Muthoot Microfin Ltd Management Discussions

(28) Natural Calamity Insurance represents the insurance premium collected and transferred by our Company to the relevant insurance companies for providing natural calamity or asset insurance products to our customers.

Significant Factors Affecting Our Results of Operations

Our business, results of operations, financial condition and cash flows have been, and we expect will continue to be, affected by numerous factors, including:

Growth in the Microfinance Industry and performance of the Indian Rural Economy

As an NBFC-MFI, we are impacted and will continue to be impacted by the performance of the microfinance industry in India, especially in rural India where our operations are focused. The industrys gross loan portfolio increased at a rate of 24.6% YoY from December 2022 to December 2023 to reach approximately H 3.99 trillion in the third quarter of the Financial Year 2024 (Source:mfin Report). This overall increase in market size has contributed to the growth of our business over the last few years. Going forward, the microfinance industry will continue to see strong growth due to the Government of Indias continued focus on strengthening the rural financial ecosystem, robust credit demand, and higher-ticket loans disbursed by microfinance lenders.

Our primary focus is providing micro-loans to women customers (primarily for income generation purposes) with a focus on rural regions of India, our results of operations are particularly affected by the performance and the future growth potential of microfinance in rural regions of India. The significant underpenetration of credit in rural areas offers strong potential for growth and given the relatively deeper reach, existing client relationships and employee base, microfinance institutions are well placed to address this demand which is currently being met by informal sources such as local money lenders. As of March 31, 2024, H 117,366.51 million or 96.25%% of our gross loan portfolio was from rural areas. We expect to benefit from the expected growth potential for microfinance in rural regions of India.

As a financial institution operating in India, our financial condition and results of operations are also influenced by the general economic conditions and particularly macroeconomic conditions in India. Key macroeconomic factors that may affect the Indian economy and, in turn, demand for our products and the quality of our loan portfolio include, among others, (i) demographic conditions and population dynamics, (ii) economic development, shifting of wealth and employment rates, (iii) political measures and regulatory developments, such as tax incentives and general political stability, (iv) fiscal and monetary dynamics, such as volatility in interest rates, foreign exchange rates and inflation rates, and (v) political and regulatory developments on the Indian economy.

Availability of Cost-Effective Sources of Funding

The liquidity and profitability of our business depend, in large part, on our timely access to, and the costs associated with, raising funds. Our funding requirements historically have been met from various sources, including public sector banks, private sector banks, small finance banks, foreign banks, other nonbanking financial institutions, developmental financial institutions and public investors, together with NCDs, ECB and pass through certificates. Our Promoters and our holding company, Muthoot Fincorp Limited, have not provided any corporate guarantees in relation to the borrowings availed by us, which we believe demonstrates the trust of our lenders in our business model. Our ability to compete effectively will depend, in part, on our ability to maintain or increase our interest margins. Our margins are affected in part by our ability to continue to secure cost effective funding at rates lower than the interest rates at which we lend to our customers. Our ability to meet demand for new loans will depend on our ability to obtain financing on acceptable terms. Factors such as our credit rating, monetary policies of the RBI, domestic and international economic and political conditions and external interventions have an effect on our cost of interest-bearing liabilities.

A further source of financing for us is proceeds from loan assignments that we make from time to time. We assign a group of similar loans from our loan portfolio to banks and financial institutions in return for a fixed consideration equal to the aggregate outstanding principal amount of the loans, received upfront, plus an agreed portion of future interest payments of the loans assigned, received when they are collected. The consideration we derive from the assignment of our loan portfolios in these transactions depends on several factors, including the term of the loans and yield of the loan portfolio assigned. During the Financial Years 2023 and 2024, we assigned H 18,322.48 million and H 27,133.93 million, respectively, of loans and also recognized income of H 1,363.16 million and H 2,231.66 million, respectively, in these periods.

Additionally, we have entered into a co-lending partnership with a fintech platform to explore co-lending options through its platform to tap a wider customer base.

Our Ability to Manage Finance Costs and Fluctuations in Interest Rates Effectively

Our results of operations depend largely on the level of our net interest income as our primary revenue source is interest income. During the Financial Years ended March 31, 2023 and 2024, interest on loans outstanding represented 88.00% and 85.48% of our total revenues, respectively. Consequently, our results of operations depend on our ability to manage our finance costs and the impact of fluctuations in interest rates effectively. Our finance costs comprise interest on borrowings (other than debt securities), interest on debt securities, interest on subordinated liabilities and interest cost on lease liabilities.

