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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 50874-IN
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 65.9 MILLION
(US$100 MILLION EQUIVALENT)
TO THE REPUBLIC OF INDIA
AND A PROPOSED LOAN
IN THE AMOUNT OF US$200 MILLION
TO THE SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA
WITH A GUARANTEE OF THE REPUBLIC OF INDIA
FOR A
SCALING UP SUSTAINABLE AND RESPONSIBLE MICROFINANCE PROJECT
May 3, 2010
Poverty Reduction and Economic Management
Finance and Private Sector Development Department
South Asia Region
This document has a restricted distribution and may be used by recipients only in the performance of their official
duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective March 31, 2010)
Currency Unit = Indian rupees (Rs)
Rs 45.14 = US$1
US$1.518 = SDR 1
FISCAL YEAR
April 1 – March 31
ABBREVIATIONS AND ACRONYMS
ACB
ADB
Audit Committee of the Board
Asian Development Bank
LIBOR
M&E
London Interbank Offer rate
Monitoring and Evaluation
AGM Assistant General Manager MFI Microfinance Institution
AML
ARCS
Anti-Money Laundering
Audit Reports Compliance System
MIS Management Information Services
CAS Country Strategy MISFA Microfinance Investment Support
Facility for Afghanistan
CDB China Development Bank MIV Microfinance Investment Vehicle
CGAP Consultative Group to Assist the Poor MIX Microfinance Information Exchange
CGM Chief General Manager MoF Ministry of Finance
CITES Convention on International Trade in
Endangered Species
MSME Micro, Small, and Medium Enterprises
CMD Chairman and Managing Director MTR Mid-Term Review
CoC Code of Conduct NABARD National Bank for Agriculture and
Rural Development
CRAR Capital to Risk-weighted Assets Ratio NBFC Nonbank Finance Company
CQS Consultant Qualification Services NCB National Competitive Bidding
DFID Department for International
Development, U.K.
NGO Non-Government Organization
DFS Department of Financial Services NMFSP National Micro Finance Support
Program
DGM Deputy General Manager NPA Non Performing Assets
DMD Deputy Managing Director NPL Non Performing Loans
DO
DPL
E&S
Development Objective
Development Policy Loan
Environmental and Social
OM
OSS
PAC
Operations Manual
Operational Self-Sufficiency
Project Advisory Committee
EHS Environment, Health, and Safety PAR Portfolio At Risk
ELA Exclusion List of Activities PCBs Polychlorinated Biphenyls
ESW Economic and Sector Work PKSF Palli-Karma Sahayak Foundation
FBS Fixed-Budget Selection PMD Project Management Department
FIL Financial Intermediary Loan PPAF Pakistan Poverty Alleviation Fund
FM Financial Management PSIG Poorest States Inclusive Growth
Program
FY Financial Year QCBS Quality and Cost-Based Selection
GAAP Governance and Accountability
Action Plan
QPR Quarterly Progress Report
GIS Global Information Services RBI Reserve Bank of India
GoI Government of India ROA Return On Assets
GM General Manager ROE Return On Equity
GTZ German Association for Technical
Cooperation
RTI Right to Information
IAD Internal Audit Department SFMC SIDBI Foundation for Micro-Credit
IBRD International Bank for Reconstruction
and Development
SHG Self-Help Group
ICB International competitive bidding SIDBI Small Industries Development Bank of
India
IDA International Development
Association
SME Small and Medium Enterprise
IDBI Industrial Development Bank of India SMFB Specialized Micro Finance Branch
IFAD International Fund for Agriculture
Development
TA Technical Assistance
IFC International Finance Corporation ToR Terms of Reference
IP Implementation Progress UC Utilization Certificate
IT Information Technology UNDB United Nations Development Business
IUFRs Interim Unaudited Financial Reports UPS Uninterrupted Power Supply
JBIC Japanese Bank for International
Cooperation
VSL Variable Spread Loan
KfW German Development Bank WAN Wide Area Network
KYC Know Your Customer WBG World Bank Group
LAN Local Area Network
LCS Least-Cost Selection
Vice President: Isabel Guerrero
Country Director: Roberto Zagha
Sector Director: Ernesto May
Sector Manager: Ivan Rossignol
Task Team Leaders: Niraj Verma and Mehnaz Safavian
INDIA:
SCALING UP SUSTAINABLE AND RESPONSIBLE MICROFINANCE PROJECT
CONTENTS
Page
A. STRATEGIC CONTEXT AND RATIONALE ................................................................. 7
1. Country and sector issues........................................................................................................ 7
2. Rationale for Bank involvement ........................................................................................... 10
3. Higher-level objectives to which the project contributes ..................................................... 11
B. PROJECT DESCRIPTION ............................................................................................... 11
1. Lending instrument ............................................................................................................... 11
2. Project development objective and key indicators ................................................................ 12
3. Project components ............................................................................................................... 12
4. Lessons learned and reflected in the project design.............................................................. 14
5. Alternatives considered and reasons for rejection ................................................................ 15
C. IMPLEMENTATION ........................................................................................................ 16
1. Partnership arrangements ...................................................................................................... 16
2. Institutional and implementation arrangements .................................................................... 16
3. Monitoring and evaluation of outcomes/results .................................................................... 18
4. Sustainability......................................................................................................................... 19
5. Critical risks and possible controversial aspects ................................................................... 19
6. Loan/credit conditions and covenants ................................................................................... 23
D. APPRAISAL SUMMARY ................................................................................................. 23
1. Economic and financial analysis ........................................................................................... 23
2. Technical ............................................................................................................................... 24
3. Fiduciary ............................................................................................................................... 25
4. Social..................................................................................................................................... 26
5. Environment .......................................................................................................................... 27
6. Safeguard policies ................................................................................................................. 27
7. Policy Exceptions and Readiness.......................................................................................... 28
2
Annex 1: Country and Sector or Program Background ......................................................... 29
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 40
Annex 3: Results Framework and Monitoring ........................................................................ 42
Annex 4: Detailed Project Description ...................................................................................... 48
Annex 5: Project Costs ............................................................................................................... 55
Annex 6: Implementation Arrangements ................................................................................. 56
Annex 7: Financial Management and Disbursement Arrangements ..................................... 78
Annex 8: Procurement Arrangements ...................................................................................... 89
Annex 9: Economic and Financial Analysis ............................................................................. 97
Annex 10: Safeguard Policy Issues .......................................................................................... 102
Annex 11: Project Preparation and Supervision ................................................................... 105
Annex 12: Documents in the Project File ............................................................................... 107
Annex 13: Statement of Loans and Credits ............................................................................ 110
Annex 14: Country at a Glance ............................................................................................... 115
3
INDIA:
SCALING UP SUSTAINABLE AND RESPONSIBLE MICROFINANCE PROJECT
PROJECT APPRAISAL DOCUMENT (PAD)
SOUTH ASIA REGION
SASFP
Date: June 25, 2010 Team Leader: Niraj Verma, Mehnaz Safavian
Country Director: Roberto Zagha
Sector Manager/Director: Ivan Rossignol/
Ernesto May
Sectors:Micro- and SME Finance (100
percent)
Themes: Other financial and private sector
development; rural and non-farm development
Project ID: P119043 Environmental category: FI
Lending Instrument: Financial Intermediary
Loan (FIL)
Project Financing Data
[ x ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other:
For Loans/Credits/Others (US$m): 300.0
Total Bank financing (US$m.): 300.0
Proposed terms: IBRD flexible loan with variable spread with a 25 year maturity, including a
14.5-year grace period; for IDA, 35 years with 10 years‘ grace
Financing Plan (US$m)
Source Local Foreign Total
BORROWER/RECIPIENT 30.00 0.00 30.00
International Development Association
(IDA)
100.00 0.00 100.00
International Bank for Reconstruction and
Development (IBRD)
200.00 0.00 200.00
Total: 330.00 0.00 330.00
Borrower: Small Industries Development Bank of India (SIDBI) for IBRD and the Republic of
India, for IDA (to be channeled onward to SIDBI)
Responsible Agency: Department of Financial Services, Ministry of Finance, Government of
India, and SIDBI
Estimated disbursements (Bank FY/US$m)
FY 2011 2012 2013 2014 2015
Annual 70.0 80.0 80.0 50.0 20.0
Cumulative 70.0 150.0 230.0 280.0 300.0
Project Implementation Period: 5 years
Expected effectiveness date: June 30, 2010
4
Expected closing date: June 30, 2015
Does the project depart from the CAS in content or other significant respects?
Ref. PAD I.C. [ ]Yes [X] No
Does the project require any exceptions from Bank policies?
Ref. PAD IV.G. Have these been approved by Bank management?
[ ]Yes [X] No
[ ]Yes [X] No
Is approval for any policy exception sought from the Board? [ ]Yes [X] No
Does the project include any critical risks rated ―substantial‖ or ―high‖?
Ref. PAD III.E. []Yes [X] No
Does the project meet the Regional criteria for readiness for implementation?
Ref. PAD IV.G. [X]Yes [ ] No
Project development objective Ref. PAD B.2, Technical Annex 3
The objective of the project is to scale up access to sustainable microfinance services to the
financially excluded, particularly in under-served areas of India, through, among other things,
introduction of innovative financial products and fostering transparency and responsible finance.
Progress towards the achievement of the project objective would be monitored using the
following indicators (refer also to annex 3):
Extent of outreach: Disbursements of loans by microfinance institutions (MFIs) to their
clients relative to the amounts of financing borrowed from SIDBI
Breadth of outreach: Measured by growth rates within under-served areas
Operational sustainability: Measured by operational self sufficiency (OSS)
Responsible Finance: Measured by the percentage of beneficiary MFIs disclosing
operational/ financial information on a web-based information platform
Project description Ref. PAD B.3, Technical Annex 4
Component 1: Scaling Up Funding Support for Microfinance Institutions (MFIs) (~US$290
million, plus US$30 million counterpart funding)
This component would provide funding for MFIs to scale up their operations. Funding from
SIDBI to MFIs is proposed to be structured as debt or quasi-equity, to support their operations
and growth, enhance their financial strength, and enable them to leverage and crowd-in private
commercial funds to on-lend larger amounts to the under-served. Limited equity support would
also be considered from SIDBI to MFIs. The total funding thus mobilized will enhance MFIs‘
ability to reach out to larger numbers of under-served segments of the population through
microfinance services. In particular, the quasi-equity/equity funding will also help address the
equity gap in Indian MFIs, while providing SIDBI with the leverage to promote the responsible
finance agenda among the MFIs funded by the project.
Component 2: Strengthening Responsible Finance (US$5 million)
The Component would promote transparency and responsible microfinance through the
development of an India microfinance platform. This initiative is envisaged as a common
information platform for MFIs to provide and disseminate valuable information that would
5
inform policymakers, MFI managers and funders (similar, but broader and deeper than the
information available on the MixMarket – which is the leading global microfinance information
database provider - including through potential collaboration with MixMarket in India). As part
of the responsible finance initiative, SIDBI will seek to bring together a Lenders‘ Forum
comprising key MFI funders to agree on common actions which could include those on
transparency and good governance by MFIs. Additionally, once the Unique Identification (UID)
initiative of the GoI is ready for implementation, the forum will encourage MFIs to participate
and support the roll-out of this initiative, given its significant potential to improve transparency
and credit information. The Component could also potentially support the development and
piloting of a Code of Conduct (CoC) Assessment, which could serve as an innovative rating tool
measuring performance of MFIs as pertaining to their CoC adherence. Component 2 will be
cross linked with Component 1, such that MFIs accessing Component 1 will need to commit to
data sharing on the common information platform and possibly other responsible finance
initiatives defined in the Operations Manual (OM).
Component 3: Capacity Building and Monitoring Component (US$5 million)
This component would provide implementation support, which would include support to SIDBI
for (i) implementing the project, including operating expenses and costs of the monitoring work
(defined in annex 3 and elsewhere); (ii) commissioning an impact evaluation exercise (to be
carried out through an external research agency); and (iii) SIDBI‘s own capacity building. This
component would also include support for a communication strategy to help ensure the benefits
from this intervention are shared with the wider microfinance sector.
Which safeguard policies are triggered, if any? Ref. PAD D.5, Technical Annex 10
The project has been assigned an environmental screening category ―FI.‖ The following
safeguard policies are triggered: Environmental Assessment OP 4.01
Significant, non-standard conditions, if any, for:
Board presentation: None
Loan/credit effectiveness: June 2010
The condition for effectiveness will be that the Subsidiary Agreement has been executed on
behalf of India and SIDBI, and all conditions precedent to its effectiveness or to the right of the
SIDBI to make withdrawals under it (other than the effectiveness of the Loan Agreement and the
Financing Agreement) have been fulfilled.
Covenants applicable to project implementation are as follows:
i. SIDBI shall maintain an adequate organizational structure with functions, powers,
staff, and resources necessary for project implementation.
ii. SIDBI shall implement the project in accordance with the provisions of the OM
for the project.
iii. SIDBI shall monitor progress of the project in accordance with indicators
satisfactory to the Bank.
iv. The midterm review (MTR) of the project shall be carried out by December 31,
2012.
6
v. SIDBI‘s on-lending activities to MFIs under the project shall be carried out in
accordance with the agreed Exclusion List of Activities (ELA), and SIDBI will
ensure that the microfinance activities under the project comply with the ELA.
7
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
1. The Indian financial sector has witnessed reforms since the early 1990s resulting in
improved financial performance and stability during this period. These reforms—including
interest rate deregulation, capital market development (particularly equity and government bond
markets), and opening up of the banking and insurance sectors—have facilitated increased
competitiveness in banking through the entry of new private domestic and foreign players,
introduction of new technology and products, and deepening of India‘s financial system.
2. Notwithstanding a stable, dynamic, and growing financial sector, increasing access to
finance for millions of India’s financially under-served segments remains a challenge. This
challenge has further been accentuated by the financial crisis, during which—despite stable
policies, increasing efficiency, strong factor endowments, and a dynamic financial market—
India‘s economic growth slowed from 9.7 percent in 2006–07 to 5–6 percent in the second half
of 2008–09, accompanied by a slowdown in credit growth.1
3. In recent years there have been numerous initiatives to improve access to finance to
financially under-served segments. Among these initiatives is the Government of India (GoI)
program to support the revitalization of the rural credit cooperatives,2 initiatives to increase
access to finance for small and medium enterprises (SMEs),3 and supporting infrastructure
finance,4 introducing enabling guidelines to support financial inclusion by, for example, opening
no-frills savings accounts for under-served clients, provisions to expand the outreach of micro-
insurance, and the use of banking correspondents to increase access.
4. However, despite these measures, access to financial services for India’s poor still
remains a key development challenge, as a significant part of the population is under-served by
the formal banking sector.5 While India has a well-developed banking system and there has been
significant progress in banking sector reforms, performance, and stability, two-thirds of the
population is still estimated to have only limited or no access to financial services. Given the
large demand, in addition to the measures described above, there is a need for multiple
approaches and mechanisms to provide basic financial services to all Indians. Among such
initiatives is the use and support of microfinance initiatives that can help to deepen the
penetration of financial services among the poor and under-served.
5. The microfinance sector, which bridges the ―access gap‖ by providing thrift, credit, and
other customized financial services to the under-served, with the aim to help raise incomes and
improve living standards, has been growing exponentially in India. Smaller initiatives in
1 Supported by the Bank-funded Banking Sector Support Loan (US$2 billion) that provides budgetary support to the
government for supporting capital infusion into banks, partly as a precautionary shield and partly to prevent lack of
capital from constraining good quality credit growth. 2 Supported by a Bank project on Strengthening India‘s Rural Credit Cooperatives (US$600 million).
3 Supported by a Bank project on SME Financing and Development (US$120 million) topped up recently with
additional financing in the amount of US$400 million. 4 Supported by the Bank‘s loan to the India Infrastructure Finance Company (US$1.195 billion).
5 India: Scaling Up Access to Finance for India’s Rural Poor (World Bank 2004, 2006).
8
microfinance in India date back to the 1970s, but the sector really started gaining a foothold in
the late 1990s (see also annex 1). Facilitated by a benign approach toward regulation since 1997,
and with a focus on the southern states, microfinance institutions (MFIs) have been scaling up
rapidly in recent years, although from a small base. Growth in loans outstanding to clients—now
mostly accounted for by MFIs structured as regulated nonbank finance companies—has been at
rates in excess of 65 percent per year over the past three years, and stood at around US$2.5
billion at the end of financial year (FY) 2009.
6. This growth has contributed to reducing the gap between the unmet demand for and
supply of financial services for under-served households and microenterprises. Recent analysis
indicates that access to microfinance in India has contributed to the reduction in vulnerability of
poor households through asset creation, increased incomes, higher savings and employment, and
empowerment of women clientele.6
7. However, two overarching challenges remain: (i) a large unmet demand for financial
services by India’s under-served segments, particularly in states where market penetration has
been extremely low; and (ii) rapid expansion, which introduces the dual challenge of
maintaining good-quality growth while promoting responsible finance among MFIs.
Conservative estimates from Sa-Dhan, the main network of MFIs, indicate an unmet credit
demand among potential microfinance clients at Rs 80,000 crores (US$17.7 billion). Rapid
expansion, however, can lead to funding gaps, potentially erode credit discipline, and introduce
risky market behavior. This could result in external interference in the sector, which could
threaten short- and medium-term sustainability.
Key Issues:
8. Scaling up microfinance and promoting responsible and balanced growth relies on
tackling three key issues facing the microfinance industry in India:
9. Appropriate financing that tackles the growing equity gap and the need for more patient
debt instruments: The fast-paced growth of Indian microfinance has been largely driven by
commercial bank debt to MFIs. The share of debt in total funding of MFIs exceeds 80 percent,
most of which is sourced from commercial banks at commercial rates. As a result, the fast debt-
funded growth—without sources and amounts of equity growing at a commensurate pace—has
led to a situation where many Indian MFIs face a severe shortage of equity capital, limiting their
ability to take on more debt and increase lending outreach to more clients (figure 1 and table 1
below). A recent International Finance Corporation (IFC)–Intellecap study estimates that even
with conservative assumptions, the minimum equity/quasi-equity amount needed is US$1.3
billion over the next four years.7 Bank projections show that even with conservative growth
assumptions, there is a need of US$294 million in equity funds immediately. Furthermore, with
such capital structure constraints, MFIs have less of an incentive to focus on under-served areas,
as this will increase their cost, which in turn will have a negative impact on the capital adequacy.
6 Assessing Development Impact of Microfinance Programs is a national study of Indian microfinance households
commissioned by SIDBI, in collaboration with the Department for International Development (DFID), September
2008. 7 Inverting the Pyramid (Intellecap and IFC 2008).
9
MFI tiers wrt loan
portfolio Loan portfolio
Total Active
borr.
Capital
adequacy
Est. capital
shortfall
Rs. Mar-09 $ mn Mar-09 No. Mar-09 % Mar-10 $ mn
>1.5 billion port 1,936 13,165,995 13.6% 224.1
0.25-1.5 bn port 338 2,645,434 12.1% 45.9
<0.25 bn port 161 1,795,311 19.6% 24.9
Grand Total 2,435 17,606,740 294.9
N=233; Source: The Bharat Microfinance Report, Sa-Dhan, July 2009
Table 1: Summary of MFI outreach and capital needs
10. Further, with the onset of the financial crisis, even debt funding has been affected, as
banks now appear to be more risk averse to expanding, or even maintaining, their lending to their
MFI clients. Hence, the lending that is happening now is at a higher cost and disproportionately
allocated to the few largest MFIs, thereby increasing concentration and refinancing risks for mid-
size- and small-tier MFIs.8 Recent data show that while the top five MFIs grew faster than the
year before, the growth rate of the next 10 MFIs more than halved from the level a year ago.9
Thus, even with respect to debt there is a gap that has emerged. These gaps are particularly
apparent for small- and mid-size MFIs that have a capital adequacy (equity) constraint and also
are finding it harder and more expensive to raise debt in the local markets.
11. A responsible finance agenda that fosters transparency, good governance, and adherence
to Codes of Conduct (CoCs): The high growth rates of many large and medium MFIs in recent
years have fueled intense competition among MFIs in some pockets of the country. Competition
has its benefits (among them, lower interest rates), but experiences in the region, and, globally,
highlight risks. In some markets the rate of growth is too fast, which potentially comes at the
expense of sound credit management. With increasing scale of operations and resulting
increasing visibility, the possibility of external stakeholders wanting to intervene becomes
stronger. Much more could be done to ensure healthier microfinance market expansion and to
mitigate some of these potential risks. This agenda needs to be grounded in transparent reporting
to funders and clients, strengthened credit-reporting infrastructure, improved coordination
between MFIs possibly through strengthening national- and state-level associations, increased
focus on risk management and credit discipline, and more widespread adherence to the
microfinance CoC.10
12. Balanced geographical outreach so that expansion leads to more access for clients in
under-served areas: Microfinance outreach in India is notable for its uneven geographic
coverage. Three southern states—Andhra Pradesh, Karnataka, and Tamil Nadu—account for
more than half of all borrowers. Even within high-penetration states, under-served districts exist
where microfinance penetration is relatively thin, and expanded outreach is greatly needed.
8 Effective Microfinance Services, Side by Side (Sa-Dhan 2008).
9 Data from M-CRIL, India Indices for Microfinance in India (2009).
10 Private equity players are becoming increasingly active in India with a focus, typically and not unexpectedly, on
the few top-ranking and large MFIs, which can provide required returns on investment.
10
Therefore, as microfinance continues to grow, it will be important to ensure this growth is
inclusive, with better geographical coverage to address the demand for financial services in
under-served states and districts.
2. Rationale for Bank involvement
13. The rationale for Bank involvement essentially revolves around three main issues: (i) the
contribution of the project to the goal of inclusive growth, consistent with the Country Strategy
(CAS); (ii) the long-term funding constraints that threaten continued and balanced growth of the
sector; and (iii) need for a stronger responsible finance agenda that is undertaken by the sector.
14. The World Bank Group‘s India CAS highlights the need for inclusive growth.
Microfinance, by addressing the financial service needs of under-served clients, is an important
tool for poverty reduction, private sector development, and inclusive growth. Economic and
sector work undertaken11
emphasizes the need for the development of the microfinance sector in
India. The Bank has also recently completed a microfinance strategy, Financing the Bottom of
the Pyramid: Microfinance Strategy for South Asia: FY2010–12. The strategy highlights the
Bank‘s comparative advantage in supporting the microfinance agenda in the region, including
working with apex institutions to crowd in commercial finance; increase standards, reporting,
and efficiency of MFIs; and ease crisis-related liquidity constraints. The Government of India
(GoI) recognizes that scaling up microfinance in a responsible and sustainable manner will
require diverse modalities for expanding the flow of financial services to the poor. Toward this
objective, the Small Industries Development Bank of India (SIDBI) is poised to take a more
active leadership role in growing the industry to meet the unmet demand for financial services.
SIDBI is the most prominent and influential apex organization for microfinance in India and
among the better-performing microfinance apexes globally. Support to strengthen SIDBI‘s
leadership role is well suited to the World Bank‘s country and regional microfinance strategies.
15. Secondly, the role of the Bank is justified on grounds of the market failure that exists with
respect to lack of appropriate funding instruments needed at this stage of development. As
mentioned above, Indian microfinance is faced with a situation where many Indian MFIs face a
severe shortage of equity capital, which limits their ability to take on more debt and increase
lending outreach to more clients. Availability of longer-term funding sources would help SIDBI
in introducing appropriate financial instruments that would contribute to strengthening the
balance sheets of the MFIs. The accumulated Bank know-how and lessons learned from previous
lending operations, both in India (for example, rural livelihoods projects, financial intermediary
loans to SIDBI directed to the financing and development of small and medium enterprises; see
annex 2 for more detail) and globally, provide useful experience to draw on. Additionally, the
project would support India in its response to the financial crisis, which has affected lending to
MFIs as observed by a slowdown in fresh disbursements to smaller and medium-size MFIs.
11
These include India: Scaling Up Access to Finance for India‘s Rural Poor‖ (World Bank 2004, 2006),
Microfinance in South Asia (World Bank 2006), India: Regulation of Microfinance (World Bank, CGAP 2006),
Inverting the Pyramid (Intellecap and IFC 2008), Bharat Microfinance Report (Sa-Dhan 2009), and Microfinance
India: State of the Sector Reports (Access Development Services 2006, 2007, 2008, 2009). For a more detailed list,
see annex 12.
11
16. Thirdly, microfinance in India has entered a phase of rapid growth, but as a younger
industry, it still has numerous vulnerabilities. High growth can erode credit discipline and can
potentially introduce risky market behaviors such as client over-indebtedness and poor risk
management. Timely leadership from SIDBI supported by the World Bank project to promote
more responsible finance, improve transparency, and add to new market information and
infrastructure can serve to mitigate these risks during this crucial period of expansion. Such
leadership can ensure that microfinance becomes a nationwide industry contributing to balanced
and inclusive growth across India.
3. Higher-level objectives to which the project contributes
17. The project is designed to support inclusive growth in India by supporting GoI and
SIDBI‘s efforts to scale up and promote responsible and balanced growth of microfinance.
Improved access to finance would work toward this objective by contributing to sustainable
income generation and productive asset creation, poverty reduction, and growth. These are
consistent with GoI‘s development priorities as reflected in the Eleventh Five-Year Plan as well
as the Bank‘s focus on inclusive growth reflected in the CAS.
18. The project is part of the Bank's program of targeted assistance to those without access to
financial services. The project addresses the lack of access of the under-served households to
financial services, an important constraint to improved productivity and incomes, particularly in
the aftermath of the global financial crisis that has affected MFIs and their clients. The project
would build on SIDBI‘s success of fostering and catalyzing growth and sustainability of the
sector since the mid-to-late 1990s, with a focus toward increasing financial outreach particularly
in under-served areas where microfinance penetration continues to be very low.
B. PROJECT DESCRIPTION
1. Lending instrument
19. The lending instrument is a financial intermediary loan (FIL) (as per the World Bank
Operational Manual Policy Directive OP 8.30), to be financed by a combination of the
International Development Association (IDA) and International Bank for Reconstruction and
Development (IBRD) resources, in one-third and two-third proportions, respectively, totaling
US$300 million (equivalent). For the IBRD component, SIDBI has opted for a variable spread,
denominated in U.S. dollars. The IBRD part will have a final maturity of 25 years, including a
grace period of 14.5 years. The variable lending rate consists of six-month London interbank
offered rate (LIBOR) and a variable spread. The charges include a front-end fee, apart from the
contractual spread. After factoring in the benefits of sub-LIBOR funding costs, including any
applicable loan charge waivers the expected disbursement profile of the project, and amortization
schedule, the all-inclusive (blended) cost based on forward LIBOR rates and the current variable
spread (as on April 26, 2010) is estimated at 3.40 percent.12
12
The current variable spread is LIBOR + 0.24%, or 0.74% at market rates as of April 26, 2010.
12
2. Project development objective and key indicators
20. The objective of the project is to scale up access to sustainable microfinance services to
the financially excluded, particularly in under-served areas of India, through, among other things,
the introduction of innovative financial products and fostering transparency and responsible
finance.
21. Progress towards the achievement of the project objective would be monitored using the
following indicators (refer also to annex 3):
Extent of outreach: Disbursements of loans by MFIs to their clients relative to the amounts of
financing borrowed from SIDBI
Breadth of outreach: Measured by growth rates within under-served areas
Operational sustainability: Measured by operational self sufficiency (OSS)
Responsible finance: Measured by the percentage of beneficiary MFIs disclosing
operational/ financial information on a Web-based information platform
3. Project components
22. The project will achieve its objective by: (i) supporting the expansion of financial
services, particularly in under-served states or under-served areas within states; and (ii)
facilitating responsible and sustainable growth through the provision of more patient capital,
including longer-term debt, equity and quasi-equity instruments with funding linked to
responsible finance actions (for example, actions on transparency, good governance, and CoC
adherence).
23. The project will use an incentive approach and link the three components (annex 5
provides the project costs) described below such that maximum additionality is attained, while
also addressing the key issues (see section A above) facing the Indian microfinance sector. The
incentive approach will involve the provision of appropriate financing instruments, access to
which would be conditional not just on satisfactory appraisal of the MFI based on a detailed
appraisal system (annexes 4 and 6 and the OM), but also based on case-by-case agreements with
MFIs on responsible finance or other actions on capacity improvement that they would need to
complete to ensure continued access to funding under the project. The incentive to be used will
be a commercially priced, but attractive funding product, such as a quasi-equity/subordinate
product, which is currently not available in the India market, but will help address equity-gap
issues for Indian MFIs. In return for access to this funding, the responsible finance or capacity-
building actions could include commitments to increase MFI portfolios in under-served areas,
adoption of improved governance practices, reporting to an information platform, initiating a
CoC Assessment, and adoption of improved accounting practices where relevant. Through this
link between a financing component and a responsible finance component, project funding will
seek to contribute to the objectives of promoting sustainable and more responsible finance.
13
Component 1. Scaling Up Funding Support for MFIs (~US$290 million plus US$30 million
counterpart funding)
24. This component would provide funding for MFIs to scale up their operations. Funding
from SIDBI to MFIs is proposed to be structured as debt or quasi-equity to support their
operations and growth, enhance their financial strength, and enable them to leverage and crowd
in private commercial funds to on-lend larger amounts to the under-served. Limited equity
support would also be considered from SIDBI to MFIs. The funding provided under this
component to MFIs would be on commercial terms. The total funding thus mobilized will
enhance MFIs‘ ability to reach out to larger numbers of under-served segments of the population
through microfinance services. In particular, the quasi-equity/equity funding will also help
address the equity gap in Indian MFIs, while providing SIDBI with the leverage to promote the
responsible finance agenda among the MFIs funded.
25. Two kinds of leverage would be sought to be derived from such funding:
(i) Financial leverage: Equity or quasi-equity would lead to 6-7 times leverage through
raising of additional debt which would contribute to significantly enhanced on-lending,
while a 4-5 year debt from SIDBI to MFIs would lead to a roll-over of around 3-4, in
terms of on-lending to final clients. Funding that is structured as quasi-equity or equity
will obtain leverage or crowding in through the MFIs raising additional debt and also
through future mobilization of additional equity. This will help create strong institutions
that are viable and able to attract and access the capital market and private sector
investors in the medium to long term, ensuring that their growth sustains beyond the
project period.
(ii) Responsible-finance leverage: As discussed above, funding to MFIs would be linked to
performance criteria and actions revolving around greater transparency, responsible
expansion, accountability, growth in under-served areas, disclosure, and good governance
in the microfinance sector, thereby contributing to a responsible finance initiative, an
activity supported under Component 2 of the project (see also annex 4).13
26. The Indian microfinance sector is diverse, spanning the range of a few large, commercial,
and growth-oriented institutions to midsized, second-generation institutions poised for
expansion, to start-up non-governmental organizations (NGOs), with limited capacity but an
appetite for growth. Each market segment will necessarily have different growth and governance
trajectories. The project takes into account these tiers of the market by tailoring specific
performance, outreach, and governance criteria to each tier while taking into account need and
additionality of supporting these institutions. For example, funding to a large MFI in Tier 1
would be linked to increasing outreach in under-served areas and participating in data sharing
and responsible finance initiatives supported under Component 2, whereas funding for medium-
size players would be more closely linked to increased growth, performance, and sustainability,
as well as good governance and transparency. The tiers and proposed performance criteria are
further discussed in annex 4.
