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Private & Confidential – For Private Circulation Only

Addressed to: HDFC Mutual Fund

(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)

Dated: March 30, 2015

SKS MICROFINANCE LIMITED

(SKS Microfinance Limited (the “Issuer”) was incorporated as SKS Microfinance Private Limited on September 22, 2003 under the Companies Act, 1956 and deemed to exist within the

purview of the Companies Act, 2013. Pursuant to a resolution of its shareholders passed on May 2, 2009, the Issuer was converted into a public limited company and the word “private” was deleted from its name on May 20, 2009)

Registered Office: Unit No. 410, Madhava, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051

Head Office: Third Floor, My Home Tycoon, Block A, 6-3-1192, Kundanbagh, Begumpet, Hyderabad 500 016

Compliance Person: Mr. Rajendra Patil, Company Secretary Email of Compliance Person: [email protected];

Telephone: +91 40 4452 6000; Fax: +91 40 4452 6001;

Website: www.sksindia.com;

CIN: L65999MH2003PLC250504

INFORMATION MEMORANDUM AND PRIVATE PLACMENT OFFER LETTER FOR ISSUE BY WAY OF PRIVATE PLACEMENT (EACH AN “ISSUE”) BY THE

ISSUER OF 11.48% SERIES 1 SECURED, NON-CUMULATIVE, REDEEMABLE, TAXABLE, LISTED, RATED NON-CONVERTIBLE DEBENTURES OF A FACE VALUE

OF RS. 10,00,000 AGGREGATING TO RS. 100,00,00,000 DUE 2018 (“SERIES 1 DEBENTURES”) AND 11.48% SERIES 2 SECURED, NON-CUMULATIVE,

REDEEMABLE, TAXABLE, LISTED, RATED NON-CONVERTIBLE DEBENTURES OF A FACE VALUE OF RS. 10,00,000 EACH AGGREGATING TO RS. 100,00,00,000

DUE 2018 (“SERIES 2 DEBENTURES”, TOGETHER WITH THE SERIES 1 DEBENTURES, THE “DEBENTURES”) TOTAL AGGREGATING TO RS. 200,00,00,000

GENERAL RISKS

Investment in debt and debt related securities involves a degree of risk and Investors should not invest any funds in the debt instruments, unless they understand the terms and conditions and

can afford to take the risks attached to such investments. For taking an investment decision, potential Investors must rely on their own examination of the Issuer, the Issue of any Debentures,

this Information Memorandum including the risks involved. The Debentures have not been recommended or approved by Securities and Exchange Board of India (“SEBI”) nor does SEBI

guarantee the accuracy or adequacy of this document. Investors are advised to take an informed decision and consider with their advisers, of the suitability of the Debentures in the light of

their particular financial circumstances and investment objectives and risk profile, and of all information set forth in this Information Memorandum, including the section entitled “Risk

Factors”, before investing.

ISSUER’S ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Information Memorandum contains all information with regard to the Issuer and the Issue,

which is material in the context of the Issue, that the information contained in this Information Memorandum is true and correct in all material respects and is not misleading in any material

respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Information Memorandum as a whole or any of

such information or the expression of any such opinions or intentions misleading in any material respect.

CREDIT RATING

Credit Analysis and Research Limited (“CARE”) has by way of its letter no. CARE/HO/RL/2014-15/3005 dated March 30, 2015 assigned a rating of “CARE A+” to the Debentures

proposed to be issued by the Issuer pursuant to this Information Memorandum. This rating of the Debentures by CARE indicates adequate degree of safety regarding timely servicing of

financial obligations. Such instruments carry low credit risk.

The above ratings are not a recommendation to buy, sell or hold securities and Investors should take their own decision. The ratings may be subject to revision or withdrawal at any time by

the assigning rating agency and should be evaluated independently of any other ratings. Please refer to the Annexure E to this Information Memorandum for rating letter by CARE.

LISTING

The Debentures offered through this Information Memorandum are initially proposed to be listed on the Wholesale Debt Market (“WDM”) Segment of BSE Limited (“BSE”). The Issuer,

with prior intimation to the Debenture Trustee, may get the Debentures listed on other recognized stock exchanges as it deems fit. The Issuer shall comply with the requirements of the listing

agreement to the extent applicable to it on a continuous basis.

Application for ‘in-principle’ listing approval was made to BSE through letter dated March 25, 2015. BSE has given its ‘in-principle’ listing approval for the Debentures proposed to be

offered through this Information Memorandum through the letter dated March 25, 2015.

ISSUE PROGRAMME

ISSUE OPENING DATE ISSUE CLOSING DATE PAY-IN DATE

March 30, 2015 March 30, 2015 March 30, 2015

ARRANGER DEBENTURE TRUSTEE REGISTRAR TO THE ISSUE

Derivium Tradition Securities (India) Private Limited

Eucharistic Congress III, 10 Flr,

5 Convent Road, Colaba,

Mumbai - 400 039, India

Tel No.: +91 22 6606 4600

Fax No.: +91 22 6606 4601

Email: [email protected]

Investor Grievance E-mail: [email protected]

Contact Person: Mr. Jagdish Udeshi

SEBI Reg. No.: INB231300535

IDBI Trusteeship Services Limited

Asian Building, Ground Floor,

17, R. Kamani Marg, Ballard Estate,

Mumbai 400 001, India

Tel No.: +91 22 4080 7000

Fax No.: +91 22 6631 1776



Contact Person: Mr. Naresh Sachwani

SEBI Reg. No.: IND000000460

Karvy Computershare Private Limited

Karvy House, 46, Avenue 4,

Street No.1, Banjara Hills,

Hyderabad, 500 038, India

Tel No.: +91 40 4465 5000

Fax No.: +91 40 2343 1551



Contact Person: M Murali Krishna

SEBI Reg. No.: INR000000221

Each Issue of Debentures shall be subject to the provisions of the Companies Act, 1956, (the “Old Companies Act”) (to the extent in force on the date of this Information Memorandum),

the Companies Act, 2013, (the “New Companies Act”), the rules notified pursuant to the New Companies Act, the Memorandum and Articles of Association of the Issuer, the terms and

conditions of this Information Memorandum filed with BSE and any other recognized stock exchanges, as applicable, the Application Form, and other terms and conditions as may be

incorporated in the Debenture Trust Deed and other documents in relation to each such Issue.

THIS INFORMATION MEMORANDUM ALSO CONSTITUTES A PRIVATE PLACEMENT OFFER LETTER AND INCORPORATES DISCLOSURES REQUIRED

UNDER FORM PAS-4 OF THE COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014

mailto:[email protected]://www.sksindia.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

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TABLE OF CONTENTS

DISCLAIMERS ....................................................................................................................................................................... 1

DEFINITIONS AND ABBREVIATIONS ............................................................................................................................. 6

FORWARD LOOKING STATEMENTS ............................................................................................................................ 11

RISK FACTORS ................................................................................................................................................................... 13

SUMMARY TERM SHEET ................................................................................................................................................. 26

BUSINESS OF THE ISSUER ............................................................................................................................................... 36

KEY OPERATIONAL AND FINANCIAL PARAMETERS ............................................................................................ 41

MATERIAL AGREEMENTS/ DOCUMENTS .................................................................................................................. 42

FINANCIAL INFORMATION OF THE ISSUER ............................................................................................................. 43

RELATED PARTY TRANSACTIONS ............................................................................................................................... 55

OUTSTANDING LITIGATIONS AND DEFAULTS ........................................................................................................ 57

THE ISSUER’S MANAGEMENT ....................................................................................................................................... 58

OBJECTS OF THE ISSUE ................................................................................................................................................... 67

STATUTORY AND REGULATORY DISCLOSURES ..................................................................................................... 68

ISSUE PROCEDURE............................................................................................................................................................ 84

UNDERTAKINGS BY THE ISSUER .................................................................................................................................. 92