Further, our debt service costs and costs of funds depend on many external factors, including developments in the Indian credit market and, in particular, interest rate movements and the existence of adequate liquidity in the debt markets. Interest rates are highly sensitive and fluctuations thereof are dependent upon many factors which are beyond our control, including the monetary policies of the RBI, de-regulation of the financial services sector in India, domestic as well as international economic and political conditions, inflation and other factors. Internal factors which will affect our cost of funds include changes in our credit ratings, available credit limits and access to loan assignment transactions. During the Financial Years 2023 and 2024, our finance costs were H 5,490.10 million and H 8,831.62 million, respectively, and represented, as a percentage of our total income 37.96% and 38.64%, respectively.

Our levels of Non-Performing Assets (“NPAs”) and related Provisions and Write-Offs

The focus customer segment for our micro-loan business is women with an annual household income of up to H 300,000. Our customers generally have limited sources of income, savings and credit histories and as a result, generally do not have a high level of financial resilience, and, as a result, they may be affected by declining economic conditions and natural calamities such as floods, cyclones, earthquakes, tsunamis or droughts. Further, as we primarily make unsecured loans and rely primarily on non-traditional guarantee mechanisms rather than any tangible assets or collateral, As our customers potentially present a higher risk of loss in case of a credit default compared to that of customers in other asset-backed financing products. Thus, due to the nature of our customers, we may experience increased levels of NPAs and related provisions and write-offs. For the Financial Years 2023 and 2024, our impairment on financial instruments amounted to H 2,233.18 million and H 1,819.58 million, respectively, representing 15.63% and 8.02%% of our revenue from operations, respectively.

To reduce and minimise our levels of NPAs, related provisions and write-offs, we have put in place a risk management framework which primarily focus on addressing credit risk, operational risk and financial risk, and we have also implemented customer selection methodologies and regular end use and payment monitoring procedures.

Our Ability to Grow our Loan Portfolio and Customer Base, as well as Manage our Network and Outreach

Our results of operations are directly affected by the number of customers we serve from time to time. Growth in our customer base typically drives corresponding growth in our interest income and fees received, as customers utilize our loan products and also avail of our other financial products and services. Similarly, a decrease in our customer base would drive a corresponding decrease in our interest income and fees received. Our number of active customers was 3.35 million as of March 31, 2024 and our gross loan portfolio was H 1,21,935.00 million as of March 31, 2024.

Our results of operations also depend upon the geographic reach and service capabilities of our network of branches. As of March 31, 2024, we had 11,691 branch managers, credit managers and relationship officers, or 84.31% of our total workforce, spread across 685 branches in 81 districts in South India and 823 branches in 272 districts in the rest of India. Our relationship officers market and sell our products, and, together with our branch managers, manage our customer relationships with our members through weekly meetings. As of March 31, 2024, each of our relationship officers managed an average of 393 customers. Our relationship officers and branches are supported by our administrative support staff and management personnel.

Our Ability to Manage Operating Expenses

Our results of operations are affected by our ability to manage our operating expenses, which include fees and commission expenses, employee benefit expenses, other expenses and depreciation and amortization. As we expand our core business and our product and service offerings to our customers, we will need to increase headcount by adding relationship officers, other officers and operational management and technology staff. Employee benefit expenses represented 69.95% and 70.26% of our operating expenses during the Financial Years 2023 and 2024, respectively. In addition, our relationship officers incur substantial travelling and conveyance expenses visiting villages, many of which are remote, to market and sell our products and services, maintain member relationships, conduct meetings, collect repayments and report transactions at local banks. During the Financial Years 2023 and 2024, our other expenses were H 844.41 million and H 1,272.51 million, respectively, representing 18.31% and 19.93% of our operating expenses, respectively, comprising primarily of traveling and conveyance, legal and professional charges, and communication expenses.

