IFMR Trust Annual Report Final

8/3/2019 IFMR Trust Annual Report Final

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2010 - 20112010 - 2011

AnnualAnnualReportReport


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Our mission is to ensure thatevery individual and every

enterprise has completeaccess to financial services.


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Contents

01From the Chairperson

06From the President

13Our Investee Companies

21People and Values

28Financials


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Financial inclusion is not a new goal for India and it has always been

the stated aim of financial sector policy to seek to include four critical

segments: project finance, small and medium enterprises, low-income

households and farmers. More recently, infrastructure and municipal finance

have been added to the list. I can think of three distinct phases in

the Indian journey towards this goal.

The first phase was pre1994, before the arrival of the new-generation

private sector Deposit taking Institutions (DIs ). During this phase,

post the nationalisation of DIs almost two decades earlier, the system was

dominated by the government owned DIs that sought to achieve

financial inclusion largely through branchbased efforts, for small businesses,

low-income households and farmers and through specialised Development

Finance Institutions (DFIs), for project finance. While researchers

(Pande and Burgess, 2005) found clear impact on poverty wherever branches

were opened by these DIs, the impact on the overall challenge of financial

inclusion was very limited. In addition, asset quality/solvency and

costtoserve were the serious challenges associated with the model and even

led to a few DIs ending up with a negative Net Worth. These solvency

problems were however, not visible to their depositors since the DIs werelargely government owned and were, almost automatically, recapitalised.

Liquidity was also not much of a challenge during this period due to the

limited nature of interDI trading and liquidity transfers therefore largely

taking place between various internal divisions of the DIs. For a variety of

reasons, the efforts on DFI led project finance also did not make the desired

level of progress. Post the 1991 liberalisation of the Indian economy,

most of the DFIs eventually became insolvent and transformed themselves

into full service DIs by raising capital through either commercial sources or

recapitalisation by the government and for a period of time almost entirely

ceased project finance activities.

In the second phase post1994, several new-generation private sector DIs were

licensed and parallely there was the emergence of high-quality institutional

equity market infrastructure (SEBI, NSE, NSDL) coupled with the entry of

Foreign Institutional Investors (FIIs). As a direct consequence of these

developments, there were some improvements on the inclusion front,

From the Chairperson

01IFMR Trust Annual Report 2010 - 2011

Pre

1994:Dominated by

governmentowned DIs

Post

1994:Emergence ofhigh-quality

institutional equity

market

infrastructure

and Foreign

Institutional

Investors


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02 IFMR Trust Annual Report 2010 - 2011

particularly for middle-income households for products such as home and

two-wheeler loans offered to them through a combination of branchbased

efforts and a few specialised intermediaries, as well as for larger companies

seeking equity finance directly through capital markets. There was however,

very limited progress on the inclusion of lowincome households, small and

medium enterprises and farmers. During this phase there were distinct

improvements in asset quality and solvency of DIs on account of the fact that

there were more DIs that were closer to the customer and some degree

of interDI transfer of assets created visibility on asset quality. However,

for this very reason and because of the fact that the government was no longer

the sole owner of all the large DIs, there was a definite increase in the risk

of liquidity and solvency shocks.

The third phase started in the late nineties and has seen the emergence

of specialised Non-Deposit Taking Institutions (NDIs) focussing on

financial inclusion. They have started to make contributions to inclusion for

various segments including short-term liquidity needs of low-income

households through jewel loans and microfinance; second-hand vehicle

finance and other kinds of equipment and commercial vehicle finance

at the retail end of the spectrum; and debt finance for infrastructure anddistressed assets at the wholesale end. These NDIs have largely accessed

liquidity via the DIs with some access to debt-capital markets and have

brought to bear additional equity capital of their own to cushion the DIs

against possible credit risks arising from these less familiar businesses.

With the exception of asset problems arising out of the challenge posed by

the Andhra Pradesh government to the RBI on the regulation of financial

institutions (both DIs and NDIs), the quality of assets originated by

these specialised NDIs has been consistently strong. This approach,

even though narrowly product-focussed, seems promising and was also

underscored by RBIs Narasimhan Committee in 1998.

However, during this period for some reason, official policy seems to have

become considerably more hawkish towards these specialised NDIs viewing

them as competitors of DIs instead of, as had been originally envisioned by

the Narasimhan Committee, as extenders of the outreach that DIs could

provide on their own and as innovators and risk takers that would cushion

Late

90s:Emergence of

specialised NDIs


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the DIs from credit losses and costs arising from these newer businesses,

through their additional capital and their much lower-cost delivery structure.

Rather than encourage the deployment of additional capital by these NDIs and

the naturally emerging specialisation in roles between DIs and NDIs,

policy seems much more supportive of direct efforts by DIs (through owned

branch networks or agents who dont have capital at risk) almost to the point

of compelling them to do this, even though the rising tide of non-performing

assets amongst the DIs, particularly in the priority sectors and the failure

of the no-frills savings accounts to take off, seems to challenge the wisdom

of such an approach and harks back to the first, pre-1994, phase of this

journey. In my view, this approach is not only not serving the interests

of high-quality financial inclusion but is also potentially building-up

a non-performing asset bubble even in systemically important DIs that may

become too large for fresh rounds of recapitalisations and farm-loan waivers

by the central government to be feasible. This could therefore start to weaken

systemic stability because the institutions at risk will no longer be small

Regional Rural Banks and Cooperative Banks, as in the past, but large

systemically important DIs.

The third phase has also seen the emergence of another set of very importantphenomena - the increase in the use of non-branch channels such as ATMs

for cash and non-cash channels for payments (credit cards and electronic

transfers) and integrated customer level sales channels for multiple financial

products (bancassurance, Business Correspondents). These trends, which are

currently in their early stages, coupled with efforts such as the Universal Identity

(Aadhaar), have the potential, over time, to bring about some fundamental

change in the very architecture of financial services and their regulation.

In my view, all of these experiences and concerns need to be borne in mind

as we think ahead on the directions we should pursue if we want to

significantly impact inclusion while ensuring that depositor protection,

systemic stability and national growth objectives are not compromised.

We must not repeat phase one mistakes or fail to capitalise on the momentum

of phase three. It seems clear to me that issues such as customer protection

are going to become more and more important even while we are pursuing

financial inclusion goals. And, while the country definitely needs to improve


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outreach in a manner that achieves these objectives, it also needs to ensure

that there is the rise of very large financial institutions that are equal

to the task of meeting the project, infrastructure and municipal finance needs

of one of the fastest growing economies in the world while simultaneously

ensuring systemic stability.

IFMR Trusts (the Trust) goal has been to identify and make progress

on directions that make access to financial services universal but do not

compromise systemic stability. The Trust has taken the carefully considered

view that the only way to do this is to build on the separate natural strengths

of DIs and specialised NDIs. In the Trusts view the DIs need to grow

into directly regulated, very transparent, very large institutions while the NDIs

need to proliferate with regulatory oversight coming not from the regulator

directly, but indirectly from the DIs and the capital markets. One of the goals

that the Trust has set for itself has been to demonstrate that NDIs that

simultaneously meet the goals of extremely low-cost financial inclusion

and very high-quality of customer protection are not merely a utopian ideal

but are indeed feasible to build and operate. Since 2008, the Trust team has

made excellent progress on this goal. Through IFMR Rural Finance and

its Kshetriya Gramin Financial Services (KGFS) companies, they havedelivered on a new approach to origination that takes a Wealth Management

approach (rather than a product-selling approach) and yet keeps costs low

by bringing to bear cutting-edge technologies and superior training of locally

hired staff. This approach tightly customises a portfolio of financial products

for a household depending on its unique needs and in the process, transfers

complexity from the household to the provider while holding the provider

responsible for the quality of guidance and the appropriateness of the

products offered to the household on a longer term basis.

On the issue of provision of liquidity from the DIs to the NDIs, while

maintaining enhanced oversight of the NDIs, the view that the Trust has taken

is that there is a need for large national level bridge institutions that focus

entirely on linking the myriad NDIs that are necessary for financial inclusion

with the large DIs and capital markets and effectively transmit systematic

Since

2008the Trust has

demonstrated that

it is feasible for

NDIs tosimultaneously

meet the goals of

extremely low-cost

financial inclusion

and very high

quality of customer

protection


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risk and liquidity, while retaining idiosyncratic risk with the original NDIs.