13
Some of the criteria would be ex ante—before new financing is secured—and some would be ex post/ongoing to
ensure progress during the life of the new financing.
14
27. This component will directly address the funding gap constraint, promote the responsible
finance agenda, and support the continuation of a diverse range of institutions. Further, this
component would help introduce a new and much-needed innovative financial product, priced
commercially, into the Indian microfinance market, the need for which is evident from overall
data on microfinance in India (figure 1) and was reiterated during stakeholder consultations.14
In
providing such funding, the project will place an emphasis on ―importing‖ established MFIs
from developed regions in India to initiate or expand operations in the less-developed regions of
the country, a strategy that has worked very well in some Bank projects (for example, a
microfinance project in Afghanistan). At the same time, the project will support the expansion of
a few smaller MFIs (Tiers 2 and 3), including those structured as NGOs and cooperatives, that
demonstrate a potential for growth.
Component 2: Strengthening Responsible Finance (US$5 million)
28. This component would promote transparency and responsible microfinance through the
development of an India microfinance platform. This initiative would be envisaged as a common
information platform for MFIs to provide and disseminate valuable information that would
inform policy makers, MFI managers, and funders (similar, but broader and deeper than the
information available on the MixMarket,15
including through potential collaboration with Mix
Market in India). As part of the responsible finance initiative, SIDBI will seek to bring together a
Lenders‘ Forum comprising key MFI funders to agree on common actions, including those on
transparency and good governance by MFIs. Additionally, once the Unique Identification (UID)
initiative of the GoI is ready for implementation, the forum will encourage MFIs to participate
and support the roll-out of this initiative, given its significant potential to improve transparency
and credit information. This component could also potentially support the development and
piloting of a CoC Assessment, which could serve as an innovative tool for measuring
performance of MFIs as pertaining to their CoC adherence. This component will be cross-linked
with Component 1, such that MFIs accessing Component 1 will need to commit to data sharing
on the common information platform and possibly other responsible finance initiatives that are
defined as performance criteria in the OM.
Component 3: Capacity Building and Monitoring (US$5 million)
29. Implementation support would include support to SIDBI for (i) implementing the project,
including operating expenses and costs of the monitoring (defined in annex 3 and elsewhere); (ii)
commissioning an impact evaluation (to be carried out through an external research agency); and
(iii) SIDBI‘s own capacity building. This component would also include support for a
communication strategy to help ensure that benefits from this intervention are shared with the
wider microfinance sector.
4. Lessons learned and reflected in the project design
30. In designing this project, the Bank has leveraged its experience with similar initiatives
around the world (in Afghanistan, Bangladesh, Bosnia, Mexico, Pakistan, and Russia, to name a
14
Equity investors, MFIs, their associations, NGOs, rating agencies, and advisory firms. 15
MixMarket is the leading global information database (www.mixmarket.org), managed by the Microfinance
Information Exchange (the Mix, www.themix.org), which was founded by the Consultative Group to Assist the Poor
(CGAP, a multi-donor consortium housed in the World Bank and part of its Financial Sector Network).
15
few) and with livelihoods/poverty-reduction projects in India. Additionally, the Bank has
extensive experience working with apex institutions and has incorporated lessons learned and
good practices associated with this institutional mechanism. The new model of Bank support
relies on institutions that on-lend at or near commercial rates or take equity positions that help
crowd in private sector funding and foster continued commercialization. In this model, SIDBI
leverages its position to play a role in nurturing the development of sustainable microfinance
providers by setting minimum standards and performance targets around transparency and
governance as well as more efficient financial management and internal controls.
31. The preparation team for this project included the Consultative Group to Assist the Poor
(CGAP) and the International Finance Corporation (IFC). During implementation, close links
will be maintained with other initiatives. For example, the IFC‘s Technical Assistance Advisory
Services is undertaking a market assessment to identify optimal modalities and capacity-building
needs to design and implement a credit reporting platform shared among the MFI community.
The project will closely coordinate with this initiative and possibly use the findings of the study
to feed into overall project implementation. A dialogue between IFC and SIDBI and potential
future collaboration have also been initiated and facilitated. The project is also highly
complementary to the IFC agenda, which focuses primarily on equity investments in
microfinance investment vehicles (which invest in MFIs).16
Component 1 funding will likely
expand the market for IFC and other investors looking at MFI investments through crowding in
from Tier 2 capital and stabilizing MFI balance sheets, making them more investor-worthy. The
responsible finance agenda has an enormous externality effect, where reputational risks are
lowered for the IFC, other investors, and the donor community.
32. The Bank has also started discussions and will continue to coordinate with the United
Kingdom‘s Department for International Development (DFID) as they implement the Poorest
States Inclusive Growth Program (PSIG). The Bank discussed the performance of the previous
DFID technical assistance (TA) project and also SIDBI‘s implementation of the SME project TA
component. In both cases, it is evident that SIDBI‘s capacity to deliver TA has developed
considerably. In any case, TA at the institutional level for MFIs would not be directly addressed
by the project; instead the project would leverage off the TA activities of programs such as the
PSIG that are being initiated through a consortium of institutions (including SIDBI) and would
focus much more on the simpler structure proposed by the project under Component 2.17
5. Alternatives considered and reasons for rejection
33. Regarding the choice of lending instrument, an FIL is deemed appropriate. The project is
designed to support SIDBI‘s funding to MFIs while assuming full credit risk. The project focuses
exclusively on the MFI sector, rather than supporting a broader range of financial intermediaries.
Although the project could have looked at other financial intermediaries for implementation,
given that the focus is on MFIs, which have steadily been growing in terms of becoming the
predominant players in the microfinance sector and that SIDBI is the main intermediary that
16
The project helped to initiate discussions between IFC-SIDBI. Potential linkages are being explored between IFC
and SIDBI in close coordination with the Bank. 17
The DFID PSIG plans to cover four states. The implementing agencies for PSIG are yet to be identified. Support
from IFC and CGAP could also be explored during implementation in providing MFI and sector capacity building.
16
lends to MFIs, the choice was natural. Although intermediaries such as banking correspondents
are not explicitly included, many MFIs are eligible to be banking correspondents. Also, there are
a number of ongoing initiatives (supported by the Bank and other donors) that support different
types of entities, such as rural cooperatives. Moreover, MFIs are now showing promise of being
able to deliver financial services on a much broader scale, and hence the project focuses on
MFIs.
34. A Development Policy Loan (DPL) instrument was also considered given the links
between the financing and the responsible finance policy actions. However, because the
implementing agency (SIDBI) is a corporate entity, the DPL instrument cannot be used.
C. IMPLEMENTATION
1. Partnership arrangements
35. The project is financed only by the Bank and funds from SIDBI, but there are several
other donors involved in the microfinance sector, including DFID, the Asian Development Bank
(ADB), and the German Development Bank (KfW). The Bank has consulted and made every
effort to ensure complementarities and close coordination will be facilitated by SIDBI, as it is an
implementing agency for most microfinance projects.
36. DFID‘s PSIG will be implemented by a consortium, in which SIDBI plays a critical role.
The design phase of the PSIG has been initiated, which will enable SIDBI to factor in the project
design and ensure maximum complementarities between the two projects. ADB‘s project focuses
on clients above the typical microfinance-client level in terms of loan size and will also be
implemented by SIDBI. The ADB project complements the Bank‘s project by focusing on clients
that are on the higher end of the spectrum of microfinance services. KfW is providing a line of
credit and some TA to SIDBI. This will support the traditional debt products that SIDBI has been
implementing and add funding to its main business line. KfW will also have a TA component
(around US$2.5 million) that will focus on capacity building, including supporting an
information platform that would allow SIDBI to interface with its MFI clients, developing a set
of benchmark indicators for performance monitoring, and supporting SIDBI in carrying out
systems and portfolio audits. All these activities are complementary to the Bank‘s project.
Efforts will be made to meet with donors during supervision missions to facilitate effective
coordination and communication during implementation.
2. Institutional and implementation arrangements
37. SIDBI, with its vast experience of microfinance in India, will be the implementing
agency for this project. Within SIDBI, the SIDBI Foundation for Micro-Credit (SFMC), which
has a dedicated and experienced microfinance team, will be responsible for implementation. The
current staffing of SFMC is around 45 officers, located in many locations. The central team is
based in Lucknow.
38. SIDBI is well placed to implement the project. It has been playing a catalytic role in
supporting the Indian microfinance sector particularly since 1999, when SFMC was launched.
Apart from being an important and responsive funder, SIDBI is also regarded as a leading
17
institution in the sector, as reflected in its involvement in the development of the broader sector
(for example, introduction of ratings and impact assessments, strengthening MFIs‘ capacity and
internal control systems) as well as in discussions of regulation-related issues. SIDBI‘s profile
has developed over the years and was facilitated through projects from 2000 to 2009 with the
International Fund for Agriculture Development (IFAD) and DFID. In both projects SIDBI was
the counterpart for the partners in the National Micro Finance Support Program (NMFSP).18
Given SIDBI‘s demonstrated capacity and track record in supporting the development of the
retail microfinance sector in India,19
the institution is ready to begin the second phase of the
development of the sector, which would address key issues listed above. SIDBI also makes for
an appropriate implementing counterpart for this project given its very good implementation
capacity, familiarity with development financing, and familiarity with Bank fiduciary and
safeguards requirements. SIDBI has done very well in implementing the World Bank‘s SME
Financing and Development Project (US$120 million), which has been recently scaled up
through additional financing (US$400 million).
39. SIDBI will be responsible for ensuring compliance of project activities to the fiduciary
arrangements for the project (annexes 7 and 8). To ensure that these functions are performed
efficiently and effectively, SIDBI will provide requisite additional staffing, where necessary.
Given its financial capacity and track record (see above and annex 9), SIDBI is well placed to
implement the project. Safeguards arrangements have been agreed with SIDBI (annex 10), and
SIDBI has the capacity to ensure compliance during implementation.
40. SIDBI is fully committed to enhancing transparency under the project. Besides the on-
demand disclosure of information, SIDBI has proposed to initiate proactive (suo moto)
disclosures that include the public disclosure of all key documents related to the project and,
more broadly, to its overall microfinance operations. SIDBI‘s website will highlight the project
(including project audit reports and financial management reports) and other microfinance-
focused activities. SIDBI intends to further enhance disclosures to fully comply with provisions
of the Right to Information (RTI) Act 2005 and will undertake capacity building of its staff,
including familiarization with RTI provisions through Component 3.
41. Components 2 and 3 may involve procurement of consultancies and training and goods.
Procurement will be undertaken by SIDBI in line with agreed procurement procedures for this
project (annex 8). For support in the implementation of Component 2, SIDBI will hire a firm
where required that can provide operational support for the responsible finance component. One
example of such support could revolve around supporting the information platform, where the
work would entail, among other things, collating and following up on data submission from
18
The main features of NMFSP were to provide customized, need-based packages of loans, grants, and to a lesser
extent, equity to partner MFIs to develop into large and sustainable institutions; capacity building of clients, MFIs,
and the sector; and capacity-assessment ratings and capacity-building needs assessments. All aspects of the program
were based on a market-driven, flexible approach for credit delivery with a focus on financial sustainability. The
program closed in March 2009 and reportedly received the highest rating possible from DFID‘s assessment of its
global microfinance program. 19 From the Forbes list of Top 100 MFIs, seven Indian institutions were included in the list—all of them partner
organizations of SIDBI—testifying to the high impact of SIDBI in supporting and nurturing the microfinance sector
in India.
18
MFIs, analyzing and cleaning the data and preparing comparative reports, maintaining the
website for disclosure of the information shared on the responsible finance initiative, developing
templates for reporting on this platform, and maintaining the platform.
42. An Operations Manual (OM) acceptable to the Bank has been prepared by SIDBI. The
OM includes, among other things, the agreed financial management (FM) and disbursement
arrangements; procurement arrangements; guidelines on Preventing and Combating Fraud and
Corruption in Projects Financed by IBRD Loans and IDA Credits (dated October 15, 2006); a
Governance and Accountability Action Plan (GAAP); and a detailed framework for the
continuous measurement and monitoring of outcomes (annex 3), a key element in ensuring
effective implementation.
43. Arrangements will be put in place to ensure adequate project supervision, covering
fiduciary and safeguards aspects, with semi-annual supervision missions. The supervision team
will draw on expertise from the Bank as well as external experts, where necessary. Meetings
with other concerned stakeholders engaged in microfinance, including donor agencies, will be
undertaken during supervision missions.
44. IBRD funds will flow to SIDBI, which will channel them for the project components.
IDA funding will flow to GoI, and from GoI to SIDBI for implementing project components.
Disbursements will be made on a reimbursement basis using interim unaudited financial reports
(IUFRs)—evidencing actual expenditures—prepared by SIDBI. IUFRs will be submitted on a
quarterly basis, but SIDBI would have the flexibility to seek reimbursement earlier than the
quarterly intervals by submitting reports for shorter periods. The disbursement percentage will be
a defined percentage of the gross expenditures as reported by SIDBI through the IUFRs.
Retroactive financing up to an amount of 20 percent of the total loan and credit amount may be
made available for all eligible expenditures in all components incurred after July 1, 2009. The
retroactive financing will be applied as follows: up to US$15 million will be drawn against the
IBRD loan and up to US$45 million equivalent will be drawn against the IDA credit.
3. Monitoring and evaluation of outcomes/results
45. A strong monitoring and evaluation (M&E) framework to track inputs, outputs, and
outcomes in a systematic and timely fashion has been developed and agreed with SIDBI (annex
3). Project outcomes and outputs will be monitored through periodic reporting by SIDBI—which
has developed considerable capacity in monitoring through implementing the earlier DFID and
IFAD projects—and via project supervision using data from several sources, including (i)
reported data from SIDBI; (ii) data from MFIs; (iii) data collected by the agency that will be
responsible for the microfinance information platform; (iv) auditors; (v) Bank staff
implementation support missions; and (vi) the long-term impact assessment that will be
undertaken by an independent, external impact evaluation agency (under Component 3). The
Midterm Review (MTR) of the project will entail an update of an institutional assessment of
SIDBI/SFMC, including its management, its appraisal standards, and its portfolio and business
strategy for microfinance. Further, within the first two–three years of implementation, either as
part of the MTR or otherwise, an update of the corporate governance of SIDBI and a review of
governance issues in the project will be undertaken.
19
4. Sustainability
46. The sustainability of the project‘s outcomes, defined as scaling up sustainable and
responsible finance, will depend on how well the project is implemented by SIDBI in terms of
leveraging the funding component (Component 1) with the responsible finance component
(Component 2), while supporting SIDBI‘s capacity and project-implementation activities
(Component 3). Four factors bode well for ensuring sustainability of project outcomes: (i)
SIDBI‘s track record in the microfinance sector, in particular its pioneering role in Indian
microfinance and its successful implementation of past, large donor projects (DFID and IFAD);
(ii) SIDBI‘s commitment to the project structure with its incentive-based approach through links
between financing and responsible finance actions, as well as its commitment to implement this
project—as demonstrated by its active participation in the preparation of the project and
proactive approach to developing/researching the ideas that the project intends to support; (iii)
SIDBI‘s commitment to the microfinance sector as reflected in its annual reports, progress of
supporting the microfinance sector over time, and its business plan to increase staffing and focus
on this area over time; and (iv) GoI‘s strong commitment to promoting sustainable microfinance
and increasing the outreach of financial services to under-served areas/segments. GoI‘s
commitment is reflected in its various policy statements in support of the microfinance sector
and its support of this project.
47. Other factors that will have an impact on the sustainability of project outcomes relate to
the participation of other key stakeholders in supporting the project objectives. In particular,
participation of MFIs in Components 1 and 2 will be critical. This will be ensured through
linking access to funding in Component 1 to actions committed by each MFI under Component
2. Stakeholder consultations and individual meetings with MFIs have indicated that SIDBI—on
account of its position in the lending market and given the attractive long term funding, including
quasi-equity available under Component 1—will be able to derive sufficient leverage from
Component 1 in getting action on Component 2. The participation of other lenders in requiring
similar action as under Component 2 could also further bolster project sustainability, and the idea
of the Lenders‘ Forum in Component 2 will help facilitate this.
5. Critical risks and possible controversial aspects
48. A detailed analysis of the potential risk areas and proposed or existing mitigation measures
was undertaken and is reflected in the GAAP (see annex 6; GAAP is also included in the OM). The
table below describes the potential risks, the degree of risks, the mitigation measures, and residual
risks. While overall risks are moderate, the following risks will need particular focus: (i) FM risks at
the MFI level; (ii) risks related to over-fast growth and lack of capacity of MFIs to handle this,
leading to fall in quality of lending by MFIs; and (iii) potential external interference in
microfinance. The GAAP includes mitigation measures and timelines/milestones for dealing with
these risks drawing significantly from Component 2, which focuses on responsible finance and
SIDBI‘s ongoing activities in the sector that help mitigate these risks. These risks will be reviewed
to determine how they may have changed during implementation and allow the team to focus
implementation support resources on the evolving risk areas.
20
Risks Risk
Rating
Risk Mitigation Measures Risk
Rating
with
Mitigation
To project development objective:
Selection of beneficiaries: Selection of
beneficiaries by MFIs could be subject to
―mission drift.‖
M Clear definition of under-served areas,
emphasizing financing to such areas (through
linking Components 1 and 2), and monitoring
mechanisms (for impact evaluation) to be used to
ascertain targeting of clients (drawing on lessons
from successful programs in India, Bangladesh,
Indonesia, and so forth) have been agreed and
will be used in project implementation. Further,
MFIs themselves have developed clear criteria
and have fine-tuned mechanisms for identifying
clients. This is monitored by SIDBI as part of its
current post-disbursement checks.
L
Overheated growth: Excessively high
growth rates and possibility of over-
financing by MFIs, especially in
saturated markets.
S
The risk of excessive growth will be mitigated
through use of the incentive approach taken in
the project, which links funding to MFIs under
Component 1 to actions centered on more
responsible finance supported under Component
2. For example, MFIs, particularly large MFIs,
could be supported if they are willing to commit
to a certain growth rate in under-served areas of
the country. This will help mitigate the risk of
over-financing in saturated markets and also
support expansion in under-served areas, which
will lead to more balanced growth. Further, MFIs
supported under the project will commit to share
information on their operations, financial
performance, outreach, branches, clients, interest
rates, and so forth to the information platform
that would be supported through Component 2.
M
External interference: Risks associated
with interference or loan forgiveness or
interest-rate caps. With rapid expansion
of the sector and anecdotes of over-
indebtedness, lack of transparency, and
client coercion, the sector could
potentially face instances of external
interference.
S GoI‘s current view of microfinance is well
understood. GoI has formally recognized and
appreciated the role of microfinance as
demonstrated through various budget
announcements and otherwise.
The potential for imposing interest-rate ceilings
or intervening in other counterproductive ways is
mitigated by the fact that most MFIs are under
the regulatory purview of the Reserve Bank of
India (RBI), which makes decisions on policy
matters independently and has consistently
maintained a policy of market-determined
interest rates.
M
To component results:
Effectiveness of project management
structure: Risks may arise from SIDBI‘s
oversight and regulation arrangements,
M SIDBI has been operating in the microfinance
sector for many years and was a pioneer in terms
of financing to MFIs, a model which today has
L
21
Risks Risk
Rating
Risk Mitigation Measures Risk
Rating
with
Mitigation
in case of insufficient institutional
capacity to handle the project activities,
in particular for the increased policy
advocacy and analysis roles envisaged
by SIDBI with TA support under this
project.
become the predominant model in microfinance
in India. During this period it has obtained
excellent experience of lending to MFIs. SIDBI
has put together its various operating practices
developed over the years into a Credit Manual,
which feeds into the Bank project‘s final, specific
implementation arrangements captured in the
OM.
Lack of capacity of MFIs: Risks may
arise from the lack of capacity of MFIs
in handling growth and carrying out the
project-supported activities.
S MFIs have demonstrated their capacity to
undertake microfinance activities at scale over
the past decade, as evidenced in the growth and
quality of financial and outreach indicators;
nonetheless, there are differing capacities. SIDBI
places considerable emphasis on assessing
capacity of MFIs to on-lend through the capacity
assessment ratings. Further, through Component
1, MFIs can use funding provided for quasi-
equity/equity for further capacity development, if
needed. Basic eligibility criteria have been
agreed, and the selection of MFIs under the
project is likely to center mostly on larger and
midsize MFIs (Tier 1 and Tier 2), which have
greater demonstrated capacity. Lastly, there are
sufficient other sources of funding for capacity
building (including self-funding).
M
Financial Management-Related Risks:
The FM risks may not be identified or
may not be adequately documented by
SIDBI during appraisal of MFI
proposals.
Weak FM systems of MFIs could impair
their capacity to provide fiduciary
assurance on usage of Bank funds and
keep track of a large number of end
beneficiaries.
Determination of mitigation measures
may be generic and/or a specific plan for
addressing the weaknesses and the
expected timeline may not be developed
and agreed upon between SIDBI and the
MFI. SIDBI may impose special
conditions on the MFIs in the terms of
sanction for addressing these
weaknesses, but in the absence of an
agreed plan to resolve issues,
benchmarking and measuring progress
made may be difficult.
S FM risk assessment of the applicant MFIs is done
by SIDBI during appraisal of the MFI proposals.
Identified critical FM risks are documented in the
Detailed Appraisal Note of SIDBI whereby this
process will be further strengthened.
Based on the critical risks or weaknesses
identified during MFI appraisal, SIDBI imposes
suitable conditions on the MFI to address these.
SIDBI‘s appraisal procedures require the
appraising SIDBI office to discuss these
weaknesses and obtain an undertaking from MFI
to satisfactorily address them. This specific
clause has also been included in the OM to cover
critical risks/weaknesses identified during
appraisal. SIDBI agrees to strengthen this further
and agree on a specific action plan with the MFI
to mitigate the identified critical, FM
risks/weaknesses, which will form part of the
Detailed Appraisal Note and the terms of
sanction.
System of monitoring progress of compliance
with the terms and conditions of sanction and
ensuring end use of funds is in place and
M
22
Risks Risk
Rating
Risk Mitigation Measures Risk
Rating
with
Mitigation
Assessment of the MFIs‘ FM systems in
terms of scalability of the operations
may not be accompanied by a strategic
plan to address the gaps.
Progress made by the MFI in the risk
areas including compliance with specific
condition/s imposed by SIDBI in the
sanction note may not be adequately
captured in the documents generated by
SIDBI during follow up and monitoring.
documented in the Credit Manual. SIDBI agrees
to further strengthen this system and ensure that
the compliance by the MFI of the agreed action
plan on FM risks is recorded appropriately.
Procedures for appraisal, selection and
monitoring of MFIs have been included in the
OM which has been agreed at negotiations. The
cases that will be brought under the project will
need to meet the minimum eligibility criteria
agreed with SIDBI and documented in the OM.
Compliance by SIDBI with the above
requirements will be reviewed and commented
on by the project external auditors and will be
reviewed by the Bank regularly.
Normal fiduciary risks of economy,
efficiency (and timeliness), transparency,
and fairness: Procurement will be
involved only in Component 2,
Strengthening Responsible Finance, and
in Component 3, Capacity Building and
Monitoring.
M For Components 2 and 3, a dedicated
procurement team in SIDBI will carry out all
procurement under the project. Capacity already
exists at SIDBI; a dedicated procurement
specialist responsible for implementation under
the Bank SME project will provide cross-support
to SFMC for the purposes of this project.
Supervision will be carried out periodically, and
Prior and Post Review Plans will be developed
and adhered to ensure procurement meets all
required standards of the project
With regard to MFI client-level procurement, the
project-preparation phase would ensure
significant vertical accountability mechanisms
exist—thorough checks undertaken by MFIs'
operational staff and their internal audit/control
team members, through external audits and
checks, including random checks undertaken on a
sample basis by SIDBI—as well as horizontal
accountability mechanisms driven by the
microfinance clients, where internal group-level
processes provide an additional oversight on the
use of funds and their recovery.
L
Inadequate environmental and social
(E&S) safeguards: Capacity at SIDBI to
address E&S safeguards.
L E&S risks are estimated to be low given the
nature and small size of the loans that are
ultimately provided to clients. A negative list has
been formulated and a nodal person in SIDBI‘s
project management team will be responsible for
oversight, coordinating implementation of the
framework, and for compliance with the
monitoring and reporting requirements agreed
with the Bank.
L
23
Risks Risk
Rating
Risk Mitigation Measures Risk
Rating
with
Mitigation
Lack of donor coordination: Arising
from the multiple donors interested and
involved in microfinance.
M The approach chosen, which involves early
identification of other donors and consequently
their inclusion in project preparation, should
mitigate this risk. The proposed project, a follow-
on to earlier support provided to SIDBI by DFID
and IFAD (line of credit and TA), directly builds
on the lessons learned from these successful
programs.
L
Overall risk rating M M
6. Loan/credit conditions and covenants
49. The condition for effectiveness will be that the Subsidiary Agreement has been executed
on behalf of India and SIDBI, and all conditions precedent to its effectiveness or to the right of
SIDBI to make withdrawals under it (other than the effectiveness of the Loan Agreement and the
Financing Agreement) have been fulfilled.
50. Covenants applicable to project implementation are as follows:
i. SIDBI shall maintain an adequate organizational structure with functions, powers,
staff, and resources necessary for project implementation.
ii. SIDBI shall implement the project in accordance with the provisions of the OM
for the project.
iii. SIDBI shall monitor progress of the project in accordance with indicators
satisfactory to the Bank.
iv. The MTR of the project shall be carried out by December 31, 2012.
v. SIDBI‘s on-lending activities to MFIs under the project shall be carried out in
accordance with the agreed ELA, and SIDBI will ensure that the microfinance
activities under the project comply with the ELA.
D. APPRAISAL SUMMARY
1. Economic and financial analysis
Economic Analysis
51. The project is expected to provide significant economic benefits through providing
needed financing to MFIs, particularly patient forms of capital that will allow MFIs to invest in
long-term growth; any quasi-equity or equity provided will also enable leverage through raising
additional debt for using the funding generated in on-lending to clients. As MFIs increase
outreach, more of the under-served and poor segments of the population will have access to
financial services that will allow them to invest in income-generating activities such as
agriculture and livestock, handicrafts, retail, services, and so forth. A strong microfinance sector
contributes to improved productive capacity and, thus, poverty alleviation through increased
24
income for the poor. An extensive study conducted by SIDBI found that poor households with
access to microfinance increased income by 69 percent over seven years, while those without
microfinance increased income by 31 percent. There is also a strong gender development
component as approximately 95 percent of microfinance borrowers in India are women. Women
who access microcredit have reportedly increased social status and a higher rate of personal and
joint ownership of assets. MFI expansion will also support businesses, providing increased
employment opportunities.
Financial Analysis
52. An extensive review of SIDBI was undertaken to determine its compliance with
eligibility criteria under OP 8.30 and OP 10.02. The review concluded that SIDBI met the
following criteria and qualified to act as a conduit for relending Bank funds to the Indian
microfinance sector. SIDBI has:
Adequate profitability, capital adequacy, asset quality, and liquidity in accordance with
accounting and auditing principles acceptable to the Bank
Acceptable levels of loan collections
Appropriate capacity, including staffing for MFI project appraisal and monitoring and for
overall project implementation
Adequate managerial autonomy and commercially oriented governance
Appropriate prudential policies, administrative structure, and business procedures
53. The extensive review of SIDBI was accompanied by an extensive, on-site analysis of
three MFIs—BASIX (Tier 1), Bandhan (Tier 1), and BSS (Tier 2)—and an off-site analysis of an
additional eight MFIs. In all cases, standards of risk management, operational practices,
profitability, capital adequacy, and liquidity were sufficient to meet the criteria under OP 8.30
and OP 10.02. This does not mean all MFIs in the sector would have no operational weaknesses;
indeed, areas of improvements were identified in the review, but broad compliance with the core
requirements is likely, especially considering that the majority of the funding will go to Tier 1
and Tier 2 institutions. MFIs face many challenges, including coping with growth, potential
client over-indebtedness, hiring and retaining qualified staff, and high reliance on commercial
debt that can be costly and can affect growth and financial performance. However, the reviews of
the MFIs and the overall sector performance as evidenced in various reports and sector data20
indicate that many MFIs are capable of properly managing potential funds provided by SIDBI
and that such funds on-lent to end clients would generate economic benefits for them.
2. Technical
54. The project‘s technical design has benefited from an extensive body of analysis,
including SIDBI‘s and the GoI‘s own analyses and reports and the Bank‘s Economic and Sector
Work (ESW) and lending operations across many countries, including several microfinance
projects in the South Asia Region. An OP 8.30 review has been carried out for the financial
20
See annex 1 for a list of reports on the sector performance, including the IFC‘s Inverting the Pyramid,
Microfinance India annual reports, Sa-Dhan‘s annually produced Quick Report, M-CRIL‘s periodic reports, and the
MixMarket‘s South Asia data sets and MicroBanking Bulletins.
25
intermediary (SIDBI), and the project meets the OP 8.30 guidelines. Some of the key principles
underlying the project design include consideration of: (i) appropriate financing instruments that
meet the requirements of SIDBI, enabling it to channel innovative products to MFIs, which in
turn are able to leverage the relatively longer tenure of equity/quasi-equity funding available to
attract additional funding from other lenders/investors, ultimately enhancing their ability to scale
up financial services to the end clients; and (ii) links between the financing component
(Component 1) and the responsible finance actions (Component 2), enabling a responsible
finance leverage, as discussed above. The project structure, therefore, furthers both scaling up of
microfinance in India and promoting responsible finance activities, including enhanced
transparency and disclosure by MFIs and increased in-lending portfolios in under-served areas,
thereby supporting a more healthy and inclusive microfinance sector.
3. Fiduciary
55. SIDBI has an FM system that is considered adequate to account and report for project
resources and expenditures. Its MFI loan appraisal, sanction, and monitoring policies and
procedures are documented in a Credit and Operations Manual for Micro Finance which has
been shared with the Bank, finalized, and hosted on its intranet and made effective. As part of its
due diligence, SIDBI will ensure that all MFI proposals meet the agreed minimum eligibility
criteria (annex 4, 7 and OM). They will also be subject to appropriate external audits as per their
acts/statutes. An assessment done by an independent consultant affirms SIDBI‘s compliance with
Bank requirements under OP 10.02. The beneficiary MFIs will also need to comply with the FM
requirements under OP 10.02. The FM arrangements for the Bank project are included in the
project OM. Disbursement will be through the reimbursement method on the basis of Interim
Unaudited Financial Reports (IUFRs), for which the minimum frequency is quarterly. This will
be consolidated by SIDBI through its mainstream FM system. This has been reviewed and
SIDBI appears to be well-equipped to generate these IUFRs in pre-agreed formats to provide
sufficient information to monitor the use of funds. Accounting of expenditures under the project
would be done on SIDBI‘s existing mainstream computerized system with separate account
codes to capture the project expenditures. Retroactive financing will be on the basis of a stand-
alone audited IUFR that will certify the actual expenditure incurred that is being claimed under
the retroactive financing facility.
