1 CreditAccess Grameen IC Dec18

Equity Research
December 19, 2018 INDIA

BSE Sensex: 36347
CreditAccess Grameen BUY
ICICI Securities Limited
is the author and
distributor of this report Truly “Grameen” in reach; Eyes on the ground Rs380
We initiate coverage on CreditAccess Grameen (CAGL), the second-largest
Financials NBFC-MFI player based out of Bengaluru with ~82% rural borrower base, with
BUY rating and a target price of Rs480 (potential upside of 26%). Company is
Initiating coverage amongst the few players who still follow the most trusted ‘weekly collection’
method. Notably, CAGL is one of the most cost efficient players in the industry
with operating cost/AAum at 5.0% as at H1FY19-end, one of the lowest in the
Target price Rs480
industry. It is increasingly focusing on diversifying its geographical presence as
reflected in reduced portfolio concentration of top-10 districts to 34% as at
Shareholding pattern
Q2FY19 from 41% in FY16. Further, only five districts have portfolio
Jun Sep
'18 '18 concentration of >3% of the overall portfolio.
Promoters 80.3 80.3
Institutional  Best-in-class operation efficiency backed by industry-leading customer
investors 9.9 11.6 retention. CAGL’s cost/AAuM ratio at 5.0% is one of the lowest in the industry.
MFs and UTI 4.0 5.1
Banks/ FIs 0.0 0.0 Rural presence, highest customer retention, thus lower employee cost, is helping
Insurance 0.0 0.0 the company maintain such low cost ratios. It believes its customer-centric business
FIIs 5.9 6.5
Others 9.8 8.1 model allows it to attain the highest Active Customer Retention (ACR) rate of 90%
Source: BSE (annualised), as compared to the median ACR rate of 78% for leading micro-finance
players as at 30-Sep’17.
Price chart
 Weekly collection and rural focus key differentiator. CAGL’s rural customer
450 base stands at ~82% as at Sep’18 vs 66% for NBFC-MFIs as per the Union ministry
400 of finance. Within the rural segment, CAGL has adopted a contiguous expansion
350
strategy as reflect in the fact that 82% of portfolio growth in Q2FY19 came from
(Rs)
districts outside the top-10. Repeatedly, it has been proved that frequent customer
300
engagement is key to success in microfinance (chart 11) and the best way to
250 engage is via central meetings. ‘Weekly collection/meeting’ is CAGL’s core
200 philosophy, which has helped the company navigate challenging events such as
demonetisation and farm loan waivers in its key operational states in recent times.
Aug-18
Sep-18
Nov-18
Dec-18
Oct-18
Oct-18
 RoE is set to improve on increasing leverage. CAGL demonstrated industry-

Listed on 22-08-2018 leading performance in terms of asset quality and return ratios during the
challenging period of demonetisation and several state elections, with RoAuM
touching 5.4% in H1FY19 from 1.6% in Q1FY18. Considering credit under-
penetration in rural market, CAGL’s leadership in the NBFC-MFI segment and high
customer-centric business approach, we estimate AuM growth at 46% CAGR over
FY19-FY20E, with earning CAGR at 70%. Similarly, we expect 294bps
improvement in RoE to 14.7% by FY20E.
 Valuation. Considering CAGL’s expertise in rural micro-financing, weekly collection
model, cost-effective growth strategy, we initiate coverage with a BUY rating and
target price of Rs480, valuing the stock at 2.5x FY20E BV of Rs190.
Market Cap Rs54.4bn/US$765mn Year to Mar FY17 FY18 FY19E FY20E

Bloomberg CREDAG IN NII (Rs bn) 3.9 5.1 8.0 11.2
Shares Outstanding (mn) 143.4 Net Profit (Rs bn) 1.2 1.9 4.1 5.7
52-week Range (Rs) 422/248 EPS (Rs) 9.3 12.3 18.6 26.0
Free Float (%) 19.7 % Chg YoY (17.5) 32.4 51.8 39.9
Research Analyst: FII (%) 6.5 P/E (x) 42.7 32.2 21.2 15.2
Renish Bhuva Daily Volume (US$'000) N. A. P/BV (x) 4.9 2.8 2.4 2.1
renish.bhuva@icicisecurities.com Absolute Return 3m (%) 6.2 Net NPA (%) 0.0 0.0 0.1 0.1
+9122 6637 7465
Absolute Return 12m (%) N. A. Dividend Yield (%) - - - -
Sensex Return 3m (%) (2.3) RoAuM (%) 2.9 3.1 4.3 4.1
Sensex Return 12m (%) 9.5 RoE (%) 13.9 11.8 14.1 14.7
Please refer to important disclosures at the end of this report
CreditAccess Grameen, December 19, 2018 ICICI Securities
TABLE OF CONTENTS
Valuation ........................................................................................................................... 3
CAGL – How it is different............................................................................................... 5
Industry overview ............................................................................................................7
NBFC-MFIs are dominant in microfinance and are likely to sustain leadership….......... 7
Rural India a highly under-penetrated credit market … .................................................. 9
‘Weekly collection/meeting’ – a most trusted practice .................................................. 11
Customer behaviour is isolated from farm loan waivers ............................................... 11
India – still not “over leverage” at borrower level .......................................................... 12
Huge growth potential; Large NBFC-MFIs are better placed........................................ 13
Regulations..................................................................................................................... 14
Company overview ........................................................................................................ 15
Customer-centric business mode: Following ‘basics’ .................................................. 16
Focus on under-penetrated rural India… ...................................................................... 20
Best-in-class asset quality............................................................................................. 22
Most efficient MFI player ............................................................................................... 27
Diversified funding sources and effective asset-liability management ......................... 29
Stable management team with extensive domain experience ..................................... 32
Financials........................................................................................................................ 33
Robust AuM growth to continue; huge untapped rural population to fuel growth ......... 33
Industry-leading Opex/AAuM ratio to sustain................................................................ 33
We model earnings CAGR of 70% during FY18-FY20E .............................................. 34
Annexure 1: Financials (standalone) ........................................................................... 35
Annexure 2: Index of Tables and Charts ..................................................................... 37
2
Valuation
CreditAccess Grameen Ltd (CAGL) stock currently trades at 2.4x/2.1x FY19e/FY20e
P/BV, which is at significant discount (~30% 1 year forward) to its closest peer Bharat
Financial. During recent liquidity crisis period, stock has touched a low of ~Rs250, but
made strong come back after company clarifying on its effective asset-liability
management and comfort of sustaining industry-leading AuM growth. Currently, it
carries six months positive cash on balance sheet. Considering the potential business
growth backed branch expansion plan, consistent decline in PAR portfolio post
demon, focus on cost optimization and better financial leverage, we expect the return
ratios to improve going forward. We initiate coverage with BUY rating and target price
of Rs480/share, valuing it at 2.5x FY20e P/ABV.
Historically CAGL has operated at 5x leverage and the same has enabled it to touch
RoE of 20%, however recent capital infusion had dragged down RoE to 13% as at
Sep’18. We expect ~170bps improvement in RoE to 14.7% by FY20e. We value
CAGL lower than its closet peer Bharat Financial to factor in a) higher exposure in
Karnataka and Maharashtra and b) lower RoE currently.
Chart 1: P/BV 1 year forward CAGL Chart 2: P/BV 1 year forward BFIL
P/ABV 3 yr avg. P/ABV 3 yr avg.
2.6 avg. + 1 SD avg. - 1 SD
6.0 avg. + 1 SD avg. - 1 SD
2.4
5.0
2.2
4.0
2.0
1.8 3.0
1.6
2.0
1.4
1.0
1.2
1.0 0.0
Aug-18
Sep-18
Sep-18
Sep-18
Nov-18
Nov-18
Nov-18
Dec-18
Dec-13
Jun-16
Jan-17
Aug-14
Aug-17
Nov-18
Oct-18
Oct-18
Oct-18
Oct-12
May-13
Mar-15
Oct-15
Apr-18
Source: BBG, I-Sec research Source: BBG, I-Sec research
3
Industry overview – Key highlights

Niche players like NBFC-MFIs to maintain leadership position - Large
NBFC-MFIs to gain higher market share
Our interaction with market participants suggests that NBFC-MFIs are better placed to
sustain their dominant position in the MFI space given: a) small finance banks’ (SFB)
incremental focus on expanding non-MFI portfolios, b) NBFC-MFIs’ expertise in Joint
Liability Group (JLG)-based lending, and c) deep understanding of under-served rural
population.
Market share within the NBFC-MFIs industry is clearly concentrated amongst large
MFIs, who account for 91% of the industry GLP, 89% of the client base and 94% of
debt funding. Considering the current liquidity crisis, we believe smaller NBFC-MFIs
would find it a little challenging in getting incremental funds for short term and the
same will provide an opportunity to large MFIs to gain further market share.
CAGL is amongst ‘Weekly collection/meeting’ – a most trusted practice

the few Indian
As per Equifax data, the Portfolio At Risk – PAR 30 for players following weekly
NBFC-MFIs that still
collection method was the lowest at 5.48% as at Sep’17 compared to players following
follow the most
monthly and biweekly collection models. Even post-demonetisation, the PAR 30
trusted ‘weekly
portfolio for players following weekly collection stood at 5.7% as at Mar’17, compared
collection’ method.
to 17.9% for monthly repayment frequency in the same quarter.
Huge growth potential; Large NBFC-MFIs are better placed

On the basis of Population Census 2011, we estimate the rural credit market size at
Rs3,580bn, or ~2.5x the current MFI AuM. Currently, highly penetrated states like
Uttar Pradesh, Bihar and Maharashtra have similar rural population as Bangladesh,
but these states have only 10/11% of Bangladesh’s total AuM size. Further,
unorganised players like moneylenders, chit funds, etc. provide significant opportunity
to MFIs to capture market share in coming years.
India – still not “over leverage” at borrower level

While India is the largest market in terms of number of microfinance borrowers and
Gross Loan Portfolio (GLP) outstanding, ticket-sizes are amongst the lowest. India
accounted for 13% of the US$92.4 billion global microfinance market and 33% of the
total borrower population. However, India’s overall GLP per borrower was significantly
lower than the world average.
Customer behaviour is isolated from farm loan waivers

It is perceived that MFI customers’ repayment intention gets impacted in events like
farm loan waivers. However, our channel check suggests that though these customers
are based in rural areas, their income is not necessarily dependent on agriculture.
Most of these customers have second source of income from non-agricultural activities
such as animal husbandry, small shops, selling of vegetables/fruits, etc. MFIs are well
versed on how some borrowers take undue advantage of it and, over the years, the
companies have developed a business model to immune themselves from farm loan
wavier impact.
4
CAGL – How it is different