Government Policy and Regulation

The microfinance industry is highly regulated and has been affected by changes in laws and regulations in the recent past, which have affected its growth. As an NBFC-MFI, we will continue to be affected by a number of regulations promulgated by the RBI. As per the RBI regulations, the interest rates charged by us are governed by our board policy on pricing on credit. The RBI regulates, among other things, non-performing assets (“NPAs”) and standard assets provisioning norms, capital adequacy norms and other lending stipulations and other operational restrictions. The RBI also regulates the credit flow by banks to NBFCs and provides guidelines to commercial banks with respect to their investment and credit exposure norms for lending to NBFCs. Any change in the regulatory framework affecting NBFC-MFIs, such as those relating to maintaining certain financial ratios, accessing funds or lending to NBFC- MFIs by banks including priority-sector lending (“PSL”) norms, would affect our results of operations and growth.

For changing laws and regulations governing the financial services industry in India and laws and regulations in applicable to us generally.

Key Components of our Statement of Profit and Loss

The following descriptions set forth information with respect to the key components of our profit and loss statements.

Income

Revenue from operations. Revenue from operations comprises interest income, fees and commission income, net gain on fair value changes, income on investments and sale of services. Interest income includes interest on loan portfolio (measured at amortised cost), interest on deposits from banks and interest on loan assets (measured at fair value through other comprehensive income). Fees and commission income includes facilitation fees that we earn from manufacturers and distributors that sell their products to our customers at our branches. We provide loans to our customers for the purchase of such products (for example, solar lamps and pressure cookers) and these products are available for sale at some of our branches. Fees and commission income also includes income from business correspondence services, which relate to commissions earned from acting as a partner institution for the Prayaas loan scheme, a scheme for direct credit to micro enterprises, including our existing customers. Net gain on fair value changes includes gain on sale of loan assets recognized through our profit and loss account. Net gain on fair value changes relate to the fair value changes of our portion of loan assets that we assign pursuant to our assignment transactions. Sale of services relate to income which we receive in relation to collections services that we provide for the portion of loans that we assign.

Other income. Other income comprises interest income on security deposits, bad debt recovered and miscellaneous income.

Expenses

Expenses comprise finance costs, fees and commission expenses, impairment on financial instruments, employee benefits expenses, depreciation and amortisation expense, and other expenses.

Finance costs. Finance costs comprise interest on borrowings (other than debt securities), interest on debt securities, interest on subordinated liabilities and interest cost on lease liabilities.

Fees and commission expenses. Fees and commission expenses comprise fees and commission expenses, which relate to expenses incurred in outsourcing our cash management operations to MFL and third-party cash management agencies.

Impairment on financial instruments. Impairment on financial instruments comprises write off of loans; waive off of loans which relate to impairment on value of our loan assets as a result of settlements that we enter into with our delinquent customers; and provision for impairment on loan assets.

Employee benefits expenses. Employee benefits expenses comprise salaries and wages, contribution to provident and other funds, share based payments, gratuity and compensated absence and staff welfare expenses.

Depreciation and amortisation expense. Depreciation and amortization expense comprises depreciation on property, plant and equipment, depreciation on right-of-use assets and amortisation.

Other expenses. Other expenses comprise rent, rates and taxes, repairs and maintenance - others, communication expenses, printing and stationery, marketing expenses, auditors remuneration (including for services such as statutory audit, limited review, tax audit, other certifications and reimbursement of expenses), legal and professional charges, traveling and conveyance, software support charges, power and fuel, office expenses, corporate social responsibility expenses and miscellaneous expenses.

Tax expense

Tax expense consists of current tax, deferred tax and tax relating to prior years.

Results of Operations for the Financial Years 2023 and 2024

The following table sets forth our selected financial data from our Statement of profit and loss for the Financial Years 2023 and 2024, the components of which are also expressed as a percentage of total income for such years:

Financial Year 2024 Compared to Financial Year 2023

Income

Revenue from Operations

Our revenue from operations increased by 58.89% to H 22,701.80 million for the Financial Year 2024 from H 14,287.64 million for the Financial Year 2023, primarily due to an increase in interest income to H 19,849.05 million for the Financial Year 2024 from H 12,906.45 million for the Financial Year 2023, which was primarily attributable to increases in interest on loan portfolio to H 19,537.46 million for the Financial Year 2024 from H 12,727.94 million for the Financial Year 2023. The increase in interest on loan portfolio was in line with increases in (i) active customers to 3.35 million as of March 31, 2024 from 2.77 million as of March 31, 2023, (ii) disbursements to H 1,06,616.12 million for the

