INDEX

I)

Introduction

What is microfinance? How does microfinance services help? Governments role in microfinance

II) -

Microfinance Institute - MFI Evolution Profile of Microfinance Institutes Clients of Microfinance Institutes Future of Microfinance Challenges of MFIs Global Top 50 MFIs

III)

SAADHANA Microfinance Society

Organization Profile Marketing Strategy 4 Ps of Marketing Operations Methodology Future Outlook Impact of Economic Slowdown

1. Microfinance

1.1 What Is Microfinance?

Microfinance offers poor people access to basic financial services such as loans , savings, money transfer services and micro insurance. People living in poverty , like everyone else, need a diverse range of financial services to run their bu sinesses, build assets, smooth consumption, and manage risks.

Poor people usually address their need for financial services through a variety of financial relationships, mostly informal. Credit is available from informal m oneylenders, but usually at a very high cost to borrowers. Savings services are available through a variety of informal relationships like savings clubs, rotati ng savings and credit associations, and other mutual savings societies. But thes e tend to be erratic and somewhat insecure. Traditionally, banks have not consid ered poor people to be a viable market.

Different types of financial services providers for poor people have emerged - n on-government organizations (NGOs); cooperatives; community-based development in stitutions like self-help groups and credit unions; commercial and state banks; insurance and credit card companies; telecommunications and wire services; post offices; and other points of sale - offering new possibilities.

These providers have increased their product offerings and improved their method ologies and services over time, as poor people proved their ability to repay loa ns, and their desire to save.

1.2 How Does Micro Finance Services Help the Poor? People living in poverty need a diverse range of financial services to run their businesses, build assets, stabilize consumption, and shield themselves against poverty. Microfinance can help lessen poverty, although this can take time. Financial services for poor people have proven to be a powerful instrument for r educing poverty, enabling them to build assets, increase incomes, and reduce the ir vulnerability to economic stress.

A) Household income Financial services can improve poor peoples lives by providing needed financing f or business activities, which can increase their household incomes. By offering a variety of financial products such as savings, insurance, loans, a nd remittances, microfinance empowers poor people to diversify their income sour ces, meet basic needs and cope with shocks to their income. While increased earnings are by no means automatic, reliable sources of credit p rovide a fundamental basis for planning and expanding business activities, which can enable clients to save, manage cash flows, and reduce the need to sell asse ts to in times of crisis.

B) Asset building Due to increased income, and the ability to save and take on credit, microfinanc e can provide the means for poor people to acquire land, construct or improve th eir home, purchase animals and consumer durables, or create or expand their busi nesses. Studies have shown that clients who take part in microfinance acquire mo re productive assets over time than those who do not.

C) Reducing vulnerability By reducing vulnerability and increasing earnings and savings, financial service s allow poor households to make the transformation from every-day survival to pl anning for the future. Households are able to send more children to school for l onger periods and to make greater investments in their children s education. Inc reased earnings can lead to better nutrition and better living conditions, which translates into a lower incidence of illness. Increased earnings and access to micro insurance also mean that clients may seek out and pay for health care serv ices when needed, rather than go without or wait until their health seriously de teriorates.

D) Empowering women Many microfinance programs target poor women. For women, money management, great er control over resources, and access to knowledge leads to more choices and a v oice in family and community matters. Economic empowerment is accompanied by gro wth in self-esteem, self-confidence, and new opportunities.

Many qualitative and quantitative studies have documented how access to financia l services has improved the status of women within the family and the community. Women often become more assertive and confident. In regions where women s mobility is strictly regulated, women have often become more visible and are better able to negotiate the public sphere. Women involved in microfinance may also own assets, including land and housing, and play a str onger role in decision making. In some programs that have been active over many years, there are even reports of declining levels of violence against women.

In conclusion, access to financial services creates the possibility of improving the economic conditions of the poor. However, we should not lose sight of the f act that credit, or debt, is a big responsibility. Incidences of over-indebtedne ss do occur and clients may end up less well-off, reminding all of us that micro finance, in particular credit, must be used judiciously.

1.3 What Is the Government s Role in Microfinance?

Governments can play a range of roles:

promoting financial access protecting customers or even providing financial services directly.

Whether it s by helping develop the financial infrastructure (through payments o r credit information systems) or by maintaining the countrys macroeconomic stabil ity, governments have been key to promoting greater access to financial services to low income people, and in improving the quality of those services.

Other governments have set up wholesale facilities, and incentive schemes or man dates to private banks, such as priority sector lending requirements and "commun ity reinvestment" schemes.

There is little analysis of the results of national microfinance policies and st rategies. But their absence in most countries where microfinance first reached m assive numbers of clients for instance, in Bangladesh, Indonesia, and Bolivia su ggests they are not a perquisite for impressive increases in outreach.

Theres a positive role for governments to play in adopting appropriate light-touch consumer protection policies and market conduct regulation, such as disclosure r equirements, protections against over-indebtedness, and simple, accessible recou rse mechanisms, coupled with client financial education. A number of recent forc es including new services, technology, delivery channels, providers, and investo rs have raised the profile and urgency of consumer protection issues in microfin ance.

The overall challenge is to ensure that clients can make informed choices, produ cts are designed to work for both the user and the provider, and mutual rights a nd obligations are understood and respected.