Towards this goal, through IFMR Capital, they have made important

contributions towards demonstrating the manner in which large volumes

of liquidity can be provided from DIs and capital markets to NDIs and have

innovated several products that enable this liquidity transfer to happen

smoothly and without moral hazard.

The Trust has also contributed strongly to the emerging dialogue on national

regulatory systems with regard to customer protection and to the direction

in which the regulation of DIs and NDIs must proceed.

I want to wish the team the very best in their journey ahead.

Nachiket Mor


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It is our belief thatgood origination

follows a Wealth

Management

approach with the

customer.

Origination

includes all the

customer facing

functions across

various financial

services

From the President

The mission of IFMR Trust is to ensure that every individual and every

enterprise has complete access to financial services. I take this opportunityto share our progress towards the mission.

In order to achieve and sustain the mission, it is our belief that the three pillars

of the Indian financial system have to be significantly strengthened: Origination,

Risk Transmission and Risk Aggregation. Within these three pillars, we have

chosen to directly focus more on Origination and Risk Transmission while staying

broadly engaged on the Risk Aggregation issues.

I briefly summarise our progress so far under each pillar below:

1. Origination

1.1: The IFMR Trust Vision for Origination:

This pillar includes all the customer facing functions across various financial

services - be it underwriting a loan, selling/settling an insurance policy

or accepting savings/money market fund deposits. It is our belief that good

origination follows a Wealth Management approach with the customer. The key

elements of this approach are: 1. A deep understanding of the circumstances

and aspirations of each household; 2. An ability to execute a customised financial

plan for every household, of which products are the instruments to do so;

3. Origination processes that are characterised by the Jonathan Morduch tests

of continuity, reliability, flexibility and convenience; 4. All success metrics of the

originator to be linked to financial wellbeing of the customer household, including

ex-post liability for poor outcomes that result from mis-sale of financial services;

5. Originator to deploy capital against associated credit, market and operational

risks even when performing the role of an agent for a national entity;

6. Originator to be local in character with a population served not exceeding

5 million individuals (typically two to three districts of the country); 7. Operations

to be branch based with a strong physical presence, supported by very high levels

of automation and technology to keep costs low.

1.2: Strategy:

Our key intervention here is the development and replication of the

Kshetriya Gramin Financial Services (KGFS) model as the gold standard of


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high-quality origination. In the process of building out the KGFS, we will engage

with the practical and regulatory barriers that are constraints. We will put in thepublic domain all our learning associated with this process.

Through advocacy, we will participate actively in the process of re-defining

the standards and expectations of an originator.

While KGFS Capital Partners will own a set of KGFS directly; through IFMR Rural

Finance, we expect to work with a wide variety of institutions to replicate the KGFS

model. We estimate that the country needs at least 300 KGFS-type entities.

In addition, we will continue to provide product design and other forms

of support to other originators (such as Microfinance Institutions, Regional Rural

Banks, Cooperative Banks, Local Area Banks, Housing Finance Companies,

Business Correspondents, Business Facilitators, SME focussed Non-Bank Finance

Companies) recognising that in order to serve under-banked populations

a multiplicity of approaches would be needed, not just the KGFS model.

1.3: Progress to date:

The key milestones on this function to date are:

- Implementation of the KGFS model in three distinct regions of Tamil Nadu,

Orissa and Uttarakhand with a network of 106 branches serving about

1415 villages and a client base of 150,000.

- Articulating and implementing the Wealth Management approach on the

ground. We have overcome the perception that while being a worthy goal,

the execution of this approach is not possible at scale. We have addressed this

through codification of the process and building back-end diagnostic

capability that aids the wealth managers to do their roles. Today, across all

106 KGFS branches, Wealth Managers practise their daily ritual of discussing

a customer case, are able to understand and share with the customer

a financial wellbeing strategy based on the Plan-Grow-Protect-Diversify

framework and take moral responsibility for the customers financial

wellbeing. We have demonstrated the validity of the business model.

A significant cohort of branches across all three regions has achieved

break-even and the path to the entitys profitability is visible. This is an

Our key

intervention here is

the development

and replication of

the Kshetriya

Gramin Financial

Services (KGFS)

model as the gold

standard of

high-quality

origination.


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As of March 31,

2011, more than

800,000customers were

enrolled under theNew PensionSchemeLite

through variousAggregators


important pre-condition for replication.

- We have built out a product suite that is more complete than anything offered

by a rural financial institution to date. The product range today includes

unsecured and secured loans (for households and businesses), insurance

(life, personal accident, and livestock), pensions, and remittances.

Any interested originator can leverage this product development effort.

- More broadly, we have brought to the fore the need to take a demand-centric

approach to financial inclusion. Through a variety of research projects that we

have supported and through incubation support to research institutions such

as the Centre for Micro Finance, the Centre for Innovations in Financial

Design and Inner Worlds, there is a lot of attention to the demand side issues.

- We have had good success with the Pension Funds Regulatory and

Development Authority (PFRDA) in persuading them of the validity of the

Accredited Intermediary (AI) model as an approach to origination for pension

products. As a direct consequence of our work with them, they have

formulated the Aggregator guidelines. As of March 31, 2011, more than

800,000 customers were enrolled under the New Pension SchemeLite

through various Aggregators.

- We have built a strategic partnership with the State Bank of India (SBI)

with a view to impact their own origination strategy in the long-term.

In the short-term, we have worked with them to refine their BC/BF models.

We have incubated IFMR Mezzanine to increase the base of local high-quality

originators in the country.

1.4: Key priorities for the future:

- We need to build regulatory support for the notion of specialised high-quality

originators or Accredited Intermediaries (AIs). AIs can be of multiple legal

forms, but will have adequate operating capability and an ability to commitcapital to the relevant Financial Institution that they partner with. The current

regulatory/policy framework is aligned to direct large aggregators to originate

directly/through remote operations rather than to partner with specialised

originators who are able to deploy risk capital.

- Achieving regulatory clarity and certainty of frameworks for non-bank

originators like KGFS, such that a unified front-end is feasible for

the customer. Currently, multiple regulatory frameworks have resulted

As a directconsequence of our

work with thePFRDA, they have

formulated theAggregatorguidelines.


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From the President

in restrictions on services that can be offered at the front-end.

We are pursuing the Accredited Intermediary approach with the Securities

Exchange Board of India (SEBI) for origination of money market and index

funds.

- Entering into strategic alliances with domestic financial institutions

and others to take forward the KGFS replication in a non-linear manner.

- Solving the product gap for a high-quality short-term savings product.

- Product/model development for rural infrastructure (roads, sanitation) finance.

- Defining and building regulatory support for the notion of originators

responsible for financial wellbeing with ex-post liability.

2. Risk Transmission

2.1: The IFMR Trust vision for transmission:

Here, the attempt is to ensure that systematic risk (defaults due to exogenous factors

such as rainfall failure and political events, for example) can be transferred in an

orderly manner from local originators to national aggregators, who are much better

placed to diversify these risks across multiple originators and geographies. This is an

important complement to the notion of local originators so that their access to

liquidity can be smooth without compromising on the principles of sound origination.

Our vision is to create infrastructure that will enable such risk transmission as well as

create a conducive policy environment for the same. For most other products while

this is relatively straight forward through the use of technology directly at the level

of the originator, for transmission of credit risk since, in our thinking, the local

originator is expected to continue to hold on to idiosyncratic risk and only shed

systematic risk, a special effort needs to be launched to address the challenges

of credit risk transmission.

2.2: Strategy:We have incubated IFMR Capital as a vehicle in order to enable systematic credit risk

transmission for local originators such as KGFS and Microfinance Institutions (MFIs)

to begin with. We will grow IFMR Capital to be a significant-sized Financial

Institution that can provide risk transmission to a large number of originators across

diverse asset classes: microfinance, low-income housing finance, small business

finance and others.

Our vision is to

create

infrastructure that

will enable risk

transmission as

well as create a

conducive policyenvironment

for the same

We will grow

IFMR Capital to be

a significant-sizedFinancial Institution

that can provide

risk transmission

to a large number

of originators

across diverse

asset classes


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In our advocacy work, we are opposed to the notion of warehousing of systematic

risks by small, under-capitalised entities. For instance, we have expressed

concern regarding the proposed legislation to permit deposit taking for small

NGOs in the country. We will continue to advance this position.

