3

SW

AD

HA

AR

FINS

ER

VES

econd Annual R

eport 20

09

4

About uSSwadhaar FinServe Pvt. Ltd. [SFPL] is a Non-Banking Financial Company

[NBFC] that received registration to start operations from the Reserve

Bank of India in May 2008. It is a Microfinance Institution that caters to

the economically active urban poor.

Swadhaar’s micro credit activity began with the inception of the non-profit

entity, Swadhaar FinAccess (SFA), incorporated in 2005. With the Reserve

Bank of India’s approval for SFPL to operate as an NBFC, the Company took

over all of SFA’s micro-credit activity and its existing micro-credit portfolio

of about Rs. 6 million in September 2008.

The word “swadhaar” in Hindi means self-support, and is a reflection of the

Company’s objective to provide the urban poor increased access to financial

services, in an effort to improve their economic capacity, achieve self-

reliance, and enable them to strive towards a brighter future.

MISSIoNTo make available regular, reliable and efficient financial services to the

economically active urban poor, enabling them to overcome poverty and

meet their aspirations for a better and secure future.

We give importance to:

Clients and their aspirations

Employees and their aspirations

We work ethically with:

Honesty and Integrity

Efficiency

Transparency

We believe in innovation and adaptationCo

RE

VA

LuE

S

1

CONTENTS

WHY UrbaN MiCrOfiNaNCE? ........................................................... 3

OrgaNiSaTiON iNfOrMaTiON ........................................................... 8

gEOgraPHiC OUTrEaCH ................................................................. 10

DirECTOr’S rEPOrT ....................................................................... 15

PaST YEar aT a glaNCE ................................................................. 24

aSSOCiaTE PrOgraM ..................................................................... 25

CliENT PrOfilE ............................................................................. 26

bUSiNESS iNfOrMaTiON ................................................................ 27

aUDiTOr’S rEPOrT......................................................................... 31

Swadhaar in the Devnagari script represents the base provided by the organi-

sation to support the aspirations of our clients reflected in the orange symbol

of the sun.

2Image Courtesy: John Rae for ACCION International

3

WHY UrbaN MiCrOfiNaNCE?

Over the past few years the Microfinance Industry in India has emerged as

one of the most dynamic and rapidly growing markets in the world. According

to UN estimates, 350 million out of India’s 1.1 billion people live below the

International Poverty line. The annual credit demand in the country in 2007,

was estimated to be between USD 5.7 billion (INR 231.6 billion) and USD

19.08 billion (INR 773 billion)1. Despite a widespread awareness of this

demand and the industry’s steep growth over the past few decades, the

current supply of micro credit is estimated at only 7% of the potential demand2.

Further, there is a major imbalance in both the depth and breadth of market

penetration, with a higher incidence of rural microfinance providers concen-

trated in certain pockets of the country. More recently this trend has been

changing, but it will take some time before the gaps in delivery and outreach

are filled completely. Until then, they continue to remind us of the enormity

of the task that lies ahead.

Historically, Indian microfinance has been dominated by a rural focus. It had

its beginnings in the government-initiated subsidised banking schemes of the

1960s that were geared towards providing the rural poor with access to credit.

The success of these schemes was considerable in terms of outreach and credit

volume, especially with the establishment of institutions such as NABARD

[National Bank for Agriculture and Rural Development] and SIDBI [Small-scale

Industries Development Bank of India]. NABARD was responsible for initiating

the SHG [Self Help Group] – Bank Linkage program, which linked informal

women’s groups to banks for access to credit. This model led to the integration

of non-government organisations into microfinance and today, it still accounts

for a majority of micro credit disbursements in the country. More recently,

1. This figure has been reached by taking into consideration the following estimates: The potential number of below poverty line (BPL) microfinance clients ranges from 57.9 million to 77.3 million, and the annual average loan size ranges between USD 98.8 (INR 4,000) and USD 246.9 (INR 10,000). Inverting the Pyramid: The Changing Face of Microfinance. Published by Intellecap & sponsored by International Finance Corporation [IFC], 2007.

2. Inverting the Pyramid: The Changing Face of Microfinance. Published by Intellecap & sponsored by International Finance Corporation [IFC], 2007.

4

micro-finance supply channels have expanded to also

include NGO-MFIs (Microfinance Institutions) and Non-

Banking Financial Companies (NBFC), which, according

to 2007 estimates, had a market share of almost 47%3,

growing rapidly compared to the SHG-Bank Linkage

Model4. Regardless of the twin effects of the industry’s

evolution and the proliferation of MFIs, there remain

sections of the un-banked poor that continue to be

excluded by microfinance service providers. Amongst

these are the economically active urban poor who lack

access to the formal banking system on the one hand,

and remain excluded from microfinance due to lack of

sufficient urban service providers on the other.

The reasons that the rural microfinance model has

dominated the industry in India are three-fold:

i. The size of the market promises tremendous potential

ii. Government policies have been heavily focused

on the priority sector and have dictated the growth

trajectory of the industry

iii. The Grameen JLG model is easily replicable across

rural geographies

The Grameen model offers a standardised methodology

that can be replicated successfully without needing to

tweak the product structure and delivery for different

rural geographies. This model is low cost and ideal for the

rural service provider, enabling the MFI to serve a homo-

geneous population and rapidly scale operations, reaching

break-even relatively quickly. Its success in serving the

rural poor in India can be attributed to characteristics of

the target population, such as the homogeneity in source

of income (primarily agriculture), strong community link-

ages developed over generations, history of exploitation

by landlords and usurious moneylenders, and an absolute

lack of access to formal funds. The Grameen methodology

has successfully addressed these issues by opening up

credit access to a population that is otherwise largely

deprived of alternate means of income generation. The

urban market, in contrast, is less friendly to a standardised

product and methodology as the urban poor are more

diverse in their incomes, occupations, places of origin,

and also lack the intra-community linkages that form

such a major element of rural micro-lending models.

As a result, they are far more resistant to forming groups

that would require them to trust people with whom they

have no community ties. Cities present greater opportuni-

ties for both entrepreneurial businesses and employment

than are available in rural areas where land-related occu-

pations are the dominant source of income. The presence

of a robust informal economy in cities also makes the

urban poor far savvier regarding their finances than their

rural counterparts and significantly more well-informed

regarding the variety of services available through financial

institutions. Unlike in rural areas, the diversity of the

urban population and their needs requires greater product

variations, in which case a standardised methodology is

less effective.

Due to the fundamental differences between the urban

and rural markets, the inherent nature of urban poverty

is also substantively different than that of rural poverty.

In fact, characteristics of urban poverty differ drastically

even between cities, due to discrepancies in population

size, annual growth rate, infrastructure, health indicators,

education levels, and so on. Poverty in urban areas is a

multi-dimensional phenomenon, resulting from a host of

interdependent and mutually inclusive factors that make

the urban poor such a complex market to serve.

In Mumbai, the urban poor live in unhygienic and over-

crowded slums that lack basic sanitary provisions such

as clean air and water, increasing their susceptibility to

diseases. Several occupations in the informal economy

such as industrial and construction jobs further expose

them to health risks. To make matters worse, they have

3. Inverting the Pyramid: The Changing Face of Microfinance. Published by Intellecap & sponsored by International Finance Corporation [IFC], 2007.

4. The number of new SHGs linked in 2007 represented an increase of about 11 percent, as compared to a 15% increase in SHGs linked in the previous year. In contrast, 2007 saw leading MFIs record growth rates of 80% per annum in terms of numbers of borrowers and around 40% per annum in terms of portfolio. State of the Sector Report, 2007.

5

minimal access, if at all, to health care services. Their

homes are often built or rented on private or public

property, poorly constructed and not durable enough to

sustain seasonal hazards. Many are unable to even afford

housing. Low-asset ownership among slum-dwellers

increases their vulnerability to a variety of risks such

as environmental hazards, health and financial risks.

Further, due to lack of documentation, they are

compelled to resort to high cost debt and are also unable

to avail of formal saving mechanisms as an insurance

measure. This vulnerability is compounded by the

absence of community, lack of social security, and

general uncertainty that afflicts the urban slum-dweller.