When microfinance providers offer voluntary deposit services, then there is a ro le for governments to play in prudential regulation and supervision, in order to protect depositors as well as the stability of the financial system. Even though governments have a generally bad track record with direct provision of microfinance - especially lending - many countries are still involved in this business. Even though some good examples of publicly provided micro lending exi st, they are the exception to the rule. Good microfinance requires an agile and efficient corporate culture, which can b e difficult to maintain in an organization subject to government hiring and firi ng policies. Examples of successful direct provision of savings services by gove rnment providers are more numerous. Yet funds collected from low income savers a re often used for governmental purposes that offer little if any direct benefit to the communities where they were collected. 2. Microfinance Institute

2.1 Evolution:

A microfinance institution (MFI) is an organization that provides financial serv ices to the poor. This very broad definition includes a wide range of providers that vary in their legal structure, mission, and methodology. However, all share the common characteristic of providing financial services to clients who are po orer and more vulnerable than traditional bank clients.

During the 1970s and 1980s, the micro enterprise movement led to the emergence o f nongovernmental organizations (NGOs) that provided small loans for the poor. In the 1990s, a number of these institutions transformed themselves into form al financial institutions in order to access and on-lend client savings, thus en hancing their outreach.

Specialized microfinance institutions have proven that the poor are bankable. Toda y, formal institutions are rapidly absorbing the lessons learned about how to do small-transaction banking. Many of the newer players in microfinance, such as c ommercial banks, have large existing branch networks, vast distribution outlets like automatic teller machines, and the ability to make significant investments in technology that could bring financial services closer to poor clients. Increa singly, links among different types of service providers are emerging to offer c onsiderable scope for extending access.

2.2 Profile of Micro Finance Institutes

Classification: MFIs are generally classified into

Formal providers are sometimes defined as those that are subject not only to general laws but also to specific banking regulation and supervision (develo pment banks, savings and postal banks, commercial banks, and non-bank financial intermediaries). Formal providers may also be any registered legal organizations offering any kind of financial services.

Semiformal providers are registered entities subject to general and comme rcial laws but are not usually under bank regulation and supervision (financial NGOs, credit unions and cooperatives).

Informal providers are non-registered groups such as rotating savings and credit associations (ROSCAs) and self-help groups.

Ownership structures: MFIs can be

A) Government-owned, like the rural credit cooperatives in China B) Member-owned, like the credit unions in West Africa C) Socially minded shareholders, like many transformed NGOs in Latin America D) Profit-maximizing shareholders, like the microfinance banks in Eastern Europe.

Types of services offered: Are limited by what is allowed by the legal str ucture of the provider: non-regulated institutions are not generally allowed to provide savings or insurance.

Product Offerings: Microfinance institutions offer

1.

Multiple loan products Working capital for small businesses,

Larger loans for durable goods, Loans for childrens education and Loans to cover emergencies.

2. Safe, secure deposit services

3. Remittances and money transfers - used by many poor people as a safe way to send money home.

4. Banking through mobile phones (mobile banking) makes financial Services even more convenient, and safer, and enables greater outreach to more people living in isolated areas. 2.3 Who Are the Clients of Microfinance?

Microfinance clients are often described according to their poverty level - vuln erable non-poor, upper poor, poor, very poor. This can obscure the fact that mic rofinance clients are a diverse group of people and require diverse products. Wh ile women clients make up a majority of clients - and in some instances comprise 100 percent of an MFIs clientele, These clients operate small businesses, work o n small farms, or work for themselves or others in a variety of businesses fishi ng, carpentry, vegetable selling, small shops, transportation, and much more. So me of these microfinance clients are truly entrepreneurs they enjoy creating and running their own businesses. Others become entrepreneurs by necessity when the re are few jobs available in the formal sector.

Recently, microfinance institutions have begun using poverty assessment tools to more accurately measure the number of their clients who are living on less than $1 a day. Serving the very poor and the destitute those who lack shelter, incom e, or even sufficient food is more challenging, and may require ongoing subsidy.

Innovative schemes, such as the BRAC Ultra-Poor Program, have opened up pathways to economic activity and access to financial services for the extreme poor. CGA P has launched pilots in India, Pakistan and Haiti that are modelled on the succ essful BRAC program. The program targets destitute clients through a carefully s equenced combination of livelihoods grants and microfinance, with savings playin g a critical role, so that clients graduate out of poverty. Each pilot is accompan ied by a rigorous impact study.

Success in reaching poorer people with microfinance is determined by the mission of a microfinance institution, and its ability to translate that mission into e ffective products and services. With the industrys renewed focus on social perfor mance the term used within the microfinance industry to mean the effective tran slation of mission into action we expect to see more clients overall, and very p oor people in particular, served with appropriate, varied products from a variety of institutions.

2.4 The Future of Microfinance It is predicted that over 500 million poor people worldwide demand financial ser vices and the present Micro Finance Institutions (MFIs) can serve only a fractio n - about 16 million. This huge gap has necessitated the development of microfin ance as a global industry. Many significant changes are being witnessed in the concept, vision and practice of microfinance the world over. The vision of microfinance has changed from provision of credit to permanent access to financial services. To realize this vision, MFIs, apart from providing financ e also provide technical support for the beneficiaries to ensure proper utilizat ion of loans and repayment. At the same time they meet their cost of funds, cost of credit management and cost of default through the spread of interest and gen erate surplus for the viable operation of microfinance. The emergence of microfinance as a global industry has marked the beginning of a convergence between the business and social objectives. Formed as a development tool for social empowerment, microfinance had given rise to MFIs who have now g rown into profitable and sustainable business entities. The microfinance industry is expanding owing to commercialization and the reduci ng dominance of NGOs (non-governmental organizations), who have either merged wi th banks or transformed into MFIs. The industry is also attracting significant i

nvestment from the capital market. Microfinance expansion over the next decade can be expected to be an extension o f what has been achieved so far while overcoming the hurdles that have been posi ng difficulty in effective microfinance operation and its expansion. There may be several participants in this process and their participation may be seen in t he following forms.