2.3: Progress to date:

IFMR Capital

- Through its work, IFMR Capital has been successful in providing capital markets

access to 15 small and medium sized MFIs in India and unlocked cumulative debt

of INR 8.00 billion for these entities.

- IFMR Capital has received a first-time credit rating of A (long term) and is a

profitable entity (INR 16.0 million PAT in 2010-2011).

- The underwriting guidelines developed by IFMR Capital are rapidly emerging

as a robust framework to assess MFI risk.

- We have developed a number of capital market products that allows originators

to transfer risk. This includes securitisation for MFIs, multi-originator

securitisation for small MFIs, Non-Convertible Debentures and rated portfolio

assignments.

- We have diversified the base of investors in MFIs by bringing in Mutual Funds,

Non-Banks and Private Wealth. This creates a buffer against liquidity shocks

and increases the intensity of market supervision.

- We have participated in shaping regulation for securitisation and the listing

of securitised debt.

Savings, Insurance and Derivatives

- Through the work of the Agricultural Terminal Markets Network Enterprise

(ATMNE), we have developed a model for small farmers to access national

commodity spot markets to manage post-harvest commodity price risk.

2.4: Key priorities for the future:

For IFMR Capital

- Increasing the scope of work to include originators beyond MFIs to also include

originators of other products such as home improvement loans, housing loans,

small business working capital and asset-backed finance

(gold, light commercial vehicles).

- Ensuring that the policy framework for securitisation is enabling.

Through the work

of the Agricultural

Terminal Markets

Network

Enterprise

(ATMNE), we have

developed a model

for small farmers

to access national

commodity spot

markets


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From the President


Savings, Insurance and Derivatives

- Expanding the scope of the risk transmission work into insurance markets

to understand barriers to reinsurance in life and non-life products.

- Developing products for interest rate risk management for local originators.

- Strengthening the Business Correspondent framework so that the case for

small originators taking deposits on their own is weakened.

- Product development to improve ability of farmers and farm enterprises

to transfer price and weather risk.

3. Risk Aggregation:

This pillar entails the presence of a set of well-capitalised, well-managed,

well-supervised and large financial institutions (Commercial Banks,

Asset Management Companies, Insurance Companies) that can manage risk

effectively. In the absence of this, the ability of originators to access liquidity

smoothly is constrained. This pillar largely speaks to the depth of the

financial sector and therefore its capacity to intermediate. Since this is an issue

that many groups and institutions are engaged with, we have felt that

our comparative advantage is low here. However, through a proposed Summer

Conference series commencing in August 2011, we will shine the light

on issues to do with adequacy and performance of Aggregators. We will engage

with a group of financial market researchers in India and abroad who are

tracking this issue over a long-term.

I hope the report was successful in conveying my sense that we have unique

opportunities as a country to make rapid advances on financial inclusion without

in any way compromising the stability of our financial system, some of which

we are leveraging and others where we are dithering. At IFMR Trust, we remain

deeply committed to participate in and accelerate this process. Success here

is critical to realising the national goal of growth with inclusion.

Risk aggregation

entails the presence

of a set ofwell-capitalised,

well-managed,

well-supervised and

large financial

institutions

that can manage

risk effectively


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I want to thank the Governing Council of IFMR Trust for their constant support

and guidance. I also thank the team at IFMR Trust and our investee companies

for bringing deep expertise and commitment to the achievement of our mission.

Bindu Ananth


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Our Investee Companies

IFMR Capital

IFMR Capital connects high-quality originators so that they may deepen

their presence and provide access to financial services to millions of under-served

households. IFMR Capital does this by, (i) identifying high-quality originators

using its stringent Underwriting Framework; (ii) catalysing debt capital markets

by investing its capital and providing financial guarantees; (iii) using financial

structuring expertise to achieve efficient pricing for clients and (iv) by utilising

financial tools such as repackaging, securitisation, and credit enhancement

to tailor products to match the risk profiles of different categories of investors.

IFMR Capital commenced the last financial year with a commitment to scale up

its impact, strengthen its risk management and develop new products which wouldprovide complete debt financing solutions. IFMR Capital was able to achieve

significant progress in these objectives, despite the microfinance sector facing

significant headwinds. Presented below is a snapshot, capturing IFMR Capitals

achievements over the past year.

Loans to Originate Securitisation

Volume of Transactions

2009 2010 2011

11

157638

313 945

5100

INR 168mn INR 951mn INR 6045mn

Total volume of Debt



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Geographic Distribution of Portfolio

Asirvad Micro Finance

Cashpor Micro Credit

Capital Trust

Disha Micro Finance

Equitas Micro Finance

Grama Vidiyal Micro Finance

Grameen Financial Services

Mimoza Enterprises Finance Pvt. Ltd.

Pudhuaaru Kshetriya Gramin Financial Services

Sahayata Microfinance

Samasta Microfinance

Satin Creditcare

Sonata

Shalom Microfinance

Suryoday Micro Finance

SV Creditline Private Limited

Utkarsh Micro Finance

Vistaar Livelihood Finance

Janalakshmi Financial Services

Ujjivan


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Investor Classes

2009

2010

2011

Banks Mutual

Funds

NBFCs Private

Wealth

Offshore

Funds

IFMR Rural Finance

IFMR Rural Finance has developed the Kshetriya Gramin Financial Services

(KGFS) model. These geographically focused entities, covering a population

of around five million, provide customised financial products and services that are

relevant to the customers in an efficient and convenient manner through

a network of branches in remote rural areas.

IFMR Rural Finance has, over the years, developed several innovative financial

products spanning assets, investments, insurance and remittances. In the last

financial year, KGFS expanded its product portfolio with the launch of Livestock

and Housing Finance products; NPS-Lite (National Pension Scheme - Pension

Fund Regulatory and Development Authority (PFRDA)); Group Term Life

Insurance and Shopkeepers Insurance Policy (Sahastradhara KGFS);

and International Remittance and Domestic Remittance.

The Core Banking Solution (CBS) is used in KGFS Branches to capture and

update transaction data on a real-time basis. The Fidelity Information Services (FIS)

Core Banking Solution (CBS) was operationalised on April 1, 2010.

All KGFS Branches access the Fidelity profile on a real-time basis. A full

Customer Management System (CMS) acts as an online centralised warehouse

of all customer data. The CMS is a comprehensive enrollment and transaction

processing system, developed in-house and supports multi-product and multi-tenant

architecture. It provides interfaces to integrate with other service providers




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systems like Insurance and Computer Age Management Systems (CAMS).

Forms and transactions are generated and submitted electronically to reduce

paper usage. The Learning Management System (LMS) platform is a one-stop

shop for all learning and content management needs of KGFS. This platform has

been developed using open source tools. The Centralised Audit System (CAS) is

an online system developed using open source tools, which captures the audit

findings of KGFS Branches in a structured manner. It tracks audit issues

as per the scheduled routine and captures them in a format that renders data

warehousing easy and the same can be used for analysis at a later stage.


PRODUCT

PORTFOLIO

AssetProducts

Liability and

InvestmentProducts

Joint Liability Group Loan

Emergency Loan

Jewel Loan

Housing Finance

Retailer Loan(Working Capital and Term Loan)

Gold Plan

Salary Loan

Livestock Loan

Personal Accident Insurance

Term Life InsuranceLivestock Insurance

Money Market Mutual Funds

National Pension Scheme-Lite

Gold Coin Scheme


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KGFS Capital Partners (KCP)

KGFS Capital Partners (KCP) invests in Kshetriya Gramin Financial Services

(KGFS) companies. KCP owns three KGFS - Pudhuaaru KGFS, Dhanei KGFS

and Sahastradhara KGFS.

As of March 2011, all three KGFS together had an extensive network of 104

branches with more than 150,000 enrolled customers, and 481 staff members,

including 389 Wealth Managers. KGFS ended the financial year with an asset

portfolio of INR 560 million, over 50,000 borrowers and more than 76,000

customers availing of non-asset products. KGFS added four new funding partners,

both banks and non-banks, raising a total of INR 536 million, INR 337 million

as senior debt and INR 66 million through portfolio sale. Pudhuaaru KGFS alsocompleted its first securitisation transaction worth INR 133 million. It received

a rating of alpha minus (-) from M-CRIL and LBB from ICRA.

