Information Memorandum

Chaitanya India Fin Credit Pvt. Ltd.

 PRIVATE & CONFIDENTIAL

Disclaimer

 Chaitanya India Fin Credit Pvt. Ltd. (“CIFCPL” or “the Company”) is engaged in microfinance business across Karnataka, India. Chaitanya
Rural Intermediation and Development Services Pvt Ltd (Chaitanya Rural IDSPL “or” the holding company”) is a holding company that is
currently non operating and holds 100% equity in CIFCPL.

 CIFCPL is a NBFC-MFI, and Chaitanya Rural IDS-PL is a holding Company

 This Confidential Information Document (the “Memorandum”) is based on management estimates and is being provided to you (hereinafter
referred to as the “Recipient”) only for information purposes. The sole purpose of this Memorandum is to provide preliminary information on
the background of the Company, an overview of the business and operations. This Memorandum does not purport to be all inclusive nor
does it necessarily include all information that a prospective partner may desire in evaluating the Company. The Company expressly
disclaim any and all liability for any errors and/ or omissions, representation or warranties, expressed or implied as contained in this
document.

 This Memorandum has been prepared for information purposes relating to the Company only and upon the express understanding that it will
be used only for the purposes set forth above. This Memorandum may not be photocopied, reproduced or distributed to others at any time
without the prior consent of the Company or the Advisors. Upon request, the Recipient will promptly return all material received from the
Company and/or the Advisors without retaining any copies thereof.

 Neither this Memorandum, nor its delivery to any prospective partner/ investor/ financier, nor any information contained in it or
representations supplied or made in connection with any negotiation shall constitute an offer to subscribe or the solicitation of an offer to
acquire any part of the business nor shall it form any basis or part of any agreement or arrangement of any kinds with the Company.

 In furnishing this Memorandum, the Company, and the Advisors do not make any obligation to provide the Recipient with access to any
additional information on CIFCPL or their affiliates. This Memorandum should not be deemed an indication of the state of affairs of CIFCPL
nor shall it constitute an indication that there has been no change in the business or state of affairs of CIFCPL since the date of publication of
this Memorandum.

 Any clarifications/ queries on the proposal as well as any future communication regarding the proposal should be addressed to the
Company.

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Index

1 Executive Summary

2 Chaitanya Profile

3 Chaitanya Strategy Overview

4 Business Plan

5 Appendix

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Executive Summary – A Rural Financial Inclusion Opportunity

 Formal Players in rural finance are the PSBs, RRBs, Cooperatives and few NBFC, MFIs
Financial  Market Growth and Potential in rural finance is not limited by customer demand but by last
Services for mile capabilities to distribute, deliver and manage risk at an effective cost.
Rural Low  Migration from Informal sources to Formal Institutions accelerating growth in financial services
Income Families  Micro Finance Institutions have created a viable distribution architecture but have a single
product focus (JLG)

 Increasingly Supportive Regulatory Architecture has revitalized growth in Micro Credit

Game Changing
and “SMALL FINANCE BANKS” could over time be the significant game changer in
Opportunity
rural finance

 Equity base of Rs 22 Cr with promoters and associates holding more than 97%
 83% growth y-o-y since 2010 and Profitable since March 2011
Chaitanya -
A Sound track  Portfolio of Rs 75 cr with losses of less than 0.1% since inception. Total Cumulative loss of Rs
record of 4.5 Lakh on Rs 130 cr of repayments till March 2014.
sustainable  Successfully executed viable models for 2 Wheeler Loans, Gold Loans and Micro Housing
execution on a Loans in synergy with Micro Finance delivery structure
high growth
 Organization structure and processes designed to deliver multiple financial products and
path
services through the MFI set up
 Professional Board, Committed and Competent Top Management

A Business with a Strong Foundation in an attractive market

with an opportunity to capitalize on unique regulatory circumstances

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Key Equity Capital Fund Raise Milestones and Current Offer

Historical Fund Raise Public Market Peer

Comparison
Type of Total Fund No. of Share Price /
S.No Fund Raise Year Raised (Rs cr) Shares Price (Rs) BV SKS Microfinance
1 Seed 2009-10 2.35 2,354,000 10 1.00
Market Cap 4,343
2 Seed Sep-10 2.92 2,920,000 10 1.00 (Rs cr)
3 Series A Apr-11 7.19 3,992,926 18 1.80
AUM 3,210
4 Rights Dec-14 6.75 2,700,000 25 1.55
(Rs cr)