Existing microfinance institutions can expand their operations to areas wh ere there are no microfinance programs.

More NGOs can incorporate microfinance as one of their programs.

In places where there are less micro finance institutions, the government channels at the grassroots level may be used to serve the poor with microfinanc e.

Postal savings banks may participate more not only in mobilizing deposits but also in providing loans to the poor and on lending funds to the MFIs.

More commercial banks may participate both in microfinance wholesale and r etailing. They many have separate staff and windows to serve the poor without co llateral.

International NGOs and agencies may develop or may help develop microfinan ce programs in areas or countries where micro financing is not a very familiar c oncept in reducing poverty.

Considering that the majority of the 360 million poor households (urban and rura l) lack access to formal financial services, the numbers of customers to be reac hed, and the variety and quantum of services to be provided are really large. It is estimated that 90 million farm holdings, 30 million non-agricultural enterpr ises and 50 million landless households in India collectively need approx US$30 billion credit annually. This is about 5% of India s GDP and does not seem an un reasonable estimate.

Many private and foreign banks have unveiled their plans to enter the Indian mic rofinance sector because of its very low NPAs and high repayment rate of more th an 95% in spite of offering loans without any collateral security.

With a more enabling environment and surge in economic growth, the next few year s promise to be exciting for the delivery of financial services to poor people i n India.

Development of Small-Scale Enterprises through microfinance will not only increa se the outreach but will also help the generation of more employment and income for the poor.

2.4.1 Challenges of Microfinance Institutes

 Interest Rate: There has also been much criticism of the high interest rat es charged to borrowers. The real average portfolio yield cited by the a sample of 704 microfinance institutions that voluntarily submitted reports to the Micro Banking Bulletin in 2006 was 22.3% annually. However, annual rates charged to cl ients are higher, as they also include local inflation and the bad debt expenses of the microfinance institution. Muhammad Yunus has recently made much of this point, and in his latest book argues that microfinance institutions that charge more than 15% above their long-term operating costs should face penalties.

Role of Donors: The role of donors has also been questioned. The Consultat ive Group to Assist the Poor (CGAP) recently commented that "a large proportion of the money they spend is not effective, either because it gets hung up in unsu ccessful and often complicated funding mechanisms (for example, a government ape x facility), or it goes to partners that are not held accountable for performanc e. In some cases, poorly conceived programs have retarded the development of inc lusive financial systems by distorting markets and displacing domestic commercia l initiatives with cheap or free money.

Working Conditions: There has also been criticism of micro lenders for not taking more responsibility for the working conditions of poor households, parti cularly when borrowers become quasi-wage labourers, selling crafts or agricultur al produce through an organization controlled by the MFI. The desire of MFIs to help their borrower diversify and increase their incomes has sparked this type o f relationship in several countries, most notably Bangladesh, where hundreds of thousands of borrowers effectively work as wage labourers for the marketing subs idiaries of Grameen Bank or BRAC. Critics maintain that there are few if any rul es or standards in these cases governing working hours, holidays, working condit ions, safety or child labour, and few inspection regimes to correct abuses.

2.4.2 Why do MFIs charge such high interest rates to poor people?

Reasons why banks don t make small loans. A $100 dollar loan, for example, requi res the same personnel and resources as a $2,000 one thus increasing per unit.

Providing financial services to poor people is quite expensive, especially in re lation to the size of the transactions involved. This is one of the most importa nt transaction costs. Loan officers must visit the client s home or place of wor k, evaluate creditworthiness on the basis of interviews with the client s family and references, and in many cases, follow through with visits to reinforce the repayment culture. It can easily cost US$25 to make a micro loan. While that mig ht not seem unreasonable in absolute terms, it might represent 25% of the value of the loan amount, and force the institution to charge a high rate of interest to cover its cost of loan administration. The microfinance institution could subsidize the loans to make the credit more " affordable" to the poor. Many do. However, the institution then depends on perma nent subsidy. Subsidy-dependent programs are always fighting to maintain their l evels of activity against budget cuts, and seldom grow significantly. They simpl y aren t sustainable, especially if other micro credit operations have shown tha t they can provide credit and grow on the basis of high rates of interestand along the way serve far greater numbers of clients. Evidence shows that clients willingly pay the higher interest rates necessary to assure long term access to credit. They recognize that their alternativeseven hi gher interest rates in the informal finance sector (moneylenders, etc.) or simpl y no access to creditare much less attractive for them. Interest rates in the inf ormal sector can be as high as 20 percent per day among some urban market vendor s. Many of the economic activities in which the poor engage are relatively low r eturn on labor, and access to liquidity and capital can enable the poor to obtai n higher returns, or to take advantage of economic opportunities. The return rec eived on such investments may well be many times greater than the interest rate charged. Moreover, the interest rate is only a small part of their overall transaction co st of credit, and if microfinance institutions offer credit on a more accessible basis, substantial costs in terms of time, travel, paperwork, etc. can be reduc ed, thus benefiting the poor. A long series of studies has shown that many progr ams that charge subsidized interest rates end up using rationing mechanisms to d istribute credit in response to excess demand. These mechanisms cause the borrow er to have to jump through hoops, increasing the time and money s/he must put out to get the loan. In fact, these transactions costs are frequently higher than th e interest costs, which takes away the advantage to the borrower of the interest rate subsidy. However, while increased access to credit for the poor on a long term and sustainable basis can bring significant benefits, MFIs must continue to