DECLARATION ................................................................................................................................................................... 93

ANNEXURE A APPLICATION FORM ........................................................................................................................... 94

ANNEXURE B BOARD RESOLUTION AUTHORSING THE ISSUE .......................................................................... 98

ANNEXURE C COMMITTEE OF DIRECTORS RESOLUTION ............................................................................... 100

ANNEXURE D SHAREHOLDERS RESOLUTION....................................................................................................... 102

ANNEXURE E RATING LETTER FROM CARE ......................................................................................................... 103

ANNEXURE F CONSENT OF DEBENTURE TRUSTEE ............................................................................................. 105

ANNEXURE G IN-PRINCIPLE APPROVAL OF THE BSE ........................................................................................ 107

ANNEXURE H ANNUAL FINANCIAL STATEMENTS FOR YEARS ENDED MARCH 31, 2012, 2013 AND 2014

............................................................................................................................................................................................... 108

ANNEXURE I LIMITED REVIEW FINANCIALS FOR HALF YEAR ENDED SEPTEMBER 30, 2014 ............... 114

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DISCLAIMERS

ISSUER’S DISCLAIMER

The distribution of this Information Memorandum and each Issue of Debentures, to be initially listed on the

WDM segment of BSE and subsequently on any recognized stock exchange as the Issuer deems fit, after giving

prior intimation to the Debenture Trustee, is being made strictly on a private placement basis. This Information

Memorandum is not intended to be circulated to any person other than Eligible Investors. Multiple copies hereof

or of any Information Memorandum given to the same entity shall be deemed to be given to the same person

and shall be treated as such. It does not constitute and shall not be deemed to constitute an offer or an invitation

to subscribe to the Debentures to the public of India in general. This Information Memorandum should not be

construed to be a prospectus or a statement in lieu of prospectus under the New Companies Act. Apart from this

Information Memorandum, no offer document or prospectus has been or will be prepared in connection with the

offering of the Debentures or in relation to the Issuer nor is such a prospectus required to be registered under

applicable laws.

This Information Memorandum has been prepared in conformity with the SEBI Debt Regulations, Old

Companies Act (to the extent in force on the date of this Information Memorandum) and New Companies Act.

Pursuant to Section 42 of the New Companies Act and Rule 14(3) of the PAS Rules, the Issuer shall file a copy

of this Information Memorandum with the ROC and SEBI within a period of 30 (thirty) days of circulation of

this Information Memorandum.

This Information Memorandum has been and will be prepared to provide general information about the Issuer to

potential Investors to whom it is addressed and who are willing and eligible to subscribe to the Debentures. This

Information Memorandum does not purport to contain all the information that any potential Investor may

require. Neither this Information Memorandum nor any other information supplied in connection with the

Debentures is intended to provide the basis of any credit or other evaluation and any recipient of this

Information Memorandum should not consider such receipt a recommendation to purchase any Debentures.

Each Investor contemplating purchasing any Debentures should make its own independent investigation of the

financial condition and affairs of the Issuer, and its own appraisal of the creditworthiness of the Issuer as well as

the structure of the Issue. Potential Investors should consult their own financial, legal, tax and other professional

advisors as to the risks and investment considerations arising from an investment in the Debentures and should

possess the appropriate resources to analyze such investment and the suitability of such investment to such

Investor’s particular circumstances. It is the responsibility of potential Investors to also ensure that they will sell

these Debentures in strict accordance with this Information Memorandum and applicable laws, so that the sale

does not constitute an offer to the public, within the meaning of the New Companies Act. Neither the

intermediaries nor their agents nor advisors associated with the Issue of Debentures undertake to review the

financial condition nor affairs of the Issuer during the life of the arrangements contemplated by this Information

Memorandum or have any responsibility to advise any Investor or potential Investor in the Debentures of any

information coming to the attention of any other intermediary.

The Issuer confirms that, as of the date hereof, this Information Memorandum (including the documents

incorporated by reference herein, if any) contains all information that is material in the context of the Issue, is

accurate in all material respects and does not contain any untrue statement of a material fact or omit to state any

material fact as known to the Issuer on the date of the Information Memorandum necessary to make the

statements herein, in the light of the circumstances under which they are made, and are not misleading. No

person has been authorized to give any information or to make any representation not contained or incorporated

by reference in this Information Memorandum or in any material made available by the Issuer to any potential

Investor pursuant hereto and, if given or made, such information or representation must not be relied upon as

having been authorized by the Issuer. The legal advisors to the Issuer and any other intermediaries and their

agents or advisors associated with the Issue of Debentures have not separately verified the information

contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no

responsibility is accepted by the legal advisor to the Issuer or any such intermediary as to the accuracy or

completeness of the information contained in this Information Memorandum or any other information provided

by the Issuer. Accordingly, the legal advisors to the Issuer and other intermediaries associated with the Issue of

Debentures shall have no liability in relation to the information contained in this Information Memorandum or

any other information provided by the Issuer in connection with the Issue.

The Issuer does not undertake to update the Information Memorandum to reflect subsequent events after the

date of the Information Memorandum and thus it should not be relied upon with respect to such subsequent

events without first confirming its accuracy with the Issuer.

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Neither the delivery of this Information Memorandum nor any Issue of Debentures made hereunder shall, under

any circumstances, constitute a representation or create any implication that there has been no change in the

affairs of the Issuer since the date hereof.

This Information Memorandum and the contents hereof and thereof are restricted only for the intended

recipient(s) who have been addressed directly and specifically through a communication by the Issuer

and/or the Arranger appointed for the Debentures and only such recipients are eligible to apply for the

Debentures. All Investors are required to comply with the relevant regulations/guidelines applicable to

them for investing in this Issue. The contents of this Information Memorandum are intended to be used

only by those potential Investors to whom it is distributed. It is not intended for distribution to any other

person and should not be reproduced by the recipient.

Each copy of this Information Memorandum will be serially numbered and the person, to whom a copy of the

Information Memorandum is sent, is alone entitled to apply for the Debentures. No invitation is being made to

any persons other than those to whom application forms along with this Information Memorandum being issued

have been sent. Any application by a person to whom the Information Memorandum has not been sent by the

Issuer shall be rejected without assigning any reason.

Invitations, offers and allotment of the Debentures shall only be made pursuant to this Information

Memorandum. You may not be and are not authorized to (1) deliver this Information Memorandum to any other

person; or (2) reproduce this Information Memorandum in any manner whatsoever. Any distribution or

reproduction of this Information Memorandum in whole or in part or any public announcement or any

announcement to third parties regarding the contents of this Information Memorandum is unauthorized. Failure

to comply with this instruction may result in a violation of the New Companies Act, the SEBI Debt Regulations

or other applicable laws of India and other jurisdictions. This Information Memorandum has been prepared by

the Issuer for providing information in connection with each proposed Issue of Debentures described in this

Information Memorandum.

Each person receiving this Information Memorandum acknowledges that such person has been afforded an

opportunity to request and to review and has received all additional information considered by it to be necessary

to verify the accuracy of or to supplement the information herein and such person has not relied on any

intermediary associated with the Issue of Debentures in connection with its investigation of the accuracy of such

information or its investment decision. Each person in possession of this Information Memorandum should

carefully read and retain this Information Memorandum. However, each such person in possession of this

Information Memorandum are not to construe the contents of this Information Memorandum as investment,

legal, accounting, regulatory or tax advice, and such persons in possession of this Information Memorandum

should consult with their own advisors as to all legal, accounting, regulatory, tax, financial and related matters

concerning an investment in the Debentures.

The Issue of Debentures will be a domestic issue restricted to India and no steps have been taken or will be

taken to facilitate the Issue of Debentures in any jurisdictions other than India. This Information Memorandum

is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where

distribution or use of such information would be contrary to law or regulation. This Information Memorandum

does not constitute, nor may it be used for or in connection with, an offer or solicitation by anyone in any

jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make

such an offer or solicitation. Persons into whose possession this Information Memorandum comes are required

to inform themselves about and observe any such restrictions. This Information Memorandum is made available

to Investors in the Issue of Debentures on the strict understanding that it is confidential and may not be

transmitted to others, whether in electronic form or otherwise.