KGFS undermanagement

Pudhuaaru

Sahastradhara Dhanei




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Sahastradhara

Tehri Garhwal

682villages

Pudhuaaru

Thanjavur

119villages

Dhanei

Ganjam

614villages


Geographic Spread


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IFMR Mezzanine

IFMR Mezzanine believes that access to adequate long-term risk capital can

provide a fillip to existing players that have strong systems and processes, but are

unable to attract equity or capital from mainstream institutions for reasons such as

legal structure or size. IFMR Mezzanine focuses on identifying such institutions

in the microfinance sector, needing access to risk capital but unable to access it,

by providing access through instruments like deeply subordinated debt.

In the past year, IFMR Mezzanine conducted preliminary due diligence on over

fifty MFIs including Societies, NBFCs and Section 25 companies. The company

also completed its first investment in an NBFC-MFI based in Bihar, Saija Finance

Private Limited.

IFMR Ventures

IFMR Ventures is focused on enabling access to finance for Small, Medium

and Micro Enterprises.

Small, Medium and Micro Enterprises (SME) viability is hard to establish and

risks are hard to quantify. There are a set of external risks that can threaten the

viability of a well-run SME. Lenders are usually deterred by the high exposure

of SMEs to these risks.

As the primary reason behind the lack of flow of debt funds into SMEs is their

exposure to risks, a suitable solution to this problem would entail a set of

measures which address these external risks that the SMEs face. In order

to enable that, IFMR Ventures is incubating multiple sector focussed supply chain

companies, called Network Enterprises (NEs), which are looking at SMEs from a

supply chain lens and are designing solutions which address the external risks

faced by the SMEs in that sector. Through different pilots across India, these NEs

are trying to validate the business model around the solutions.


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Focus Sectors

Highlights

AgriculturalTerminal

Markets

AgriNE

Rural

Energy

RENE

DairyDNE

Rural

Tourism

RTNE

Agri NE:1000 Farmer Customers.10 Procurement Agents.Total Volume (Total of bothexchange traded volumeand volume tradedoff-exchange) -INR 28,910,594 and812 Metric Tonnes.

DNE:Facilitated cattle insuranceproduct development andsale to 600 farmers.

25 village level entrepreneurnetworks built in TamilNadu.

RTNE:500 home stays.15 active agents.Total room nights sold: 3157.

Total Value of Salesfacilitated: INR 6,764,787.

RENE:30 agents network built inThanjavur.19 innovative productcompanies and a total of 30products listed on goScale(www.goscale.in).

Presented below are the highlights of the year for IFMR Ventures' incubatee companies.


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Our Values

1. We have a deep belief in the power of financial markets to positively impact

wealth and wellbeing. Individuals should have the freedom to access

financial markets independently. We strongly believe in decision making

capabilities of individuals using market information.

2. We will bring a sense of ownership and urgency towards every aspect of our

work and to the achievement of our mission. Our work is important and

the time to act is NOW. Our collective mission to ensure complete access

to finance to every individual and every enterprise will be realised through

our collective efforts and each of us has a responsible role to play. We will

not rest until our mission is accomplished.3. We will bring deep expertise and excellence to bear in everything that we do.

We recognise the importance of investing in our skills. Our work has a deep

impact in the lives of many households. Our expert advice will positively

impact their lives. We will continuously sharpen our skills to stay ahead

of the curve and set benchmarks for others to follow.

4. We recognise that profitability is essential to the achievement of our mission.

We recognise that if every individual and every enterprise has to have

complete access to financial services that are continuous and reliable, then

these services must be sustainable in the long term.

Governing Council

Nachiket Mor

Nachiket Mor is a Yale World Fellow; has a Ph.D. in

Economics from the University of Pennsylvania with a

specialisation in Finance from the Wharton School; an MBA

from the Indian Institute of Management, Ahmedabad;

and an undergraduate degree in Physics from the Mumbai

University.

While completing his Ph.D., he was associated with a Philadelphia based hedge

fund (Quantitative Financial Strategies) for three years. He has worked with

ICICI from 1987 to 2007 in a variety of jobs, including Corporate Planning,

Project Finance, Rural Finance and Treasury and was a member of its

Board of Directors from 2001 to 2007. From October 2007 to August 2010, he

assisted ICICI in setting up a philanthropic foundation, the ICICI Foundation for


People and Values


25/57

Inclusive Growth and served as its founding President. He is now the Chairman

of the Boards of Sughavazhvu Health Care, CARE India and IFMR Trust

and is closely involved in the evolution of these three organisations in India.

He is currently also an independent member of a few other Boards including

CRISIL, IKP Trust and IKP Centre for Technologies in Public Health and

the Institute for Financial Management and Research. He was a member of three

recent Central Government Committees: the High Powered Expert Committee

on Urban Infrastructure, the Technical Advisory Group on Unique Projects and

the Committee to Review Implementation of Informal Sector Pension. In the past

he has served as the Chairman of the Fixed Income Money Market and

Derivatives Association of India for two years and as a Board Member of WiproLimited for five years.

Deidra Wager

Deidra Wager, Executive Vice President, Starbucks Coffee

Company, retired in 2005 to pursue an interest in

non-profit work and sustainable agriculture. She is on

the board of CARE USA and is a founding member and

board member of The Lacewing Foundation dedicated

to girls' education and maternal health. She is also on the

board of YouthCare, a Seattle-based agency serving

homeless youth.

During her 13-year tenure at Starbucks, Ms. Wager was instrumental in

developing the company's operating infrastructure. She has a consulting practice

specialising in retail strategy development and implementation.

Dr. Tilman Ehrbeck

Dr. Tilman Ehrbeck joined CGAP as its CEO in October

2010. Prior to CGAP, Dr. Ehrbeck was a partner with

management consulting firm McKinsey & Company, where

he held a series of leadership positions in the firms global

Banking & Securities and Healthcare Payor & Provider

Practices.

He has worked in Africa, Asia, Europe, and North America. He was part of the

leadership of the firms Indian operations in 20052009.



26/57

Over the past 10 years, he has advised a number of governments, microfinance

networks, foundations, and commercial players on a variety of financial inclusion

issues ranging from new products and services aimed at better meeting

underlying end-user needs, to new business models significantly lowering

operating costs, to enabling infrastructure and policy interventions.

Dr. Ehrbeck holds a Ph.D. in Economics from the European University Institute,

the graduate school and research centre sponsored by the European Union,

and an undergraduate degree from the University of Hamburg.

W Bowman Cutter

Bowman Cutter joined the Roosevelt Institute inNew York City on October 1, 2009 after retiring

as a Managing Director from Warburg Pincus.

Prior to Warburg Pincus, Mr. Cutter came directly from

a senior economic policy role in the Administration of

President William Clinton. He has served with distinction

during two Democratic presidencies: as Director of the

National Economic Council and Deputy Assistant to the President from 1992 to

1996 during the Clinton Presidency; and as Executive Director for Budget

at the Office of Management and Budget (OMB) from 1976 to 1981 during the

Carter Presidency. Mr. Cutter also served as leader of the OMB transition team

after the election of President Obama.

From 1981 to 1993 Mr. Cutter was Vice Chairman and Managing Partner at

Coopers & Lybrand, the large, decentralised global accounting and consulting

firm that subsequently merged with Price Waterhouse.

Mr. Cutter's central public policy interest has been the development and

management of economic policy, and in particular the issues related to economic

growth, development, and the alleviation of poverty. He has worked extensively

with the World Bank; he is currently the Chairman of the Board of CARE, and is

also a founder and current Chairman of MicroVest.

Mr. Cutter holds degrees from Harvard University, the Woodrow Wilson School at

Princeton University, and Oxford University, where he was a Rhodes Scholar.

He is a member of the Executive Committee and immediate past Co-chairman of


People and Values


27/57

the Committee for Economic Development, a Board member of Resources for the

Future; and a Board member of the Russell Sage Foundation. He is also a member

of the New York Council on Foreign Relations.