work to improve efficiency levels, and to increase scale. This will bring down the cost of providing loans, and the benefits transferred to the poor in terms i mproving loan products, better access to loans, and lower borrowing costs. It is expected that in the following years there will be considerable deepening of microfinance in this direction along with simultaneous drives to reach and se rve the poorest of the poor. But the crux of the discussion is that, if the ove r excess involvement of the government would be there in the Micro Finance secto r, than the growth of the Micro Finance wont much possible. The Govt. involvement should limited to the important decisions only, but not to interfere in each and every matter of the management.

2.4.3 How the MFIs find opportunities within the crisis:

MFIs could also find opportunities within the crisis. Microfinances relatively re liable business model could attract investors looking to spread risks and divers ify their portfolios.

The downturn could also force MFIs to grow less aggressively and focus on consum er protection, transparency, and governance. More commercialization by the MFIs can also create situation of sub-prime style c risis. So the slowdown would slow down the commercialization and helpful for the local borrowers. One more solution to solve the money problem of MFIs might be, to turn MFIs into b ank, this can solve their liquidity problem by taking deposits and lending money .

2.5 Microfinance Industry - Key Players

Different types of financial services providers for poor people have emerged - n on-government organizations (NGOs); cooperatives; community-based development in stitutions like self-help groups and credit unions; commercial and state banks; insurance and credit card companies; telecommunications and wire services; post offices; and other points of sale - offering new possibilities.

Forbes first-ever list of the World s Top 50 Microfinance Institutions were cho sen from a field of 641 micro-credit providers. The list was prepared by the Mic rofinance Information Exchange (www.themix.org) under the direction of Forbes ma gazine.

Rank

Name Country 1 ASA Bangladesh 2 Bandhan (Society and NBFC) India 3 Banco do Nordeste Brazil 4 Fundacin Mundial de la Mujer Bucaramanga Colombia 5 FONDEP Micro-Crdit Morocco 6 Amhara Credit and Savings Institution Ethiopia 7 Banco Compartamos, S.A., Institucin de Banca Mltiple Mexico

8 Association Al Amana for the Promotion of Micro-Enterprises Morocco Morocco 9 Fundacin Mundo Mujer Popayn Colombia 10 Fundacin WWB Colombia - Cali Colombia 11 Consumer Credit Union Economic Partnership Russia 12 Fondation Banque Populaire pour le Micro-Credit Morocco 13 Micro Credit Foundation of India India 14 EKI Bosnia and Herzegovina 15

Saadhana Microfin Society India 16 Jagorani Chakra Foundation Bangladesh 17 Grameen Bank Bangladesh 18 Partner Bosnia and Herzegovina 19 Grameen Koota India 20 Caja Municipal de Ahorro y Crdito de Cusco Peru 21 Bangladesh Rural Advancement Committee Bangladesh GLOBAL Top 50 Micro Finance Institutions Rank Name

Country 22 AgroInvest Serbia 23 Caja Municipal de Ahorro y Crdito de Trujillo Peru 23 Sharada s Women s Association for Weaker Section India 24 MIKROFIN Banja Luka Bosnia and Herzegovina 25 Khan Bank (Agricultural Bank of Mongolia LLP) Mongolia 26 INECO Bank Armenia 27 Fondation Zakoura Morocco 28

Dakahlya Businessmen s Association for Community Development Egypt 29 Asmitha Microfin Ltd. India 30 Credi Fe Desarrollo Microempresarial S.A. Ecuador 31 Dedebit Credit and Savings Institution Ethiopia 32 MI-BOSPO Tuzla Bosnia and Herzegovina 33 Fundacion Para La Promocion y el Desarrollo Nicaragua 34 Kashf Foundation Pakistan 35 Shakti Foundation for Disadvantaged Women

Bangladesh 36 enda inter-arabe Tunisia 37 Kazakhstan Loan Fund Kazakhstan 38 Integrated Development Foundation Bangladesh 39 Microcredit Organization Sunrise Bosnia and Herzegovina 40 FINCA - ECU Ecuador 41 Caja Municipal de Ahorro y Crdito de Arequipa Peru 42 Crdito con Educacin Rural Bolivia 43

BESA Fund Albania 44 SKS Microfinance Private Limited India 45 Development and Employment Fund Jordan 46 Programas para la Mujer - Peru Peru 47 Kreditimi Rural i Kosoves LLC (formerly Rural Finance Project of Kosovo) Kosovo 48 BURO, formerly BURO Tangail Bangladesh 49 Opportunity Bank A.D. Podgorica Serbia 50 Sanasa Development Bank

Sri Lanka

Your browser may not support display of this image.Your browser may not support display of this image.Your browser may not support display of this image. 3. SAADHANA

3.1 Company Profile:

v Genesis: of SAADHANA can be ascribed to his unending commitment to pover ty alleviation and employment generation to potential youth through microfinance . SAADHANA Microfin Society was initiated in the year 2001 in the urban slums of K urnool District of Andhra Pradesh with a clear motto to catalyze the endeavour o f the poor for self-sufficiency. The Founder Secretary and CEO, Mr. Ernest Paul, with close to two decades experi ence in the development sector of which almost 15 years of exclusively in the domain of micro finance, envisaged a radical microfinance model to deliver flexible and affordable financial services for the poor women on a sustainable basis. SAADHANA has started its operations in urban Kurnool District of AP state on Dec ember 2001 and disbursed the first loan ofRs.50, 000/- on 9th January 2002 to it s first group of 10 members (@Rs. 5000/- to each member).