Financial Year 2024 from H 81,044.74 million for the Financial Year 2023, and (iii) gross loan portfolio to H 1,21,935.00 million as of March 31, 2024 from H 92,082.96 million as of March 31, 2023. These increases were as a result of an expansion in the number of our branches to 1,508 as of March 31, 2024 from 1,172 as of March 31, 2023, states and union territories where we operate to 19 as of March 31, 2024 from 18 as of March 31,

2023 and districts where we operate to 353 as of March 31,

2024 from 321 as of March 31, 2023. The increase in interest on loan portfolio was also due to the removal of interest rate cap for NBFC-MFIs by RBI in March 2022, which allowed us to increase the interest rates on our income generating loans. As a result, our net interest margins, which is the ratio of our net interest income to our average monthly gross loan portfolio, increased to 12.69% for the Financial Year 2024 from 11.85% for the Financial Year 2023.

The increase in revenue from operations was also due to an increase in fees and commission income to H 409.09 million for the Financial Year 2024 from H 173.22 million for the Financial Year 2023, primarily due to increases in (i) facilitation fees to H 357.78 million for the Financial Year 2024 from H 148.23 million for the Financial Year 2023, in line with higher disbursements during the Financial Year 2024, and (ii) income from business correspondence services to H 51.30 million for the Financial Year 2024 from H 25.00 million for the Financial Year 2023, primarily attributable to higher loans disbursed under the partnership agreement in relation to the Prayaas loan scheme during the Financial Year 2024. The increase in revenue from operations was also due to increases in (i) net gain on fair value changes to H 2,276.05million for the Financial Year 2024 from H 1,115.37 million for the Financial Year 2023, and (ii) sale of services to H 10.83 million for the Financial Year 2024 from H 9.25 million for the Financial Year 2023, both of which were primarily attributable to an increase in book value of loan assets assigned during the year to H 27,133.93 million for the Financial Year 2024 from H 18,322.48 million for the Financial Year 2023. Further, the increase in revenue from operations was also due to an increase in income on investments to H 156.78 million for the Financial Year 2024 from H 83.35 million for the Financial Year 2023, primarily attributable to an increase in profits arising from the sale of short-term investments in mutual funds.

Other Income

Other income decreased by 12.91% to H 153.10 million for the Financial Year 2024 from H 175.80 million for the Financial Year 2023. The decrease was primarily due to a reduction in bad debt recovery to H 94.18 million for the Financial Year 2024 from H 143.59 million for the Financial Year 2023.

Expenses

Finance Costs

Finance costs increased by 60.86% to H 8,831.62 million for the Financial Year 2024 from H 5,490.10 million for the Financial Year

2023, primarily due to increases in (i) interest on borrowings (other than debt securities) to H 6,840.67 million for the Financial Year 2024 from H 4,063.02 million for the Financial Year 2023, primarily attributable to increases in borrowings from banks and under securitization arrangements, and amounts raised from external commercial borrowings, and (ii) interest on debt securities to H 1,830.19 million for the Financial Year 2024 from H 1,295.20 million for the Financial Year 2023. The increases in interest on debt securities were primarily attributable to an increase in issuance of non-convertible debentures in order to support an increase in disbursements. The increase in finance costs was also due to an increase in interest cost on lease liabilities to H 160.20 million for the Financial Year 2024 from H 128.93 million for the Financial Year 2023, primarily attributable to an increase in number of lease contracts that we entered into, as our number of branches increased to 1,508 as of March 31,

2024, from 1,172 as of March 31,2023.

Fees and commission expenses

Fees and commission expenses decreased by 1.29% to H 271.85 million for the Financial Year 2024 from H 275.41 million

for the Financial Year 2023, primarily due to increases in (i) digital collections to H 21,128.24 million for the Financial Year 2024 by 92.86% from H 10,955.40 million for the Financial Year 2023, and (ii) collection efficiency to 98.4% for the Financial Year 2024 from 95.84% for the Financial Year 2023. The increase in digital collections and collection efficiency is in line with an increase in our gross loan portfolio to H 1,21,935.00 million for the Financial Year 2024 from H 92,082.96 million for the Financial Year 2023.

