource Development

Financial year 2021 has been a year of transformation for any organization from Human Resource perspective. COVID-19 has changed the entire gamut of working culture from working closely in physical office space to a large work force moving to working remotely from homes. During the initial phase, many organizations and employees struggled to adjust to this hybrid model but have now come to terms and operating at pre-pandemic level from a productivity perspective.

We at Moneyboxx were quick to adjust to this new arrangement and all our employees could work remotely in the initial phase of the lockdown seamlessly, thanks to our agile IT systems and various collaboration tools that we deployed to work efficiently.

Moreover, we also ensured that no employee was asked to leave the organization during these difficult times, but in fact we extended all the rightful claims like salary increments, bonuses, and additional medical care benefits as per need.

We consider our people as our biggest asset and hence we make sure we hire the right talent with the right skill set. All employees go through a rigorous interview and onboarding process. The senior management is personally involved in each and every hiring, giving the importance it deserves.

We are building an inclusive working culture which is based on trust, respect and transparency. We believe a high performing culture leads on the above parameters, leads to high employee productivity and satisfaction. We have an active Rewards and Recognition program at the organization level to motivate employees and keep the engagement levels high.

We will continue to invest in our people through various training programs, providing growth opportunities in both functional and cross-functional roles and provide mentorship for shaping their careers.