Information Memorandum Chaitanya India Fin Credit Pvt. Ltd. PRIVATE - - PowerPoint PPT Presentation

Information Memorandum

Chaitanya India Fin Credit Pvt. Ltd.

PRIVATE & CONFIDENTIAL

Disclaimer

1

• Chaitanya India Fin Credit Pvt. Ltd. (“CIFCPL” or “the Company”) is engaged in microfinance business across Karnataka, India. Chaitanya

Rural Intermediation and Development Services Pvt Ltd (Chaitanya Rural IDSPL “or” the holding company”) is a holding company that is currently non operating and holds 100% equity in CIFCPL.

• CIFCPL is a NBFC-MFI, and Chaitanya Rural IDS-PL is a holding Company
• This Confidential Information Document (the “Memorandum”) is based on management estimates and is being provided to you (hereinafter

referred to as the “Recipient”) only for information purposes. The sole purpose of this Memorandum is to provide preliminary information on the background of the Company, an overview of the business and operations. This Memorandum does not purport to be all inclusive nor does it necessarily include all information that a prospective partner may desire in evaluating the Company. The Company expressly disclaim any and all liability for any errors and/ or omissions, representation or warranties, expressed or implied as contained in this document.

• This Memorandum has been prepared for information purposes relating to the Company only and upon the express understanding that it will

be used only for the purposes set forth above. This Memorandum may not be photocopied, reproduced or distributed to others at any time without the prior consent of the Company or the Advisors. Upon request, the Recipient will promptly return all material received from the Company and/or the Advisors without retaining any copies thereof.

• Neither this Memorandum, nor its delivery to any prospective partner/ investor/ financier, nor any information contained in it or

representations supplied or made in connection with any negotiation shall constitute an offer to subscribe or the solicitation of an offer to acquire any part of the business nor shall it form any basis or part of any agreement or arrangement of any kinds with the Company.

• In furnishing this Memorandum, the Company, and the Advisors do not make any obligation to provide the Recipient with access to any

additional information on CIFCPL or their affiliates. This Memorandum should not be deemed an indication of the state of affairs of CIFCPL nor shall it constitute an indication that there has been no change in the business or state of affairs of CIFCPL since the date of publication of this Memorandum.

• Any clarifications/ queries on the proposal as well as any future communication regarding the proposal should be addressed to the

Company.

PRIVATE & CONFIDENTIAL

Index

2

1 Executive Summary 2 Chaitanya Profile 4 Business Plan 5 3 Chaitanya Strategy Overview Appendix

PRIVATE & CONFIDENTIAL

Executive Summary – A Rural Financial Inclusion Opportunity

3

• Formal Players in rural finance are the PSBs, RRBs, Cooperatives and few NBFC, MFIs
• Market Growth and Potential in rural finance is not limited by customer demand but by last

mile capabilities to distribute, deliver and manage risk at an effective cost.

• Migration from Informal sources to Formal Institutions accelerating growth in financial services
• Micro Finance Institutions have created a viable distribution architecture but have a single

product focus (JLG) Chaitanya - A Sound track record of sustainable execution on a high growth path

• Equity base of Rs 22 Cr with promoters and associates holding more than 97%
• 83% growth y-o-y since 2010 and Profitable since March 2011
• Portfolio of Rs 75 cr with losses of less than 0.1% since inception. Total Cumulative loss of Rs

4.5 Lakh on Rs 130 cr of repayments till March 2014.

• Successfully executed viable models for 2 Wheeler Loans, Gold Loans and Micro Housing

Loans in synergy with Micro Finance delivery structure

• Organization structure and processes designed to deliver multiple financial products and

services through the MFI set up

• Professional Board, Committed and Competent Top Management
• Increasingly Supportive Regulatory Architecture has revitalized growth in Micro Credit

and “SMALL FINANCE BANKS” could over time be the significant game changer in rural finance

A Business with a Strong Foundation in an attractive market with an opportunity to capitalize on unique regulatory circumstances

Financial Services for Rural Low Income Families Game Changing Opportunity

PRIVATE & CONFIDENTIAL

Key Equity Capital Fund Raise Milestones and Current Offer

4

Historical Fund Raise Current Offer – Series B

SKS Microfinance Market Cap (Rs cr) 4,343 AUM (Rs cr) 3,210 Current Price (Rs) 342.25 P / BV (30-Sep- 2014) 4.5 x

Public Market Peer Comparison

Note: SKS data sourced from SKS website and results for QE 30-Sep-2014

Significant head room to grow both Price to Book Multiple and the Book Value

SKS Microfinance is the

• nly listed microfinance

company and has been sighted only as a reference

S.No Type of Fund Raise Year Total Fund Raised (Rs cr)