DISCLAIMER IN RESPECT OF JURISDICTION

The Issue of Debentures will be made in India to Investors as specified under “Eligible Investors” of this

Information Memorandum, who shall be specifically approached by the Issuer. This Information Memorandum

does not constitute an offer to sell or an invitation to subscribe to the Debentures offered hereby to any person to

whom it is not specifically addressed. Any disputes arising out of this Issue will be subject to the jurisdiction of

the courts of Mumbai. This Issue is made in India to persons resident in India. This Information Memorandum

does not constitute an offer to sell or an invitation to subscribe to the Debentures herein, in any other jurisdiction

and to any person to whom it is unlawful to make an offer or invitation in such jurisdiction.

DISCLAIMER CLAUSE OF BSE

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As required, a copy of this Information Memorandum has been filed with BSE in terms of the SEBI Debt

Regulations for hosting the same on its website.

It is to be distinctly understood that submission of this Information Memorandum to BSE or hosting the same on

its website should not in any way be deemed or construed to mean that this Information Memorandum has been

reviewed, cleared or approved by BSE, nor does BSE in any manner warrant, certify or endorse the correctness

or completeness of any of the contents of this Information Memorandum, nor does BSE warrant that the Issuer’s

Debentures will be listed or will continue to be listed on BSE, nor does BSE take any responsibility for the

soundness of the financial and other conditions of the Issuer, its promoters, its management or any scheme or

project of the Issuer. Every person who desires to apply for or otherwise acquire any securities of this Issuer

may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against BSE

whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with

such subscription/ acquisition whether by reason of anything stated or omitted to be stated herein or any other

reason whatsoever.

DISCLAIMER CLAUSE OF THE RESERVE BANK OF INDIA (“RBI”)

The Issuer is having a valid certificate of registration dated August 06, 2014 issued by the RBI under Section 45

IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee

about the present position as to the financial soundness of the Issuer, or for the correctness of any of the

statements or representations made or opinions expressed by the Issuer, and for repayment of deposits/discharge

of liabilities by the Issuer.

Neither is there any provision in law to keep, nor does the Issuer keep any part of the deposits with the RBI and

by issuing the certificate of registration to the Issuer, the RBI neither accepts any responsibility nor guarantee

for the payment of the deposit amount to any depositor.

DISCLAIMER CLAUSE OF THE ARRANGER

The Issuer has authorized the Arranger to distribute this Information Memorandum in connection with the

proposed transaction outlined in it (the “Transaction”) and the Debentures proposed to be issued in the

Transaction.

Nothing in this Information Memorandum constitutes an offer of securities for sale in the United States or any

other jurisdiction where such offer or placement would be in violation of any law, rule or regulation.

The Issuer has prepared this Information Memorandum and the Issuer is solely responsible for its contents. The

Issuer will comply with all laws, rules and regulations and has obtained all regulatory, governmental and

corporate approvals for the issuance of the Debentures. All the information contained in this Information

Memorandum has been provided by the Issuer or is from publicly available information, and such information

has not been independently verified by the Arranger. No representation or warranty, expressed or implied, is or

will be made, and no responsibility or liability is or will be accepted, by the Arranger or their affiliates for the

accuracy, completeness, reliability, correctness or fairness of this Information Memorandum or any of the

information or opinions contained therein, and the Arranger hereby expressly disclaim, to the fullest extent

permitted by law, any responsibility for the contents of this Information Memorandum and any liability, whether

arising in tort or contract or otherwise, relating to or resulting from this Information Memorandum or any

information or errors contained therein or any omissions therefrom. By accepting this Information

Memorandum, the Investor agrees that the Arranger will not have any such liability.

It is hereby declared that the Issuer has exercised due diligence to ensure complete compliance of prescribed

disclosure norms in this Information Memorandum. Each person receiving this Information Memorandum

acknowledges that such person has not relied on the Arranger, nor any person affiliated with the Arranger, in

connection with its investigation of the accuracy of such information or its investment decision, and each such

person must rely on its own examination of the Issuer and the merits and risks involved in investing in the

Debentures. The Arranger: (a) has no obligations of any kind to any invited Investor under or in connection with

any Transaction Documents; (b) is not acting as trustee or fiduciary for the Investors or any other person; and (c)

is under no obligation to conduct any “know your customer” or other procedures in relation to any person on

behalf of any Investor. Neither the Arranger nor its affiliates or its respective officers, directors, partners,

employees, agents, advisors or representatives is responsible for: (a) the adequacy, accuracy, completeness and/

or use of any information (whether oral or written) supplied by the Issuer or any other person in or in connection

with any Transaction Document including this Information Memorandum; (b) the legality, validity,

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effectiveness, adequacy or enforceability of any Transaction Document or any other agreement, arrangement or

document entered into, made or executed in anticipation of or in connection with any Transaction Document; or

(c) any determination as to whether any information provided or to be provided to any finance party is non-

public information the use of which may be regulated or prohibited by applicable law or regulation relating to

insider dealing or otherwise.

The role of the Arranger in the assignment is confined to marketing, distribution and placement of the

Debentures on the basis of this Information Memorandum as prepared by the Issuer. The Arranger has neither

scrutinized nor vetted nor has it done any due-diligence for verification of the contents of this Information

Memorandum. The Arranger is authorized to deliver copies of this Information Memorandum on behalf of the

Issuer to Eligible Investors which are considering participation in the Issue and shall use this Information

Memorandum for the purpose of soliciting subscriptions from Eligible Investors in the Debentures to be issued

by the Issuer on a private placement basis. It is to be distinctly understood that the aforesaid use of this

Information Memorandum by the Arranger should not in any way be deemed or construed to mean that the

Information Memorandum has been prepared, cleared, approved or vetted by the Arranger; nor does it in any

manner warrant, certify or endorse the correctness or completeness of any of the contents of this Information

Memorandum; nor does it take responsibility for the financial or other soundness of this Issuer, its promoters, its

management or any scheme or project of the Issuer. The Arranger or any of its directors, employees, affiliates or

representatives do not accept any responsibility and/or liability for any loss or damage arising of whatever

nature and extent in connection with the use of any of the information contained in this Information

Memorandum.

The Investors should carefully read and retain this Information Memorandum. However, the Investors are not to

construe the contents of this Information Memorandum as investment, legal, accounting, regulatory or tax

advice, and the Investors should consult with their own advisors as to all legal, accounting, regulatory, tax,

financial and related matters concerning an investment in the Debentures. This Information Memorandum is not

intended to be the basis of any credit analysis or other evaluation and should not be considered as a

recommendation by the Arranger or any other person that any recipient participates in the Issue or advice of any

sort. It is understood that each recipient of this Information Memorandum will perform its own independent

investigation and credit analysis of the proposed financing and the business, operations, financial condition,

prospects, creditworthiness, status and affairs of the Issuer, based on such information and independent

investigation as it deems relevant or appropriate and without reliance on Arranger or on this Information

Memorandum.

FORCE MAJEURE

The Issuer reserves the right to withdraw the Issue of Debentures prior to the Issue Closing Date in the event of

any unforeseen development adversely affecting the economic and regulatory environment or otherwise. In such

an event, the Issuer will refund the application money along with the interest payable on such application money

without giving any reason.

CONFIDENTIALITY

The information and data contained herein is submitted to each recipient of this Information Memorandum on a

strictly private and confidential basis. By accepting a copy of this Information Memorandum, each recipient

agrees that neither it nor any of its employees or advisors will use the information contained herein for any

purpose other than evaluating the specific transactions described herein or will divulge to any other party any

such information. This Information Memorandum must not be photocopied, reproduced, extracted or distributed

in full or in part to any person other than the recipient without the prior written consent of the Issuer.