CAGL’s customer-centric business model allows it to retain a high proportion of
existing customers and to attract new customers. As at 30-Sep’17, it had an active
customer retention rate of 90% (annualised). Notably, CAGL believes in the following
basics and endeavours to promote the culture of ‘customer at core’.
Chart 3: While sticking to ‘basics’, CAGL has been able to double its systemic
market share over past four years.
Industry GLP (Rs bn) CAGL (Rs bn) Market share
900 6.4% 7.0%

800
6.0%
5.0% 5.0%
700
5.0%
600
3.8%
500 3.3% 4.0%
400 3.0%
300
2.0%
200
1.0%
100
0 0.0%
FY14 FY15 FY16 FY17 FY18
Source: MFIN, June’18 data, Company data, I-Sec research
Table 1: CAGL’s state-wise PAR 30+ compared to the MFI industry – Strong come back from
demonetisation-related issues
(%)
Sep-17 Jun-17 Mar-17 Dec-16 Sep-16
PAR 30%+ Industry CAGL Industry CAGL Industry CAGL Industry CAGL Industry CAGL
Maharashtra 27.20 12.50 28.00 17.20 26.70 23.40 16.10 9.90 2.10 0.10
Karnataka 16.80 3.10 18.00 4.60 19.10 8.10 9.40 1.00 1.70 0.00
Madhya Pradesh 16 5.10 16.60 7.20 16.30 7.90 9.60 1.10 1.60 0.00
Tamil Nadu 8.30 0.30 8.80 0.30 8.70 0.30 2.80 0.00 2.10 0.00
Chhattisgarh 7.10 2.10 7.50 2.20 7.30 2.20 4.30 0.80 2.30 0.00
Overall 11.40 5.70 11.60 8.00 11.70 11.90 7.90 3.50 1.50 0.10
Source: Company data, I-Sec research
 CAGL enjoys better pricing power as reflected in its higher yields than the
largest player, BFIL. Notably, despite charging higher yields, CAGL has
maintained its growth trajectory.
 CAGL is the most efficient listed player in NBFC-MFI space – given that its
cost/asset ratio is ~125bps lower than industry average, mainly on account
of lower employee cost and industry-leading customer retention ratio
enabling it to source new business at lower cost.
 CAGL has demonstrated strong comeback (post-demonetization) as
reflected in industry-leading pre-tax profit in FY18, a year of higher credit
cost linked to the demonetization-impacted portfolio.
5
Table 2: RoAuM decomposition
(%)
BFIL Ujjivan Satin CAGL
FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18
Net revenue (%) 13.1 12.8 14.5 14.0 9.9 11.3 14.0 12.9
Employee expenses (%) 4.8 4.8 4.6 5.3 4.6 4.3 3.7 3.2
Depreciation (%) 0.2 0.1 0.2 0.6 0.2 0.3 0.2 0.1
Other operating expenses (%) 1.6 1.5 3.0 3.5 2.5 1.6 1.8 1.7
Total operating expenses (%) 6.6 6.5 7.8 9.4 7.2 6.3 5.7 5.0
Pre-provisioning profits (%) 6.6 6.3 6.7 4.6 2.7 5.1 8.3 8.0
Provisions (%) 4.3 2.2 1.3 4.5 1.6 5.0 3.9 3.2
Pre-tax profits (%) 2.3 4.2 5.5 0.2 1.1 0.1 4.4 4.8
Tax (%) -1.2 0.0 1.9 0.1 0.4 0.0 1.6 1.7
RoAUM (%) 3.5 4.2 3.5 0.1 0.7 0.1 2.9 3.1
Leverage 0.0 4.0 3.4 4.0 0.0 5.0 4.1 3.8
RoE 0.0 16.7 11.8 0.4 0.0 0.5 11.8 11.8
Source: Company data, MFIN, I-Sec research
6
Industry overview
NBFC-MFIs are dominant in microfinance and are likely to
sustain leadership…
NBFC-MFIs dominate the microfinance space with ~32% market share, second-
highest after banks who enjoy leadership position with 39% share, as per latest data
from the Union ministry of finance (Mfin). If we exclude Bandhan Bank’s MFI portfolio,
which is almost ~50% of total MFI loans provided by banks, NBFC-MFIs’ share in
Gross Loan Portfolio (GLP) increases to 40% as at 30-Jun’18. Important to note, as
per Mfin data, portfolio classified under Banks category includes direct and indirect
lending (through Business Correspondents), which is again largely sourced by NBFC-
MFIs. Hence, we believe NBFC-MFIs market share at sourcing level would be much
higher than what it appears at portfolio level.
Chart 4: NBFC-MFIs’ microfinance market share stands at 32%
Q1FY19
NBFCs, 7% Non-profit MFIs,
1%
Banks, 39%
NBFC-MFIs, 32%
SFBs, 21%
Source: MFIN, June’18 data, Isec research
Further, our interaction with market participants suggests that NBFC-MFIs are better
placed to sustain their dominant position in the MFI space given: a) small finance
banks’ (SFB) incremental focus on expanding their non-MFI portfolios, b) NBFC-MFIs’
expertise in Joint Liability Group (JLG)-based lending, and c) deep understanding of
under-served rural population.
Chart 5: SFBs losing ground as reflected in sharp decline in their microfinance

market share to 21% in Q1FY19 from 25% in Q2FY18
SFBs
30%
Q2FY18 Q1FY19
25%
25%
21%
20%
15%
10%
5%
0%
Q2FY18 Q1FY19
7
…Large NBFC-MFIs to gain market share
Market share within the NBFC-MFIs industry is clearly concentrated amongst large
MFIs, who account for 91% of the industry GLP, 89% of the client base and 94% of
debt funding. Considering the current liquidity crisis, we believe smaller NBFC-MFIs
would find it a little challenging in getting incremental funds for short term and the
same will provide an opportunity to large MFIs to gain further market share.
Chart 6: CAGL is second-largest NBFC-MFI with o/s Gross Loan Portfolio (GLP)
of Rs55bn as at Jun’18-end
GLP (Rs bn) as on 30th June'18
160 138
140
120
100
80 55 54
60
32 29 24
40 22 20 18 14
20
0
BFIL
Satin
Muthoot Microfin*
Asirvad
Annapurna
Fusion
Madhura
Spandana*
Arohan*
CAGL

Note: Q4FY18 data for Spandana, Arohan and Muthoot Microfin
Chart 7: Lending mechanism via different MFI operating models – NBFC-MFIs

follow Joint Liability Group (JLG) model
Potential
village/town is
identified
Potential clients are

verified
Training given to
clients
JLG SHG
5-7 member group 15-20 member group

formed formed
Regular meetings Training given for

Individual lending
conducted calculations etc.
5-7 groups form a Individuals identified Savings / borrowings

centre and verified start within group
Loans given to Deposits made in an

Loans given to
individuals SCB loans given to
individuals
group
Source: CRISIL Research, Industry
8
Rural India a highly under-penetrated credit market …

Credit market is highly underpenetrated in rural areas, which accounted for only 16%
of overall outstanding bank-credit while comprising of 2/3rd households and
contributing ~47% of FY17 GDP in India.
Chart 8: Low penetration of bank credit in rural areas (FY17)

Rural areas account
GDP Contribution Credit Outstanding Contribution
for half of GDP, but
less than 16% of 90% 84%
bank credit. 80%
70%
60% 53%
47%
50%
40%
30%
20% 16%
10%
0%
Rural Urban
Source: CRISIL Research, Industry
State-wise rural credit accounts in banks
We have analysed state-wise credit penetration data published by Mfin and rural
penetration data as per CRISIL and we conclude that: a) rural penetration in terms of
credit is significantly lower in states with otherwise high credit penetration; b) in value
terms, Maharashtra, West Bengal, Gujarat and Chhattisgarh have less than 10% of
total credit outstanding in rural areas as at 31-Mar’16. Notably, West Bengal and
Chhattisgarh are amongst the top-10 highly penetrated states covered by NBFC-MFIs.
Even in highly Chart 9: Even in highly penetrated Chart 10: State-wise Gross Loan
penetrated states, states, rural credit is still significantly Portfolio (GLP) breakup as at Jun’18;
rural credit in value lower as % of total bank accounts top-5 states account for 53% of GLP
terms is still % of % of credit Market share in GLP (NBFC-MFI) - As on June'18
accounts in outstanding in Maharashtr
significantly lower as rural areas rural areas a Bihar
(FY16) (FY16)
% of total bank 60%
13% 16%
account. 50%
West
40% Bengal
30% 11% Uttar
20% Pradesh
10% 14%
0%
Tamil Nadu
Andhra Pradesh
Madhya Pradesh
Karnataka
Tamil Nadu
Chhattisgarh
Gujarat
Bihar
Uttar Pradesh
Rajasthan
Maharashtra
West Bengal
13% Rajasthan
4%
Madhya
Karnataka Pradesh
17% 12%
Source: MFIN, June’18 data, Isec research Source: MFIN, June’18 data, Isec research
9
Chart 11: NBFC-MFIs are focused on tapping the under-penetrated rural
segment, which accounts for 66% of industry GLP
Notably, CAGL’s
rural borrower base
stands at ~82% as at
Sep’18 vs ~66% Urban
34%
(GLP) for the
industry
Rural
66%
… NBFC-MFIs are best placed to address rural credit needs.