• No. of

Shares Share Price (Rs) Price / BV

1 Seed 2009-10 2.35 2,354,000 10 1.00 2 Seed Sep-10 2.92 2,920,000 10 1.00 3 Series A Apr-11 7.19 3,992,926 18 1.80 4 Rights Dec-14 6.75 2,700,000 25 1.55 Target Closed Date 15-Jan-15 Target Amount (Rs Cr) 18.00 Offer Price (Rs) 28 Ticket Size Indicative Pre-Money P / BV 1.54 Indicative Post-Money P / BV 1.30 Rs 5 Lakhs and above

PRIVATE & CONFIDENTIAL

Index

5

1 Executive Summary 2 Chaitanya Profile 4 Business Plan 5 3 Chaitanya Strategy Overview Appendix

PRIVATE & CONFIDENTIAL

Chaitanya’s Mission – Double Bottom Line

Chaitanya engages with customers only if it believes it can make a positive impact in the lives

• f the customers and only if it can profitably serve them on a sustainable basis

Note: Double Bottom Line refers to emphasis on equity holders returns coupled with improving lives of low income families.

Ensuring sustainable Shareholder Returns Improving Lives of Low Income Families through Financial Services

• Focus on Sustainable Shareholder

returns, ensures long term viability of business and access to capital

• Improvement in customers‟ lives is vital to secure

quality portfolio performance and sustainable

• perations
• Explicitly stated financial expectations, creates
• rganizational discipline to ensure commercial

viability for product and customer choice

• Employees are inducted into a culture of delivering

both customer value and commercial value 6

PRIVATE & CONFIDENTIAL

Chaitanya Operational Highlights – Focus on Growth + Profitability + Product Scope

7

• Profitable from 2nd Year of operation – Operating structure aligned and scaled with business size
• 83% AUM CAGR between 2011-14
• Overall repayment rate has consistently been over 99.9%

‒ Total accumulated loan loss of Rs 4.5 Lakh from total cumulative repayments of Rs 130 cr

• Incremental Cost / Incremental Portfolio (Incremental OCR) in 2013-14 is 7.82%
• 9 out of 14 middle management employees have been with the company for more than 4 years
• Over Rs 70 cr of current borrowings from Banks and FIs
• First Activity Based Lending - Live Stock Loans with Live Stock Insurance for 4,000 customers
• Successful foray in multi-product lending (c. 11% of AUM in non-microfinance products)

‒ Vehicle Loan portfolio of Rs 5.0crs in 2 regions with 2 years of operational experience ‒ Gold loan portfolio of Rs 2.5crs in 2 branches with 2.5 years of experience in the product ‒ Pilots in Micro-Housing loans leading to collaboration with Two leading micro HFCs. 12% of current JLG loans are for housing

A credible rural focused multi product NBFC-MFI scaled systematically with sound risk management and a process oriented business model

PRIVATE & CONFIDENTIAL

Corporate Structure – Residents hold more than 65% in Chaitanya Rural IDS

• The current corporate structure consists of two

companies ‒ (“Chaitanya Rural IDS”): Holding company which holds 100% of the microfinance company. ‒ Chaitanya India Fin Credit Pvt. Ltd. (“CIFCPL”) the NBFC-MFI providing loans in the Joint Liability Group is 5 years old ‒ Gold, Vehicle and other loans will be moved to the Holding Co after obtaining a NBFC License

• The structure has been designed so that the NBFC-

MFI is complaint with RBI requirements for MFI Assets while the Holding Company can scale up the other financial services businesses

• The holding company can start operations after it
• btains a NBFC license from the RBI
• Unique Shareholding Structure - Promoters and close

associates (c..50 individuals) of promoters own 97% of shares

• Funds Raised through friends, family and colleagues of

the promoters 8 Operating Hold Co. (Chaitanya Rural IDS ) (Rs 22cr) Microfinance Entity (CIFCPL) (Rs 21.5 cr) 100% Promoters Other Shareholders New Share holders

Present Shareholding Structure Fully Committed First Generation Entrepreneurs backed by High Quality Professionals as Investors

Other Shareholders 51% Promoters 49%

PRIVATE & CONFIDENTIAL

Promoters & Board of Directors – Diverse and Committed Team

Samit Shankar Shetty

• Set Up and led Olam‟s coffee business in Brasil as its

Country Manager which is now a 1$Bn Business.