Current Offer – Series B Current 342.25

Price (Rs)
Target Closed Date 15-Jan-15
P / BV 4.5 x
Target Amount (Rs Cr) 18.00 (30-Sep-
2014)
Offer Price (Rs) 28
Ticket Size Rs 5 Lakhs and above SKS Microfinance is the
only listed microfinance
Indicative Pre-Money P / BV 1.54
company and has been
Indicative Post-Money P / BV 1.30 sighted only as a
reference

Significant head room to grow both Price to Book Multiple and the Book Value
Note: SKS data sourced from SKS website and results for QE 30-Sep-2014

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Index

1 Executive Summary

2 Chaitanya Profile

3 Chaitanya Strategy Overview

4 Business Plan

5 Appendix

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Chaitanya’s Mission – Double Bottom Line

Ensuring sustainable  Focus on Sustainable Shareholder

Shareholder Returns returns, ensures long term viability of business and
access to capital

 Improvement in customers‟ lives is vital to secure

quality portfolio performance and sustainable
operations

 Explicitly stated financial expectations, creates

organizational discipline to ensure commercial
Improving Lives of Low
viability for product and customer choice
Income Families
through Financial
Services  Employees are inducted into a culture of delivering
both customer value and commercial value

Chaitanya engages with customers only if it believes it can make a positive impact in the lives
of the customers and only if it can profitably serve them on a sustainable basis
Note: Double Bottom Line refers to emphasis on equity holders returns coupled with improving lives of low income families.

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Chaitanya Operational Highlights – Focus on Growth + Profitability + Product Scope

 Profitable from 2nd Year of operation – Operating structure aligned and scaled with business size

 83% AUM CAGR between 2011-14

 Overall repayment rate has consistently been over 99.9%

‒ Total accumulated loan loss of Rs 4.5 Lakh from total cumulative repayments of Rs 130 cr

 Incremental Cost / Incremental Portfolio (Incremental OCR) in 2013-14 is 7.82%

 9 out of 14 middle management employees have been with the company for more than 4 years

 Over Rs 70 cr of current borrowings from Banks and FIs

 First Activity Based Lending - Live Stock Loans with Live Stock Insurance for 4,000 customers

 Successful foray in multi-product lending (c. 11% of AUM in non-microfinance products)

‒ Vehicle Loan portfolio of Rs 5.0crs in 2 regions with 2 years of operational experience

‒ Gold loan portfolio of Rs 2.5crs in 2 branches with 2.5 years of experience in the product

‒ Pilots in Micro-Housing loans leading to collaboration with Two leading micro HFCs. 12% of current JLG
loans are for housing

A credible rural focused multi product NBFC-MFI scaled systematically

with sound risk management and a process oriented business model

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Corporate Structure – Residents hold more than 65% in Chaitanya Rural IDS

 The current corporate structure consists of two

Other companies
Promoters
Shareholders
‒ (“Chaitanya Rural IDS”): Holding company which
holds 100% of the microfinance company.

Operating Hold Co. ‒ Chaitanya India Fin Credit Pvt. Ltd. (“CIFCPL”) the
New
(Chaitanya Rural IDS ) NBFC-MFI providing loans in the Joint Liability
Share
(Rs 22cr) Group is 5 years old
holders
100% ‒ Gold, Vehicle and other loans will be moved to the
Holding Co after obtaining a NBFC License

Microfinance Entity  The structure has been designed so that the NBFC-
(CIFCPL) (Rs 21.5 cr) MFI is complaint with RBI requirements for MFI Assets
while the Holding Company can scale up the other
financial services businesses
Present Shareholding Structure  The holding company can start operations after it
obtains a NBFC license from the RBI
 Unique Shareholding Structure - Promoters and close
Other associates (c..50 individuals) of promoters own 97% of
Shareholders Promoters shares
51% 49%  Funds Raised through friends, family and colleagues of
the promoters

Fully Committed First Generation Entrepreneurs backed by High Quality Professionals as

Investors

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Promoters & Board of Directors – Diverse and Committed Team

