monitors operational performance indicators such as Early PAR, 12-month PAR, and overall PAR at branch levels to pinpoint geographic challenges like the presence of ring leaders, high migration localities, high default concentration, and vulnerability to natural calamities. III. Product Level: Operating at the Product Level, Arohan tailors distinct financial products to cater to diverse client profiles based on income levels, occupation types, and credit histories. For instance, Saral Loans target low-income female borrowers, Micro Enterprise Loans support small entrepreneurs regardless of gender, and Privilege Loans cater to seasoned customers with robust credit histories. Each product is accompanied by specific eligibility criteria and credit policies, ensuring a nuanced approach to risk assessment and portfolio diversification aligned with the Company’s strategic objectives. The Credit Committee of Arohan is the ultimate custodian of the credit policies which are formulated through multiple levels of deliberations and participations of the key stakeholders. 2. Credit Administration: Application of the Credit Policies are done in two ways – I) Technology supported Rule Engine and II) Physical Processes at the field level. I. Technology-Enabled Rule Engine: Each product is governed by a distinct set of credit policies meticulously designed to evaluate loan applications. These product-specific policies, including key parameters and benchmarks, are seamlessly integrated into our Loan Origination System (LOS), accessible via handheld devices used by field officers. Real-time decision-making capabilities provided by the rule engine empower field officers to conduct personalized discussions with applicants, leveraging insights gleaned from the LOS. II. Field-Level Physical Processes: Given the inherent challenges in verifying income or savings proofs among microfinance borrowers, Arohan employs rigorous physical verification methods. This includes on-site visits to residences or workplaces, as well as mandatory Personal Discussions. These processes are essential for gathering critical information concerning cash flow, occupational stability, and the applicant’s social standing. Expansion and Portfolio Concentration Risk Mitigation: Arohan’s expansion initiatives adhere to a meticulously crafted Standard Operating Procedure (SOP) known as “Vistaar.” These initiatives are the outcome of thorough deliberation among stakeholders, ensuring a structured approach to geographical expansion. Moreover, Portfolio Concentration is subject to monthly review, with actions taken in accordance with board-approved limits to mitigate concentration risks. Inorganic Credit The Inorganic Credit function at Arohan follows a well-defined credit appraisal process aligned with the Inorganic Credit Policy, sanctioned by the Credit Committee. These policies delineate appraisal standards, encompassing both quantitative and qualitative parameters, and provide guidelines for various financial products such as Term Loans, Direct Assignments, and Sourcing & Collection. Working in concert with underwriting, field, and relationship teams, the Inorganic Credit Team executes these policies under the oversight of the Credit Committee. The borrower risk is evaluated by considering the following: • The risks and prospects associated with the industry • The financial position of the borrower by analysing the quality of its financial statements, its past financial performance, its financial flexibility in terms of ability to raise capital, and its cash flow adequacy • Geo-concentration of the borrower • PAR movements & quality evaluation using key delinquency metrics • Collection efficiency movement & validation with bank statement • The borrower’s relative market position and operating efficiency • The quality of management by analysing their track record, payment record, and financial conservatism. Additionally, for Direct Assignments (portfolio purchases), the Inorganic team adheres to RBIapproved policies. The team also monitors the portfolio quality of Micro Enterprise Loans and MFI Alliances. Regular updates are provided to the management and the Board regarding all pertinent developments. RISK MANAGEMENT The Risk Management function at Arohan continues to play an enhanced role in risk mitigation across all functions in the Company, in the light of the changing business and economic environment, as well as expectations from Stakeholders and Regulators. The Business & Risk strategies that were deployed appropriately, enabled Arohan to remain well-prepared for facing and mitigating challenges throughout the financial year of FY 2024. 57 | Annual Report 2023-24
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