Contents

Chapter Particulars Page No

1 Executive Summary

2 Industry Profile

3 Company Profile

4 Review of Literature

5 Research Methodology

6 Data Analysis

7 Findings and Suggestions

8 Conclusion

9 Annexure

10 Bibliography

Chapter-I
Executive Summary
 BLDE’S A S PATIL COLLEGE OF COMMERCE (AUTONOMOUS) VIJAYAPUR

Chapter-II
Industry Profile

In 1976, a Small Experiment was conducted in the poverty stricken and flood ravaged
Bangladesh village of Jobra. Professor Mohammad Yunus, a lecture of Economics at
Chittaganga University visited the village and upon seeing the desperate poverty there he
decided to lend about $27 (free interest) as working capital to a few women he met there. To
his surprise, the women used the money productively in their modest commercial enterprise
and repaid the load with thanks. This small experiment was to become the basis for a global
revolution popularly known as microfinance. As the new millennium arrived, micro credit had
come to be recognised as the ultimate panacea for endemic poverty. In 2005 the UN Secretary
general Kofi Annan said it was a critical anti-poverty tool, emancipating women and
empowering the poor and their communities. Yunus claimed that thanks to micro credit the
next generation will only find poverty in museums.

Microfinance is a category of financial services targeted at individuals and small business that
lack access to conventional banking and related services. Microfinance includes Microcredit,
and provision of insurance; and Payment systems. Microfinance services are designed to be
more affordable to poor and socially marginalized customers and to help them become self-
sufficient.

Why do Poor People need financial services?

➢ Lifecycle Need: such as weddings, funerals, childbirth, education, home building,

widowhood and old age.
➢ Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or
death.
➢ Disaster: such as wildfires, floods, cyclones and man-made events like war or
bulldozing of dwellings.
➢ Investment Opportunities: expanding a business, buying land or equipment, improving
housing, securing a job, etc.

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Microfinance in India

Loans to poor people by way of banks have many limitations including lack of security and
high operating cost and so Microfinance was developed as an alternative to provide loans to
poor people with the goal of creating financial inclusion and equality.

Muhammad Yunus a Nobel Prize winner introduced the concept of Microfinance in

Bangladesh in the form of the “Grameen Bank” NABARD took this idea and started concept
of Micro Finance in India.

Microfinance is defined as, financial services such as Saving Accounts Insurance Fund and
credit provider to poor and low income clients so as to help them to raise their income and they
by improve their standard of living.

Objectives of Microfinance

The Organizations working to promote microfinance institution in different parts of the world
determine various objectives to microfinance. The important among them are listed as follows:

➢ Promote socio-economic development at the grass root level through community-based

approach.
➢ Develop and strengthen people’s groups called Self-Help Groups and facilitate
sustainable development through them.
➢ Provide livelihood training to disadvantaged population.
➢ Promote activities which have community participation and sharing of responsibilities.
➢ Promote programs for the disabled.
➢ Empower and Mainstream women.
➢ Promote sustainable agriculture and ecologically sound management of natural
resources.
➢ Organize and coordinate networking of grass root level organization.
➢ Get benefits by reducing expenditure and making use of local resources as inputs for
livelihood activities.
➢ Increase the number of wage days and income at household level.

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Impact of Microfinance on Rural Poor

Microfinance services include savings, consumption loans and insurance in particular other
than micro credit for micro enterprises. In other words, microfinance includes range of financial
services that seek to meet the needs of poor people. It protects them from fluctuation in incomes
and other shocks, and helps to promote their income and livelihoods, whereas, micro credit
precisely caters to the credit requirement of the poor the production purpose. While most micro-
credit providers emphasize investments of working or fixed capital in micro-enterprises, the
reality is that many clients use the credit for consumption purpose. Such consumption
smoothing can allow household to cope more effectively, but also it runs the risk of pushing
them further into debt if they can’t repay the loan out of enhanced income streams, to avoid
such circumstances, financial products such as savings, insurance and consumption loans etc,
are the promises of the promise of the microfinance.