Promoters Board of Directors

Samit Shankar Shetty
 Investor‟s nominee Director at Chaitanya
 Set Up and led Olam‟s coffee business in Brasil as its
 MD of Invenio, Singapore based company,
Country Manager which is now a 1$Bn Business.
engaged in providing market making and
 Profitably Scaled it to a turnover of $ 300 Mn, in 4 years Ramesh
risk management solutions in agricultural
 Spent 4+ years in operations intensive procurement , trade Sundaresan
derivatives
financing, farmer financing and processing operations in
 Global Head / President of Risk
Africa, as a Territory Head and 2 years as a Profit Centre
Management solutions at Olam
Head
 MBA from IIM, Ahmedabad  CA by profession being the Managing
 Handles Operations and IT in Chaitanya Partner of M/s Ravi & Shrihari
K S Ravi  Advices on statutory matters to institutions
in the social sector for the last 20 years
Anand Rao
 Involved in mentoring NGOs
 4 years leadership position at an international non-profit
organization, S3IDF; Setup over 25 innovative enterprises  Retd. GM with 37 years of banking
that deliver infrastructure services to the poor at S3IDF A Narasimha experience in IOB, Vijay Bank and Andhra
 Worked for 2 years with International Non-Profit Bank
Organization – World Resources Institute
 Retd. VP at ING-Vysya with 30 years of
 3 years corporate experience at Pepsico & Bosch India banking experience
Nanda
 MA in International Relations from Syracuse Kumar R  Currently working as Group CEO of
University, USA and MBA from IIT, Bombay
Emmvee Group
 Handles Internal Audit, Finance, Accounting and Risk

Team Chaitanya Brings together experience in professional corporates

and rural community based organizations

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Corporate Timeline

 Mar: Incorporated
 Oct: Started  Raised Series A
 Foray into 2W loans
operations in Jagalur funding – Mar 11
in Kushtagi
 Delphix Nano Core  Belgaum and
 First Securitization
MFI Solution Kushtagi Region
transaction concluded
Implemented Started

2009 2010 2011 2012 2013 2014

 Divisional Office
 Achieved profitability in Set up in Dharwad
Sep 2010  Term loan availed with Divisional
 Regional Structure Put from a Bank- SBI Manager
up for Jagalur Region  Pilot of Gold Loan  AUM Crosses Rs.
 SIDBI extends first loan product started 50 cr
of Rs One Crore  Manager to handle
Social Initiatives
appointed

The Right Foundation for Sustained Long Term Growth

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Chaitanya – Growth Over the Last 3 Years

All numbers in Rs Lakh unless otherwise stated

Portfolio & Profitability Growth Organization Growth

46,329
5,648 28,062 237
18,268
11,644
3,180 156

1,679 100
924 62
79.6 24 29
15.2 69.7 51.3 8 14

2011 2012 2013 2014 2011 2012 2013 2014

AUM (Rs Lakh) PAT Branches Employees Customers

Performance Metrics AUM Breakup

11.06% Gold
8.23% 7.92% 4%
Vehicle
(2W)
7%
17.73%
13.55% 15.44%
11.76% 11.88%
7.82% JLG
89%
2012 2013 2014
OCR Incremental OCR Interest Spread

Profitability with Growth, Scope and Scale

* PAT for FY 2013-14, impacted by RBI guideline to increase provisions on standard assets to 1% of the Portfolio from 0.25%. On a like to like basis, PAT would be Rs 103 Lakh

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Product Offerings – Customized Mix of JLG Loans

JLG Gold 2W Microhousing New Products

 Joint Liability Group in the Grameen Model, 80% of loans for income generation, between Rs 5,000 - 50,000.
 Process Oriented Risk Management to assure group homogeneity, Customer and Group Intent, Financial
Discipline, savings and repayment ability.
 Clock work Repayments Mechanism ensures high efficiency and engagement with customers.
 Very Suitable for repayment levels less than Rs. 2,500 per month and for Income Generating Purposes.

Product Current Portfolio Max Exposure (Rs)

(Rs cr) Live Stock

JLG Loans Split by Purpose

2Y Multiple Disbursal Loan 26.94 30,000
13.4% Agri Related
1Y Basic Loan 13.79 15,000
2Y Loan with Top-up Option 5.3 35,000 23.8%
9.7% Working Capital for
Short Term Loan 2.90 8,000 Small Businesses
2Y Asset Purchase Loan 0.51 40,000
11.6% House Repair /
Livestock Loan 12.75 40,000 Construction
23.6%
Proposed / Recently Introduced Products
Vehicle / Auto
Housing Construction & Repair 50,000 17.9% Purchase, Maintainence
Small Enterprise Loans 50,000 Others
Agriculture Investment Loan 50,000
Total JLG AUM: Rs 62cr
Small Business Investment Loans 50,000

Catering to diverse customer requirements of loan sizes and repayment abilities within the JLG, through
credit risk management skills , risk culture at the branch level and IT support systems at the back end

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Product Offerings – Other Products

JLG Gold 2W Microhousing New Products

Product Description Current Portfolio1

 Typical tenure: 18 months, Interest charged: 26 % Rs 5.0 cr

Vehicle Loans  Traditional 2Wheeler loans are through dealer network in district Head
Products in Scale Up Phase