CAUTIONARY NOTE

The Investors have agreed that they, (i) are knowledgeable and experienced in financial and business matters,

have expertise in assessing credit, market and all other relevant risk and are capable of evaluating, and have

evaluated, independently the merits, risks and suitability of purchasing the Debentures; (ii) understand that the

Issuer has not provided, and will not provide, any material or other information regarding the Debentures,

except as included in this Information Memorandum, (iii) have not requested the Issuer to provide it with any

such material or other information, (iv) have not relied on any investigation that any person acting on their

behalf may have conducted with respect to the Debentures, (v) have made their own investment decision

regarding the Debentures based on their own knowledge (and information they have or which is publicly

available) with respect to the Debentures or the Issuer (vi) have had access to such information as deemed

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necessary or appropriate in connection with purchase of the Debentures, (vii) are not relying upon, and have not

relied upon, any statement, representation or warranty made by any person, including, without limitation, the

Issuer, and (viii) understand that, by purchase or holding of the Debentures, they are assuming and are capable

of bearing the risk of loss that may occur with respect to the Debentures, including the possibility that they may

lose all or a substantial portion of their investment in the Debentures, and they will not look to the Arranger

appointed for the Debentures for all or part of any such loss or losses that they may suffer.

Neither this Information Memorandum nor any other information supplied in connection with the Issue of

Debentures is intended to provide the basis of any credit or other evaluation and any recipient of this

Information Memorandum should not consider such receipt as a recommendation to purchase any Debentures.

Each Investor contemplating purchasing any Debentures should make its own independent investigation of the

financial condition and affairs of the Issuer, and its own appraisal of the creditworthiness of the Issuer. Potential

Investors should consult their own financial, legal, tax and other professional advisors as to the risks and

investment considerations arising from an investment in the Debentures and should possess the appropriate

resources to analyze such investment and the suitability of such investment to such Investor’s particular

circumstances. This Information Memorandum is made available to potential Investors on the strict

understanding that it is confidential. Recipients shall not be entitled to use any of the information otherwise than

for the purpose of deciding whether or not to invest in the Debentures.

No person, including any employee of the Issuer, has been authorised to give any information or to make any

representation not contained in this Information Memorandum. Any information or representation not contained

herein must not be relied upon as having being authorised by or on behalf of the Issuer. Neither the delivery of

this Information Memorandum at any time nor any statement made in connection with the offering of the

Debentures shall under the circumstances imply that any information/ representation contained herein is correct

at any time subsequent to the date of this Information Memorandum. The distribution of this Information

Memorandum or the Application Forms and the offer, sale, pledge or disposal of the Debentures may be

restricted by law in certain jurisdictions. This Information Memorandum does not constitute an offer to sell or

an invitation to subscribe to the Debentures in any other jurisdiction and to any person to whom it is unlawful to

make such offer or invitation in such jurisdiction. Persons into whose possession this Information Memorandum

comes are required by the Issuer to inform themselves about and observe any such restrictions. The sale or

transfer of the Debentures outside India may require regulatory approvals in India, including without limitation,

the approval of the RBI.

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DEFINITIONS AND ABBREVIATIONS

In this Information Memorandum, unless the context otherwise requires, the terms defined and abbreviations

expanded below shall have the same meaning as stated in this section. References to statutes, rules, regulations,

guidelines and policies will be deemed to include all amendments and modifications notified thereto.

Further, unless otherwise indicated or the context otherwise requires, all references to “the Company”, “our

Company”, “SKS”, “Issuer”, “we”, “us” or “our” is to SKS Microfinance Limited and references to “you” are to

the prospective Investors in the Debentures.

Issuer Related Terms

Term Description

Our Company / the

Company / the

Issuer / SKS / SKS

Microfinance /

we / us / our

SKS Microfinance Limited CIN: L65999MH2003PLC250504, a public limited

company incorporated under the Companies Act, 1956 and deemed to exist within

the purview of the Companies Act, 2013 and having its registered office at Unit No.

410, Madhava, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051

A.P. The State of Andhra Pradesh

A.P. High Court

The High Court of Andhra Pradesh at Hyderabad

A.P.-MFI Act The Andhra Pradesh Micro Finance Institutions (Regulation of Money

Lending) Act, 2011

A.P.-MFI Ordinance The Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending)

Ordinance, 2010

Articles / Articles of

Association

Articles of association of our Company, as amended from time to time

Audit Committee The audit committee of the Board of Directors

Auditors S.R.Batliboi & Co. LLP, statutory auditors of our Company

Board of Directors /

Board

The board of directors of our Company or any duly constituted committee thereof

Borrowers Members (as defined below) to whom we have made loans that are outstanding

Directors The directors of our Company

JLG Joint Liability Group

Members Individuals in India who are primarily women and to whom we provide small value

loans and certain other basic financial services

Memorandum or

Memorandum of

Association

Memorandum of association of our Company, as amended from time to time

Promoters Promoters of our Company namely Westbridge Ventures II, LLC (formely Sequoia

Capital India II, LLC), Kismet Microfinance and Kumaon Investment Holdings (FII

sub-account with HSBC Bank (Mauritius Limited)

Registered Office The registered office of our Company is located at Unit No. 410, Madhava, Bandra-

Kurla Complex, Bandra (East), Mumbai – 400 051

Sangam A consolidated group of five Members within a village which forms a

center

Sangam Managers Our field level loan officers

Issue Related Terms

Term Description

Allot/ Allotment/

Allotted

Unless the context otherwise requires or implies, the allotment of the Debentures

pursuant to the Issue

Application Form The form in which an Investor can apply for subscription to the Debentures as

attached in Annexure A

Arranger Derivium Tradition Securities (India) Private Limited

Beneficial Owner(s) Holder(s) of the Debentures in dematerialized form as defined under section 2 of the

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Term Description

Depositories Act

Business Days All days except Saturday, Sunday and any public holiday in accordance with the

Negotiable Instruments Act, 1881

CARE Credit Analysis and Research Limited

Consolidated Debenture

Certificate

has the meaning set forth in the Section titled “Issue Procedure”

DRR Debenture Redemption Reserve required under Section 71 of the New Companies

Act

Debt Listing Agreement Simplified debt listing agreement, as amended from time to time, to be entered into

by the Issuer with BSE for the listing of the Debentures and any other recognized

stock exchange to which the Issuer may apply for the listing of the Debentures

subsequently after giving prior intimation to the Debenture Trustee

Debentures Means collectively the Series 1 Debentures and Series 2 Debentures

Debentureholder(s) Means collectively the Series 1 Debentureholders and Series 2 Debentureholders

Debenture

Trustee/Trustee

Trustee for the Debentureholders, in this case being IDBI Trusteeship Services

Limited

Debenture Trust Deed Means the trust deed to be entered into between the Debenture Trustee and the Issuer

in relation to the Issue

Debenture Trustee

Regulations

Securities and Exchange Board of India (Debenture Trustee) Regulations, 1993, as

amended

Deed of Hypothecation Deed of hypothecation to be executed by the Issuer for creating an exclusive first

ranking charge over the Hypothecated Assets in favour of the Debenture Trustee (for

the benefit of the Debenture Holders)

Deemed Date of

Allotment

March 30, 2015

Default Interest Means collectively the Series 1 Default Interest and Series 2 Default Interest

Depository A depository registered with the SEBI under the Securities and Exchange Board of

India (Depositories and Participant) Regulations, 1996, as amended from time to

time, in this case being NSDL and CDSL

Early Redemption Date Means collectively the Series 1 Early Redemption Date and Series 2 Early

Redemption Date

Eligible Investor Has the meaning set forth in Summary Term Sheet of this Information Memorandum

Event of Default Means collectively the Series 1 Event of Default and Series 2 Event of Default