Microfinance allows poor people to protect, diversify, and increase their source of income
which is essential path out of poverty and hunger. The ability to borrow a small amount of
money to take advantage of business opportunity, to pay for school fee, or to bridge a cash-
flow gap, can be a first step in breaking the cycle of poverty. Similarly poor households will
use a safe, convenient savings account to accumulate enough cash to buy assets such as
inventory for small business enterprise, to fix a leaky roof, to pay for health care or to send
more children to schools.

Channels of Microfinance

In the microfinance operates through two Channels:

1. SHG – Bank Linkage Programme (SBLP)

2. Micro Finance Institutions (MFIs)

1. SHG – Bank Linkage Programme

This is the 66 bank-led microfinance channels which were initiated by NABARD

in1992.

Under the SHG model the members, usually women in village are encouraged to form groups
of around 10-15. The members contribute their savings in the group periodically and from these
savings small loans are provided to the members. In the later period these SHGs are provided
with bank loans generally for income generation purpose.

The group’s members meet periodically when the new savings come in, recovery of past loans
are made from the members and also new loans are disbursed. This model has been very much
successful in the past and with time it is becoming more popular. The SHG’s are self-sustaining
and once the group becomes stable it starts working on its own with some support NGOs and
institutions like NABARD and SIDBI.

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2. Micro Finance Institutions

Those institutions which have microfinance as their main operation are known as micro finance
institutions. A number of organizations with varied size and legal forms offer microfinance
service. These institutions lend through the concept of joint Liability Group (JLG).

A JLG is an informal group informal group comprising of 4-5 individual members who come
together for the purpose of availing bank loans either individually or through the group
mechanism against a mutual guarantee. The reason for existence of separate institutions i.e.
MFIs for offering microfinance are as follows:

• High transaction cost- generally micro credits fall below the break-even point of
providing loans by banks.
• Absence of collaterals- the poor usually are not in a state to offer collaterals to secure
the credit.
• Loans are generally taken for very short duration periods.
• Higher frequency of repayment of instalments and higher rate of Default.
• Doorstep service delivery (Disbursement, Loan application, Repayment, Collection.)

List of Microfinance Associations and Networks for Professionals

There exist many microfinance associations and networks that asset and guide MFI’s and
professionals today.

1. MFIN India Microfinance Institutions Network India

2. Sa-Dhan The association of Community Development Finance Institutions
3. AKMI- MFI’s In Karnataka- Association of Karnataka MFI’s
4. IAMFI – International Association of Microfinance Investors
5. The Microfinance Association- Non Profit UK registered Association
6. BWTP – Asian Microfinance Network Platform
7. BWTP Network- Banking with the Poor Network
8. SEEP– Small Enterprise Education and Promotion Network
9. SAMN– South Asian Microfinance Network
10. ACCION Network
11. Bangalore Microfinance Network
12. MRAP– Microfinance Researchers Alliance in India
13. ICMF– India Collective for Microfinance
14. Microfinance Network (MFN) is an international association of leading Microfinance
institutions.
15. Networking for Development – in collaboration with AMAIDI Volunteering in India
16. INAFI- International Network of Alternative Financial Institutions

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Registration and Other Details:

CIN U67910KA1994PTCO16476
Date of Incorporation 27-10-1994
Name of the Company IDF Financial Services Private Limited
Category/sub-Category of the Private Limited Company Non Banking Financial
Company Company Micro Finance Institution
Address of the reiterated office and Reiterated Office: Girija”, South End, Basavanagudi
contact details Bangalore 560004, phone: 080 26577714
E-mail: [Link]@[Link]
Whether listed company No
Board of Director 07
Name of the President Shri Vivekanand N. Salimath
Managing Director Shri Nanagouda M. Patil
Member of Trustee 05

List of the Board of Directors:

Sl. No Name of The Director’s
1. Shri Vivekanda N. Salimath President
2. Shri Nanagouda M. Patil Managing Director
3. Shri T V Srikantha Shenoy Director
4. Smt Kasturi Dambal Director
5. Shri Gururaj M. Deshpande Director
6. Shri Muralidharan Thykat Director
7. Shri Sahadev Gangappa Director

Committees of the Board:

Audit Committee:
Sl. No Name of The Member’s
1. Shri Sahadev Gangappa Chairman
2. Shri T V Shrikantha Shenoy Member
3. Shri Gururaj M Deshpande Member

Risk Management Committee:

Sl. No Name of The Member’s
1. Shri Nanagouda M. Patil Chairman
All Department Heads Members

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mSHG Federation

1. About Federation
• Owned by member-SHGs and receives entire funds of SHGs in accounts opened
with it, laws are not violated for public deposits/savings
• Managed by Trustees and funds are In the hands of the trust
• Capable of buying equity in IDF FSPL
2. Objectives of Federation
• To Include the habit of thrift among the SHG members
• To enable the SHG members to access finance, insurance, provide insurance
and other financial services for their mutual benefit
• To Conduct training programs for the ‘MEMBERS SHG’s in managing their
affairs
• Training the SHG members of village towards awareness, economic
development, education and empowerment progress In all respect
• To encourage and promote with the holistic approach
3. Functions of Federation
• Collect savings from SHGs.
• Subscribe to Capital of IDF FSPL.
• Use savings for investments in approved investments.
• Deal with their specific set of SHGs only and will have to tractions with other
institutions of Federations or SHGs.

The Loans are mainly given to the following income generation/livelihood

activities
• Agri and agri allied activities like purchase of agricultural inputs, purchases of animals
etc.
• Small business and trading activities to set-up petty business, kirana shops etc.
• Service activities like sewing, embroidery, beauty services, Motor winding, catering
services, agarabatti rolling etc.

Service Offered:
➢ Microcredit
➢ Micro Insurance
➢ Financial education
➢ Livelihood service

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Profile of SHG Members Eligible for Credit

Characteristics Description
Annual Income Rural Areas: up to Rs 1,00,000 Urban Areas up to 1,60,000
Education Illiterate or Semi-literate
Age Upton 18 to 55 Years
Occupation Rural Sector: Farming, Animal husbandry, Dairy, farming, share croppers,
and agriculture related labor works

IDF FSPL Loan Products:

Loan Terms Cycle I Cycle II Cycle III Individual Loans
Max Loan Amount in Rs 25000-35000 30000-40000 40000-50000 50000-60000
Repayment Period in Months 12 24 24 24-36
Rate of Interest 24% 24% 24% 25%
Service Charge 1% 1% 1% 1%

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Organization Structure

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Departments of the Company

1. Finance Department
Their function is to maintain financial statements of the organisation such as Balance
Sheet, Profit and loss A/C Cash flow Statements etc.
• Achieved return on equity and PAT Margin as planned
• Achieved planned Growth rate on loan Portfolio and PAT

They use to maintain

• Timely and accurate accounting

• Successful closure of books accounts
• Improvisation of accounting processes
• Timely and accurate MIS reporting
• Better Credit Risk Management
• PAR minimization and bad debt recovery
• Improve existing Credit, MIS Processes and Policies

They use to follow regulatory and Legal Compliance by

• Regular reporting to RBI / ROC

• Successful Financial compliance
• Successful Legal compliance

They use to maintain cash and Treasury management by

I. Efficient Asset Liability management

II. Efficient cash Management
III. Improve cash management practices

2. Human Resource Departments

Functions of Human Resource Department

• They ensure that the company should have its current and appropriate HRM policies in
place and is in compliance with all applications human rights and labour laws.
• They determine the company’s current and accurate records of each employee.
• They use to implement an appropriate recruitment and selection process.
• They use to maintain a candidate database by entering new resumes, purging old files,
and searching for qualified candidates to fill employments openings.
• Ensure appropriate system and see that tools are in place including a salary
Administration System, benefits and an incentive Scheme

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3. Information Technology and MIS

Computerized MIS

➢ The operations of IDF FSPL are computerized.