As at Mar’17-end, only 30% of the total deposit accounts and 35% of the loan
accounts in scheduled commercial banks are in rural India despite rural India making
up about 68% of India’s total population. The significant under-penetration of credit in
rural areas offers huge opportunity to MFIs given their deeper reach, existing customer
relationships and employee bases. Further, NBFC-MFIs could also address credit
demand that is currently being met by informal sources of funds such as local
moneylenders.
Only 30% of the total Chart 12: Number of credit accounts Chart 13: Number of deposit accounts
deposit accounts and
120 113.5 1.4
35% of the loan 1.2
1.2
accounts in 100
scheduled 80
1.0
commercial banks 58.9 0.8

(MN)
(bn)
60 0.6
are in rural India 0.6
despite rural India 40
0.4
making up about
20 0.2
68% of India’s total
population. 0 0.0
Rural Urban Rural Urban
Source: MFIN, June’18 data, Isec research Source: MFIN, June’18 data, Isec research
10
‘Weekly collection/meeting’ – a most trusted practice

CAGL is amongst As per Equifax data, the Portfolio At Risk – PAR 30 for players following weekly
the few Indian collection method was the lowest at 5.48% as at Sep’17 compared to players following
NBFC-MFIs that still monthly and biweekly collection models. Even post-demonetisation, the PAR 30
follow the most portfolio for players following weekly collection stood at 5.7% as at Mar’17, compared
trusted ‘weekly to 17.9% for monthly repayment frequency in the same quarter. At industry level,
collection’ method. ~40% of micro finance loans are collected on weekly basis, with the proportion being
relatively lower at 3.8% for NBFCs and 9.6% for SFBs. Thus, we believe, going
forward, players following the weekly collection model will tend to perform better in
terms of asset quality, as they engage more frequently with borrowers.
Chart 14: NBFC-MFIs following weekly collection method performed better

during demonetisation
Note: PAR > 30 days exclude Andhra Pradesh and Telangana portfolios; PAR > 30 includes all overdues over 30
days; write-offs done by entities are not considered.
Source: Equifax, CRISIL Research
We believe direct connect to customers at regular intervals is key to success in MFI

business considering that the loans are 100% unsecured. Two most trusted MFIs,
namely SKS and Grameen Bank, follow the weekly collection method. In India, apart
from SKS, CAGL follows the weekly model while Satin and Spandna follow fortnightly,
while the recently converted small finance bank (SFB) Ujjivan follows monthly
repayment method.
Key operating Most trusted Most trusted
Ujjiwan Satin CAGL Spandna
metrics (globally) Gramin (Indian) SKS
Collection Fortnightly/
Weekly Weekly Monthly Weekly Fortnightly
frequency Monthly
Source: Company data, Isec research
Customer behaviour is isolated from farm loan waivers

It is perceived that MFI customers’ repayment intention gets impacted in events like
farm loan waivers. However, our channel check suggests that though these customers
are based in rural areas, their income is not necessarily dependent on agriculture.
Most of these customers have second source of income from non-agricultural activities
such as animal husbandry, small shops, selling of vegetables/fruits, etc. MFIs are well
versed on how some borrowers take undue advantage of it and, over the years, the
companies have developed a business model to immune themselves from farm loan
wavier impact.
11
Measures taken by NBFC-MFIs:
 All MFIs educate members on how MFI loans and farm loans are different. It is
part of their Compulsory Group Training (CGT) programme.
 They educate members on importance of maintaining good credit score and only
MFIs will give them money to support them financially. During our recent channel
checks, we crossed-checked these things as we were skeptical about how the
unbanked rural population will understand the importance of ‘good credit score’.
But, to our surprise (we met almost 40 borrowers), ~80/90% of the borrowers were
aware that if they delay in repayments or default, they will not get any financial
assistance from any other formal financial institutions.
Chart 15: Despite six states announcing farm loan waivers during past 18
months, PAR 30 portfolio for NBFC-MFIs is declining.
Karnataka Rajasthan Punjab

40.0% Maharashtra Tamil Nadu UP
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19
Source – MFIN, June’18 data, Isec research
India – still not “over leverage” at borrower level

While India is the largest market in terms of number of microfinance borrowers and
Gross Loan Portfolio (GLP) outstanding, ticket-sizes are amongst the lowest. India
accounted for 13% of the US$92.4 billion global microfinance market and 33% of the
total borrower population. However, India’s overall GLP per borrower was significantly
lower than the world average.
Table 3: Globally, India has one of lowest average loan o/s per borrower despite
no.1 rank in terms of Gross Loan Portfolio (GLP)
Active GLP per
% of total GLP % of total
Country borrowers borrower
‘000 US$ million US$
India 38,098 33% 11,640 13% 306
Bangladesh 23,978 21% 5,753 6% 240
Vietnam 7,534 6% 7,352 8% 976
Mexico 6,729 6% 4,515 5% 671
Peru 4,142 4% 9,313 10% 2,248
Colombia 2,757 2% 5,317 6% 1,934
Cambodia 2,306 2% 5,264 6% 2,283
Ecuador 1,412 1% 4,761 5% 3,372
Bolivia 1,226 1% 6,510 7% 5,310
Kenya 374 0% 3,290 4% 8,797
Total 88,556 92,443 792
Source: Industry data, I-Sec research
12
Chart 16: Loan o/s per borrower in India is still significantly lower than
regulatory limits of Rs80,000 and Rs1,00,000 as set by Mfin and RBI respectively
Avg loan o/s per account Avg loan disbursed per account
25,000
24,000
23,000
22,000 23,295 23,510
21,000 21,971 22,388
20,000 21,026
19,000 20,736
18,000
17,000 18,132
16,000 17,511
16,924
15,000 16,016
14,000 15,432
13,000 14,508
13,806
12,000 13,068
11,000
10,000
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19
Source: MFIN, June’18 data, I-Sec research
Huge growth potential; Large NBFC-MFIs are better placed

On the basis of Population Census 2011, we estimate the rural credit market size at
Rs3,580bn, or ~2.5x the current MFI AuM. Currently, highly penetrated states like
Uttar Pradesh, Bihar and Maharashtra have similar rural population as Bangladesh,
but these states have only 10/11% of Bangladesh’s total AuM size. Further,
unorganised players like moneylenders, chit funds, etc. provide significant opportunity
to MFIs to capture market share in coming years.
Table 4: MFI opportunity size is ~2.5x of current AuM

Market size India
Total households (in mn) 244
Rural households 179
Urban households 65
Loan per borrower 25,000
Potential Reachable Rural Households (@80% of total rural households) 143
Estimated rural credit market (Rs bn) 3,580

AuM as per latest Mfin data 1,489
Opportunity size ~2.5x of current AuM
Table 5: Uttar Pradesh, Bihar and Maharashtra have similar rural population as Bangladesh, but these
states have only 10/11% of Bangladesh’s total AuM size.
Bangladesh UP Ratios (%) Bihar Ratios (%) Maharashtra Ratios (%)
Rural population (mn) 110 160 146% 90 87% 60 58%
Urban population (mn) 60 50 91% 10 21% 50 89%
Total population (mn) 160 210 127% 100 64% 110 69%
Total micro credit (Rs bn) 440 48 11% 47 11% 450 10%
13
Regulations
Microfinance sector in India governed by RBI guidelines
MFIs were largely operating unregulated until 2010, when the Andhra Pradesh (AP)
ordinance came into effect. The ordinance addressed issues such as coercive
recovery practices and absence of a social objective among MFIs to help the poor.
Post ordinance, AP saw a sharp decline in MFI activity. In 2011, the RBI released
guidelines that defined NBFC-MFIs and provided an operating and regulatory
framework for MFIs operating in India. Moving forward, the draft bill on microfinance is
likely to provide clarity on certain regulatory aspects.
The RBI guidelines issued in December 2011

In Nov’10, the RBI set up a sub-committee under the chairmanship of Mr. Y.H.
Malegam to address issues concerning the domestic MFI industry. This was in light of
heightened risk perceived toward the sector, after the AP ordinance was enacted.
Based on the committee's recommendations, the NBFC-MFI directions issued by the
RBI came into effect in Dec’11.
Table 6: NBFC-MFI - regulation guidelines

Parameter Provision
Minimum net owned funds (NOF) Rs50 million*
Qualifying assets*** Not less than 85% of its net assets** in the nature of qualifying assets
Multiple lending Not more than two MFIs should lend to the same borrower
A capital adequacy ratio consisting of Tier I and Tier II capital, which
Capital adequacy
shall not be less than 15% of its aggregate risk weighted assets
Not less than higher value among the following:
a) 1% of outstanding loan portfolio, or
b) 50% of aggregate loan instalments that are overdue for more
Aggregate loan provision
than 90 days and less than 180 days
c) 100% of aggregate loan instalments that are overdue for 180
days or more
Margin cap imposed at 10% for large MFIs (loan portfolios exceeding
Pricing of credit
Rs1bn) and 12% for small MFIs (loan portfolios below Rs1bn)
With effect from 1-Apr’14, interest rate charged to borrowers:
a) The cost of funds plus 10% for large MFIs (size of Rs1bn and
above) and cost of funds plus 12% for the others (size less than
Rs1bn), or
Interest rate charged
b) The average base rate (as advised by the RBI) of the five largest
commercial banks by assets multiplied by 2.75
Maximum variance between minimum and maximum interest rates for
individual loans capped at 4%
Processing charge Not more than 1% of total loan amount
* For NBFC-MFIs registered in the northeastern region of the country, minimum NOF requirement shall stand at
Rs20mn.
** Net assets are defined as total assets other than cash and bank balances and money market instruments.
Source: RBI
14
Company overview
CreditAccess Grameen Limited (CAGL) is the second-largest Indian microfinance
institution headquartered in Bengaluru, focused on providing micro-loans to women
customers predominantly in rural areas, which account for ~82% of CAGL’s current
customer base. Income-generation loans comprised 86.58% of the total JLG loan
portfolio as at 30-Sep’18. Company has recently ventured into retail financing to cater
to high-ticket size loans for their captive customers.
CAGL follows a strategy of contiguous district-based expansion across regions and,

as at Sep’18-end, it covered 156 districts in the eight states (Karnataka, Maharashtra,
Tamil Nadu, Chhattisgarh, Madhya Pradesh, Odisha, Kerala, Goa) and one union
territory (Puducherry) in India through 656 branches and ~5,260 loan officers. Its
operations are well diversified at the district levels, with only one district contributing
more than 5% to gross AUM as at Sep’18. Further, of the total of 156 districts covered
as at Sep’18, ~80% of loans in each of these districts represented less than 1% of
gross AUM.
Table 7: Product category mix

Loan Type Product Purpose Ticket Size (Rs) Yield Tenure (months)
Income Generation Business Investments and Income
Group 5,000 - 60,000 19%-21% 12-24
Loan(IGL) Enhancement activities
Home Improvement Water Connections, Sanitation and
Group 5,000 - 50,000 18% 12-48
Loans Home Improvement & Extensions
Family Welfare Festival, Medical, Education and
Group 1,000 - 15,000 18% 3-12
Loans Livelihood Improvement
Group Emergency Loans Emergencies 1,000 18% 3
Purchase of inventory, machine, assets

Individual Retail Finance or for making capital investment in Up to 5,00,000 20 % -22% 6-60
Loans business or business expansion
CAA is CAGL’s promoter company. CAA was incorporated as a private limited

company on 20-Mar’14 under the name Microventures Asia B.V. Thereafter, on 8-
Oct’14, Microventures Asia B.V. was renamed as CreditAccess Asia N.V. and the
company was converted into a public limited company (i.e. B.V. to N.V.). While CAA
was incorporated in 2014, its investment initiatives prior to incorporation were
undertaken through MVH S.r.L.
CAA is primarily engaged in providing, through controlled companies, financial

services to micro and small businesses and self-employed people in emerging
countries. CAA also participates in, finances or conducts the management of other
companies or enterprises. Presently, CAA has investments in microfinance institutions
in India, Vietnam, Indonesia and the Philippines.
15
Customer-centric business mode: Following ‘basics’