(2 W) quarters. Sales at the Taluk places through sub-dealer is growing

 Nearness to villages and branch presence supports the 2Wheeler biz

 Pawn Brokers have the lion‟s share of the rural market followed by Rs 2.5 cr
Gold Loans PSBs. Size of business not attracting Gold Loan Cos as yet.
 Tenure: 3-12 months, Interest charged: 24 %, 2 branches for 2.5 years

 Typical tenure:24-60 months; Interest charged: 19% - 22 %, 50K-500K Tie-up with

2 Rural
Micro housing  For loans above 1 lakh registered mortgage is insisted
Micro
Loans  Group Methodology adopted for loans up to Rs One Lakh Housing
 Piloting the partnership Models in 3 branches Finance Cos

Enterprise  Working Capital and Asset acquisition loans for Shops, Food Plan to
Pipeline

launch it in
Product

Loans and Businesses, Skilled Professionals, Vendors greater than Rs.50,000

the next 12
Agri- Asset  Loans > 50,000 for irrigation systems, wells and other Agri-Assets months in
Loans  Typical tenure: 24months, Interest charged: 24 % partnership

Leverage the Micro Credit Channel to Capitalize on Untapped Potential, driving Synergies
1 Non Microfinance assets are restricted to 15% of the total assets as per NBFC-MFI norms – restricting full scale up of other products

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Geographical Footprints – 17 Districts Currently Covered

4 Gokak Division 1 Kushtagi

552 Gulbarga 1,324
Division
384 Hospet
D 672
177 Division
139 349
Dharwad
100

2011 2012 2013 2014 C 2011 2012 2013 2014

Divisions
4
5 B 1 2
Kittur Jagalur
Existing 1,893
5 Regions
1,218
Newly opened 770
Regions 571

A 2
Planned
Regions (by
2011 2012 2013 2014
Jun‟15)
3
AUM in Rs Lakhs
3 Holalkere
 A Region is contiguous area of around 1,080

50 Km Radius with a closely Knit Team

of 30-50, led by a Regional Manager
475

 A Division is envisaged as Semi Division

148
Independent Business Unit with 5-6 Chitradurga 100

regions and c. 30 rural Branches 2011 2012 2013 2014

Base in Central Karnataka and expanding into all districts of North Karnataka through 21 regions

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Management Team – Rich Operational Experience in Rural Markets

Operations Support Functions

 Worked as Regional Manager for 3 years  CA with >25 years of experience in
Vasudeva S.B.
Jeyaseelan L  16 years of experience in the NGO sector India and Abroad.
with the last assignment at Sampark as Financial 5
Divisional 5  Expertise in financial management,
Project Manager Controller
Manager taxation and corporate affairs.
 Specialist in Self Help Group (SHG)
microfinance model Shreepad
 6+ years in Azim Premji Foundation
 Has worked with NGOs for 7 years and in Mohan Vaze
and 3 years in Deshpande Foundation
Vinayak S. Patil
a NBFC, IDF Financial Services 4
Divisional 3 HR Manager
 Experience in training SHG members in  Expertise in training young
Manager professionals
various livelihoods and Financial literacy
Nagaraj C  Joined as a Branch Manager S Vijayakumar
 35 Years in a PSU Bank in diverse
Regional  Worked with SNEHA for 4+ years, a 1 areas like audit, credit, factoring
5 GM, Banking
Manager, Jagalur NGO involved in social awareness and services.
community development and Vigilance

 Raj Saxena (Head, Gold and SME Loans) Rakesh Mattar: Accounts & MIS
5
Manager
‒ 3+ years with IDBI (SME and housing)
 Iranna R Shelwadi (Regional Manager) 5 Jignesh Bhalani: IT Manager
‒ 10+ years in Community Development Other Key
Other Key
Personnel
Management  Prakash S. (Regional Manager) 4 Guruswamy M.: Audit Manager
‒ 8+ years in MFI space
Shilpa Kalyani, Manager - Social
 Sandeep Adhyanhta (Regional Manager 4
Initiatives
‒ 5+ years with SELCO

A capable leadership team built by complementing their experience with management nous
Note: Numbers in middle column represent years with Chaitanya

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Operational Backbone – Process Oriented Business Model

 SMS/GPRS based tracking system to track punctuality and presence

Custom Built
 Custom built Integrated Risk management System based on attendance, loan utilization, economic
IT Products activities, household Occupations, staff assessment and audit feedback

MIS  Core Financial and Operations System implemented from Day one. Day - Close in Financial systems
Framework is before 7:00 pm every day followed by automatic control reporting

 10 Well defined Activities (Plans) lasting 1- 3 hr constitute the field operating process
Field Process
 The Activity Proposed for the next day is logged in on the previous day
Framework  Customer outreach is achieved by managing the process activities instead of outcomes