The result is that s/he ends up being far more vulnerable

and deprived, in some respects, than his/her rural coun-

terpart. This is because while the urban environment

provides the facilities needed for security and financial

and personal empowerment (health care, insurance,

education, credit, savings, multiple sources of income,

etc.), these remain beyond reach.

According to the UN’s World Habitat Report 2008-2009,

this century has been coined as the urban century, with

more than half of the world’s population living in urban

areas. The developing world is responsible for 95% of the

world’s urban population growth, and today, one out of

every three people living in cities of the developing world

lives in a slum5. That 60% of the global population will

be urban dwellers within the next two decades is a glaring

warning that efforts to ameliorate the challenges of urban

poverty need to be prioritised and magnified. In India

alone, over 80 million poor people live in urban areas,

a population that is roughly equal to the population of

Egypt6. In Mumbai, the meteoric rise in population over

the past few decades has further widened the rift

between the demand and supply of basic financial and

livelihood development services.

It is this gap that Swadhaar FinServe [SFPL] aims to fill.

The organisation began its micro credit activity with the

objective of providing the urban poor increased access to

financial services, but more importantly, it aimed to help

its clients improve their economic capacity and achieve

self-reliance. SFPL’s lending methodology, as a result,

has been designed specifically to cater to the clients’

needs. Flexibility in product structure, delivery and

service are key elements of the organisation’s policies.

Some examples of SFPL’s customer-centric approach

include delivery of loans within 5 business days of the

application being completed, minimal paperwork require-

ments and the ability for clients to prepay EMIs, the

provision of larger loan amounts for Individual Loan

clients to be used towards business expansion, door-to-

door collections and a customer grievance and feedback

mechanism for clients to address concerns.

As on March 31 2009, SFPL had served over 8,000

active clients and had an outstanding portfolio of close

to INR 55 million. The Company pays importance to

creating social impact and meeting the needs of its

clients. For this reason it follows a business model that

enables growth in numbers whilst simultaneously ensur-

ing that products offer some degree of flexibility so that

client needs are given priority. SFPL believes that its

methodology and approach to urban microfinance repre-

sent an effective, scaleable and sustainable solution to

some of the problems that handicap the urban poor today.

5. United Nations World Habitat Report, 2008-20096. A Sourcebook for Poverty Reduction Strategies (Vol. 2 of 2): Macroeconomic and Sectoral approaches. Published by the World Bank, 2002

6Image Courtesy: Preeti Mankar for Swadhaar FinServe Pvt. Ltd.

7

aSHOKKUMar KaSarE COCONUT SEllEr

Ashokkumar owns a coconut stall in the Government Colony neighbourhood

in Bandra (E). He heard about Swadhaar in early 2008 through one of the

organisation’s Loan Officers and applied for a loan to help pay for his stock.

Ashokkumar orders two varieties of coconuts – the locally sourced variety,

and larger, higher quality coconuts that come from Kerala. Coconut vendors

usually pre-pay for 6 months worth of stock, which allows them to then hand-

pick the coconuts from their provider daily, at no charge. The volume of the

purchase dictates the profit margin they are able to make, with a higher volume

yielding a larger profit.

With a first loan of Rs. 10,000 and subsequent loans of Rs. 20,000 and

Rs. 30,000, Ashokkumar has been able to drastically increase the volume

of his purchase, thereby improving his overall profit margins. After 5 years of

running the coconut stall, Ashokkumar is still the only earner in his 6 person

household. As a direct result of Swadhaar’s loans, Ashokkumar’s profit margins

have significantly increased, allowing him to lead a more comfortable life.

He has also been able to afford sending his four children, Atish, Ashutosh,

Abhimanyu, and Saraswati aged 13, 12, 8 and 6 respectively, to school.

“Prior to taking SFPL’s loans, I was always tense about not having enough

money to make the payment. Now, thanks to SFPL I have no tension in

running my business,” says Ashokkumar with a sigh of relief.

*Loans taken before September 2008 were from the non-profit entity,

Swadhaar FinAccess (SFA). Following SFPL’s takeover of the SFA portfolio,

all clients migrated to the NBFC.

Image Courtesy: Preeti Mankar

for Swadhaar FinServe Pvt. Ltd.

8

bOarD Of DirECTOrS

Lalita Gupte

Chairperson (Promoter’s nominee)

Veena Mankar

Managing Director (Promoter)

Anita Ramachandran

Nominee Director, Mauritius Unitus Corporation

Siddhartha Hanumara Chowdri

Nominee Director, ACCION

Geeta Dutta Goel

Nominee Director, Michael and Susan Dell Foundation

Srinivas Bhaskar Rao

Nominee Director, Indian Family Trust

Pearl Tiwari

Nominee Director, Indian Family Trust

SUPPOrTiNg iNSTiTUTiONS

ACCION International Boston, USA

Michael and Susan Dell Foundation Austin, USA

Unitus Seattle, USA

baNKErS/fiNaNCial iNSTiTUTiONS

HDFC Bank Limited

ICICI Bank Limited

Friends of Women’s World Banking

aUDiTOrS

Haribhakti & Company

rEgiSTErED OffiCE

451, Dindoshilla (G-1), 15th Road,

Khar, Mumbai 400 052

MaNagEMENT

Veena Mankar

Managing Director

Kartik Mehta

Chief Operations Officer

(Seconded by ACCION International)

Anjali Seth

Legal Advisor

Reena Sen

Deputy Chief Financial Officer

Urmee Mehta Mankar

Chief Manager, Strategy

Soju Annie George

Chief Manager, Operations

Shweta Pereira

Chief Manager, Credit and Risk

(Seconded by ACCION International)

Nitin Manchanda

Chief Manager, Information Technology

Anil Dhekne

Chief Manager, Internal Audit

Jyoti Y. Gujaran

Senior Manager, Human Resources

Manish Kumar

Area Manager, Mumbai

Nishant Gupta

Area Manager, Expansion

OrgaNiSaTiON iNfOrMaTiON

9

Imag

e C

ourt

esy:

Joh

n R

ae f

or A

CC

ION

Int

erna

tion

al

Clie

nt:

San

gita

Ach

reka

r

Occ

upat

ion:

Pap

ad M

aker

Pg.

14

10

Vasai Creek

ThaneCreek

Thane

Mumbai Int’lAirport

Gatewayof India

SouthMumbai

BhayanderWest

Mira Rd

Borivali

KandivaliWest

PowaiAndheri

East

LokhandwalaComplex

Juhu

Worli

Byculla

MalabarHill

Colaba

MahimCreek

ManoriCreek

Sanjay GandhiNational Park

Borivali GL

Malad IL

Thane GL

Malad GL

Meghwadi

Bhandup GL, IL

Ghatkopar GL, IL

Chembur GL, IL

Kherwadi GL, IL

Wadala

GL = Group Loan

IL = Individual Loan

1010

11

Bhandup GL, IL

Shop no.14 and 15, G Wing,

Mayuresh Park, Gamdevi Road,

Bhandup (W), Mumbai 400 078

Chembur GL, IL

Shop #1 Popular House, Plot

#102/103, Pestom Sagar Scheme,

Santosh Nagar, Nr. Shankaralayam

Temple, P.L.Lokhande Marg,

Chembur (W), Mumbai 400 089

Ghatkopar IL

Shop # 1, Khanna Apts,

N.S.S. Road, Asalfa Village,

Ghatkopar (W), Mumbai 400 084

Malad GL

c/o Nivara Hakk

Plot #267, General A. K. Vaidya

Marg, Gokul Dham, Malad (E),

Mumbai 400 097

Thane GL

Shree Saidham Co-Op. Housing

Society Plot No. 39/D1, Veer Savarkar

Nagar, Thane (W) 400 606

Wadala

Shop #66-1/2, Barkat Ali Nagar,

Saltpen Road, Wadala (E),

Mumbai 400 037

Kherwadi GL, IL

Above Maharashtra Shramik Sena,

Opp. Bldg. # 35, Kherwadi,

Bandra (E), Mumbai 400 051

Borivali GL

Shop #3/4, Shreeji Apartments,

Opp. Shanidev Mandir, Savarpada,

Borivali (E), Mumbai 400 066

Ghatkopar GL

Shop # 2, Khanna Apts, N.S.S. Road,

Asalfa Village, Ghatkopar (W),

Mumbai 400 084

Malad IL

Shop # 1, Gr. Floor, Hill View,

Nr. Jyoti Hotel, Konkani Pada,

Kurar Village, Malad (E),

Mumbai 400 097

Meghwadi

Shop #4, Everest Bldg, 4-B,

MHADA Vasahat, Mahakali Caves Road,

Andheri (E), Mumbai 400 093

OUTlETS iN MUMbai

12 Image Courtesy: John Rae for ACCION International

13Image Courtesy: John Rae for ACCION International

14

SaNgiTa aCHrEKar PaPaD MaKEr

A mainstay of Indian diets, papads are usually made by hand at home–

typically of lentils–and flavored with black pepper, garlic or green chilies.