H N Sinor

H.N. Sinor is a graduate in Commerce and Law.

His illustrious career has spanned 43 years in the banking

sector. He has had exposure to the working of both public

sector and private sector banks and has hence, had the

experience of both the phases of nationalisation and

liberalisation in this sector.

He started his career in 1965 with Central Bank of India and in 1969 moved to

Union Bank of India where he worked for 28 years. In 1996, he was appointed

as Executive Director of Central Bank of India. After serving for 7 months in

Central Bank of India, he moved to ICICI Bank in July 1997 as Executive Director.

On June 1, 1998, he took over as Managing Director & CEO of ICICI Bank.

After the merger of ICICI and ICICI Bank in 2002, he was the Joint Managing

Director of ICICI Bank Limited and retired from the services of the Bank w.e.f.

May 31, 2003. Thereafter, he joined Indian Banks Association as Chief Executive

on June 1, 2003 and held this position till July 31, 2008. Currently he is the

Chief Executive of the Association of Mutual Funds in India, to which post

he was appointed on February 25, 2010.

Bindu Ananth

Bindu Ananth is currently the President of IFMR Trust

and has held that position since January 2008. In this

capacity, she also chairs the Boards of all investee

companies of IFMR Trust. Prior to this, Ms. Ananth

worked in ICICI Banks microfinance team between 2001

and 2005 and was Head of the new product development

team within the Rural Banking Group in 2007.

She has an under-graduate degree in Economics from Madras University

and masters degrees from the Institute of Rural Management (IRMA) and

Harvard Universitys John. F. Kennedy School of Government. She is a Fellow

of the Global Economic Society.



28/57

People and Values


Ms. Ananth has published in the Economic and Political Weekly, OECD Trade

Paper Series and the Small Enterprise Development Journal. She is also

a member of the FICCI taskforce on financial inclusion.

Our Team

We are a team of professionals with a deep belief in the transformational impact

of finance and well-functioning finance markets, particularly for low-income

households.


29/57


IFMR Trust Executive Group

Bindu Ananth

Puneet Gupta

Puneet Gupta has been working with IFMR Trust since

October 2007. Prior to his joining IFMR Trust,

Mr. Gupta worked for ICICI Bank for a period

of 6 years in the areas of education, microfinance and

rural finance. He was responsible for identification and

development of new channels and products for

delivering microfinance and financial services to rural

households. He was also involved in developing models

for attracting private equity investment in the microfinance sector.Mr. Gupta is a commerce graduate with a masters degree in Rural Management

from Institute of Rural Management, Anand (India).

Sucharita Mukherjee

Sucharita Mukherjee led the origination and structuring

effort in credit derivatives and structured finance for

corporates at Morgan Stanley in London before she

joined IFMR Trust. Her work included developing

innovative asset-backed financing structures in such

areas as intellectual property and health-care

receivables. She was also part of the credit derivatives

team at Deutsche Bank in London, structuring

credit-derivatives-linked repackaged investments for financial institutions.

Ms. Mukherjee holds an MBA from IIM, Ahmadabad.


30/57

People and Values


S G Anil Kumar

Anil Kumar spearheads the establishment of a

nationwide network of Regional Financial Institutions

called Kshetriya Gramin Financial Services. Mr. Kumar

has been in the Rural and Microfinance space since 2005

as Head of Micro Finance Institution Development Team

in ICICI Bank prior to this assignment. This team has

been behind the creation of a footprint of over 200 MFIs

across the country for ICICI bank. Mr Kumar holds

a masters degree in Management from Asian Institute of Management, Manila,

Philippines, and a bachelors degree from Osmania University, Hyderabad.

Dave Wallack

Dave Wallack served as a political campaign operative

and consultant for dozens of political candidates

throughout the United States of America and worked as

an agent of several committees of the national

Democratic Party in the United States of America.

After completing his MBA he advised technology and

entertainment ventures, nonprofit organizations, and

political organizations on organizational and leadership

development. Mr. Wallack earned his MBA from

Stanford University after completing graduate study in Demography and

Population Studies at Georgetown University.


31/57


Financials

Auditors Report to the Trustees of IFMR Trust

1. We have audited the attached Balance Sheet of IFMR TRUST (the Trust)

as of March 31, 2011, the Profit and Loss Account and the Cash Flow

Statement of the Trust for the year ended on that date, both annexed thereto.

These financial statements are the responsibility of the Trusts Management.

Our responsibility is to express an opinion on these financial statements

based on our audit.

2. We conducted our audit in accordance with the auditing standards generally

accepted in India. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatements. An audit includes examining,

on a test basis, evidence supporting the amounts and the disclosures in the

financial statements. An audit also includes assessing the accounting

principles used and the significant estimates made by the Management,

as well as evaluating the overall financial statement presentation. We believe

that our audit provides a reasonable basis for our opinion.

3. We report that:

(a) We have obtained all the information and explanations which to the

best of our knowledge and belief were necessary for the purposes of our audit.

(b) In our opinion, proper books of account as required by law have been

kept by the Trust so far as it appears from our examination of those books.

(c) The Balance Sheet, the Profit and Loss Account and the Cash Flow

Statement dealt with by this report are in agreement with the books of account.

(d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash

Flow Statement dealt with by this report are in compliance with the Accounting

Standards issued by the Institute of Chartered Accountants of India.

(e) In our opinion and to the best of our information and according to the

explanations given to us, the said accounts give a true and fair view in

conformity with the accounting principles generally accepted in India:


32/57


(i) In the case of the Balance Sheet, of the state of affairs

of the Trust as of March 31, 2011

(ii) In the case of the Profit and Loss Account, of the loss

of the Trust for the year ended on that date and

(iii) In the case of the Cash Flow Statement, of the cash flows

of the Trust for the year ended on that date.

For DELOITTE HASKINS & SELLS

Chartered Accountants

(Registration No. 008072S)

Bhavani Balasubramanian

Partner

(Membership No. 22156)

Place: Chennai

Date: June 1, 2011


33/57


IFMR Trust

Balance Sheet as of March 31, 2011Amount in INR

Schedule

As of As of

March 31, 2011 March 31, 2010

I. SOURCES OF FUNDS

General fund 1,000 1,000

Loan funds

Unsecured loan

Term loan from bank 1,500,000,000 1,500,000,000

(Refer Note No.3.2 of Schedule 12)

Revocable grants from bank 564,628,532 564,628,532

(Refer Note No.3.2 of Schedule 12)

Total 2,064,629,532 2,064,629,532

II. APPLICATION OF FUNDS

Fixed assets 1

Gross block 88,892,959 33,137,653

Less: Accumulated depreciation 70,024,483 12,917,352

Net block 18,868,476 20,220,301

Capital advances - 30,481,553

Investments 2 1,093,637,831 811,091,459

Advance subscription towards proposed

investment in equity shares 3 509,396,801 453,632,609

(Refer Note 3.1 of Schedule 12)

Deferred tax ssset - -


Current assets, loans and advances

Cash and bank balances 4 89,926,137 179,979,288

Loans and advances 5 355,385,590 458,982,354

445,311,727 638,961,642

Less: Current liabilities and provisions

Current liabilities 6 228,346,612 23,921,702

Provisions 7 1,635,000 1,270,000

229,981,612 25,191,702

Net current assets 215,330,115 613,769,940

Profit and loss account 227,396,309 135,433,670

Total 2,064,629,532 2,064,629,532

Notes forming part of accounts 12


34/57

Financials


Schedules referred to above form an integral part of this Balance Sheet

In terms of our report attached

For Deloitte Haskins & Sells For and on behalf of IFMR Trust


Bhavani Balasubramanian Bindu Ananth K.R. Chandra

Partner President Vice President-Finance

Place: Chennai

Date: June 1, 2011


35/57

IFMR TRUST

Profit and Loss Account for the year ended March 31, 2011

Amount in INR

Schedule For the For the

year ended year ended

March 31, 2011 March 31, 2010

INCOME

Interest on loans

(CY TDS INR 824,180 Previous Year

INR 6,242,290) 12,031,485 58,944,229

Interest on fixed deposits with bank

(CY TDS INR 557,515 Previous Year

INR 5,347,952) 5,355,034 50,295,306

Interest on investments 756,189 -

Other income 8 75,654,823 23,203,752

Total 93,797,531 132,443,287

EXPENDITURE

Staff costs 9 43,458,553 29,654,625

Administrative and other expenses 10 84,793,295 172,429,965

Interest 11 161,072 19,598,139

Depreciation 57,347,250 7,995,015

Total 185,760,170 229,677,744

Loss for the year (91,962,639) (97,234,456)