v Mission: The mission of SAADHANA is to provide continuous, qualita tive and affordable financial services for the poor women in urban and rur al areas of Andhra Pradesh by establishing and promoting self-sustainable financ ial institutions with an objective of improving the income levels of the clien tele to attain sustainable livelihoods and better quality of life.

v Objectives: The endeavour of Saadhana to redefine microfinance with a deve lopment mission embraced the following objectives beyond rendering affordable fi nancial services. Rendering Continuous, qualitative and affordable financial services to the poor women Improving the quality of life of clientele Nurturing needy and upcoming MFIs.

Governance

A seven member executive board from diverse professional backgrounds governs SAA DHANA. The diversity of technical expertise on the board includes micro finance, accounting, finance, medicine, and social work. The vast experience and commitm ent of the board paved the way towards realizing the organizations true potential in terms of providing sustainable financial services to the poor people.

The Executive Board Members

Name Designation

Mr.G.Dashrath Reddy

President

Mrs.K. Madhavi

Vice-President

Mr.M.Ernest Paul

Secretary

Mr.S.Vijaya Bhasker

Treasurer

Mr.B.Sesha Reddy

Executive Member

Dr.K.Raja Sekhar

Executive Member

Mrs.V.Indira Jayashree

Executive Member

Core Leadership

Mr. M. Ernest Paul, the Founder Secretary and the Chief Executive Officer

Mr. Ernest Paul is the strongest pillar and the back bone of the organization is having 18 years of rich experience in Microfinance and under his leadership the flag of Saadhana is flying high bagging the awards year after year in different categories. After giving micro credit for some time he realized that only credit in not suff icient and credit plus activity is must. Thinking on these lines he has planned a resource center to give capacity building training programmes to the clients a nd upcoming MFIs. Many MFIs have undergone Exposure visits in Saadhana and put i n to practice the learnings from Saadhana and thereby making their presence felt in the sector.

At Saadhana it is team work all through under the leadership of a dedicated seni or management team, the management practices are one of the best in the sector. Saadhana has carved out a niche for itself in good management practices. The man agement team believes in empowering the employees and uses decentralized methods of controlling and decision making. Saadhana believes in reaching manageable nu mber of clients only with quality services instead of running after big numbers.

Financial Supporters FUNDERS Total Funds Borrowed Total Repayment Outstanding Total No. of Loans

359,000,000 234,000,016 124,999,984 61

150,000,000 87,759,100 62,240,900 10

179,000,000 98,547,618 80,452,382 16

270,000,000 180,000,000 90,000,000 19

320,000,000 190,000,000 130,000,000 20

50,000,000 -

50,000,000 1

50,000,000 3,125,000 46,875,000 2

1,378,000,000 793,431,734 584,568,266

Outreach Summary

PARTICULARS Apr 05 to Mar- 06 Apr 06 to Mar- 07

Apr 07 to mar-08 Apr 08 to Mar-09

Number of Centers 1643 2196 2670 3451 Number of Units 15 20 21 40 Number of Members 41,700 60,440 76,580 103,430 Number of Groups 3,961 5,452 6,386

1896 Number of Active Clients 39,374 54,250 63,629 85,102 Number of Active Loans 38,263 55,569 62,729 84,908 Total Number of Loans 61,944 119,843 184,433 272,413 Value of loans (Rs) 396,237,650 932,262,050 1,663,300,281 2,669,703,292 Gross Loan Outstanding (Rs)

164,486,100 300,716,702 359,923,143 540,294,471

Financial Summary

PARTICULARS Apr 05 to Mar 06 Apr 06 to Mar 07 Apr 07 to Mar 08 Apr 08 to Mar 09 Number of Clients 39,374 54,250 63,629 85,102 Number of Active Loans 38,263 55,569 62,729

84,908 Loan Outstanding 164,486,100 300,716,702 359,923,143 540,294,471 Net Worth (Adjusted) 7,605.758 30,372,639 50,013,946 73,264,536 Total Income 28,336,613 67,990,180 89,441,570 128,906,386 Operational Efficiency 25.31 21.33 22.00 23.76

Administrative Efficiency 15.60 11.49 11.05 11.21 Portfolio at Risk(>30 Days) 0.00% 0.00% 0.00% 0.00% Portfolio at Risk(>90 Days) 0.00% 0.00% 0.00% 0.00% Operational Self-Sufficiency 107.05 138.39 124.31 121.73 Financial Self-Sufficiency 100.94

115.85 110.10 116.99

Strengths

Very clear and focused MISSION SMART Objectives Vibrant Strategic Business Plan Projections based planning and implementation

Strong governance Executive board members from diverse professional and te chnical backgrounds Professional leadership CEO with close to 2 decades exclusive experience i n the MF sector Professional and committed human resource with strong ethical base Strong & visible second line Leadership Decentralized and Transparent Decision Making through Core Committee Internalized Core values 100% repayment since beginning High retention rate of staff and clients

Computerized MIS - Instant access to data for senior management at any giv en point of time. Process and Policy Documentation through Process Mapping

Microfinance Process Excellence award [MPEA] winner under fire category fo r the year 2005, MPEA continuation 2006, Micro Insurance award 2007, 15th Best M FI among top 50 MFIs in the world by Forbes magazine rating of 2008, MPEA 2008 u nder Fire Category Providing Mentoring and CB Services for upcoming MFIs in the Region Diverse funding base Sound and Professional Audit Firm Exclusive Internal Monitoring & Audit Team (IMAT)

Strong moral and financial back up of FWWB

Customer Segmentation:

Microfinance clients are often described according to their poverty level Vulnerable non-poor Upper poor Poor Very poor.

