A STUDY ON FINANCIAL PERFORMANCE OF ESAF

MICROFINANCE & INVESTMENTS (P) LTD.

INTRODUCTION

 Microfinance is the provision of financial services to low-income clients

or solidarity lending groups including consumers and the self-employed,
who traditionally lack access to banking and related services.
 “The financial statements provide a summary of the accounts of the
business enterprises”.
 Financial analysis (also referred to as financial statement analysis or
accounting analysis) refers to an assessment of the viability, stability and
profitability of a business, sub-business or project.
 SCOPE OF THE STUDY

 The study is based on the accounting information of the ESAF

MICROFINANCE AND INVESTMENTS (P) LTD.
 The study covers the period of 2004-2010 for analyzing the
financial statements.Considering the availability of time, information
and sources, the study is confined to the Performance of the ESAF
Microfinance and Investments(P) Ltd.
 This study aims at analyzing the overall financial performance of
the company by using various financial tools.
 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE:
 To analyze the financial performance of ESAF MICROFINANCE &
INVESTMENTS (P) LTD.

SECONDARY OBJECTIVES:
 To know the operating strengths and weakness of the firm
 To know about the current position of the firm
 To know the earning capacity of the firm
 To analyze the past performance of the firm based on the ratio analysis
 To forecast about the future prospects of the firm
 
LIMITATIONS OF THE STUDY

 The data is secondary in nature.

 The study is based on the financial
statements prepared by the company. The
limitations of the financial statements are
applicable to the study.
RESEARCH METHODOLOGY

 In this project, which is on “A Study on Financial Performance Analysis of ESAF

Microfinance and Investments (P) Ltd”, uses mainly secondary data .
DATA COLLECTION METHOD
 The needed data for the research work is collected from the various secondary
sources like websites, magazines, journals etc.
SAMPLE SIZE
 For the purpose of study, 6-year (2004-05 – 2009-10) balance sheet and
income statements of are ESAF Microfinance and Investments (P) Ltd
collected. And for the comparative analysis another four Microfinance
companies selected.
 The Companies are
– BISWA
– SMILE
– SONATA.
– UJJIVAN.
COMPANY PROFILE

 ESAF Microfinance & Investments (P) Ltd (EMFIL) is a Microfinance Institution

promoted by ESAF (Evangelical Social Action Forum), which is a leading NGO
engaged in SHG Promotion, microfinance and other community Development
Initiatives.
 Evangelical Social Action Forum (ESAF) was established in 1992 by a group of
professionals, who shared the objective of working for the poor and the
marginalized sections of the society.
 The NGO‐MFI is registered as a society under the 12th Travancore Cochin
Literal and Scientific Charitable Societies Act of 1955.
 ESAF’s objective is to create opportunities for identifying and developing the
people’s ability by undertaking various developmental activities.
 These include micro enterprises development, human resource development,
community development, rehabilitation, natural resource management and
advocacy.
 Presently it has 150 branches in 35 districts and spread in 7 states.25430
SHGs and 422717 members.
Organizational Chart
FUNDAMENTAL ANALYSIS

 Fundamental analysis is the study of economic, industry, and company

conditions in an effort to determine the value of a company’s stock.
 Fundamental analysis typically focuses on key statistics in a company’s
financial statements to determine if the stock price is correctly valued.

THE STUDY OF FUNDAMENTAL ANALYSIS COVERED THREE AREAS:

– Economic analysis
– Industry analysis
– Company analysis
ECONOMIC ANALYSIS
 India is experiencing a huge expansion in terms of households linked to microfinance,
more specifically linked to Self-Help Groups (SHGs).
 An average annual growth rate of 82 % was observed in the period from March 1993 to
March 2006, in relation to a 110 % growth rate in terms of credit amounts.
 One of the most important programmes conducting this development is the SHG Banking
Linkage Programme.
 Working with 620,109 SHGs during the financial year 2005-2006, it incorporates more than
nine million households into the financial sector.
 The ratio of the number of SHG members to the total households of the states reveals a
different, although continuing, pattern in regional variations as compared to the relative
strength of the SHGs.
 In March 2001, there were less than ninety households participating in SHGs for every
1,000 of Andhra Pradesh’s households. In the states Sikkim, Assam and Punjab, however,
there were six, five, and three households participating in SHGs for every 10,000 of the
total households respectively. The irregular pattern continued in 2003 and 2005.
INDUSTRY ANALYSIS

 An industry is a group of firms that have similar technological structure

of production and produce similar products or services.
 
 The microfinance sector in India has developed a successful and
sustainable business model which has been able to overcome
challenges traditionally faced by the financial services sector in
servicing the low income population by catering to its specific needs,
capacities and leveraging preexisting community support networks.

 As of March 2009, microfinance institutions (“MFIs”) in India reached

over 22 million borrowers and had a portfolio outstanding in excess of
$2.3 billion.
COMPANY ANALYSIS

 Once we’ve completed the economic forecast and industry

analysis, we can focus on choosing the best positioned company
in our chosen industry.
Selecting a company will involve an analysis of:
– The company’s management
– The company’s financial statements
– Key drivers for future growth
 Obviously, we are looking for companies with the best
management, strong financials, great prospects, and that are
undervalued by the market. Always remember that the past is
irrelevant, what you are buying is future results.
 