CAGL’s customer-centric business model allows it to retain a high proportion of its
existing customers and to attract new customers. As at 30-Sep’17, it had an active
customer retention rate of 90% (annualised). Notably, CAGL believes in following
basics and endeavours to promote the culture of ‘customer at core’.
Over the years, many MFI players have tweaked their business models either to
achieve higher growth or to improve productivity. To achieve this, some have diluted
processes such as: a) moving to bi-weekly/monthly collection from weekly collection to
improve productivity, b) aggressively pushing third-party products to customers
irrespective of their actual need, c) excessive use of technology, which led to
companies losing direct connect with customers (key in MFI business due to 100%
unsecured nature of loans), and d) cutting down training time to reduce turnaround
time.
However, CAGL sticks to ‘basics’ such as: a) weekly collection method, b)
absolutely no sale of third-party products, c) use of technology limited to
application form filling and KYC, d) a week-long process for any new
sanctions/disbursements, and e) running a social campaign called ‘Jagruti’ to
improve customer relations, which is the only source of social information for
more than ~85% of its customers.
Chart 17: Active Customer Retention rate of 90% is significantly higher than the
median rate of 78% for 15 leading microfinance players
CAGL’s customer-
Active Customer Retention Rate
centric business
92%
model has it to have
90%
industry-leading 90%
customer retention
88%
ratio of 90% vs 78% 86% 86% 86%
for the top-15 MFI 86%
players. 84%
82%
82%
80%
78%
FY14 FY15 FY16 FY17 Sep'17
Table 8: CAGL’s products cater to the entire customer lifecycle:

Loan Type Product Purpose Ticket Size (Rs) Yield Tenure (months)
Income Generation Loan Business Investments and Income
Group 5,000 - 60,000 19%-21% 12-24
(IGL) Enhancement activities
Water Connections, Sanitation and
Group Home Improvement Loans 5,000 - 50,000 18% 12-48
Home Improvement & Extensions
Festival, Medical, Education and
Group Family Welfare Loans 1,000 - 15,000 18% 3-12
Livelihood Improvement
Group Emergency Loans Emergencies 1,000 18% 3
Purchase of inventory, machine,

assets or for making capital
Individual Retail Finance Loans Up to 5,00,000 20 % -22% 6-60
investment in business or business
expansion
16
CAGL’s customer base

Chart 18: CAGL’s customer base reported robust 37% CAGR over FY14/H1FY19
vs AuM CAGR of 55% during the same period
reported robust 37% CAGR
between FY14/H1FY19. 70
AuM (Rs bn) Borrowers (Lakhs)
25.0
Currently, it services ~20.8 20.8
60
Lakh active customers. Key 18.5 20.0
reasons behind industry- 50
leading growth in customer 14.5
15.0
base are: a) its ability to 40 12.0
design tailor-made financial
30 8.4 58
products, which cater to the 10.0
50
entire customer lifecycle; b) 20 5.0
high degree of customer 31 5.0
25
engagement via weekly 10
14
collection model, and c) 8
0 0.0
focus on the under- FY14 FY15 FY16 FY17 FY18 1HFY19
penetrated rural segment.
Group lending business process
Customer Due Diligence Processes Credit Appraisal, Sanction, Disbursement
 Receipt of Loan Applications: Loan applications are submitted to the loan officer at the Kendra
 CAGL’s branches enroll customers who satisfy the
meetings after ensuring that every group member is willing to take joint responsibility for the loan. If
target clientele criteria.
the group approves the loan, the loan officer grants the loan to the customer based on the
 The size of the groups is flexible with a minimum of
understanding obtained from the group discussion. Maximum loan limit the customer is eligible for
five and a maximum of 10 women customers in a
after considering her loan cycle and existing MFI exposure through other loans with CAGL or with
group. Two to six groups form a Kendra which
other MFIs.
typically has 10 to 30 customers.
 Once the interested women customers have  Loan Evaluation: After the receipt of the loan application, the loan officer makes a compulsory visit
formed their groups, CAGL provides Group training to the customer's residence to interview the customer and other members of her household to
explaining roles & responsibilities of JLG. ascertain the repayment capacity of the customer. During the visit, the loan officer prepares the cash
 Immediately after the formation of the group, the flow statement in the prescribed format. A cash flow statement is not required for other types of loans
loan officer visits the prospective customers' house but the Kendra manager has to check the repayment capacity of the customer.
to collect the Know-Your-Customer ("KYC")
 Loan Sanction and Further Processing: On the recommendation of the loan officer and after
documents and basic data of the customers.
reviewing the relevant documents, the branch manager will sanction the loan if it falls within his
 The company ensures that there are multiple
delegated authority. If not, the branch manager will recommend the loan to the appropriate
levels of check before enrolling a new group or
sanctioning authority as per the Delegation of Powers approved by the Board. Upon sanctioning the
customer.
loan, the branch manager signs the sanction letter and the loan officer carries the sanction letter to
the next Kendra meeting to hand it over to the customer after reconfirming with the other members of
the group that they approve the granting of the loan to the particular customer. The customer is
Collection
required to come to the branch with the sanction letter together with proof of identity to receive
disbursement of the loan. Customers are encouraged to receive disbursements through electronic
 Before the Kendra meeting, the customers funds transfers to their bank account. On disbursement of the loan, the customer receives a
hand over their loan passbooks and instalment separate passbook for each loan with the repayment schedule printed in it.
amounts to the group leader.
 At the Kendra meeting, the group leader hands over
the amount collected and the passbooks to the
Loan officer. Kendra Meetings - helps in relationship building
 The group leader oversees the group’s payment
and reports to the Loan officer.
A Kendra meeting is one of the core activities for the field staff and also a matter of great
 Once the amount collected is the same as the importance to both customers and the company. Kendra meetings are conducted strictly as set
amount demanded, the Loan officer checks and out in its operational guidelines either on a weekly or bi-weekly basis. Kendra meetings are vital
signs each member’s loan passbook after verifying for CAGL for the following reasons:
it with the collection sheet, which he brings from the
branch.  All financial and non-financial transactions with customers are conducted at the Kendra meeting
 The Kendra meeting is the point of contact with customers and this helps in relationship building
 All important schemes and policies of the company are shared with customers at the Kendra meeting.
 The Kendra meeting plays an important role in building the company’s brand image.
17
Retail finance: One-stop solution to customers’ growing credit need
In 2016, with a view to diversifying its product profile, CAGL launched its retail finance
vertical for existing customers who have completed at least three years with the
company and fulfil certain other eligibility criteria linked primarily to their credit history.
CAGL offer these loans as business loans either to establish a new enterprise or
expand an existing business in the customer’s individual capacity (for instance, for the
purchase of inventories, machinery or two-wheelers).
The retail loan category targets customers who are more entrepreneurial, have
graduated from the JLG model, and have enough supporting documents to take larger
loans in their individual capacities. Typically, other financial institutions or banks ask
for collateral and take higher turnaround time while CAGL on other hand could
extends credit much faster and at similar interest rates as what other FIs/banks can
offer. Customer’s credit history of more than three years and existing relationship
helps CAGL tap customers whose credit demand increases as they grow.
Since individual lending is a completely different from CAGL’s core JLG-based

lending, it has set up a separate vertical with a separate branch, team, structure and
process. The process is completely technology-driven and is cashless end-to-end.
Currently, it operates with 46 dedicated retail finance branch, >650 staff and covers
three states with customer base of >19,000.
Target customers for retail finance

Retail loans under Individual Retail Finance (IRF) are offered to customers in their
individual capacity. The purpose of IRF loans includes allowing customers to establish
a new enterprise or expand an existing business, purchase inventories, machinery or
two-wheelers.
In order to be eligible for IRF products, customers have to satisfy the following basic
criteria:
 be an existing customer with at least 36 months of relationship with CAGL

 display good credit history in group loans
 between 22 to 58 years of age
 own a house, or own or rent a shop
 achieved business stability for at least three years, and
 obtained credit bureau clearance
18
Retail finance business process
Customer Due Diligence, Credit Appraisal, Sanction and

Sourcing
Disbursement
 Business team. The business team is responsible for  Credit and operations team. The credit and operations team is responsible for credit
sourcing and converting the group lending customers as assessment, sanctioning or rejecting a loan proposal and maintaining documentation
well as repayment collections from customers. and disbursement for sanctioned cases.
 As of September 30, 2017, it had eight IRF branches and
 A branch operations executive is responsible for data entry and does the first level
each IRF branch is headed by a branch manager who is
check of the proposals submitted by its business team.
responsible for the business and operations of the branch,
and the branch manager reports to the regional sales  A branch operations manager is responsible for keeping records, cash management,
manager, who is responsible for the business and documentation of applications, sanctions and disbursements at the branch.
administration of all the branches under him.
 Further, it has telecallers at its central office who are responsible for doing a tele-
 The business team comprises Business Development
verification check of all proposals submitted for review.
Officers ("BDOs"), who are field staff who source IRF
customers, and Customer Relationship Officers ("CROs"),  It also has credit underwriters who analyze a proposal based on the information
who are responsible for maintaining the relationship with gathered and recommend that a case be sanctioned or rejected to a regional credit
customers post disbursement and conducting loan manager.
utilization checks and post-disbursal document execution.
 To ensure proper documentation, safety of all documents and conduct of
disbursement related activities, it has an operations team stationed centrally.
Collection
 A monthly repayment schedule is followed for all IRF loans.