Taxation

-Current tax - -

-Deferred tax - 11,348,213

-Fringe benefit tax relating to earlier years 46,051 -

11,394,264

Loss after tax (91,962,639) (108,628,721)

Loss brought forward from previous year (135,433,670) (26,804,949)

Loss carried to Balance Sheet (227,396,309) (135,433,670)

Notes forming part of accounts 12

Schedules referred to above form an integral part of this Profit and Loss Account






Place: Chennai

Date: June 1, 2011



36/57

IFMR TRUST

Cash Flow Statement for the year ended March 31, 2011

Amount in INR

For the For the

Particulars year ended year ended

March 31, 2011 March 31, 2010

A. CASH FLOW FROM OPERATING ACTIVITIES:

Loss for the year before Tax (91,962,639) (97,234,456)

Adjustments for:Depreciation 57,347,250 7,995,015

Interest on bank loan - 19,554,506

Interest income on fixed deposit (5,355,034) (50,295,306)

Interest income on investments (756,189) -

Interest income recognised in previous year charged off - 3,008,573

Loss on assets written off 896,614 34,362

Profit on sale of investments (2,692,379) -

Provision for gratuity 365,000 -

Provisions for:Provision for doubtful loans and advances 3,725,857 69,486,085

Provision for other advances considered doubtful 6,847,271

Provision for diminution in value of investments 4,096,240 25,092,200

Bad debts written off 456,187 4,904,771

Amounts written back:Provision for bad debts provided in

earlier years now written back (3,328,429) (18,699,302)

Excess gratuity provision of earlier years written back - (258,000)

Operating profit before working capital changes (30,360,251) (36,411,552)

Adjustments for:Decrease in loans and advances 100,249,026 190,598,496

Increase/(Decrease) in current liabilities and provisions 186,875 (12,319,025)

Cash generated from operations 70,075,650 141,867,919

Direct taxes - including fringe benefit taxes paid - 156,051

Net cash generated from operating activities 70,075,650 141,711,868

B. CASH FLOW FROM INVESTING ACTIVITIES:

Purchase of fixed assets (Net) (25,364,777) (17,636,878)

Capital advances (asset) - (30,481,553)

Investment in subsidiaries - (138,284,498)

Investment in associates - (49,000)Investments - Others companies 16,700,000 -

Other investments (13,350,033) -

Subscription towards purchase of equity shares (Net) (350,111,463) (453,632,609)

Advance received towards sale of shares 203,192,328 -

Investment in deposits on lien (Net) - 328,000,000

Proceeds from/(Investment in) fixed deposits

with banks (Net) 33,600,000 (115,500,000)

Interest received - FD 8,074,150 75,146,859

Interest received - Other investment 730,994 -

Net cash used in investing activities (126,528,801) (352,437,679)


(Continued on next page)


37/57

C. CASH FLOW FROM FINANCING ACTIVITIES:

Repayment of borrowings - (300,205,479)

Interest paid - (19,554,506)

Net cash (used in)/generated from financing activities - (319,759,985)

Net decrease in cash and cash equivalents (A+B+C) (56,453,151) (530,485,796)

Opening balance of cash and cash equivalents 64,479,288 594,965,084

Closing balance of cash and cash equivalents 8,026,137 64,479,288

Reconciliation of cash and cash equivalents:

Cash and cash equivalents as per Balance Sheet 89,926,137 179,979,288

Less: Deposits maturing beyond a period of three months 81,900,000 115,500,000

Closing balance of cash and cash equivalents

as per Cash Flow Statement 8,026,137 64,479,288






Place: Chennai

Date: June 1, 2011

IFMR TRUST

Cash Flow Statement for the year ended March 31, 2011

Amount in INR

For the For the

Particulars year ended year ended

March 31, 2011 March 31, 2010



38/57


IFMRTRUST

SCHEDULEOFFIXEDASSETSFO

RTHEYEARENDEDMarc

h31

,2011

Sc

he

du

le1

Grossblock

Depreciation

Netblock

Asset

Asof

Add

itions

Assets

Adjustments

Deletio

ns

Asof

Asof

Forthe

Assets

Adjustments*

On

Asof

Asof

Asof

April1,2

010

reclassified

March31,2

011

April1,2

010

year

reclassified

deletions

Ma

rch31,2

011

March31,2

011March31,2

010

Tangible

assets

Furnitureand

fittings

7,3

14,2

39

2,94

0,2

07

(880,7

06)

1,1

01,9

88

8,2

71,7

52

530,1

07

733,1

25

(19,7

86)

-

(209,3

78)

1,0

34,0

69

7,2

37,6

83

6,7

84,1

32

Computers*

16,4

20,9

39

66

2,4

36

38,5

00

17,0

44,8

75

9,4

10,8

39

4,4

71,1

20

28,8

52

-1

3,8

53,1

07

3,1

91,7

68

7,0

10,1

00

Office

equipments

3,1

92,5

45

4,10

7,9

52

(1,4

91,1

77)

5,5

41

5,8

03,7

79

246,8

05

696,9

22

(23,2

87)

-

(1,5

38)

918,9

02

4,8

84,8

77

2,9

45,7

40

Vehicles

536,0

66

6,7

35

542,8

01

148,2

58

58,6

09

-

-

206,8

67

335,9

34

387,8

08

Leasehold

improvements

-

45,70

6,9

29

2,3

71,8

83

48,0

78,8

12

-

48,0

35,7

39

43,0

73

4

8,0

78,8

12

-

Intangible

assets

--

Software**

5,6

73,8

64

3,47

9,1

91

2,1

15

9,1

50,9

40

2,5

81,3

43

3,3

51,7

35

351

-

5,9

32,7

26

3,2

18,2

15

3,0

92,5

21

-

-

-

Total

33,

137,

653

56,

903,

450

-

40,

615

1,

107,5

29

88,

892,

959

12,

917,

352

57,

347,

250

-

29,

203

(210,

916)

70

,024,

483

18,

868,

476

20,

220,

301

Previousyear

15,

642,

437

19,

148,

241

-

1,

555,

039

97,9

86

33,

137,

653

5,

674,

426

7,

995,

015

-

688,

465

63,

624

1

2,

917,

352

20,

220,

301

9,

968,

011

*Adjustmenttocomputerrepresentscostandaccumulateddepreciationoftheass

etstransferredduringtheyeartoentitieswi

thinthegroup.

**Adjustmenttosoftwarerepresentsservicetaxportioncapitalisedinearlieryears,

takencreditduringthecurrentyear.


39/57


IFMR TRUST

Schedules to the Balance Sheet as of March 31, 2011

Amount in INR

As of As of

March 31, 2011 March 31, 2010

2. Investments

Investments unquoted

(Long term - At cost):

In fully paid-up equity shares

of subsidiary companies:

IFMR Capital Finance Private Limited 602,432,843 602,432,843

(59,999,999 equity shares (PY 59,999,999

equity shares) of INR 10 each)

IFMR Rural Finance Services Private Limited

(Formerly IFMR Holdings Private Limited) 123,099,900 49,099,900

(12,309,990 equity shares (PY 4,909,990equity shares) of INR 10 each)

Megha Holdings Private Limited 5,093,300 5,093,300

(249,999 equity shares (PY 249,999

Equity Shares) of INR 10 each )

IFMR Mezzanine Finance Private Limited 100,400,000 40,400,000

(1,000,000 equity shares (PY 400,000

Equity Shares) of INR 100 each)

IFMR Finance Foundation 99,900 99,900



IFMR Ventures India Private Limited 999,900 999,900



Pudhuaaru Financial Services Private Limited 202,992,328 49,492,328

(15,839,600 Equity Shares (PY 489,600

Equity Shares) of INR 10 each )

Pudhuaaru Kshetriya Gramin Financial Services 100,000 100,000

(1,000 equity shares (PY 1,000 equity shares)

of INR 100 each)