Governmental Authority shall mean any:

a) government (central, state or otherwise) or sovereign state; b) any governmental agency, semi-governmental or judicial or quasi-judicial or

administrative entity, department or authority, or any political subdivision

thereof;

c) international organization, agency or authority, and d) including, without limitation, any stock exchange or any self-regulatory

organization, established under any applicable law

Hypothecated Assets Shall mean the loan receivables of the Issuer as set out in detail in the Deed of

Hypothecation

Information

Memorandum

This Information Memorandum dated March 30, 2015

Interest Payment Date Means collectively the Series 1 Interest Payment Date and Series 2 Interest Payment

Date

Interest Period Means collectively the Series 1 Interest Period and Series 2 Interest Period

Interest Rate Means collectively the Series 1 Interest Rate and Series 2 Interest Rate

Investor(s) Such person who subscribe to this Issue

Issue Issue by way of private placement of Debentures by the Issuer pursuant to the terms

of this Information Memorandum

Potential Event of

Default

Means collectively the Series 1 Potential Event of Default and Series 2 Potential

Event of Default

Rating Downgrade

Event

Means the occurrence of a downgrade in: (i) the long term credit ratings of the Issuer;

or (ii) in the rating of any Series of Debentures of the Issuer, by any credit rating

agency

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Term Description

Record Date Means collectively the Series 1 Record Date and Series 2 Record Date

Redemption Amount Means collectively the Series 1 Redemption Amount and Series 2 Redemption

Amount

Redemption Date Means collectively the Series 1 Redemption Date and Series 2 Redemption Date

Register of

Debentureholders

The register maintained by the Issuer at its Registered Office as per section 88 of the

New Companies Act, containing the names of the Debentureholders entitled to

receive interest in respect of the Debentures on the Record Date, and shall include the

register of Beneficial Owners maintained by the Depository under section 11 of the

Depositories Act

Registered Debenture

holder

The Debentureholder whose name appears in the Register of Debentureholders or in

the beneficial ownership record furnished by the Depository for this purpose

Registrar/Registrar to

the Issue

Registrar to this Issue, in this case being Karvy Computershare Private Limited

Series 1 Debentures 11.48% Secured, Non-Cumulative, Redeemable, Taxable, Listed, Rated Non-

Convertible Debentures of a face value of Rs. 10,00,000 each for cash at par due 2018

with Put Option at the end of the 24th

month and the 30th

month

Series 2 Debentures 11.48 % Secured, Non-Cumulative, Redeemable, Taxable, Listed, Rated Non-

Convertible Debentures of a face value of Rs. 10,00,000 each for cash at par due 2018

with Put Option at the end of the 25th

month and the 31st month

Series 1

Debentureholders

Persons who shall be holders of the Series 1 Debentures and whose names shall be

entered into the Register of Debentureholders and shall include the Beneficial Owners

Series 2

Debentureholders

Persons who shall be holders of the Series 2 Debentures and whose names shall be

into the Register of Debentureholders and shall include the Beneficial Owners

Series 1 Default Interest Additional interest at the rate of 2% per annum on the Series 1 Debentures in addition

to the payment of Interest and/or the Series 1 Redemption Amount, as the case may

be payable by the Issuer in case of default in (a) payment of any Interest on the Series

1 Interest Payment Date and/or Series 1 Redemption Amount on the Series 1

Redemption Date or (b) creation of Security

Series 2 Default Interest Additional interest at the rate of 2% per annum on the Series 2 Debentures in addition

to the payment of Interest and/or the Series 2 Redemption Amount, as the case may

be payable by the Issuer in case of default in (a) payment of any Interest on the Series

2 Interest Payment Date and/or Series 2 Redemption Amount on the Series 2

Redemption Date or (b) creation of Security

Series 1 Early

Redemption Date

The date on which the Debenture Trustee gives notice to the Issuer upon the

occurrence of Series 1 Event of Default

Series 2 Early

Redemption Date

The date on which the Debenture Trustee gives notice to the Issuer upon the

occurrence of Series 2 Event of Default

Series 1 Event of

Default

Events of default as set out in the Debenture Trust Deed, the occurrence of which will

lead to all amounts payable under the Series 1 Debentures becoming immediately due

and payable upon notification of the Debenture Trustee

Series 2 Event of

Default

Events of default as set out in the Debenture Trust Deed, the occurrence of which will

lead to all amounts payable under the Series 2 Debentures becoming immediately due

and payable upon notification of the Debenture Trustee

Series 1 Interest

Payment Date

Interest payable annually with respect to the Series 1 Debentures on the 30th

day of

March in each year (and if such day is not a Business Day, the day immediately next

to the 30th

day of March that is a Business Day) with the first interest payment date

falling on March 30, 2016

Series 2 Interest

Payment Date

Interest payable annually with respect to the Series 2 Debentures on the 30th

day of

March in each year (and if such day is not a Business Day, the day immediately next

to the 30th

day of March that is a Business Day) with the first interest payment date

falling on March 30, 2016

Series 1 Interest Period Each period from (and including) any Series 1 Interest Payment Date to (but

excluding) the next succeeding Series 1 Interest Payment Date

Series 2 Interest Period Each period from (and including) any Series 2 Interest Payment Date to (but

excluding) the next succeeding Series 2 Interest Payment Date

Series 1 Interest Rate Interest on the Series 1 Debentures at the fixed rate of approx.11.48% per annum

compounded on a monthly basis equating to effective interest rate of 12.10% per

annum payable on an annual basis on each Series 1 Interest Payment Date and shall

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9

Term Description

include the Step Up Interest on the occurrence of a Rating Downgrade Event

Series 2 Interest Rate Interest on the Series 2 Debentures at the fixed rate of approx.11.48% per annum

compounded on a monthly basis equating to effective interest rate of 12.10% per

annum payable on an annual basis on each Series 2 Interest Payment Date and shall

include the Step Up Interest on the occurrence of a Rating Downgrade Event

Series 1 Potential Event

of Default

An event or circumstance which would, with the expiry of the grace period, the

giving of notice or the making of any determination under the Debenture Trust Deed

result in a Series 1 Event of Default

Series 2 Potential Event

of Default

An event or circumstance which would, with the expiry of the grace period, the

giving of notice or the making of any determination under the Debenture Trust Deed

result in a Series 2 Event of Default

Series 1 Put Option The option which may be exercised by Series 1 Debentureholders pursuant to which

all principal amounts outstanding along with any accrued interest and other amounts

owed, as the case may be, of the Series 1 Debentures will be in payable in one bullet

installment by the Issuer

Series 2 Put Option The option which may be exercised by Series 2 Debentureholders pursuant to which

all principal amounts outstanding along with any accrued interest and other amounts

owed, as the case may be, of the Series 2 Debentures will be in payable in one bullet

installment by the Issuer

Series 1 Put Option Date The date falling 24 months and 30 months after the Deemed Date of Allotment

Series 2 Put Option Date The date falling 25 months and 31 months after the Deemed Date of Allotment

Series 1 Record Date The date which is 15 (fifteen) days prior to each Series 1 Interest Payment Date and

the Series 1 Redemption Date, as the case may be, for the purposes of actual payment

or as may be prescribed by SEBI. Registered Debentureholders on the Series 1

Record Date will be the recipients of actual payment of interest at the Series 1 Interest

Rate by the Issuer

Series 2 Record Date The date which is 15 (fifteen) days prior to each Series 2 Interest Payment Date and

the Series 2 Redemption Date, as the case may be, for the purposes of actual payment

or as may be prescribed by SEBI. Registered Debentureholders on the Series 2

Record Date will be the recipients of actual payment of interest at the Series 2 Interest

Rate by the Issuer.

Series 1 Redemption

Amount

All principal amounts outstanding shall be payable on the Series 1 Early Redemption

Date or the Series 1 Redemption Date, as the case may be, in one bullet installment.

