SAHULAT Microfinance Society (SMS) organised a two-day workshop on Financial Discipline on 21-22 September in the national capital to provide quality training for its affiliated Interest Free Cooperative Credit Societies (IFCCS). Around 70 representatives from 26 Interest Free Cooperative Credit Societies (IFCCS) working in 12 different states participated in this workshop.
The objective of this workshop was to educate the IFCCS about the financial analysis, PEARLS SAHULAT ratio, rationale of scientific costing method and service charge calculation technique, how to regulate service charge, how to adopt profit making financial products and how to manage asset quality.
In his inaugural speech, Mr. Arshad Ajmal, Vice President of Sahulat, said the purpose of this workshop was to make our IFCCS aware as to how the balance sheet could be kept healthy, mitigate the risk and maintain the portfolio quality.
During the first session on “Financial Analysis”, Mr. Fasih Ahmad, Manager Research and Training, SMS, described the objective of the session. He emphasised three things which are important to understand in respect. 1. The need to analyse financial information; 2. The Importance of ratios in decision making; and 3. Sahulat – PEARLS Ratios and in continuation.
Mr. Fasih described the financial analysis by saying, “It is the art of interpreting financial statements and indicators – it requires BOD/managers to look at past performance, analyse it, and use the lessons learned to make today’s decisions.” He also said we should analyse the financial data to ascertain the status and position of the society so that appropriate measures can be taken by the society if anything happening unusual. According to him, “Ratio analysis is a financial management tool that enables managers of microfinance institutions to assess their progress in achieving sustainability.”
Mohammed Fahad Ahmed, Assistant Manager, Deloitte, dealing with global financial analysis of Deloitte financial performance, on the topic, “PEARLS – SAHULAT Ratio and SAHULAT Ranking Methodology,” during the second session, said, that PEARLS which is developed by the World Council of Credit Union (WOCCU) is a management tool to identifying problems and helping managers find meaningful solutions to deal with financial issues of the institution. A PEARL is a financial performance monitoring system for credit unions / cooperatives. It also helps to analyse and interpret the financial condition of a credit cooperative. “
Through the PEARLS ratios the IFCCS can understand the portfolio of the society (such as deposit, loan, total asset, etc.) so that IFCCS can work, improve and optimise the performance of the aspects of its financial performance,” said Fahad.
S M Wasiullah, working with TASIS – Mumbai (Taqwaa Advisory and Shari’ah Investment Solutions (P) Limited) as Manager, in another session on “Rationale of Scientific Costing Method & How to Calculate Service Charge,” explained the concept of Scientific Costing Method applied on the demand loans. During the presentation, he described service charge and its calculation techniques. He also elaborated the definition and basis of service charge as “Service Charges are a type of fee charged to cover costs related to the specific service rendered and based on Costs incurred”.
According to Wasiullah, “If the amount of service charge is more than the actual cost and time then the extra amount charged will have to be returned to the borrower.”
MH Khatkhatay, Director Operations at TASIS and CEO and Executive Director Rehbar Financial Consultants, in the fourth session on “How to adopt profit making financial products,” highlighted in detail the Sharia’h compliant financial products and discussed three products such as Musharakah – Equity Partnership, Mudarabah – Joint Venture, Ijarah – Leasing and Murabaha. He also discussed comprehensively on above three products with the flow chart. Before concluding the topic, Khatkhatay emphasised on basic lending principles which should be followed before entering into the agreement. In this regard, he said that before issuing a loan IFCCS must visit the site physically. The IFCCS should acquire the KYC document and crossed check and verify from the original documents. Then lease/partnership/sale agreement should be enforced. Through this technique we could mitigate the risk and appropriate profit can be earned.
In yet another session on “Portfolio Quality,” Arshad Ajmal, vice-president SMS, explained to the participants that portfolio quality means what is the health of IFCCS loan portfolio. If we say healthy balance sheet, what we mean? Healthy balance sheet means that IFCCS Asset Quality and NPA Management would reflect on its balance sheet and other indicators are as per financial goals. Ajmal further said, “Through PAR by age we could understand the asset quality (loan portfolio). Then only suitable provision could be made and proper NPA management policy would be formulated.” He also said that through PAR by age we could easily improve the IFCCS Asset Quality and a move towards a healthy balance sheet. He also requested the IFCCS participants should ensure that their Societies’ balance sheet should be compliant with the Standard Accounting Norms which is prescribed by the respective state cooperative registrars or as per GAAP (Generally Accepted Accounting Principles).
Usama Khan, CEO SMS, concluded the session and thanked the participants. On 22nd September, 2019, late evening, during an award ceremony, Sahulat released the ‘Sector Report’ for IIFCCS in the presence of Mr. Vijay Mahajan (CEO – Rajiv Gandhi Foundation), Dr. P. Satish (ED – Sa-Dhan), Mr. Subhash Gupta (CEO-NAFCUB), Mr. T. Arif Ali (President – Sahulat), Mr. Arshad Ajmal (VP – Sahulat).
Based on the ratio analysis of nine IFCCS, top three Sahulat affiliated IFCCS were awarded an IFCCS Sector Award. Bait-un-Nasr, Mumbai received the gold award for its best performance, Alkhair Ambajogai received the silver award (second position) and Sanghamam Kerala received the bronze award for its third position. The remaining six IFCCS were given token of appreciation for their efforts to be part of the interest free journey.