56. To meet the fiduciary requirements, SIDBI will submit (i) a project audit report/audited
project financial statements; and (ii) an entity annual audit report of SIDBI. In the initial two
years of the project, the project audit reports will be submitted on a half-yearly basis within 90
days from the end of the half year and thereafter annually within six months from close of the
financial year, and it will include project financial statements, certified IUFRs, and a
management letter. The entity annual audit report will be submitted within six months of the
close of the financial year. The project will be audited by independent auditors acceptable to the
Bank under Terms of Reference (ToRs) agreed between the Bank and SIDBI (and reflected in
the OM). The Internal Audit Department of SIDBI will, as part of its work, audit the project and
ensure that agreed operational, accounting, payment, and procurement procedures are followed
in implementation of the project. The internal auditors will use the regular checklist/ToRs
developed by SIDBI for its microfinance activities and will also make recommendations for
strengthening internal controls and improving any systemic issues, if identified.
26
57. Procurement management under the proposed project draws from the strengths and
lessons learned by SIDBI, the implementing agency from an earlier association with the Bank
through the SME Project and its association with other development partners like DFID in the
microfinance sector. The procurement regime in the SME Project has developed adequate
systems and processes within all levels to meet Bank requirements in this regard. Under
Component 1, small-value loans ranging from Rs 5,000 (around US$100) to Rs 250,000 (around
US$5,000) can be given to self-help groups (SHGs) and microfinance clients for livelihoods
purposes like agriculture-related activities, petty trade, tailoring, livestock, microenterprises, and
so forth, and in some instances education and other consumption purposes. Under this
component, procurement by clients is expected to be undertaken in a prudent manner because
this will amount to using the proceeds of a loan on which the beneficiary will also pay interest.
Hence it is intended that procurement procedures would be based on established private sector or
commercial practices, which are acceptable to the Bank (under provisions of para 3.12 of
Procurement Guidelines). Reliance would be placed on the significant vertical accountability
mechanisms that exist thorough checks undertaken by MFIs' operational staff and their internal
audit/control team members through external audits and checks, including random checks
undertaken on a sample basis by SIDBI—as well as on horizontal accountability mechanisms
driven by the microfinance clients where internal/group-level processes provide an additional
oversight on the use of funds and their recovery.
58. For Components 2 and 3 implemented by SIDBI, procurement of all goods, works, and
services will be carried out in accordance with the World Bank‘s Guidelines: Procurement under
IBRD Loans and IDA Credits dated May 2004 and revised October 2006 (Procurement
Guidelines) and Guidelines: Selection and Employment of Consultants by World Bank
Borrowers dated May 2004 and revised October 2006 (Consultancy Guidelines). For
procurement oversight and supervision, in addition to post-review of a 10-percent sample of
contracts issued every year, SIDBI‘s internal control measures carried out by its Internal Audit
Department (IAD) and supervised by the Audit Committee of the Board (ACB) will also be used.
4. Social
59. The proposed project will not finance a specific set of pre-identified investments. Funds
will be intermediated to a number of MFIs to microfinance clients. No specific sector has been
identified, and financial intermediaries will undertake on-lending on market principles. No
specific social safeguard issues, including those related to OP 4.10 and OP 4.12 and to child
labor, are identified or expected at this stage.
60. Through the proposed project, SFMC would make efforts to allocate resources for impact
assessment and documentation of innovative and good practices in the area of social
development. SFMC would also sensitize and train its staff on empowerment, social
development, and the RTI Act.
27
5. Environment
61. The project loan/credit will be intermediated by SIDBI to several MFIs. In light of the
proposed project activities, the Bank reviewed SIDBI‘s current microfinance portfolio, interacted
with some of the MFIs, and visited the microfinance activities supported by the MFIs. The
recipients of loans from MFIs include microenterprise activities and cottage industries, and most
of the activities are environmentally benign. These typically include embroidery, mat making,
tailoring, wool knitting, handloom weaving, rope making, carpentry work, handicrafts, general
stores, vegetable vending, and so forth. However, there is also—albeit very limited—demand for
microfinance for household-based activities such as packaging inflammable materials, household
dying, and so forth. Such activities, if necessary care is not taken, could pose environment,
health, and safety (EHS) issues, and hence OP 4.01 – Environmental Assessment has been
triggered.
62. Institutionalizing the environmental impact assessment and environmental management
measures under the project would not be practical, however, because of the vast spread and very
small size of investments (on average less than US$200). These issues will therefore be
addressed through an ELA ineligible for SIDBI‘s on-lending to MFIs under the project. The
ELA is based on (i) review of the range of activities currently under the microfinance portfolio of
SIDBI, identifying activities that have potential to cause EHS impacts; and (ii) activities that are
prohibited for World Bank Group (WBG) lending, including IFC‘s exclusion list—activities
involving alcoholic beverages, tobacco processing, and so forth. The ELA is included as part of
annex 10.
63. The ELA and the process of its application have been agreed with SIDBI. The ELA will
be applied as part of SIDBI‘s credit appraisal as well as to MFIs—which will channel the funds
to microfinance clients—through an environmental screening mechanism. The screening
mechanism is detailed in annex 10.
6. Safeguard policies
64. The project is classified as Category FI and OP 4.01 has been triggered.
Safeguard Policies Triggered by the Project* Yes No
Environmental Assessment (OP/BP 4.01) [X ] [ ]
Natural Habitats (OP/BP 4.04) [] [X]
Pest Management (OP 4.09) [] [X]
Physical Cultural Resources (OP/BP 4.11) [] [X]
Involuntary Resettlement (OP/BP 4.12) [] [X]
Indigenous Peoples (OP/BP 4.10) [] [X]
Forests (OP/BP 4.36) [] [X]
Safety of Dams (OP/BP 4.37) [] [X]
Projects in Disputed Areas (OP/BP 7.60) [] [X]
Projects on International Waterways (OP/BP 7.50) [] [X]
28
7. Policy Exceptions and Readiness
65. The project requires no policy exceptions. Assessments and preparation of fiduciary
arrangements, staff selection, monitoring and evaluation systems, and implementation and
procurement plans have been finalized and meet the regional criteria for readiness of
implementation.
29
Annex 1: Country and Sector or Program Background
India: Scaling Up Sustainable and Responsible Microfinance Project
Sector Overview
The Indian financial sector has witnessed reforms since the early 1990s, resulting in significant
improvements and improved financial performance and stability during this period. Among
others, these reforms have included interest-rate deregulation, capital-market development
(particularly equity and government bond markets), opening up of the banking and insurance
sectors to facilitate increased competitiveness in banking through the entry of new private
domestic and foreign players, introduction of new technology and products, and deepening of
India‘s financial system.
Notwithstanding a stable, dynamic, and growing financial sector, increasing access to finance for
millions of India‘s financially under-served segments remains a challenge. This challenge has
further been accentuated by the financial crisis, during which, despite stable policies, increasing
efficiency, strong factor endowments, and a dynamic financial market, India‘s economic growth
slowed from 9.7 percent in 2006–07 to 5–6 percent in the second half of 2008–09, accompanied
by a slowdown in credit growth.21
In recent years there have been numerous initiatives to improve access to finance for financially
under-served segments. Among these initiatives are the GoI program to support the revitalization
of the rural credit cooperatives;22
initiatives to increase access to finance for SMEs23
and
supporting infrastructure finance;24
and introducing enabling guidelines to support financial
inclusion, including, among other measures, opening of no-frills savings accounts for under-
served clients, provisions to expand the outreach of micro-insurance, the use of banking
correspondents to increase access, and microfinance.
Microfinance—which bridges the ―access gap‖ by providing thrift, credit, and other customized
financial services to the under-served and the poor, with the aim to help raise incomes and
improve living standards—has been growing exponentially in India. Although smaller initiatives
in microfinance in India date back to the 1970s, the sector really started gaining a foothold in the
late 1990s. From a small base of less than Rs 100 crores (US$ 22 million) in loans outstanding in
1997, primarily in the southern states, MFIs have been scaling up rapidly in recent years.
Broadly there are two models of microfinance in India: the SHG-bank linkage model and the
MFI model. The former has been the predominant model in the past but has gradually been
21
The Bank funded a Banking Sector Support Loan (US$2 billion) that provides budgetary support to the
government for supporting capital infusion into banks, partly as a precautionary shield and partly to prevent lack of
capital from constraining good-quality credit growth. 22
Supported by a Bank project on Strengthening India‘s Rural Credit Cooperatives (US$600 million). 23
Supported by a Bank project on SME Financing and Development (US$120 million), topped up recently with
additional financing of US$400 million. 24
Supported by the Bank‘s loan to the India Infrastructure Finance Company (US$1.195 billion).
30
yielding market share to the MFI model.25
Funding is not a constraint for the SHG-bank linkage
model, which entails commercial banks lending directly to informal groups (SHGs) typically of
women. To address other issues related to capacity building and social capital formation, there
are various government programs, including those supported by the Bank‘s livelihood projects.
Compared with other important microfinance markets, India has only recently expanded
coverage, but has done so in a dramatic way. In the late 1990s, most MFIs were donor-
subsidized NGOs, and coverage was not considerable. However, the last 10 years has witnessed
strong growth in outreach and credit portfolios from this small base, with 50–100 percent growth
in loans outstanding over the last 5–6 years. As MFIs grew, many transformed into for-profit
nonbank financial companies (NBFCs), falling under the regulatory requirements of Reserve
Bank of India (RBI). Commercialization accompanied transformation, with banks and financial
institutions dramatically increasing commercial funding to MFIs. Competition for clients in
certain areas has become intense, and large MFIs have taken great steps to professionalize
operations. However, many of India‘s poor remain without access to formal financial services,
providing significant opportunities for continued growth.
No centralized data exist for the number of MFIs operating in India, but estimates range from
800 to 1,200. Sa-Dhan, the nation‘s leading microfinance association, collects data from 233
institutions, and 117 MFIs publish data on the Microfinance Information Exchange (MIX or
MixMarket) website. Data published by Sa-Dhan are an excellent representation of the sector,
although there are certainly hundreds of small operations currently not accounted for. According
to the data, there were an estimated 22.6 million microfinance borrowers as of March 2009, with
a total credit portfolio of Rs117 billion (US$2.6 billion).
A handful of MFIs dominate the sector in terms of outreach and gross loan portfolio and
represent some of the largest MFIs in the world. Eight of the top 50 ranked MFIs in the world are
in India, according to the most recent MIX Global Composite, which bases rankings on outreach,
efficiency, and transparency. Indian MFIs have been celebrated for their operational efficiency
with one of the lowest ratios of expenses-to-loan-portfolio in the world. The median MFI spends
only 10.4 percent of its loan portfolio to cover operational expenses. With a greater availability
of qualified labor, Indian MFIs have been able to keep personnel expenses lower than most
markets, with one of the highest numbers of clients per loan officer. However, many Indian MFIs
operate on comparatively low profit margins and rely heavily on commercial debt, for which
they pay relatively (to MFIs elsewhere) high rates of interest. High interest rates have, in turn,
been credited with creating more efficient use of funds by imposing operational discipline, which
is often lacking in markets with more donor and subsidized funding sources.
The microfinance sector has recently entered a phase of significant expansion—albeit from a
relatively low base—going from 10 million clients at the end of fiscal year 2007 (FY2007) to 14
million clients by the end of FY2008. Growth in loans outstanding to clients has been at rates
greater than 65 percent per year over the past three years. Disbursements by MFIs in FY2008 (of
an average size of less than Rs 10,000 or US$221) have been estimated at Rs 9,000 crores
(US$1.99 billion), with the figure for FY2009 estimated at Rs 17,500 crores (US$3.9 billion).
25
In terms of disbursements, in FY 2009 banks disbursed Rs12250 crores (US$2.7 billion) to SHGs; MFIs‘
disbursement in the year is estimated at Rs17,500 crores (US$3.9 billion).
31
Indian microfinance now demonstrates sound financial performance, and this growth period has
seen an improvement in management systems, internal controls, and operational efficiency.
Indian MFIs have good asset quality and profitability and are among the more efficient
institutions when compared with South Asian and global counterparts, with high levels of staff
productivity (figure 1.1). 26
As a result, the interest rates charged to clients are at levels lower
than most other countries. Despite this impressive performance, a lot remains to be done,
particularly as the scale of microfinance increases. Having proven possible to be sustainable and
scalable, the industry next needs to prove it can continue to function as a healthy market at an
ever-increasing national scale.
Figure 1.1: Global Comparisons on Efficiency
Source: MixMarket Data 2008
However, substantial demand still continues to be met from informal-sector moneylenders, often
at exorbitant rates, and there is a need for the outreach of microfinance to increase even more.
Sa-Dhan, the main network of MFIs, conservatively estimates credit demand among potential
microfinance clients at US$17.7 billion. To move toward meeting this gap, several key issues
need to be addressed. These challenges, if addressed, would contribute to the microfinance sector
building on its successful transition—from a nascent industry a decade ago and a growth industry
over the last five or six years—into a maturing industry.
One of the more pressing needs of the sector is access to appropriate financing for MFIs. The
fast-paced growth of Indian microfinance has been largely driven by commercial bank debt to
MFIs, and the share of debt in total funding of MFIs increased from around 25 percent in 2003 to
more than 80 percent now.27
Most of this is sourced from commercial banks at commercial rates.
This has had several positive impacts in terms of instilling a degree of financial discipline within
MFIs. (For example, on operational cost ratios, India‘s microfinance sector is among the more
efficient sectors globally; see figures 1.2 and 1.3.) However, the fast debt-funded growth—
without sources and amounts of equity growing at a commensurate pace—has led to a situation
where many Indian MFIs face a severe shortage of equity capital. This is particularly true for
medium and smaller MFIs, which have not yet been able to attract equity investors, but also for
some of the larger MFIs. These MFIs are reaching the point where the equity constraint limits
26
Countries highlighted as global comparators have among the highest performance indicators globally. 27
Estimates from M-CRIL, a niche microfinance rating agency, based on ratings of MFIs and by MixMarket, which
is a market information initiative promoted by CGAP, a multi-donor consortium housed in the World Bank.
10.4%
12.3%13.2%
17.0%17.9%
0.0%
5.0%
10.0%
15.0%
20.0%
Efficiency: Operating Expense/ Loan Portfolio
81
155
196 220 225
-
50
100
150
200
250
Borrowers per Staff Member
32
their ability to take on more debt and increase lending outreach to more clients. A recent IFC-
Intellecap study (2008) estimates that the minimum equity/quasi-equity amount needed is US$1.3
billion over the next four years.28
Bank projections show that even with conservative growth
assumptions, there is a need of US$294 million in equity funds immediately.
Figure 1.2: Operating Expenses/Loan Portfolio Figure 1.3: Borrowers per Staff
Member
Source: MIX data
Key Players
Indian MFIs operate in a complex financial landscape. There are public and private banks,
cooperatives, and insurance companies. Thousands of post offices offer savings accounts to the
poor. Approximately 21.6 million people belong to bank-linked SHGs. Two public institutions,
the National Bank for Agriculture and Rural Development (NABARD) and SIDBI, have
provided significant support for the growth of the sector and financial inclusion. MFIs
themselves fall under separate regulatory authorities and come in a variety of charter types,
including NGOs, societies, cooperatives, and NBFCs. Each charter type has its advantages and
drawbacks, but, as mentioned, the NBFC category has quickly grown in popularity. This wide
variety of actors has contributed to the continuing development of the Indian microfinance
sector, with each playing a unique and evolving role in supporting microfinance operations.
MFIs: MFIs are the direct service providers extending financial products to poor clients. As with
many microfinance markets, a handful of large MFIs dominate client outreach and the overall
loan portfolio. Tier 1 MFIs are currently classified as those with greater than 250,000 borrowers,
Tier 2 as having between 50,000 and 250,000 borrowers, and Tier 3 as having fewer than 50,000
borrowers. As of March 2009, 14 institutions qualify as Tier 1, with the 10 largest MFIs reaching
54 percent of total clients and 7 institutions reaching more than half a million borrowers each
(table 1.1).
28
Intellecap and IFC, Inverting the Pyramid, 2008.
33
Table 1.1: The Top Ten Indian MFIs by Outreach, March 2009 MFI Charter Type Client Outreach GLP (US$ Million)
SKS NBFC 3,520,826 517.1
Spandana NBFC 2,432,189 393.3
SHARE NBFC 1,502,418 256.2
Bandhan NBFC 1,454,834 111.2
Asmitha Microfin Ltd NBFC 878,455 148.9
SKDRDP NGO 807,170 103.5
BASIX NBFC 574,293 97.3
ASA Grama Vidayal NBFC 362,624 42.8
BISWA NGO 352,352 36.1
Equitas NBFC 339,158 60.6 Source: Sa-Dhan
Of the top 10 MFIs, 8 are registered NBFCs, illustrating the recent domination of the industry by
this charter type. For-profit institutions serve 62 percent of all clients and hold 75 percent of the
credit portfolio.
These large MFIs have understandably received most of the attention from funders, government
actors, and the media. However, the large unmet demand for microfinance services means that
smaller providers and new institutions have great potential to grow and reach those not yet
served.
Networks: Based in New Delhi, Sa-Dhan is the leading microfinance network for India. Two
hundred thirty-three MFIs currently report data on outreach, portfolios, and funding. These data
are compiled to give an excellent overview of the sector and to show trends. Sa-Dhan also
undertakes policy advocacy and publishes useful documents regarding recommended codes of
conduct.
Funders: A variety of actors provide debt financing to Indian MFIs, and with growing interest in
the sector, the list of funders is certain to expand. Private banks began providing a large amount
of commercial debt around 2003. Lenders include Indian and foreign-owned banks such as ABN
Amro, Axis Bank, HDFC, ICICI, Standard Chartered, and Yes Bank. Public banks make up 70
percent of the banking sector, but they only recently began providing considerable financing to
MFIs. The exception to this has been SIDBI, which has acted as an apex institution for several
years. Another apex, NABARD, has been more closely associated with the bank-linked SHGs,
but it has also recently begun to extend loans to MFIs.
On the equity side, there have been many recent investments made by both Indian and foreign
firms. Indian investors include Aavishkar Goodwell, Bellwether, and Lok Capital. Growing
interest in Indian MFIs has recently brought outside private equity investors such as Legatum of
the United Arab Emirates and Silicon Valley–based Sequoia. Microfinance investment vehicles
(MIVs) have also recently taken equity positions in large Indian MFIs.
Government: Indian MFIs are regulated from a variety of sources. At present, RBI regulates all
NBFCs with less-strict guidelines than banks. This is understandable as NBFCs are not currently
allowed to accept deposits unless they operate for a minimum of two years and receive an
investment-grade rating from an approved rating agency.
34
Other: Many other players contribute to the microfinance sector. Among these are several rating
agencies such as CRISIL and M-CRIL, which provide specialized rating reports, leading to
greater transparency. Research centers such as IFMR Centre for Micro Finance provide
academic studies into various critical aspects of the sector. Finally, consultancies such as
Intellecap and Grameen Capital India provide a wide range of services, aiding MFIs in virtually
all aspects of operations.
Outreach
Geographic outreach: Microfinance outreach in India is notable for its uneven geographic
coverage. Three southern states—Andhra Pradesh, Karnataka, and Tamil Nadu—account for a
full 51 percent of all borrowers. If Orissa, West Bengal, and Maharashtra, the next three largest
states by outreach, are added, these six states cover more than 82 percent of borrowers (table
1.2).
Table 1.2: Client Outreach in the Top Six States
State Client Outreach % of Total Outreach
Andhra Pradesh 3,653,115 26.0%
Karnataka 1,963,373 13.0%
Tamil Nadu 1,692,560 12.0%
Orissa 1,577,600 11.2%
West Bengal 1,540,927 11.0%
Maharashtra 1,169,306 8.3%
TOTAL 11,596,881 82.5% Source: Sa-Dhan 2008
The north, east, and northeast regions have much room to grow. Though very small operations
may exist, Sa-Dhan reports no MFIs functioning in several northern states including Himachal
Pradesh and Punjab and several eastern states including Sikkim and Meghalaya. Very few clients
are reported in Haryana, Uttarakhand, Tripura, Manipur, and Nagaland. Growth in the southern
states has slowed in recent years as the borrower base has expanded, but growth in 2008 was still
higher in the south than in the east and west. Growth was fastest in the north.
Poorest district outreach: The GoI has identified 331 of the poorest districts nationwide. Of
these, microfinance reaches 234, or 71 percent, of the districts. All of the poorest districts in
Tamil Nadu, Andhra Pradesh, Maharashtra, Orissa, and West Bengal have some form of
microfinance operations. Yet, these statistics may also suffer from the same depth problems as
state coverage. Because a poor district has microfinance does not mean that this coverage is
extensive or sufficient.
The high concentration in the south can be compared with the thin coverage across the rest of the
country, particularly the untouched small states in the north and west. It also shows uneven
penetration within states.
Urban/rural outreach: Indian microfinance originally served mostly rural clients with no access
to formal finance. However, over the last few years, client growth in urban and peri-urban areas
35
has outpaced growth in rural areas. New MFIs have appeared to serve this market, and existing
MFIs have modified product offerings to reach urban clients as well. Approximately one in four
microfinance clients live in an urban setting. Yet, the regional bias remains true for urban
microfinance. Large cities outside of the south still have very little provision of microfinance
services. For example, Sa-Dhan data show that in Delhi, with nearly 14 million residents, many
of them very poor, microfinance clients number only 28,000.
Growth Prospects
The microfinance sector in India has grown rapidly over the last decade, albeit from a small base.
From March 2008 to March 2009, MFIs added 8.5 million clients, growing from 14.1 million to
22.6 million borrowers. This is a year-on-year increase of 60 percent, a better performance than
the 40-percent increase in the previous financial year.
Demand estimates for microfinance are rough, but Sa-Dhan takes an estimated 113 million ―low-
income households‖ as the target clientele. Adjusting for an estimated 30 percent overlap from
multiple borrowings either in a family or by the same client, Sa-Dhan estimates that 14.4 percent
of low-income households are served by MFIs. The numbers by Sa-Dhan roughly correspond to
an IFC-Intellecap study that estimates demand at 91.2 million clients, also based on the number
of poor households. Taking 42 percent as the proportion of people living below the poverty line
from the World Development Indicators, there are approximately 504 million poor in India.
Assuming an average household size of five and one potential microfinance client per household,
the total demand would stand at 101 million.
These approximations of demand for microfinance services illustrate how much room MFIs still
have to grow.
Funding Environment, Needs and Challenges
Environment: Among microfinance markets, Indian MFIs operate in a unique financial
landscape. India hosts a wide variety of financial institutions: public banks, private banks, apex
institutions (NABARD and SIDBI), insurance companies, mutual funds, post offices, rating
agencies, and two of the largest stock exchanges in Asia. The formal financial sector is quite
sophisticated and offers diverse products, but it serves mostly large corporations and the non-
poor. However, banks are required to extend a portion of their portfolios to priority sectors in an
effort to fund activities that benefit the poor. MFIs currently qualify for priority-sector lending
which has helped them become large recipients of bank funding starting around 2003 (see figures
1.4 and 1.5).
36
Figure 1.4: Sources of Indian MFI
Funding Figure 1.5: Local vs. Foreign Debt Held by MFIs
in Select Countries
Source: MIX data, unpublished.
Note: SIDBI is included in the Government/DFI category.
Needs: To maintain continuing growth in client outreach and portfolio size, Indian MFIs need
ongoing access to considerable amounts of new funds. This additional financing may come from
current lenders and investors or new funders such as international MIVs. Sa-Dhan has made
predictions for the amount of equity funding needed to fulfill the change in capital requirements
alone. Based on these data, figure 1.6 shows a range of possible funding need scenarios, with
pessimistic, most likely, and optimistic scenarios. The most likely scenario is based on a
predicted 80 percent portfolio growth, the average of the last three years. The optimistic and
pessimistic scenarios are taken at 100 percent and 60 percent growth, respectively.
Figure 1.6: Equity Needs for Capital Shortfall, US$ Millions
37
Challenges: MFIs face a variety of challenges when making funding decisions (figure 1.7
indicates the relatively high cost for debt raised by Indian MFIs). For example, lending driven
primarily by priority-sector considerations can pose problems with respect to cash flow in the
short term and long-term sustainability in the medium term. In the short term, while banks may
fulfill their priority-lending requirements by extending credit to MFIs, they often provide large
sums near the end of the fiscal year, which MFIs must then keep in cash until they can utilize the
funds. That is, banks may not time their priority-sector lending according to the needs of MFIs.
Furthermore, there are political economy risks associated with priority-lending policies: a change
in the designation of microfinance, or of the priority-lending policy, could lead to a sharp and
devastating reduction in funding for a large number of MFIs.
Figure 1.7: Weighted-Average Interest Rates for MFI Debt Financing
Source: MIX data, unpublished
Another funding challenge that has received much attention recently is the process of increasing
equity investments. As mentioned, Indian MFIs are some of the most highly leveraged in the
world, and large MFIs have been seeking more patient forms of capital to help them maintain
growth and lessen dependence on bank loans. Since 2008, US$210 million has been invested in
Indian microfinance through 20 deals, accounting for 40 percent of all private equity deals in
India. Investors are looking to minimize risk and maximize return, and large MFIs have been the
only institutions able to provide the transparency and security they require. Yet, this means that
small and medium MFIs, which have recently faced difficulties in securing borrowings as a
result of the financial crisis, also have relative difficulty in acquiring equity finance. Another
issue on equity finance has been valuation. Many observers believe that too many investors
competing for too few equity positions have created overvaluation and unrealistic return
expectations. As large commercial equity investments are new in the sector, there are few
previous transactions and no track record to point to.
Other Challenges and Risks
The Indian microfinance sector faces a wide variety of challenges and risks besides those related
to funding. These can be broken into two broad categories: operational and informational.
38
Operational: An overarching concern for MFIs as they move forward is how to properly manage
rapid growth. MFIs face resource constraints as well as the challenge of continuing to provide
services that satisfy both clients and investors.
Microfinance products in India have typically focused on standardized credit offerings that allow
for rapid scalability, but more diversity is needed. For example, some MFIs have grown
tremendously, but this growth is based on a model of fast replication of operations that offer
standardized loans. In this environment, many microfinance clients complain that loan products
do not conform to their individual needs. However, they still avail themselves of these loans
because there are no alternatives. Small balances and quick repayment periods have led to
individual clients seeking loans from multiple MFIs to both satisfy their needs for more credit
and pay back existing loans. It is clear that while standardized credit offerings are easier to
manage, they often do not match the demands of individual clients. In addition, poor customers
seek a variety of financial products besides credit. It is well documented that the poor highly
value savings, but NBFCs are not currently permitted to mobilize deposits. MFIs have
experimented with a variety of products in insurance, remittances, and consumer and housing
finance, but these remain secondary to the microloan business. Gradually integrating various
successful products will allow MFIs to deepen their operations and engagement with clients and
offer more valuable services while responding to client needs.
Human resources and professional management are areas that all MFIs are struggling with as
they continue to grow. The need to recruit, train, and retain qualified personnel is one of the
largest constraints MFIs face. MFIs must establish systems to ensure that they will have a source
of capable staff moving forward. Large MFIs have standardized systems to recruit and train loan
officers and management. Retention is also an issue that must be addressed as MFIs have been
known to ―cherry-pick‖ the staff of other institutions by offering higher salaries after an
employee has received training. This may result in an under-provision of adequate training, and
MFIs must incentivize staff to stay after receiving instruction. Technology and Management
Information Systems (MIS) are also a challenge to MFI operations. Technological innovations in
the micro-financial sector have come slower to India than many other markets, but they are
starting to appear. Pilots using smart cards and biometric data have been launched with success.
There have also been efforts to introduce mobile banking, with mobile service providers
declaring their interest to provide such services once the regulatory requirements are established.
Technologies such as these have the potential to decrease MFI costs and increase outreach, and a
Financial Inclusion Technology Fund has recently been launched to research and disseminate
appropriate technologies. The MIS used by most MFIs remain rather rudimentary. Increasing
MFI capacity in this area would facilitate communications between branches and headquarters
and headquarters and regulators, increasing efficiency and confidence in the industry.
Informational: Information sharing in the MFI sector may be described as good, but in need of
improvement. Many MFIs share their financial and outreach data with Sa-Dhan and MixMarket,
but there remain different areas where greater transparency is needed.
Interest-rate information may still remain unclear for some microfinance borrowers. Clients may
visit various MFIs in search of a loan, but not come away with a clear idea of who offers the
better terms because MFIs are not required to present pricing information in a standardized way.
39
For example, many charge a variety of fees that are not included in the reported interest rate.
Standardizing interest-rate reporting is a simple step to take to improve information for clients
and encourage more transparent pricing competition among MFIs.
A general lack of information sharing may lead to over-indebtedness of microfinance clients and
even MFIs themselves. Most MFIs do not voluntarily share information on clients, and there is
no credit bureau that independently gathers and disseminates credit information about micro-
borrowers. In this environment, many clients source loans from various MFIs, not disclosing to
any of them that they have multiple borrowings. Although many clients may do this out of a
genuine need for more working capital and may be able to easily repay all of their loans, there is
the concern that some will get in more debt than they will be able to service. In a similar vein,
MFIs may not always share with banks the sources of all of their debts; thus banks may be
extending loans to MFIs with existing heavy debt burdens.
Better accounting standards and disclosures will go a long way to improving transparency. Large
MFIs already follow good accounting practices and receive audits, but there is still room for
improvement. Capacity building in accounting and financial reporting would certainly provide
positive benefits. Standardizing accounting practices will allow donors, investors, and lenders to
have a clearer picture of an MFI‘s performance and allow comparison across institutions in the
sector.
Large NBFCs are subject to new regulations that require them to increase capital adequacy ratios
from the current 10 percent to 15 percent by April 2011. This rule applies only to NBFCs with
loan portfolios in excess of Rs 1 billion (US$22 million), but with the fast growth in the sector,
institutions will progressively cross this threshold and face the challenge of meeting this capital
requirement. Additionally, NBFCs may not access external commercial debt. As noted, this leads
to almost all MFI debt being sourced within India, and this is mostly at commercial rates. This
has led to more operational discipline among Indian MFIs, but they pay relatively high rates on
debt compared with other microfinance markets. If international MIVs were allowed to compete
with Indian banks for the provision of MFI debt, this might drive down interest rates and
financial costs.
