Smile Microfinance Unlisted Share

About Smile Microfinance Unlisted Share

S.M.I.L.E. Microfinance Limited (SMFL) was established in 2004 to provide financial assistance to the urban and rural poor in Tamil Nadu. Initially registered as a non-deposit-taking NBFC in 2006, the company later obtained an MFI license in May 2015. SMFL primarily extends credit to economically backward women through the Joint Liability Group (JLG) lending model.

Ownership Structure:

• DWM Investments (Cyprus) Limited holds a 66.6% stake after investing ₹25 crore each in FY2010 and FY2011.
• The promoter group owns 18.6%, while current and former women members hold 13.3% of the company.
• The company’s portfolio is predominantly concentrated in Tamil Nadu, with Chennai and Madurai alone accounting for 28% of the total Assets Under Management (AUM) as of March 31, 2020.

Business Divisions

1. Lending Operations (JLG Model)
SMFL follows the Joint Liability Group (JLG) model, where a group of women borrowers undergoes financial training before accessing credit. The lending process involves:

• Compulsory Group Training (CGT) for three days, educating borrowers on loan processes and group liability.
• Loan Application & Documentation: Field Development Officers (FDOs) collect KYC details and submit applications to the branch manager.
• Loan Approval:
• Loans up to ₹30,000 are sanctioned by the Divisional Manager.
• Loans above ₹30,000 require Zonal Manager approval.
• Loan Disbursement: After verification, funds are transferred via NEFT to the borrower’s account.
• Repayment Process: Borrowers follow a structured repayment schedule with fortnightly installments during center meetings.

2. Portfolio & Branch Network

• Presence: Operations in 6 states, 43 districts, and 137 branches.
• Workforce: 799 employees managing 3.16 lakh members and 2.85 lakh borrowers.
• Financials:
• Total AUM: ₹606 crore (as of March 31, 2020).
• Total Loans Disbursed: ₹5,800 crore.
• Loans Disbursed in FY20: ₹887 crore.

3. Financial Performance & Key Metrics

• Capital Adequacy Ratio (CAR): 23.64%, well above the regulatory threshold.
• Net Interest Margin (NIM): Increased from 9.31% in FY19 to 9.86% in FY20, driven by lower borrowing costs.
• Operational Expenses: Opex/Total Assets rose from 4.76% to 6.80% due to workforce expansion and new branches.
• Return on Total Assets (ROTA): Declined from 3.55% in FY19 to 1.91% in FY20, reflecting higher credit costs.
• Asset Quality:
• Gross NPA: 0.22% (FY20) vs. 0.26% (FY19).
• Net NPA: Nil in both FY19 and FY20.

4. Growth & Expansion Strategy

• AUM grew by 17% YoY, from ₹516 crore in FY19 to ₹606 crore in FY20.
• Geographic diversification with new branches in Chhattisgarh, Jharkhand, Karnataka, and Madhya Pradesh.

5. Industry Outlook & COVID-19 Impact

• Post the Andhra Pradesh microfinance crisis and RBI interventions, the sector witnessed steady loan portfolio growth.
• Key drivers: Improved funding, cost control, strong margins, and lower leverage.
• Challenges: Event-driven risks and borrower profile vulnerability.
• COVID-19 Recovery:
• Collections rebounded from ₹4.97 crore (May 2020) → ₹27.78 crore (June 2020) → ₹16.21 crore (July 15, 2020).
• Repayment obligations for Aug & Sep 2020 were ₹14.13 crore and ₹27.73 crore, respectively.

Pros

• Strong Capital Adequacy – CAR at 23.64%, well above regulatory requirements, ensuring financial stability.
• Robust Loan Growth – AUM grew 17% YoY, expanding into new states for better portfolio diversification.
• Low NPAs – GNPA at 0.22% and Net NPA at Nil, reflecting strong credit discipline.

Cons

• High Operational Costs – Opex/Total Assets rose to 6.80%, impacting profitability due to workforce and branch expansion.
• Event-Based Risks – Microfinance depends on borrower stability; external shocks like COVID-19 impact collections.
• Regional Concentration – Tamil Nadu-heavy portfolio (28% in Chennai & Madurai) poses concentration risk.

Key Details