In saadhana microfin society consumers are targeted based on

Gender: saadhan has been setup to cater /help only women in particular. Unlike o ther MFIs saadhana does not provide financial help towards males. It believes i n women power and their upliftment.

Age: Women are mostly in the age group of 20 to 50 years.

Income: Monthly income based on individual and family Individual Income < Rs. 1500/month Family Income < Rs. 2500/month

Status of living: Economically active poor women. Saadhana targets urban and semi-urban poor and marginalized women who are involved in and keen on charting their own path out of poverty through potential micro enterprises.

Geographical area: Andhra Pradesh state.

3.2 Marketing Strategy:

A) Target Customer: MFIs typically targeted women. These factors included:

Repayment rates are higher than men, so lending to women is a better Inves tment.

Women are on average poorer than men, so focusing on women can help achiev e poverty targets.

Womens activities contribute to a communitys economic growth, so lending to women is more efficient.

Women are better borrowers because they repay their loans more faithfully than men repay and tend to spend money on improving the standard of living of th eir family.

It has been proved that women are those who are the most able to manage th e money of the household. Experience has shown that women are a good credit risk , and that women invest their income surround the well being of their families.

 Women have proven to be the best poverty fighters. Experience and studies have shown that they use the profits from their businesses to send their childre n to school, improve their families living conditions and nutrition, and expand their businesses.

By providing access to financial services only through women you make wome n responsible for loans, ensuring repayment through women, maintaining savings a ccounts for women, providing insurance coverage through women microfinance progr ams send a strong message to households as well as to communities Customer Selection: The members in a group are selected so as to be in the same age group and residing in the same locality being friends but not from family. I n case of problems in recovery from even one of the members, the system of joint liability ensures recovery of the dues from all the members within a group.

B) 4 Ps of Marketing: Applying the principle of 4 Ps, to the marketing strategy of a microfinance inst itute like SAADHANA reveals details as under

Product:

Products & Services PRODUCTS

FEATURES TARGET CLIENTS

DELIVERY MODE GENERAL LOAN

Micro Enterprise Development Loan (MEDL)

Term - 50 Weeks Weekly Instalments Size of the loan vary by cycle Collateral-Group guarantee

All borrowers I cycle ranges from 7000-9000 with an increase of 2000 for every subsequent cyc le with ceiling amount of 21,000 One time disbursement to the entire group (10 members ) SOCIAL SECURITY SCHEME(SSS)

Social security scheme SSS is an Insurance product designed to mitigate the risk & protect the welfare of the borrower Compulsory for all active borrowers Insured Risk - life of the spouse Risk Coverage -Natural Death - Rs.30,000

Accidental Death - Rs.75,000 Permanent total Disability-Rs.75,000/Partial permanent disability Rs.37,500/-

Apart from the above, the immediate compensation of Rs.1000/- for the spouse & R s.500/- for the client is offered by Saadhana towards funeral expenses

Place

Distribution:

SAADHANA has started its operations in urban Kurnool District of AP state on Dec ember 2001 and disbursed the first loan ofRs.50, 000/- on 9th January 2002 to it s first group of 10 members (@Rs. 5000/- to each member).

Saadhana has continued to successfully manage growth with operations now coverin g 5 Districts namely Kurnool, Kadapa, Mahaboob-Nagar, Anantapur Prakasam Distric ts of Andhra Pradesh with eleven area offices Kurnool -1, Kurnool -2, Adoni, Nan dyal, Proddutur, Gadwal, Dhone, Anantapur, Hindupur, Ongole and Kadapa as on 31s t March, 2009.

The disbursement volume has reached to an amount of Rs.251.19 crores to 103430 most deserved poor women.

Price:

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PRODUCTS CHARGES

GENERAL LOAN

Micro Enterprise Development Loan (MEDL) 15% pa flat Documentation-Rs.20. Loan Protection Fee (LPF): 2% Upfront Up to 3rd Cycle & 1% from 4th onwards

SOCIAL SECURITY SCHEME(SSS) Total premium-Rs.125 Premium-Rs.100/Rs.25/- to cover funeral expenses of the client & spouse

Promotion:

Saadhana, imbibed a core value Open to learn and share as a prized virtue. Even a t an early juncture of its evolution, Saadhana envisioned to freely share the kn owledge and experiences on one platform and has embarked on various initiatives to offer guidance to small, grassroots organizations by organizing Exposure Visits.