 Loan repayments are collected by triggering the automatic NACH debit mandate which is collected from the customer at the time the documents in the DB
kit are executed and as per the schedule communicated to the customer.
 Intimation is sent to the customer two days in advance of the scheduled repayment date so that the customer has notice to maintain sufficient balance in the
account.
 On the scheduled repayment day, debit instructions are sent to the bank and post successful completion of national automated clearing, the necessary
information is sent to the branch.
 For cases where national automated clearing cannot be completed (or in the event there are two consecutive defaults), collections are done in cash by the
CRO by visiting the customer physically. An acknowledgment is given to the customer for all cases where the collection is successful.
Chart 19: CAGL’s journey in retail finance
First branch
opened in Expansion Loan Book Borrowers
Bangalore started crossed Rs250mn crossed 10,000
Nov 2016 Mar Aug Jan 2018 Jun 2018 Sept

2017 2017 2018
5 branches Expanded in
Loan Book
operational Maharashtra &
crossed
Tamil Nadu
Rs1.5bn
Source: Company data
19
Retail finance Chart 20: Retail finance portfolio jumped ~3x to Rs1.6bn over past six months;
currently contributes notably, customer base too increased at a similar pace
~3% to CAGL’s total
Portfolio (Crores) Branches Customers Average ticket size
AuM. Importantly, 180 25,000
81,600
CAGL has been able 160
19,420 81,458
20,000 81,400
to successfully tap 140
81,200
JLG dropout 120
15,000
100 11,908 81,000
customers as
80 156
reflected in the ~3x 6,317
10,000 80,800
80,735
60
increase in customer 40
97 80,600
5,000
base over past six 20 51
32
46 80,400
80,330
30
months. Also, the 0 0 80,200
FY18 Q1FY19 #NAME? FY18 Q1FY19 Q2FY19
average ticket-size of
Source: Company data, I-Sec research Source: Company data, I-Sec research
~Rs80,000 does not
appear on higher
side. Focus on under-penetrated rural India…
Despite continued government effort on financial inclusion and bringing rural
population on the formal banking platform, rural India remains an unserved and
underserved population in relation to the country's formal banking system.
Strategically, CAGL has always focused on the rural segment, especially when many
industry players were expanding their customer base in urban India. CAGL believes it
will be able to strengthen its position by tapping into this underserved market and that
it is best placed to capitalise on its strategy of having a deep penetration in the rural
areas. Notably, growth in rural India offers the dual advantage of: a) relatively lower
competition than in urban India, and b) lower cost of business.
CAGL has Chart 21: CAGL’s rural customer-base stands at 82% vs industry average of 66%
strategically focused
Rural customer base
on expanding its
85% 82%
business in the
Urban 80% 77%
under-penetrated 34%
75% 73%
rural segment. This
68%
has resulted in a 70%
marked expansion of 65%
its rural customer Rural 60%

66%
base to 82% in 55%
Sep’18 from 68% in 50%

FY15 FY16 FY17 Sep'18
FY15.
Source: MFIN, June’18 data, I-Sec research Source: Company data, I-Sec research
We believe CAGL’s deep penetration in rural areas, built through a contiguous district-
based expansion strategy, provides it with significant scale and diversification
advantages. It can carry out its expansion strategy methodically whereby it aims to
expand to the next (typically adjoining) district and ensure deep penetration in it within
three years of commencement of operations in the same district.
…with thrust on geographical diversification

Post the Andhra Pradesh crisis in 2010, the microfinance industry has learned an eye-
opening lesson in the need for geographical diversification. Before the crisis, most MFI
players were not very keen on spreading their wings to other states as growing in
same state is far more economical and relatively easy.
20
Being a Karnataka-headquartered entity, CAGL’s initial business was largely
concentrated in Karnataka with almost 71% of its total AuM originating in the same
state. However, over the years, the company has strategically focused on reducing
exposure in Karnataka and has expanded business in other states. Till FY14, CAGL’s
business operations were limited to only three states, while it currently operates in
eight states and one Union Territory (Puducherry).
Chart 22: State-wise AuM breakup

The share of
Karnataka Maharashtra Tamil Nadu Others
Karnataka-based
AuM fell to 57% in 100% 0%
2% 0%
3% 3%
4% 6% 8% 9%
Sep’18 from 71% in 90% 6% 7%
27% 8%
80% 28%
FY14. 30%
28% 27%
70% 26%
60%
50%
40%
71% 70%
30% 63% 60% 58% 57%
20%
10%
0%
FY14 FY15 FY16 FY17 FY18 1HFY19
Table 9: State-wise branch breakup

The share of Branches (Nos.) State-wise branch share (%)
States/UT FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
branches located in Karnataka 117 139 145 165 191 66% 58% 49% 42% 37%
Karnataka and Maharashtra 54 84 102 122 144 31% 35% 34% 31% 28%
Maharashtra Madhya Pradesh 0 6 29 53 63 0% 3% 10% 13% 12%
Tamil Nadu 5 7 17 37 80 3% 3% 6% 9% 16%
together fell to 65% Chhattisgarh 2 5 16 25 0% 1% 2% 4% 5%
in FY18 from 97% in Odisha 5 0% 0% 0% 0% 1%
Kerala 5 0% 0% 0% 0% 1%
FY14. Goa 2 0% 0% 0% 0% 0%
Puducherry 1 0% 0% 0% 0% 0%
Total 176 238 298 393 516 100% 100% 100% 100% 100%
21
Best-in-class asset quality

We met ~200 CAGL’s effective credit risk management reflects in its key portfolio quality indicators
customers (through such as robust repayment rates, stable PAR and low rates of GNPAs and NNPAs.
10 centre meetings) Company has successfully navigated key challenging events such as the Andhra
in and around Pradesh crisis, farm loan waiver in Karnataka, demonetisation, etc. Further, it has
Bengaluru and, to actively managed its portfolio over the past four years, which has ensured that no
our surprise, ~80% single district (apart from one) contributes more than 5% to its gross AUM, as at
of them were aware Sep’18-end.
of the importance of
‘credit score’ and the CAGL strongly believes in ‘knowing the customer before onboarding’, hence it follows
impact of a negative a systematic process in the selection of new geographies/customers. Further, unlike
score on their future many industry players, CAGL continued its week-long ‘Compulsory Group Training’
creditworthiness. (CGT) programme to educate customers and double-check the data provided by them.
CGT includes training on: a) importance of payment regularity; b) difference between
MFI loans and farm loans to make customers understand that farm loan waivers don’t
waive MFI loans, c) importance of credit score and impact of a negative score on
future creditworthiness; d) importance of attending ‘weekly meeting’, etc. Further,
during CGT, the loan officer observes: a) punctuality of group members, b) behaviour
of group members, c) coordination within group, etc.
A rigorous training programme has enabled CAGL to eliminate groups/customers that

were found undisciplined or have given incorrect KYC documents. This has helped
CAGL in managing asset quality better than many industry players.
Chart 23: Asset quality trend across major MFI players – CAGL stands out
CAGL BFIN Satin Ujjivan*

16%
14%
12%
10%
8%
6%
4%
2%
0%
FY16 FY17 FY18 Q2FY19
*Ujjivan is an SFB, but ~88% of its loan book is MFI.
22
A) Weekly collection/meeting
CAGL follows a predominantly weekly collection model, which enables a high degree
of customer engagement. Whilst majority of its customers are on a weekly collection
model, the company also offers fortnightly and monthly collection models based on
customer needs. Further, we note that MFIs that follow a weekly collection model tend
to perform better in terms of asset quality, as they engage more frequently with
borrowers. Since CAGL follows the weekly meeting model, it demonstrated a better
asset quality during the recent crisis of demonetisation, as compared to other MFI
players.
Chart 24: Industry players with different collection methods

Most
Most trusted
trusted
(globally) Ujjiwan Satin CAGK Spandna
(Indian)
Gramin
Key operating metrics SKS
Fortnightly/
Weekly Weekly Monthly Weekly Fortnightly
Collection frequency Monthly
Chart 25: MFIs that follow a weekly collection model tend to perform better in
terms of asset quality
Source: Industry data
Table 10: CAGL’s state-wise PAR30+ compared to the MFI industry – Strong comeback from
demonetization-related issues
(%)
Sep-17 Jun-17 Mar-17 Dec-16 Sep-16
PAR 30+% Industry CAGL Industry CAGL Industry CAGL Industry CAGL Industry CAGL
Maharashtra 27.20 12.50 28.00 17.20 26.70 23.40 16.10 9.90 2.10 0.10
Karnataka 16.80 3.10 18.00 4.60 19.10 8.10 9.40 1.00 1.70 0.00
Madhya Pradesh 16 5.10 16.60 7.20 16.30 7.90 9.60 1.10 1.60 0.00
Tamil Nadu 8.30 0.30 8.80 0.30 8.70 0.30 2.80 0.00 2.10 0.00
Chhattisgarh 7.10 2.10 7.50 2.20 7.30 2.20 4.30 0.80 2.30 0.00
Overall 11.40 5.70 11.60 8.00 11.70 11.90 7.90 3.50 1.50 0.10
23
Strong customer connects – as reflects in superior net backward flow
rates across buckets…
Chart 26: … PAR 90+ to lower bucket Chart 27: PAR 61-90 to lower bucket
16 Industry CAGL 35 Industry CAGL

14.2 30.8
14 30
26.0
12 11.1 24.1
10.0 25
9.8 21.6
10 20.1
8.0 20
(%)
(%)
8
15 12.4
6 5.1
9.3 9.9 9.3 9.4
3.9 10 8.2
4 6.1 6.7 6.6
2.1 4.7 3.7
2 1.0 1.0 5
0.6 0.8
0.2 0.2
0.7 0.5 0.7 0.6 1.4 1.7
0 0
Jul-17
Jul-17
Jan-17
Feb-17
Mar-17
Apr-17
Jun-17
Aug-17
Sep-17
Jan-17
Apr-17
Jun-17
Aug-17
Sep-17
May-17
Feb-17
Mar-17
May-17
Chart 28: PAR 61-90 to lower bucket Chart 29: PAR 1-30 to current
40 Industry CAGL 50 Industry CAGL 46.3

36.0
45 43.1
35
29.9 40 36.4
30 27.8 34.3 34.2 35.5
25.4 26.5 35
23.7 30.9
25 30 26.7
20.8 24.8 25.1 25.9 26.3
18.4 23.3
(%)
(%)
20 25 20.7 21.1 20.8

15.0 19.2
15 13.2 20
11.3 11.7 11.8
9.6 9.4 9.9 15 11.5
10 6.8
10
5 2.2 5
0 0
Jan-17
Jun-17
Jul-17
Feb-17
Mar-17
Apr-17
May-17
Aug-17
Sep-17
Jan-17
Jun-17
Jul-17
Feb-17
Mar-17
Apr-17
May-17
Aug-17
Sep-17
b) Robust customer selection

CAGL follows a systematic process in the selection of new geographies/customers.
Before setting up any new branch in new districts, it takes into account factors such as
the historic PAR% of the district and socio-economic risk evaluation (e.g. the risk of
riots or natural disasters), number of existing MFI players, scope for expansion in
nearby areas, etc. Once, it finalises a branch in a new area and forms groups, it starts
due diligence procedures for customers, which encompass three layers of checks,
which in turn helps ensure high quality of new customers.
Geography/Customer selection process