40
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies
India: Scaling Up Sustainable and Responsible Microfinance Project
Related Projects
World Bank Group Microfinance Projects
Afghanistan: Expanding Microfinance Outreach and Improving Sustainability
(P104301). Aims to achieve operational sustainability for most microfinance service
providers and help them scale up outreach. The only component is a loan to the apex
institution, Microfinance Investment Support Facility for Afghanistan (MISFA), for on-
lending to microfinance service providers. The project value is US$30 million. The end
date is 12/31/2010 and it is rated marginally satisfactory in Development Objectives
(DO) and satisfactory in Implementation Progress (IP).
Bangladesh: Second Poverty Alleviation Microfinance Project (P059143). Provided
funding to the apex institution, Palli-Karma Sahayak Foundation (PKSF), for on-lending
to microfinance providers. The project value was US$166 million and closed on
06/30/2009 after additional funding was added to the original project. It has a moderately
satisfactory rating in DO and IP.
Pakistan: Third Pakistan Poverty Alleviation Fund Project (P105075). A
continuation of Bank lending to the apex institution, Pakistan Poverty Alleviation Fund
(PPAF), to support its on-lending activities to microfinance providers. The end date is
01/31/2015. The Second PPAF Project received a satisfactory rating in DO and IP.
India: SME Financing and Development (P086518). Improves SME access to finance
(including term finance) and business development services. Fosters SME growth,
competitiveness and employment creation through a multipronged approach that
addresses key bottlenecks to SME financing and development. The end date is 6/30/2012,
and it has received satisfactory ratings in DO and IP.
Brazil: Northeast Microfinance Development Project (P050776). Strengthened and
expanded the microcredit pilot program, CrediAmigo, in the poor northeast region by
providing US$37.5 million. Also provided technical assistance for marketing, products,
and loan administration. The end date was 3/31/2007 and it was rated satisfactory in DO
and IP.
Tanzania: Private Sector/Micro, Small, and Medium Enterprises (MSME)
Competitiveness Project (P085009). Contains a component that aims to enable MSMEs
to upgrade and innovate their operations and another component that aims to increase
access to finance by MSMEs. It supports the expansion of commercial bank lending to
MSMEs through matching grants and knowledge transfer of SME-lending skills as well
as encouraging commercialization of microfinance institutions. The project ends on
6/30/3012 and is rated satisfactory in DO and IP.
China: Commercially Sustainable Micro and Small Business Finance (P096285).
Extends a US$100 million line of credit to China Development Bank (CDB): US$90
million for on-lending to micro and small enterprises and US$10 million for technical
assistance. CDB is to establish a business unit to achieve the program objectives of
lending to businesses with credit needs less than US$10,000. The project ends on
6/30/2011 and is rated satisfactory in DO and IP.
41
Lessons Learned
Some of the key lessons learned from these projects are as follows:
Project design should incorporate key supply-and-demand-side issues, filling an
appropriate funding ―gap‖ that is not met by other sources.
Clear and transparent eligibility criteria should be created for MFIs that are recipients of
on-lending funds. This could include stipulations about geographic outreach, adopting
codes of conduct, and/or poverty targeting and social performance.
The project should emphasize ―importing‖ established MFIs to under-served regions as
well as supporting smaller local NGOs in these areas.
Strong institutional development and governance improvements are needed in MFIs for
them to be able to appropriately absorb large increases in capital and continue to grow
sustainably. Performance standards, capacity building, and increased transparency will
help in this regard.
Building up patient forms of capital, particularly equity, is essential for reducing
dependence on other sources of funding. In other country contexts, increasing equity has
worked to reduce reliance on donor funds; in India it will work to enable an adequate
capital base necessary to raise additional commercial debt.
42
Annex 3: Results Framework and Monitoring
India: Scaling Up Sustainable and Responsible Microfinance Project
Project Development
Objective Project Outcome Indicators Use of Outcome Information
The objective of the
project is to scale up
access to sustainable
microfinance services
to the financially
excluded, particularly
in under-served areas
of India, through,
among other things,
introduction of
innovative financial
products and
fostering
transparency and
responsible finance.
1. Disbursements of loans by MFIs to their
clients relative to the amounts of financing
borrowed from SIDBI
2. Percentage of project funding for clients in
under-served areas 3.Percentage of portfolio managed by MFI
beneficiaries with an operational self-
sufficiency (OSS) of 100%
4. The percentage of beneficiary MFIs
disclosing operational/financial information on
a web-based platform
Yr 0 (pre-reform/pre-project) Data from SIDBI create baseline.
Yrs l–2 Gauge compliance of SIDBI
with the project requirements of
putting in place the necessary
technologies, systems, and practices
to deal with credit risk and
transactions costs related to MFI
lending, with a view to make any
adjustments to the project design, as
necessary. Yrs 2–4 Gauge whether SIDBI
manages to expand MFIs‘ outreach
while maintaining the quality of its
portfolio.
Outputs from Each
Component Output Indicators Use of Output Monitoring
Component 1 Component 1: Evidence of timely and
satisfactory progress toward the delivery of
Component 1 outputs, as planned, including the
following specific measures: 1.1 Growth rate of outstanding funding
(including senior debt, sub-debt, equity) of
SIDBI to MFIs, relative to baseline [SIDBI
level] 1.2 Percentage of beneficiary MFIs (NBFCs)
with a capital adequacy ratio (CRAR) that is in
compliance with the regulatory norm 1.3 Percentage of portfolio managed by MFI
beneficiaries with maximum portfolio at risk
(PAR) over 90 days under 5% 1.4 Increased number of female borrowers
[SIDBI level]
1.5 Percentage of beneficiary MFIs submitting
compliant quarterly progress reports (QPRs) on
schedule
Component 1:
Information on outputs from this
component will be used to track
progress toward provision and
availability of long-term financing to
MFIs through SIDBI, including in
under-served areas; adherence to
responsible finance codes from MFIs,
and to make changes in the project, if
necessary, during implementation.
43
1.6 Total active loan clients of beneficiary MFIs
[MFI level]
Component 2
Component 2: Evidence of timely and
satisfactory progress toward the delivery of
Component 2 outputs, as planned, including the
following specific measures: 2.1 A Lenders‘ Forum is institutionalized with a
mandate of promoting responsible finance
among funded MFIs 2.2 Percentage of beneficiary MFIs undertaking
a CoC Assessment
Component 2: Information on outputs from this
component will be used to track
progress toward institutional
strengthening of the microfinance
sector and to make changes in the
project, if necessary, during
implementation.
Component 3 Component 3: Evidence of timely and
satisfactory progress toward the delivery of
Component 3 outputs, as planned, including the
following specific measures: 3.1 Implementation capacity of SIDBI is
strengthened, as necessary 3.2 The agreed GAAP (including M&E
framework) is implemented
Component 3:
Information on outputs from this
component will be used to make
changes in the project, if necessary,
during implementation.
44
Arrangements for results monitoring
Data Collection and
Reporting Project Outcome Indicators Baseline YR1
YR2 YR3 YR4 YR5 Frequency
and
Reports
Data
Collection
Instruments
and Sources
Responsibility
for Data
Collection
1. Disbursements of loans by beneficiary MFIs to their clients
relative to the amounts of financing borrowed from SIDBI
1
1.25
1.75
2.50
3.50
4.00
- Annual
- Reports
from SIDBI
(- QPRs - Half yearly
unaudited
reports - Annual
audited
reports)
SIDBI
2. Percentage of project funding (debt) for clients in under-
served areas
0 25% 30% 35% 45% 50% - Annual
SIDBI
3. Percentage of portfolio managed by beneficiary MFIs with
OSS of 100% N/A 60% 65% 70% 80% 90% - Annual SIDBI
4. Percentage of beneficiary MFIs reporting to the
information platform
0 0% 20% 60% 80% 90% - Annual
SIDBI
45
Data Collection and Reporting
Project Output
Indicators Baseline YR1
YR2 YR3 YR4 YR5 Frequency
and
Reports
Data Collection
Instruments and
Sources
Baseline
Component 1 1.1 Growth rate
of outstanding
funding
(including
senior debt, sub-
debt, equity) of
SIDBI29
to
MFIs, relative to
baseline [SIDBI
level]
Rs.38
billion
(SIDBI‘s
March 31,
2010,
outstanding
funding
10%
20%
30%
50%
50%
Biannual - Reports from
SIDBI (- QPRs - Half yearly
unaudited reports -- Annual audited
reports)
SIDBI
1.2 Percentage of
beneficiary MFIs
(NBFCs) with
CRAR in
compliance with
the regulatory
norm
N/A 10% 20% 40% 65% 75% Annual
- Reports from
SIDBI (- QPRs - Half yearly
unaudited reports - Annual audited
reports)
SIDBI
1.3 Percentage of
portfolio
managed by
beneficiary MFIs
with maximum
PAR above 90
days under 5%
N/A 50% 60% 70% 75% 80% Bi-annual - Reports from
SIDBI- (- QPRs - Half yearly
unaudited reports - Annual audited
reports)
SIDBI
29
Greater than original SIDBI portfolio + financing under project + any other microfinance-specific financing raised.
46
Data Collection and Reporting
Project Output
Indicators Baseline YR1
YR2 YR3 YR4 YR5 Frequency
and
Reports
Data Collection
Instruments and
Sources
Baseline
1.4 Percentage of
beneficiary MFIs
submitting
compliant QPRs
on schedule
N/A
40%
50%
60%
80%
90%
Biannual
- Reports from
SIDBI (- Half
yearly unaudited
reports - Annual audited
reports)
SIDBI
1.5 Increased
number of
female borrowers [SIDBI level]
6.7 million
(estimated
SIDBI‘s
outreach to
female
borrowers
as on
September
30, 2009)
10% over
baseline
20% over
baseline
30% over
baseline
40% over
baseline
50% over
baseline
Biannual - Reports from
SIDBI (- QPRs - Half yearly
unaudited reports - Annual audited
reports)
SIDBI
1.6 Total active
loan clients of
beneficiary MFIs
0
0.5 million 1.0 million 1.5 million 2.5
million
4 million Annual - Reports from
SIDBI (-QPRs)
SIDBI
Component 2 2.1 A Lenders‘
Forum is
institutionalized
with a mandate
of promoting
responsible
finance among
funded MFIs
Lenders‘
Forum not
formalized
Lenders‘
Forum
formalized
with at
least four
lenders
Lenders‘
participation
increases to
at least five
lenders and
charter and
action plan
agreed
Lenders‘
participation
increases to at
least six lenders
and there is
increased
adoption of
standards by
lenders
Increased
adoption
of
standards
by
lenders
Increased
adoption
of
standards
by
lenders
Annual - Reports from
Lenders‘ Forum
Secretariat at
SIDBI (Annual
progress report of
Lenders‘ Forum,
minutes of
meetings)
Independent
impact
assessment
firm and
SIDBI
47
Data Collection and Reporting
Project Output
Indicators Baseline YR1
YR2 YR3 YR4 YR5 Frequency
and
Reports
Data Collection
Instruments and
Sources
Baseline
2.2 Percentage of
beneficiary MFIs
undertaking a
CoC Assessment
0 0% 10% 25% 50% 75% Annual
- Reports from
SIDBI and data
from India
microfinance
platform
(- QPRs - Half yearly
unaudited reports - Annual audited
reports)
SIDBI
Component 3 3.1
Implementation
capacity of
SIDBI is
strengthened, as
necessary
SFMC
action plan
for capacity
building drafted
Action
plan 100%
complied
with
Action plan 100%
complied
with
Action plan 100% complied
with
Action
plan 100%
complied
with
Action
plan 100%
complied
with
Annual - Reports from
SIDBI
(- Annual audited
reports)
Independent
impact
assessment
firm and
SIDBI
3.2 The agreed
GAAP
(including M&E
framework) is
implemented
GAAP
agreed GAAP
100%
complied
with
GAAP 100%
complied
with
GAAP 100%
complied with GAAP
100%
complied
with
GAAP
100%
complied
with
Annual - Reports from
SIDBI
(- Annual audited
reports)
Independent
impact
assessment
firm and
SIDBI
48
Annex 4: Detailed Project Description
India: Scaling Up Sustainable and Responsible Microfinance Project
Project objectives and indicators
The objective of the project is to scale up access to sustainable microfinance services to the
financially excluded, particularly in under-served areas of India, through, among other things,
introduction of innovative financial products and fostering transparency and responsible finance.
Progress towards achievement of the project objective would be monitored using the following
indicators (refer also to annex 3):
Extent of outreach: Disbursements of loans by MFIs to their clients relative to the amounts of
financing borrowed from SIDBI
Breadth of outreach: Measured by growth rates within under-served areas
Operational sustainability: Measured by operational self sufficiency (OSS)
Responsible Finance: Measured by the percentage of MFIs disclosing operational/
financial information on a web-based information platform
SIDBI will be the implementing agency for this project. IBRD funds will be borrowed directly
by SIDBI, whereas IDA funds would be routed through GoI to SIDBI. Within SIDBI, the
SFMC—which has a dedicated and experienced microfinance team—will be the key
implementing department. The project will have three components.
Project components
The project will achieve its objective through (i) supporting expansion of financial services,
particularly in under-served states or under-served areas within states; and (ii) facilitating
responsible and sustainable growth through the provision of more patient capital sources of
funding, including longer-term debt, equity, and quasi-equity instruments with funding linked to
responsible finance actions (for example, actions on transparency, good governance, and
adhering to CoC).
The project will use an ―incentive approach‖ and link the various components such that
maximum additionality is attained through this while also addressing the key issues facing the
Indian microfinance sector. The incentive approach will involve the provision of appropriate
financing instruments, access to which would be conditional not just on satisfactory appraisal of
the MFI, but also based on case-by-case agreements with MFIs on responsible finance or other
actions on capacity improvement that they would need to complete to ensure continued access to
funding under the project. The incentive to be used will be in the form of a commercially priced,
but attractive funding product with a longer tenure and innovative pricing mechanism (including
possibly sliding-scale pricing). Apart from being longer term than products currently available, a
portion of the funding will be in the form of quasi-equity, a product not currently available in the
market. This addresses the equity capital gap that many MFIs face and will be structured with a
tenure that helps provide stability to MFI balance sheets. To the extent that the tenure can be
longer than typical equity investor time horizons, such capital will be particularly attractive
49
because it will be cheaper than equity (though more expensive than debt). In return, to access
Component 1, the actions could include commitments to increase MFI portfolios in under-served
areas, adoption of improved governance practices, reporting to the information platform (see
Component 2 below), agreeing to a third-party assessment of the degree/quality of adherence to
the CoC, agreement on measures to be implemented by MFIs to improve management systems
(particularly relevant for any small MFIs that could be supported), and adoption of improved
accounting practices where relevant. Through this link, the project funding will contribute to the
objectives of promoting sustainable but more responsible finance.
Component 1. Scaling Up Funding Support for MFIs (US$289.5 million with US$199.5 million
IBRD and US$90 million IDA funding; plus US$30 million counterpart funding)
This component would provide funding to MFIs to scale up their operations. Funding from
SIDBI to MFIs is proposed to be structured as quasi-equity or debt, and limited equity support
(with a primary focus on midsize or Tier 2 MFIs) to support their operations and growth,
enhance their financial strength, and enable them to leverage and crowd in private commercial
funds to on-lend larger amounts to the poor. The funding provided under this component to MFIs
would be on commercial terms. The total funding thus mobilized will enhance the MFIs‘ ability
to reach out to larger numbers of under-served segments of the population through microfinance
services. The quasi-equity funding will also help address the equity gap in Indian MFIs, while
providing SIDBI with the ability to promote the responsible finance agenda among the MFIs
funded.
In terms of allocations, funding from SIDBI to MFIs will be divided into the following two
subcomponents: (i) a debt/subordinate-debt subcomponent (US$270 million, of which US$180
million will be IBRD funded and US$90 million will be IDA funded), with US$60 million
indicatively for subordinate debt and the remaining indicatively for debt; and (ii) equity and
quasi-equity (US$19.5 million, IBRD financed). In accordance with the Bank's policies on
financial intermediary lending, equity investments made by SIDBI will fund the MFI operations
and will be used for productive purposes.
Two kinds of leverage would be sought to be derived from such funding:
(i) Financial leverage: Equity or quasi-equity would lead to 6-7 times leverage through raising of
additional debt which would contribute to significantly enhanced on-lending, while a 4-5 year
debt from SIDBI to MFIs would lead to a roll-over of around 3-4, in terms of on-lending to final
clients. Funding that is structured as quasi-equity/equity will obtain leverage or crowding in
through the MFIs raising additional debt and also through future mobilization of additional
equity. This will help create strong institutions that are viable and able to attract and access the
capital market and private sector investors in the medium to long term, ensuring that their growth
sustains beyond the project period.
(ii) Responsible-finance leverage: As discussed above, funding would require and induce greater
transparency, accountability, growth in under-served areas, disclosure, and good governance in
the microfinance sector through tier-specific performance criteria (on financial performance,
50
outreach, or actions on governance and management30
), thereby contributing to a responsible
finance initiative, an activity also supported under Component 2 of the project. Specifically,
SIDBI will seek to ensure measures that promote information on growth and, where this is taking
place, transparency and disclosure of interest rates.
The Indian microfinance sector is diverse, spanning the range of a few large, commercial, and
growth-oriented institutions to mid-sized, second-generation institutions poised for expansion, to
start-up NGOs with limited capacity or appetite for growth. Each market segment will
necessarily have different growth and governance trajectories. The project will take into account
these tiers of the market by tailoring specific performance, outreach, and governance criteria to
each tier while factoring in the need and additionality of supporting these institutions. Such
actions/requirements will be developed case by case for each MFI covered under the project and
will be captured in the agreement between SIDBI and the MFI. For example, funding to a large
MFI in Tier 1 could be linked to increasing outreach in under-served areas, participating in data
sharing and responsible finance initiatives supported under Component 2, whereas funding for
medium-size players could be more closely linked to increased growth, performance, and
sustainability as well as good governance and transparency (table 4.1).
Table 4.1: Potential Transparency, Governance, Outreach, and Performance Criteria
New/Enhanced Tier Transparency and Code
of Conduct Criteria
New/Enhanced Tier Governance Criteria
√ All Preparation of audited
financial statement in
time
√ 1 Diversify board, including
directors and performance
reviews
All Furnishing of audited and
accurate data to regulator
(depending on legal
form)
√ 2 Frequency of board
meetings, quality of
agenda
√ All Sharing of info among
lenders of MFIs as per
standard format by RBI
√ All Compliance with
regulatory guidelines
applicable to legal form
√ All Know Your Customer
(KYC) norms,
implementation of
existing norms
√ All Guidelines with regard to
vigilance, fraud,
accountability
√ All Assessment of degree of
adherence to CoC √ All Surprise checks by MFIs
to branch offices
√ All (a) Provision of annual
financial and operational
performance data
standardized and verified
by MixMarket tailored for
India, (b) market-growth
and portfolio-quality data
on a quarterly basis, and
(c) data meet newly
established high
√ 1, 2 Performance budget and
review
30
Some of the criteria would be ex ante—before new financing is secured—and some would be ex post/ongoing to
ensure progress during the life of the new financing.
51
New/Enhanced Tier Transparency and Code
of Conduct Criteria
New/Enhanced Tier Governance Criteria
standards for accuracy,
consistency, and
timeliness of submission
√ 1 Internal audit and audit
committee of the
board/reporting pattern
√ 1, 2 External auditor
New/Enhanced Tier Geographical Outreach
Criteria
New/Enhanced Tier Performance Criteria
√ All Increased assistance to
under-served areas √ 2, 3 Increased OSS
All Adherence to maximum
PAR
√ All Increased capital
adequacy above a
minimum threshold
This component, therefore, will directly address the funding gap constraint while promoting the
responsible finance agenda on key challenges for microfinance in India. Further, this component
would help introduce a new and much-needed innovative financial product, priced commercially,
into the Indian microfinance market, the need for which is evident from overall data on
microfinance in India (annex 1 above) and was reiterated during preparation in stakeholder
consultations—including with equity investors and with MFIs, their associations, NGOs, rating
agencies and advisory firms. The funding that is structured as sub-ordinate debt will count as
Tier 2 capital for those MFIs that are registered as NBFCs, and will be particularly useful insofar
that the funding would count as domestic Tier 2 capital contribution, thereby increasing
prospects and opening the door for mobilization of capital from other sources, including foreign
investment.
In providing such funding, the project will place an emphasis on ―importing‖ established MFIs
from developed regions in India to initiate or expand operations in the less-developed regions of
the country, a strategy that has worked very well in some Bank projects, such as the
microfinance project in Afghanistan. At the same time, the project could support the expansion
of a few select, smaller, local MFIs (including those structured as NGOs and cooperatives) that
demonstrate a potential for growth.
In terms of eligibility criteria for MFIs, also documented in the OM, the criteria needed for MFIs
include (i) a demonstrated track record of running a microfinance program for at least three
years; If a new MFI is to be considered, then the promoter/chief executive needs to have at least
three years of experience in microfinance or banking/financial intermediation; (ii) except for new
MFIs, the MFI needs to have an acceptable rating from an accepted microfinance or mainstream
rating agency; (iii) an orientation toward under-served areas or clients; (iv) an acceptable level of
portfolio at risk (90 days) of no more than 10 percent or else has a clear action plan to improve
collections; (v) a business plan for its microfinance operations for growth; (vi) a process through
which clients are chosen based on an established methodology used by the MFI; (vii) availability
of audited accounts; (viii) no significant unresolved observations from audit reports; (ix)
existence of an established and defined accounting system on commercial principles; (x) an
52
established system of internal audit or a plan to improve this over time;31
and (xi) defined and
operational fund tracking and end-use reporting mechanisms. Adherence to these criteria will be
ascertained by SIDBI as part of the MFI funding appraisal process. This process has been
reviewed by the Bank, including the requirements of OP 8.30 and OP 10.02, and has been found
to be robust and acceptable, as also reflected in its excellent asset quality on the microfinance
portfolio that has been built since the mid-to-late 1990s.
Component 2: Strengthening Responsible Finance (US$5 million)32
The Component would promote transparency and responsible microfinance through the
development of an India microfinance platform. This initiative would be envisaged as a common
information platform for MFIs to provide and disseminate valuable information that would
inform policymakers, MFI managers and funders (similar, but broader and deeper than the
information available on the MixMarket, including through potential collaboration with Mix
Market in India). As part of the responsible finance initiative, SIDBI will seek to bring together
a Lenders‘ Forum comprising key MFI funders to agree on common actions which could include
those on transparency and good governance by MFIs. Additionally, once the Unique
Identification (UID) initiative of the GoI is ready for implementation, the forum will encourage
MFIs to participate and support the roll-out of this initiative, given its significant potential to
improve transparency and credit information. The Component could also potentially support the
development and piloting of a CoC Assessment, which could serve as an innovative tool for
measuring performance of MFIs as
pertaining to their CoC adherence
(to the code in Box 4.1 or other
sector adopted CoC).
The project will provide support
resources that enable SIDBI and
its partners (and be open to others
as well) to consolidate and
improve existing data on Indian
MFIs through the India
microfinance platform. This would
include, at a minimum, (a) annual
financial and operational
performance data, standardized
and verified, that contributes to
both individual and consolidated
industry data—a la a MixMarket tailored for India; (b) market-growth and portfolio-quality data
on a quarterly basis so that all market players see on a regular basis where the market is
expanding and also to spot early problem areas; and (c) assurance that these data meet newly
31
For existing MFIs with greater than three years of operations, an internal audit system will be required. For
relatively new MFIs, in case an internal audit system does not exist, a clear plan to establish this will be required. 32
An Innovation Fund to be supported under the project was considered during project preparation but eventually
rejected, given the likely funding for such initiatives by other donors and also to keep the focus of the project
maintained on sustainable and responsible finance.
Box 4.1: Code of Conduct
The Core Values and Voluntary Mutual Code of Conduct for
MFIs was formulated by Sa-Dhan, the leading network of MFIs
in the country. This code has three main parts to it: (i) core
values, (ii) code of conduct, and (iii) compliance.
The core values talk of principles of integrity, quality of service,
transparency, privacy, fair practices, feedback mechanism, and
social values. The CoC defines the kinds of actions that are
expected with respect to each principle. For example, on
transparency, the actions relate to disclosing clearly and
transparently the full cost and conditions of the financial
services being provided by the MFI and including under-served
clients irrespective of their caste or creed; on integrity, the
actions relate to disclosing the code in their branches,
developing mechanisms to ensure compliance, and so forth.
The compliance section deals with the constitution of an
executive committee at Sa-Dhan to review complaints.
53
established high standards for accuracy, consistency, and timeliness of submission. Together
these efforts can provide valuable market information that will help improve management
decision making, lower costs of delivery, and potentially can be used to avoid systemic or large-
scale credit problems. As mentioned above, this component will be cross-linked with Component
1, such that MFIs accessing Component 1 will need to commit to data sharing to the common
information platform and other responsible finance initiatives discussed above and defined in the
OM. These other initiatives could require that each MFI supported under Component 1 agrees to
the conduct of an independent assessment (CoC Assessment, to be developed by independent
rating and other agencies) to assess the degree of adherence to the voluntary microfinance CoC
(see box 4.1). This could be included as an addendum to the credit rating that is conducted as
part of appraisal. Findings from this assessment would be also put up on the India microfinance
platform.
The Lenders‘ Forum would be a mechanism to promote cooperation among MFI lenders (for
example, commercial banks, both public sector and private sector banks) with the objective of
leveraging support to MFIs across the sector to promote more responsible lending practices. The
forum would seek to work toward voluntary adoption of measures on governance, transparency,
and competitive practices, and would condition support to MFIs on their adherence to and
adoption of these industry standards by building them into their covenants. The forum could also
promote the use of improved accounting standards among MFIs, targeted at those MFIs that are
not structured as NBFCs. This could be done through disseminating the standards to MFIs using
a variety of communication tools. Propagation of these standards could help inform MFIs of the
need to move to a good-practice financial accounting system and make the transition to such a
system, which, in turn, will contribute to better information and transparency on the financial
accounts and performance of MFIs.33
In this way, SIDBIs initiatives on the responsible finance
agenda could be expanded throughout the sector, having a large multiplier effect. Furthermore,
adoption of such standards could reduce the reporting burden on MFIs as common reporting
formats could be developed. The design of the forum could initially be informal, with the top
five or six commercial banks initially leading on development of voluntary measures, with a
gradual transition to a more formalized structure that could include a wider spectrum of MFI
lenders.
For support in the implementation of Component 2, SIDBI will hire a firm where required that
can provide operational support for the responsible finance component. One example of such
support could revolve around supporting the information platform, where the work would entail,
among other things, collating and following up on data submission from MFIs, analyzing and
cleaning the data and preparing comparative reports, maintaining the website for disclosure of
the information shared on the responsible finance initiative, developing templates for reporting
on this platform, and maintaining the platform.
33
Once the Unique Identification initiative of the GoI is ready for implementation, the forum may also encourage
MFIs to participate in the rollout of this initiative, given its significant potential to improve transparency and credit
information.
54
Component 3: Capacity Building and Monitoring Component (US$5 million)
Implementation support would include support to SIDBI for (i) implementing the project,
including operating expenses and costs of the monitoring work (defined in annex 3 and
elsewhere); (ii) commissioning an impact evaluation exercise (to be carried out through an
external research agency); and (iii) SIDBI‘s own capacity building. This component would also
include support for a communication strategy that would help ensure the benefits from this
intervention will be shared with the wider microfinance sector.
55
Annex 5: Project Costs
India: Scaling Up Sustainable and Responsible Microfinance Project
Project Cost by Component and/or Activity Local Foreign Total
US$ million US$ million US$ million
Component 1: Scaling Up Funding Support for
MFIs
320.0 0 320.0
Bank funding
289.5 0 289.5
Which will be distributed as
Subcomponent 1(a): Debt/sub-debt
270.0
0
270.0
Subcomponent 1(b): Equity/quasi-equity
19.5 0 19.5
Component 2: Strengthening Responsible
Finance
5.0 0 5.0
Bank funding 5.0 0 5.0
Component 3: Capacity Building
and Monitoring
5.0 0 5.0
Bank funding 5.0 0 5.0
Front End Fee (from loan proceeds) 0.5 0 0.5
Total Baseline Cost1 330.0 0 330.0
Physical Contingencies
Price Contingencies
Total Project Costs2 330.0 0 330.0
of which IDA/IBRD funding 300.0 0 300.0
Notes:
1. Includes: IDA US$100 million, IBRD US$200 million, SIDBI counterparty contribution US$30 million
equivalent.
2. Identifiable taxes and duties are US$1.7 million, and the total project cost, net of taxes, is US$327.3 million.
Therefore, the share of project cost net of taxes is 99 percent.
56
Annex 6: Implementation Arrangements
India: Scaling Up Sustainable and Responsible Microfinance Project
Institutional arrangements for project implementation
The Department of Financial Services (DFS) of the Ministry of Finance (MoF), GoI, is the line
department responsible to oversee all such projects and will provide overall guidance and
monitoring, while SIDBI is the main implementing agency. SIDBI will be responsible for
coordinating the three components of the project and managing the project.
SIDBI was set up as a wholly owned subsidiary of the Industrial Development Bank of India
(IDBI) in April 1990 under an act of the Indian Parliament as the principal financial institution
for promoting, financing, and developing industry in the small-scale sector and coordinating the
functions of other institutions engaged in similar activities. To provide greater operational
flexibility, the SIDBI Act was amended in 2000 and SIDBI was delinked from IDBI effective
March 27, 2000. The entire shareholding of SIDBI is now held by state-owned financial
institutions, insurance companies, and commercial banks, and at present there are 35
shareholders,34
with IDBI Bank Ltd, State Bank of India, and Life Insurance Corporation of
India being the three largest shareholders. The shareholding pattern of SIDBI as of March 31,
2009, was as follows:
Key Shareholders
Shareholder %Holding
Financial Institutions 6.42
Insurance Companies 21.43
PSU Banks 72.15
Total 100.00
Since its creation SIDBI has been the leading apex, development financial institution for SME
financing, and in the mid-1990s it ventured into microfinance. To give greater focus to its
microfinance operations, in 1999 SIDBI established an internal department called the SFMC,
headquartered in Lucknow. Over time the SFMC has grown and is currently operating through
its 100 branches, including seven Specialized Micro Finance Branches (SMFBs), and is widely
regarded as the leading funder and development agency for microfinance in India.
SIDBI has been playing a catalytic role in supporting the Indian microfinance sector since 1999
when the SFMC was launched. From 2000 to 2009, with the support of IFAD and DFID, SIDBI
was the counterpart for the partners in NMFSP. The main features of the program were to
provide customized, need-based packages of loans, grants, and, to a lesser extent, equity to
partner MFIs to develop into large and sustainable institutions; capacity building of clients,
MFIs, and the sector; and capacity-assessment ratings and capacity-building needs assessments.
All aspects of the program were based on a market-driven flexible approach for credit delivery
with a focus on financial sustainability. The program closed in March 2009 and reportedly
received the highest rating possible from DFID‘s assessment of their global microfinance
34
Earlier there were 36 shareholders. With the merger of State Bank of Saurashtra with its parent SBI, the number has come down to 35.