On the Series 1 Early Redemption Date or the Series 1 Redemption Date, as the case

may be, the accrued interest and other amounts owed will also be payable

Series 2 Redemption

Amount

All principal amounts outstanding shall be payable on the Series 2 Early Redemption

Date or the Series 2 Redemption Date, as the case may be, in one bullet installment.

On the Series 2 Early Redemption Date or the Series 2 Redemption Date, as the case

may be, the accrued interest and other amounts owed will also be payable

Series 1 Redemption

Date

The date falling 3 years after the Deemed Date of Allotment, on which the

outstanding principal of the Series 1 Debentures will be repaid by the Issuer

Series 2 Redemption

Date

The date falling 3 years after the Deemed Date of Allotment, on which the

outstanding principal of the Series 2 Debentures will be repaid by the Issuer

Step Up Interest shall have the meaning ascribed to such term in clause 12 (Step Up Interest) of the

Summary Term Sheet;

Conventional and General Terms, Abbreviations and References to Other Business Entities

Abbreviation Full form

CDSL Central Depository Services (India) Limited

Depositories Act The Depositories Act, 1996, as amended from time to time

Depository Participant/

DP

A depository participant as defined under the Depositories Act

DP ID Depository Participant Identification Number

DTC Direct Tax Code Bill, 2010

Equity Shares Equity shares of the Issuer of Face Value of Rs. 10 each

FDI Foreign Direct Investment

FEMA Foreign Exchange Management Act, 1999, as amended, including the regulations

Serial No. 1





10

Abbreviation Full form

framed thereunder

FII Foreign institutional investor,as defined under Regulation 2(1)(g) of the SEBI

(Foreign Portfolio Investors) Regulations, 2014, registered with SEBI under

applicable laws in India

FIPB Foreign Investment Promotion Board

Financial Year/ Fiscal/

FY

Period of 12 months ended on March 31 of that particular year

FPI Foreign portfolio investor, as defined under Regulation 2(1)(h) of the SEBI (Foreign

Portfolio Investors) Regulations, 2014

Government / GoI Government of the Republic of India

GAAP Generally Accepted Accounting Principles

GAAR General Anti Avoidance Rule

IT Act The Indian Income Tax Act, 1961, as amended from time to time

ICAI Institute of Chartered Accountants of India

IFRS International Financial Reporting Standards

IRDA Insurance Regulatory and Development Authority

MFI Microfinance Institution

NBFC Non-Banking financial company

NBFC-MFI Non-Banking Financial Company – Micro Finance Institution

NBFC-MFI Directions Non-Banking Financial Company – Micro Finance Institutions (Reserve Bank) –

Directions 2011, issued by the RBI through its circular dated December 2, 2011

NECS National Electronic Clearing Services

NEFT National Electronic Funds Transfer

New Companies Act The Companies Act, 2013, as amended from time to time

NRI Non-resident Indian

NSDL National Securities Depository Limited

OCB Overseas Corporate Body

Old Companies Act The Companies Act, 1956, as amended from time to time

PAS Rules Companies (Prospectus and Allotment of Securities) Rules, 2014, as amended from

time to time

Pension Fund Established under the Employee’s Pension Scheme, 1995

Provident Fund Established under the Employees’ Provident Funds Scheme, 1952

p.a. Per annum

PAN Permanent Account Number

Qualified Foreign

Investors / QFIs

Qualified foreign investors, as defined under Regulation 2(1)(l) of the SEBI (Foreign

Portfolio Investors) Regulations, 2014

QIBs / Qualified

Institutional Buyers

Qualified institutional buyers, as defined under Regulation 2(1)(zd) of the SEBI

(ICDR) Regulations

RBI The Reserve Bank of India constituted under the RBI Act

RBI Act Reserve Bank of India Act, 1934, as amended from time to time

RNBC Residuary non-banking companies

RoC / ROC The Registrar of Companies, Maharashtra

RTGS Real Time Gross Settlement

Rs./INR/` Indian Rupees

SCRA Securities Contract (Regulations) Act, 1956, as amended from time to time

SEBI The Securities and Exchange Board of India constituted under the SEBI Act, 1992

SEBI Act The Securities and Exchange Board of India Act, 1992, as amended from time to time

SEBI Debt Regulations SEBI (Issue and Listing of Debt Securities) Regulations, 2008 issued by SEBI, as

amended from time to time

SEBI (ICDR)

Regulations

Securities and Exchange Board of India (Issue of Capital and Disclosure

Requirements) Regulations, 2009, as amended

WDM Wholesale Debt Market

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FORWARD LOOKING STATEMENTS

Certain statements in this Information Memorandum are not historical facts but are “forward-looking” in nature.

Forward-looking statements appear throughout this Information Memorandum, including, without limitation,

under the section titled “Risk Factors”. Forward-looking statements include statements concerning the Issuer’s

plans, objectives, goals, strategies, future events, future revenues or financial performance, capital expenditure,

financing needs, plans or intentions relating to acquisitions, the Issuer’s competitive strengths and weaknesses,

the Issuer’s business strategy and the trends the Issuer anticipates in the industry, along with the political and

legal environment, and geographical locations, in which the Issuer operates, and other information that is not

historical information.

Words such as “aims”, “anticipate”, “believe”, “could”, “continue”, “estimate”, “expect”, “future”, “goal”,

“intend”, “is likely to”, “may”, “plan”, “predict”, “project”, “seek”, “should”, “targets”, “would” and similar

expressions, or variations of such expressions, are intended to identify and may be deemed to be forward-

looking statements but are not the exclusive means of identifying such statements.

By their nature, forward-looking statements involve inherent risks and uncertainties, both general and specific,

and assumptions about the Issuer, and risks exist that the predictions, forecasts, projections and other forward-

looking statements will not be achieved.

These risks, uncertainties and other factors include, among other things, those listed under the section titled

“Risk Factors” of this Information Memorandum, as well as those included elsewhere in this Information

Memorandum. Prospective Investors should be aware that a number of important factors could cause actual

results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such

forward-looking statements. These factors include, but are not limited, to:

Compliance with recently introduced laws and regulations, and any further changes in laws and regulations applicable to the MFI industry in India;

Availability of adequate debt and equity financing at reasonable terms;

Our ability to effectively manage financial expenses and fluctuations in interest rates;

Our ability to control the level of our non-performing assets;

Our ability to successfully implement our business strategy;

Our ability to manage operating expenses;

Performance of the Indian debt and equity markets;

Competition from other MFIs, banks and financial institutions; and

General, political, economic, social and business conditions in Indian and other global markets.

For a further discussion of factors that could cause the Issuer’s actual results to differ, please refer to the section

titled “Risk Factors” of this Information Memorandum. By their nature, certain market risk disclosures are only

estimates and could be materially different from what actually occurs in the future. Although the Issuer believes

that the expectations reflected in such forward-looking statements are reasonable at this time, the Issuer cannot

assure Investors that such expectations will prove to be correct. Given these uncertainties, Investors are

cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties

materialize, or if any of the Issuer’s underlying assumptions prove to be incorrect, the Issuer’s actual results of

operations or financial condition could differ materially from that described herein as anticipated, believed,

estimated or expected. All subsequent forward-looking statements attributable to the Issuer are expressly

qualified in their entirety by reference to these cautionary statements. As a result, actual future gains or losses

could materially differ from those that have been estimated. The Issuer undertakes no obligation to update

forward-looking statements to reflect events or circumstances after the date hereof.

Forward looking statements speak only as of the date of this Information Memorandum. None of the Issuer, its

Directors, its officers or any of their respective affiliates or associates has any obligation to update or otherwise

revise any statement reflecting circumstances arising after the date hereof or to reflect the occurrence of

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underlying events, even if the underlying assumptions do not come to fruition.

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RISK FACTORS

The Issuer believes that the following factors may affect its ability to fulfill its obligations under the Debentures.