➢ The Management information Systems of the company is a web based application and
maintained at the Administrative office of the company at Dharwad.
➢ The company has tied up with Force Ten Technologies for their software product.
Business Intelligence Justified and Logically Integrated (BLJLI).
➢ The software provides financial Accounting in monitoring the business quality, volume
and performance at various hierarchical levels.
➢ The software provides computerization of the member and filed level transaction data.
There are 2 module of the software.
I. Branch module- To capture data field level
II. Head Office module- To integrate all branches and generate consolidated report.
4. Audit and Inspection
➢ Audit Department in any organization plays a significant role. In order to keep up a
healthy financial status few organizations have their own Audit section (called internal
Auditors) IDF FSPL also has a similar audit wing. Wing is headed by head audit.
➢ He is supported by a team of 11 Auditors including one office Manager (Audit).
➢ The internal Audit Department conduct independent Audit as per company procedure
operations.

Duties and Responsibilities of Internal Auditor

➢ The duty of an internal auditor is to independently, impartially, and systematically
appraise the branches about internal controls of the company. They have understanding
of the systems and procedures of the company as a whole.
➢ They are freely able to communicate with anyone in the company to obtain information.
➢ They determine whether the company’s documented operating policies and procedures
are easily and clearly understand; whether they are sufficient; whether they are used
effectively and consistently; whether the company’s management effectively identifies
and minimize risks; whether staff consistently adhere to written external regulations
and internal policies and procedures; whether gaps in internal controls or policies and
procedures are present; and whether resources are used efficiently and to the benefits
of the company.
➢ Furthermore, their function is to be directly and actively concerned with detected and
preventing frauds or forgeries.

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Financial Highlights of IDF FSPL

2017-18 2016-17
Particulars Amt Lakh Rs % ↑ se or ↓ se Amt Lakh Rs % ↑ se or ↓ se
Operating income 1419.58 -18.00% 1813.18 16.25%
Other Income 82.93 4.10% 79.59 42.51%
Total income 1502.46 -20.62% 1892.77 17.16%
Personal Expenses 424.53 4.19% 404.65 35.77%
Administrative expenses 149.50 -5.58% 158.36 50.03%
Finance charges 667.51 -14.68% 780.43 27.43%
Depreciation 49.33 -4.35% 51.60 -17.85%
Provisions and written off 71.69 -28.33% 99.98 -62.50%
Total expenses 1362.54 -8.86% 1495.01 11.11%
Profit/loss before tax 139.92 -64.82 397.76 47.29%
Less: income tax -63.22 57.25% -147.90 19.64%
Less: differed tax 5.05 -73.85% 19.31 0.00%
Profit after tax 81.74 -69.63% 269.16 83.80%
Business Snapshot of IDF FSPL
Mar-2018 % ↑ or ↓ Mar-2017 % ↑ or ↓
Number of Branches 54 19% 39 14.79%
Customers (mSHGs) 11743 5.12% 11170 -9.49%
Number of Loans Disbursements 26563 1.36% 24956 -38.40%
Number of Loans 41801 -9.85% 45856 -12.09%
Total Disbursements 7119.51 22.80% 5797.72 -31.15%
Total Amount of Outstanding 8018.12 31.33% 6105.58 -20.81%
Recovery rate 98.65% -1.07% 99.72% 0.07%
Employees 235 18% 199 5.85%
PAR Above 90 Days 1.35% -95% 0.40% -42.03%

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Chapter-IV
Review of Literature

Kennedy Muller, Analysis and interpretation of financial statement is an attempt to determine

the significance and meaning of the financial statement date, so that the forecast may be made
of the prospects for future earning, ability to pay interest charges and debt maturities of long
term as well as short term profitability of a sound dividend policy.

Boris Nenide, Robert W Pricer S Michael Camp (2001): These authors have presented a
paper reviewing literature of various financial ratios that have been used in research in the area
of accounting and finance. It reveals that the use of ratio calculation with multivariate analysis
for predicting the performance of business firms is common.

Daron Nissin, Stephen H Penman (2001): this paper presents a financial statement analysis
that distinguishes leverage that arises in financial activities from leverage that arises in
operations. Here financial statement analysis distinguishes two types of liabilities which aids
in the forecasting of future profitability and the evaluation of appropriate price-to-book ratio.