57
program. Furthermore, seven Indian institutions were included in the Forbes list of Top 100
MFIs—all of them partner organizations of SIDBI—testifying to the high impact of SIDBI in
supporting and nurturing the microfinance sector in India.
Given SIDBI‘s demonstrated capacity and track record in supporting the development of the
retail microfinance sector in India, the institution is ready to begin the second phase of the
development of the sector, which would address key challenges listed above. SIDBI also makes
for an appropriate implementing counterpart for this project given its familiarity with
development financing and with Bank fiduciary and safeguards requirements reflected in its
excellent credentials in implementing the World Bank‘s SME Financing and Development
Project, which has been scaled up through additional financing recently.
SIDBI was selected as the implementing agency because it is the designated apex-level financial
institution, responsible for microfinance financing and development, and is best positioned to act
as the financial intermediary between the Bank and the various MFIs. Such a project structure is
more efficient than a structure involving individual participation agreements with each
participating MFI, as it helps assign clear accountability and reporting duties to one institution,
ensures better coordination during implementation, and facilitates project monitoring and
supervision.
SIDBI is highly committed to the project, has assigned dedicated project staff, and has extensive
experience with managing donor credit lines (for example, from KfW, Japanese Bank for
International Cooperation [JBIC], and the World Bank) as well as donor grants funds (for
example, from DFID). SIDBI‘s governance, organizational, and operational structures are
described below. The Project Management Department (PMD) will be SFMC, which is a
dedicated department within SIDBI and has a team with experience garnered for a decade in
microfinance, and which can if needed include staff persons who can oversee financial
management, procurement, and safeguards capacity. Team composition will be determined by
SIDBI as a next step in preparation.
The chief general manager (CGM) of the SFMC will act as the project director, and while the
entire team of SIDBI/SFMC working on microfinance will be involved with the implementation
of the project, core activities will be coordinated by three SFMC staff members who have
already been assigned to the project. For all procurement activities under the project, the
procurement capacity at SIDBI for the India SME Project, which is currently under
implementation, will be utilized. The procurement specialist at SIDBI who is currently managing
the procurement under the World Bank–supported India SME Financing and Development
Project will provide inputs to the SFMC team on procurement aspects and will be assigned to the
project as needed. On financial management and safeguards, SIDBI has assigned dedicated
SFMC staff as being the nodal persons responsible for these areas.
58
SIDBI’s Governance and Organizational Structure
Governance
SIDBI‘s overall corporate governance, as assessed during project preparation, was found to be
satisfactory and in conformance with the standards specified by the RBI for financial institutions.
The overall management vests with the board of directors. The SIDBI Act defines the
composition of the board, the term of office of the chairman and managing director (CMD) and
other directors, frequency of the board meetings, and the board process. The act provides for a
15-member board of directors with eight directors appointed/nominated by the government
consisting of the CMD, 2 full-time directors, two government officials, and three experts
(including one from state financial corporations) having special knowledge or professional
experience. Out of the remaining seven members, three directors are nominated by the three
largest shareholding institutions, banks, and insurance companies owned or controlled by the
central government, while four are elected by the public shareholders or alternatively, can be co-
opted by the board. In view of the growing focus of SIDBI on financing MSMEs, an
entrepreneur drawn from this sector is also represented on the board of SIDBI. As of March 31,
2010, the board comprised eleven directors, including two whole time directors, the CMD, one
deputy managing director (DMD) and an MSME entrepreneur.
The board approves all policy guidelines, including loan, investment, and nonperforming-asset
management policies. Periodic reviews on important aspects of the business such as annual
business plan, annual resource mobilization plan, review of operations, asset liability
management, fixing of concentration limits, review of exposures under money market
operations, review of quarterly and annual financials, and review of nonperforming assets are
placed before the board at set frequencies. SIDBI has issued detailed guidelines on fair practices
code for lenders (which is part of the project‘s OM).
SIDBI has constituted four committees of the board: the Executive Committee, the Audit
Committee, the Risk Management Committee, and the Committee for Supervision of State
Finance Corporations. Among other things, the Executive Committee, which meets regularly,
considers approvals of credit proposals above a certain threshold limit, including microfinance
proposals. The Audit Committee (which typically meets every other month) provides guidance
on matters related to finalization of accounts, observations from RBI inspections, and so forth.
The Audit Committee also oversees the Audit Department‘s functioning and reviews its major
operations. The Risk Management Committee lays down the policy and strategy for integrated
risk management for SIDBI. At the operational level, SIDBI also adopts a committee system for
the exercise of delegated powers by executives to approve credit lines, settle impaired assets, and
carry out other promotional and developmental activities at the head office, zonal offices, and
branches. SIDBI also has a post-approval reporting system to the next higher level. The
Executive Committee handles approval of credit lines above the delegated powers of the Central
Credit Committee (headed by the CMD). There are also delegations of approval limits at various
levels (see table below). Decisions of the committees are reported to the board by way of
submission of minutes. Apart from the above committees, there are Central, Zonal, Branch
Credit, and Settlement Committees to look into credit, settlement, and promotional and
developmental assistance proposals.
59
For microfinance, the board-level Executive Committee, headed by the CMD and including other
directors, is responsible. MFI practitioners and senior management officials of SIDBI advise
SFMC on all policy issues.
Current Delegation of Powers at SIDBI for Credit Sanctions
Committee Members Sanctioning powers35
CCC-II-CMD
CMD-Chairman
Executive Director (ED)
CGM-Credit
CGM-Risk
> Rs 30 crore up to Rs 45 crore
CCC-II-DMD
DMD-Chairman
ED
Two CGMs
> Rs 22.50 crore up to Rs 30 crore
CCC-II-ED
ED-Chairman
CGM-Credit
CGM-Risk
CGM-Audit
> Rs 10 crore up to Rs 22.50 crore36
Organizational structure
The CMD is the chief executive officer, vested with the overall management of SIDBI. He is
assisted by up to two DMDs (currently one), under whom all the head office departments except
the Vigilance Department function. The Vigilance Department, which deals with no operational
business, is headed by an executive director, who reports directly to the board. SIDBI‘s head
office functions are managed from two locations, namely, Lucknow and Mumbai. Head office
departments are organized on functional lines: Business Planning, Resource Management,
Credit, Development Financing Institutions (Refinance), Asset Recovery, Risk Management,
Microfinance (SFMC), Corporate Accounts, Human Resources Development, Information
Services, Legal, Management Information System, and Internal Audit. A nodal office functions
at Delhi to oversee project management for the SME project. The key departments are headed by
CGMs.
The SFMC head office at Lucknow is headed by a CGM and is supported by a general manager
(GM), one deputy general manager (DGM) and three assistant general managers (AGMs) (also
see diagram). One AGM heads the Processing Team for loans, equity, and grants, with thrust on
maximum investment under SIDBI Growth Fund for MFIs. Three AGMs coordinate and monitor
the loan accounts and equity and grant cases in their respective geographical regions. The other
duties assigned to them are: (i) collaboration with donors (currently IFAD and DFID); (ii)
coordination with various authorities; (iii) nodal offices to meet statutory requirements such as
the RTI Act; (iv) grievance redressal; and (v) updating manuals. SMFBs are headed by
GMs/DGMs/AGMs who are supported by other operating staff.
35
Funded facility per borrower (including convertible term loan). 36
Limits up to Rs 10 crore considered by the Zonal Credit Committee.
60
SFMC Organizational Chart37
Credit Appraisal
A Credit Manual describes all the procedures, policies, and processes in place at SFMC. MFIs
seeking assistance from SIDBI and fulfilling the eligibility criteria are required to submit the
prescribed application form together with the documents to the branch/regional offices. On
receipt of the application from the MFI, pre-sanction due diligence visits aimed at gaining an in-
depth understanding of the MFIs activities are undertaken by either the SIDBI branch/zonal
office or, where needed, a head office staff. A check on the borrower based on Know Your
Customer (KYC) guidelines is also undertaken.
As a supplementary input and to get an independent view on the financial and organizational
strength of the MFI, a capacity assessment rating with an independent agency is conducted. The
use of external ratings was a practice that SIDBI initiated in 1998–99, being one of the first
wholesale lenders, globally, to promote this. SIDBI‘s appraisal system (described below)
therefore captures best practice elements, and the use of ratings conducted by professional
agencies pioneered in the late 1990s has helped create a competitive, specialized microfinance
rating industry in the country, while strengthening the appraisal process used at SIDBI.
Based on the inputs received at the stage of pre-sanction due diligence and the capacity
assessment rating, a detailed credit appraisal is undertaken. The appraisal process is robust and
covers among other things: (i) organizational profile; (ii) governance and management; (iii)
operational methodology; (iv) operational highlights; (v) financial highlights, including key
financial ratios; (vi) details of associates/sister institutions; (vii) sources of funds; (viii) inputs of
37
This organizational chart is a dynamic document, and subject to change as per business needs.
General Manager
(Head Office)
Dy General Manager
Asst. Manager
GM/DGM/AGM*
(SFMB)
Asst. Manager
Asst. General
Manager
(Processing Team)
Asst. General
Manager
Managers Asst. Manager
Dy. General Manager
Asst. General
Manager
Asst. General
Manager
Asst. General
Manager
Lucknow
Asst. Manager
Guwahati
Chennai
Kolkata
Bhubaneswar
Bangalore
Hyderabad
Chief General Manager (CGM)
*Specialized Micro Finance Branches
61
nominee director on the board of the assisted entity (if it is an existing entity and has a nominee
of SFMC on its board); (ix) capacity assessment rating and any specific points of concern
expressed by the rating agency and the credit appraising official‘s comments thereon; (x) present
credit proposal, purpose, and comments thereon; (xi) highlights of financial projections; (x)
compliance with credit policy norms, including exposure norms, confidential opinion received,
and adherence to KYC and anti-money-laundering (AML) norms; (xi) assessment against key
benchmark norms and peer group comparison on key ratios;38
(xii) risk-mitigation steps
proposed; (xii) interest rates; and (xiii) key conditions, including end use of funds, term of
repayment. The process entails a due diligence by SIDBI‘s own team (at SFMC), including
through the branch offices, and is vetted through a well defined committee system (as outlined in
the OM) and, as mentioned above, typically also involves a comprehensive external rating
undertaken by a third party.
Loan Sanction and Disbursement
SFMC‘s sanction process is decentralized to committees at various levels, depending on the
volume of loan sanctions and exposure that include branch office, zonal office, and head office.
Loan Monitoring
Each borrowing entity is required to set up a Project Advisory Committee (PAC) to monitor the
implementation of the project in consultation with SIDBI. Each PAC consists of one official
from SIDBI and three or four officials from the MFI. The PAC meets quarterly and on an as-
needed basis. Monitoring at the SFMC head office level aims to capture on an ongoing basis
asset quality, rating migrations, stressed assets, assets causing concern, exposure norm,
performance benchmarks, and so forth.
Zonal offices/branch offices also undertake semiannual visits to the offices and field areas of
MFIs, more frequently if there are issues with MFIs. Based on need, a system audit and a
portfolio review are also undertaken.
Risk management at SFMC
SIDBI has a well-defined risk management strategy for its microfinance operations that has
evolved and been fine tuned over the 15 years or so of its experience of operating in this sector.
In terms of credit risk management, SFMC uses the following tenets: (i) use of capacity
assessment ratings/internal ratings in the decision-making process for lending; (ii) risk control
through implementation of exposure-limit frameworks for different segments of borrowers
(limits are both in absolute terms and in terms of relative exposure of SIDBI to a particular MFI);
(iii) implementation of the processes to ensure that the initiative to increase lending by
innovation in products, target clients, and so forth, does not lead to deterioration of the asset
quality of the Bank's portfolio—this centers on post-disbursement monitoring and follow-up,
including through participation in an MFI PAC by SFMC branch staff; and (iv) installation of an
enabling framework capable of grading the risk and eventually linking pricing to internal ratings
as suited to the SFMC dispensation requirements. The OM provides more details on this.
38 Cost ratios, sustainability ratios, weighted-average borrowing costs, portfolio quality, and staff productivity ratio.
62
The present credit risk–mitigation strategies in vogue would be continued, and they are primarily
being applied at two levels:
At the transaction level (support to specific MFIs), efforts are made to identify critical risk
factors, and suitable mitigation measures are explored and stipulated, wherever possible. At
the MFI level, the effort during the appraisal is to identify the key ―risk drivers,‖ that is, the
causal factors that result in the risk occurring (for example, poor portfolio management, poor
internal control) and result in ―risk events,‖ that is, undesirable outcomes (for example, high
portfolio at risk). A detailed risk-mitigation framework is being prepared by the department
along with a risk rating model for the objective of grading of risk. This could, over time, if it
provides good results, become the main basis for an integrated rating-cum-appraisal exercise.
At the portfolio level, SFMC has been following a strategy of exposure management,
maximum funding limit, and prudential caps on credit exposures to the MFI borrowers.
Flow of Funds
IBRD: IBRD project funds will flow directly to SIDBI, with a guarantee from GoI. An option
will be available to SIDBI, if required, to open a new bank account in State Bank of India, New
York to receive the reimbursements of eligible expenditures under the project.
IDA: Although IDA funds will flow to GoI, SIDBI will be the implementing agency for activities
supported by IDA. These will include Components 2 and 3 as well as blend IDA/IBRD support
for Component 1.
Fiduciary and Monitoring Implementation Arrangements
Arrangements for M&E, reporting, financial management, fiduciary oversight, to be used under
the project have been agreed. An OM has been prepared by SIDBI. The OM includes, among
other things, the agreed financial management and disbursement arrangements, procurement
guidelines, and a detailed framework for the continuous measurement and monitoring of
outcomes and a Governance and Accountability Action Plan (GAAP, below), which will be a
key element in ensuring effective implementation.
Arrangements have been put in place to ensure intensive project supervision, covering FM and
procurement aspects, with semi-annual supervision missions. The supervision team will draw on
expertise from the Bank, as well as external experts, as needed. Discussions with other
concerned development partners operating in the microfinance sector will be held to facilitate
effective coordination and communication to take stock of implementation and results.
SIDBI is fully committed to enhancing transparency under the project. Besides the on-demand
disclosure of information, SIDBI has proposed to initiate proactive (suo moto) disclosures that
cover all key documents related to the project and more broadly to its overall microfinance
operations. SIDBI‘s website will capture the project (including project audit reports and FM
reports) and other microfinance-focused activities. SIDBI further intends to enhance disclosures
to fully comply with provisions of the RTI Act 2005, including section 4 of the act on proactive
disclosures, and currently uses a system whereby a periodic report on RTI compliance is
63
presented to its board, including information on the nature of queries, status of resolution, note
on timeliness of response, and so forth. Central public information officers and an appellate
authority structure have been defined and are assigned to performing their roles.
All Bank-financed project funds allocated to Components 1, 2, and 3 will be disbursed on the
basis of IUFRs evidencing actual expenditures on the various components and activities of the
project. IUFRs will be submitted on a quarterly basis, but SIDBI would have the flexibility to
seek reimbursement earlier than the quarterly intervals by submitting reports for shorter periods.
Retroactive financing up to an amount of 20 percent of project funds will be made available for
all categories of eligible expenditures incurred after July 1, 2009.
Governance and Accountability Action Plan (GAAP)
Underpinning all good governance practices and efforts in the GAAP is the focus of the project on
promoting sustainable yet responsible finance. Key elements of responsible finance initiatives,
supported under Component 2 and through inter-linkages/conditions with Component 1, are
transparency, promotion of fair practices, improving disclosure, information sharing and
strengthening management and governance. The GAAP thus draws from the basic project design
and has been compiled together with the Project Appraisal Document and the Operations Manual in
order to ensure that this does not remain a stand-alone document but is mainstreamed throughout
the operational processes, the institutional structure for decision making at the apex and partner
organization levels, the modalities of delivery of project activities, recruitment procedures of staff,
the procurement and financial management aspects and overall design features.
Overview of the GAAP
The GAAP described below builds upon existing governance and accountability elements that
are already integrated into the design of the project. The GAAP is constructed around the
following key principles:
1. Institutionalizing governance and accountability systems that will govern project
implementation;
2. Reducing complexities related to institutional arrangements for overall management,
monitoring and implementation of project;
3. Developing simple guideline and procedures that the project will be using for implementing
the project activities; and
4. Deployment of competent human resources for implementation of project activities.
The table below describes the potential risks, the degree of risks, the mitigation measures and
residual risks and the status/milestones for the project implementation phase. While overall risks are
moderate, the following key governance risks will need particular focus: (i) financial management
risks at the MFI level; (ii) risks related to over-fast growth and lack of capacity of MFIs to handle
this, leading to fall in quality of lending by MFIs; and (iii) potential external interference in
microfinance. These risks will be reviewed to determine how they may have changed during
implementation and allow the team to focus implementation support resources on the evolving
risk areas.
64
Governance and Accountability Action Plan
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Policy and
external
environment Non-NBFC
MFIs could be
subject to a
new regulation
that could
adversely
affect
operations. Risk: L
While most of microfinance is undertaken by NBFCs that are already
under a well defined regulatory framework, other MFIs could be
subject to a new regulation that is under consideration by GoI.
The contours of this regulation are not fully known.
The risk of poor regulation being introduced is low given that
GoI‘s intent has been to facilitate microfinance. Nonetheless
SIDBI has been, and will continue to be, engaged as one of the
key stakeholders in the discussions with GoI, representing sector
views.
Risk after mitigation: L
SIDBI: through
participation in
microfinance
sector
discussions with
GoI; The Bank: to
review progress,
if any, through
discussions with
SIDBI and GoI
during
implementation
support missions
Regular consultations between
SIDBI, GOI and other NBFCs
are ongoing;
In 2006, an Options policy note
on microfinance regulation was
done by the Bank;
Discussions with GoI during
implementation support missions
will update progress, if any, on
regulatory policy/dialogue.
Interference
by
stakeholders
external to the
project
GoI has formally recognized and appreciated the role of
microfinance sector through various budget announcements and
otherwise.
SIDBI‘s autonomous governance structure, legal status and
independent board of directors, protects its operations from
external interference in its day-to-day functioning.
The potential for imposing interest rate ceilings or intervening in
other counterproductive ways is mitigated by the fact that most
MFIs are under the regulatory purview of the Reserve Bank of
India, which takes decisions on policy matters independently and
has consistently maintained a policy of market-determined interest
SIDBI: through
implementing
the project’s
components
supporting
responsible
finance
initiatives will
help mitigate
this risk
SIDBI has demonstrated its
commitment to promoting
transparency in the microfinance
sector by agreeing to help
through the establishment of an
India microfinance platform
where key financial indicators
(including interest rates),
outreach and other data on
responsible finance practices will
be reported;
The following timeline for
65
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: S
rates. Furthermore, the project will support initiatives on
transparency and governance, in addition to increased outreach in
under-served areas, which should help obviate risks arising from
perceptions of over-aggressive or high cost lending.
The mitigation measures will center on those aspects of SIDBI‘s
implementation which focus on responsible finance.
Risk after mitigation: M
establishment of the data
reporting platform follows:
By June 30, 2010 - Stakeholder
Consultations by SIDBI with
MFI‘s regarding data reporting
requirements and establishment
of an India microfinance platform
and carry out dialogues /
discussions with MixMarket
International regarding
possibilities of collaboration.
By December 31, 2010 -
Completion of detailed analysis
and development of TORs for the
software and data platform and
for contractual arrangements to
design, develop, operate, and
maintain the India microfinance
platform;
By June 30, 2011 – Finalization
of contractual arrangements with
technical partner and consultants
to design, develop, and maintain
the India microfinance platform
platform;
By January 1, 2012 – Formal
launch of the India microfinance
66
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
platform;
Implementation of data reporting
requirements into the eligibility
criteria for MFI participation in
project financing is indicated
throughout the project period by
Component 2;
Progress to be tracked against the
targets set in the Results
Monitoring Framework (PAD
annex 3) which establishes
targets for numbers of MFIs
reporting to the India
microfinance platform, carrying
out COC Assessments,
participating in the Lenders
Forum, expanding into under-
served areas, etc.
Consistently
high growth
rates and
possibility of
over-financing
by MFIs,
especially in
saturated
markets
High growth rates could lead to potential impact on portfolio
quality. This risk will be mitigated through use of the ‗incentive
approach‘ taken in the project, which links funding to MFIs under
Component 1 to actions centered on more responsible finance
supported under Component 2.
For example, MFIs, particularly large MFIs, could be supported if
they are willing to commit to a certain growth rate in under-served
areas of the country. This will help mitigate the risk of over-
financing in saturated markets and also support expansion in
SIDBI SIDBI‘s commitment to
promoting responsible finance
(including responsible growth) is
being promoted through the
establishment of an India
microfinance platform where key
financial indicators and outreach
data—including data on outreach
to under-served areas, default
rates and portfolio at risk (PAR)
67
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: S
under-served areas, which will lead to more balanced growth.
Further, MFIs supported under the project will commit to share
information on their operations, financial performance, outreach,
branches, clients, interest rates, etc to the microfinance
information platform that would be supported through Component
2. This will directly address issues related to information on
outreach by location for each MFI which itself will help other
MFIs decide on expansion plans.
Through Component 2, the project will seek to promote and
monitor the compliance with the Sa-Dhan Code of Conduct or any
other credible Code of Conduct that has been developed.
Risk: M
will be reported. Tracking this
data will reduce the risk of over-
financing and over-heated
growth;
CoC Assessments for a sample of
partner beneficiary MFIs will be
undertaken by third parties to
assess the degree of MFI
compliance with responsible
finance objectives;
Progress will be tracked against
the targets set in the Results
Monitoring Framework, PAD,
annex 3 which establishes targets
for the percentage of beneficiary
MFIs reporting to the India
microfinance platform, Carrying
out CoC Assessments,
participating in Lenders Forum,
rates of expansion into under-
served areas, etc.
Institutional
and HR
Issues
Implementation
capacity of
SIDBI
SIDBI‘s capacity has been assessed as part of the project
preparation.
SIDBI has been operating in the microfinance sector for many
years and was a pioneer in terms of financing to MFIs, a model
which today has become the predominant model in microfinance
The Bank; SIDBI will
undertake
measures to
continuously
seek to further
enhance the
capacity of its
A Bank Operational Policy –
OP8.30 (which covers a
corporate governance,
management, financial
performance and systems review)
and OP10.02 was completed
during project preparation by the
68
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: M
in India.
During this period it has obtained excellent experience of lending
to MFIs. It has also demonstrated very good project
implementation capacity, including in M&E
In the Bank-financed SME projects (US$120 million followed by
additional financing of US$400 million, the latter currently under
implementation) and other donor projects including those of DFID
and IFAD.
SIDBI has prepared an OM, where it has put together its various
operating practices developed over the years, and where the Bank
project specific implementation arrangements are reflected.
In the OM, there is significant emphasis placed on risk mitigation
through definition of clear eligibility criteria, measures such as use
of external ratings to appraise MFIs, post-disbursement checks,
onsite visits, etc.
The fact that SIDBI has been an existing partner has also provided
additional assurance and has meant that SIDBI is quite familiar
with the functioning and requirements of working with the Bank;
Risk after mitigation: L
staff during
implementation
as part of
Component 3
activities.
Bank. SIDBI and a sample of 11
MFIs reviewed were found to be
compliant;
By June 30, 2011 Terms of
Reference will be completed by
the Bank in consultation with
SIDBI for a follow up
assessment that will cover a
review of governance,
procedures, appraisal and
business strategy will be
undertaken within the first two to
three years of implementation;
Within the next two to three
years of implementation,
capacity building will be a key
activity that will be undertaken
under the Component 3 of the
project, progress on which will
be tracked as part of the Results
Monitoring Framework (PAD
annex 3) and reviewed during
implementation support missions.
Monitoring and
Evaluation
Capacity
With its 15 years of experience in microfinance and through
implementing the earlier DFID and IFAD projects, SIDBI has
developed strong capacity to report on project progress, including
through participation in MFI level implementation and monitoring
SIDBI will have
primary
responsibility
and the Bank
will visit the
Agreement on basic PDO
indicators has been reached and
agreement on the entire results
framework was reached during
69
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: M
committees.
Agreement on the proposed key outcome indicators has been
reached between SIDBI and the Bank and baseline numbers have
been established.
Data for the project and the progress of microfinance will be
captured through multiple sources and triangulated to the extent
possible, including through using: reported data from SIDBI
collected from its well developed MIS system; data from MFIs;
data collected by the independent agency that will be responsible
for the India microfinance platform (under Component 2); project
and external auditors; Bank staff through implementation support
missions; and the long term impact assessment that will be
undertaken by an independent, impact evaluation agency (under
Component 3).
Risk after mitigation: L
field during
implementation
support missions
project appraisal;
Baseline numbers are identified
and generated from existing data;
The India microfinance platform
will report on data which will be
collected and analyzed by an
independent agency to be
identified by June 30, 2011 under
Component 2;
Apart from the checks and
balances in place within SIDBI to
verify data including through
SIDBI staff‘s participation in
project advisory committee
meetings at the MFI level, SIDBI
selectively conducts portfolio
audits wherever required which
provides an additional check on
reported data;
In addition, the project audit will
be an added layer of verifying
information and the Bank will
visit the field during
implementation support missions;
By May 31, 2010 – Detailed
TORs for the baseline survey for
70
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
the impact evaluation will be
drawn up by SIDBI;
By July 31, 2010, the contract
for consultancy services for the
baseline survey will be finalized
for mobilization and
commencement of survey and
field work;
An impact evaluation completed
by June 30, 2015 will be
undertaken by an independent
agency during project
implementation (Component 3).
Transparency
and disclosure
of the project
Implementation support under Component 3 will provide funding
to enhance the quality and quantity of project information which
will be available on the SIDBI website.
All tenders and contract award notices will be displayed on the
SIDBI/SFMC website and award notices will be published on the
website on a quarterly basis.
Audited project financial statements will be displayed on this
website.
The project will be subject to all provisions as outlined in the RTI
Act for which, SIDBI has strong capacity internally (refer annex
6).
Component 3 will support training of SIDBI‘s microfinance staff
SIDBI
SIDBI is in fully compliant with
Right to Information laws.
Compliance is outlined in this
annex (above) ;
Website enhancement will be
initiated by the time of project
effectiveness;
Basic project information will be
available on the website within a
month of effectiveness and
additional project details would
be added to the website within
three months of the project
71
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: M
on the RTI (PAD Section C2).
Risk after mitigation: L
effectiveness;
All project financial statements
will be posted on the website
during project implementation;
During project implementation
key SFMC staff would receive
further training on the RTI
requirements under Component
3.
Technical and
Management
Capacity at
MFI level
While the Indian microfinance sector‘s capacity to undertake
microfinance activities has been demonstrated by the phenomenal
growth, the quality of the growth and other financial and outreach
indicators, nonetheless, there are differing capacities amongst
MFIs.
SIDBI places considerable emphasis on assessing capacity of
MFIs to on-lend through the capacity assessment ratings that are
undertaken.
Further, through this project, by providing quasi-equity/equity
funding for supporting MFI operations, capacity development can
be undertaken, if this is a need for a particular MFI.
In addition, where merited, funding under Component 1 will be
phased based on actions completed by MFIs on enhancing their
capacity.
Thus, both funding for and incentivizing capacity building of
SIDBI,
including
through its role
as implementing
agency of the
proposed DFID
PSIG project
and the Bank
A detailed assessment of MFI
capacity is an integral part of
SIDBI methodology, which has
been reviewed by the Bank and
found to be robust. This includes
an assessment of any capacity
building needs, which, if found to
be present, could be built into the
loan agreements as required;
Third party ratings of MFI ability
and creditworthiness are an
integral part of the appraisal
system and will continue to be
used during implementation;
The Bank has assessed a sample
of MFIs from different tiers to
assess their governance and
72
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: S
MFIs will be facilitated through the project design.
Eligibility criteria have been agreed and the selection of MFIs
under the project is likely to centre mostly on larger and mid-size
MFIs (Tier-I, Tier 2) which have greater demonstrated capacity.
Funding from the project will only be provided to those MFIs that
are investment grade or above;
Lastly, there are sufficient other sources of funding for capacity
building and many MFIs are also themselves funding
enhancements in their management capacity as required. Amongst
the other sources of funding is the DFID PSIG project which will
be implemented by a consortium of institutions that includes
SIDBI.
Risk after mitigation: M
management capacity and found
that broadly such capacity exists
and that SIDBI‘s appraisal
system can capture areas for
further development, where
necessary.
Quality of
procedures
Selection of
MFIs
Over its long years of lending to MFIs, SIDBI has developed an
elaborate mechanism of appraisal.
This entails, amongst other steps, due diligence by SIDBI officers
of the MFIs‘ management and technical capacity, track record,
audited financial statements, management systems and
governance.
A key innovation is the use of an external, third party credit rating
and capacity assessment rating process, followed by a detailed,
internal review by SIDBI management.
This is also borne out by the excellent portfolio quality of SIDBI‘s
SIDBI and the
Bank SIDBI has developed a rigorous
appraisal system to select MFIs.
The appraisal system and the
eligibility criteria for selection of
MFIs are captured in the OM.
The Bank reviewed SIDBI‘s
appraisal system and found it to
be satisfactory;
As part of the MTR, the Bank
will review the appraisal
procedures of SIDBI for selecting
MFIs.
73
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: M
MFI portfolio and the growth trajectory that this is on.
Risk after mitigation: L
Selection of
beneficiaries
by MFIs
Risk: M
The increased range of financing provided through the project
(equity, quasi-equity, longer term debt financing) to MFIs is
aimed at increasing product innovation to reach the financially
excluded while maintaining reasonable interest rates on the
finance provided.
Clear definition of under-served areas, agreement on emphasizing
financing to such areas (through inter-linking Components 1 and
2) and agreement on monitoring mechanisms (for impact
evaluation) to be used to ascertain targeting of clients, drawing on
lessons from successful programs in India, Bangladesh, Indonesia,
etc, have been agreed and will be used in project implementation.
Further, MFIs themselves have developed clear criteria and have
fine tuned mechanisms for identifying clients. This is monitored
by SIDBI as part of its current post disbursement checks and will
continue to be done during the implementation phase of the
project, including through the impact evaluation.
Risk after mitigation: L
SIDBI, through
its MFI
appraisal,
impact
evaluation and
through
reporting on the
Results
Framework and
MFIs through
their monitoring
and selection
mechanisms.
Terms of Reference for the
impact evaluation will be agreed
by effectiveness;
During project implementation
SIDBI, through the impact
evaluation exercise which will be
undertaken by a professional,
third party agency and will
involve stakeholder and client
consultations and interactions,
will review beneficiary selection
and provide insights into client
profiles through a baseline survey
(within year 1) and repeat
surveys (around mid-term and
end-term);
In addition, the Results
Framework entails reporting on
clients which will be reviewed by
the Bank and SIDBI during
implementation support missions.