• Profitably Scaled it to a turnover of $ 300 Mn, in 4 years
• Spent 4+ years in operations intensive procurement , trade

financing, farmer financing and processing operations in Africa, as a Territory Head and 2 years as a Profit Centre Head

• MBA from IIM, Ahmedabad
• Handles Operations and IT in Chaitanya
• 4 years leadership position at an international non-profit
• rganization, S3IDF; Setup over 25 innovative enterprises

that deliver infrastructure services to the poor at S3IDF

• Worked for 2 years with International Non-Profit

Organization – World Resources Institute

• 3 years corporate experience at Pepsico & Bosch India
• MA in International Relations from Syracuse

University, USA and MBA from IIT, Bombay

• Handles Internal Audit, Finance, Accounting and Risk

9 Anand Rao

Promoters Board of Directors

Ramesh Sundaresan

• Investor‟s nominee Director at Chaitanya
• MD of Invenio, Singapore based company,

engaged in providing market making and risk management solutions in agricultural derivatives

• Global Head / President of Risk

Management solutions at Olam K S Ravi

• CA by profession being the Managing

Partner of M/s Ravi & Shrihari

• Advices on statutory matters to institutions

in the social sector for the last 20 years

• Involved in mentoring NGOs

A Narasimha

• Retd. GM with 37 years of banking

experience in IOB, Vijay Bank and Andhra Bank Nanda Kumar R

• Retd. VP at ING-Vysya with 30 years of

banking experience

• Currently working as Group CEO of

Emmvee Group

Team Chaitanya Brings together experience in professional corporates and rural community based organizations

PRIVATE & CONFIDENTIAL

Corporate Timeline

The Right Foundation for Sustained Long Term Growth

10

2009 2010 2011 2012 2013 2014

• Achieved profitability in

Sep 2010

• Regional Structure Put

up for Jagalur Region

• SIDBI extends first loan
• f Rs One Crore
• Mar: Incorporated
• Oct: Started
• perations in Jagalur
• Delphix Nano Core

MFI Solution Implemented

• Raised Series A

funding – Mar 11

• Belgaum and

Kushtagi Region Started

• Term loan availed

from a Bank- SBI

• Pilot of Gold Loan

product started

• Foray into 2W loans

in Kushtagi

• First Securitization

transaction concluded

• Divisional Office

Set up in Dharwad with Divisional Manager

• AUM Crosses Rs.

50 cr

• Manager to handle

Social Initiatives appointed

PRIVATE & CONFIDENTIAL

Chaitanya – Growth Over the Last 3 Years

All numbers in Rs Lakh unless otherwise stated Profitability with Growth, Scope and Scale

* PAT for FY 2013-14, impacted by RBI guideline to increase provisions on standard assets to 1% of the Portfolio from 0.25%. On a like to like basis, PAT would be Rs 103 Lakh

11

Organization Growth Portfolio & Profitability Growth

8 14 24 29 62 100 156 237 11,644 18,268 28,062 46,329 2011 2012 2013 2014 Branches Employees Customers

AUM Breakup Performance Metrics

JLG 89% Vehicle (2W) 7% Gold 4% 924 1,679 3,180 5,648 15.2 69.7 51.3 79.6 2011 2012 2013 2014 AUM (Rs Lakh) PAT

17.73% 15.44% 11.88% 13.55% 11.76% 7.82% 8.23% 7.92% 11.06% 2012 2013 2014 OCR Incremental OCR Interest Spread

PRIVATE & CONFIDENTIAL

Product Offerings – Customized Mix of JLG Loans

12 Catering to diverse customer requirements of loan sizes and repayment abilities within the JLG, through credit risk management skills , risk culture at the branch level and IT support systems at the back end

JLG Gold 2W Microhousing New Products

Product Current Portfolio (Rs cr) Max Exposure (Rs) 2Y Multiple Disbursal Loan 26.94 30,000 1Y Basic Loan 13.79 15,000 2Y Loan with Top-up Option 5.3 35,000 Short Term Loan 2.90 8,000 2Y Asset Purchase Loan 0.51 40,000 Livestock Loan 12.75 40,000 Proposed / Recently Introduced Products Housing Construction & Repair 50,000 Small Enterprise Loans 50,000 Agriculture Investment Loan 50,000 Small Business Investment Loans 50,000

• Joint Liability Group in the Grameen Model, 80% of loans for income generation, between Rs 5,000 - 50,000.
• Process Oriented Risk Management to assure group homogeneity, Customer and Group Intent, Financial

Discipline, savings and repayment ability.

• Clock work Repayments Mechanism ensures high efficiency and engagement with customers.
• Very Suitable for repayment levels less than Rs. 2,500 per month and for Income Generating Purposes.