 Methodology to grade repayment centers using risk indicators and rigorous tracking of the grading
Risk
 Escalation mechanism to ensure attention of Regional and Branch Managers linked to risk grading
Management  Multi Level Decision Making in Other Collateral based Loan Products

Random Audit  Continuous audit of repayments and customer interaction processes is structured to be random
Process  Quarterly Branch Audits are done by an external agency and are systematic

Quality HR  Scalable but Spread Out Recruitment Framework brings in employees from the community
Processes  Multi Dimensional Performance Assessment is done at every level

The business is process driven and manpower Intensive. HR processes are key to incentivize
behavior that support long term business sustainability

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Index

1 Executive Summary

2 Chaitanya Profile

3 Chaitanya Strategy Overview

4 Business Plan

5 Appendix

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Rural Finance Model – Operationally Difficult, More Rewarding in the
Long Run
Opportunities
 68% of the population live in villages with less than
1,000 households
 Significantly lower MFI penetration
 SBLP (SHG Bank Linkage Program ) slow down
increases the opportunities for rural focused MFIs
 Lower competition in Non-JLG products - An opportunity
to leverage the network and profitably add newer
products like Gold and 2 Wheeler loans, housing.
 Licensing norms for small banks / universal banks favor
rural MFIs.
 Very few rural focused pan India competitors
Concerns
 Dependency on Monsoons
 Scalability within a geography is slower and scalability
across geographies needs localization efforts in every
location
Rural FIs have to be differently enabled to capitalize on the potential and be effective
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Advantages
 Stronger bond among customers, lead to better
enforceability of the JLG mechanism
 Very high entry barriers
‒ Stickiness for a known/old player in the market
‒ Dispersed geographies makes it economically
difficult to replace an existing player
 Rural customers are dispersed, separated by villages
and the domino effect in MFI defaults has been observed
primarily in urban pockets
Challenges
 Lower population density and larger coverage area
 Rural women customers take longer to educate
 It takes longer to reach good penetration levels
 Recruitment needs to be local, to work effectively in
rural geographies
 Training and development takes longer, however a
settled employee is usually more stable
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Microfinance Industry – Outlook for Growth is Robust

Total Projected Microfinance Market (Rs cr)1

 The potential size of the microfinance market is

474,858 estimated to be between Rs 140,000 – 250,000 cr3
‒ Formal micro lending market is currently c. Rs
70,000 cr. Our estimates of latent demand in
198,375 Karnataka is Rs 10,000 cr and of the country is
61,675 72,378 above Rs 200,000 cr
 MFI credit is expected to grow at 25-30% over the
2013 2014E 2019P 2024P next decade
District Level Breakup by MFI Penetration Level2  80% of the districts in the country have <20% MFI
20
penetration and rural areas further under penetrated
 Stabilization of credit bureau assists sustenance
>30%
35
20-30%  NBFC-MFIs continue to take market share from the
167 Government led SHG- Bank Linkage Program
119 10-20%
5-10%  Supportive regulatory moves are SRO recognition
124 to MFIN, Priority sector status for NBFC-
<5%
MFIs, guidelines for small banks

The above represents number of districts (465) with different penetration levels

Joint Liability Group based Micro Credit is expected to continue on a high growth trajectory by increasing
rural penetration and taking market share from the SHG program.
1 Assumption: The total potential market grows at 15% (inflation adj.) and the penetration of formal sources increases from 48% (presently) to 78% by 2024.
2 Source: MFIN; represents 465 districts covered by MFIN members
3 Source: ICRA report on Industry Outlook and Performance of Microfinance Institutions, June 2014.

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2 Wheeler Loan Market – Rural Market expected to Drive Growth

Rural | Urban Split Penetration Per 1,000  ICRA projects 9% CAGR through 2016-17 to reach a size of
23 mn units. Current 2W market is close to 100,000 Crores.
Indonesia 261  Finance„s share of the market has stabilized around 20%
and 2014 lending is est at Rs18,300 Crores by bajaj finance
Malaysia 181
Rural  Rural market has been growing at a faster rate primarily due
40% China 100
to
Urban
60% Denmark 86 ‒ Much lower penetration (c. 22%) in Rural areas
Taiwan 84 ‒ Faster growth of people out of Poverty in Rural India in
Brazil
the last 7-8 years
82
 Most NBFCs are very strong in the semi urban district
Total Size: India 76
locations and work through dealers located at the districts.
~Rs 100,000 cr
 Sub Dealer networks have come up in Taluk locations to
Proportion of Financed 2W stabilized between enhance reach and provide service support but financing at
2008-14 at 20% these locations is mainly through co-op banks
0% 10% 20% 30% 40% 50% 60%  Chaitanya conducted a survey in two districts of Karnataka
and found out that the monthly sales was c. 2,500 units, out
2013-14 of which 1,000 units were sold to buyers located in villages
2010-11 ‒ Out of 1000 only 100 were financed through formal
2009-10 channels (compared to 30% in district headquarters)
2008-09  Higher social cohesion, permanent residency and linkage to
economic activity make rural 2W loans less risky
2007-08
 Spread and lower population density are challenges in rural
2006-07 areas overcome by synergy with the micro finance network