Mis-utilization
of loans by
beneficiaries
Over the last 15 years, MFIs have developed and significantly
improved their mechanisms for checks and balances on the use of
SIDBI A review of the systems of
checks used by MFIs was
undertaken as part of the OP8.30
74
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: M
funds.
This is partly due to the fact that the main source of funding
microfinance in India has been in the form of loans from
commercial banks, as opposed to soft funds from donors (as has
been the case in many other countries). The former source of
funds has meant a greater focus on fiduciary issues given that
commercial banks themselves need to undertake similar checks for
the direct lending that they undertake.
These checks include post-disbursement checks by MFI credit
officers, horizontal checks by members of the joint liability
groups.
Further these are supplemented by sample checks by lenders,
including checks undertaken by SIDBI and those by auditors
appointed by lenders or auditors undertaking MFI entity audits.
Lastly, given that the loans to clients carry a commercial interest
rate, clients themselves have an incentive to ensure appropriate
utilization (and repayment) to have a chance of repeat financing
over time.
Risk after mitigation: L
review and found to be
satisfactory for project purposes;
SIDBI‘s post disbursement
review and monitoring system
that is detailed in the OM has
also been reviewed and found to
be robust;
The Bank will rely on SIDBI to
continue to implement its post-
disbursement review and
monitoring system throughout
implementation of the project.
Financial
management
Risk: S
A detailed assessment has been undertaken and the risks and
mitigation is described in Annex 7.
Risk after mitigation: M
SIDBI, the Bank OM includes FM arrangements;
The Bank has completed FM
appraisal.
Procurement
under the Procurement risks and their mitigation are described in detail in SIDBI will be
responsible for SIDBI has already identified the
procurement specialist from the
75
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
project
Risk: M
Annex 8.
Risk after mitigation: L
ensuring
procurement
arrangements
are
implemented; The Bank will
be responsible
for reviewing
during
implementation
SME project who will provide
cross support to SFMC as
required;
SIDBI has also appointed a nodal
person for procurement within
SFMC;
Through the capacity building
funding under Component 3,
SIDBI will train additional staff
on Bank procurement as the need
arises during project
implementation;
During implementation, the Bank
will undertake post and prior
reviews in line with the
arrangements reflected in Annex
8.
Inadequate
environmental
and social
(E&S)
safeguards
Environmental and social risks are estimated to be low given the
nature and small size of the loans that are ultimately provided to
clients.
A negative list has been formulated and agreed with SIDBI.
A nodal person in SIDBI‘s project management team responsible
for oversight, coordinating implementation of the framework, and
for compliance with the monitoring and reporting requirements
agreed with the Bank has been identified.
The Bank and
SIDBI The Bank and SIDBI have agreed
on the provisions of the
safeguards framework and the
negative list has been disclosed
by SIDBI;
The OM has been prepared and
reflects the agreed arrangements;
During implementation, review
76
Potential
risk/issue Existing Status or Proposed Mitigation Measures Responsibility Timeline/ Milestones
Risk: L Risk after mitigation: L of adherence to agreed
arrangements will be undertaken
by the Bank on an ongoing basis.
Grievance
redressal and
complaints
handling
system
Risk: M
The grievance redressal arrangements include procedures for users
to access to register complaints online and through branches.
A clear allocation of grievance redressal authority and an appellate
authority have been defined at various levels of operations
(including at the branch level).
These arrangements are also prominently displayed on SIDBI‘s
website and at each branch.
At the MFI level the use of the microfinance sector‘s code of fair
practices already includes a section on grievance/complaint
redressal mechanism, the adherence to which will be monitored by
SIDBI (Component 2).
During implementation support missions review of progress in
handling complaints, if any, will be undertaken.
All guidelines and documentation including bidding instructions
will carry the details of complaints management system. The
project will be subject to all provisions as outlined in the RTI Act.
Risk after mitigation: L
The Bank and
SIDBI
SIDBI‘s existing grievance
redressal mechanism is well
developed and outlined in annex
6;
At appraisal the provisions were
agreed and reflected in the OM;
Further monitoring will be
undertaken on an ongoing basis
during implementation by the
Bank.
Overall risk M
Overall risk after mitigation
M
H=High; S=Substantial; M=Moderate; L=Low
77
It is important to note that the above presented GAAP is a live action plan and is not a onetime plan; it will be monitored and reviewed
periodically and firmed up based on inputs provided during the internal reviews, from team members and through discussions with SIDBI.
Monitoring the GAAP: The milestones and timeline indicated in the GAAP above will be monitored by the Bank Task Team on a
regular basis during implementation support missions. Earlier identified key areas or evolving issues related to governance, if needed, will
be taken up as focus issues for further diagnosis under the process monitoring system or through administration of an independent external
evaluation. These systems will not only look at issues from the project perspective but will assess the issues holistically involving all
stakeholders, including the World Bank.
Cost for implementation of GAAP: The costs for governance related activities are integrated across the various project activities of the
different components. For example, Component 2 to be implemented by SIDBI, amongst other things, alleviates external risks.
Component 3 (total budget of US$5 million) includes funding for SIDBI‘s capacity enhancement to keep up with trends in microfinance
and further develop the skills of its staff on an on-going basis. Component 3 also includes budgets for implementation activities, which
will cover a variety of activities including some reflected in the GAAP, such as the M&E work and undertaking an impact evaluation. In
addition, sufficient resources will be allocated to the World Bank implementation support mission budget for allowing appropriate degree
of focus on following up on actions listed above.
78
Annex 7: Financial Management and Disbursement Arrangements
India: Scaling Up Sustainable and Responsible Microfinance Project
Summary of Financial Management Assessment
This project will be implemented by a financial intermediary, the SIDBI, through its
microfinance-dedicated department, SIDBI Foundation for Microcredit (SFMC). SIDBI will
provide funding support to various MFIs by way of debt/sub-debt for on-lending to microfinance
beneficiaries and equity/quasi-equity for the operations of the MFIs. SIDBI is currently
implementing the SME Financing and Development Project (additional financing), and a review
of their FM systems was conducted at appraisal. As part of the preparation activities of the
project, an assessment of SIDBI/SFMC‘s FM and oversight systems was done. This included a
detailed review of SFMC‘s methodology and system of appraising/sanctioning and monitoring of
financing proposals of MFIs from the view point of the requirements of the Bank‘s policy OP
10.02. The present FM systems at the level of the principal implementing entity (SIBDI) are
adequate for financial reporting and oversight on the project.
FM Strengths, Weaknesses and Mitigating Arrangements
The project has the following strengths in the area of FM:
SIDBI has an adequate operational FM system and framework for carrying out the
functions under the project, including budgeting, accounting, and reporting for project
resources, expenditures, and auditing.
SFMC has defined the appraisal criteria for selection of MFIs for financing proposals,
including access conditions, thresholds of loan sanctioning powers, and post-sanction
monitoring of loan accounts. These are formally documented in SIDBI‘s Credit Manual
for Micro Credit (which has been finalized and made effective), and sections relevant to
the project have been included in the OM for the project.
SIDBI has prior experience of dealing with the Bank and hence is exposed to the Bank‘s
policies and procedures. It is proposed to use the current mainstream FM systems of
SIDBI for the project.
The project‘s FM arrangements—including fund flow, accounting and reporting, disbursement,
and auditing—have been outlined in the OM. The OM was agreed and finalized at negotiations.
SIDBI will ensure that during project implementation the provisions of the OM are complied
with in letter and spirit. In case any material change is required to the OM, SIDBI will seek
consent of the World Bank prior to implementing the change.
In addition, SFMC‘s capacity to appraise the FM systems of the beneficiary MFIs from an OP
10.02 perspective was assessed through a review of a sample of MFI appraisal files consisting of
a mix of MFIs in all three tiers (Tier 1, 2, and 3). A review of SFMC‘s pre-sanctioning appraisals
of MFIs pointed to certain areas of weaknesses in FM systems of these MFIs. These were based
on issues identified in the reports of the credit rating agencies, audit reports, and pre-sanction
visits. Based on these, the Bank FM review identified some areas for improvement that focus on
79
SIDBI‘s system of FM assessment of the applicant MFIs, identification of associated risks,
development of risk-mitigation measures, and monitoring their implementation. The FM review
also highlighted a need for reviewing and monitoring the quality of actual implementation and
ensuring that all the above issues are addressed. SIDBI has formally codified its system of
appraisal of MFI proposals in a Credit Manual.
SIDBI has communicated an indicative pipeline of MFIs proposed to be covered for financing
under the Bank project. The pipeline consists of nine Tier 1, eleven Tier 2 and nine Tier 3 MFIs,
but does not indicate the amounts under these categories. In terms of number of MFIs, 20 out of
a total of 29 MFIs in the indicative pipeline are likely to be from Tiers 2 and 3 (Tier 3 MFIs are
the relatively smaller MFIs whose systems need improvement), and this may have a bearing on
the risk profile of the MFI portfolio under the project. However, given that the Tier 1 MFIs
would be the larger and well-established ones with adequate systems and a higher level of
absorption capacity, in value terms the portfolio may be significantly in favor of Tier 1 MFIs.
The key FM risks and proposed/implemented mitigation measures are discussed in table 7.1.
Table 7.1: FM Risk Assessment
FM Risk Identified
Mitigation Measures
The FM risks may not be identified or
may not be adequately documented by
SIDBI during appraisal of MFI
proposals.
Weak FM systems of MFIs could impair
their capacity to provide fiduciary
assurance on usage of Bank funds and
keep track of a large number of end
beneficiaries.
Determination of mitigation measures
may be generic and/or a specific plan
for addressing the weaknesses and the
expected timeline may not be developed
and agreed upon between SIDBI and the
MFI. SIDBI may impose special
conditions on the MFIs in the terms of
sanction for addressing these
weaknesses, but in the absence of an
agreed plan to resolve issues,
benchmarking and measuring progress
made may be difficult.
Assessment of the MFIs‘ FM systems in
terms of scalability of the operations
may not be accompanied by a strategic
plan to address the gaps.
FM risk assessment of the applicant MFIs is done by SIDBI
during appraisal of the MFI proposals on the basis of Capacity
Assessment cum Rating done by independent rating agency/s
supplemented by audit reports on the financial statements of
MFIs by independent auditors, and the risk assessment
conducted by SIDBI‘s appraising office including its Risk
Assessment Department (in applicable cases). Identified
critical FM risks are documented in the Detailed Appraisal
Note of SIDBI whereby this process will be further
strengthened.
Based on the critical risks or weaknesses identified during
MFI appraisal, SIDBI imposes suitable conditions on the MFI
to address the risk/weakness. SIDBI‘s appraisal procedures
require the appraising SIDBI office to discuss the weaknesses
observed by rating agency and obtain an undertaking from the
MFI that the same shall be addressed to the satisfaction of
SIDBI as per discussions held / strategy agreed. This specific
clause has also been included in the OM to cover critical
risks/weaknesses identified during appraisal. SIDBI agrees to
strengthen this process further by agreeing on a specific action
plan with the MFI to mitigate the identified FM critical
risks/weaknesses, which will form part of the Detailed
Appraisal Note and the terms of sanction.
System of monitoring progress of compliance with the terms
and conditions of sanction and ensuring end use of funds is in
place and documented in the Credit Manual and compliance is
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FM Risk Identified
Mitigation Measures
Progress made by the MFI in the risk
areas including compliance with
specific condition/s imposed by SIDBI
in the sanction note may not be
adequately captured in the documents
generated by SIDBI during follow up
and monitoring.
followed up in the PAC meetings and during post
disbursement visits. SIDBI agrees to further strengthen this
system and ensure that the compliance by the MFI of the
agreed action plan on FM risks is recorded in the disbursement
note and field monitoring visit reports.
Procedures for appraisal, selection and monitoring of MFIs
have been included in the OM which has been agreed at
negotiations. The cases that will be brought under the project
will need to meet the minimum eligibility criteria agreed with
SIDBI and documented in the OM. Compliance by SIDBI
with the above requirements will be reviewed and commented
on by the project external auditors and will be reviewed by the
Bank regularly.
As mentioned above, SIDBI has implemented the mitigation measures and is further undertaking
strengthening in a few areas, details of which are provided above. The OM has also been
finalized and its compliance is a loan covenant. The strengthened appraisal, selection and
monitoring systems are expected to further contribute to the mitigation of FM risks. The progress
of implementation of FM risk mitigation measures was found satisfactory. On this basis, the
overall post-mitigation residual FM risk is assessed as ―Moderate‖. This risk will be reviewed
regularly during the implementation of the project by looking at the effectiveness of these
measures, and the rating may be revised, if necessary.
Implementing Entity
SIDBI will be the nodal implementing agency for the project and will conduct its business
through its microfinance-dedicated division, SFMC. SIDBI is a statutory body incorporated
under the SIDBI Act 1989 as a financial institution/intermediary, and its business domain
incorporates lending to micro, small, and medium enterprises. Overall management of SIDBI is
vested in a board of directors, and for focused attention, four committees of the board have been
constituted: Executive Committee, Audit Committee, Risk Management Committee, and
Committee for Supervision of State Finance Corporations (details are given in annex 6.) SFMC,
established in 1999, is headquartered in Lucknow and is headed by a chief general manager
(CGM) reporting to an executive director. The SFMC will function as the Project Management
Department for the project. The CGM who will be the project director is presently supported by
a general manager (GM), one deputy general manager (DGM), and three assistant general
managers (AGMs). Responsibility for loan processing and monitoring of loan accounts are
segregated among the AGMs. SFMC operates through SIDBI‘s 100 branches, which includes
seven Specialized Micro Finance Branches (SMFBs). Each SFMB is headed by a GM/AGM and
supported by managers/assistant managers (on average, each SMFB has a staff of four or five.)
SIDBI/SFMC‘s main responsibilities/accountabilities under the project will include FM
functions, managing the finances in respect of the technical assistance component of the project,
accounting for the various activities, providing financial reports in the formats agreed, and
providing the overall fiduciary assurance over proper and efficient use of the proceeds.
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Funds Flow and Disbursement Arrangements
SIDBI will initially finance all expenditure from its own resources and seek reimbursement from
the World Bank through IUFRs. IBRD funds under this project will flow directly to a bank
account designated by SIDBI. A designated account will be maintained by GoI with RBI for the
purpose of the IDA financing. The DEA has informed that the Department of Financial Services
(DFS, SIDBI‘s administrative line department) has agreed to pass-on to SIDBI the IDA funds for
the project through its budget. It is understood that DFS will have to make an annual allocation
in its budget and pass on funds to SIDBI as per regular procedures of the GoI. The specific
expenditures that will be claimed against IBRD and IDA will be segregated as per the project
components/subcomponents, reported separately, and accounted for in SIDBIs books under
predefined account codes. Disbursements will be on the basis of actual expenditures as reported
in the IUFRs. Supporting loan documentation, including appraisal notes, sanction letters, end-use
certificates, visit reports, and other documentation will be retained by SIDBI/SFMC (including
the concerned branches) and made available to the project external auditors during their audit
and to the Bank for review during project implementation support missions.
SFMC will draw an annual business plan at the beginning of the financial year. Based on the
drawdown schedule provided by the MFIs, and the expected repayment flows, SFMC will
prepare at least quarterly a cash flow budget and submit it to SIDBI‘s Fund Management
Department, which will provide the project funds to SFMC for on-lending to MFIs.
The framework for eligibility of expenditure for disbursement will be as given in table 7.2.
Table 7.2: Expenditures Eligible for Disbursement
Component Eligible Expenditure Conditions for Eligibility for Disbursement
Component 1 Amount of debt/sub-debt actually
disbursed to, or equity/quasi-
equity investment actually made
in eligible MFIs (that is, MFIs
that meet the minimum eligibility
criteria for funding support to
MFIs) during a particular quarter
The facility is appraised, approved, and disbursed
as per the OM.
In case of debt/sub-debt, monitoring end use of
funds and compliance with the terms of sanction
will continue to be undertaken on an ongoing basis
through the PAC, nominee director on the board of
the MFIs (wherever applicable), post-disbursement
visits, certification by an independent chartered
accountant, regular progress reports by the MFIs,
and through ―flagging‖ against the World Bank
line of credit recorded in the books of account of
SIDBI under predefined account codes.
Equity investment will be tracked through the
MFIs audited financial statements, resolution of
the board of MFI, share certificates in the name of
SIDBI, and filing of statutory returns with the
registrar.
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Component Eligible Expenditure Conditions for Eligibility for Disbursement
Components 2
and 3
Expenditure incurred and paid
for
Expenditure should be duly approved as per
SIDBI‘s delegation of authority, evidenced by
supporting documentation, be incurred for the
project, should not have been claimed from any
other source, and recorded in the books of account
under predefined account codes.
The project external auditors will audit and certify the expenditure incurred and also confirm that
the expenditure claimed on the specific project activities has not been claimed from any other
funding sources.
Financial Reporting
SFMC‘s formal reporting includes half-yearly memorandums to the Executive Committee of the
board on the operations of SFMC and review of the top (20–25) partner MFIs of SIDBI and an
annual memorandum on equity investments. Going forward, SFMC proposes to additionally
submit a detailed review of loans over Rs 500 million (US$ 11 million).
The reporting framework for the project will consist of a quarterly IUFR prepared by
SIDBI/SFMC in a format agreed with the Bank, which would give quarterly, yearly, and
cumulative-to-date actual expenditure incurred, distinguishing the requirement in respect of the
MFI lending and other project components. SIDBI will prepare these IUFRs (on a cash basis)
and forward these to the World Bank within 60 days of the end of each quarter. IUFRs will be
prepared from information generated from SIDBI/SFMC‘s mainstream FM and MIS systems. In
case of Component 1, expenditure will be the actual amount of loans disbursed to or actual
investment in the MFIs. In case of Components 2 and 3, expenditure will mean the expenditure
incurred and actually paid for (that is, advances and liabilities will not be claimed as
expenditure).
The IUFRs will include, at a minimum, the following aspects:
Sources of funds and application of funds (actual expenditures incurred during the
quarter), classified by project components and subcomponents;
Schedules for withdrawal from IBRD/IDA accounts; and
Branch-wise list of sub-loans (debt/sub-debt) and equity investments (equity/quasi-
equity) to the MFIs, including details such as the names of MFIs, dates of sanction and
each disbursement, amount released, and type and purpose of the facility.
The IUFR format, including requirements of supporting documentation, has been finalized and
included in the OM. SIDBI will also submit half yearly audited project financial statements for
the first two years of the project after signing, and thereafter on an annual basis.
Recycling of loans: SIDBI has various lines of businesses: venture capital, microfinance, direct
retail credit to SMEs, and treasury operations. There is a possibility that the recycled funds
arising from repayment of loans by MFIs could be used for purposes other than microfinance
lending. As in the SME Project, SIDBI will provide an assurance that the funds would be re-lent
to MFIs and not diverted for any other purpose. This would be monitored as part of the M&E
83
process based on the growth of the overall portfolio of loans/equity to MFIs made by SIDBI
during the project period, as provided in annex 3 and tracked through SIDBI‘s financial
statements.
Accounting
SIDBI does not have an updated accounting manual. However, it has instructions/guidelines
(including account-closing guidelines and policy guidelines) that are communicated across the
organization through SIDBI‘s intranet. Accounting in SIDBI is based on the accrual and double-
entry system, and financial statements are prepared as per the SIDBI Act 1989, applicable
accounting standards issued by the Institute of Chartered Accountants of India, as well as the
prudential and disclosure norms39
of the RBI. SIDBI has defined policies for revenue
recognition; valuation of investments; foreign currency transactions; asset quality classification;
and provisioning for loans and advances, fixed assets, depreciation, and so forth. The entity
financial statements consist of the balance sheet, profit and loss account, and cash flow
statement, supported by schedules and notes and accounting policies, prepared and presented as
prescribed under SIDBI regulations issued under the SIDBI Act. Financial results are compiled
quarterly, are subject to limited review by SIDBI‘s statutory auditors, and are disclosed on the
website.
SIDBI has established a computerized accounting system,40
and each credit line is allocated
separate general ledger codes to facilitate capturing the sources of funds and the related income
and expenditure disbursements of loans/equity investment, which also helps in distinguishing
transactions under a particular credit line with others. In line with this, account codes for SFMC
are defined (for the present transactions), which enables them to assess its financial and
operational performance. The system is well documented and established, and it is proposed that
project expenditures under the three components will be recorded in the books of SIDBI in
accordance with existing accounting policies and procedures.
The credit line from the Bank, including sub-loans/equity investment, income, and expenditure
will be allocated separate general ledger codes within SFMC, which will facilitate distinguishing
transactions under the Bank‘s line of credit with others. Within the Bank‘s line of credit, the
account codes will also distinguish between the IBRD and the IDA and the three project
components. SIDBI will ensure that all sub-loans/equity investments included in an IUFR are
allocated to the Bank line of credit account code.
The project‘s accounting arrangements have been documented in the OM. For better and
coordinated control over the project finances, SIDBI has designated a nodal officer of the rank of
DGM, from within its full-time staff at SFMC, for project FM functions. SIDBI will strengthen
the FM capacity of the SFMC, so that it is able to comprehensively monitor the Bank project.
39 Including on: capital adequacy, asset quality, provisioning for non-performing assets (NPA), credit concentration,
diminution in investments, restructuring of loan assets and credit exposures. 40
SIDBI‘s maintenance of accounts is computerized, and business applications for functions like branch accounting
(branch-wide GL (general ledger)), refinance, direct credit, bill discounting, trade finance, fixed deposit accounting,
NPA management, and consolidated accounting system for organization wide general ledger are all on a technology
platform. Further, key loan documents are stored on SIDBI‘s intranet.
84
Internal Controls
Appraisal: SIDBI‘s internal controls over financing of MFIs are documented and are in use. Its
latest annual Loan Policy sets the exposure limits according to sector, industries, and group of
borrowers. Individual and group exposure norms have been laid down for the MFI sector based
on SIDBI‘s capital funds and SIDBI‘s overall exposure in an MFI. A separate Credit Manual has
been finalized and made effective. The Credit Manual is comprehensive and covers all kinds of
financing products and defines the processes from appraisal to sanction to post-sanction
monitoring, including delegation of authority. The appraisal note put up before the approving
authority has been standardized. SIDBI has delegated approval of credit lines to committees
established at various levels, depending upon the exposure to the applicant MFI. All appraisals
for loans over Rs 100 million (US$2.2 million) are finalized at SFMC‘s head office. There is also
an established system of post-sanction reporting to the next-higher authority. Loan appraisal also
includes capacity-assessment-cum-rating of MFIs through external professional agencies, risk
assessment by the Risk Management Department of SIDBI (for MFIs with exposure in excess of
Rs 250 million, US$5.5 million), and pre-sanction visits.
Monitoring end use of funds: As per the extant procedure, loan installments disbursed to MFIs
are kept in a separate no-lien dedicated MFI bank account, and its utilization is monitored at least
quarterly. As a risk-mitigation measure, tranched disbursements are made. Delegation of powers
for sanctioning disbursements as well as varying or relaxing the terms and conditions of the
sanction have been defined. Monitoring end use and recommending further release of funds is
done by a PAC at each MFI, with at least one member from SIDBI on the committee, and a
detailed list of beneficiaries is obtained from the MFIs (this list is certified by the MFI‘s statutory
auditor). SFMC officials make end-use visits to a sample of beneficiaries and physically verify
their activities/end use of funds. A Utilization Certificate (UC) from the MFI‘s chartered
accountant certifying the end use of SIDBI‘s loan is also obtained. All MFIs need to submit
periodic progress reports, while larger MFIs also submit a cash flow statement and receivables
report. This existing and ongoing system will be used for the Bank project to provide the
necessary information and fiduciary assurance over the end use of funds. It will be ensured that
all the MFIs funded through the Bank project will provide a separate, detailed, audited UC for
the use of these funds (the minimum content of the UC will be standardized), and the SFMC
officials will visit a sample of beneficiaries and verify the end use of Bank funds.
FM arrangements at the MFI (Subproject) Level
An assessment of compliance of MFIs with the Bank‘s OP 10.02 requirements was undertaken
through examining a sample of MFIs. The review included assessment of SFMC‘s methodology
to appraise the FM arrangements of applicant MFIs, identifying the associated risks, agreeing on
a plan of action to mitigate these, and following up on their implementation, so that the MFIs are
able to provide adequate financial information, including evidence of end use of funds.
The key FM eligibility criteria for participation of MFIs in SIDBI‘s lending programs, as
provided in the Credit Manual, include that the MFI maintains a satisfactory and transparent
accounting, MIS, and internal audit system, and it has its accounts audited by an external auditor
85
annually or is willing to adopt such practices with SIDBI assistance. SIDBI also requires the
MFIs to maintain a separate accounting and monitoring system and competent and adequate
staffing for proper appraisal and intensive supervision for their microfinancing business. SFMC
examines various FM aspects, including internal control systems (and related oversight
arrangements) of the applicant MFIs through pre-sanction visits, capacity assessment-cum-rating
reports, and so forth. SFMC requires that the FM risks identified are documented in a Detailed
Appraisal Note; the appraising office is also required to obtain an undertaking from the MFI that
the identified weaknesses will be satisfactorily addressed as per discussions/strategy agreed.
Follow-up on these is required to be done either by the PAC or SIDBI‘s nominee director on the
board of the MFI (whenever appointed) and SIDBI‘s operational staff during monitoring visits
and while processing disbursements. The FM review of sample MFIs indicated that while basic
systems are in place, there are weak areas, especially in internal controls and audit, that require
improvement. Although SIDBI‘s guidelines elaborate the procedures for assessment of FM
systems and associated risks in MFIs and follow-up, the review indicates some gaps. The review
brought out instances where a specific remedial plan for mitigating the FM risks in MFIs was not
apparent or not agreed with the MFI, the progress of agreed actions (as included in the special
conditions) was not documented, or there was slippage in the MFI FM system over time. SIDBI
agrees to further strengthen their system of having a specific action plan for mitigating critical
FM risks agreed with the MFI and follow up.
Minimum eligibility criteria: IBRD/IDA funds will be provided to MFIs that meet the eligibility
criteria as detailed in the OM, including minimum rating as prescribed. The minimum access
criteria (detailed criteria is given in annex 4), from an FM perspective and agreed with SIDBI,
for MFIs to be funded under the scheme would be that the MFIs have an adequate existing
system of FM, records, and accounts that reflects its operational and financial condition and
includes (i) available audited accounts; (ii) no significant unresolved observations from the
earlier and current audit reports; (iii) existence of an established and defined accounting system
maintained on principles generally accepted in India, and a defined and working internal control
system; (iv) an established system of internal audit;41
and (v) defined and operational fund
tracking and end-use reporting mechanisms (management information system).
Subproject Agreement: SIDBI enters into a Loan Agreement (or an Equity Subscription
Agreement, as the case may be) with the MFI for each facility sanctioned. Standard agreements
have been included in the OM, and these contain provisions from an FM perspective that include
responsibility on the MFI to maintain an adequate FM system (accounting and internal controls),
furnish progress reports and audited financial statements, and appoint FM staff with proper
qualifications and experience. The agreements also provide SIDBI the right to carry out
technical, financial, and legal inspections and examine the records of the MFI. It is agreed with
SIDBI that these clauses in the agreements will not be changed or deleted in cases that have been
included under the project.
41
For existing MFIs with more than three years of operations, an internal audit system will be required. For
relatively new MFIs, if an internal audit system does not exist, a clear time-bound plan to establish this will be
required.
86
Internal Audit
SIDBI‘s Internal Audit Department (IAD) is based at its head office in Lucknow. The IAD,
headed by an executive director,42
has two wings, each under a GM: (i) Operational Audit Wing;
and (ii) Management Audit Wing, including Credit Audit. Four zonal audit cells at Lucknow,
Mumbai, Kolkata, and Chennai are operational. IAD‘s main objective is to ensure that the
operations are carried out in accordance with the laid-down policies and procedures and to make
suggestions for streamlining the operations and suitable modifications in the procedures. IAD
conducts operational audits annually and management audits at one-to-three-year intervals,
covering managerial and supervisory functions and important operational aspects. The
functioning of IAD, including review of audit observations and RBI inspection, is overseen by
the Audit Committee of the Board.
An Internal Audit Manual is in use and is periodically revised (last updated December 2008).
With the growth in microfinance business, a specific internal audit checklist for this business
area has been developed and implemented, covering the following areas: application forms,
compliance with KYC norms, pre-sanction and appraisal, letter of intent/documentation/security
creation, post-sanction, disbursement, follow-up and monitoring, non-performing assets (NPA)
management, housekeeping, general accounts, and other issues.
A standard audit report format (for operational audits) has also been developed that, among other
things, requires reporting of issues relating to sanction, loan documentation/security creation, and
disbursement. It requires reporting separately on closed/rejected loans; revenue leakage; asset
quality/overdue/NPA management; and recovery performance, including follow-up and
monitoring, fraud cases, checking of rating/pricing, position of compliance with RBI inspection
reports and statutory audit reports, and other operational matters. Each observation is classified
as ―Major‖ and ―Other.‖ In addition, a rating module for SMFBs has also been developed
whereby the SMFBs will be rated on credit risk, operational risk and compliance, business
strategy, and branch management.
Compliance with audit findings is monitored at all levels and corrective action taken by the
audited branch. An executive summary of audit findings with action taken is presented by the
IAD to the executive director and deputy managing director. Key audit observations and status of
compliance are also reported to the Audit Committee, and those with a fraud angle are also
referred to the Vigilance Department of SIDBI.
The IAD would also audit the Bank project as part of its responsibility, under SIDBIs extant
procedures. For the SMFBs, the microfinance checklists and report template will be used. These
reports, along with the other relevant operational audit reports/and management audit reports,
will be shared with the Bank during implementation support missions. The IAD will specifically
review the sub-loans/equity investment to MFIs by SIDBI and other expenditure claimed under
the project to provide assurance on SIDBI‘s compliance with the project OM. The IAD will audit
the project and ensure that agreed operational, accounting, payment, and procurement procedures
42
The executive director is not on the board of SIDBI. As per the relevant office order, the executive director reports
to the chairman of the board and is in charge of vigilance, internal audit, and planning and budgeting.
87
are followed in implementation of the project and will also make recommendations for
addressing any systemic issues, if identified.
External Audit
The accounts of SIDBI are audited by auditors (chartered accountant firms) appointed from the
panel maintained by the RBI for a maximum period of four years. SIDBI is also covered under
regulatory supervision by RBI that includes annual financial inspection of SIDBI. The annual
financial statements, along with the report of the board of SIDBI, form part of the annual report
of SIDBI.
The project financial statements will be audited by independent auditors acceptable to the Bank
in accordance with standards on auditing generally accepted in India. Given that it is likely that
there may be significant upfront disbursements, including retroactive financing, it is proposed
that in the initial two years of the project (after effectiveness), half-yearly project audit reports
will be submitted, which will provide timely assurance on the use of funds and an opportunity
for timely midcourse correction, if required. The project audit report for the first half-year of the
financial year (April–September) will be submitted by December 31, and that for the second half
(October–March) by June 30. Entity audit reports will be submitted annually within six months
of the close of the financial year. After the initial two years, annual project audit reports will be
submitted along with the entity audit report by September 30.