Impairment on financial instruments

Impairment on financial instruments decreased by 18.52% to H 1,819.58 million for the Financial Year 2024 from H 2,233.18 million for the Financial Year 2023, primarily due to decrease in (i) loans written off to H 1,319.20 million for the Financial Year 2024 from H 1,402.81 million for the Financial Year 2023, (ii) loans waived off to H 342.00 million for the Financial Year 2024 from H 476.59 million for the Financial Year 2023, primarily attributable to an decrease in settlements with our customers during the Financial Year 2024, and (iii) provision for impairment on loan assets to H 158.38 million for the Financial Year 2024 from H 353.78 million for the Financial Year 2023, primarily attributable to an increase in our standard on time gross loan portfolio to H 115,188.74 million for the Financial Year 2024 from H 79,533.50 million for the Financial Year 2023.

Employee benefits expenses

Employee benefits expense increased by 39.09% to H 4,486.55 million for the Financial Year 2024 from H 3,225.58 million for the Financial Year 2023, primarily due to increases in (i) salaries and wages to H 3,946.52 million for the Financial Year 2024 from H 2,876.80 million for the Financial Year 2023, and (ii) contribution to provident and other funds to H 314.04 million for the Financial Year 2024 from H 234.01 million, which were primarily attributable to an increase in our headcount to expand our business operations and branch network, and an annual increase in salaries and bonuses of our employees. We have 13,866 employees as of March 31, 2024, as compared to 10,227 employees as of March 31,2023. Further, the increase in employee benefits expense was also attributable to an increase in share-based payments to H 93.72 million for the Financial Year 2024 from H 42.11 million for the Financial Year 2023, due to stock options granted to our employees under our employee stock option scheme.

Depreciation and amortization expense

Depreciation and amortization costs increased by 33.19% to H 354.37 million for the Financial Year 2024 from H 266.06 million for the Financial Year 2023, primarily due to increases in (i) depreciation on property, plant and equipment to H 140.20 million for the Financial Year 2024 from H 104.57 million for the Financial Year 2023, and (ii) depreciation on right-of-use assets to H 213.34 million for the Financial Year 2024 from H 161.01 million for the Financial Year 2023, which were primarily attributable to the expansion of our business and corresponding increases in (a) net carrying amount of property, plant and equipment to H 732.82 million as of March 31, 2024 from H 594.37 million as of March 31, 2023, and (b) branches to 1,508 as of March 31, 2024 from 1,172 as of March 31, 2023.

Other Expenses

Other expenses increased by 50.70% to H 1,272.51 million for the Financial Year 2024 from H 844.41 million for the Financial Year 2023, primarily due to an increase in expenses relating to (i) Software support charges to H 178.12 million for the Financial Year 2024 from H 45.78 million for the Financial Year 2023, primarily attributable to increase in the expenses towards installation of Firewall. (ii) legal and professional charges to H 246.52 million for the Financial Year 2024 from H 149.18 million for the Financial Year 2023, (iii) traveling and conveyance to H 455.92 million for the Financial Year 2024 from H 347.76 million for the Financial Year 2023, primarily attributable to our expansion into new states and territories during the Financial Year 2024 which required our employees to travel, (iv) Communication expenses to H 97.47 million for the Financial Year 2024 from H 70.83 million for the Financial Year 2023 and (v) miscellaneous expenses to H 73.95 million for the Financial Year 2024 from H 61.18 million for the Financial Year 2023, primarily attributable to increases in incentives paid to customers for utilization of digital collection methods and outsourced manpower services for debt recovery and meeting expenses.

Profit before Tax

As a result of the foregoing, our profit before tax increased by 173.33% to H 5,818.42 million for the Financial Year 2024 from H 2,128.70 million for the Financial Year 2023.

Tax Expense

Current tax increased by 114.19% to H 1,456.31 million for the Financial Year 2024 from H 679.91 million for the Financial Year 2023, primarily due to an increase in taxable income to H 6,197.88 million for the Financial Year 2024 from H 2,701.48 million for the Financial Year 2023.

As a result of timing differences in making provisions for loan assets, gratuity and leave encashment and Ind AS adjustments, we had deferred tax of H 104.80 million as of March 31, 2024.

As a result of excess provision created for tax in Financial Year 2023, we had tax reversal relating to prior years of H 238.52 million as of March 31, 2024.

Profit after Tax

As a result of the foregoing, our profit after tax increased to H 4,495.83 million for the Financial Year 2024 from H 1,638.89 million for the Financial Year 2023, for the reasons mentioned above.

Our Financial Position

Our net worth increased by 72.49% to H 28,043.53 million as of March 31, 2024, from H 16,258.49 million as of March 31, 2023. The increase in net worth is primarily attributable to fresh issue of 2,61,34,205 equity shares of face value H 10 each at a premium of H 281.