 CAGL has district-wise, village-wise maps along with data on number of
households in each village. After detailed data analysis, such as number of MFIs
already operating in the village and key economic activities there, it conducts an
introduction session with people in the selected village.
24
 Post the introduction session, CAGL advises villagers to form a group. It then
educates groups on how JLG works and their responsibility.
 List of documents: Aadhar card and Voter ID is compulsory. It also asks for
husband-wife joint photo, husband KYC and bank statement of women.
 Loan officer visits each customer house to check family background, fill MBD
(member basic data), and then submit application form to the RPC (regional
processing centre).
 After getting basic details, the Loan Officer (LO) checks credit bureau report and if
all ok, the LO approves the group and starts with group training for five days.
Compulsory Group Training (CGT) is mandatory for all JLG members. Purpose of
the training is to check indirectly how JLG members get along with each other,
punctuality, and other soft checks.
 After CGT, the branch manager conducts re-interview of the selected JLGs and
rechecks all the things that the LO is supposed to perform and analyses cashflow.
 After branch manager’s visit, the area manager visits the selected JLGs, rechecks
BM/LOs’ work, and checks the cashflow analysis done by them.
 Post the 3-tier check LO starts processing new applications and disbursements
happens within a week.
 CAGL takes around 15-20 days for any fresh disbursements to new JLGs.
c) Well diversified at district level

Contiguous district-based expansion strategy enabled CAGL to navigate some
challenging period successfully as demonetisation despite having ~88% exposure in
two states, namely Karnataka and Maharashtra during FY17. CAGL strongly believes
in diversification at the district level than at state level. Recent data indicates, CAGL’s
exposure of 0.6% per district is broadly in line with other major industry players despite
significantly higher exposure concentration in the two said states.
Table 11: Per district exposure as percentage of total loans

BFIL 0.3%
CAGL 0.6%
Satin 0.3%
Ujjivan 0.4%
Muthtoot Microfin 0.6%
Asirvad 0.4%
Arohan 0.6%
Annapurna 0.5%
Fusion 0.5%
Madhura 1.7%
Average (ex Madhura) 0.5%
Source; MFIN, June’18 data, Company data
Note – BFIN, CAGL, Satin, Ujjivan data as on Q2FY19
Arohan and Muthtoot Microfin data as on Q4FY18
Asirvad, Annapurna, Fusion and Madhura data as on Q1FY19
25
Chart 30: Consistent decline in its per district exposure – It fell to 0.6% as at
Sep’18 from ~2.4% in FY14
Per district exposure as % of total loans
2.5% 2.4%
2.0%
1.6%
1.5% 1.4%
1.0%
1.0%
0.8%
0.6%
0.5%
0.0%
FY14 FY15 FY16 FY17 FY18 Q2FY19
Chart 31: Contiguous district-wise expansion approach reduces exposure to

any single district
FY16 FY17 FY18 1HFY19
70% 65%
60%
50%
40%
30%
20% 15% 17%
10%
3% 1%
0%
< 0.5% 0.5% - 1% 1% - 3% 3% - 5% > 5%
26
d) Focus on Income-Generating Loans
As per the RBI’s regulations issued in Apr’15, a minimum of 50% of the aggregate
loans should be towards income generation activities. Further, due to the RBI
regulation and better performance of Income Generation Loans (IGLs) as compared to
consumption loans in terms of asset quality, a majority of loans issued by MFIs are for
IG activities. Thus, share of IGLs for NBFC-MFIs remained significantly higher at 94%
in FY16 than the regulatory minimum requirement of 50%.
CAGL always remained focused on extending IGLs, even when it was pursuing high
growth and expanding its reach in newer states. The share of IGLs for CAGL broadly
remained constant at around 86% over past five years.
Chart 32: The share of IGLs remained at around 86% as at FY18
IGL as % of total AuM
89%
88%
89% 88%
88% 88%
88%
87% 87%
87% 86%
86%
86%
85%
85%
FY14 FY15 FY16 FY17 FY18
Most efficient MFI player

CAGL’s cost/AAUM ratio at 5% in FY18 is one of the lowest amongst the top-8 NBFC-
MFI and SFB players as per CRISIL. High customer retention ratio (thereby no
incremental sourcing cost), contiguous expansion strategy and higher field
staff/employee ratio are key reasons behind its industry-leading cost ratio. Controlling
operating expenses is critical in offering loan products at competitive rates while
maintaining profitability.
Key differentiator for CAGL is its ability to control employee cost at the lowest level of
3.2% in FY18 vs 4.8%/5.3%/4.3% for BFIL/Ujjivan/Satin respectively, while CAGL’s
other operating expenses (ex-Ujjivan) at ~1.6% is broadly similar BFIL/Satin.
Table 12: Opex/AAuM company-wise

BFIL Ujjivan Satin CAGL
FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18
Employee expenses (%) 4.8% 4.8% 4.6% 5.3% 4.6% 4.3% 3.7% 3.2%
Depreciation (%) 0.2% 0.1% 0.2% 0.6% 0.2% 0.3% 0.2% 0.1%
Other operating expenses (%) 1.6% 1.5% 3.0% 3.5% 2.5% 1.6% 1.8% 1.7%
Total operating expenses (%) 6.6% 6.5% 7.8% 9.4% 7.2% 6.3% 5.7% 5.0%
Note: Opex ratios are calculated as operating cost/Average AuM.
27
Chart 33: CAGL per employee cost is lowest amongst key MFI players, notably despite maintaining
second-best AuM/per loan officer
Per employee cost per annum (Rs) AUM per loan officers (Rs mn)
350,000 328,555 325,964 14

12
300,000 12 11
10
247,139
250,000 10 9
201,728
200,000 8
150,000 6
100,000 4
50,000 2
0 0
BFIL Ujjivan Satin CAGL BFIL Ujjivan Satin CAGL
Source: Company data, I-Sec research Source: Company data, I-Sec research
Note: Data as per Annual Report 2018. Note: Data as per Annual Report 2018.
Chart 34: Scope for further improvement in selected productivity metrics; lower
clients per loan officer is largely due to company’s recent expansion
Clients per loan officer
700 645
600
507
500
395
400
300
200
100
0
BFIL Satin CAGL*
Note: NFIL/Satin data is as per Jun’18 Ministry of Finance release. CAGL data is as per Q2FY19 PPT.
During H1FY19, the cost ratio appears a little elevated, largely due to CAGL’s strategy
to expand branch network in H1 of any financial year so that they could focus on
leveraging the expanded network from H2 onward.
Importantly, CAGL continues to identify and implement measures that could enable it
to sustain and further decrease the operating expense ratio. In addition, it also invests
in technology platform and technology-enabled operating procedures to increase
operational and management efficiencies. It believes robust technology infrastructure
is necessary to respond swiftly to market opportunities and challenges, improve the
quality of services, scale-up risk management capabilities, optimise operating costs
and improve operational efficiency. It has initiated several measures, which include
following:
28
 It implemented tablet-based loan application process for moving to paperless
transactions using electronic KYC procedures, which allows it to reduce
turnaround time.
 It has recently implemented its new online Core Banking System, which has
facilitated smooth and swift flow of information and data enabling it to control the
cost of operations and provide improved services to customers.
 Additionally, it has centralised certain in-house back office processes with the
formation of regional processing centres where customer data entry is carried out
centrally. As at 31-Mar’18, CAGL has eight regional processing centres located in
Bengaluru, Belgaum, Davanagere, Erode, Nagpur, Kolhapur, Indore and
Aurangabad.
 CAGL has also implemented on a pilot basis an online loan-processing platform
aimed at providing easier access to customers and is in the process of introducing
this platform in all branches.
Chart 35: Trend in opex/AAuM ratio
Opex/AAuM ratio (%)
8.0%
6.8%
7.0% 6.3%
5.8% 5.7%
6.0%
5.0% 5.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
FY14 FY15 FY16 FY17 FY18 1HFY19
Diversified funding sources and effective asset-liability

management
CAGL has always focused on having diversified sourcing of funds rather than
participating in ‘interest rate arbitrage’ by actively switching sourcing toward debt
instruments, which offer lower rates. The same has enabled it to navigate a few recent
liquidity crises such as the ones in 2013, 2018, etc. and continue its high-growth
strategy. Further, CAGL’s exposure to NBFCs is limited to only ~7%, while its
commercial paper exposure is zero.
29
Chart 36: Well-diversified borrowing mix
As at Sep’18-end,
PTC Direct Assignment
CAGL’s sourcing tie- 1%
11%
ups include:
‒ 32 commercial
banks
‒ Three domestic Foreign Sources
18%
financial
institutions (long- Banks
53%
term)
‒ Eight foreign
institutional FIs
10%
investors (long-
NBFCs
term) 7%
‒ Six NBFCs (three Source: Company data, I-Sec research
are long-term)
This has enabled the company to optimise the cost of borrowings, funding and liquidity
requirements, capital management and asset liability management.
Table 13: Consistent improvement in rating

FY14 FY15 FY16 FY17 FY18 Sep’18
Credit Rating (ICRA) BBB+ A- A A A A+
mfR Grading (CRISIL) mfR2 mfR1 mfR1 mfR1 mfR1 mfR1
Source: Company data, RHP, * On April 27, 2018, ICRA changed CAGL’s outlook rating from ‘stable’ to ‘positive’.
In addition, CAGL effectively manages its asset liability duration. Strategically, it

primarily borrows on a relatively long-term basis while lending on a short-term basis.
This has enabled it to better meet the growing loan demands of its rapidly increasing
customer base, even if external borrowings and funding sources faces temporary
realignment.
Chart 37: Positive ALM continues to contribute to growth; currently running at

6months positive ALM
Average Maturity of Assets Average Maturity of Liabilities

25
21.5 21.2
20.3
19.4 19.0
20 18.6
16.0 16.1 15.7 15.0
13.6 14.1
15
(%)
10
0
Q1FY19
Q2FY19
FY15
FY16
FY17
FY18
While managing the ALM positively with diversified funding sources, CAGL has
effectively managed its borrowing cost as well. Its weighted average cost of borrowing
as at Sep’18-end stands at 9.9% but, remarkably, its marginal cost of borrowing during
Q2FY19 fell to 8.9%.
30
Chart 38: Consistent decline in cost of borrowing
Weighted Avg. Cost of Borrowings
16.0%
14.1%
14.0% 12.6%
12.0% 11.4%
10.2% 9.9%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
FY16 FY17 FY18 Q1FY19 Q2FY19
Chart 39: Yields at 22% as at Jun’18-end is in line with large NBFC-MFIs

24.0
23.0
23.0 22.5 22.5
22.0 22.0 21.9
22.0
Yield (%)
21.0
21.0
19.8
20.0
19.0
18.0
BFIL CAGL Satin Muthoot Asirvad Arohan* Fusion Madhura
Microfin*
Data as per June’18 MFIN release
31
Stable management team with extensive domain experience

CAGL is a professionally managed company and its senior management team has an
established track record in the financial services industry. Key management personnel
have an average experience of approximately eight years with CAGL.
Name Designation Date Experience