JLG Loans Split by Purpose

Total JLG AUM: Rs 62cr 23.8% 23.6% 17.9% 11.6% 9.7% 13.4%

Live Stock Agri Related Working Capital for Small Businesses House Repair / Construction Vehicle / Auto Purchase, Maintainence Others

PRIVATE & CONFIDENTIAL

Product Offerings – Other Products

13

JLG Gold 2W Microhousing New Products

Gold Loans Vehicle Loans (2 W) Micro housing Loans Enterprise Loans and Agri- Asset Loans

• Pawn Brokers have the lion‟s share of the rural market followed by
• PSBs. Size of business not attracting Gold Loan Cos as yet.
• Tenure: 3-12 months, Interest charged: 24 %, 2 branches for 2.5 years

1 Non Microfinance assets are restricted to 15% of the total assets as per NBFC-MFI norms – restricting full scale up of other products

• Typical tenure: 18 months, Interest charged: 26 %
• Traditional 2Wheeler loans are through dealer network in district Head
• quarters. Sales at the Taluk places through sub-dealer is growing
• Nearness to villages and branch presence supports the 2Wheeler biz
• Typical tenure:24-60 months; Interest charged: 19% - 22 %, 50K-500K
• For loans above 1 lakh registered mortgage is insisted
• Group Methodology adopted for loans up to Rs One Lakh
• Piloting the partnership Models in 3 branches
• Working Capital and Asset acquisition loans for Shops, Food

Businesses, Skilled Professionals, Vendors greater than Rs.50,000

• Loans > 50,000 for irrigation systems, wells and other Agri-Assets
• Typical tenure: 24months, Interest charged: 24 %

Rs 2.5 cr Product Description Current Portfolio1 Products in Scale Up Phase Product Pipeline

Tie-up with 2 Rural Micro Housing Finance Cos Plan to launch it in the next 12 months in partnership

Leverage the Micro Credit Channel to Capitalize on Untapped Potential, driving Synergies

Rs 5.0 cr

PRIVATE & CONFIDENTIAL

139 177 384 552 2011 2012 2013 2014

Geographical Footprints – 17 Districts Currently Covered

14 Jagalur Kushtagi Gokak Kittur Holalkere

1 2 3 4 5

Base in Central Karnataka and expanding into all districts of North Karnataka through 21 regions

571 770 1,218 1,893 2011 2012 2013 2014 100 148 475 1,080 2011 2012 2013 2014 100 349 672 1,324 2011 2012 2013 2014

AUM in Rs Lakhs

Existing Regions Newly opened Regions Planned Regions (by Jun‟15)

1 5 4 B C D 3 2 A

Divisions

Division Gulbarga Division Hospet Division Dharwad Division Chitradurga

• A Region is contiguous area of around

50 Km Radius with a closely Knit Team

• f 30-50, led by a Regional Manager
• A Division is envisaged as Semi

Independent Business Unit with 5-6 regions and c. 30 rural Branches

PRIVATE & CONFIDENTIAL

Management Team – Rich Operational Experience in Rural Markets

15

Operations Support Functions

Jeyaseelan L Divisional Manager 5

• Worked as Regional Manager for 3 years
• 16 years of experience in the NGO sector

with the last assignment at Sampark as Project Manager

• Specialist in Self Help Group (SHG)

microfinance model Vinayak S. Patil Divisional Manager 3

• Has worked with NGOs for 7 years and in

a NBFC, IDF Financial Services

• Experience in training SHG members in

various livelihoods and Financial literacy Nagaraj C Regional Manager, Jagalur 5

• Joined as a Branch Manager
• Worked with SNEHA for 4+ years, a

NGO involved in social awareness and community development Other Key Management

• Raj Saxena (Head, Gold and SME Loans)

‒ 3+ years with IDBI (SME and housing)

• Iranna R Shelwadi (Regional Manager)

‒ 10+ years in Community Development

• Prakash S. (Regional Manager)

‒ 8+ years in MFI space

• Sandeep Adhyanhta (Regional Manager

‒ 5+ years with SELCO Vasudeva S.B. Financial Controller 5

• CA with >25 years of experience in

India and Abroad.

• Expertise in financial management,

taxation and corporate affairs. Shreepad Mohan Vaze HR Manager 4

• 6+ years in Azim Premji Foundation

and 3 years in Deshpande Foundation

• Expertise in training young

professionals S Vijayakumar GM, Banking and Vigilance 1

• 35 Years in a PSU Bank in diverse

areas like audit, credit, factoring services. Other Key Personnel 5 Rakesh Mattar: Accounts & MIS Manager 5 Jignesh Bhalani: IT Manager 4 Guruswamy M.: Audit Manager 4 Shilpa Kalyani, Manager - Social Initiatives

Note: Numbers in middle column represent years with Chaitanya

A capable leadership team built by complementing their experience with management nous