Patricia M Fairfied, Sundaresh Ramnath (2005): A long history of economic theory

suggests that industry membership plays an important role in explaining a firm’s financial
performance. In this paper, they investigate the usefulness of industry benchmarks and industry
level analysis for predicting a firm’s future profitability and growth.

Silvio John Camilleri (2005): The paper consolidates the summarised financial statements of
the main banks operating in Malta during the year 2002. The profitability. Risk and growth
prospects of the two institutions are analysed through Return on Ewuity decomposition and the
use of other financial ratios.

Luiz Paulo Lopes Favero (2008): Literature has not reached a consensus on how the firms
and industry effects influence the stock price performance of publicly-traded companies over
time. Through a sample of 45 companies working in ten industries during an eight year period
(2001-2008) totalling 317 observations, low representativeness of the activity industry is
verified to distinguish the mean annual profitability and the growth rates of stock prices among
companies listed.

John Myer, a renowned authority on Financial Statement Analysis, has referred that in the
initial years of 20th Century, the bankers and securities exchange authorities were extensively
relying on the financial statements of the companies for analysis, monitoring and control of the
activities and performance of business. The history, principles and financial statement analysis
has been referred by another authority also: Kennedy and McMullan.

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Chaudhary and Singh (2012): Analysed the impact of the financial reforms on the soundness
through their impact upon asset quality.

Gupta (2008) conducted a study with the main objective to assess the performance. The study
analysed and assessed the quality, ability and liquidity position of a concern.

Prasuna (2004) analysed the performance of the business concerns. The author concluded that
better service quality, innovative products and better bargains were beneficial because of the
prevailing tough competition.

Kwan and Eisenbeis (1997) observed that asset quality was commonly used as a risk indicator
for financial institutions which also determined the reliability of capital ratios. Their study
indicated that capitalisation affected the operation of financial institutions. More the capital,
the higher is the efficiency.

Bereskin, Kieschnick and Wendy (2014) examined the financial statements of US firms for
a period from 1990-2012. The study investigated what were the popular methods of managing
earnings. The causes of changes were also analysed.

Beatrice and Dacian (2011) highlighted a recommendation on refining the mechanism of

detecting manipulation of accounts. Numerous empirical studies were scrutinised to develop a
sturdy model for making the detection of accounts manipulation easy. Since management of
earnings which is a component of Balance Sheet distorts the quality of accounting information,
the method to estimate a precise process is complex. Therefore, the paper proposed a new field
of research by emphasising various aspects of accounting manipulations. The paper suggested
that regulating the circumstances and motivation tend to surge the probability of its occurrence
and also evolve sturdier tools for analysing the statement.

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Chapter-VII
Data Analysis
Share Capital:

Year Amount (Rs in Lakh)

2013-14 180,537,150
2014-15 230,537,150
2015-16 230,537,150
2016-17 230,537,150
2017-18 230,537,150

Amount (Rs in Lakh)

Amount (Rs in Lakh)

230,537,150 230,537,150 230,537,150 230,537,150

180,537,150

2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation:
In this above chart we notice that share capital is not increased from last three
year.

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Income:

Year Amount (Rs in Lakh)

2013-14 13,00,50,752
2014-15 14,22,41,237
2015-16 16,15,56,442
2016-17 18,92,77,344
2017-18 15,02,51,559

Amount (Rs in Lakh)

Amount (Rs in Lakh)

189,277,344
161,556,442
150,251,559
142,241,237
130,050,752

2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation:
In the above chart we notice that income is increased in the period 2013 to
2017, but it is descried only in the year 2017-18.

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Expences:

Year Amount (Rs in Lakh)

2013-14 117,443,878
2014-15 122,943,382
2015-16 14,95,01,440
2016-17 14,95,01,440
2017-18 13,62,59,512

Amount (Rs in Lakh)

Amount (Rs in Lakh)

149,501,440 149,501,440
136,259,512
117,443,878 122,943,382

2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation:
In the above chart we notice that Expenses is increased in the period 2013 to
2017, but it is descried only in the year 2017-18.