Mr. Udaya Kumar oversees all the activities of Grameen Koota as Managing
Director and CEO. He has been the main architect and driving force for the
overall success and growth of Grameen Koota since 2010. A veteran banker
with over 26 years of experience, Mr. Udaya Kumar Hebbar worked with
Corporation Bank for 10 years, ICICI Bank for over 12 years and Barclays
Bank Plc. for 3 years before joining Grameen Koota as CEO in September
2010, to redeem his passion for the social sector.
Mr. Hebbar has immense exposure to all banking sector operations, including
Joined on
Mr. Udaya Kumar MD & CEO rural, agri and micro-banking fields. In the course of his banking career, he
2010
has successfully implemented Six Sigma Quality Initiatives, Five-S principles
for workplace management and ISO Standard. Mr. Udaya Kumar Hebbar
holds a Master’s degree in commerce, CAIIB from the Indian Institute of
Bankers and is also a graduate in banking operations and technology from
BAI, USA.
He also serves Microfinance Institutions Network (MFIN) as President
and Association of Karnataka Microfinance Institutions (AKMI) as
Chairman.
Mr. Diwakar is the Chief Financial Officer of our Company. He holds a

bachelor’s degree and masters’ degree in commerce from Osmania
Joined on University. He has 20 years of experience in the financial services sector.
Mr. Diwakar CFO
Oct 2011 Prior to joining our Company, he worked with Small Industries Development
Bank of India, as Chief Manager at ICICI Bank Limited and as Commercial
Supervisor at ACCION International. He was also associated with Life
Insurance Corporation of India and IFMR Capital Finance Private Limited.
Mr. Gopal is the Vice President, Operations (Maharashtra, Madhya Pradesh
and Chhattisgarh) of our Company. He holds a bachelor’s degree in
Business
commerce from Bangalore University. He has over 15 years of experience in
Head - Joined in
Mr. Gopal Reddy microfinance operations. Mr. Gopal joined TMT on May 30, 1999. He was
Group 1999
subsequently transferred to CAGL in October 2007 and was employed with
Lending
the company until December 31, 2011. He later rejoined CAGL Company on
April 10, 2012.
Mr. Srivatsa is the Vice President, Operations (Karnataka and Tamil Nadu) of
Business
our Company. He holds a pre-university certificate issued by the Education
Head - Joined in
Mr. Srivatsa H N Department, Government of Karnataka. Srivatsa HN joined TMT on
Group 2002
December 13, 2002 and subsequently transferred to CAGL in October 2007.
Lending
Mr. Srivatsa has over 15 years of experience in microfinance operations
Mr. Vishwanath is the Vice President, Individual Lending of our Company. He

holds a bachelor degree in engineering from the National Institute of
Head -
Mr. Vishwanath Joined in Technology (formerly REC), Calicut, and a post graduate degree in
Retail
Bhat 2016 management from NMAMIT (NITTE). Prior to joining our Company, he was
Finance
associated with Shriram Group of Companies, Cholamandalam Investment
and Finance Company, ICICI Bank, Copal Amba (Moody’s Analytics
Company) and Axis Bank.
Mr. Arun is the Vice President, Information Technology of our Company. He
holds a bachelor’s degree of technology in textile technology from Allagappa
Joined in College of Technology, Guindy, Chennai and a post graduate diploma in
Mr. Arun Kumar B Head - IT
2010 management from the Indian Institute of Management, Indore. Prior to joining
our Company, he was associated with Infosys Technologies Limited and
Barclays Bank PLC.
.
32
Financials
Robust AuM growth to continue; huge untapped rural population
to fuel growth
CAGL delivered industry-leading AuM growth at 57% CAGR over FY14-FY18 primarily
driven by: a) strategic decision to focus on the huge but untapped rural segment, b)
contiguous expansion strategy, and c) weekly collection method that helped get
repetitive business from same customers. Going forward, with continued focus on the
rural segment and huge unmet rural credit demand with comfortable capital position at
40.4% CAR, we expect CAGL’s AuM to grow at 46% CAGR between FY18/FY20E.
Chart 40: Trend in AuM growth
AuM (Rs bn) YoY growth (%)

120 90%
79%
75%
80%
100
62% 70%
80 55% 60%
50%
42% 50%
60
40%
106
40 21% 75 30%
50 20%
20
25 31 10%
8 14
0 0%
FY14 FY15 FY16 FY17 FY18 FY19e FY20e
Industry-leading Opex/AAuM ratio to sustain

CAGL’s Cost/AAUM ratio at 5% in FY18 is one of the lowest amongst the top-8 NBFC-
MFI and SFBs as per CRISIL. High customer retention ratio (thereby no incremental
sourcing cost), contiguous expansion strategy and higher field staff/employee ratio are
key reasons behind its industry-leading cost ratio. Controlling operating expenses is
critical in offering loan products at competitive rates while maintaining profitability.
However, considering CAGL’s recent focus on geographical diversification and
increased investment on technology, we expect the opex ratio to improve marginally
by 10bps between FY18/FY20E and settle at 4.9% by FY20E.
33
Chart 41: Consistent decline in Cost/AAuM ratio
Cost/AAuM (%)
8.0%
6.8%
7.0% 6.3%
5.8% 5.7%
6.0%
5.0% 5.0% 4.9%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
We model earnings CAGR of 70% during FY18-FY20E

As per our investment rationale, we have built-in 46% AuM CAGR, 10bps reduction in
opex/asset and 1.7% average credit cost over FY19-FY20E (FY18 credit cost at 3.2%)
and arrive at 70% earnings CAGR over FY18/FY20E. Credit cost is likely to improve
given that the company is 100% provided for demonetisation-related NPAs. Rural
focus and huge untapped rural market would ensure industry-leading AuM growth.
Cost rationalisation and lower provisioning requirement, in conjunction with an
improvement in asset quality, is likely to spur earnings growth in the coming years.
Such traction in profitability would also improve return ratios of the company.
Chart 42: Trend in Earnings
PAT (Rs bn) YoY growth (%)

4.0 250%
3.5 193%
200%
3.0
150%
2.5 109% 114%
2.0 71% 100%

55% 3.7
1.5
2.7 50%
1.0 -4% 40%
1.2 0%
0.5 0.8 0.8
0.2 0.5
0.0 -50%
34
Annexure 1: Financials (standalone)

Table 14: Income statement
(Rs mn, year ending March 31)
FY15 FY16 FY17 FY18 FY19E FY20E
Interest income 2,239 4,065 7,017 8,656 12,692 18,390
Interest charges 1,291 2,082 3,165 3,546 4,743 7,232
Net interest income 948 1,982 3,852 5,110 7,949 11,158
NII growth 105% 109% 94% 33% 56% 40%
Fee & other income 576 602 75 97 311 450
% of AUM 5% 3% 0% 0% 1% 1%
Net revenues 1,524 2,585 3,927 5,206 8,260 11,609
Operating expense 707 1,150 1,599 1,997 3,110 4,387
- Employee exp 436 707 1,047 1,272 2,006 2,862
YoY growth 49% 62% 48% 22% 58% 43%
- Depreciation /amortisation 19 26 44 52 60 80
- Other opex 251 416 507 673 1,044 1,445
Preprovision profit 817 1,435 2,329 3,210 5,150 7,222
Provisions 68 140 1,086 1,281 1,044 1,478
PBT 749 1,295 1,242 1,928 4,105 5,744
Taxes 262 463 440 682 1,437 2,010
PAT (excl. extraordinaries) 487 832 802 1,246 2,669 3,734
Table 15: Balance sheet

(Rs mn, year ending March 31)
Share capital 730 730 857 1,284 1,434 1,434
Reserves and surplus 3,034 3,869 6,051 12,995 22,098 25,831
Shareholders' fund 3,764 4,599 6,908 14,279 23,531 27,265
Total borrowings 12,905 22,333 26,682 36,029 52,206 82,335
Other lia. 448 833 571 816 4,907 5,078
Sources of funds 17,268 28,080 35,641 52,183 80,644 114,678
Loans & advances 13,531 24,754 30,891 49,997 74,580 105,557

Net block 26 53 60 95 104 115
Intangible assets 36 60 86 77 77 77
Total fixed assets 62 113 153 172 182 192
Cash and cash equivalents 2,798 2,549 3,637 1,382 5,221 8,233
DTA 59 110 485 356 374 392
Other non-current assets 737 392 120 56 58 61
Other current assets 79 159 354 219 230 242
Uses of funds 17,268 28,080 35,641 52,183 80,644 114,678
Cash/Current inv as a % of
borrowings 22% 11% 14% 4% 10% 10%
Table 16: Growth ratios

(%, year ending March 31)
NII growth 104.6 109.1 94.3 32.7 55.6 40.4
Net revenues growth 101.6 69.6 51.9 32.6 58.6 40.5
Opex growth 56.8 62.7 39.0 24.9 55.8 41.0
PPP growth 167.9 75.6 62.3 37.8 60.4 40.2
Provisions growth 19.4 105.0 674.8 18.0 (18.5) 41.5
PAT growth 193.4 70.9 (3.5) 55.3 114.1 39.9
35
Table 17: Key ratios

(%, year ending March 31)
Cal NIM 8.4% 9.9% 13.7% 10.3% 12.8% 12.4%
Opex/AUM 4.9% 4.5% 5.2% 4.0% 5.0% 4.9%
Cost/Income ratio 46.4% 44.5% 40.7% 38.4% 37.7% 37.8%
Credit cost 0.6 0.7 3.9 2.6 1.7 1.6
Asset Quality
GNPA 0.0 0.1 0.1 1.9 1.0 1.1
NNPA 0.0 0.0 0.0 0.0 0.1 0.1
PCR (%) 100% 100% 100% 100% 90% 90%
Borrowing/loan ratio 95.4% 90.2% 86.4% 72.1% 70.0% 78.0%

