­Established presence in microfinance lending

Established in 1996-97, CMC has an established presence of over two decades in the microfinance sector. CMC is promoted by Prof. Gibbons, Chairperson, having vast experience in this sector. He is a PHD holder in Politics and Economics from Princeton University and a professor in University Sains Malaysia in Penang. He founded Amanah Ikhtiar Malaysia, the first successful international replication of the Grameen Bank of Bangladesh.. Prof. Gibbons chairs the Board of CMC and provides his strategic guidance and leadership to the Board. CMC’s Managing Director, Mr. Mukul Jaiswal, is a Chartered Accountant who has over a decade’s experience in the microfinance sector and has been associated with CMC for ~18 years.
In addition, CMC has on its board Ms. Moumita Sen Sarma, Ex-head of Microfinance and Sustainable Development at ABN AMRO Bank (RBS Foundational Bank); Mr. Bahram Navroz Vakil, who is a Masters in law holder from Columbia University, and is an advocate of the Bar Council of Maharashtra and Goa; Mr. Abhijit Sen, Ex-CFO Citi India Subcontinent. The board is supported by a seasoned and experienced management team who have been associated with CMC for long tenures. Mr. Mithilesh Maurya, General Manager Finance and Planning, has been associated with CMC for over ~25 years. Together they lend their significant expertise in the field of microfinance, corporate law and finance to CMC. Since CMC is focused on providing financial assistance to the lower economic strata of society it operates in regions with high concentration of below poverty line (BPL) population. Its area of operations are spread across 106 districts in the states of Uttar Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh and Odissa. CMC operates with a network of 782 branches as on June 30, 2023. Off the total branches 327 branches were located in Uttar Pradesh, 231 in Bihar, 68 in Chhattisgarh, 90 in Jharkhand, 38 in Madhya Pradesh and 28 in Odissa.
CMC’s Assets Under Management (AUM) increased to Rs.4670.48 Crore as on June30, 2023, of which on balance sheet exposures stood at Rs. 2774.48 Cr as on June 30, 2023 and off- balance sheet exposures stood at Rs. 1896.00 Cr as on June 30, 2023.
Acuité believes that CMC’s established track record of operations in the field of microfinance over two decades, has enabled it to gain impeccable creditability amongst lenders and stakeholders. The presence of established and experienced professionals and demonstrated track record of over two decades will support and strengthen its business risk profile.
 
Established   business model with  a  focus  on  off balance sheet growth; Demonstrated ability to maintain healthy asset quality

CMC commenced its operations in 1997 with primarily focus on lending to Joint Liability Group’s (JLG) of women, below poverty line. Presently the operations of CMC are spread across 782 branches in 106 districts (as on June 30, 2023) in Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh and Odissa. The AUM was Rs. 4670.48 Cr. (as on June 30, 2023) which comprised on book portfolio of Rs. 2774.48 Cr. and off book portfolio of Rs. 1896. Cr. The management of CMC has consciously adopted a strategy of focusing on off book growth through business correspondent relationships with both private sector and public sector banks.
CMC has established business correspondent (BC) relationships with five leading public and private sector banks as on June 2023. It has also been able to sell down its portfolio through the direct assignment route. The off-balance sheet focus has helped in maintaining the liquidity while keeping the capital requirements modest levels.
CMC’s Return on Average Assets (RoAA) stood strong at 2.83% as on March 31, 2023 and 3.65% as on March 31, 2022. It is pertinent to mention here that since CMC has focus on financial inclusion towards the lower economic strata of the society, there is a very strong social angle to their lending activities and thus being a not for profit institution any reduction in cost of funds is passed on its borrowers over a period of time. Thus, the company has high customer retention ratio. ~88 percent of the borrowers are existing borrowers who have availed loan facilities from CMC in the past.
CMC has managed to maintain a sound asset quality, reflected in low Gross Non Performing Assets (GNPAs) and comfortable collection efficiency. CMC operates mainly in rural areas with ~54 percent borrowers in agriculture and allied activities as on March 31, 2023. The company has business model with a strong social angle whereby CMC passes on benefit of lower cost of funds besides various social and developmental initiatives. This has aided helped the company in maintaining healthy collection efficiency. CMC reported GNPA (on total AUM) of 0.39 percent as on March 31, 2023 and 0.55 percent as on March 31, 2022. The GNPA stood at 0.41 percent as on June 30, 2023. Further, the company has no restructured assets.
Acuité believes that CMC will benefit from the management’s strategy to augment its AUM through the capital light model and demonstrated ability to maintain a healthy asset quality across cycles and geographical regions.

­Modest Capitalisation level likely to result in elevated gearing levels

CMC is a not for profit company, engaged in microfinance lending activities. Since CMC is a Section 8 Company, it limits the scope of attracting substantial equity infusion thereby leading to dependency on grants and profit accretion to improve the networth. Hence, CMC has mainly been relying on external borrowings from banks and NBFCs to support its growth plans. Its peak gearing over the past five years from FY2017 to FY2022 was at 7.88x as on March,
2017 which moved to 5.51x as on March 31, 2019, 5.88x as on March 31, 2020, 6.40x as on March 31, 2021, 5.79x as on March 31, 2022 and 5.44x as on March 31, 2023. Further the gearing levels stood at 5.06xx as on June 30, 2023. Not withstanding the high gearing levels, it is pertinent to note that CMC has been able to attract debt funding from the leading banks and NBFCs. This has helped the cost of funds to remain at optimal levels. The net worth of CMC as on March 31, 2023 was Rs. 506.91 Cr. as against Rs. 419.85 Cr. as on March 31, 2022. CMC’s Capital Adequacy ratio (CAR) stood at 17.94 percent as on March 31, 2023, which improved to 18.79 percent as on June 30, 2023. Acuite believes that, considering the current operating environment, CMC may have to explore a diversified lender base to maintain its growth momentum. Any challenges in attracting additional funding to support the growth in operations due to the leveraged capital structure may impede its growth plans and consequently impact its return metrics. CMC has attempted to tide over its capital constraints by building sizeable off balance sheet exposures.
Acuité believes that CMC’s ability of maintain its growth momentum without significant deterioration in gearing levels will be key rating monitorable.
 
Moderate geographic concentration; susceptible to risks inherent in microfinance segment

CMC’s operations are concentrated with Uttar Pradesh and Bihar accounting for 84 percent (Uttar Pradesh accounting to 48 percent and Bihar 36 percent) of its total portfolio as on June 30,2023. Top 10 districts contributed to 34 percent of the AUM of which 7 districts were located in Uttar Pradesh (contributing ~20 percent of AUM) and remaining 3 districts were located in Bihar. While the geographical concentration of the portfolio continues, the company has expanded its branch network from 668 branches to 782 branches focusing in the state of Jharkhand and Orissa. Generally, the risk profile of a microfinance company with a geographically diversified portfolio is more resilient compared to that of an entity with a geographically concentrated portfolio. Additionally, any changes in the regulatory environment impeding the ability of entities like CMC to enforce collections, etc. will have an impact on its operational performance. Besides the regulatory risks, the inherent nature of the business renders the portfolios vulnerable to event risks such as natural calamities in the area of operations.
Acuité believes that being exposed to socially sensitive factors given the moderate geographic concentration, regulatory and event risks will continue to weigh on its credit profile over the near to medium term.