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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 2496.35 | ACUITE A | Positive | Reaffirmed | - |
| Bank Loan Ratings | 383.05 | ACUITE A | Reaffirmed & Withdrawn | - |
| Non Convertible Debentures (NCD) | 40.00 | ACUITE A | Positive | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 2536.35 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 383.05 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE A’ (read as ACUITE A) on the Rs. 40.00 Crore Non convertible debentures of Cashpor Micro Credit (CMC). The outlook remains 'Positive'. Acuité has reaffirmed the long-term rating of ‘ACUITE A’ (read as ACUITE A) on the Rs.2496.35 Crore bank facilities of Cashpor Micro Credit (CMC). The outlook remains 'Positive'. Acuité has reaffirmed & Withdrawn the long-term rating of ‘ACUITE A’ (read as ACUITE A) on the Rs.383.05 Crore bank facilities of Cashpor Micro Credit (CMC). The rating withdrawn is on account of the request received from the issuer on Acuite's policy of withdrawal of ratings. Rationale for the rating The rating reaffirmation continues to factor in experienced management team, efficient operational structure, established business model and good governance framework. CMC has well established presence in microfinance lending of over two decades with a focus on financial inclusion via on and off book growth. As on March 31, 2022, CMCs portfolio has increased by 27.00% from March 31, 2021 and is stable at Rs. 4178.86 Crore. Further the AUM stood at Rs. 3720.60 crore as on September, 2022. The rating also takes into account CMC’s prudent risk management practices and agile collections mechanism, which has helped CMC in maintaining sound asset quality as reflected in low Gross Non Performing Assets (GNPAs) of 0.67 percent as on September 30, 2022. A strong social angle whereby CMC passes on benefit of lower cost of funds besides various social and developmental initiatives has helped the company in maintaining healthy collections.The average monthly collection efficiency stood at 93.97 percent for the past 10 months ended October, 2022. The rating also takes into account an CMC’s healthy profitability metrics marked by ROAA of 3.65% during FY22. These strengths are offset by the company’s modest capitalization levels and relatively high Gearing Ratio. As on March 31, 2022, CMC reported CAR and gearing of 16.78% and 5.79xx . The capitalization levels have improved to 18.47 percent and gearing reduced to 5.38 times as on September 30, 2022. Being a Section 8 company, Cashpor has inherent limitations in raising equity capital and which also constrains its balance sheet growth. The ratings are also constrained by CMC’s These risks are further elevated due to geographical concentration in Uttar Pradesh and Bihar (~84 percent of the total portfolio as on September 30, 2022) and the risks inherent to the nature of the business which renders the portfolios vulnerable to event risks such as natural calamities in the area of operations. Going forward, Company’s ability to maintain portfolio growth, ability to raise capital and curtailment of gearing levels will be key monitorables. |
| About the company |
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CMC began its operations in 1997 as Cashpor Financial and Technical Services (CFTS) for providing microfinance services to the ‘below poverty line’ (BPL) women in Mirzapur District (Uttar Pradesh). In 2002, CFTS transferred all its microfinance activities to CMC, a not for profit institution (presently under Section 8 of The Companies Act). CMC is promoted by Prof. David S. Gibbons who founded Amanah Ikhtiar Malaysia, the first successful international replication of the Grameen Bank of Bangladesh. CMC’s shares are held by its holding company Cashpor Financial & Technical Services Pvt. Ltd., whose major shareholders are Cashpor Trust 78 percent and has attracted funding from Yunus Social Business Fund Bengaluru Private Limited, Mr. Vinod Khosla amongst others. CMC operates through a network of 677 branches in 90 districts across the states of Uttar Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh and Odissa.