The audited project financial statements (consisting of a Statement of Sources and Application of
Funds and a Reconciliation Statement) will also separately identify each component under the
project and will be accompanied by certified IUFRs submitted by SIDBI. The statutory audit of
the Bank project will be conducted under Terms of Reference (ToR) agreed between SIDBI and
the Bank. The ToR will require the auditors to provide their professional opinion on the true and
fair view of the financial statements and additionally provide their professional opinion on (i)
adequacy of the project accounting and internal control systems, (ii) adequacy of documentation
maintained for the project transactions to support claims to the Bank, (iii) eligibility of
expenditures incurred for Bank financing, (iv) end use of funds by undertaking a detailed review
of the loans advanced/equity investments made by SIDBI to/in MFIs; and (v) whether the
procurement under the project has been undertaken as per agreed norms/Bank guidelines. The
auditors will also submit a Management Letter with each audit report.
Table 7.3 summarizes the audit reports that will be monitored in the Bank‘s Audit Reports
Compliance System (ARCS).
88
Table 7.3: Audit Reports
Agency
Audit Report Auditor Due Date
SIDBI Annual Entity Audit Report SIDBI‘s statutory auditors
September 30 of
each year
SIDBI Half-Yearly Audit Report of the
Project Financial Statements, during
the first two years of the project:
- for the half year April–September
- for the half year October–March
Independent auditors
acceptable to the Bank
December 31
June 30
Annual Audit Report of the Project
Financial Statements for each financial
year after the initial two years of the
project
September 30
Department of
Economic
Affairs
Special Account Comptroller &
Auditor General of
India
September 30
Retroactive Financing
Retroactive financing will be available as per Bank guidelines. For retroactive financing,
SIDBI/SFMC will submit a separate stand-alone audited IUFR certifying the actual expenditure
incurred on the Bank project. The audit will be conducted in accordance with the ToRs agreed
for the audit of the project financial statements. SIDBI will ensure and certify that the due
diligence of the MFIs included in the retroactive financing has been done in terms of OP 10.02,
and that the MFIs have met the minimum access criteria for eligibility for obtaining finance from
SIDBI before funds are released to them. This will also be certified by the project external
auditors.
FM Supervision Plan
The project would need a high degree of supervision during the initial stages of implementation,
particularly in terms of application of agreed FM arrangements and compliance with the project
OM. During implementation support missions, the Bank will review a sample of MFI cases
included under the project and the internal audit reports relevant to the microfinance business.
FM Disclosure
The IBRD/IDA funds received by SIDBI will be separately disclosed in the schedule on
―Borrowings‖ to SIDBI‘s balance sheet and the ―Resources Management‖ section in SIDBI‘s
annual report. The amount and type of facilities (loan, equity) under the project will be shown in
a table in the chapter on microcredit in the annual report of SIDBI. The project audit report will
also have a separate statement or schedule listing and certifying all the loans/equity out of the
Bank funds, and an assurance that these have been financed exclusively through the Bank funds
and that no other funds have been received by SIDBI for creating all or part of these assets. In
addition, it has been agreed that the project audit report will be posted on the external website of
SIDBI.
89
Annex 8: Procurement Arrangements
India: Scaling Up Sustainable and Responsible Microfinance Project
A. General
1. Procurement of all goods, works, and services will be carried out in accordance with the
World Bank‘s Guidelines: Procurement under IBRD Loans and IDA Credits dated May 2004,
revised October 2006 (Procurement Guidelines); Guidelines: Selection and Employment of
Consultants by World Bank Borrowers dated May 2004, revised October 2006 (Consultancy
Guidelines); and the agreed procedures described in the Legal Agreements.
2. There are three components in the proposed project: Component 1 for Scaling Up Funding
Support for MFIs by contributing equity/quasi-equity and debt (including long-term debt) to
MFIs; Component 2 for Strengthening Responsible Finance; and Component 3 for Capacity
Building and Monitoring, including undertaking an impact evaluation. A brief overview of the
various items and services to be procured under these components are described in table 8.1.
Table 8.1: Major Procurement Activities by Project Components
Component Major Procurement Activities and Items
Component 1 : Scaling
Up Funding Support for
MFIs
Microfinance fund of US$289.5 million (about 90% of the
provision) will be administered as equity/quasi-equity and loans to
MFIs. Under this component, as the instruments used are loans and
equity, application of procurement guidelines (under provisions of
paragraph 3.12 of the Procurement Guidelines) will be limited to
procurement to be carried out by microfinance beneficiaries
financed out of the proceeds of the loans received from MFIs.
MFIs will be using this fund for lending to microfinance clients who
are typically organized as joint liability or Self Help Groups (SHGs)
in poor and under-served areas. The average size of loan given by
the MFIs shows the values range from Rs 5,000 (US$110) to Rs
250,000 (US$5,500). Loans are typically given to SHGs, which an
average have 10 to 15 members, mostly women. Procurement by the
individual members would be based on established private sector or
commercial practices that are acceptable to the Bank (under
provisions of paragraph 3.12 of the Procurement Guidelines).
Component 2:
Strengthening
Responsible Finance.
Proceeds from this component will be used for strengthening a
responsible finance agenda, which will include establishing an
information platform and support to a Lenders‘ Forum.
Component 3: Capacity
Building and
Monitoring
i. Office equipment, including information technology (IT)/MIS
equipment (desktop and laptop computers, printers, servers,
software, global information services [GIS] packages, scanners,
uninterrupted power supply [UPS], photocopiers, fax machines,
local area network [LAN], wide area network [WAN], and so forth),
communication aids such as multimedia projectors, audiovisual
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Component Major Procurement Activities and Items
equipment, digital and video cameras, mobile units
ii. Non-consultancy support service and vehicle for hire
iii. Miscellaneous field equipment and apparatus
iv. Proprietary software, journals, publications, training manuals
v. Consultancy services for audits, MIS package development and
maintenance, and so forth
vi. Developing market support mechanisms, consultancy services
for various studies, monitoring and evaluation, impact assessments,
training programs, institutional development activities, and so forth
3. While the volume of amount disbursed and number of MFIs are high, our review of the
average size of loan given by the MFIs shows the values are very small, from Rs 5,000 (US$110)
to Rs 250,000 (US$5,500). Loans are typically given to SHGs, which on average have 10 to 15
members, mostly women. Analysis of purposes for which the loans are taken shows mainly
livelihoods activities— petty trade, tailoring, livestock, and microenterprises—and in some
instances education and other consumption purposes.
4. Under Component 1, procurement by members of the SHGs/microfinance clients is expected
to be undertaken in a prudent manner because this will amount to using the proceeds of a loan on
which the beneficiary will also pay interest. Coupled with the fact that the outcome of the
procurement is for private income/asset generation for livelihoods purposes of the borrower, it is
in the borrower‘s interest to ensure that procurement is carried out on commercial practices
following the most economical and efficient manner and considering value for money. Thus, all
procurement to be carried out by microfinance beneficiaries and to be financed out of the
proceeds of the loans received from MFIs may be carried out under paragraph 3.12 of the
Procurement Guidelines in accordance with established private sector or commercial practices
acceptable to the Bank. Reliance would be placed on the significant vertical accountability
mechanisms that exist—thorough checks undertaken by MFIs‘ operational staff and their internal
audit/control team members through external audits and checks, including random checks
undertaken on a sample basis by SIDBI—as well as on horizontal accountability mechanisms
driven by the microfinance clients where internal group-level processes provide an additional
oversight on the use of funds and their recovery. The audit and checks undertaken by SIDBI for
verification of expenditure and assets and, at the MFI level, the use of the microfinance sector's
code of fair practices, which includes a section on a grievance/complaint-redressal mechanism,
will also be used for informed progress review during supervision of the project. In addition,
efforts planned under Component 2 for enhancing transparency and governance will also be
developing a responsible finance agenda for mitigating fiduciary risks.
5. Under Component 1, loans above value Rs 250,000 (US$5,000) to be offered to individual
microfinance clients against a single application are not envisaged. In the event the project
requires to extend loans to microcredit entities or microenterprises above value Rs 250,000
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(US$5,000), appropriate procurement arrangements based on community procurement principles
will be agreed with the World Bank.
6. For undertaking procurement under Components 2 and 3, to be financed by the Credit,
different procurement methods for goods, consultant selection methods, the need for
prequalification, if any applicable, estimated costs, prior review requirements, and time frame are
agreed between the borrower and the Bank in the Procurement Plan. The Procurement Plan will
be updated at least annually or as required to reflect the actual project implementation needs and
improvements in institutional capacity.
B. Assessment of the agencies’ capacity to implement and oversee procurement
7. SIDBI draws from the strengths and lessons learned from the SME Project, and the
procurement regime in the erstwhile project has developed adequate systems and processes
within all levels to meet Bank requirements in this regard. The project had achieved more than
95 percent of physical and financial targets within the time period. SIDBI, with its long-standing
association in working with the World Bank and development partners like DFID, has created
adequate procurement capacity within the organization for handling goods, consultancy, and
services procurement. Based on the assessment of previous project implementation and the
actions proposed above, it is assessed that the project has appropriate procurement capacity to
handle the project procurement. It has been agreed that for all procurement activities under this
project, the procurement capacity at SIDBI for the SME Project will be utilized and SIDBI's
procurement specialist for the SME Project would provide the required inputs to the
microfinance department as needed.
8. For procurement oversight and supervision of SIDBI‘s own operations under the project as
well as the operations being undertaken by the MFIs, SIDBI‘s internal control measures carried
out by its IAD and supervised by the ACB will be used. The IAD undertakes both audits of
operations and comprehensive audits. A comprehensive audit includes all operational and
nonoperational areas, including administration, premises, human resources, and procurement. An
audit of operations includes operational transactions under direct and indirect credit, with focus
on adherence to systems, processes, guidelines and AML guidelines, operational and credit risk,
and so forth. An audit of operations is undertaken at an interval of twelve months and covers
MFIs at the field level.
9. In addition, SIDBI‘s oversight arrangements include post-disbursement checks on the assets
purchased, which review if there was any kind of misappropriation or diversion of funds by the
end user from its intended use.
Perceived Risks and Mitigation Measures:
10. Procurement risk in this project has been rated as low. This rating takes into account the
internal controls of SIDBI while sanctioning a loan. The main procurement risks that can be
perceived at this stage, based on the macro-environment in which public FM functions in the
country, are (i) normal fiduciary risks of transparency and fairness in the procurement of goods,
works, and consultant services; (ii) misuse and waste in decentralized procurement undertaken
by SHGs because of limited supervision and oversight capacity within the project; (iii)
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inadequate recordkeeping; and (iv) lack of an operating grievance/complaint-monitoring system,
appropriate dispute resolution procedures, and established system of public disclosure of
information on procurement actions. Some of the specific mitigation measures proposed are
detailed in table 8.2.
Table 8.2: Procurement Risk Mitigation Action Plan
Description of risk Rating of
risk Mitigation measures Rating of
residual risk
Procurement will be involved only in
Component 2, Strengthening
Responsible Finance, and in
Component 3, Implementation and
Monitoring. Though the amounts will
be limited under these components,
procurement of goods, works, and
consultant services at SIDBI and
MFIs has normal fiduciary risks of
economy, efficiency (and timeliness),
transparency, and fairness.
Moderate Dedicated procurement unit
in SIDBI will carry out all
procurement under the
project.
Appropriate thresholds, as per
other ongoing projects with
SIDBI, will be established for
various methods to be used.
Supervision will be carried
out periodically and prior and
post review plans will be
developed and adhered to
ensure procurement meets all
required standards of the
project.
Low
Procurement by individual members
of SHGs receiving on-lending from
MFIs will be akin to private
procurement by individuals. Evidence
from community-based procurement
by SHGs in livelihoods projects
shows procedures-driven
arrangements for shopping for loans
worth US$100–US$3,000 is not
feasible in mostly ―one-street towns
and rural areas.‖ However,
possibilities of not utilizing the loan
taken by SHG members remain a risk.
Moderate Project preparations phase
would ensure significant
vertical accountability
mechanisms exist—thorough
checks undertaken by MFIs'
operational staff and their
internal audit/control team
members, through external
audits and checks, including
random checks undertaken on
a sample basis by SIDBI—as
well as horizontal
accountability mechanisms
driven by the microfinance
clients where internal group-
level processes provide an
additional oversight on the
use of funds and their
recovery. The post-
disbursement audit and
checks undertaken by SIDBI
for verification of expenditure
and assets and, at the MFI
Low
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Description of risk Rating of
risk
Mitigation measures Rating of
residual risk
level, the use of the
microfinance sector's code of
fair practices, which includes
a section on a
grievance/complaint-redressal
mechanism will also be used
for informed progress review
during supervision of the
project.
11. Grievance redressal and complaints-handling arrangements: The grievance redressal and
complaints-handling arrangements will include procedures for user‘s access to register
complaints, which will be published and notified through various media. Arrangements will
include a dedicated telephone at SIDBI‘s office; computerized system for filing complaints by
anyone; investigation by a subcommittee; and reporting to a high-level committee for follow-up,
actions, and response to the complainant. Complaints will be segregated in order of gravity, and
senior officers may be asked to process serious cases and report in a given time frame. During
supervision missions, regular review of progress in handling complaints will be undertaken. All
guidelines and documentation, including bidding instructions, will carry the details of the
complaints management system. The project will be subject to all provisions as outlined in the
RTI Act.
C. Methods of Procurement
12. Tables 8.3 and 8.4 show the methods and value thresholds of procurement that will be used
for procurement under the project.
Table 8.3: Procurement of Goods and Works by SIDBI
Expenditure
Category
Value
(Threshold)
per Contract
Procurement Method Contracts Subject
to Prior
Review/Post
Review
Goods, raw
materials,
equipment,
works, and so
forth
Up to
US$30,000
National Shopping: Through shopping
(after inviting a minimum of three
quotations in response to written
invitation) from known sources of supply
Direct Contracting in case of proprietary
items
Directorate General of Supplies and
Disposals: Rate contracts can be used
without further competition, provided the
manufacturer or an authorized dealer with
specific authority who has the rate
Post review by the
World Bank
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Expenditure
Category
Value
(Threshold)
per Contract
Procurement Method Contracts Subject
to Prior
Review/Post
Review
contract is directly contracted.
US$30,000 to
US$500,000 National Competitive Bidding (NCB):
Conditions: Only the model bidding
documents for NCB agreed with the GoI
Task Force and as amended from time to
time shall be used for bidding.
Invitations to bid shall be advertised in at
least one widely circulated national daily
newspaper, at least 30 days prior to the
deadline for the submission of bids.
No special preference will be accorded to
any bidder either for price or for other
terms and conditions when competing
with foreign bidders, state-owned
enterprises, small-scale enterprises, or
enterprises from any given state.
Except with the prior concurrence of the
Bank, there shall be no negotiation of
price with the bidders, even with the
lowest evaluated bidder.
Extension of bid validity shall not be
allowed without the prior concurrence of
the Bank (i) for the first request for
extension, if it is longer than four weeks;
and (ii) for all subsequent requests for
extension, irrespective of the period (such
concurrence will be considered by the
Bank only in cases of force majeure and
circumstances beyond the control of the
purchaser/employer).
Rebidding shall not be carried out without
the prior concurrence of the Bank. The
system of rejecting bids outside a
predetermined margin or bracket of prices
shall not be used in the project.
Rate contracts entered into by the
Directorate General of Supplies and
Disposals will not be acceptable as a
substitute for NCB procedures. Such
contracts will be acceptable, however, for
any procurement under shopping
First two contracts to
be prior reviewed by
the World Bank,
irrespective of value
95
Expenditure
Category
Value
(Threshold)
per Contract
Procurement Method Contracts Subject
to Prior
Review/Post
Review
procedures.
Two or three envelop system will not be
used.
More than
US$500,000 International Competitive Bidding
(ICB)
Prior review by the
World Bank
Table 8.4: Procurement of Services by SIDBI
Expenditure
Category
Value (Threshold)
per Contract
Procurement
Method
Contracts Subject to Prior
Review/Post Review
Services
for research and
evaluation
contracts,
professional
services, training,
workshops and
fellowships, and so
forth
Contracts estimated to
cost less than or equal
to US$150,000
equivalent
Contracts estimated to
cost more than
US$150,000
Consultant
qualification services
(CQS)/ least-cost
selection (LCS)of
firms /fixed-budget
selection (FBS)
and/or quality and
cost-based selection
(QCBS)
QCBS: Up to
US$500,000,
short list may consist
entirely of national
consultants
Prior review by the Bank of
all institutional contracts
above value US$200,000 and
all individual contracts above
value US$50,000
All single-source requests
will be subject to prior
review, irrespective of value.
Notes:
1. All contracts not covered under prior review will be subject to post review award/review during
supervision missions/review by consultants to be appointed by the Bank.
2. The thresholds will be periodically reviewed and revised as needed during project implementation
based on forthcoming actions and client capacity.
D. Review Requirements
13. Post review: A sample of 10 percent of all contracts issued annually by the SIDBI Project
Office under Components 2 and 3 will be subjected to post review by Bank staff or appointed
consultants.
E. Procurement Plan
14. For procurement under Components 2 and 3 at the SIDBI Project Office, a list of project
procurement requirements and a Procurement Plan for the initial 18 months has been prepared
and agreed. The plan was reviewed during negotiations and the final plan, incorporating
96
comments provided and describing the procurement actions and basis for the methods to be
applied to procurement to be carried out at the central level, has been agreed during negotiations.
The agreed plan will be available in the project website and in the Bank‘s external website.
Annual Procurement Plans shall be prepared at the beginning of each year to reflect the actual
project implementation needs for that year and shall be reviewed and agreed by the Bank. The
Procurement Plan will be updated in agreement with the Bank, as required, to reflect the actual
project implementation needs and improvements in institutional capacity.
15. Timely notification of bidding opportunities is essential in competitive bidding. For projects
that include ICB/consultancies, the borrower is required to prepare and submit to the Bank a
draft General Procurement Notice. The Bank will arrange for its publication in United Nations
Development Business online (UNDB online) and in the Development Gateway’s dgMarket. The
notice shall contain information concerning the borrower (or prospective borrower); amount and
purpose of the loan; scope of procurement; the name, telephone (or fax) number, and address of
the borrower‘s agency responsible for procurement; and the address of the website where
specific procurement notices will be posted. If known, the scheduled date for availability of
prequalification or bidding documents should be indicated. The related prequalification or
bidding documents, as the case may be, shall not be released to the public earlier than the date of
publication of the General Procurement Notice.
F. Frequency of Procurement Supervision
16. At least two supervision missions a year is recommended. In addition to supervisions
missions, the Bank will also carry out an annual ex post review of procurement that does not fall
under the prior review threshold.
G. Details of the Procurement Arrangements Involving International Competition
17. Goods and works: No procurement of goods and works in excess of the ICB threshold level
is envisaged under this project.
18. Consultancy services: The short list for consultancies estimated to cost US$500,000 or less
may consist entirely of national consultants in terms of paragraph 2.7 of the Consultancy
Guidelines.
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Annex 9: Economic and Financial Analysis
India: Scaling Up Sustainable and Responsible Microfinance Project
Economic Analysis
This project is expected to provide significant economic benefits. The project will provide
needed financing to MFIs, particularly patient forms of capital that will allow MFIs to invest in
long-term growth. As MFIs increase outreach, more of the poor will have access to financial
services that will allow them to invest in microenterprises in activities such as agriculture and
livestock, handicrafts, retail, services, and transport. A strong microfinance sector contributes to
improved productive capacity and thus poverty alleviation through increased income for the
poor. An extensive study conducted by SIDBI involving 25 MFIs and more than 3,200 sample
households highlights the multiple positive benefits of microfinance in India. Among its findings
was that poor households with access to microcredit increased income by 69 percent over seven
years, while those without microcredit increased income by 31 percent.
The benefits of increasing the credit portfolios and capacities of MFIs reach beyond improved
income for the poor. Indeed, microfinance provides more economic opportunities for low-
income households, leading to sustainable livelihoods and the ability to reduce vulnerability and
better manage risks. There is also a strong gender development component as approximately 95
percent of microfinance borrowers in India are women. Women who access microcredit have
reported increased social status and a higher rate of personal and joint ownership of assets. MFI
expansion will also support businesses, both MFIs and microenterprises that are owned and
managed by Indians, providing increased employment opportunities.
Various entities will gain from the project in different ways. These benefits especially include
the following:
SIDBI: Increased capacity to act as the apex institution for the microfinance sector,
ability to expand initiatives to increase MFI capacity and geographic outreach
Microfinance providers: Continued access to reliable sources of funding, expansion of
loan portfolios and geographic outreach, increased profits, increased product offerings,
more technical capacity, more patient capital to invest in long-term growth, crowding in
of equity and quasi-equity investors
Recipients of microfinance services: Increased access to more affordable loans with
decreased reliance on expensive moneylenders, higher enterprise returns, increased
access to valuable non-lending financial services (insurance, savings, and so forth)
Households: Increased income, reduced vulnerability, women empowerment
Government: Increased tax revenue from regulated financial institutions
The project seeks to provide Indian MFIs with the increased ability to access appropriate funding
so the above benefits may be realized. As the sector continues to grow rapidly, MFIs require
ever-increasing amounts of capital. In particular, it is widely recognized that the sector is in need
of more patient forms of capital, especially equity and quasi-equity instruments, that will
decrease dependence on commercial debt and reduce high levels of leverage. Equity instruments
will also provide funding for the equity gap created by new capital adequacy rules, whereby
ratios must increase from 10 percent to 15 percent by April 2011.
98
While large equity investments have recently been made in the sector, these have focused solely
on the largest and most developed MFIs, despite the universal need. The project will focus on
supporting MFIs of all sizes, an area of strength for SIDBI that has provided funding for a wide
variety of providers. A particular emphasis will be placed on crowding in investors by increasing
capacity and transparency of MFIs that do not currently attract equity investments. For larger
MFIs that do attract investors, the project may serve to provide for the capital adequacy gap as
well as fund specific expansions into under-served geographies.
Financial Analysis
SIDBI
An extensive review of SIDBI was undertaken to determine its compliance with eligibility
criteria under OP 8.30 and OP 10.02. The review concluded that SIDBI met the following
criteria and qualified to act as a conduit for relending World Bank funds to the Indian
microfinance sector:
Adequate profitability, capital adequacy, and asset quality and liquidity in accordance
with accounting and auditing principles acceptable to the Bank
Acceptable levels of loan collections
Appropriate capacity, including staffing for sub-project appraisal and implementation
Adequate managerial autonomy and commercially oriented governance
Appropriate prudential policies, administrative structure, and business procedures
SIDBI was established to function as the apex institution for promotion, financing, and
development of industries in the small-scale sector, later expanding its coverage across the
MSME sector. In 1999, the SFMC was established to provide customized loan, grant, and equity
financing to partner MFIs. SFMC has consistently supported capacity building and training to
increase MFI sustainability. Though its main business line remains the funding of commercial
banks and state industrial development corporations to increase the flow of credit to SMEs, it has
steadily increased funding to the microfinance sector with the aim of playing an even greater role
there. SIDBI currently funds 130 MFIs, from the largest to medium and small institutions that do
not often receive as much investor attention.
Based on the review, SIDBI was found to have adequate organization and institutional capacity
and quality staff (its governance arrangements and risk management systems are described in
annex 6 and 7).
Financially, SIDBI shows a sound capital base with comfortable liquidity and adequate long-
term resources. It has posted satisfactory profitability, though across-the-board wage increases in
the last year increased operational expenses and caused returns to be slightly lower than in 2008.
The CRAR stands at a high 34.2 percent and nonperforming loans (NPL) are quite low. SIDBI
has recently made strong efforts to bring down NPLs, and these efforts have paid off
significantly, with only 0.1 percent of loans currently classified as nonperforming. There is an
adequate provision cover of 19 percent. The tables below highlight SIDBI‘s financial
99
performance, also showing an increasing commitment to the microfinance sector in terms of both
loan portfolio and number of MFI partners.
Table 9.1: Summary Balance Sheet (in billions of Rs)
2009 2008 2007
Amount % Amount % Amount %
ASSETS
Cash 8.22 2% 16.14 7% 4.46 2%
Investments 17.70 5% 12.23 5% 33.81 17%
Loans & Advances 308.80 89% 199.77 84% 151.45 77%
Of which, loans to MFIs 21.37 9.50 5.48
Fixed Assets 2.13 1% 1.85 1% 1.86 1%
Other Assets 9.06 3% 6.76 3% 6.63 3%
TOTAL 345.91 100% 236.74 100% 198.21 100%
LIABILITIES AND EQUITY
Bonds & Debentures 35.25 10% 53.99 23% 64.63 33%
Deposits 74.37 21% 29.25 12% 16.90 9%
Borrowings 141.05 41% 65.53 28% 27.75 14%
Other Liabilities &
Provisions 39.24 11% 35.37 15% 37.51 19%
Total Net Worth 55.99 16% 52.60 22% 51.41 26%
Paid-up Capital 4.50 4.50 4.50
Reserve Fund & Surplus 51.49 48.10 46.91
TOTAL 345.91 100% 236.74 100% 198.21 100%
Table 9.2: Summary Income Statement (in billions of Rs) 2009 2008 2007
Interest Income from Loans and
Advances 17.25 14.58 9.72
Interest Income from Investments 0.61 0.35 1.44
Interest Expenses (10.37) (8.73) (5.84)
Net Interest Income 7.49 6.20 5.31
Profit on Sale of Investments 0.31 1.30 0.51
Other Income 0.29 0.16 0.20
Extraordinary Income 2.36 0.00 0.00
Operating Expenditures (2.05) (1.49) (1.43)
Other Expenditures (0.11) (0.11) (0.10)
Profit before Tax 8.29 6.06 4.50
Tax (3.50) (1.26) (1.60)
Profit after Tax 4.79 4.80 2.89
Table 9.3: Key Indicators and Ratios
2009 2008 2007
No. of Partner MFIs 131 104 92
Net Income/Average Assets (ROA) 1.64% 2.21% 1.44%
Net Income/Equity (ROE) 8.56% 9.12% 5.63%
100
Average Cost of Funds 5.19% 6.76% 5.32%
Gross NPL (billion Rs) 0.32 2.99 5.20
Gross NPL/Gross Loans 0.10% 1.47% 3.32%
Loan-Loss Provision (billion Rs) 0.06 2.50 4.98
Provision Cover 19% 83.60% 95.80%
Microfinance Providers
Starting from a small base, the Indian microfinance sector has grown rapidly over the last
decade. India now hosts some of the world‘s largest microfinance providers, with seven MFIs
reaching more than 500,000 clients each. As MFIs grew, national commercial banks began
lending to them, viewing them as a viable investment for priority-sector lending funds. The
majority of large MFIs transformed into for-profit NBFCs, commercializing operations and
offering standardized microcredit products. Indian MFIs have become some of the most efficient
in the world as a result of competition and reliance on commercial debt rather than grants. They
have been able to keep down operating expenses, especially in staff wages. This is because India
has a large pool of qualified labor to draw from, something that many countries lack.
Table 9.4: Overall Outreach and Loan Portfolio
2009 2008 2007
Amount %
Change Amount
%
Change Amount
%
Change
Microfinance Borrowers
(millions) 22.6 60.3% 14.1 40.4% 10.0 53.0%
Outstanding Loans
(billions of Rs) 117.0 95.0% 59.5 72.0% 34.6 68.8%
A review of Indian MFIs reveals a largely commercially viable sector. All sizes of MFIs have
been able to access commercial debt, and the sector relies much less on grants than most others.
Profitability levels are satisfactory, and portfolio at risk is very low. Differences exist across
MFIs of different sizes, with larger institutions performing generally better as they take
advantage of economies of scale and have more years of experience. Lenders have been more
willing to extend funds to large MFIs during the current global financial crisis, and the equity
investors who have appeared on the scene have invested only in the largest and most developed
institutions. Here, again, is where SIDBI can play a role as it has years of experience in building
capacity and extending finance to all sizes of MFIs.
As there are hundreds of MFIs in India, it is relatively difficult to provide an extensive analysis
of all institutions. However, data gathered by Sa-Dhan and MixMarket allow for comparison of
performance according to MFI size. For the figures in table 9.5, Tier 1 MFIs have more than
250,000 borrowers, Tier 2s have 50,000–250,000 borrowers, and Tier 3s have fewer than 50,000
borrowers. Medians presented give a good overall picture of MFI operations. The largest MFIs
have the highest return on assets (ROA) and return on equity (ROE) as well as the lowest
portfolio at risk, although the medium and small institutions also perform rather well.
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Table 9.5: Median Indicators for MFIs, by Tier
TIER 1 TIER 2 TIER 3
Active Borrowers 468,459 81,042 4,315
Loan Portfolio (million US$) 97.3 8.8 0.3
Yield on Portfolio 26.80% 25.40% 17.40%
Total Assets (million US$) 111.1 10.2 2.2
Total Equity (million US$) 10.4 1.8 0.4
Debt-to-Equity Ratio 7.81 5.68 7.86
ROA 3.68% 1.74% 1.97%
ROE 21.62% 14.72% 14.29%
Provision for NPL/NPA 0.07% 0.38% 0.57%
Portfolio at Risk > 30 days 0.34% 0.74% 0.41%
The extensive review of SIDBI was accompanied by a detailed analysis, including on-site
discussions and review, of three MFIs: BASIX (Tier 1), Bandhan (Tier 1), and BSS (Tier 2).
Further, a desk analysis of a sample of other MFIs was also conducted. In all cases, standards of
risk management, operational practices, profitability, capital adequacy, and liquidity (select key
ratios are presented in table 9.6) were sufficient to meet the criteria under OP 8.30 and OP 10.02.
This does not mean that all MFIs in the diverse sector would meet these requirements. MFIs face
many challenges, including client over-indebtedness, hiring and retaining qualified staff, and
high reliance on commercial debt, that can affect growth and financial performance. However,
the good reviews of the three MFIs do indicate that many MFIs are certainly capable of properly
managing potential funds provided by SIDBI.
Table 9.6: Key Ratios* of a Sample of MFIs Reviewed during Preparation
Top/Sample MFI Exposures CAR ROA OTRR PAR
SKS Micro Finance
29% 3.68% 99% >60 days 0.28%
Spandana Sphoorty Financial 22.7% 6.89% N.A. >60 days 0.9%
Share Microfin
21.38% 5.53% 99% >90 days 0.59%
Bandhan Financial Services 18.63% 4.08% 99.88% >30 days 0.11%
Asmitha Micro Finance 10.37% 4.08% 99.45% >60 days 0.52%
Initiatives for Women
Development Foundation
6.18% N.A. 99.10% >30 days 0.42%
Bhartiya Samrudhi Finance 18.86% 1.9% 98.4% >30 days 1.2%
BSS Micro Finance 16.40% 5.72% 97.78% >1 day 2.52% *Ratios pertain to FY2009.