Sangita Achrekar, who makes papads for a living, has been receiving micro

loans from SFPL for the past few years. She sells her papads to a National

organisation called Lijjat Papad, which began 50 years ago as makers and

distributors of papads. Originally started by 7 women making 4 packets of

papads on a building terrace in Mumbai, Lijjat has since branched out into

bakery products, masalas, rotis, detergent powders, etc and now boasts of

annual revenues of about $80 million. It is an organisation solely for women,

and its trademark product, the papad, has come to be associated with the

empowerment of Indian women, with women producers generating regular

income from minimal financial investment.

The extra capital that Sangita gets from Swadhaar has helped her buy raw materi-

als in bulk, something which she had been unable to do prior to becoming a

client. The bulk purchases help her lower her costs, reduce the number of trips

to her suppliers and also help her increase production. She also has more free

time to invest in things other than Papad preparation, such as household work.

*Loans taken before September 2008 were from the non-profit entity,

Swadhaar FinAccess (SFA). Following SFPL’s takeover of the SFA portfolio,

all clients migrated to the NBFC.

Image Courtesy: John Rae for ACCION International

14

15

Your Directors are pleased to present before you the Second Annual Report on

the business and operations of the Company, along with the audited Balance

Sheet and Profit and Loss Account for the year ended March 31, 2009.

Swadhaar FinServe Private Limited (SFPL) received registration from Reserve

Bank of India to operate as a Non-Banking Financial Company (NBFC) with

effect from May 9, 2008.

The Company’s mission is to “make available regular, reliable and efficient

financial services to the economically active urban poor enabling them to over-

come poverty and meet their aspirations for a better and more secure future.”

It commenced operations in July 2008, and in September 2008 after receipt

of necessary approvals, including from the Central Government, it took over the

current micro credit portfolio of Rs 6.06 million and 1,786 active clients from

Swadhaar FinAccess (SFA), a non profit company sharing common promoters

with SFPL. The year under report is the first year of operations of the Company.

DirECTOrS’ rEPOrT

Dear Members:

16

fiNaNCialS

results rupees

2008-09

Operational Income 7,448,595

Other Income 4,392,603

(A) Total Income 11,841,198

Personnel Expenses 12,464,328

Administrative & FInancial Expenses 19,942,427

Depreciation 1,731,483

(B) Total Expenses 34,138,238

(C) Exceptional items 3,343,178

(D) Loss for the year (A – B – C) (25,640,218)

(E) Provision for Tax (FBT & Deferred Tax Adj. 403,468

Profit After Tax (D – E) (26,043,686)

Balance brought forward from the previous year (921,081)

balance carried to balance Sheet (26,964,767)

SHarE CaPiTal

9,439,000 equity shares of the

Company were issued during the

year under review raising the

paid up capital of the Company

to Rs. 120,000,000.

SFPL Credit and Risk

Department with ACCION advisors

Andres Calderon and Jorge Pineda

SFPL Head Office, Mumbai

17

grOUP lOaNS (SWaHiT)

The Group loan product is offered to economically active

women who are either micro entrepreneurs, salaried, or

piece workers. These are individual loans ranging from

Rs. 3,000 to Rs. 20,000 and are offered to women aged

between 18 to 55 years. The women typically form Joint

Liability Groups of 3–7 women, and stand guarantee for

each other’s loans. The purpose of such loans is primarily

for income generation, repayment of high cost debt, and

consumption smoothening. They are used for important

personal purposes such as house repairs and education

of children. In particular, education of children is

encouraged.

This past year SFPL modified its Swahit repayment

schedule in order to improve the efficiency of collections.

Repayments of Group loans now happen on fixed dates in

a month, and are made by an appointed group leader as

opposed to being made by individual clients. The loans

remain individual loans and the amounts within a group

vary according to the repayment capacity of the individual

member and the purpose for which the loan is required.

iNDiviDUal lOaNS (SWaYOg)

These are working capital loans offered to micro entrepre-

neurs, both men and women, for business purposes. This

loan does not require formation of any group and is given

only for business expansion. The target customers run

micro businesses, and are engaged in activities such as

running food stalls, small general stores, ‘tiffin’ services

for office goers, etc. These micro businesses are bigger

than the home-based businesses that group clients are

typically involved in, and therefore these loans are for

larger amounts ranging from Rs. 8,000, up to a maximum

of Rs. 50,000. The Individual loan process follows a two-

step methodology with the appraisal function separated

from client service and sales. This results in a higher effi-

ciency of operations and objectivity in appraisal.

lOaN PrODUCTS

The Company offers two loan products to clients in the low income segment:

OPEraTiONS DUriNg THE YEar

ExPaNSiON aND OUTrEaCH

The Company started its loan activities from three locations in Mumbai, initially shared with SFA. New outlets

were added during the year and by the close of the current year the total number of locations increased to nine.

These are: Kherwadi, Malad, Chembur, Meghwadi, Wadala, Ghatkopar, Bhandup, Borivali and Thane.

The Company has fourteen outlets in the above locations, seven Group loan branches, five Individual loan branches

and two kiosks. The two products are operationally segregated and a branch is product specific. Kiosks are attached

to product branches, and disbursement occurs on different days for the two products. Based on the business volumes,

additional outlets will be added near the kiosks, and each of these upgraded to branches.

18

SWaDHaar iN NUMbErS

July 1, 2008 to March 31, 2009

group individual Total

Number of loans disbursed 7,858 1,301 9,159

Amount of loans disbursed

(Rupees in million)

Rs.53.19

Rs.24.36

Rs.77.55

Number of active clients 7,097 1,137 8,234

Outstanding loan portfolio

(Rupees in millions)

Rs.40.11

Rs.16.53

Rs.56.64

Number of Loan Officers* 30 20 50

Number of outlets 7 5 14**

*Applies only to Loan Officers assigned their own zones. (Excludes Team Leaders) **Including two kiosks, each servicing both Group and Individual loan

SOfTWarE aND MaNagEMENT iNfOrMaTiON

SYSTEM (MiS)

The Company uses Banker’s Realm (BR) from Craft

Silicon as its loan accounting and MIS software. This

was purchased from SFA, with the approval of the vendor.

The software is being upgraded to the higher version, i.e.

BR version 2.

As per the strategic plan in place, the Company will

expand operations outside Mumbai. This will be imple-

mented from the second quarter of the next financial

year for both Group and Individual loans. The Company

is currently exploring appropriate locations in Gujarat

and Maharashtra.

CENTraliSaTiON Of baCK OffiCE OPEraTiONS

The Company engaged a specialised Back Office Service

Provider, part of the Indecomm Group, to design and

implement an optimal centralised back office solution

to enable the Company to handle high volume business.

A central processing hub has been set up at Kherwadi

branch premises. The test run was completed and the

process of migration of branches to the hub commenced

in February 2008. Centralisation of back office will reduce

the requirement of IT hardware, connectivity costs and

skilled manpower at the branches. It will also improve

operational efficiencies and controls. Miscellaneous

costs such as stationery and printing are also expected

to reduce, as a result of centralised back office processes.