All of these factors are contingencies which may or may not occur and the Issuer is not in a position to express

a view on the likelihood of any such contingency occurring. These risks may include, among others, business

aspects, equity market, bond market, interest rate, market volatility and economic, political and regulatory risks

and any combination of these and other risks. Prospective Investors should carefully consider all the

information in this Information Memorandum, including the risks and uncertainties described below, before

making an investment in the Debentures. To obtain a complete understanding, prospective Investors should read

this section in conjunction with the remaining sections of this Information Memorandum, as well as the other

financial and statistical information contained in this Information Memorandum. If any of the following risks, or

other risks that are not currently known or are now deemed immaterial, actually occur, the Issuer’s business,

results of operations and financial condition could suffer, the price of Debentures could decline, and the

Investor may lose all or part of their investment. More than one risk factor may have simultaneous effect with

regard to the Debentures such that the effect of a particular risk factor may not be predictable. In addition,

more than one risk factor may have a compounding effect which may not be predictable. No assurance can be

given as to the effect that any combination of risk factors may have on the value of the Debentures. The inability

of the Issuer to pay interest, principal or other amounts on or in connection with the Debentures may occur for

other reasons which may not be considered significant risks by the Issuer based on information currently

available to them or which they may not currently be able to anticipate. You must rely on your own examination

of the Issuer and this Issue, including the risks and uncertainties involved. The ordering of the risk factors is

intended to facilitate ease of reading and reference and does not in any manner indicate the importance of one

risk factor over another.

RISKS RELATED TO THE ISSUER AND THE MICROFINANCE INDUSTRY

Changes in laws and regulations governing the microfinance industry may adversely affect our business,

results of operations, financial condition and prospects.

Since 2010, the microfinance industry, particularly companies with operations in Andhra Pradesh faced the

enactment of new laws and regulations. The Government of Andhra Pradesh passed the A.P.-MFI Act in

January 2011, which replaced the earlier A.P.-MFI Ordinance passed in October 2010. The A.P.-MFI Act,

among other things, provides for the registration of MFIs, a prohibition on security for loans provided to SHGs

and prior governmental approval for the grant of further loans to SHGs or their members, where the SHG or one

of its members has an outstanding loan from a bank. Difficulty in compliance with these requirements reduced

new loan disbursements by MFIs in the state of Andhra Pradesh. This reduction in new loan disbursements, in

addition to other factors such as the requirement for all repayments to be made in monthly installments and at

offices designated by the Andhra Pradesh Government, prompted an increase in defaults by borrowers.

Increased defaults by borrowers resulted in significantly diminished average recovery rates (which we define as

the proportion of principal and interest amount due and recovered during a period to the total principal and

interest amount due for the period), a significant rise in NPAs and large-scale write offs of MFIs’ Andhra

Pradesh loan portfolios, including our portfolio. As a result of this substantial increase in our NPAs during

financial years 2012 and 2013, we wrote off substantial amounts and create substantial provisions in respect of

our entire residual outstanding Andhra Pradesh loan portfolio. In addition, we also reduced our operations in

Andhra Pradesh significantly.

As a result of the new requirements imposed by the AP-MFI Act, new loan disbursements decreased

significantly because the loans granted to MFIs by banks for financing reduced as banks sought greater

regulatory clarity and visibility on ability of MFIs to manage the adverse developments in Andhra Pradesh. As a

result, our interest income decreased significantly and our operational income was insufficient to meet our

finance and employee costs, and other operating expenditures. Slowdowns in disbursements, substantial write

offs and provisioning for our outstanding Andhra Pradesh loan portfolio resulted in significant losses for

financial years 2012 and 2013. Changes in laws and regulations governing the microfinance industry, including

by state Governments and the RBI, may have an adverse effect on our business, results of operations, financial

condition and prospects.

Certain provisions of the NBFC-MFI Directions impose requirements that restrict our business, results of

operations and growth.

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The NBFC-MFI Directions, which were introduced in December 2011, prescribe certain requirements for

NBFC-MFIs, including us, such as:

rates of interest chargeable, which is currently the lower of (i) the cost of funds plus margin of 10.0% for large MFIs with loan portfolios exceeding ` 1.0 billion and (ii) 2.75 times the average base rate of

the five largest commercial banks by assets, as determined by the RBI every quarter;

restrictions on lending so that not more than two NBFC-MFIs may lend to the same borrower; and

requiring at least 85% of net assets (i.e., total assets excluding cash, bank balances and money market instruments) to be qualifying assets (qualifying assets are loans to borrowers that satisfy the criteria

specified in the NBFC-MFI Directions).

The laws and regulations governing the banking and financial services industry in India have become

increasingly complex, with the regulations relating to MFIs still evolving. The requirement to comply with

increasing regulations may continue to adversely affect our business and the microfinance industry in general.

These laws and regulations require us to restructure our activities, and among other limitations, impose limits on

interest rates we can charge and as such limit our interest income, and require us to incur additional expenses,

which adversely affect our business, results of operations and growth.

We cannot predict the effect on our business of the proposed laws and regulations affecting NBFCs or the

microfinance industry in India.

Pursuant to the NBFC-MFI Directions, the RBI created a category of NBFCs termed as “NBFC-MFIs”.

Subsequently, we registered as an NBFC-MFI with the RBI in November 2013. Although the NBFC-MFI

Directions govern the operations of MFIs, there is uncertainty with respect to the enactment, implementation

and enforcement of new laws and regulations governing MFIs in India. In particular, the interplay between

certain provisions of the NBFC-MFI Directions and the A.P.-MFI Act in Andhra Pradesh is not entirely clear

and the validity of the A.P.-MFI Act and the A.P.-MFI Ordinance has been challenged by several MFIs,

including us before the Andhra Pradesh High Court and the Supreme Court of India. Based on interim orders

passed by the Andhra Pradesh High Court in October 2010 and an interim order of the Supreme Court of India

passed in March 2013, so long as we comply with Sections 9 and 16 of the A.P.-MFI Act, we may carry on our

business in ordinary course and no action shall be initiated against us under the A.P.-MFI Act. The Government

of India had presented the MFI Bill 2012 before the Parliament of India in May 2012. The MFI Bill 2012

provided for the development and regulation of microfinance institutions and envisaged empowering the RBI to

issue directions to MFIs including in connection with prudential norms, corporate governance norms and

operations of MFIs. The Indian Parliament had referred the MFI Bill 2012 to its Standing Committee on Finance

for their recommendations and the Standing Committee on Finance recommended on February 11, 2014 that the

MFI Bill 2012 be reviewed and reconsidered by the Indian Government and a new bill be introduced before the

Indian Parliament. The MFI Bill 2012 consequently did not pass in the Parliament of India. There is no certainty

that the MFI Bill 2012 will be introduced in similar form, or at all. There exists the possibility of Indian central

or state Governments enacting laws and regulations to regulate MFI operations in the country or their respective

states. If this happens, our operations may be subject to greater regulatory scrutiny and uncertainty, which may

affect our business, results of operations, financial condition and prospects. The RBI issued a notification on

March 21, 2012 amending the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies

Prudential Norms (Reserve Bank) Directions, 2007, (the “NBFC-ND Prudential Norms”) and introducing

certain regulations with respect to lending against security of gold jewellery (the “Gold Loan Regulations”).

The Gold Loan Regulations, among other things, require NBFCs lending against the collateral of gold jewellery

to maintain the prescribed loan-to value (“LTV”) ratio. In addition, the NBFCs lending against the collateral of

gold jewellery are required to disclose the percentage of such loans to their total assets in their balance sheet.

The RBI through recent circulars has issued detailed guidelines on appropriate infrastructure for storage of gold

ornaments, prior approval of the RBI for opening branches in excess of 1,000, standardisation in methods used

to determine the value of gold for computing the LTV ratio, verification of the ownership of gold and auction

process and procedures, and also increased the LTV ratio requirement from 60% to 75% for such loans.