PRIVATE & CONFIDENTIAL

• SMS/GPRS based tracking system to track punctuality and presence
• Custom built Integrated Risk management System based on attendance, loan utilization, economic

activities, household Occupations, staff assessment and audit feedback

• Methodology to grade repayment centers using risk indicators and rigorous tracking of the grading
• Escalation mechanism to ensure attention of Regional and Branch Managers linked to risk grading
• Multi Level Decision Making in Other Collateral based Loan Products
• Core Financial and Operations System implemented from Day one. Day - Close in Financial systems

is before 7:00 pm every day followed by automatic control reporting

• Continuous audit of repayments and customer interaction processes is structured to be random
• Quarterly Branch Audits are done by an external agency and are systematic
• 10 Well defined Activities (Plans) lasting 1- 3 hr constitute the field operating process
• The Activity Proposed for the next day is logged in on the previous day
• Customer outreach is achieved by managing the process activities instead of outcomes
• Scalable but Spread Out Recruitment Framework brings in employees from the community
• Multi Dimensional Performance Assessment is done at every level

Operational Backbone – Process Oriented Business Model

16 Custom Built IT Products MIS Framework Risk Management Field Process Framework Random Audit Process Quality HR Processes

The business is process driven and manpower Intensive. HR processes are key to incentivize behavior that support long term business sustainability

PRIVATE & CONFIDENTIAL

Index

17

1 Executive Summary 2 Chaitanya Profile 4 Business Plan 5 3 Chaitanya Strategy Overview Appendix

PRIVATE & CONFIDENTIAL

Rural Finance Model – Operationally Difficult, More Rewarding in the Long Run

Advantages

• Stronger bond among customers, lead to better

enforceability of the JLG mechanism

• Very high entry barriers

‒ Stickiness for a known/old player in the market ‒ Dispersed geographies makes it economically difficult to replace an existing player

• Rural customers are dispersed, separated by villages

and the domino effect in MFI defaults has been observed primarily in urban pockets

Challenges

• Lower population density and larger coverage area
• Rural women customers take longer to educate
• It takes longer to reach good penetration levels
• Recruitment needs to be local, to work effectively in

rural geographies

• Training and development takes longer, however a

settled employee is usually more stable

18

Rural FIs have to be differently enabled to capitalize on the potential and be effective Opportunities

• 68% of the population live in villages with less than

1,000 households

• Significantly lower MFI penetration
• SBLP (SHG Bank Linkage Program ) slow down

increases the opportunities for rural focused MFIs

• Lower competition in Non-JLG products - An opportunity

to leverage the network and profitably add newer products like Gold and 2 Wheeler loans, housing.

• Licensing norms for small banks / universal banks favor

rural MFIs.

• Very few rural focused pan India competitors

Concerns

• Dependency on Monsoons
• Scalability within a geography is slower and scalability

across geographies needs localization efforts in every location

PRIVATE & CONFIDENTIAL

Microfinance Industry – Outlook for Growth is Robust

Joint Liability Group based Micro Credit is expected to continue on a high growth trajectory by increasing rural penetration and taking market share from the SHG program. 19

• The potential size of the microfinance market is

estimated to be between Rs 140,000 – 250,000 cr3 ‒ Formal micro lending market is currently c. Rs 70,000 cr. Our estimates of latent demand in Karnataka is Rs 10,000 cr and of the country is above Rs 200,000 cr

• MFI credit is expected to grow at 25-30% over the

next decade

• 80% of the districts in the country have <20% MFI

penetration and rural areas further under penetrated

• Stabilization of credit bureau assists sustenance
• NBFC-MFIs continue to take market share from the

Government led SHG- Bank Linkage Program

• Supportive regulatory moves are SRO recognition

to MFIN, Priority sector status for NBFC- MFIs, guidelines for small banks Total Projected Microfinance Market (Rs cr)1

61,675 72,378 198,375 474,858 2013 2014E 2019P 2024P

1 Assumption: The total potential market grows at 15% (inflation adj.) and the penetration of formal sources increases from 48% (presently) to 78% by 2024. 2 Source: MFIN; represents 465 districts covered by MFIN members 3 Source: ICRA report on Industry Outlook and Performance of Microfinance Institutions, June 2014.

District Level Breakup by MFI Penetration Level2

20 35 119 124 167 >30% 20-30% 10-20% 5-10% <5%

The above represents number of districts (465) with different penetration levels

PRIVATE & CONFIDENTIAL

2 Wheeler Loan Market – Rural Market expected to Drive Growth

Lack of formal 2W loan providers in the rural segment presents significant potential for rural focused 2W loan companies, however the current lower base volume at each location makes it unviable for traditional players 20

Source: 2W Industry report by IndiaNivesh, 2W Industry Report by ICRA, Bajaj Fin Serve Investor Presentation Rural 40% Urban 60%

Rural | Urban Split

Total Size: ~Rs 100,000 cr

Proportion of Financed 2W stabilized between 2008-14 at 20%

• ICRA projects 9% CAGR through 2016-17 to reach a size of

23 mn units. Current 2W market is close to 100,000 Crores.