C) Operations Methodology:

PHASES PROCESS/CRITERIA FOLLOW UP ACTION Identification Of Potential Area/Slum Magnitude of poverty size of the Slum Physical access (Max. 8 KM)

Conducting Preliminary Survey Ensuring Potentiality Opportunities to take up Potential livelihoods Maximum scope for outreach Variety of financial services available in the area/slum

Types of competition operating in the area/slum Charges offered

General Meeting Meeting with the slum dwellers in an identified pocket/area Briefing about SAADHANA(Profile, Activities) Highlighting SAADHANAs Credit policy

Follow-up meeting with interested/ potential members will be conducted on the very next day

Identification of Preliminary Group Member Selection Economically active poor women in the age group of 20-50 years Mly income: individual < Rs.1500/- family < Rs.2500/-

She should be the resident of that particular Slum for at least one prece ding year Not owning a big house Willing to abide by the credit Policy of SAADHANA Willing to be a co-guarantor for other women in the group

Neither the woman nor her husband are Govt. employees except like Scaveng ers, Sweepers, Watchman, etc., No two members in a group should have blood relation All the members should reside in the same street

Eligible members will form into groups (10 members per group) with leader

PHASES PROCESS/CRITERIA FOLLOW UP ACTION

Group Training 5 day training 1st day-Organization Profile 2nd day-Five norms of SAADHANA 3rd day-Credit Policy 4th day-Over all review & Preparation for verification 5th day- Group verification

Verification Verification authority will facilitate an oral verification for the group to ass ess potentiality Succeeded group agrees upon a mutually convenient day, Venue and time Get enrolled as Members of Saadhana

Groups not succeeded in the verification test will again undergo training

Initiating financial transactions I Center Meeting- Issue of enrollment & weekly repayment cards, Issue of l oan application and resolution forms. II Center Meeting- Loan disbursement

Follow up through weekly meetings

Portfolio Control

PRE-DISBURSEMENT Client appraisal - A systematic client appraisal process is in place since begin ning to identify potential as well as risky clients/groups and furthermore to ta ke lending decisions. Eligibility check: Client appraisal process concurrently begins with group forma tion. The credit officer, who is responsible for group formation, carefully faci litates the group to choose their members keeping in view of the membership norm s of SAADHANA and confirms the same through the random house visits. As a result , eligible members only form into groups. Adding to this, on the last day of gro up training, the verification authority visits the group to verify the group s e ligibility and potentiality. Before initiating the actual verification process, the verification authority builds rapport with the group, clearly explains the p urpose of verification then facilitates the group to interact without any discom fort. The focus of interaction will be on the following areas. Clients awareness on SAADHANA s services Clients knowledge of SAADHANA membership norms Clients understanding of SAADHANA s credit policy Data corroboration with co-guarantors in the group Analyzing existing debt obligations of client s household Loan purpose Solidarity Leadership Participation Multiple membership Pre-Project appraisals: During the interaction with the clients, the verificatio n authority also appraises the previous experience and skills of the client, fea sibility, market and other external risks involved in the proposed projects.

POST-DISBURSEMENT Zero tolerance policy: SAADHANA follows Zero tolerance policy to ensure on time repayment and has a practice of not closing the centre meeting until the entire repayment amount is collected. Project verification/Loan utilization checks: Ensuring loan utilization is the r esponsibility of the whole group. The group itself ensures grounding of their pr ojects. In addition to the peer pressure and client appraisal process, SAADHANA also follows up on loan utilization through project verification. Project verifi cation involves physical verification of the grounded projects within a week aft er loan disbursement. In case the money is not used, the matter would be brought into the notice of the group in the next meeting. In every meeting, the credit officer reminds the members of the purpose for which the loan has taken and that there should not be any cross-usage.

3.3 The Future Outlook - SAADHANA

A) Opportunity

Huge demand and supply gap: There is a huge demand and supply gap among the borrowers and issuers. In India around 350 million of the people are poor and only few MFIs there to serving them. There is huge opportunity for SAADHANA to serve the poor people and increase their living standard. The annual demand of Micro loa

ns is nearly Rs 60,000 crore and only 5456 crore are disbursed to the borrowe r by all MFIs in India. (as on April 09)

Employment Opportunity: Micro Finance helps the poor people by not only providing them with loan bu also helps them in their business, educate them and their children etc. So

in this Micro Finance Institute like SAADHANA is helping in increase the employment opportunity for them and for the society.

Huge Untapped Market: Indias total population is more than 1000 million and out of 350 million is living below poverty line. So there is a huge opportunity for SAADHANA to meet the demand of that un served customers and Micro Finance should not leave any stones unturned to grab the untapped market.

Opportunity for Private Players:

Many Pvt. Banks are shying away from to serve the people are unable to access bi g loans, because of the high intervention of the Govt. but the door open for the Private Players like SAADHANA to enter more markets and flourish.

B) Problems Faced by SAADHANA

1. Sustainability: The first challenge relates to sustainability. MFI model is c omparatively costlier in terms of delivery of financial services. An analysis of 36 leading MFIs by Jindal & Sharma shows that 89% MFIs sample were subsidy depe ndent and only 9 were able to cover more than 80% of their costs. This is partly explained by the fact that while the cost of supervision of credit is high, the loan volumes and loan size is low. It has also been commented that MFIs pass on the higher cost of credit to their clients who are interest insensitive for small loans but may not be so as loan sizes increase. It is, therefore, necessary for MFIs to develop strategies for increasing the range and volume of their financi al services.

2. Lack of Capital: The second area of concern for SAADHANA, which is on the gro wth path, is a paucity of owned funds. This is a critical constraint in being a ble to scale up. Many of the MFIs are socially oriented institutions and do not have adequate access to financial capital. As a result they have high debt equit y ratios. Presently, there is no reliable mechanism in the country for meeting t he equity requirements of MFIs. The IPO issue by Mexico based Compartamos was not accepted by purists as they thought it defied the mission of an MFI. The IPO als o brought forth the issue of valuation of an MFI.