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IDF FSPL Audited Accounts 2017-18
Balance Sheet as at March 31, 2018
(₹)
Particulars Note No 31-Mar-18
I) Equity and Liabilities
Shareholders’ funds
a) Share Capital 2.01 23,05,37,150
b) Reserves and surplus 2.02 2,53,55,271
25,58,92,421
Non-Current Liabilities
a) Long Term borrowings 2.03 29,99,99,333
b) Deferred tax liability (net) 2.04 6,37,719
30,06,37,052
Current Liabilities
a) Other current liabilities and Provisions 2.05 2,51,30,737
b) Short-term borrowings 2.03 36,76,35,217
39,27,65,955
94,92,95,428

II. Assets
Non-current assets
a) Fixed Assets 2.07
i) Tangible assets 24,62,280
ii) Intangible assets 37,00,000
b) Loans to Groups 2.06 21,77,09,200
c) Long-term loans and advance 2.08 1,91,80,686
24,30,52,167
Current Assets
a) Cash and cash equivalents 2.05 12,59,89,946
b) Loans to groups 2.06 57,60,85,474
c) Other current assets 2.10 41,67,841
70,62,43,261
94,92,95,428
Significant accounting policies and notes on 1&2
accounts
The accompanying notes are an integral part of these
financial statements

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Profit and Loss Account for the year ended March 31, 2018
(₹)
Particulars Note No 31-Mar-18
Income
Revenue from operations 2.11 14,19,58,022
Other Income 2.12 82,93,537
Total Revenue 15,02,51,559
Expenses
Employee benefits expense 2.13 4,24,53,696
Finance Costs 2.14 6,67,51,686
Depreciation and amortization expenses 2.07 49,33,945
Provision and write –offs 2.15 71,69,861
Other operating expenses 2.16 1,43,05,861
Auditor’s Remuneration 2.17 6,44,850
Total expenses 13,62,59,512
Profit/Loss before tax 1,39,92,047

Tax expense:
-Current tax 17,04,980
-Provision for income tax 46,17,376
-Reversal of income tax Provision –prior years -
-Differed tax 5,05,068
Profit/Loss for the year 81,74,759

Earning per equity share [refer note 3.4]

-Basic 0.76
-Diluted 0.35
Number of shares considered for
-Basic 1,08,21,230
-Diluted 2,30,53,715
Significant accounting policies and notes on 1&2
accounts
The accompanying notes are an integral part of these financial
statements

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Cash Flow Statement for the year ended March 31, 2018
(₹)
Particulars 31-Mar-18
CASH FLOW FROM OPERATING ACTIVITIES
Net profit before taxation 1,39,92,047
Adjustments for Non-cash (income) /expenditure:
Depreciation 49,33,945
Provision for bad debts -
Bad debts written off 52,56,929
Loss on sale of assets -
Deferred Tax Income 5,05,068
Operation profit before charges in operating assets 1,41,74,130

Adjustments for
(Increase)/ decrease in current assets 11,56,290
(Decrease)/increase in current Liabilities 3,33,65,519
(Increase)/decrease in loans to groups 19,03,98,863
Net cash generated from operating activities before tax 14,17,02,924
Income tax paid 63,22,356
Net cash generated from operating activities after (A) 14,80,25,279
tax

CASH FLOW FROM INVESTING ACTIVITES

Purchase of fixed assets ( adjusting buy back of assets) 12,95,511
Net cash flow from investing activities (B) 12,95,511

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issue of share capital [Incl premium] -
Secured borrowings [Net] 10,30,27,460
Corporate dividend tax paid 49,00,096
Dividend paid -
Unsecured borrowings [net] -
Net cash generated from financing activities (C) 9,81,27,364

Net increase/(decrease) in cash & cash equivalents 5,11,93,426

during the year (A)+(B)+(C)
Cash and cash equivalents at the beginning of the year 17,71,83,371
Cash and cash equivalents at the end of the year 12,59,89,945
[refer note 2.12]-
Significant accounting policies and Notes on the 1&2
accounts

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Chapter-IX
Bibliography
➢ Company Annual Reports.
➢ Financial Accounting By M.B. Kadakol
➢ [Link]
➢ [Link]
➢ [Link]

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