Dhanei Kshetriya Gramin Services 100,000 100,000

(1,000 equity shares (PY 1,000 Equity Shares)

of INR 100 each)

Sahastradhara Kshetriya Gramin Services 100,000 100,000


of INR 100 each)

NE Aqua Private Limited 99,900 99,900


of INR 10 each )



40/57


IFMR TRUST


Amount in INR

As of As of

March 31, 2011 March 31, 2010

NE Crafts Apparel and Furnishings Company

Private Limited (9,990 equity shares 99,900 99,900

(PY 9,990 equity shares) of INR 10 each)

NE Education Private Limited 99,900 99,900


of INR 10 each )

NE Emerging Channels Services Private Limited 99,990 99,990


of INR 10 each) (99,990) -

Less: Provision for diminution

(Refer Note no. 3.3 of Schedule 12)

NE Green Power Private Limited 99,900 99,900

(9,990 equity shares ( PY 9,990 equity shares)

of INR 10 each )

NE Housing Company Private Limited* - 99,900

(NIL equity shares (PY 9,990 equity shares)

of INR 10 each )

Less: Provision for diminution - - (99,900) -


NE Medicare Private Limited* - 99,900


of INR 10 each )

Less: Provision for diminution - - (99,900) -


NE Milkrush Private Limited 99,900 99,900


of INR 10 each )

NE Processed Foods Private Limited* - 99,900


of INR 10 each )

NE Rural BPO Company Private Limited 99,900 99,900


of INR 10 each )

Less: Provision for diminution (99,900) - (99,900) -


NE Rural Supply Chain Private Limited* - 99,900


of INR 10 each )

NE Rural Tourism Private Limited 99,900 99,900


of INR 10 each )



41/57


IFMR TRUST


Amount in INR

As of As of

March 31, 2011 March 31, 2010

NE Agri Services Private Limited 3,999,900 3,999,900


equity shares) of INR 10 each )

In fully paid-up equity shares of associates:

IKP Center For Advancement in Agricultural

Practices (4,900 equity shares 49,000 49,000

(PY 4,900 equity shares) of INR 10 each)

Grameen Capital India Limited 24,750,000 24,750,000

(2,475,000 equity shares (PY 2,475,000


In fully paid up shares of other companies:

Aarusha Homes Private Limited 483,580 483,580

(48,358 equity share (PY 48,358


Desi Power (Kosi) Private Limited 1,750,000 1,750,000

(3,198 preference shares (PY 3,198

preference shares) INR 100 each)

Less: Provision for diminution (1,750,000) - (1,750,000) -


Financial Information and Network

Operations Limited 5,000,000 5,000,000



Education Initiatives Private Limited ^ 5,991,497 19,999,118



In debentures of:

Earthy Goods & Services Private Limited 15,985,000 15,985,000

(91,(PY 91) 15% debentures of

INR 100,000 each)

Less: Provision for diminution (11,988,750) 3,996,250 (7,992,500) 7,992,500


Sandhi HandCrafts Private Limited # - 15,050,000


INR 100,000/- each)


INR 100,000/- each)

Less: Provision for diminution - - (15,050,000) -




42/57


IFMR TRUST


Amount in INR

As of As of

March 31, 2011 March 31, 2010

Short term - Quoted:

In mutual funds:

Baroda Pioneer PSU Equity Fund 2,000,000.00 -

Short term - Unquoted:

Investment in loan portfolio of:

Dhanei Kshetriya Gramin Services 5,275,223 -

Sahastradhara Kshetriya Gramin Services 6,074,810 -

1,093,637,831 811,091,459

* The Companies have gone into liquidation

during the year 2010-2011

# Investment written off during the year^ The Investee company has bought back

102,022 shares under a scheme of buy back

3. Advance subscription towards proposed

investment in equity shares

Advance for purchase of shares made 516,244,072 453,632,609


Less:- Amount considered doubtful (6,847,271) -

509,396,801 453,632,609

4. Cash and bank balances

Cash and cheques on hand (Cheques on hand

NIL (PY 99,000)) - 99,000

- in savings account 3,026,137 17,630,288

- in deposit account 86,900,000 162,250,000

89,926,137 179,979,288

5. Loans and advances (Unsecured)

considered good

Advances recoverable in cash or in kind or for

value to be received including

advances to creditors 5,643,461 16,477,084

Loans to group companies 52,346,745 39,826,987

Loans to others 180,805,684 275,893,828

Deposits 70,224,267 74,357,300

Advance tax and tax deducted at source

(Net of provision for tax) 39,442,308 29,681,164

(Provision for tax - INR 5,714,051

(PY INR 5,714,051)



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Schedules referred to above form an integral part of this Balance Sheet




Place: Chennai

Date: June 1, 2011

IFMR TRUST


Amount in INR

As of As of

March 31, 2011 March 31, 2010

Interest accrued but not due:

- on loans given 4,924,378 17,495,806

- on fixed deposits 1,931,354 5,207,987

- on investments 25,195 6,880,927 - 22,703,793

Amount recoverable towards remuneration 82,198 62,198

Less: Remuneration payable to Trustees (40,000) 42,198 (20,000) 42,198

Considered doubtful

Loans to others 19,782,918 80,888,840

Less: Provision for doubtful advances (19,782,918) - (80,888,840) -


355,385,590 458,982,354

6. Current liabilities

Sundry creditors 5,543,188 6,106,193

Advance received towards sale of shares 203,192,328

(Refer Note no.3.6 of Schedule 12)

Other liabilities 19,611,096 17,815,509


228,346,612 23,921,702

7. Provisions

Provision for gratuity 1,635,000 1,270,000

1,635,000 1,270,000



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IFMR TRUST

Schedules to the profit and loss account for the year ended March 31, 2011

Amount in INR

As of As of

March 31, 2011 March 31, 2010

8. Other income

Excess provision for gratuity made in earlier

years, written back - 258,000

Excess provision for doubtful advances made

in earlier years no longer required written 3,328,429 18,699,302

back fees for professional services rendered

(TDS CY 3,05,019 (Previous year NIL)) 2,719,857 3,541,659

Income from shared services (TDS CY

29,57,858 (Previous year NIL)) 27,096,841 -

Income from infrastructure services

(TDS CY 50,38,411 (Previous year NIL)) 38,671,786 -

Profit on sale of investments 2,692,379 -

Rent received (TDS CY 75,000(Previous year NIL)) 679,965 -

Others 465,566 704,791

Total 75,654,823 23,203,752

9. Staff costs

Salaries, allowances and bonus 38,200,063 25,828,952

Company's contribution to provident fund 1,899,855 3,045,111

Staff welfare expenses 2,993,635 780,562

Gratuity 365,000 -

Total 43,458,553 29,654,625

10. Administrative and other expenses

grants 5,000,000

Incubation expenses 22,047,402 28,693,588


Rent and amenities 8,612,136 2,060,560

Repairs & maintenance

- Computers 462,029 457,893

- Building 7,186,548 2,107,316

- Others 247,889 7,896,466 408,686 2,973,895

Postage & telegrams 97,040 156,303

Printing & stationery 961,543 662,958

Telephone expenses 2,405,288 949,723

Travelling & conveyance 3,783,458 3,694,614

Consultancy charges 2,798,660 4,058,480

Legal & professional charges 4,177,147 13,596,408

Brokerage & commission 36,761 35,946

Advertisement charges - 152,212

Conference & seminar expenses 453,471 2,885,944

Recruitment charges 91,571 228,090

Office expenses 7,233,406 3,732,812

Subscription 95,211 108,121

Sponsorship charges 679,637 2,058,337

Software development exp 110,939 608,891

Loss on assets written off 896,614 34,362

Exchange variation (Net) 876 18,186



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IFMR TRUST

Schedules to the profit and loss account for the year ended March 31, 2011

Amount in INR

As of As of

March 31, 2011 March 31, 2010


Website maintenance and internet expenses 879,080 712,210

Auditors' remuneration

For Statutory audit

(inclusive of service tax) 1,200,000 1,103,000

For Tax audit 75,000 -

For Reimbursement of expenses - 1,275,000 35,825 1,138,825

Provision for doubtful loans and advances 3,725,857 69,486,085

Provision for other advances 6,847,271 -

Provision for diminution in value of investments 4,096,240 25,092,200

Bad debts 77,209,337 4,904,771

Less: Transfer from provision for

Doubtful debts (76,753,150) 456,187

Interest income recognised in previous

year charged off - 3,008,573Miscellaneous expenses 136,034 1,377,870

Total 84,793,295 172,429,965

11. Interest and finance charges

Interest on bank loan - 19,554,506

Bank charges 20,753 43,633

Interest on service tax 90,252 -

Intererst on TDS 50,067 -

Total 161,072 19,598,139


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IFMR TRUST

SCHEDULE 12

NOTES ON ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2011

1. BACKGROUND

IFMR Trust is a private Trust established under the Indian Trusts Act 1882 on October 19, 2006 at Chennai represented by