3. Financial service delivery: Another challenge faced by SAADHANA is the inabil ity to access supply chain. This challenge can be overcome by exploring synergie s between microfinance institutions with expertise in credit delivery and commun ity mobilization and businesses operating with production supply chains such as agriculture. The latter players who bring with them an understanding of similar client segments, ability to create micro enterprise opportunities and willingnes s to nurture them, would be keen on directing microfinance to such opportunities . This enables MFIs to increase their client base at no additional costs. Those businesses that procure from rural India such as agriculture and dairy oft en identify finance as a constraint to value creation. Such businesses may find complementarities between an MFIs skills in management of credit processes and th eir own strengths in supply chain management.

SAADHANA should explore strategic alliance with ITC Ltd, on lines of Pushcart Sc heme with BASIX.

ITC Limited, with its strong supply chain logistics, rural presence and an innov ative transaction platform, the e-choupal, has started exploring synergies with financial service providers including MFIs through pilots with vegetable vendors and farmers. ITC has initiated a pilot project called pushcarts scheme along with BASIX (a micr ofinance organization in Hyderabad). Under this pilot, it works with twenty wome n head load vendors selling vegetables of around 10- 15 kgs per day. BASIX exten ds working capital loans of Rs.10,000/- , capacity building and business develop ment support to the women. ITC provides support through supply chain innovations by Making the Choupal Fresh stores available to the vendors, this avoids the hassle of bargaining and unreliability at the traditional mandis (local vegetabl e markets). The women are able to replenish the stock from the stores as many ti mes in the day as required. This has positive implications for quality of the pr oduce sold to the end consumer. Continuously experimenting to increase efficiency, augmenting incomes and reducing energy usage across the value chain. For instance, it has forged a part nership with National Institute of Design (NID), a pioneer in the field of desig n education and research, to design user-friendly pushcarts that can reduce the physical burden.

4. HR Issues: Recruitment and retention is the major challenge faced by MFIs including SAADHAN A as they strive to reach more clients and expand their geographical scope.

Attracting the right talent proves difficult because candidates must have, as a prerequisite, a mindset that fits with the organizations mission.

Many mainstream commercial banks are now entering microfinance, who are poaching staff from SAADHANA and MFI is unable to retain them for other job opportunitie s.

The challenge in most countries stems from cultural notions of womens roles, for example, while women are single there might be a greater willingness on the part of womens families to let them work as front line staff, but as soon as they mar ry and certainly once they start having children, it becomes unacceptable. Long distances and long hours away from the family are difficult for women to accommodate and for their families to understand.

3.4 How the recent slowdown affects SAADHANA

Microfinance institutions have weathered the global financial storm remarkably w ell, but in 2009 the credit crunch and global recession could hit the sector har d. The micro finance sector is not fully integrated into mainstream banking and so MFIs are partially insulated from financial markets contagion. From the very ear ly of beginnings, the sector has expanded into a global community of over 3000 M FIs serving 125 to 150 million customers in developing countries with 25 to 30 b illion dollars in loans. The industry has consequently attracted mainstream bank s like Citigroup, Standard Chartered, and BNP Paribas. SKS Microfinance, India s largest MFI, recently raised about 75 million dollars from private equity sourc es.

The most immediate worry is that the global credit crunch will affect the cost a nd availability of funding. The most vulnerable MFIs will be those that get thei r money from foreign banks. Credit is now tighter, slower, and more costly. As financial institutions are struggling with their liquidity, they have less money to lend to microfinance institutions, which in turn means less to lend to the p oor, and lending happens then at the higher rate. Current slowdown also increase s the rate of interest on borrowed sum, this further increases the funding loan of the MFIs and the poor people who take loan from the MFIs, would find it difficu lt to borrow and this further increases the more people Below Poverty Line (BPL)

Microfinance institutions generate capital from three main sources: debt, deposi ts, and equity. And during the recession all this sources of finance gets expens ive.

Deposits: Many MFIs main source of capital is from deposits, and this is t he easiest source of capital but during the recession, local currencies in devel oping countries lose value, clients will find it increasingly difficult to maint ain savings levels. Deposits may decline and non-performing loans may increase as clients require additional capital to cover basic needs.

Debts: MFIs that depend upon this source of capital at greatest risk durin g the financial crisis. In todays economy debt financing is offered at a high rat e of interest and during slow down the demand from the investors get reduced and the MFIs have the fixed obligation to pay interest. So this creates the difficul ty for the MFIs and for borrowers during the time of slowdown.

Equity based financing: This source of finance is not very popular in Indi a. Because this needs a huge capital and many MFIs in India are not. Many microfinance banks are not disturbed by the global happenings due to, the f act that they all have high savings- and deposit this leads to less dependence o n government, bank and external funding. But even savings-led institutions are n ot immune to a global economic crisis. MFI managers now report that high prices for food and fuel, a lack of demand for micro enterprise products and decrease i n the incomes of the earning members are hurting their clients. More and more cl ients withdraw their savings or have trouble repaying their loans.

Abbreviations used in Organization Structure

CEO SECT: CEO S Secretariate HRMT: Human Resource Management Team CMT: Client Management Team TMT: Technical Management Team IMAT: Internal Management Team

ADMT: Admin Management Team FMT: Finance Management Team AMT: Accounts Management Team IAT: Internal Audit Team Trngs & Doc: Trainings & Documentation DST: Development Support Team SRC: Swajeeva Resource Center