Lack of formal 2W loan providers in the rural segment presents significant potential for rural focused 2W loan
companies, however the current lower base volume at each location makes it unviable for traditional players
Source: 2W Industry report by IndiaNivesh, 2W Industry Report by ICRA, Bajaj Fin Serve Investor Presentation

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Gold Loan Market – Shift from Unorganized to Organized

Organized Gold Loan Market (Rs cr)  The Organised Gold Loan Market was over Rs. 160,000
cr in March 2012 (est share of 25%) with NBFCs having c.
25% market share at over 40,000 Crores.
160,576  The AUM of the 2 dominant players has declined by
16.7% between Mar-12 and Mar-14 and we estimate
NBFCs have de-grown by 16%-20%
90,059  Last 2-3 quarters indicate stabilization of AUM of NBFCs.
53,863  In Urban and Semi Urban pockets gold loan borrowing
33,126 has shifted from unorganized to organized players. This
21,722
is driven by increasing accessibility of the organized
players, better systems, processes, interest rates and
2008 2009 2010 2011 2012 security offered by the organised segment.
Organized Gold Loan Market Breakup  Gold Loan Focused NBFCs have easier loan processing .
They focus on repeatable process to expand network.
12.10% 9.70% 9.70% 9.70%
14.50%  It is estimated that out of total gold reserve in the
11.3% 10.7% 18.3% 24.8% 25.0% country, rural India accounts for 65%. Rural areas are
16.4% 16.5%
14.4% served by unorganized players, PSBs and cooperatives.
13.1% 13.0%
 Amongst the branch locations of Chaitanya, 70% do not
60.7%
have any Gold NBFC branch creating an opportunity.
57.8% 57.6% 52.4% 52.3%
 Geographical proximity, service-agility, respect, fairness
and transparency in dealing drive business growth.
2008 2009 2010 2011 2012
 Complementary to Micro Finance, as business growth is
PSU Banks Pvt. Banks NBFCs Cooperatives not staff intensive but security of gold is a significant risk.
The above assumes cooperative share to remain constant in 2011 & 2012 as data NA

An Emergency Loan Option for most low income families, and a product that complements the other field
based products for a MFI. Resource sharing in Cash Management, Risk management, transaction processing
Source: Muthoot Finance, Aug 2011, Surveying the India Gold Loan Market Report by Cognizant (Jan 2012), RBI report on Issues related to Gold Imports and Gold Loans by NBFCs

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Microhousing Market – Demand much higher than Supply

Housing Finance Market Size

 Rural Value Housing has a potential size of Rs. 4,26,100
Crores plus a equally large home improvement market
Urban Rural
 Loan Sizes of Rs 1-1.5Lakh cater to families with Income less
Housing Shortfall (mn units) 18.78 43.70 than Rs.10,000 p.m (core MFI Customers) and from 1.5
Lakhs to Rs 5 Lakh for families with higher agriculture or
Avg. cost of an affordable house (Rs mn) 0.50 0.13 business income .
Loan-to-value ratio (LTV) 75% 75%  90% of the rural housing shortage is in amongst the BPL
(Below Poverty Line) families
Avg. Loan per house (Rs mn) 0.38 0.10
 Lack of institutional financing mechanism is evident
Total financing requirement (Rs bn) 7,043 4,261 ‒ 66% of financing of new construction in rural areas is
through own resources, 27% from informal sources and
9% from institutional channels incl. Govt. Schemes.
<5L Housing Loans as % of Total Housing Loans  Though, loans for repair up to Rs 2 Lakhs and up to Rs. 5 lakh
for new houses is classified as PSL, affordable housing
26.20%
24.20% finance (sub Rs 5 Lakh) has not attracted Banks and
traditional HFCs, as it involves field level cash flow
18.50% assessment of each client and needs a differentiated structure
16.60% 16.20%
 NHB and other agencies including the World Bank now
9.30% recognise that MFIs with their JLG network, cash flow visibility
and understanding, can help in reach and assessment leading
to Specific Housing Micro finance thrust in the future policy
PSU Banks HFCs  In the Pilot Study it was noted that there is an annual potential
demand of 1,000 loans (a.10 Crores) in one Chaitanya branch
2010 2011 2012
significantly dwarfing potential of all other products.