• Finance„s share of the market has stabilized around 20%

and 2014 lending is est at Rs18,300 Crores by bajaj finance

• Rural market has been growing at a faster rate primarily due

to ‒ Much lower penetration (c. 22%) in Rural areas ‒ Faster growth of people out of Poverty in Rural India in the last 7-8 years

• Most NBFCs are very strong in the semi urban district

locations and work through dealers located at the districts.

• Sub Dealer networks have come up in Taluk locations to

enhance reach and provide service support but financing at these locations is mainly through co-op banks

• Chaitanya conducted a survey in two districts of Karnataka

and found out that the monthly sales was c. 2,500 units, out

• f which 1,000 units were sold to buyers located in villages

‒ Out of 1000 only 100 were financed through formal channels (compared to 30% in district headquarters)

• Higher social cohesion, permanent residency and linkage to

economic activity make rural 2W loans less risky

• Spread and lower population density are challenges in rural

areas overcome by synergy with the micro finance network

Penetration Per 1,000

261 181 100 86 84 82 76 Indonesia Malaysia China Denmark Taiwan Brazil India 0% 10% 20% 30% 40% 50% 60% 2013-14 2010-11 2009-10 2008-09 2007-08 2006-07

PRIVATE & CONFIDENTIAL

57.8% 60.7% 57.6% 52.4% 52.3% 16.4% 16.5% 14.4% 13.1% 13.0% 11.3% 10.7% 18.3% 24.8% 25.0% 14.50% 12.10% 9.70% 9.70% 9.70% 2008 2009 2010 2011 2012 PSU Banks

• Pvt. Banks

NBFCs Cooperatives

Gold Loan Market – Shift from Unorganized to Organized

An Emergency Loan Option for most low income families, and a product that complements the other field based products for a MFI. Resource sharing in Cash Management, Risk management, transaction processing 21

• The Organised Gold Loan Market was over Rs. 160,000

cr in March 2012 (est share of 25%) with NBFCs having c. 25% market share at over 40,000 Crores.

• The AUM of the 2 dominant players has declined by

16.7% between Mar-12 and Mar-14 and we estimate NBFCs have de-grown by 16%-20%

• Last 2-3 quarters indicate stabilization of AUM of NBFCs.
• In Urban and Semi Urban pockets gold loan borrowing

has shifted from unorganized to organized players. This is driven by increasing accessibility of the organized players, better systems, processes, interest rates and security offered by the organised segment.

• Gold Loan Focused NBFCs have easier loan processing .

They focus on repeatable process to expand network.

• It is estimated that out of total gold reserve in the

country, rural India accounts for 65%. Rural areas are served by unorganized players, PSBs and cooperatives.

• Amongst the branch locations of Chaitanya, 70% do not

have any Gold NBFC branch creating an opportunity.

• Geographical proximity, service-agility, respect, fairness

and transparency in dealing drive business growth.

• Complementary to Micro Finance, as business growth is

not staff intensive but security of gold is a significant risk. Organized Gold Loan Market (Rs cr)

Organized Gold Loan Market Breakup

Source: Muthoot Finance, Aug 2011, Surveying the India Gold Loan Market Report by Cognizant (Jan 2012), RBI report on Issues related to Gold Imports and Gold Loans by NBFCs

21,722 33,126 53,863 90,059 160,576 2008 2009 2010 2011 2012

The above assumes cooperative share to remain constant in 2011 & 2012 as data NA

PRIVATE & CONFIDENTIAL

Microhousing Market – Demand much higher than Supply

Micro Housing Finance has 3-7 year Tenure and higher interest rates . Liquidity of the assets in the rural areas is low and origination is dispersed. Hence Rural Reach and customer assessment Skills of MFIs at the field level are crucial

22

Source: “Housing Microfinance in India: Benchmarking the Status” report by Access Assist, published in Dec 2013

Housing Finance Market Size <5L Housing Loans as % of Total Housing Loans

• Rural Value Housing

has a potential size of

• Rs. 4,26,100

Crores plus a equally large home improvement market

• Loan Sizes of Rs 1-1.5Lakh cater to families with Income less

than Rs.10,000 p.m (core MFI Customers) and from 1.5 Lakhs to Rs 5 Lakh for families with higher agriculture or business income .

• 90% of the rural housing shortage is in amongst the BPL

(Below Poverty Line) families

• Lack of institutional financing mechanism is evident

‒ 66% of financing of new construction in rural areas is through own resources, 27% from informal sources and 9% from institutional channels incl. Govt. Schemes.