All client documents, legal agreements, receipts and

registers are now prepared centrally at the hub and

provided to the branches, thereby reducing the adminis-

trative work required in a branch. This is expected to

result in increased productivity of branch staff in sales,

collections and managing clients.

19

STaff

SFPL believes that human resources are the Company’s

most valuable asset. As at March 31, 2008 it had a staff

of 176, including 140 branch staff members and a head

office staff of 36. SFPL absorbed 76 employees from

SFA, who were associated with the lending operations.

Importance is given to providing training for all of SFPL’s

staff, both on the field and in the classroom. All staff

positions have clear career paths and employees are

well-informed regarding training/experience required for

promotions. They are encouraged to enhance their knowl-

edge and skills by attending external training courses and

pursuing higher education. During the year, in-house

training was conducted for Loan Officers, administrative

staff, collection staff, Loan Analysts and Team Leaders.

Middle-level Managers attended training courses cond-

ucted by well-known institutions such as MicroSave,

Lucknow and EDA Rural, Gurgaon. Our Chief Manager,

Operations was selected for, and attended the ACCION

Leadership Course for Microfinance at Harvard Business

School, USA.

Further, an HR Package was implemented with the aim

of centralising all HR functions and synchronising the

various departments in the Company. The package

enables in-house payroll capabilities, employee data

storage and leave management, among other functions.

It will be especially useful in enhancing efficiency with

future expansion into new areas.

TECHNiCal aSSiSTaNCE

ACCION International has been associated with SFA as a

technical partner since its inception and has been closely

involved in setting up the operating procedures and prod-

uct methodology that are now followed by SFPL. The

Company has now entered into a three year contract with

ACCION Technical Advisors India, effective July 1, 2008,

for the provision of technical services including strategic

advice, product development, and, credit and risk

management and training.

The Chief Operating Officer, Mr Kartik Mehta, and the

Credit and Risk Head, Shweta Pereira, at SFPL are on

deputation from ACCION.

Senior Management with ACCION

Project Manager Valerie Kindt

SFPL Head Office, Mumbai

20

baNKErS

SFPL has drawn facilities for on-lending purposes from

Friends of Women’s World Banking India (FWWB-I).

The Company has accounts with HDFC Bank Limited and

ICICI Bank Limited. HDFC Bank Limited has sanctioned

a term loan for on-lending, which will be drawn in the next

financial year.

CriSil graDiNg

CRISIL undertook a grading exercise for the Company in

December 2008. CRISIL’s grading system follows an

eight-point scale with mfR1 being the highest, and mfR8

the lowest. The grading is a measure of the overall perfor-

mance of an MFI, based on a broad range of parameters,

including management, institutional arrangement, capital

adequacy and asset quality, resources and asset-liability

management, operational effectiveness, and scalability

and sustainability.

CRISIL awarded SFPL a grading of mfR5, which reflects

the following strengths and weaknesses:

STRENGTHS

• Strong governing board

• Adequate capitalisation levels and

shareholder support

• Strong technical and managerial

support from ACCION International

WEAKNESSES

• Short operating track record

• Asset quality and credit risks

untested over a period of time

• Low efficiency, leading to weak

earnings profile

The Company recognises the need to improve its operat-

ing efficiencies and has already taken some steps in this

regard such as centralisation of back office operations,

fixed date repayments and a two-step methodology for

Individual loans. However, it should be borne in mind

that the lending methodology followed by the Company,

even for the Group loan is an individual one, taking into

account the characteristics and requirements of the

urban client. The urban client does not display the homo-

geneity and stability that is found in a rural environment.

As a result of this, SFPL’s products incorporate flexibility

and individual characteristics, as compared to stan-

dardised Group loans, thereby increasing the cost of the

operations. Over time, this is sought to be countered,

through increased case load, possible because of concen-

tration of urban population. The Company will also proac-

tively deploy technology to improve efficiencies.

STaTUTOrY DiSClOSUrES

The information required under Section 217 (2A) of the

Companies Act, 1956 read with Companies (Particulars

of Employees) Rules 1975 is not annexed, as there are

no employees under the same.

The Companies (Disclosures of particulars in Report of

Board of Directors) Rules 1988 require the disclosure of

particulars regarding conservation of energy in Form A

and Technology Absorption in Form B prescribed by the

Rules. Your Company not being a Manufacturing Company

is advised that Forms A&B are not applicable.

21

bOarD Of DirECTOrS

The Board of Directors of the Company met ten times

during the year.

During the year under review Mrs. Haseena Vahanvaty,

promoter Director resigned from the Board and the

following Directors were appointed as Nominee Directors

to the Company Board:

Mr. Siddhartha Chowdri

Nominee Director for ACCION

Mrs. Geeta Dutta Goel

Nominee Director for Michael and Susan

Dell Foundation

Mrs. Anita Ramachandran

Nominee Director for Mauritius

Unitus Corporation

Mr. Srinivas Rao

Nominee Director for Padmini Benefit Trust

Mrs. Pearl Tiwari

Nominee Director for Padmini Benefit Trust

Mrs. Lalita D Gupte

Nominee Director for Promoter Group

Mrs. Veena Mankar was appointed as the Managing

Director of the Company. As one of the promoters of

both SFA and this Company, she has been involved

since inception, in the micro credit operations.

The Board has constituted a committee, titled Finance

Committee to the Board, to handle matters related to

bank accounts, borrowings, investments and general

matters relating to funds management.

The Board records its appreciation of the invaluable

contribution of Mrs. Haseena Vahanvaty as one of the

promoters of the Company and for her role in SFA, which

has afforded a valuable base to the Company to take its

operations forward.

DirECTOrS’ rESPONSibiliTY STaTEMENT

The Directors confirm:

(i) that in the preparation of the annual accounts,

the applicable accounting standards have been

followed along with proper explanation relating

to material departures;

(ii) that the Directors have selected such accounting

policies and applied them consistently and made

judgments and estimates that are reasonable and

prudent so as to give a true and fair view of the

state of affairs of the Company at the end of the

financial year and of the profit or loss of the

Company for that period;

(iii) that the Directors have taken proper and sufficient

care for the maintenance of adequate accounting

records in accordance with the provisions of this Act

for safeguarding the assets of the Company and for

preventing and detecting fraud and other irregularities;

(iv) that the Directors have prepared the annual accounts

on a going concern basis.

aUDiTOrS

The Company’s auditors, M/s. Haribhakti & Co.

Chartered Accountants, hold office until the conclusion

of the ensuing Annual General Meeting and are eligible

for re-appointment. Your Directors recommend their

re-appointment.

22

aCKNOWlEDgEMENTS

The Directors wish to thank all the staff for their commitment and hard work.

The Directors would also like to record their deep appreciation for the un-stinted

support and assistance during the past financial year of the shareholders, insti-

tutions and bankers that have helped the Company become what it is today.

For and on behalf of the Board,

Veena Mankar Lalita D .Gupte

Managing Director Chairperson

registered Office:

G-1, Dindoshilla, 15th Road,

Khar (West), Mumbai 400 052

May 13, 2009

23

23

Client: Suhasini Nevalkar

Occupation: General Store Owner

Pg. 30

Image Courtesy: Preeti Mankar for Swadhaar FinServe Pvt. Ltd.

24

COMPaNY PiCNiC:

The Company strongly believes in nurturing an inclusive and employee-friendly work culture that pays

importance to open communication between all levels of the organisation. To this end, SFPL organised

a day-long picnic for all employees at the Srushti Farms in Vasind in February this past year. The

retreat was an opportunity for SFPL’s employees to interact with one another in a non-professional

setting, and was a huge success with field and managerial staff participating in team-oriented games

and activities.

lUCKY DraW SCHEME fOr CliENTS:

At the time of loan disbursement, Loan Officers explain to their clients SFPL’s collection policies, the

importance of timely repayments, and how to optimise the use of their loans. In an effort to reward

clients for good repayment behavior, Swadhaar introduced a Lucky Draw contest for those of its clients

and groups with a 100% on-time repayment rate (0 days late) during a 4 month period (Sep – Dec

’08). All eligible clients were entered into the contest and a list of their names was generated from the

system. Managing Director Veena Mankar randomly picked the winners of the Lucky Draw Contest and

held a prize distribution at the clients’ respective branches. Cash prizes ranging from Rs. 500 to

Rs.1,500 were presented to recognise, and offer incentives to clients with good repayment history. The

prize distribution was a proud moment for those clients who won, as they were publicly rewarded for

their strong repayment history. It demonstrated the benefits of and incentives for maintaining a good

repayment record and served as a motivating factor for other clients to follow in their footsteps.