Micro Housing Finance has 3-7 year Tenure and higher interest rates . Liquidity of the assets in the rural areas is low
and origination is dispersed. Hence Rural Reach and customer assessment Skills of MFIs at the field level are crucial

Source: “Housing Microfinance in India: Benchmarking the Status” report by Access Assist, published in Dec 2013

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New Products – Exploring the Potential of the Rural Network

Criteria for Choice of New Loan Products New Products

 Visible demand or perceived need in target customers, lower Already Introduced Pipeline
and middle Income rural HHs.
 Gold Loans - 2 Branches,  Business Loans for Small
 Potential in rural areas and is the potential driven by migration 2.5 yrs Enterprise
from Informal sources.  Investment Loans for Small
 Vehicle Loans - 2 Regions, 2
 Lack of an efficient and strong local player in branch location; yrs Enterprises
possible to gain business competing on reach and service  Agriculture Asset Loans
 Live Stock Loans with  Small Savings Account – BC
 Should have potential to generate 3% ROA for asset based / insurance - 4,000 loans
20% Net Margin for Fee based  Micro Recurring Deposits –
 Micro Housing Loans – Pilot BC
 Capability to manage risk of the new product. in 3 branches, 3 months
 National Pension Scheme –
‒ Is customer and collateral assessment risks manageable  JLG Based House Aggregator
by specifically trained Credit Officers Refurbishment Loans
‒ Is technical / business assessment manageable by
specially trained branch manager equivalent employees
 Are there possibility of synergistic partnerships

New Product Strategy

 Use branch network and JLG customers to enhance reach
 Replace informal lenders by a responsive and transparent
lending mechanism that is economically viable and secure
 Shared branch infrastructure to reduce operational costs
 Tie-Up with partners to minimize risk and enhance learning

Multiple products – Viability, Risk Capability, Customer Need intersect at Product Choice

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Organization – Structured to Distribute Multiple Financial Products and Manage Risks

Responsibilities
Key Aspects of Structure
 Coordination within
divisional teams  Product design
 IT Systems  Financial control & MIS  A professional Set up in
 Equity Investments  Funding Dummy Text local rural geographies
 Audit /Control/Reporting  Risk management
 First level of leadership
teams from the local
 Business analysis and geography
 Training of regional
Planning
product managers
Divisional Product  Policy formulation  Hi- Quality local risk
 Marketing inputs
 Coordination within
Manager Head - D  Product level training management skills, and
Regional teams
(2W)  Product Business planning empowered local
 IT/Accounts Support
manpower structure
 Policy and Process  Train / Monitor / Support / needs training and time
adherence Key Product Resource in to build
Regional  Business growth
Regional every branch
Product (2W) through branches  Drive Portfolio Quality,
Manager
Manager  Local Supervisory  Technical assistance in
Support / Leadership Credit Sanction

 Customer interface /  Customer house visits

assessment  Repayment/Recovery
Branch Credit  Transaction handling  Credit Assessment based on
Manager Officer (Two  Admin support customer Intent, background
Wheeler)  Manpower & resource check and house visit
allocation  Branch Level Product Expert

Capability of Customer Interface at the branch level, supported by product credit expertise, team leadership at
the regional level and business/product management at the Divisional level

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Chaitanya Strategy – An Aligned Organization
Expanding Reach
 Focus on rural market
 Choose geographies where Top 3
position in 80% of the villages is likely
 Move to other states after a strong
foothold in North Karnataka
Enhancing Depth
 Use JLG Loans as the entry in every
rural Location and add products after
manpower stabilization
 Evolution of capabilities of manpower
structure determines Growth
 Depth over expanse
A Responsive Branch Interface grounded in the local community with a professional corporate core
PRIVATE & CONFIDENTIAL
Staff Strategy
 Locally recruited regional teams for
right presence
 Branch teams to manage customer Right Mix of Values
accounts and relationships
 A strong risk mitigation culture in front
 Divisional team to skill, organize line staff
support and control
 Deliver customer value like a
Responsive Branch Interface … community based organization
 Professional culture in rural
surroundings
Professional
Corporate
Core
Leveraging IT Systems
… Grounded in the Local Community
 Flexible, economical, reliable, transacti
Structured for Local Leadership onal - IT Platform
 Decentralised customer and operational
decisions; centralized product credit.  Complemented by custom built
 Leverage local knowledge, relationships process and decision support - IT tools
and customs
 Empower branches and control through
domain experts, audits and HR
processes
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Chaitanya Strategy – Achievements and Aspirations