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Annex 10: Safeguard Policy Issues
India: Scaling Up Sustainable and Responsible Microfinance Project
This annex provides an overview of the safeguard issues and the safeguards management process
to be adopted for the project with relevant institutional mechanisms. The annex is prepared based
on the proposed project activities and the current microfinance portfolio of SIDBI.
Environment
Microfinance activities and environmental issues: SIDBI‘s proposed on-lending to MFIs under
the project will support microenterprise activities and cottage industries that are environmentally
benign. These typically include embroidery, mat making, tailoring, wool knitting, handloom
weaving, rope making, carpentry work, handicrafts, general stores, and vegetable vending. The
activities require very small size of investments and do not require environmental regulatory
clearances. Some of the activities—albeit very limited—include household-based activities such
as packaging inflammable materials, household dying, and so forth. Such activities, if necessary
care is not taken, could pose EHS issues.
World Bank safeguard policies: The project is classified as Category FI, and considering the
potential EHS issues, though very limited, the World Bank operation policy on Environmental
Assessment (OP 4.01) is triggered. Institutionalizing the environmental impact assessment and
environmental management measures through a safeguards framework under the project would
not be practical, however, because of the vast spread and very small size of investments (on
average less than US$200). These issues therefore will be addressed through an ELA ineligible
for SIDBI‘s on-lending to MFIs under the project. The ELA in table 10.1 is based on (i) a review
of the range of activities currently under the microfinance portfolio of SIDBI, identifying
activities that have potential to cause EHS impacts; and (ii) activities that are prohibited for
WBG lending, including IFC‘s exclusion list.
Table 10.1: Exclusion List of Activities
Type of Activity
1. Any activities involving conversion of natural habitats/ecologically sensitive areas and/or
damaging to national monuments, nonreplicable cultural properties
2. Production or trade in any product or activity deemed illegal under host country laws or
regulations or international conventions and agreements
3. Production or trade in alcoholic beverages, including country-made liquor
4. Gambling, casinos, and equivalent enterprises
5. Trade in wildlife or wildlife products regulated under the Convention on International
Trade in Endangered Species (CITES)
6. Production or trade in radioactive materials
7. Production or trade in or use of unbounded asbestos fibers
8. Purchase of logging equipment for use in cutting forest
9. Production or trade in pharmaceuticals subject to international phase outs or bans
10. Production or trade in pesticides/herbicides subject to international phase outs or bans
11. Fishing in the marine environment using electric shocks and explosive materials
103
12. Production or activities involving harmful or exploitative forms of forced labor or harmful
child labor
13. Commercial logging operations for use in primary tropical moist forest
14. Production or trade in products containing polychlorinated biphenyls (PCBs)
15. Production or trade in ozone-depleting substances subject to international phase-out
16. Production or trade in wood or other forestry products from unmanaged forests
17. Production, trade, storage, or transport of significant volumes of hazardous chemicals, or
commercial-scale use of hazardous chemicals
18. Production, trade, or processing of products involving tobacco (including beedi)
19. Production, trade, use, or storage of dyeing chemicals and dye intermediaries
20. Production, storage, or packaging of inflammable material
21. Any activities using industrial production processes requiring regulatory clearances from
pollution control boards
22. Goat/sheep rearing dependent on forest resources
Implementation of environmental safeguards: World Bank OP 4.01 requires that the financial
intermediary screens proposed on-lending activities and ensures that sub-borrowers follow
environmental safeguards measures. In line with this requirement, ELA and the process of its
application have been agreed with SIDBI. The ELA will be applied as part of credit appraisal
through a two-stage environmental screening process. The first level of screening will be part of
SIDBI‘s credit appraisal, wherein the MFI‘s microfinance portfolio will be reviewed by credit
officers to determine the nature of activities, and further stipulate an on-lending legal covenant
for application of ELA by the MFI. The second level of screening and application of ELA shall
be followed by the MFIs as part of their appraisal for microfinancing activities under the project.
Such arrangements will be formalized as part of SIDBI‘s on-lending covenants. The application
of the ELA and compliance with the same shall be certified by MFIs on a semiannual basis, and
SIDBI will conduct an annual audit on ELA compliance by MFIs.
Implementation of environmental safeguards has been integrated in the OM for the project. The
environmental safeguards implementation arrangements are depicted in the credit appraisal
process.
Staffing: The proposed implementation of measures to minimize environmental issues is
integrated into the credit appraisal process of the borrower—SIDBI and sub-borrowers—MFIs.
Also the application of ELA to minimize environmental risks is relatively simpler and would not
require specialized skills on environmental management. Considering this, the role of
environmental management in relation to application of ELA will be designated to the existing
credit appraisal officers at SIDBI and MFIs. Further, SIDBI will propagate the ELA among MFIs
engaged under the project through awareness programs. Such initiatives will be integrated as part
of Component 3 of the project.
Social Safeguard Issues
The proposed project will not finance a specific set of pre-identified investments. Funds will be
intermediated to a number of MFIs to microfinance clients. No specific sector has been
identified, and financial intermediaries will undertake on-lending on market principles. No
104
specific social safeguard issues, including those related to OP 4.10 and OP 4.12 and to child
labor, are identified or expected at this stage.
The project mitigates risks and problems arising out of potential social issues such as possible
social exclusion and gender discrimination. Microfinance institutions receiving support from
SIDBI will have to adhere to a nondiscrimination policy, which is already embedded in the loan
sanctioning process. The growth of clients covered and the number of women borrowers will be
tracked as part of the project monitoring activities. In addition the project will undertake an
impact assessment that will, among other things, assess impact on gender equality and
socioeconomic groups. Furthermore, through stakeholder consultations and continued
monitoring of nondiscrimination policies, MFIs will be further sensitized to addressing the needs
of social groups such as scheduled tribes and scheduled castes through the conduct of special
sessions aimed at MFIs.
Through the proposed project, SFMC will allocate resources for impact assessment and
documentation of innovative and good practices in the area of social development. SFMC will
also sensitize and train its staff on issues such as empowerment, social development, and the RTI
Act.
105
Annex 11: Project Preparation and Supervision
India: Scaling Up Sustainable and Responsible Microfinance Project
Planned Actual
PCN review July 9, 2009 July 9, 2009
Initial PID to PIC
Initial ISDS to PIC
Appraisal December 14, 2009 December 15, 2009
Negotiations February 10, 2010 April 23, 2010
Board approval June 1, 2010
Planned date of effectiveness June 30, 2010
Planned date of mid-term review December 31, 2012
Planned closing date June 30, 2015
Key institutions responsible for preparation of the project:
Small Industries Development Bank of India (SIDBI)
Department of Financial Services, Ministry of Finance, Government of India
Bank staff and consultants who worked on the project
Name Title Unit
Niraj Verma Sr. Financial Sector Specialist (TTL) SASPF
Mehnaz Safavian Sr. Economist (TTL) SASPF
Addepalli Ramakrishna Environmental Specialist SASDI
Atul Deshpande Sr. Financial Management Specialist SARFM
Cecile Thioro Niang Economist SASPF
Gennady Pilch Sr. Legal Counsel LEGMS
Gregory Chen South Asia Representative CGAP
Kalesh Kumar Sr. Procurement Specialist SARPS
Kumar Amarendra Narayan Singh Social Development Specialist SASDI
K.R. Ramamoorthy Consultant SASPF
Puneet Kapoor Financial Management Consultant SARFM
Rajni Khanna Senior Economist SASPF
Swapnil Kant Neeraj Microfinance Specialist IFC
Swayamsiddha Mohanty Procurement Specialist SARPS
Sakm Hye Program Assistant SASPF
Sumriti Singh Team Assistant SASPF
Aza Rashid Program Assistant SASPF
Vinod Satpathy Program Assistant SASPF
The peer reviewers were Aurora Ferrari, Senior Private Sector Development Specialist, ECA;
Gautam Ivatury, CGP; Bikki Randhawa, Advisor, FPD.
106
Bank funds expended to date on project preparation:
Bank resources: US$221,000
Trust funds: 0
Total: US$221,000
Estimated approval and supervision costs:
Remaining costs to approval: US$20,000
Estimated annual supervision cost: US$125,000
107
Annex 12: Documents in the Project File
India: Scaling Up Sustainable and Responsible Microfinance Project
ACCESS Development Services. SHG Federations in India—A Perspective. September 2007.
ACCESS Development Services/CARE India. Microfinance Marketplace: A Resource Directory
of Emerging MFIs in India. October 2007.
ACCESS Development Services/The Livelihood School, Dr. Sankar Datta and Vipin Sharma.
State of India’s Livelihoods: The 4P Report. 2008.
Bandhan. Annual Report 2007–2008. 2008.
Bandhan. CUF-THP Program.
Banerjee, Abhijit, Esther Duflo, Rachel Glennerster, and Cynthia Kinnan. ―The Miracle of
Microfinance? Evidence from a Randomized Evaluation.‖ Financial Access Initiative. May
2009.
Berford, Jaclyn. ―Grama Vidiyal Micro Finance Limited (GVMFL) Raises USD 4.25 Million
from MicroVest, Unitus Equity Fund, and Amar Foundation.‖ Microcapital.org. June 25, 2009.
Bhadra, Sagar. ―Microfinance Sector Losing Sheen Due to High Valuations.‖ The Hindu
Business Line. August 18, 2009.
CARE India/Ford Foundation, Prabhu Ghate. MicroFinance in India: A State of the Sector
Report, 2006.
CARE India/Ford Foundation, Prabhu Ghate. MicroFinance in India: A State of the Sector
Report, 2007.
CGAP, Mark Picker, David Porteous, and Sarah Rotman. Banking the Poor via G2P. December
2009.
CGAP, Robert Peck Christen and Mark Flaming. Due Diligence Guidelines for the Review of
Microcredit Loan Portfolios. December 2009.
CGAP, Magada El-Zoghbi and Ande de Montesquiou. Creating Pathways for the Poorest.
December 2009.
CGAP, Magada El-Zoghbi and Barbara Gahwiler. SmartAid for Microfinance Index. December
2009.
CSFI. Microfinance Banana Skins 2009: Confronting Crisis and Change.
108
Intellecap and IFC. Inverting the Pyramid 2008, Indian Microfinance Scaling against the Odds.
2008.
Jain, Ajit, and Caroline Norton. ―Microfinance: Where Do We Stand Today?‖ Microbanking
Bulletin, Spring 2009: 9–12.
Liang, Joyce, Chinatsu Hani, and Alexander Batchvarov. Indian Microfinance—An Investor’s
Perspective. Merrill Lynch. November 18, 2008.
M-CRIL and MIX. India Microfinance Review 2007. December 2007.
M-CRIL. Microfinance Analytics 2009.
Radcliffe, Daniel, and Rati Tripathi. Sharpening the Debate, Assessing Key Constraints in Indian
Micro Credit Regulation. IFMR Centre for Micro Finance. November 2006.
Reille, Xavier, and Chrisoph Kneiding. ―The Impact of the Financial Crisis on Microfinance
Institutions, Results from CGAP‘s March 2009 Opinion Survey.‖ Microbanking Bulletin, Spring
2009: 13–15.
Sa-Dhan. Microfinance and Poverty. 2005.
Sa-Dhan. Sustainable Livelihoods and Microfinance. 2005.
Sa-Dhan. The Bharat Microfinance Report, Quick Data 2008. 2008.
Sa-Dhan. Effective Microfinance Services, Side by Side 2008. 2008.
Sa-Dhan. The Bharat Microfinance Report, Quick Data 2009. 2009.
SIDBI. Assessing Development Impact of Micro Finance Programmes. September 2008.
SIDBI. Annual Report 2007–08.
SIDBI. Annual Report 2008–09.
Srinivasan, N. Microfinance India, State of the Sector Report 2008. Sage Publications.
Srinivasan, N. Microfinance India, State of the Sector Report 2009. Sage Publications.
Thangada, Goda. ―Bellwether Microfinance Fund Invests $480K in Equitas Micro Finance
India.‖ Microcapital.org. June 12, 2009.
Tran, Uyen. ―Incofin of Belgium Invests in Asomi Finance Private Ltd. in India.‖
Microcapital.org. June 16, 2009.
109
World Bank – South Asia Finance and Private Sector Development Unit. Small & Medium
Enterprise Financing and Development Project PAD. October 27, 2004.
World Bank/CGAP. A Survey of Microfinance in South Asia. Published by MIX January 2006.
World Bank, Joanna Ledgerwood and Vistoria White. Transforming Microfinance Institutions—
Providing Full Financial Services to the Poor. 2006.
World Bank. Microfinance in South Asia: Toward Financial Inclusion for the Poor. December
2006.
World Bank. – South Asia Finance and Private Sector Development Unit. Banking Sector
Support Loan Project Program Document. August 21, 2009.
World Bank – South Asia Finance and Private Sector Development Unit. Small & Medium
Enterprise Financing and Development Project Additional Financing Project Paper. February
20, 2009.
World Bank – South Asia Finance and Private Sector Development Unit. Strengthening Rural
Credit Cooperatives Project PAD. May 31, 2007.
World Bank. (a) Management Letter and Aide Memoire re: Preparation Mission from May 4 to
11, 2009. June 11, 2009.
(b) Project Concept Note. June 2009.
(c) Management Letter and Aide Memoire re: Pre-Appraisal Mission from July 27
to August 7, 2009. August 25, 2009.
(d) Management Letter and Aide Memoire re: Appraisal Mission from December
15 to 18, 2009. December 29, 2009.
Yee Chong, Chinq. ―CEO of Aavishkaar India Micro Venture Capital Fund Vineet Rai Expects
Merger and Consolidation of Indian Microfinance Institutions to Increase.‖ Microcapital.org.
August 12, 2009.
Yee Chong, Chinq. ―Is the Microfinance Sector Losing Its Appeal to Investors as a Result of
High Valuations?‖ Microcapital.org. August 19, 2009.
110
Annex 13: Statement of Loans and Credits
India: Scaling Up Sustainable and Responsible Microfinance Project
Original Amount in US$ Millions
Difference between
expected and actual
disbursements
Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev‘d
P096021 2010 AP Road Sector Project 320.00 0.00 0.00 0.00 0.00 304.20 -15.00 0.00
P101650 2010 A. P. RWSS 0.00 150.00 0.00 0.00 0.00 131.23 -15.00 0.00
P102549 2010 Tech Engr Educ Quality Improvement
II
0.00 300.00 0.00 0.00 0.00 286.00 0.00 0.00
P102771 2010 IIFCL - India Infras Finance Company Ltd
1,195.00 0.00 0.00 0.00 0.00 1,192.01 0.00 0.00
P110051 2010 Haryana Power System Improv Project 330.00 0.00 0.00 0.00 0.00 302.21 -26.97 0.00
P110371 2010 Sustainable Urban Transport Project 105.23 0.00 0.00 0.00 0.00 105.23 0.00 0.00
P071250 2010 Andhra Pradesh Municipal Development
300.00 0.00 0.00 0.00 0.00 279.25 -20.00 0.00
P116020 2010 Banking Sector Support Loan 2,000.00 0.00 0.00 0.00 0.00 1,995.00 0.00 0.00
P115566 2010 POWERGRID V 1,000.00 0.00 0.00 0.00 0.00 988.00 -12.00 0.00
P094360 2009 National VBD Control&Polio
Eradication
0.00 521.00 0.00 0.00 0.00 404.69 43.35 0.00
P096023 2009 Orissa State Roads 250.00 0.00 0.00 0.00 0.00 235.36 1.74 0.00
P100101 2009 Coal-Fired Generation Rehabilitation 180.00 0.00 0.00 0.00 0.00 179.55 13.50 0.00
P093478 2009 Orissa Rural Livelihoods Project 0.00 82.40 0.00 0.00 0.00 73.46 3.82 0.00
P100735 2009 Orissa Community Tank Management Project
56.00 56.00 0.00 0.00 0.00 103.57 0.97 0.00
P102331 2009 MPDPIP-II 0.00 100.00 0.00 0.00 0.00 87.66 -13.56 0.00
P112033 2009 UP Sodic III 0.00 197.00 0.00 0.00 0.00 192.60 -3.18 0.00
P101653 2008 Power System Development Project IV 1,000.00 0.00 0.00 0.00 0.00 374.68 -146.32 41.68
P102547 2008 Elementary Education (SSA II) 0.00 1,350.00 0.00 0.00 0.00 740.48 -142.49 0.00
P095114 2008 Rampur Hydropower Project 400.00 0.00 0.00 0.00 0.00 290.82 49.32 0.00
P100789 2007 AP Community Tank Management Project
94.50 94.50 0.00 0.00 0.00 170.77 51.54 0.00
P078539 2007 TB II 0.00 170.00 0.00 0.00 0.00 90.69 -16.76 0.00
P096019 2007 HP State Roads Project 220.00 0.00 0.00 0.00 0.00 195.63 60.98 0.00
P083187 2007 Uttaranchal RWSS 0.00 120.00 0.00 0.00 0.00 100.92 62.78 0.00
P099047 2007 Vocational Training India 0.00 280.00 0.00 0.00 0.00 193.85 25.70 0.00
P071160 2007 Karnataka Health Systems 0.00 141.83 0.00 0.00 0.00 67.63 -3.57 0.00
P078538 2007 Third National HIV/AIDS Control
Project
0.00 250.00 0.00 0.00 0.07 166.51 136.93 0.00
P090768 2007 TN IAM WARM 335.00 150.00 0.00 0.00 0.00 366.69 118.58 0.00
P090764 2007 Bihar Rural Livelihoods Project 0.00 63.00 0.00 0.00 0.00 53.09 -2.69 0.00
P090592 2007 Punjab Rural Water Supply & Sanitation
0.00 154.00 0.00 0.00 0.00 134.93 103.54 0.00
P090585 2007 Punjab State Roads Project 250.00 0.00 0.00 0.00 0.00 135.79 19.84 0.00
P075060 2007 RCH II 0.00 360.00 0.00 0.00 0.00 208.83 121.91 0.00
P102768 2007 Stren India's Rural Credit Coops 300.00 300.00 0.00 0.00 0.00 235.75 145.23 0.00
P078832 2006 Karnataka Panchayats Strengthening Proj
0.00 120.00 0.00 0.00 0.00 59.59 -48.15 0.00
111
P079675 2006 Karn Municipal Reform 216.00 0.00 0.00 0.00 0.00 168.05 107.05 0.00
P079708 2006 TN Empwr & Pov Reduction 0.00 120.00 0.00 0.00 0.00 57.66 30.13 0.00
P086414 2006 Power System Development Project III 400.00 0.00 0.00 0.00 0.00 14.72 -55.28 0.00
P092735 2006 NAIP 0.00 200.00 0.00 0.00 0.00 154.89 62.86 0.00
P093720 2006 Mid-Himalayan (HP) Watersheds 0.00 60.00 0.00 0.00 0.00 28.60 8.25 0.00
P083780 2006 TN Urban III 300.00 0.00 0.00 0.00 0.00 167.70 118.45 7.10
P073651 2005 DISEASE SURVEILLANCE 0.00 68.00 0.00 0.00 0.35 48.87 43.89 0.00
P084632 2005 Hydrology II 104.98 0.00 0.00 0.00 0.00 80.56 74.25 54.94
P073370 2005 Madhya Pradesh Water Sector Restructurin
394.02 0.00 0.00 0.00 6.62 264.12 232.55 0.00
P094513 2005 India Tsunami ERC 0.00 465.00 0.00 0.00 0.00 367.82 365.22 -29.76
P077977 2005 Rural Roads Project 99.50 300.00 0.00 0.00 0.00 70.49 61.95 0.00
P084790 2005 MAHAR WSIP 325.00 0.00 0.00 0.00 0.00 195.61 150.61 0.00
P077856 2005 Lucknow-Muzaffarpur National Highway
620.00 0.00 0.00 0.00 0.00 147.28 107.28 0.00
P086518 2005 SME Financing & Development 520.00 0.00 0.00 0.00 0.00 248.03 -150.97 -50.97
P075058 2005 TN HEALTH SYSTEMS 0.00 110.83 0.00 0.00 20.06 7.12 22.50 -0.39
P084792 2005 Assam Agric Competitiveness 0.00 154.00 0.00 0.00 0.00 56.14 49.11 0.00
P050655 2004 RAJASTHAN HEALTH SYSTEMS
DEVELOPMENT
0.00 89.00 0.00 0.00 0.00 33.45 29.30 0.01
P078550 2004 Uttar Wtrshed 0.00 69.62 0.00 0.00 0.00 23.65 1.04 0.00
P082510 2004 Karnataka UWS Improvement Project 39.50 0.00 0.00 0.00 0.00 6.76 6.76 0.00
P071272 2003 AP RURAL POV REDUCTION 0.00 315.03 0.00 0.00 0.00 86.56 -96.13 -31.13
P050649 2003 TN ROADS 398.70 0.00 0.00 0.00 0.00 74.50 23.80 0.00
P067606 2003 UP ROADS 488.00 0.00 0.00 0.00 0.00 74.95 74.95 0.00
P050647 2002 UP WSRP 0.00 149.20 0.00 0.00 40.11 45.42 57.14 0.00
P050653 2002 KARNATAKA RWSS II 0.00 151.60 0.00 0.00 15.04 12.65 0.41 0.00
P050668 2002 MUMBAI URBAN TRANSPORT
PROJECT
463.00 79.00 0.00 0.00 0.00 180.05 167.51 180.51
P040610 2002 RAJ WSRP 0.00 159.00 0.00 0.00 25.84 52.75 21.79 0.00
P069889 2002 MIZORAM ROADS 0.00 78.00 0.00 0.00 0.00 2.69 -26.91 -2.94
P071033 2002 KARN Tank Mgmt 32.00 130.90 0.00 0.00 25.07 107.54 47.01 -6.37
P072539 2002 KERALA STATE TRANSPORT 255.00 0.00 0.00 0.00 0.00 70.73 70.73 0.00
Total: 12,991.43 7,658.91 0.00 0.00 133.16 13,296.03 2,099.29 162.68
112
India
STATEMENT OF IFC‘s
Held and Disbursed Portfolio
In Millions of US Dollars
Committed Disbursed
IFC IFC
FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.
2005 ADPCL 39.50 7.00 0.00 0.00 0.00 0.00 0.00 0.00
2006 AHEL 0.00 5.08 0.00 0.00 0.00 5.08 0.00 0.00
2005 AP Paper Mills 35.00 5.00 0.00 0.00 25.00 5.00 0.00 0.00
2005 APIDC Biotech 0.00 4.00 0.00 0.00 0.00 2.01 0.00 0.00
2002 ATL 13.81 0.00 0.00 9.36 13.81 0.00 0.00 9.36
2003 ATL 1.00 0.00 0.00 0.00 0.68 0.00 0.00 0.00
2005 ATL 9.39 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2006 Atul Ltd 16.77 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2003 BHF 10.30 0.00 10.30 0.00 10.30 0.00 10.30 0.00
2004 BILT 0.00 0.00 15.00 0.00 0.00 0.00 15.00 0.00
2001 BTVL 0.43 3.98 0.00 0.00 0.43 3.98 0.00 0.00
2003 Balrampur 10.52 0.00 0.00 0.00 10.52 0.00 0.00 0.00
2001 Basix Ltd. 0.00 0.98 0.00 0.00 0.00 0.98 0.00 0.00
2005 Bharat Biotech 0.00 0.00 4.50 0.00 0.00 0.00 3.30 0.00
1984 Bihar Sponge 5.70 0.00 0.00 0.00 5.70 0.00 0.00 0.00
2003 CCIL 1.50 0.00 0.00 0.00 0.59 0.00 0.00 0.00
2006 CCIL 7.00 2.00 0.00 12.40 7.00 2.00 0.00 12.40
1990 CESC 4.61 0.00 0.00 0.00 4.61 0.00 0.00 0.00
1992 CESC 6.55 0.00 0.00 14.59 6.55 0.00 0.00 14.59
2004 CGL 14.38 0.00 0.00 0.00 7.38 0.00 0.00 0.00
2004 CMScomputers 0.00 10.00 2.50 0.00 0.00 0.00 0.00 0.00
2002 COSMO 2.50 0.00 0.00 0.00 2.50 0.00 0.00 0.00
2005 COSMO 0.00 3.73 0.00 0.00 0.00 3.73 0.00 0.00
2006 Chennai Water 24.78 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2003 DQEL 0.00 1.50 1.50 0.00 0.00 1.50 1.50 0.00
2005 DSCL 30.00 0.00 0.00 0.00 30.00 0.00 0.00 0.00
2006 DSCL 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2005 Dabur 0.00 14.09 0.00 0.00 0.00 14.09 0.00 0.00
2003 Dewan 8.68 0.00 0.00 0.00 8.68 0.00 0.00 0.00
2006 Federal Bank 0.00 28.06 0.00 0.00 0.00 23.99 0.00 0.00
2001 GTF Fact 0.00 1.20 0.00 0.00 0.00 1.20 0.00 0.00
2006 GTF Fact 0.00 0.00 0.99 0.00 0.00 0.00 0.99 0.00
1994 GVK 0.00 4.83 0.00 0.00 0.00 4.83 0.00 0.00
2003 HDFC 100.00 0.00 0.00 100.00 100.00 0.00 0.00 100.00
1998 IAAF 0.00 0.47 0.00 0.00 0.00 0.30 0.00 0.00
2006 IAL 0.00 9.79 0.00 0.00 0.00 7.70 0.00 0.00
1998 IDFC 0.00 10.82 0.00 0.00 0.00 10.82 0.00 0.00
2005 IDFC 50.00 0.00 0.00 100.00 50.00 0.00 0.00 100.00
IHDC 6.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2006 IHDC 7.90 0.00 0.00 0.00 0.00 0.00 0.00 0.00
113
2006 Indecomm 0.00 2.57 0.00 0.00 0.00 2.57 0.00 0.00
1996 India Direct Fnd 0.00 1.10 0.00 0.00 0.00 0.66 0.00 0.00
2001 Indian Seamless 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00
2006 JK Paper 15.00 7.62 0.00 0.00 0.00 7.38 0.00 0.00
2005 K Mahindra INDIA 22.00 0.00 0.00 0.00 22.00 0.00 0.00 0.00
2005 KPIT 11.00 2.50 0.00 0.00 8.00 2.50 0.00 0.00
2003 L&T 50.00 0.00 0.00 0.00 50.00 0.00 0.00 0.00
2006 LGB 14.21 4.82 0.00 0.00 0.00 4.82 0.00 0.00
2006 Lok Fund 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00
2002 MMFSL 7.89 0.00 7.51 0.00 7.89 0.00 7.51 0.00
2003 MSSL 0.00 2.29 0.00 0.00 0.00 2.20 0.00 0.00
2001 MahInfra 0.00 10.00 0.00 0.00 0.00 0.79 0.00 0.00
Montalvo 0.00 3.00 0.00 0.00 0.00 1.08 0.00 0.00
1996 Moser Baer 0.00 0.82 0.00 0.00 0.00 0.82 0.00 0.00
1999 Moser Baer 0.00 8.74 0.00 0.00 0.00 8.74 0.00 0.00
2000 Moser Baer 12.75 10.54 0.00 0.00 12.75 10.54 0.00 0.00
Nevis 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00
2003 NewPath 0.00 9.31 0.00 0.00 0.00 8.31 0.00 0.00
2004 NewPath 0.00 2.79 0.00 0.00 0.00 2.49 0.00 0.00
2003 Niko Resources 24.44 0.00 0.00 0.00 24.44 0.00 0.00 0.00
2001 Orchid 0.00 0.73 0.00 0.00 0.00 0.73 0.00 0.00
1997 Owens Corning 5.92 0.00 0.00 0.00 5.92 0.00 0.00 0.00
2006 PSL Limited 15.00 4.74 0.00 0.00 0.00 4.54 0.00 0.00
2004 Powerlinks 72.98 0.00 0.00 0.00 64.16 0.00 0.00 0.00
2004 RAK India 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00
1995 Rain Calcining 0.00 2.29 0.00 0.00 0.00 2.29 0.00 0.00
2004 Rain Calcining 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00
2005 Ramky 3.74 10.28 0.00 0.00 0.00 0.00 0.00 0.00
2005 Ruchi Soya 0.00 9.27 0.00 0.00 0.00 6.77 0.00 0.00
2001 SBI 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
1997 SREI 3.21 0.00 0.00 0.00 3.21 0.00 0.00 0.00
2000 SREI 6.50 0.00 0.00 0.00 6.50 0.00 0.00 0.00
1995 Sara Fund 0.00 3.43 0.00 0.00 0.00 3.43 0.00 0.00
2004 SeaLion 4.40 0.00 0.00 0.00 4.40 0.00 0.00 0.00
2001 Spryance 0.00 1.86 0.00 0.00 0.00 1.86 0.00 0.00
2003 Spryance 0.00 0.93 0.00 0.00 0.00 0.93 0.00 0.00
2004 Sundaram Finance 42.93 0.00 0.00 0.00 42.93 0.00 0.00 0.00
2000 Sundaram Home 0.00 2.18 0.00 0.00 0.00 2.18 0.00 0.00
2002 Sundaram Home 6.71 0.00 0.00 0.00 6.71 0.00 0.00 0.00
1998 TCW/ICICI 0.00 0.80 0.00 0.00 0.00 0.80 0.00 0.00
2005 TISCO 100.00 0.00 0.00 300.00 0.00 0.00 0.00 0.00
2004 UPL 15.45 0.00 0.00 0.00 15.45 0.00 0.00 0.00
1996 United Riceland 5.63 0.00 0.00 0.00 5.63 0.00 0.00 0.00
2005 United Riceland 8.50 0.00 0.00 0.00 5.00 0.00 0.00 0.00
2002 Usha Martin 0.00 0.72 0.00 0.00 0.00 0.72 0.00 0.00
2001 Vysya Bank 0.00 3.66 0.00 0.00 0.00 3.66 0.00 0.00
2005 Vysya Bank 0.00 3.51 0.00 0.00 0.00 3.51 0.00 0.00
1997 WIV 0.00 0.37 0.00 0.00 0.00 0.37 0.00 0.00
1997 Walden-Mgt India 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00
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2006 iLabs Fund II 0.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00
Total portfolio: 956.52 249.41 42.30 536.35 604.74 175.91 38.60 236.35
Approvals Pending Commitment
FY Approval Company Loan Equity Quasi Partic.
2004 CGL 0.01 0.00 0.00 0.00
2000 APCL 0.01 0.00 0.00 0.00
2006 Atul Ltd 0.00 0.01 0.00 0.00
2001 Vysya Bank 0.00 0.00 0.00 0.00
2006 Federal Bank 0.01 0.00 0.00 0.00
2001 GI Wind Farms 0.01 0.00 0.00 0.00
2004 Ocean Sparkle 0.00 0.00 0.00 0.00
2005 Allain Duhangan 0.00 0.00 0.00 0.00
Total pending commitment: 0.04 0.01 0.00 0.00
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Annex 14: Country at a Glance
India: Scaling Up Sustainable and Responsible Microfinance Project
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