PaS

T YE

ar

aT

a g

laN

CE The Company’s milestones and activities over the past year are highlighted below:

25

The Swadhaar Associate Programme [SAP] was first introduced in the non-profit to

provide young, motivated individuals interested in the field of microfinance, an

opportunity to work at a dynamic, fast-growing MFI. SFPL adopted the programme

last year, and Associates now have the option of working at either the NBFC or the

NGO, subject to the organisation’s needs.

The SAP represents the Company’s commitment to develop a diverse staff and

provide a hands-on experience to young individuals dedicated to working in

urban microfinance, as well as the development sector. The programme has been

designed for a period of 1 year in order to ensure a gainful and worthwhile experi-

ence for both the Associate, as well as the organisation. Its flexibility allows the

Associate to work with a variety of departments within the organisation, ranging

from Operations, to Finance, IT, Product Development, Strategy and Marketing.

The Programme is a great opportunity to experience working in a grass-roots

organisation, especially for individuals interested in gaining first-hand exposure

to the industry. Some of our alumni from the SAP have the following to say about

their experiences:

“Working at Swadhaar was a stimulating and formative experience. Every member

of the head office team invested time in me and was incredibly keen to teach and

guide me in my work. The exposure I gained to microfinance through challenging

and real responsibilities far surpassed my expectations. The time I spent there

has definitely stuck with me, and is the motivating force behind my plans to

pursue a career in microfinance.”

—lara giDvaNi ASSOCIATE AT THE NGO SWADHAAR FINACCESS, 2006-2007

“On realising I wanted to switch careers into the field of international development,

I quit my job as a technology analyst in a financial services bank and moved back

to India. However, I knew I wanted to work with a legitimate company which had

a clear view of its mission. I also wanted to work with smart, talented people who

were passionate about their work and truly believed in their cause. I found all of

this and more at Swadhaar. The entire team is constantly trying to provide the

best possible solution to issues raised - from creating innovative products which

are sought by our clients to providing a healthy work environment. I am currently

working as a research analyst on back office operations and expansion plans.

While I am learning and enjoying this mix of operations and research, I hope to

get some field experience as well.”

—YaQUTa KaNCHWala ASSOCIATE AT THE NBFC SWADHAAR FINSERVE, 2008–2009

aSSOCiaTE PrOgraMME

26

CliENT PrOfilE

SWaHiTThe target segment for SFPL’s Group Loan product comprises of women aged

between 18 and 55 years. These women are usually the secondary earners in

the household, with their spouses providing the primary income. Household

incomes of these clients range between approximately Rs. 5,000–Rs. 7,000

per month.

The women are typically engaged in one of the following three activities:

1. Micro-businesses – such as tea stalls, general stores, convenience stores,

tailoring, etc.

2. Salaried work – such as working as a house maid

3. Commission-based or piece work – such as making imitation jewellery,

stitching garments, etc.

All Swahit clients have been employed or running their business for a

minimum of one year.

gl Client Distribution by age:

18-25 Yrs 11%

26-35 Yrs 35%

36-45 Yrs 39%

46-55 Yrs 15%

Self Employed/Micro Entrepreneurs to Salaried gl Client ratio:

Business 64%

Salaried 36%

27

SWaYOgSFPL’s Individual Loan product is targeted at male or female micro-business

owners, aged between 21 and 60 years. These clients run businesses that are

larger in size than the home-based businesses that the Group Loan clients run.

The most common micro-enterprise owners SFPL serves include:

1. General Store owners

2. STD-PCO Shop owners

3. Tailors (Stitching clothes)

4. Milk Shop owners

5. Vegetable Sellers

bUSiNESS iNfOrMaTiON

As at March 31, 2009 the ratio of Swayog to Swahit (by number of clients) was 14% to 86%,

and the ratio of Swayog to Swahit (by amount disbursed) was 31% to 69%.

No. of Clients (as at March 31, 2009)

OUTSTaNDiNg POrTfOliO OUTSTaNDiNg POrTfOliO

86% Swahit (Group Loan)

14% Swayog (Individual Loan)

amount Disbursed (as at March 31, 2009)

69% Swahit (Group Loan)

31% Swayog (Individual Loan)

il Client Distribution by age:

7% 21-25 Yrs

33% 26-35 Yrs

36-45 Yrs 22%

55+ Yrs 2%

46-55 Yrs 36%

Male to female il Client ratio:

Male 83%

Female 17%

28 Image Courtesy: John Rae for ACCION International

29Image Courtesy: John Rae for ACCION International

30

SUHaSiNi NEvalKar STOrE OWNEr

Suhasini has owned and run a small general store in Kherwadi, Bandra (E) for

the past 20 years. She took her first loan of Rs. 8,000 from SFPL in December

2007, after being approached by one of the organisation’s Loan Officers. Her

first loan was used to buy a fridge for her store. Realising the benefits and

enhanced flexibility in cash management that the loan had allowed Suhasini,

she applied for a subsequent loan to pay for her store inventory. Now she is in

her third cycle loan of Rs. 25,000. SFPL’s loans have helped Suhasini manage

her working capital better, and have also resulted in an increase in her monthly

profit from about Rs. 5,000 – Rs. 6,500 per month at the time of her first loan,

to Rs. 10,000 – Rs. 12,000 per month with her current loan cycle.

The loans have increased her income-generating capacity and have also enabled

her to improve her family’s livelihood. She can now afford expenses such as

her son, Atmaram’s tuition of Rs. 18,000 per year for a College Banking and

Insurance Course, and her daughter Rupa’s wedding costs. With the help of

SFPL’s loans, Suhasini has seen a significant increase in her profits and has

also gained more flexibility in income management and allocation.

*Loans taken before September 2008 were from the non-profit entity,

Swadhaar FinAccess (SFA). Following SFPL’s takeover of the SFA portfolio,

all clients migrated to the NBFC.

30

Image Courtesy: Preeti Mankar for Swadhaar FinServe Pvt. Ltd.

31

SOUrCES Of fUNDS Schedule

as at 31-Mar-09

(rupees)

as at 31-Mar-08

(rupees)

Shareholders Funds

Share Capital 1 120,000,000 25,610,000

Loan Funds

Secured Loans 2 2,500,000 -

TOTal 122,500,000 25,610,000

aPPliCaTiON Of fUNDS

Fixed Assets 3

Gross Block 8,643,979 -

Less: Depreciation/Amortization 1,731,483 -

Net Block 6,912,496 -

Capital Work in Progress 678,509 630,000

7,591,005 630,000

Deferred Tax Asset 140,816 474,284

SWaDHaar fiNSErvE PrivaTE liMiTED

balaNCE SHEET aS aT 31st MarCH, 2009

aUDiTOrS’ rEPOrT

32

Schedule

as at 31-Mar-09

(rupees)

as at 31-Mar-08

(rupees)

Current Assets Loans and Advances 4

Cash and Bank Balances 36,293,478 23,373,271

Other Current Assets 6,430,641 360,607

Loans and Advances 56,343,899 -

(i) 99,068,018 23,733,878

Less : Current Liabilities and Provisions 5

Current Liabilitiies 10,924,289 149,243

Provisions 340,317 -

(ii) 11,264,606 149,243

Net Current assets (i)-(ii) 87,803,412 23,584,635

Profit and loss account 26,964,767 921,081

TOTal 122,500,000 25,610,000

Significant Accounting Policies &

Notes to Accounts Schedules referred

to above form an integral part of

financial statements

11

As per Our Attached Report of Even Date

For Haribhakti & Co.

Chartered Accountants

Rakesh Rathi Anshu Mundhra

Partner Company Secretary

For and on behalf of the Board of

Swadhaar Finserve Pvt. Ltd.