• Though, loans for repair up to Rs 2 Lakhs and up to Rs. 5 lakh

for new houses is classified as PSL, affordable housing finance (sub Rs 5 Lakh) has not attracted Banks and traditional HFCs, as it involves field level cash flow assessment of each client and needs a differentiated structure

• NHB and other agencies including the World Bank now

recognise that MFIs with their JLG network, cash flow visibility and understanding, can help in reach and assessment leading to Specific Housing Micro finance thrust in the future policy

• In the Pilot Study it was noted that there is an annual potential

demand of 1,000 loans (a.10 Crores) in one Chaitanya branch significantly dwarfing potential of all other products. Urban Rural Housing Shortfall (mn units) 18.78 43.70

• Avg. cost of an affordable house (Rs mn)

0.50 0.13 Loan-to-value ratio (LTV) 75% 75%

• Avg. Loan per house (Rs mn)

0.38 0.10 Total financing requirement (Rs bn) 7,043 4,261 PSU Banks HFCs 26.20% 24.20% 16.60% 18.50% 16.20% 9.30% 2010 2011 2012

PRIVATE & CONFIDENTIAL

New Products – Exploring the Potential of the Rural Network

23

Multiple products – Viability, Risk Capability, Customer Need intersect at Product Choice

• Visible demand or perceived need in target customers, lower

and middle Income rural HHs.

• Potential in rural areas and is the potential driven by migration

from Informal sources.

• Lack of an efficient and strong local player in branch location;

possible to gain business competing on reach and service

• Should have potential to generate 3% ROA for asset based /

20% Net Margin for Fee based

• Capability to manage risk of the new product.

‒ Is customer and collateral assessment risks manageable by specifically trained Credit Officers ‒ Is technical / business assessment manageable by specially trained branch manager equivalent employees

• Are there possibility of synergistic partnerships

Criteria for Choice of New Loan Products

• Gold Loans - 2 Branches,

2.5 yrs

• Vehicle Loans - 2 Regions, 2

yrs

• Live Stock Loans with

insurance - 4,000 loans

• Micro Housing Loans – Pilot

in 3 branches, 3 months

• JLG Based House

Refurbishment Loans

New Products

• Business Loans for Small

Enterprise

• Investment Loans for Small

Enterprises

• Agriculture Asset Loans
• Small Savings Account – BC
• Micro Recurring Deposits –

BC

• National Pension Scheme –

Aggregator

Already Introduced Pipeline

• Use branch network and JLG customers to enhance reach
• Replace informal lenders by a responsive and transparent

lending mechanism that is economically viable and secure

• Shared branch infrastructure to reduce operational costs
• Tie-Up with partners to minimize risk and enhance learning

New Product Strategy

PRIVATE & CONFIDENTIAL

Organization – Structured to Distribute Multiple Financial Products and Manage Risks

24 Dummy Text

Branch Manager Credit Officer (Two Wheeler) Regional Manager Regional Product (2W) Manager Divisional Manager Product Head - D (2W) Responsibilities

• A professional Set up in

local rural geographies

• First level of leadership

teams from the local geography

• Hi- Quality local risk

management skills, and empowered local manpower structure needs training and time to build

• Coordination within

divisional teams

• IT Systems
• Equity Investments
• Audit /Control/Reporting

Capability of Customer Interface at the branch level, supported by product credit expertise, team leadership at the regional level and business/product management at the Divisional level Key Aspects of Structure

• Customer interface /

assessment

• Transaction handling
• Admin support
• Manpower & resource

allocation

• Customer house visits
• Repayment/Recovery
• Credit Assessment based on

customer Intent, background check and house visit

• Branch Level Product Expert
• Policy and Process

adherence

• Business growth

through branches

• Local Supervisory

Support / Leadership

• Train / Monitor / Support /

Key Product Resource in every branch

• Drive Portfolio Quality,
• Technical assistance in

Credit Sanction

• Business analysis and

Planning

• Policy formulation
• Coordination within

Regional teams

• IT/Accounts Support
• Training of regional

product managers

• Marketing inputs
• Product level training
• Product Business planning
• Product design
• Financial control & MIS
• Funding
• Risk management

PRIVATE & CONFIDENTIAL

Professional Corporate Core

Chaitanya Strategy – An Aligned Organization

25 Responsive Branch Interface …

Staff Strategy

• Locally recruited regional teams for

right presence

• Branch teams to manage customer

accounts and relationships

• Divisional team to skill, organize

support and control Expanding Reach

• Focus on rural market
• Choose geographies where Top 3

position in 80% of the villages is likely

• Move to other states after a strong

foothold in North Karnataka Right Mix of Values

• A strong risk mitigation culture in front

line staff

• Deliver customer value like a

community based organization

• Professional culture in rural

surroundings Enhancing Depth

• Use JLG Loans as the entry in every

rural Location and add products after manpower stabilization

• Evolution of capabilities of manpower

structure determines Growth

• Depth over expanse

Structured for Local Leadership

• Decentralised customer and operational

decisions; centralized product credit.