The following table sets forth our selected financial data from our Financial Statements as of March 31, 2023 and 2024:

Assets

We had total assets of 1,15,902.26 million as of March 31, 2024, compared to H 85,291.99 million as of March 31, 2023. The increases in total assets were on account of an increase in financial and non-financial assets.

Financial assets

Our total financial assets increased by 36.21% to H 1,13,279.22 million as of March 31,2024 from H 83,167.28 million as of March 31, 2023 primarily due to increases in (i) loans to H 94,357.00 million as of March 31,2024 from H 70,266.85 million as of March 31,2023, (ii) cash and cash equivalents to H 9,576.65 million as

of March 31,2024 from H 7,594.55 million as of March 31, 2023, and (iii) bank balances other than cash and cash equivalent to H 6,210.62 million as of March 31, 2024 from H 3,909.58 million as of March 31, 2023, in line with an increase in active customers, disbursements and gross loan portfolio.

Non-financial assets

Our total non-financial assets increased by 23.45% to H 2,623.04 million as of March 31,2024 from H 2,124.71 million as of March 31, 2023 primarily due to increases in (i) right-of-use assets to H 1,410.87 million as of March 31, 2024 from H 1,121.72 million as of March 31, 2023, and (ii) property, plant and equipment to H 732.82 million as of March 31, 2024 from H 594.37 million

as of March 31, 2023, which were primarily attributable to the expansion of our business and increase in branches. (iii) increase in current tax assets (net) to H 131.13 million as of March 31, 2024 from H 104.60 million as of March 31, 2023.

Liabilities

We had total liabilities of H 87,858.73 million as of March 31, 2024, compared to H 69,033.50 million as of March 31,2023 due to an increase in financial and non-financial liabilities.

Financial liabilities

Our total financial liabilities increased by 26.93% to H 87,498.41 million as of March 31, 2024 from H 68,933.13 million as of March 31, 2023 primarily due to an increase in (i) borrowings (other than debt securities) to H 73,969.33 million as of March 31,2024 from H 51,230.25 million as of March 31,2023, primarily attributable to an increase in the borrowings from banks and financial institutions, under Securitisation arrangement and External Commercial Borrowing. This was partially offset by decrease in Debt Securities to H 9,624.36 million in Financial Year 2024 from 13,216.67 in Financial Year 2023.

Non-financial liabilities

Our total non-financial liabilities increased by 258.99% to H 360.32 million as of March 31, 2024 from H 100.37 million as of March 31, 2023 primarily due to an increase in provisions to H 110.09 million as of March 31, 2024 from H 36.13 million as of March 31, 2023 and also an increase in other non-financial liabilities to H 157.19 million as of March 31, 2024 from H 64.24 million as of March 31, 2023.

Equity

Our total equity increased by 72.49% to H 28,043.53 million as of March 31,2024 from H 16,258.49 million as of March 31,2023 primarily due to increases in (i) Equity Share capital to H 1,704.93 million as of March 31,2024 from H 1,401.98 million as of March 31, 2023, primarily attributable to fresh issue of 2,61,34,205 equity shares of H 10 each and conversion of Compulsorily Convertible Preference Shares to equity at 1:1.1781; (ii) other equity to H 26,338.60 million as of March 31, 2024 from H 14,856.51 million as of March 31, 2023, primarily attributable to increases in (a) securities premium to H 16,221.02 million as of March 31, 2024 from H 9,473.77 million as of March 31, 2023 consequent to the fresh issue of shares at a premium of H 281, (b) reserve fund to H 2,019.66 million as of March 31,2024 from H 1,120.50 million as of March 31, 2023, (c) loan assets through other comprehensive income to H 1,267.36 million as of March 31,2024 from H 1,103.62 million as of March 31, 2023, (d) retained earnings to H 6,963.65 million as of March 31,2024 from H 3,393.95 million as of March 31, 2023.

Liquidity and Capital Resources Liquidity

As of March 31, 2024, we had cash available for use in our operations of H 9,576.65 million. We currently invest our surplus cash in fixed deposits with various banks and debt mutual funds.