Lalita D. Gupte Veena Mankar

Chairperson Managing Director

Place : Mumbai Place : Mumbai

Date :13- May-09 Date :13- May-09

33

Schedule

Year ended

31-Mar-09 (rs.)

Period ended

31-Mar-08 (rs.)

iNCOME

Operating Income 6 7,448,595 -

Other Income 7 4,392,603 294,207

TOTal 11,841,198 294,207

ExPENDiTUrE

Personnel Expenses 8 12,464,328 -

Administrative & Financial Expenses 9 19,942,427 1,689,572

TOTal 32,406,755 1,689,572

Profit/(Loss) Before Depreciation,

Taxation and Exceptional Items (20,565,557) (1,395,365)

Depreciation 1,731,483 -

Profit/(Loss) before Exceptional

Items and Taxation (22,297,040) (1,395,365)

Exceptional Items 10 3,343,178 -

PrOfiT bEfOrE Tax (25,640,218) (1,395,365)

Less: Provision for Tax

Current Tax - -

Fringe Benefit Tax 70,000 -

Deferred Tax Adjustments 333,468 (474,284)

403,468 (474,284)

SWaDHaar fiNSErvE PrivaTE liMiTED

PrOfiT aND lOSS aCCOUNT fOr THE YEar ENDED 31ST MarCH, 2009

34

Schedule

Year ended

31-Mar-09 (rs.)

Period ended

31-Mar-08 (rs.)

PrOfiT afTEr Tax (26,043,686) (921,081)

Balance brought Forward from Previous Year (921,081) -

balaNCE CarriED TO balaNCE SHEET (26,964,767) (921,081)

Earning per share of Rs.10 each

(Basic & Diluted) (3.39) (1.33)

Notes to Accounts 11

As per Our Attached Report of Even Date

For Haribhakti & Co.

Chartered Accountants

Rakesh Rathi Anshu Mundhra

Partner Company Secretary

For and on behalf of the Board of

Swadhaar Finserve Pvt. Ltd.

Lalita D. Gupte Veena Mankar

Chairperson Managing Director

Place : Mumbai Place : Mumbai

Date :13- May-09 Date :13- May-09

35

as at 31-Mar-09

(rupees)

as at 31-Mar-08

(rupees)

SCHEDUlE 1: SHarE CaPiTal

Authorised:

15,000,000 equity shares of Rs.10/- each 150,000,000 150,000,000

150,000,000 150,000,000

Issued, Subscribed and Paid up:

12,000,000 (P.Y. 2,561,000) equity shares of Rs.10/- each fully

paid up 120,000,000 25,610,000

[Out of above 9,439,000 shares were issued

during the year]

120,000,000 25,610,000

SCHEDUlE 2: SECUrED lOaN

Loan from FWWB (Secured against Book Debts) 2,500,000 -

2,500,000 -

SWaDHaar fiNSErvE PrivaTE liMiTED

SCHEDUlES aNNExED TO aND fOrMiNg ParT Of balaNCE SHEET

SC

HE

DU

lE 3

: fixED

aS

SE

TS

in rupees

Pa

rT

iCU

la

rS

gr

OS

S b

lO

CK

DE

Pr

EC

iaT

iON

/ aM

Or

TiZ

aT

iON

NE

T b

lO

CK

as on

1-a

pril-08

additions

during

the year

Deletions

during

the year

as on

31

-Mar-0

9

as on

1-a

pril-08

During

the yearD

eduction

as on

31

-Mar-0

9

as on

31

-Mar-0

9

as on

31

-Mar-0

8

Furniture and Fixtures-

1,6

18

,48

5-

1,6

18

,48

5-

46

2,2

18

-4

62

,21

81

,15

6,2

67

-

Office E

quipment

-5

73

,88

5-

57

3,8

85

-9

0,1

69

-9

0,1

69

48

3,7

16

-

Com

puters-

3,2

06

,59

4-

3,2

06

,59

4-

38

0,7

79

-3

80

,77

92

,82

5,8

15

-

Lease hold improvem

ent-

1,4

99

,80

3-

1,4

99

,80

3-

49

9,9

34

-4

99

,93

49

99

,86

9-

intangible assets

--

--

-

Com

puter Softw

are-

1,7

45

,21

2-

1,7

45

,21

2-

29

8,3

83

-2

98

,38

31

,44

6,8

29

-

TOTa

l-

8,6

43

,97

9-

8,6

43

,97

9-

1,7

31

,48

3-

1,7

31

,48

36

,91

2,4

96

-

Previous Year

--

--

--

--

--

Ca

PiTa

l WO

rK

iN P

rO

gr

ES

S (E

xPE

ND

iTUr

E O

N D

EvE

lOP

ME

NT O

f SO

fTWa

rE

(iNTa

Ng

iblE

))6

78

,50

96

30

,00

0

gr

aN

D TO

Tal

7,5

91

,00

56

30

,00

0

37

as at 31-Mar-09

(rupees)

as at 31-Mar-08

(rupees)

SCHEDUlE 4: CUrrENT aSSETS, lOaNS aND aDvaNCES

(a) CUrrENT aSSETS

Cash and Bank Balances

Cash on Hand 1,313,495 3,990

Bank Balances in Scheduled Banks

Bank accounts 1,129,983 53,578

Fixed Deposits 33,850,000 23,315,703

(i) 36,293,478 23,373,271

Other Current assets

Telephone and Internet Deposits 136,666 -

Security Deposit for Premises 2,530,000 300,000

Interest Accrued on Fixed Deposits 2,061,853 -

Stamp Paper in Hand 15,000 -

Advance Tax & Tax Deducted at Source 875,174 60,607

Other Assets 739,040 -

Prepaid Expense 72,908 -

(ii) 6,430,641 360,607

(b) lOaNS aND aDvaNCES (UNSECUrED, CONSiDErED gOOD)

Loans given to customers 56,638,507

Less: Provsions for doubtful Debts* 352,535 56,285,972 -

Interest Due but not received 57,927 -

-

(iii) 56,343,899 -

(i+ii+iii) 99,068,018 23,733,878

* Refer to Note 12 of Significant Accountant Policies

38

as at 31-Mar-09

(rupees)

as at 31-Mar-08

(rupees)

SCHEDUlE 5: CUrrENT liabiliTiES aND PrOviSiONS

(a) CUrrENT liabiliTiES

Sundry Creditor for expenses

(Refer note no.13 of Notes to Accounts)

Dues to Micro, Small and Medium Enterprises - -

Dues to Others 2,174,577 124,925

Margin Money 5,256,648 -

Statutory dues payable 1,045,187 24,318

Other Liabilities 2,447,877 -

(i) 10,924,289 149,243

(b) PrOviSiONS

Provisions for Gratuity 270,317 -

Provisions for FBT 70,000 -

(ii) 340,317 -

(i+ii) 11,264,606 149,243

39

for Year ended

31-Mar-09 (rs.)

for Period ended

31-Mar-08 (rs.)

SCHEDUlE 6: OPEraTiNg iNCOME

Interest on Loans 4,742,151 -

Loan Processing Fee 1,928,765 -

Collection Charges 691,000 -

Application Fees 86,679 -

7,448,595 -

SCHEDUlE 7: OTHEr iNCOME

Interest on Deposits with Bank 4,203,836 294,207

Interest on Deposits 123,750 -

Miscellaneous Income 65,017 -

4,392,603 294,207

SCHEDUlE 8 : PErSONNEl ExPENSES

Training and recruitment costs 362,974 -

Salaries,Allowances and other Emoluments 9,033,959 -

Managing Directors Remuneration 2,066,667 -

Contribution to PF and Statutory funds 701,688 -

Gratuity 165,482 -

Staff Welfare 133,558 -

12,464,328 -

40

for Year ended

31-Mar-09 (rs.)

for Period ended

31-Mar-08 (rs.)