• Leverage local knowledge, relationships

and customs

• Empower branches and control through

domain experts, audits and HR processes Leveraging IT Systems

• Flexible, economical, reliable, transacti
• nal - IT Platform
• Complemented by custom built

process and decision support - IT tools

… Grounded in the Local Community A Responsive Branch Interface grounded in the local community with a professional corporate core

PRIVATE & CONFIDENTIAL

Chaitanya Strategy – Achievements and Aspirations

26

2010-14 2014-19

The Initial Years

• Rural Karnataka focused NBFC-MFI
• Stabilization of team, processes and

execution capabilities

• Viable operational model to deliver multiple

financial products to villages

• Business growth coupled with profitability with

emphasis on risk management Intent - 5 years

• Strategically and financially sustainable

‒ Reach 90% of villages in coverage area ‒ Be amongst the Top 2 Financial Institution in regions under operations ‒ Non JLG products to deliver more than 1/3rd the revenue ‒ Credit losses < 0.25%

• Be a Rs 1,000 cr AUM – Rural focused multi

product financial Institution. Pursue Small Financial Bank Opportunity

• ROE > 15%

Stabilized the business model in 5 regions, Chaitanya is now expanding its operations to 20+ regions in Central and North Karnataka

Vision: To be a strategically sustainable multi product rural financial institution delivering a sustainable return on equity in 5 years

PRIVATE & CONFIDENTIAL

Index

27

1 Executive Summary 2 Chaitanya Profile 4 Business Plan 5 3 Chaitanya Strategy Overview Appendix

PRIVATE & CONFIDENTIAL

Business Plan – Financial Summary

Gross Loan Portfolio (Rs cr) Annual Revenue (Rs cr) PAT (Rs cr)

28 32 56 99 204 400 710 1,078 2013A 2014A 2015E 2016E 2017E 2018E 2019E

6 11 22 43 86 160 253 2013A 2014A 2015E 2016E 2017E 2018E 2019E

0.51 0.80 1.39 5.32 8.13 12.55 24.31 2013A 2014A 2015E 2016E 2017E 2018E 2019E

PRIVATE & CONFIDENTIAL

Business Plan – Financial Statements

All numbers in Rs cr unless otherwise stated

29

2014A 2015E 2016E 2017E 2018E 2019E Net Worth 14.5 25 107 115 128 181 Total Borrowings 47.7 91 122 351 685 1,050 Loans & Advances 48.3 99 204 400 710 1,078 Deposits | Cash | Liquid Funds 15.9 19 29 74 120 181 Net Revenue (Rev less Finance Cost) 6.3 11 27 50 83 125 Employee Benefit Expense 2.9 6 12 24 41 59 Depreciation & Overheads 1.9 3 6 11 19 25 Provisions & Bad Debts 0.4 1 2 3 5 6 PAT 0.8 1 5 8 13 24 OCR 11.9% 11.2% 11.2% 11.1% 10.2% 8.9% ROA 2.0% 1.6% 3.1% 2.3% 2.0% 2.4% ROE 5.5% 7.1% 8.1% 7.3% 10.3% 15.7% Branches 29 47 89 153 211 238 Employees 237 386 765 1,376 2,036 2,466 Credit Officers 136 228 438 783 1,185 1,466 Customers 46,329 71,904 147,161 289,931 484,754 659,576

Key Balance Sheet Items Key Income Statement Items Key Operational Data

PRIVATE & CONFIDENTIAL

Business Plan – Product Wise AUM Growth

All numbers in Rs cr

30 2014 2015 2016 2017 2018 2019 JLG 54 87 163 298 498 719 Gold 2 4 14 34 71 124 Vehicle (2W) 4 8 19 45 89 142 Other Loans 1 8 24 52 93 Total 61 99 204 400 710 1,078 Micro-housing 2 19 66 144 232

2014 2015 2016 2017 2018 2019 JLG Gold Vehicle (2W) Other Loans 66.7% 11.5% 13.2% 8.6% 89% 4% 7% 0% 87% 8% 1% 4% 80% 9% 4% 7% 74% 11% 6% 9% 67% 13% 9% 11%

Note: Micro-housing lending through partnership model

PRIVATE & CONFIDENTIAL

Business Plan – OCR Bridge

31

Branch Cost Region Cost Division Cost Head Office Cost Total OCR 2013-14 2014-15 2016-17 2018-19 6.7% 11.9% 2.0% 3.2% 6.1% 11.2% 2.0% 1.2% 1.9% 7.1% 11.1% 2.1% 1.2% 0.6% 6.3% 8.9% 1.6% 0.8% 0.3% 0% 2% 4% 6% 8% 10% 12% 14% 16%

PRIVATE & CONFIDENTIAL

Index

32

1 Executive Summary 2 Chaitanya Profile 4 Business Plan 5 3 Chaitanya Strategy Overview Appendix – Industry Overview Industry Overview and more detailed financials would be sent on request