FINDINGS OF THE STUDY

 From the ratio analysis:

– The company’s Return on Assets is increasing. It is a good sign,
the higher the ROA the better the company.
– Current ratio gives an idea of company's operating efficiency. A
high ratio indicates "safe" liquidity. Year 2009 and 2010 shows a
high current ration, that shows a safe position of the company. As
this is a Microfinance institution the current assets are very high
and the liability is limited.
– The company has to increase its Return on Equity, in 2004 and
2005 high return on equity, but from 2006 to 2008 it decreases
considerably. But in 2009 it is very low. Company has to increase
this rate to ensure proper return for the share holders.
FINDINGS OF THE STUDY

– Financial Self-Sufficiency indicates whether or not enough revenue

has been earned to cover both, direct costs and indirect costs. From
2004 to 2008 the ratio was increased show that the company’s
income was increased compared to the expenditure. Year 2006 had
a good ratio but that performance did not shown in the next years.
Compared to the previous years 2009 had low percentage.
– An increasing Portfolio Yield is considered positive. Although it
decreases from 2005 to 2007, from 2008 onwards it increases and
shows a good sign.
FINDINGS OF THE STUDY

 The Portfolio at Risk shows a decreasing trend, it is considered as

good and the company is performing satisfactorily.
 The Company shows a very good performance in Write off ratio.
Almost all loans are repaid, only in 2005 a small percentage aroused.
But it is negligible.
 Regarding Quick Ratio the company showed a decreasing movement
from 2004 to 2007, but it is not less than one. So the company can pay
short term debts. From 2008 onwards the value increases
considerably shows a good performance of the company.
 EMFIL shows a positive Net working capital ratio and it is decreasing
up to 2007 and from 2008 onward it increases. And this ratio is
satisfactorily good.
 
FINDINGS OF THE STUDY

 From the Trend Analysis:

– The current assets have been increased from the base year 2004
as 100 to 6355.77 in 2009-10.
– In the case of current liability the trend percentage increased. At
the base year 2004 the trend percentage is 100 and then it
increased and reaches its maximum as 3650 in 2008, but from
2008-10 the current liabilities decreased considerably and in 2009-
10 it reaches 485.87.
FINDINGS OF THE STUDY

– In the case of fixed assets and long term liability, also the trend
percentage increased.
– The total fixed assets is 4294 in 2007 and it decreases slightly in 2008,
but not very high, it is 3600.44 in 2009-10.
– The total long term liabilities increases and it reaches 60134.23 in 2009-
10.
– From this analysis it reveals that the financial performance of ESAF
Microfinance shows a good trend.

 
FINDINGS OF THE STUDY

 From the Comparative analysis:

– According to the CRISIL report of 2010 ESAF Microfinance is in
19th position in India. The top most position is occupied by SKS
Microfinance.
– For the comparative analysis here took a sample of five companies
whose turn over is less than 500 crore.
– The sample is ESAF, UJJIVAN, SMILE, SONATA, and BISWA.
– Ujjivan Financial Services Pvt Ltd (UFSPL) is in 17th position.
S.M.I.L.E Microfinance Limited is in 20th position. Sonata Finance
Pvt Ltd (Sonata) is in 27th position and BISWA comes next.
– From the comparative analysis the performance of ESAF is
satisfactory.
FINDINGS OF THE STUDY

 The higher the ROA number, the better, because the company is
earning more money on less investment. Here, EMFIL had a low rate
of return on its assets. Biswa bestow a good ratio. Although SONATA
and UJJIVAN shows a negative return on 06 & 07, it improves in the
next years.
 For ESAF the ROE is decreasing, It comes third here after BISWA and
SMILE. BISWA had considerably high rate, but for other 2 companies
considerably very low rate.
 Operational Self Sufficiency ratio is almost come in a similar range for
ESAF and SMILE. For BISWA it is high and for others it is increasing.
 In Profit Margin ratio ESAF come third after BISWA and SMILE.
 Yield on gross portfolio for ESAF this ratio is decreasing year after
year. SONATA shows relatively good performance also UJJIVAN. For
SMILE it is decreasing.
 SUGGESTIONS OF THE STUDY

 The performance of “ESAF Microfinance and Investments (p) Ltd.

during on the period from 2004 to 2010 shows only a little weakness.
Some of my suggestions to the company are as are follows:
– The company has to increase the quick ratio. By doing this the short
term liquidity position of the company will increase significantly.
– The company can enlarge the source of funds.
– The current ratio should be in between 1 and 2. A good current ratio
is 2. Here the ratio shows that some bad performance and some
good one also. My suggestion is that the company’s current ratio is
good in 2008-10, it has to sustain and improve that.
– The company’s financing performance is very good except by the
above some problems. If the company can remove that small
problems ESAF Microfinance & Investments can be the top
Microfinance institution in the world.
CONCLUSION OF THE STUDY

 The strength and sustainability of the Indian microfinance business

model lies in the fact that it is serving a large unmet need for financial
inclusion.

 It has thus far successfully tackled challenges that have faced by other
financial service providers in meeting the demands of this sector
through creative product innovation with awareness of the segment’s
particular needs and capacities and use of the joint liability group
mechanism to manage risk.

 The model has been successful in maintaining excellent portfolio

quality even with extremely rapid expansion over the last few years.
CONCLUSION OF THE STUDY

 The study was undertaken to analyze the financial performance of

ESAF Microfinance and Investments (P) Ltd. For analyzing the
financial performance of the company, here I studied the society’s
performance and the company’s performance.
 From the analysis I here conclude that the company is in good
financial condition. From the society’s balance sheet shows some bad
performance during on some financial year but the society as well as
the company has successfully over come the situation and now in a
good condition.
 I here concluded that ESAF Microfinance and Investments (P)
Ltd. has to increase its efficiency. The company has to improve more
in various aspects, to stand in this competitive world.
THANK YOU