SCHEDUlE 9: aDMiNiSTraTivE aND fiNaNCial ExPENSES

Insurance 31,199 -

Postage and Courier 25,068 -

Service Tax 305,916 -

Electricity Charges 339,711 -

Telephone Charges 342,454 -

Security Charges 230,267 -

Brokerage (Lease of Premises) 232,749 -

Printing and Stationery 749,360 3,630

Computer & Web-related expenses 975,111 -

Professional and Legal Fees 5,928,842 97,110

Office Expenses 500,765 10,980

Premises lease rent 2,196,576 90,663

Prelimenary Expenses w/off - 1,183,500

Bank Charges 56,729 -

Retainership Charges 6,370,518 226,667

Travelling and Conveyance 731,366 15,000

Statutory audit fees 330,900 60,000

Bad Debts written off 227,131 -

Provision for doubtful debts 352,535 -

Other Miscellaneous Expenses 15,230 2,022

19,942,427 1,689,572

SCHEDUlE 10: ExCEPTiONal iNCOME

Staff Recruitment & Training Costs 2,691,490 -

Market Development Cost 651,688 -

3,343,178 -

41

i. NaTUrE Of bUSiNESS:

The Company is Non-banking Financial Company (NBFC)

registered with the Reserve Bank of India (“RBI”) under

section 45-IA of the Reserve Bank of India Act, 1934

and primarily engaged in lending and related activities.

The Company received the Certificate of Registration from

the RBI on 9th May 2008, enabling the Company to carry

on business as a Non-banking Financial Company.

As the Company has incurred losses during the year,

there has been no transfer to the Reserve Fund in accor-

dance with the provisions of Section 45-IC of the RBI

Act, 1934.

(a) SigNifiCaNT aCCOUNTiNg POliCiES:

1. basis of Preparation of financial Statements:

The accompanying financial statements are consistently

prepared under the historical cost convention, on the

accrual basis of accounting and comply with the accoun-

ting standards issued by the Institute of Chartered

Accountants of India (to the extent applicable) and

in accordance with the generally accepted accounting

principles, the provisions of the Companies Act, 1956

and regulations of Reserve Bank of India, to the extent

applicable.

2. Use of Estimates:

The preparation of the financial statements in conformity

with the generally accepted accounting principles

requires the management to make estimates and assump-

tions that affect the reported amount of assets, liabilities,

revenues and expenses and disclosure of contingent

assets and liabilities. The estimates and assumptions

used in the accompanying financial statements are

based upon management’s evaluation of the relevant

facts and circumstances as of the date of the financial

statements. Actual results may differ from the estimates

and assumptions used in preparing the accompanying

financial statements. Any differences of actual results to

such estimates are recognized in the period in which the

results are known/materialized.

3. revenue recognition:

a) Interest income is recognized and accounted on

accrual basis as per the agreed terms except in

case of Non Performing Assets outstanding for

more than 90 days, which is recognized on receipt

basis, as per NBFC Prudential Norms.

b) Application fees and loan processing fees are

recognised when loans are disbursed.

c) Collection charges are recognised on date

of installment.

d) All other incomes are recognised on

accrual basis.

4. fixed assets & Depreciation:

Fixed Assets are stated at cost less accumulated

depreciation thereon. The cost of fixed assets comprises

purchase price and any other incidental cost of bring-

ing the asset to its working condition for its intended

use. The Company provides pro-rata depreciation from

the date on which asset is acquired/ put to use. On all

assets, except as mentioned below, depreciation has

been provided using the Straight line method at the rates

specified in Schedule XIV to the Companies Act, 1956:

SWaDHaar fiNSErvE PrivaTE liMiTED

SCHEDUlE 11: SigNifiCaNT aCCOUNTiNg POliCiES aND NOTES

TO aCCOUNTS fOr THE YEar ENDED MarCH 31, 2009:

42

a) Assets costing Rs. 5,000/- or less are fully

depreciated in the year of purchase.

b) Improvements to Leased Assets are depreciated

over the initial period of lease.

c) Fixed Assets purchased from Swadhaar FinAccess

are depreciated over a period of 4 years.

5. intangible assets & amortization:

Expenses incurred on Computer Software having

enduring benefits are capitalized and will be amortized

over a period of 3 years on a pro rata basis from the

date of purchase.

6. Employee benefits:

Provident Fund:

Contribution payable to the recognised provident fund,

which is a defined contribution scheme, is charged to the

profit and loss account in the period in which they occur.

Gratuity:

Gratuity is post employment benefit and is in the nature

of Defined Benefit Plan. The Liability recognised in the

balance sheet in respect of gratuity is the present value

of defined benefit obligation at the balance sheet date,

together with the adjustments for unrecognized actuarial

gain or losses and the past service costs. The defined

benefit obligation is calculated at or near the balance

sheet date by an independent actuary.

7. Taxation:

Income-tax expense comprises current tax (i.e. amount

of tax for the period determined in accordance with the

income-tax law), deferred tax charge or credit (reflecting

the tax effect of timing differences between accounting

income and taxable income for the period) and fringe

benefit tax.

Current Tax:

Provision for current tax is made on the basis of estimated

taxable income for the accounting year in accordance

with the Income Tax Act, 1961. However, for the current

year, no provision for tax has been made since the

Company has incurred losses.

Deferred Tax Expense:

Deferred tax expense or benefits is recognised on timing

differences being the difference between taxable and

accounting income and are capable of reversal in one or

more future periods. Deferred tax assets and liabilities

are measured using the tax rates and tax laws that have

been enacted or substantively enacted by the balance

sheet date. Deferred tax assets are recognised only to the

extent there is reasonable certainty that the asset can be

realised in future; however, where there is unabsorbed

depreciation or carried forward loss under taxation laws,

deferred tax assets are recognised only if there is a virtual

certainty of realisation of the assets. Deferred tax assets

are reviewed as at each balance sheet date and written

down or written-up to reflect the amount that is reason-

able/virtually certain (as the case may be) to be realised.

Fringe Benefit Tax:

Provision for Fringe Benefit Tax (‘FBT’) is made on the

basis of applicable FBT rates on the taxable value of

chargeable expenditure of the Company as prescribed

under the Income Tax Act, 1961.

8. Operating leases:

Lease payments in respect of operating lease are recog-

nized as an expense in the statement of profit and loss

account on a straight-line basis over the lease term.

9. Provision and Contingencies:

The Company creates a provision when there is pres-

ent obligation as a result of a past event that probably

requires an outflow of resources and a reliable estimate

can be made of the amount of the obligation. A disclo-

sure for a contingent liability is made when there is a

possible obligation or a present obligation that may, but

probably will not, require an outflow of resources. When

there is a possible obligation or a present obligation in

respect of which the likelihood of outflow of resources is

remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and

adjusted to reflect the current best estimate. If it is no

longer probable that the outflow of resources would be

required to settle the obligation, the provision is reversed.

43

Contingent assets are not recognised in the financial

statements. However, contingent assets are assessed

continually and if it is virtually certain that an economic

benefit will arise, the asset and related income are recog-

nised in the period in which the change occurs.

10. impairment of assets:

The Company assesses at each balance sheet date whether

there is any indication that an asset may be impaired.

If any such indication exists, the Company estimates

the recoverable amount of the asset. If such recoverable

amount of the asset or the recoverable amount of the cash

generating unit which the asset belongs to, is less than

its carrying amount, the carrying amount is reduced to its

recoverable amount. The reduction is treated as an impair-

ment loss and is recognized in the profit and loss account.

If at the balance sheet date there is an indication that a

previously assessed impairment loss no longer exists, the

recoverable amount is reassessed and the asset is reflected

at the recoverable amount subject to a maximum of depre-

ciable historical cost.

11. foreign Currency Transactions:

Foreign currency transactions are recorded at the rates

of exchange prevailing on the date of the transaction.

Exchange differences, if any arising out of transactions

settled during the year are recognised in the profit and

loss account. Monetary assets and liabilities denominated

in foreign currencies as at the balance sheet date are

translated at the closing exchange rate on that date. The

exchange differences, if any, are recognised in the profit

and loss account and related assets and liabilities are

accordingly restated in the balance sheet except those

related to acquisition of fixed assets which are adjusted

in the carrying amount of the related fixed assets.