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| Analytical Approach |
| Acuité has considered the standalone financial and business risk profile of CMC to arrive at the rating |
Key Rating Drivers
| Strength |
| 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 ~17 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. Dr. B B Singh, Chief Financial Officer, has been associated with CMC for over a decade. 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 90 districts in the states of Uttar Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh and Odissa. CMC operates with a network of 677 branches as on September 30, 2022. Off the total branches 304 branches were located in Uttar Pradesh, 205 in Bihar, 68 in Chhattisgarh, 58 in Jharkhand, 38 in Madhya Pradesh and 4 in Odissa. CMC’s Assets Under Management (AUM) increased to Rs.4178.86 Crore as on March 31, 2022 (PY: Rs. 3296.64 Cr.), of which on balance sheet exposures stood at Rs. 2295.39 Cr as on March 31, 2022 (PY: Rs. 1839.37 Cr.) and off-balance sheet exposures stood at Rs. 1883.48 Cr as on March 31, 2022 (PY: Rs. 1457.27 Cr.). Further, the AUM stood at Rs. 3720.60 crore as on September 30,2022. 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 677 branches in 90 districts (as on September 30, 2022) in Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh and Odissa. The AUM was Rs. 4178.86 Cr. (as on March 31, 2022) which comprised on book portfolio of Rs. 2295.39 Cr. and off book portfolio of Rs. 1883.48 Cr. Further, the AUM stood at Rs. 3720.60 crore as on September 30,2022. 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 March 2022. 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 3.65% as on March 31, 2022 and 3.31% for FY2021, albeit higher than that for FY2020 at 2.9%.. 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 ~44 percent borrowers in agriculture and allied activities as on March 31, 2022. 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 0.55 percent as on March 31, 2022 and 0.78 percent as on March 31, 2021. The GNPA stood at 0.67 percent as on September 30, 2022. 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. |
| Weakness |
| 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 and 5.79x as on March 31, 2022. Further the gearing levels stood at 5.38xx as on September 30, 2022. 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, 2022 was Rs. 419.85 Cr. as against Rs. 321.76 Cr. as on March 31, 2021. CMC’s Capital Adequacy ratio (CAR) stood at 16.78 percent as on March 31, 2022, which improved to 18.47 percent as on September 30, 2022. 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 50 percent and Bihar 34 percent) of its total portfolio as on September 30,2022. Top 10 districts contributed to 35 percent of the AUM of which 8 districts were located in Uttar Pradesh (contributing ~24 percent of AUM) and remaining 2 districts were located in Bihar. 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. |
| ESG Factors Relevant for Rating |
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Cashpor Micro Credit (CMC) is a micro finance lender registered as a not for profit institution (presently under Section 8 of The Companies Act 2013). Some of the material governance issues for the financial services sector are policies and practices with regard to business ethics, board diversity and independence, compensation structure for board and KMPs, role of the audit committee and shareholders’ rights. On the social aspect, some of the critical issues for the sector are the contributions to financial inclusion and community development, socially responsible investments and green products/services. The industry, by nature has a low exposure to environmental risks.
CMC maintains adequate transparency in its business ethics practices as can be inferred from the entity’s disclosures regarding its whistle blower policy, investment policy and risk management policy. The entity also has a functional audit committee that operates at the board level. The board consists of nine members out of which two are independent directors and one female director with significant experience in the financial services sector. CMC provides microfinance services to the ‘below poverty line’ (BPL) women primarily in Uttar Pradesh, thereby playing an important role in enhancing financial inclusion. To create a social impact, CMC provides health and educational services to the marginalised communities in five states namely – Uttar Pradesh, Madhya Pradesh, Bihar, Jharkhand, and Chhattisgarh. It has appointed Community Health Facilitators to spread awareness, among its clients on basic health practices; the education programme focuses on providing quality education to the children of the beneficiaries. CMC has also developed, ‘Green Micro Credit’, supported under Poorest States Inclusive Growth (PSIG) programme of SIDBI. The green micro finance loan product is developed to promote tree plantation amongst matured income generating loan borrowers and suitably incentivise them by way of interest subvention; this initiative creates a long-term economic investment for the client while mitigating carbon emissions. |
| Rating Sensitivity |
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| Material Covenants |
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CMC is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality, among others. As per confirmation received from client vide mail ‘CMC is adhering to all terms and conditions stipulated as covenants by all its lenders.’
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| Liquidity Position |
| Adequate |
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CMC’s liquidity buffers primarily depend on its cash inflows (collections from clients and loans from banks) vis. a vis. the cash outflows (disbursements, debt servicing commitments, operating expenses). The cash collections of CMC were not impacted by the lockdowns in second wave of Covid-19 even though its area of operations are concentrated in rural areas where major borrowers earn their income on daily wages. The monthly collection efficiency of CMC improved to ~99.5 percent in March 2022 (as against Demand Raised). CMC had not availed any moratorium in last six months. CMC has enough liquid balance in form of unencumbered cash and bank balances and unutilised bank lines to fulfill its fixed monthly obligations (Debt servicing obligations and operating expense). Apart from the collections from clients CMC is also augmenting its resources through the PCG Route and bank loans to support their liquidity.
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| Outlook : Positive |
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Acuité believes that CMC will have a 'Positive' outlook over the medium term supported by its established presence in the microfinance segment along with demonstrated ability to grow its AUM while maintaining healthy asset quality and profitability. The outlook may be revised to stable if the company faces higher than expected asset quality pressures or deterioration in capital structure parameters.
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| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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| Status of non-cooperation with previous CRA (if applicable): |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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