Additional laws and regulations that may be enacted or existing laws or regulations that may be amended or

repealed and the costs of complying with a new regulatory framework could have an adverse effect on our

business, results of operations and financial condition.

Various state government laws regulating money-lending transactions may adversely affect our business,

operating results and financial position.

A number of states in India have enacted laws to regulate money-lending transactions. These state laws establish

maximum rates of interest that can be charged by a person lending money. There is a lack of clarity on whether

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NBFCs are required to comply with the provisions of state money-lending laws that establish ceilings on interest

rates. In January 2010 and April 2011, the High Court of Gujarat in a matter not involving our Company, held

that the provisions of the RBI Act have an overriding effect over state money-lending laws. However, the matter

is pending before the Supreme Court of India in a different case and a final decision is awaited. Because of this

ambiguity, we have applied for exemptions from the relevant state money lending legislations, where necessary.

We are exempt from the provisions of laws governing moneylenders in the state of Himachal Pradesh. We are

also entitled to the benefit of a blanket exemption for all NBFCs in the state of Rajasthan. The state Government

of Karnataka has issued an order dated January 5, 2012 withdrawing the exemption granted to us from

compliance with the Karnataka Money-Lenders Act, 1961 on May 25, 2007. Subsequent to withdrawal of the

exemption by the state Government of Karnataka, the Office of the Deputy Registrar of Cooperative Societies,

Tumkur issued an order dated March 30, 2012 directing us to stop money lending activities in Tumkur district of

Karnataka. We have filed a writ petition dated April 13, 2012 before the High Court of Karnataka challenging

the validity of this withdrawal of exemption by the Government of Karnataka. The High Court of Karnataka by

way of interim order dated April 19, 2012 has issued directions, among others, to maintain status quo until the

next date of hearing. Further, we have received show cause notices from certain government authorities in

Andhra Pradesh regarding compliance with the relevant money-lending statutes in relation to our operations in

the Khammam district of Andhra Pradesh and from certain authorities in the Hingoli district of Maharashtra for

submission of certain documents under the money-lenders statutes applicable in Maharashtra. Additionally, we

have received notices from the relevant authorities in the state of Andhra Pradesh for certain instances of non-

compliance with the A.P.-MFI Ordinance and the A.P.-MFI Act. The DRDA, Mahbubnagar, Andhra Pradesh

had also issued a notice dated April 19, 2012 cancelling our registration in the Mahbubnagar district. The High

Court of Andhra Pradesh has suspended the application of this notice through an interim order dated June 20,

2012. In the event that the Government of any state in India requires us to comply with the provisions of their

respective state money-lending laws, or imposes any penalty against us, our Directors or our officers, including

for prior non-compliance, our business and results of operations may be adversely affected.

Interest rate volatility adversely affects our business, results of operations and financial condition.

Our business is dependent on interest income from the loans we disburse and the interest expense we pay on our

liabilities and is vulnerable to interest rate risk. Interest income constituted 72.1%, 62.4% and 76.0% of our total

income for the financial years 2014, 2013 and 2012, respectively. Interest rates are highly sensitive to many

factors beyond our control, including the monetary policies of the RBI, deregulation of the financial sector in

India, domestic and international economic and political conditions and other factors. Due to these factors,

interest rates in India have historically experienced a relatively high degree of volatility. The annual interest rate

applicable to loans we currently offer to our Members is 23.55% (effective October 1, 2014) for our micro-

credit income generation products. If our cost of funds and operating expenses increase to a level where

compliance with the NBFC-MFI Directions results in pressure on our operating margins, our business, results of

operations and financial condition may be adversely affected. An increase in interest rates applicable to our

liabilities, without a corresponding increase in interest rates applicable to our assets, will result in a decline in

our net interest income. Being a non-deposit taking NBFC, we are also exposed to greater interest rate risk

compared to banks or deposit taking NBFCs. Further, if interest rates rise:

we may have greater difficulty in maintaining a low effective cost of funds compared to our competitors, who may have access to low-cost deposit funds;

with respect to our borrowings that are linked to market rates, we may have to pay interest at a higher rate as compared to other lenders, which in turn may expose our operations to the risk of contracting

net interest margins; and

in the event we decide to increase the interest rates we charge on our loan products, our Borrowers may not be willing to pay correspondingly higher interest rates on their borrowings and may opt for more

competitively priced loans offered by other lenders, leading to a loss in our market share.

Our inability to effectively and efficiently manage interest rate variations may adversely affect our net interest

margins and operating margins, thereby affecting our business, results of operations and financial condition.

We have significant capital requirements and any disruption in availability of financing may adversely affect

the cost and availability of capital and in turn our business, results of operations and financial condition.

Our business requires significant capital and our financial condition is dependent on our timely access to and the

cost of capital. We have historically relied on equity issuances, secured and unsecured loans from banks and

financial and other institutions, the issuance of redeemable non-convertible debentures, commercial paper,

assignment and securitisation of loan receivables as well as cash flows from operations to fund our operations,

Serial No. 1





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capital expenditure and expansion.

The RBI requires domestic commercial banks operating in India to maintain a minimum of 40.0% of their

adjusted net bank credit, or a credit equivalent amount of off-balance sheet exposure, whichever is higher, as

lending to priority sectors such as agriculture, micro-credit, micro and small enterprises, education and housing

(“PSL”). PSL funds received as a result of these bank requirements are a significant source of funding for the

MFI industry in India but certain eligibility conditions are required to be satisfied by MFIs to avail such funds.

To the extent that changes in regulations impose any further conditions or requirements for PSL funds or in the

event that loans to MFIs are no longer classified as PSL, our access to, and the cost of, debt financing may be

adversely affected. Our ability to obtain additional equity and debt financing is also subject to uncertainties such

as our future financial position, the continued success of our loan products, our results of operations and cash

flows, necessary regulatory approvals, contractual consents, general market conditions and economic and

political conditions in India and elsewhere. In addition, adverse developments in the Indian and world credit

markets may significantly increase our debt service costs and the overall costs of our borrowings. We may not

be able to secure financing on favourable terms and in a timely manner, or at all. The terms of any additional

financing may place limits on our financial and operational flexibility. If we are unable to obtain adequate

financing or financing on terms satisfactory to us, our ability to grow or support our business and to respond to

business challenges could be limited and our business, results of operations and financial condition may be

adversely affected.

Our access to bank loans was also adversely affected in the past by the events in Andhra Pradesh and the

uncertainty surrounding legislative efforts by other Indian state Governments to enact laws similar to the A.P.-

MFI Act. These factors resulted in banks reducing their exposure to the MFI industry. Banks did not increase

their lending to us until greater clarity was available on the regulatory framework. Further, banks that currently

lend to us for the conduct of our business in states other than Andhra Pradesh may decrease or withdraw their

facilities in the event of any further regulatory uncertainty. Any disruption in our primary financing sources or

their associated costs may adversely affect our business, results of operations and financial condition.

Any downgrade of our credit ratings or our grading as an MFI would increase our cost of borrowing and

make our ability to raise new funds in the future or renew maturing debt more difficult.

CARE has provided us credit ratings and an MFI grading. In March 2011, our credit rating for short-term debt

facilities was downgraded from “CARE A1+” to “CARE A1”, which indicates a comparatively lower standing

from the rating previously provided. In July 2014, our credit rating was upgraded to “CARE A1+” for short-

term debt facilities and “CARE A+” for long-term facilities. However, we cannot assure you that any

downgrading of our credit ratings or grading will not take place in the future. Any downgrading of our credit

ratings or grading would further increase our cost of borrowings and impair our ability to renew maturing debt,

which may have an adverse effect on our business, results of operations and financial condition.

If we are unable to control the level of our NPAs, or if our loan loss reserves are insufficient to cover our

loan losses, our business, results of operations and financial condition may be adversely affected.

Events in Andhra Pradesh since October 15, 2010 led to an increase in defaults by borrowers, resulting in

significantl