12. Provision for doubtful debts:

The provisioning norms followed by the Company are

more stringent than those prescribed by the Reserve

Bank of India and are as follows:

No. of days

portfolio outstanding

overdue (days)

Provision

(% on outstanding

principal)

0-30 0%

31-60 10%

61-120 30%

121-180 60%

Overdue debts outstanding for more than 180 days are

written off.

44

(b) NOTES TO THE aCCOUNTS:

1. Equity Share Capital raised during the year:

During the year, the Company has raised a capital of Rs. 94,390,000/-

by way of issue of 9,439,000 equity shares of Rs. 10/- each.

2. Payment towards business Transfer:

During the year, the Company took over the current micro credit portfolio of

Rs. 6,065,313/- and 1,786 active clients from Swadhaar FinAccess (SFA),

a non profit company sharing common promoters with the Company. In addi-

tion, the Company has acquired assets worth Rs.3,609,296/-. The necessary

approval from the Central Government was taken for the aforementioned

transfer of micro credit portfolio and assets from SFA.

Extraordinary Item:

The Company has absorbed 76 employees of SFA at a cost of Rs. 2,691,490/-

as staff recruitment and training costs. SFA had incurred costs in recruiting

and training these employees in the past and therefore SFPL compensated

SFA for the cost incurred in recruiting and training these employees at three

month’s cost to SFA.

The Company has also paid Rs. 651,688/- as market development costs to

SFA. SFA had undertaken considerable efforts to bring the clientele in its

books. Hence SFA has been paid @ Rs. 200/- for every loan client transferred

from SFA to the Company.

3. gratuity:

The detailed actuarial working as required under AS-15 is attached as an

annexure to the accounting policies.

4. auditor’s remuneration (inclusive of Service Tax):

Particulars Current Year

rupees

Previous Year

rupees

As Auditors

Statutory Audit Fees 264,720 56,180

Tax Audit Fees 66,180 NIL

Any other (including Certification) 172,190 11,236

Out of pocket expenses 859 NIL

Total 503,949 67,416

45

7. basic & Diluted Earnings/(loss) per share:

Particulars Current Year Previous Year

Net Profit/(Loss) attributable

to equity shareholders [A] (Rs.) (26,043,686) (921,081)

Weighted Average of equity

shares issued [B] 7,687,534 690,927

basic & Diluted Earnings/(loss) per

share (annualized EPS) [a/b] (rs.) (3.39) (1.33)

7A. A schedule as required in terms of Paragraph 13 of Non-Banking Financial

(Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank)

Directions, 2007) is attached as Annexure 2 to the accounting policies.

5. Managing Director’s remuneration:

Particulars Current Year (rs.) Previous Year (rs.)

Salary 2,066,667 NIL

Bonus NIL NIL

Company’s contributions to P.F. NIL NIL

Monetary Value of other Perquisities/Benefits NIL NIL

6. Deferred Tax assets/(liability) for the year comprise timing differences

on account of:

Particulars Current Year (rs.) Previous Year (rs.)

Opening balance 474,284 Nil

Deferred Tax liability (389,715) Nil

Depreciation 309,261 NIL

Preliminary Expenses 80,454 NIL

Unabsorbed Losses NIL NIL

Deferred Tax asset 56,247 474,284

Preliminary Expenses NIL 321,817

Unabsorbed Losses NIL 152,467

Provision for Gratuity 56,247 NIL

Net Deferred Tax asset/(liability) 1,40,816 474,284

46

8. related Party Disclosure

Name of Related Parties:

Name of the Key Managerial Personnel Name of the enterprise in which the Key Managerial

Personnel exercises significant influence

Ms. Veena Mankar R A Net India Private Limited

Mena Factors LLC, Dubai

Egypt Factors S.A.E., Cairo

Swadhaar FinAccess

India Consult

Mr. Srinivas Bhaskar Rao Kanhaiya Holdings Private Limited

Gopi Vallabh Holdings Private Limited

Nilyam Holdings Private Limited

Madhav Reality Holdings Private Limited

DCA Holdings Private Limited

Madhurima International Private Limited

Brijraj Holdings Private Limited

Ms. Pearl Tiwari Ambuja Cement Foundation

Ms. Geeta Dutta Goel Arohan Financial Services

Ms. Anita Ramachandran Cerebrus Consultants Private Limited

Connexus Consultant Private Limited

HCL Infosystem Geometric Limited

Force Motors Limited

Godrej & Boyce Mfg Company Limited

UTI AMC Private Limited

Mr. Siddhartha Chowdri ACCION Technical Advisors India

Ms. Lalita D Gupte ICICI Venture Fund Management Company Limited

Bharat Forge Limited

Firstsource Solutions Limited

Kirloskar Brothers Limited

Nokia Corporation

HPCL – Mittal Energy Limited

Godrej Properties Limited

G.S.Mhaskar Private Limited

East West Ethnic Foods Private Limited

B) Key Management Personnel:

Ms. Lalita D Gupte – Chairperson Ms. Pearl Tiwari – Nominee Director

Ms. Veena Mankar – Managing Director Mr. Srinivas Bhaskar Rao – Nominee Director

Ms. Geeta Dutta Goel – Nominee Director Mr. Siddhartha Chowdri – Nominee Director

Ms. Anita Ramachandran – Nominee Director

47

9. Segment reporting:

The Company is engaged in single segment and there are no separate

reportable segments as defined in AS – 17.

10. foreign Currency Transactions:

Expenditure in foreign Currency (on accrual basis):

Particulars Current year(rs) Previous Year (rs)

Travel 48,896/- NIL

Total 48,896/- NIL

11. foreign Exchange gain/loss:

The Company did not have any foreign exchange/ currency on hand as on

the date of Balance Sheet.

Transactions with related parties for the year ended 31.03.2009:

Transaction

Enterprise in which the Key

Managerial Personnel exer-

cises significant influence

Key

Management

Personnel

Managerial remuneration: 2,066,667

Swadhaar finaccess

Purchase of Fixed Assets 2,101,296

Purchase of Computer Software 1,508,000

Staff Training & Recruitment Cost 2,691,490

Market Development Costs 651,688

Purchase of Loan Portfolio 6,065,313

Loans 3,000,000

Reimbursement of Expenses (Sharing of Kiosk)

931,348

Interest on Loan (123,750)

aCCiON

Professional Charges 1,993,877

Note: Income/Receipts figures are shown in brackets

48

12. Capital work in progress:

This includes the following:

a) Amount paid for the up gradation of micro finance portfolio

accounting software (Bankers Realm) Rs. 576,694/-

b) Amount paid for the payroll software (Greytip Software Pvt. Ltd)

Rs.101,815/-

13. MSMED act, 2006:

The Company is in process of receiving intimations from “Suppliers” regarding

their status under Micro, Small and Medium Enterprise Development Act,

2006 and hence disclosures, if any, relating to amounts unpaid as at the year

end together with interest paid / payable as required under the said Act have

not been given.

14. Previous Period Comparatives:

Previous period figures have been regrouped and rearranged to the extent

considered necessary.

Schedule 1 to 8 to the Balance Sheet and Profit and Loss account form an

integral part of these accounts

As per Our Attached Report of Even Date

For Haribhakti & Co.

Chartered Accountants

Rakesh Rathi Anshu Mundhra

Partner Company Secretary

For and on behalf of the Board of

Swadhaar Finserve Pvt. Ltd.

Lalita D. Gupte Veena Mankar

Chairperson Managing Director

Place : Mumbai Place : Mumbai

Date :13- May-09 Date :13- May-09

Design and Layout: Amishi Parekh

Printed at: Jak Printers Pvt. Ltd.

Photo Credits:

John Rae for ACCION International

Preeti Mankar for Swadhaar FinServe Pvt. Ltd.

Swadhaar FinServe Pvt. Ltd.

5/39 Shree Om Co-op Housing Society, Anand Nagar, Guru Narayan Road, Off Nehru Road, Santacruz [E], Mumbai 400 055

Tel: +91 22 2613 8700 • F: +91 22 2613 8797/98 • E-mail: info@swadhaar.com • www.swadhaar.com

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