ICRA : assigns an B(Stable) rating to the bank facilities of Sushravya Upliftment Foundation

June 05, 2017

Sushravya Upliftment Foundation

Summary of rated instruments

Instruments*	Rated Amount (Rs. crore) 1	Rating Action
Long-term bank facilities	10.00	[ICRA]B(stable); assigned

*Instruments details are provided in Annexure-1

Rating action

ICRA has assigned the long-term rating of [ICRA]B (pronounced ICRA B)2with a stable outlook to the Rs. 10.00 crore unallocated bank facilities of Sushravya Upliftment Foundation (Sushravya).

Rationale

The rating factors in Sushravya's geographically concentrated and modest scale of operations, its stretched capital structure with low net worth, limited financial flexibility and modest profits. The assigned rating also factors in the financial and operational support from the Organisation for Development of People (ODP) society, which has over two decade of experience in microfinance, albeit on a modest scale. Sushravya has leveraged ODP's self-help group (SHG) member base and its credit plus activities to acquire customers and maintain good asset quality.

ICRA notes that Sushravya is vulnerable to risks associated with unsecured lending, marginal borrower profile and other socio-political and operational risks inherent to microfinance operations. Going forward, it is critical for the entity to improve its loan appraisal, IT and audit systems to adequately manage the risks inherent to microfinance.

Key rating drivers Credit strengths

• ODP's large member base and its credit plus activities support in mentoring, training and retaining members

• ODP's track record of over two decades in microfinance activities, albeit on a modest scale

• Comfortable asset quality indicators; however, low portfolio seasoning

  Credit weaknesses

• Geographical concentration risk with operations limited to four districts of Karnataka

• Stretched capital structure with low net worth

• Significant scope to improve loan appraisal, IT, audit and other monitoring systems

• Limited financial flexibility; need to diversify funding profile to secure timely and competitive funding

• To manage political, regional, overleveraging and other risks inherent to microfinance operations

1 Rs. 1 crore = Rs. 10 million = Rs. 100 lakh

2 For complete rating scale and definitions, please refer to ICRA's website (www.icra.in) or other ICRA rating publications.

Description of key rating drivers:

Sushravya was started by the governing body members of ODP to provide microfinance loans to the latter's SHG members. ODP provided microfinance loans directly to its SHG members for over two decades; however, it discontinued incremental lending in June 2016 and Sushravya started lending to ODP's clients. Currently, ODP offers various credit plus services to around 2,900 SHGs with a total member base of around 45,000.

However, the total active SHGs with borrowings from Sushravya is low at 187 (230, including SHGs funded by ODP) with a modest total portfolio outstanding of Rs. 4.5 crore (Rs. 5.5 crore, including portfolio outstanding of ODP) as on March 31, 2017. ICRA notes that Sushravya has scope to improve its active member base and scale up its operations, as the proportion of active members in the total member base currently is low at 8%. The operations of ODP and Sushravya are limited only to four districts of Karnataka, exposing their operations to socio-political risks in these districts apart from the other risks inherent to the microfinance sector.

Sushravya does not undertake credit bureau checks during loan appraisals and does not have a formal internal audit process. Though the entity has reported 100% collection efficiency since inception, ICRA notes that it is critical to strengthen its loan appraisal, IT and audit systems to ensure good asset quality as the business expands.

The entity's financial risk profile is characterised by a modest net worth of Rs. 0.2 crore as on March 31, 2017 and a profit of Rs. 0.2 crore for FY2017. Currently, the entity's borrowings include only interest free loans from ODP, which do not have a fixed repayment schedule; it is therefore critical to diversify its funding sources to scale up its operations while maintaining adequate liquidity. ICRA expects timely financial and operational support from ODP to continue, going forward as well.

Analytical approach: For arriving at the rating, ICRA has applied its rating methodologies as indicated below. Links to applicable criteria

ICRA's Credit Rating Methodology for Non -Banking Finance Companies

About the company

Sushravya Upliftment Foundation (Sushravya) is registered under Section 8 of the Companies Act, 2013 as a not-for-profit entity. The entity commenced its operations in June 2016. Headquartered in Mysore, Karnataka, Sushravya is entirely held by the governing members of Organisation for Development of People (ODP). ODP is a society, registered in the year 1990, to undertake welfare activities in the four districts of Karnataka - Chamraja Nagar, Kodagu, Mandya and Mysore.

ODP formed the Federation of Maholidaya Self-Help Groups in 1991 to provide microfinance to women SHGs and then formed Grama Vikasa Swa-Sahaya Sanghagala Maha Okkuta in 2000 for men SHGs. As on March 31, 2017, ODP managed around 2,900 SHGs (including 350 men SHGs) with around 45,000 members. In June 2016, ODP stopped microfinance disbursements and Sushravya started lending operations.

As on March 31, 2017, the microfinance portfolio of Sushravya and ODP stood at Rs. 4.5 crore and Rs.

1.0 crore respectively. Income generating loans constituted to 57% of the Sushravya's total loan portfolio as on March 31, 2017, followed by water and sanitation (38%) and housing loans (5%). Sushravya has two branches with seven field officers and undertakes monthly collections across its 17 collection points.

During FY2017, Sushravya achieved a net profit of Rs. 0.2 crore (provisional) on an asset base of Rs. 4.6 crore.

Status of non-cooperation with previous CRA: Not Applicable Any other information: Not applicable

S.No	Instrument	Current Rating (FY2018)			Chronology of Rating History for the past 3 years
		Type	Rated amount (Rs. crore)	June 2017	FY2017	FY2016	FY2015
1	Unallocated bank facilities	Long term	10.00	[ICRA]B(Stable)	-	-	-

Rating history for last three years: Table Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the websitewww.icra.in

Instrument	Date of Issuance / Sanction	Coupon Rate	Maturity Date	Rated Amount (Rs. crore)	Current Rating and Outlook
Long-term bank facilities#	-	-	-	10.00	[ICRA]B (stable)

Annexure-1 Instrument Details

#Proposed

Source: Sushravya