Table 18: Per share data

(year ending March 31)
Diluted EPS (Rs) 9.0 11.2 9.3 12.3 18.6 26.0
EPS growth (%) 115.3 24.6 (17.5) 32.4 51.8 39.9
Book value per share (Rs) 70.7 63.1 80.7 140.5 164.1 190.2
BVPS growth (%) 35.3 (10.8) 28.0 74.0 16.8 15.9
Valuation
P/E (x) 43.8 35.2 42.7 32.2 21.2 15.2
P/B (x) 5.6 6.3 4.9 2.8 2.4 2.1
RoA decomposition
Net interest income (%) 8.4% 9.9% 13.7% 12.7% 12.8% 12.4%
Other income (%) 5.1% 3.0% 0.3% 0.2% 0.5% 0.5%
Total income (%) 13.5% 13.0% 14.0% 12.9% 13.3% 12.9%
Employee expenses (%) 3.9% 3.5% 3.7% 3.2% 3.2% 3.2%
Depre (%) 0.2% 0.1% 0.2% 0.1% 0.1% 0.1%
Other operating expenses (%) 2.2% 2.1% 1.8% 1.7% 1.7% 1.6%
Total operating expenses (%) 6.3% 5.8% 5.7% 5.0% 5.0% 4.9%
Pre provisioning profits (%) 7.2% 7.2% 8.3% 8.0% 8.3% 8.0%
Provisions (%) 0.6% 0.7% 3.9% 3.2% 1.7% 1.6%
Pre tax profits (%) 6.6% 6.5% 4.4% 4.8% 6.6% 6.4%
Tax (%) 2.3% 2.3% 1.6% 1.7% 2.3% 2.2%
RoAUM (%.) 4.3% 4.2% 2.9% 3.1% 4.3% 4.1%
Leverage 3.9 4.8 4.9 3.8 3.3 3.5
RoE (%.) 16.7% 19.9% 13.9% 11.8% 14.1% 14.7%
Capital Adequacy
Tier I Capital 3,593 4,376 6,312 13,818 23,531 27,265
Tier II Capital 214 965 2,966 427 427 427
Total Capital 3,807 5,341 9,278 14,244 23,958 27,692
Total Risk Weighted Assets 13,556 24,869 31,230 49,221 74,193 103,210
% of total assets 79% 89% 88% 94% 92% 90%
CRAR - Tier I capital (%) 26.50% 17.60% 20.21% 28.07% 31.7% 26.4%
CRAR - Tier II capital (%) 1.58% 3.88% 9.50% 0.87% 0.6% 0.4%
CRAR (%) 28.08% 21.48% 29.71% 28.94% 32.3% 26.8%
36
Annexure 2: Index of Tables and Charts

Tables
Table 1: CAGL’s state-wise PAR 30+ compared to the MFI industry – Strong come back
from demonetisation-related issues ................................................................................ 5
Table 2: RoAuM decomposition ............................................................................................ 6
Table 3: Globally, India has one of lowest average loan o/s per borrower despite no.1 rank
in terms of Gross Loan Portfolio (GLP) ......................................................................... 12
Table 4: MFI opportunity size is ~2.5x of current AuM ....................................................... 13
Table 5: Uttar Pradesh, Bihar and Maharashtra have similar rural population as
Bangladesh, but these states have only 10/11% of Bangladesh’s total AuM size. ...... 13
Table 6: NBFC-MFI - regulation guidelines ........................................................................ 14
Table 7: Product category mix ............................................................................................ 15
Table 8: CAGL’s products cater to the entire customer lifecycle: ....................................... 16
Table 9: State-wise branch breakup ................................................................................... 21
Table 10: CAGL’s state-wise PAR30+ compared to the MFI industry – Strong comeback
from demonetization-related issues .............................................................................. 23
Table 11: Per district exposure as percentage of total loans .............................................. 25
Table 12: Opex/AAuM company-wise ................................................................................ 27
Table 13: Consistent improvement in rating ....................................................................... 30
Table 14: Income statement .............................................................................................. 35
Table 15: Balance sheet .................................................................................................... 35
Table 16: Growth ratios...................................................................................................... 35
Table 17: Key ratios ........................................................................................................... 36
Table 18: Per share data ................................................................................................... 36
Charts
Chart 1: P/BV 1 year forward CAGL ..................................................................................... 3
Chart 2: P/BV 1 year forward BFIL ....................................................................................... 3
Chart 3: While sticking to ‘basics’, CAGL has been able to double its systemic market
share over past four years. ............................................................................................. 5
Chart 4: NBFC-MFIs’ microfinance market share stands at 32% ......................................... 7
Chart 5: SFBs losing ground as reflected in sharp decline in their microfinance market
share to 21% in Q1FY19 from 25% in Q2FY18 .............................................................. 7
Chart 6: CAGL is second-largest NBFC-MFI with o/s Gross Loan Portfolio (GLP) of
Rs55bn as at Jun’18-end ................................................................................................ 8
Chart 7: Lending mechanism via different MFI operating models – NBFC-MFIs follow Joint
Liability Group (JLG) model ............................................................................................ 8
Chart 8: Low penetration of bank credit in rural areas (FY17) .............................................. 9
Chart 9: Even in highly penetrated states, rural credit is still significantly lower as % of total
bank accounts ................................................................................................................. 9
Chart 10: State-wise Gross Loan Portfolio (GLP) breakup as at Jun’18; top-5 states
account for 53% of GLP .................................................................................................. 9
Chart 11: NBFC-MFIs are focused on tapping the under-penetrated rural segment, which
accounts for 66% of industry GLP ................................................................................ 10
Chart 12: Number of credit accounts .................................................................................. 10
Chart 13: Number of deposit accounts ............................................................................... 10
Chart 14: NBFC-MFIs following weekly collection method performed better during
demonetisation .............................................................................................................. 11
Chart 15: Despite six states announcing farm loan waivers during past 18 months, PAR 30
portfolio for NBFC-MFIs is declining. ............................................................................ 12
Chart 16: Loan o/s per borrower in India is still significantly lower than regulatory limits of
Rs80,000 and Rs1,00,000 as set by Mfin and RBI respectively ................................... 13
Chart 17: Active Customer Retention rate of 90% is significantly higher than the median
rate of 78% for 15 leading microfinance players ........................................................... 16
37
Chart 18: CAGL’s customer base reported robust 37% CAGR over FY14/H1FY19 vs AuM
CAGR of 55% during the same period .......................................................................... 17
Chart 19: CAGL’s journey in retail finance .......................................................................... 19
Chart 20: Retail finance portfolio jumped ~3x to Rs1.6bn over past six months; notably,
customer base too increased at a similar pace............................................................. 20
Chart 21: CAGL’s rural customer-base stands at 82% vs industry average of 66% .......... 20
Chart 22: State-wise AuM breakup ..................................................................................... 21
Chart 23: Asset quality trend across major MFI players – CAGL stands out ..................... 22
Chart 24: Industry players with different collection methods .............................................. 23
Chart 25: MFIs that follow a weekly collection model tend to perform better in terms of
asset quality .................................................................................................................. 23
Chart 26: … PAR 90+ to lower bucket ................................................................................ 24
Chart 27: PAR 61-90 to lower bucket ................................................................................. 24
Chart 28: PAR 61-90 to lower bucket ................................................................................. 24
Chart 29: PAR 1-30 to current ............................................................................................ 24
Chart 30: Consistent decline in its per district exposure – It fell to 0.6% as at Sep’18 from
~2.4% in FY14............................................................................................................... 26
Chart 31: Contiguous district-wise expansion approach reduces exposure to any single
district ............................................................................................................................ 26
Chart 32: The share of IGLs remained at around 86% as at FY18 .................................... 27
Chart 33: CAGL per employee cost is lowest amongst key MFI players, notably despite
maintaining second-best AuM/per loan officer .............................................................. 28
Chart 34: Scope for further improvement in selected productivity metrics; lower clients per
loan officer is largely due to company’s recent expansion ........................................... 28
Chart 35: Trend in opex/AAuM ratio ................................................................................... 29
Chart 36: Well-diversified borrowing mix ............................................................................ 30
Chart 37: Positive ALM continues to contribute to growth; currently running at 6months
positive ALM .................................................................................................................. 30
Chart 38: Consistent decline in cost of borrowing .............................................................. 31
Chart 39: Yields at 22% as at Jun’18-end is in line with large NBFC-MFIs ........................ 31
Chart 40: Trend in AuM growth ........................................................................................... 33
Chart 41: Consistent decline in Cost/AAuM ratio................................................................ 34
Chart 42: Trend in Earnings ................................................................................................ 34
38
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December 19, 2018 INDIA

 RoE is set to improve on increasing leverage. CAGL demonstrated industry-

Market Cap Rs54.4bn/US$765mn Year to Mar FY17 FY18 FY19E FY20E

Industry overview – Key highlights

CAGL is amongst ‘Weekly collection/meeting’ – a most trusted practice

Huge growth potential; Large NBFC-MFIs are better placed

India – still not “over leverage” at borrower level

Customer behaviour is isolated from farm loan waivers

CAGL – How it is different

Industry GLP (Rs bn) CAGL (Rs bn) Market share

900 6.4% 7.0%

Chart 4: NBFC-MFIs’ microfinance market share stands at 32%

Source: MFIN, June’18 data, Isec research

Chart 5: SFBs losing ground as reflected in sharp decline in their microfinance

Source: MFIN, June’18 data, Isec research

GLP (Rs bn) as on 30th June'18

Source: MFIN, June’18 data, Isec research

Chart 7: Lending mechanism via different MFI operating models – NBFC-MFIs

Potential clients are

5-7 member group 15-20 member group

Regular meetings Training given for

5-7 groups form a Individuals identified Savings / borrowings

Loans given to Deposits made in an

Source: CRISIL Research, Industry

Rural India a highly under-penetrated credit market …

Chart 8: Low penetration of bank credit in rural areas (FY17)

State-wise rural credit accounts in banks

Source: MFIN, June’18 data, Isec research

… NBFC-MFIs are best placed to address rural credit needs.

commercial banks 58.9 0.8

‘Weekly collection/meeting’ – a most trusted practice

Chart 14: NBFC-MFIs following weekly collection method performed better

We believe direct connect to customers at regular intervals is key to success in MFI

Customer behaviour is isolated from farm loan waivers

Karnataka Rajasthan Punjab

Source – MFIN, June’18 data, Isec research

India – still not “over leverage” at borrower level

Source: MFIN, June’18 data, I-Sec research

Huge growth potential; Large NBFC-MFIs are better placed

Table 4: MFI opportunity size is ~2.5x of current AuM

Loan per borrower 25,000

Potential Reachable Rural Households (@80% of total rural households) 143

Estimated rural credit market (Rs bn) 3,580

The RBI guidelines issued in December 2011

Table 6: NBFC-MFI - regulation guidelines

CAGL follows a strategy of contiguous district-based expansion across regions and,

Table 7: Product category mix

Purchase of inventory, machine, assets

CAA is CAGL’s promoter company. CAA was incorporated as a private limited

CAA is primarily engaged in providing, through controlled companies, financial

Customer-centric business mode: Following ‘basics’

Table 8: CAGL’s products cater to the entire customer lifecycle:

Purchase of inventory, machine,

CAGL’s customer base

Group lending business process

Customer Due Diligence Processes Credit Appraisal, Sanction, Disbursement

Source: Company data, I-Sec research

Since individual lending is a completely different from CAGL’s core JLG-based

Target customers for retail finance

 be an existing customer with at least 36 months of relationship with CAGL

Customer Due Diligence, Credit Appraisal, Sanction and

 A monthly repayment schedule is followed for all IRF loans.

Source: Company data, I-Sec research