SMILE Microfinance Unlisted Shares

About Company

S.M.I.L.E. Microfinance Limited (SMFL) was established in 2004 with the objective of providing credit services to economically weaker sections, primarily women borrowers, in urban and rural Tamil Nadu. The company began operations as a non-deposit taking NBFC in January 2006 and later received its Microfinance Institution (MFI) licence in May 2015.

SMFL focuses on women-centric lending using the Joint Liability Group (JLG) model, enabling financial inclusion for borrowers who have limited or no access to formal banking credit.

Business Model & Lending Process

The following explains how SMILE Microfinance Limited conducts its lending operations.

SMFL operates under a structured JLG lending framework, ensuring disciplined credit appraisal and monitoring:

• Compulsory Group Training (CGT): Borrowers undergo a three-day training programme covering loan terms, group formation, repayment discipline, and joint liability principles.
• Loan Application & Documentation: Field Development Officers (FDOs) collect KYC documents and complete the loan application process.
• Loan Sanctioning: Loans up to ₹30,000 are sanctioned by the Divisional Manager and loans above ₹30,000 require approval from the Zonal Manager
• Verification & Disbursement: Branch Managers verify borrower bank details, which are cross-checked by Head Office before NEFT-based loan disbursement.
• Repayment Mechanism: Repayments are made fortnightly during centre meetings, with each borrower provided a repayment schedule and a loan passbook.
• Post-Disbursement Monitoring: Continuous monitoring of asset usage and repayment behaviour is conducted to control delinquencies.

Geographical Presence & Scale

The following outlines SMILE Microfinance Limited’s operational footprint. As on 31 March 2020:

• Presence in 6 states
• Operations across 43 districts
• 137 branches
• 799 employees
• 3.16 lakh members
• 2.85 lakh active borrowers

Tamil Nadu remains the core market, with Chennai and Madurai accounting for 28% of total AUM.

Portfolio & Operational Statistics

The following summarises key operational metrics:

• Total Portfolio (AUM): ₹606 crore
• Cumulative loans disbursed: ₹5,800 crore
• Loans disbursed in FY20: ₹887 crore

Financial Parameters (NBFC-MFI Metrics)

The following highlights SMFL’s key financial indicators:

• Capital Adequacy Ratio: 23.64% (well above regulatory requirement)
• Net Interest Margin (NIM): Increased from 9.31% (FY19) to 9.86% (FY20)
• Operating Expenses / Total Assets: Increased from 4.76% to 6.80% due to branch and staff expansion
• Return on Total Assets (ROTA): Declined from 3.55% (FY19) to 1.91% (FY20)
• Asset Quality (as of March 31, 2020):
  • GNPA: 0.22%
  • NNPA: Nil

Financial Performance Snapshot (FY19–FY20)

The following is a consolidated financial performance overview.

• AUM grew 17%, from ₹516 crore (FY19) to ₹606 crore (FY20)
• Expansion into Chhattisgarh, Jharkhand, Karnataka, and Madhya Pradesh during FY20
• Growth accompanied by higher operating costs due to geographic diversification

Industry Outlook & COVID-19 Impact

The following explains sector trends and recent challenges.

Post the Andhra Pradesh microfinance crisis and subsequent RBI interventions, the microfinance sector has stabilised due to:

• Improved funding profiles
• Better asset quality monitoring through credit bureaus
• Controlled leverage levels

However, the sector remains exposed to event-based risks due to the vulnerable borrower profile.

COVID-19 Collection Trend (FY21):

• April 2020: No collections
• May 2020: ₹4.97 crore
• June 2020: ₹27.78 crore
• July 2020 (till July 15): ₹16.21 crore

Scheduled repayments:

• August 2020: ₹14.13 crore
• September 2020: ₹27.73 crore

The company’s ability to manage collections and asset quality remains a key monitorable.

Challenges & Risks

The following outlines key business risks:

• High exposure to low-income borrower segments
• Sensitivity to economic disruptions and event risks
• Rising operating costs during expansion phases
• Dependence on collection efficiency for profitability

Quick Summary

This section provides a brief snapshot of SMILE Microfinance Limited:

• Established microfinance NBFC with strong presence in Tamil Nadu
• Focused on women borrowers through JLG lending
• Healthy capital adequacy and low NPAs as of FY20
• Gradual geographic diversification is underway
• Asset quality and collections remain key monitoring parameters post-COVID