IFMR Trusteeship Services Private Limited acting in its capacity as trustee to IFMR Trust. IFMR Trusts mission is to ensure that

every individual and every enterprise has complete access to financial services. The names and the business of the major

Companies which are incubated/acquired by the Trust have been elucidated below:

IFMR Capital Finance Private Limited (IFMR Capital): IFMR Capitals mission is to act as a bridge to mainstream capital

markets for entities and asset classes of relevance to low-income households. It's objective is to provide liquidity and

developing access to debt-capital markets for critical sectors such as, rural financial service providers, urban financial

service providers that focus on low-income households, municipalities, rural infrastructure.

IFMR Ventures India Private Limited (IFMR Ventures): IFMR Ventures is an Asset Management Company that has launched

its first private equity fund, Network Enterprises Fund (NEF). The NEF intends to make investments in some key missing

links in rural supply chains. The Network Enterprise Fund has been registered as a Private Equity Fund with SEBI;

The Fund is proposed to make its first commercial investment in 2011-2012.

IFMR Rural Finance Services Private Limited (formerly known as IFMR Holdings Private Limited) (IFMR Rural Finance):

High quality delivery of financial services requires delivering them in a convenient, flexible, reliable and continuous

manner. IFMR Rural Finance therefore has been set up by IFMR Trust with a mandate to design a model that can

withstand scrutiny on the aforementioned essential parameters and thus pave the way towards complete financial

inclusion in rural remote India.

IFMR Finance Foundation: IFMR Trusts principal strategy for ensuring complete access to financial services is advocacy.

IFMR Finance Foundation is looking to complement existing efforts in the arena of access to financial services by

supporting practice-relevant action research and pilot projects on access to finance, and by influencing thinking

and action among key sectoral actors.

IFMR Mezzanine Finance Private Limited (IFMR Mezzanine): IFMR Mezzanine is established with the aim to facilitate

access to risk capital to microfinance institutions (MFIs). It is intended that this Company will make investments inmicrofinancial institutions in the form of subordinated debt instruments with a quasi-equity nature that can be leveraged

by the microfinance institutions with other lenders, allowing them to access funds that were hitherto unavailable to

them. This is the first attempt to enable MFIs to use a new class of liability to leverage their equity capital for further

expansion.

Megha Holdings Private Limited (Megha Holdings) is a non-deposit taking NBFC, wholly owned by IFMR Trust. The Company

was incorporated in September 1985, and was acquired by IFMR Trust from its erstwhile promoters in December 2009.

During the year, this entity has acquired 2 non-deposit taking NBFCs, Radaur Holdings Private Limited and Ankur

Securities Private Limited. Consequently the acquired entities have become the subsidiaries of the Trust.

Kshetriya Gramin Financial Services (KGFS); KGFS is a working model for financial inclusion that seeks to assure financial

wellbeing for every individual and enterprise in remote rural India. The first KGFS Company, Pudhuaaru KGFS, started

operations in Thanjavur district of Tamil Nadu in June 2008. Two other KGFS entities were launched subsequently:

Sahastradhara KGS in Uttarakhand, with operations in the districts of Tehri Garhwal, Pauhri, Haridwar and Dehradun, andDhanei KGS in Orissas Ganjam district.

Pudhuaaru Financial Services Pvt. Ltd is a non-deposit taking NBFC, wholly owned by IFMR Trust. The Company was

incorporated on March 4, 1993, and is engaged in the business of providing financial services in remote rural parts of

Thanjavur & Thiruvarur District.

Network Enterprises: Network Enterprises represents a cluster of Private Limited enterprises set up by IFMR Trust that

engage in incubation of sector specific business activities such as Rural Tourism, Agricultural Terminal Markets,

Clean Drinking Water, Dairy Development and so on. IFMR Trust has set up a Network Enterprise Fund and envisages

investment therefrom into the Network Enterprises that reach viability in terms of business model.


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2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation of financial statements:

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and

in accordance with accounting principles generally accepted in India and comply with the accounting standards issued

by the Institute of Chartered Accountants of India (ICAI).

The Trust is classified as a Level I enterprise as defined by the scheme of applicability of accounting standards issued

by ICAI. Accordingly, the Trust is required to comply with all mandatory accounting standards prescribed by the ICAI.

2.2 Use of estimates:

The preparation of the financial statements in conformity with the generally accepted accounting principles requires

estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of

financial statements and the reported amount of revenues and expenses during the reporting period. Management

believes that the estimates used in the preparation of financial statements are prudent and reasonable. Future results

could differ from these estimates.

2.3 Fixed assets and depreciation:

Fixed Assets are stated at cost less accumulated depreciation. Depreciation on assets is provided on the Written Down

Value Method at the following rates:

Asset Category Depreciation Rate

Furniture and fittings 10%

Computers and software 60%

Office equipment 15%

Vehicles 15%

Leasehold improvements 100%

2.4 Impairment of assets:

The Trust determines whether there is any indication of impairment of the carrying amount of its assets.

The recoverable amount of such assets are estimated, if any indication exists and impairment loss is recognizedwherever the carrying amount of the assets exceeds its recoverable amount.

2.5 Investments:

Long-term investments are stated at cost of acquisition. Provision for diminution is made if such diminution is

considered as being other than temporary in nature. Investments in mutual funds are valued at lower of cost or

market value, prevailing as at the Balance Sheet date.

2.6 Revenue recognition:

Interest income is recognized on accrual basis. Income arising from shared services and Infrastructure services

between the group companies is recognised on accrual basis, in accordance with mutually agreed terms.

2.7 Leases:

Leases are classified as finance or operating leases depending upon the terms of the lease agreements.

Finance leases

Finance leases, which effectively transfer substantially all the risks and benefits incidental to the ownership of the

leased item, are capitalised at the lower of the fair value or present value of the minimum lease payments at the

inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance

charges and the reduction of the lease liability based on the implicit rate of return. Finance charges are charged

directly against income.

Operating leases

Leases of assets under which all risks and rewards of ownership are effectively retained by the lessor are classified

as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over

the lease term.


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2.8 Foreign currency transactions:

Transaction in foreign currencies is accounted at the exchange rates prevailing on the date of the transaction and the

realized exchange loss/gain are dealt with in the Profit & Loss account. Monetary assets and liabilities denominated

in foreign currency are restated at the rates of exchange as on the Balance Sheet date and the exchange gain/loss

is suitably dealt with in the Profit and Loss account.

2.9 Employee benefits:

Defined contribution plans:

Fixed Contributions to Provident Fund made on monthly basis with relevant authorities are absorbed in theprofit and loss account.

Defined benefit plans (long term employee benefits):

Gratuity

The Trust accounts its liability for future gratuity benefits based on the actuarial valuation as at the Balance Sheet

date, determined using the Projected Unit Credit method and is provided for.

Compensated absences

Benefits of Compensated Absences are not provided to the employees of the Trust.

2.10 Taxation:

Current tax is determined in accordance with the provisions of Income tax act, 1961.

Deferred tax is calculated at the tax rates and laws that have been enacted or substantively enacted as at the

Balance Sheet date and is recognised for all the timing differences. Deferred Tax assets in respect of unabsorbed

depreciation and carry forward of losses are recognised if there is virtual certainty that there will be sufficient future

taxable income available to realize such losses. Other deferred tax assets are recognised if there is reasonable

certainty that there will be sufficient future taxable income available to realise such assets.

2.11 Provisions, contingent liabilities and contingent assets:

Provisions are recognised only when there is a present obligation as a resul

Documents

IFMR Trust Annual Report Final