Stabilized the business model in 5 regions,

Chaitanya is now expanding its operations to 20+ regions in Central and North Karnataka

The Initial Years

 Rural Karnataka focused NBFC-MFI

 Stabilization of team, processes and

execution capabilities Intent - 5 years
 Strategically and financially sustainable
 Viable operational model to deliver multiple
‒ Reach 90% of villages in coverage area
financial products to villages
‒ Be amongst the Top 2 Financial Institution
 Business growth coupled with profitability with in regions under operations
emphasis on risk management ‒ Non JLG products to deliver more than
1/3rd the revenue
‒ Credit losses < 0.25%
 Be a Rs 1,000 cr AUM – Rural focused multi
product financial Institution. Pursue Small
Financial Bank Opportunity
 ROE > 15%

2010-14 2014-19

Vision: To be a strategically sustainable multi product rural financial institution delivering a

sustainable return on equity in 5 years

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 PRIVATE & CONFIDENTIAL

Index

1 Executive Summary

2 Chaitanya Profile

3 Chaitanya Strategy Overview

4 Business Plan

5 Appendix

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 PRIVATE & CONFIDENTIAL

Business Plan – Financial Summary

Gross Loan Portfolio (Rs cr) Annual Revenue (Rs cr)

1,078 253

710 160

400 86
204 43
99 11 22
32 56 6

2013A 2014A 2015E 2016E 2017E 2018E 2019E 2013A 2014A 2015E 2016E 2017E 2018E 2019E

PAT (Rs cr)

24.31

12.55
8.13
5.32
0.51 0.80 1.39

2013A 2014A 2015E 2016E 2017E 2018E 2019E

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Business Plan – Financial Statements

All numbers in Rs cr unless otherwise stated

Key Balance Sheet Items

2014A 2015E 2016E 2017E 2018E 2019E
Net Worth 14.5 25 107 115 128 181
Total Borrowings 47.7 91 122 351 685 1,050
Loans & Advances 48.3 99 204 400 710 1,078
Deposits | Cash | Liquid Funds 15.9 19 29 74 120 181

Key Income Statement Items

Net Revenue (Rev less Finance Cost) 6.3 11 27 50 83 125
Employee Benefit Expense 2.9 6 12 24 41 59
Depreciation & Overheads 1.9 3 6 11 19 25
Provisions & Bad Debts 0.4 1 2 3 5 6
PAT 0.8 1 5 8 13 24
OCR 11.9% 11.2% 11.2% 11.1% 10.2% 8.9%
ROA 2.0% 1.6% 3.1% 2.3% 2.0% 2.4%
ROE 5.5% 7.1% 8.1% 7.3% 10.3% 15.7%

Key Operational Data

Branches 29 47 89 153 211 238
Employees 237 386 765 1,376 2,036 2,466
Credit Officers 136 228 438 783 1,185 1,466
Customers 46,329 71,904 147,161 289,931 484,754 659,576

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Business Plan – Product Wise AUM Growth

All numbers in Rs cr
2014 2015 2016 2017 2018 2019
JLG 54 87 163 298 498 719
Gold 2 4 14 34 71 124
Vehicle (2W) 4 8 19 45 89 142
Other Loans 1 8 24 52 93
Total 61 99 204 400 710 1,078
Micro-housing 2 19 66 144 232

8.6%
9%
13.2%
13%
11%
11.5%
67%
6%
11%
9%
4%
74%
1% 9% 66.7%
0% 7%
8%
7% 80%
4%
4%
87%
89%

2014 2015 2016 2017 2018 2019

JLG Gold Vehicle (2W) Other Loans
Note: Micro-housing lending through partnership model

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 PRIVATE & CONFIDENTIAL

Business Plan – OCR Bridge

16%

14%

11.9%

11.2%

11.1%
12%

0.6%
3.2% 1.9%
10%

8.9%
1.2%
0.3%
1.2%
7.1%

8% 2.1% 0.8%
6.7%

2.0%
6.1%

6.3%

2.0% 1.6%

6%

4%

2%

0%
Branch Cost Region Cost Division Cost Head Office Cost Total OCR

2013-14 2014-15 2016-17 2018-19

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 PRIVATE & CONFIDENTIAL

Index

1 Executive Summary

2 Chaitanya Profile

3 Chaitanya Strategy Overview

4 Business Plan

5 Appendix – Industry Overview

Industry Overview and more detailed

financials would be sent on request

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