We regularly monitor our funding levels to ensure we can satisfy the requirements for maturity of our liabilities. We maintain diverse sources of funding and liquid assets to facilitate flexibility in meeting our liquidity requirements. Liquidity is provided principally by short-term and long-term borrowings from banks and other entities, recovery on our loan portfolio, proceeds from securitization and assignment of loans, issue of debentures, sales of equity securities and retained earnings.

Cash Flows

The following table summarizes our cash flows for the Financial Years 2023 and 2024.

Operating Activities

Net cash used in operating activities was H 21,252.61 million for the Financial Year 2024. We had profit before tax of H 5,818.42 million for the Financial Year 2024, which was primarily adjusted for impairment on financial instruments of H 1,819.58 million, depreciation and amortisation of H 354.37 million, adjustments towards effective interest rate in respect of loan assets of H 285.64 million, working capital changes such as an increase in loans of H 23,700.50 million and an increase in other receivables of H 1,852.74 million, and gain on sale of loan asset through direct assignment of H 2,276.05million.

Net cash used in operating activities was H 23,328.81 million for the Financial Year 2023. We had profit before tax of H 2,128.70 million for the Financial Year 2023, which was primarily adjusted for impairment on financial instruments of H 2,233.18 million, depreciation and amortization of H 266.06 million and adjustments towards effective interest rate in respect of loan assets of H 203.80 million and working capital changes such as increase in loans of H 27,058.51 million and a increase in other financial liabilities of H 1,089.92 million, and gain on sale of loan asset through direct assignment of H 1,115.37 million.

Investing Activities

Net cash used in investing activities was H 2,253.28 million for the Financial Year 2024, which primarily related to investment in term deposits with banks (net) of H 2,301.04 million, and purchase of tangible assets (including capital advances, capital creditors and capital work in progress) and intangible assets of H 276.34 million, which was partially offset by profit on sale of investments of H 156.78 million and investment in equity instrument of H 166.50 million.

Net cash used in investing activities was H 1,800.30 million for the Financial Year 2023, which primarily related to investment in term deposits with banks (net) of H 968.69 million, investment in equity instruments of H 633.14 million and purchase of tangible assets (including capital advances, capital creditors and capital work in progress) and intangible assets of H 281.79 million, which was partially offset by profit on sale of investments of H 83.35 million.

Financing Activities

Net cash generated from financing activities was H 25,487.99 million for the Financial Year 2024. This primarily resulted from proceeds from issue of equity shares of H 7,600.00 million, proceeds from borrowings of H 44,949.44 million, proceeds from securitization arrangement of H 21,197.21 million, and proceeds from debt securities of H 3,000.00 million, partially offset by repayment of borrowings of H 28,055.55 million, repayment of securitization arrangement of H 15,206.02 million, repayment of debt securities of H 7,163.84 million and share issue expenses of H 549.81 million.

Net cash generated from financing activities was H 25,665.40 million for the Financial Year 2023. This primarily resulted from proceeds from borrowings of H 36,394.80 million, proceeds from securitization arrangement of H 13,092.63 million, and proceeds from debt securities of H 9,091.27 million, partially offset by repayment of borrowings of H 22,168.21 million, repayment of securitization arrangement of H 8,966.65 million and repayment of debt securities of H 2,121.26 million.

Capital Expenditure

During the Financial Years 2023 and 2024, we invested H 281.79 million and H 276.34 million, respectively in capital expenditure. The following table sets forth our capital expenditure for the periods mentioned:

Contractual Obligations

The following table sets forth a summary of the maturity profile of our contractual obligations as of March 31, 2024:

Assignment Arrangements

During the Financial Years 2023 and 2024, we have assigned loans of H 18,322.48 million and H 27,133.93 million, respectively. The following table sets forth information regarding our direct assignment activity during the Financial Years 2023 and 2024.

Under the agreements for the assignment of loans, we transfer all the rights and obligations relating to the loan assets assigned as shown above to banks.

Contingent Liabilities and Commitments

As at March 31, 2024, credit enhancements provided by our Company towards securitisation transactions aggregated to H

5,498.00 million.

Capital to Risk Asset Ratios

The NBFC-SI Master Directions require all NBFC-MFIs to maintain a capital adequacy ratio consisting of Tier I and Tier II capital that is not less than 15.00% of their aggregate risk-weighted assets. Our capital to risk assets ratio as of March 31, 2024 and March 31, 2023 was 28.97%, 21.87% respectively.

Our capital adequacy information as of periods indicated below is as follows:

Notes: