Download VTU (Visvesvaraya Technological University) MBA 3rd Semester (Third Semester) 16MBAFM302-Financial Services FS Notes Unit 5 Important Lecture Notes (MBA Study Material Notes)
Venture Capital, Micro Finance & Credit
Rating
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
Types of Credit Rating
?Financial instruments rating including bonds
and Commercial papers
?Customer rating refers to assessment of credit
worthiness of customers to whom goods are
sold on credit
? Borrower rating is to assess the ability of a
borrower to repay the debt. If the borrower is a
country the evaluation of creditworthiness of
such country is made referred as sovereign
rating.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
Types of Credit Rating
?Financial instruments rating including bonds
and Commercial papers
?Customer rating refers to assessment of credit
worthiness of customers to whom goods are
sold on credit
? Borrower rating is to assess the ability of a
borrower to repay the debt. If the borrower is a
country the evaluation of creditworthiness of
such country is made referred as sovereign
rating.
Benefits of Credit Rating
For investors
? Information service
? Systematic risk assessment
? Professional competency
? Easy to understand
? Low cost
? Efficient portfolio management
? Information and research
For the Company
? Easy to raise resources
? Reduced cost of borrowing
? Reduced cost of public issues
? Builds up image
? Facilitates growth
? Recognition to unknown companies
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
Types of Credit Rating
?Financial instruments rating including bonds
and Commercial papers
?Customer rating refers to assessment of credit
worthiness of customers to whom goods are
sold on credit
? Borrower rating is to assess the ability of a
borrower to repay the debt. If the borrower is a
country the evaluation of creditworthiness of
such country is made referred as sovereign
rating.
Benefits of Credit Rating
For investors
? Information service
? Systematic risk assessment
? Professional competency
? Easy to understand
? Low cost
? Efficient portfolio management
? Information and research
For the Company
? Easy to raise resources
? Reduced cost of borrowing
? Reduced cost of public issues
? Builds up image
? Facilitates growth
? Recognition to unknown companies
Credit Rating Information Services of India Limited (CRISIL)
? The Credit Rating Information Services of India Limited was
promoted in 1987 by ICICI and UTI. It has its head office in
Mumbai.
? The principal objective is to rate debt obligation of Indian companies.
? The rating provides guide to the investors as to the degree of
certainty of timely payment of interest and principal on a particular
debt instrument.
? CRISIL?s business operate from 8 countries including USA,
Argentina, Poland, UK, India, China, Hong Kong and Singapore.
Services offered by CRISIL
?Credit Rating Services
?Advisory Services
?Training Services
Link for you tube video
https://www.youtube.com/watch?v=J2THOI-IF6U
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
Types of Credit Rating
?Financial instruments rating including bonds
and Commercial papers
?Customer rating refers to assessment of credit
worthiness of customers to whom goods are
sold on credit
? Borrower rating is to assess the ability of a
borrower to repay the debt. If the borrower is a
country the evaluation of creditworthiness of
such country is made referred as sovereign
rating.
Benefits of Credit Rating
For investors
? Information service
? Systematic risk assessment
? Professional competency
? Easy to understand
? Low cost
? Efficient portfolio management
? Information and research
For the Company
? Easy to raise resources
? Reduced cost of borrowing
? Reduced cost of public issues
? Builds up image
? Facilitates growth
? Recognition to unknown companies
Credit Rating Information Services of India Limited (CRISIL)
? The Credit Rating Information Services of India Limited was
promoted in 1987 by ICICI and UTI. It has its head office in
Mumbai.
? The principal objective is to rate debt obligation of Indian companies.
? The rating provides guide to the investors as to the degree of
certainty of timely payment of interest and principal on a particular
debt instrument.
? CRISIL?s business operate from 8 countries including USA,
Argentina, Poland, UK, India, China, Hong Kong and Singapore.
Services offered by CRISIL
?Credit Rating Services
?Advisory Services
?Training Services
Link for you tube video
https://www.youtube.com/watch?v=J2THOI-IF6U
Credit Rating Agencies
Investment Information and Credit Rating Agencies of India (ICRA)
? CARE was incorporated on April 21, 1993, and commenced its operation
in October, 1993.
? It undertakes rating of all types of debt instruments like commercial
paper, fixed deposits, bonds, debentures, and structural obligations,
involving an independent and professional assessment of debt servicing
capabilities of companies.
Onida Individual Credit Rating Agency (ONICRA)
? A private company, Onida Individual Credit Rating Agency has been set
up by Onida Finance.
? It undertakes rating for credit cards, leasing, hire/purchase transaction,
housing finance, and bank finance.
? The main objective of these agencies is primarily to restore the confidence
in the capital market and to provide unbiased assessment of the
creditworthiness of the companies issuing debt instrument
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
Types of Credit Rating
?Financial instruments rating including bonds
and Commercial papers
?Customer rating refers to assessment of credit
worthiness of customers to whom goods are
sold on credit
? Borrower rating is to assess the ability of a
borrower to repay the debt. If the borrower is a
country the evaluation of creditworthiness of
such country is made referred as sovereign
rating.
Benefits of Credit Rating
For investors
? Information service
? Systematic risk assessment
? Professional competency
? Easy to understand
? Low cost
? Efficient portfolio management
? Information and research
For the Company
? Easy to raise resources
? Reduced cost of borrowing
? Reduced cost of public issues
? Builds up image
? Facilitates growth
? Recognition to unknown companies
Credit Rating Information Services of India Limited (CRISIL)
? The Credit Rating Information Services of India Limited was
promoted in 1987 by ICICI and UTI. It has its head office in
Mumbai.
? The principal objective is to rate debt obligation of Indian companies.
? The rating provides guide to the investors as to the degree of
certainty of timely payment of interest and principal on a particular
debt instrument.
? CRISIL?s business operate from 8 countries including USA,
Argentina, Poland, UK, India, China, Hong Kong and Singapore.
Services offered by CRISIL
?Credit Rating Services
?Advisory Services
?Training Services
Link for you tube video
https://www.youtube.com/watch?v=J2THOI-IF6U
Credit Rating Agencies
Investment Information and Credit Rating Agencies of India (ICRA)
? CARE was incorporated on April 21, 1993, and commenced its operation
in October, 1993.
? It undertakes rating of all types of debt instruments like commercial
paper, fixed deposits, bonds, debentures, and structural obligations,
involving an independent and professional assessment of debt servicing
capabilities of companies.
Onida Individual Credit Rating Agency (ONICRA)
? A private company, Onida Individual Credit Rating Agency has been set
up by Onida Finance.
? It undertakes rating for credit cards, leasing, hire/purchase transaction,
housing finance, and bank finance.
? The main objective of these agencies is primarily to restore the confidence
in the capital market and to provide unbiased assessment of the
creditworthiness of the companies issuing debt instrument
Duff Phelps Credit Rating (DPCR)
? Duff Phelps Credit Rating India Pvt. Ltd. Is another private
sector credit rating agency set up in 1996.
Fitch Ratings
? Fitch Ratings India Ltd. Is the latest agency to do credit
rating from the foreign sector.
? In addition to debt instruments, it also rates companies and
countries on request.
Brickwork Rating
? Brickwork Rating Private Ltd was initiated in the year 2007
by Sangeeta Kulkarni, the company was formed with aim
and task to rate credits.
? The top rated areas of operation for the company are ranged
for NSD, Commercial Papers, MSME rating based on the
interest payment of debtors.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
Types of Credit Rating
?Financial instruments rating including bonds
and Commercial papers
?Customer rating refers to assessment of credit
worthiness of customers to whom goods are
sold on credit
? Borrower rating is to assess the ability of a
borrower to repay the debt. If the borrower is a
country the evaluation of creditworthiness of
such country is made referred as sovereign
rating.
Benefits of Credit Rating
For investors
? Information service
? Systematic risk assessment
? Professional competency
? Easy to understand
? Low cost
? Efficient portfolio management
? Information and research
For the Company
? Easy to raise resources
? Reduced cost of borrowing
? Reduced cost of public issues
? Builds up image
? Facilitates growth
? Recognition to unknown companies
Credit Rating Information Services of India Limited (CRISIL)
? The Credit Rating Information Services of India Limited was
promoted in 1987 by ICICI and UTI. It has its head office in
Mumbai.
? The principal objective is to rate debt obligation of Indian companies.
? The rating provides guide to the investors as to the degree of
certainty of timely payment of interest and principal on a particular
debt instrument.
? CRISIL?s business operate from 8 countries including USA,
Argentina, Poland, UK, India, China, Hong Kong and Singapore.
Services offered by CRISIL
?Credit Rating Services
?Advisory Services
?Training Services
Link for you tube video
https://www.youtube.com/watch?v=J2THOI-IF6U
Credit Rating Agencies
Investment Information and Credit Rating Agencies of India (ICRA)
? CARE was incorporated on April 21, 1993, and commenced its operation
in October, 1993.
? It undertakes rating of all types of debt instruments like commercial
paper, fixed deposits, bonds, debentures, and structural obligations,
involving an independent and professional assessment of debt servicing
capabilities of companies.
Onida Individual Credit Rating Agency (ONICRA)
? A private company, Onida Individual Credit Rating Agency has been set
up by Onida Finance.
? It undertakes rating for credit cards, leasing, hire/purchase transaction,
housing finance, and bank finance.
? The main objective of these agencies is primarily to restore the confidence
in the capital market and to provide unbiased assessment of the
creditworthiness of the companies issuing debt instrument
Duff Phelps Credit Rating (DPCR)
? Duff Phelps Credit Rating India Pvt. Ltd. Is another private
sector credit rating agency set up in 1996.
Fitch Ratings
? Fitch Ratings India Ltd. Is the latest agency to do credit
rating from the foreign sector.
? In addition to debt instruments, it also rates companies and
countries on request.
Brickwork Rating
? Brickwork Rating Private Ltd was initiated in the year 2007
by Sangeeta Kulkarni, the company was formed with aim
and task to rate credits.
? The top rated areas of operation for the company are ranged
for NSD, Commercial Papers, MSME rating based on the
interest payment of debtors.
Rating Symbols for different Companies
? The rating symbols are symbolic expressions of the opinion or
assessment of the credit rating agency regarding the investment,
credit quality, grade of the debt, obligation, instrument, etc.
? Separate symbols have been assigned for long-term and short-
term instruments.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
Types of Credit Rating
?Financial instruments rating including bonds
and Commercial papers
?Customer rating refers to assessment of credit
worthiness of customers to whom goods are
sold on credit
? Borrower rating is to assess the ability of a
borrower to repay the debt. If the borrower is a
country the evaluation of creditworthiness of
such country is made referred as sovereign
rating.
Benefits of Credit Rating
For investors
? Information service
? Systematic risk assessment
? Professional competency
? Easy to understand
? Low cost
? Efficient portfolio management
? Information and research
For the Company
? Easy to raise resources
? Reduced cost of borrowing
? Reduced cost of public issues
? Builds up image
? Facilitates growth
? Recognition to unknown companies
Credit Rating Information Services of India Limited (CRISIL)
? The Credit Rating Information Services of India Limited was
promoted in 1987 by ICICI and UTI. It has its head office in
Mumbai.
? The principal objective is to rate debt obligation of Indian companies.
? The rating provides guide to the investors as to the degree of
certainty of timely payment of interest and principal on a particular
debt instrument.
? CRISIL?s business operate from 8 countries including USA,
Argentina, Poland, UK, India, China, Hong Kong and Singapore.
Services offered by CRISIL
?Credit Rating Services
?Advisory Services
?Training Services
Link for you tube video
https://www.youtube.com/watch?v=J2THOI-IF6U
Credit Rating Agencies
Investment Information and Credit Rating Agencies of India (ICRA)
? CARE was incorporated on April 21, 1993, and commenced its operation
in October, 1993.
? It undertakes rating of all types of debt instruments like commercial
paper, fixed deposits, bonds, debentures, and structural obligations,
involving an independent and professional assessment of debt servicing
capabilities of companies.
Onida Individual Credit Rating Agency (ONICRA)
? A private company, Onida Individual Credit Rating Agency has been set
up by Onida Finance.
? It undertakes rating for credit cards, leasing, hire/purchase transaction,
housing finance, and bank finance.
? The main objective of these agencies is primarily to restore the confidence
in the capital market and to provide unbiased assessment of the
creditworthiness of the companies issuing debt instrument
Duff Phelps Credit Rating (DPCR)
? Duff Phelps Credit Rating India Pvt. Ltd. Is another private
sector credit rating agency set up in 1996.
Fitch Ratings
? Fitch Ratings India Ltd. Is the latest agency to do credit
rating from the foreign sector.
? In addition to debt instruments, it also rates companies and
countries on request.
Brickwork Rating
? Brickwork Rating Private Ltd was initiated in the year 2007
by Sangeeta Kulkarni, the company was formed with aim
and task to rate credits.
? The top rated areas of operation for the company are ranged
for NSD, Commercial Papers, MSME rating based on the
interest payment of debtors.
Rating Symbols for different Companies
? The rating symbols are symbolic expressions of the opinion or
assessment of the credit rating agency regarding the investment,
credit quality, grade of the debt, obligation, instrument, etc.
? Separate symbols have been assigned for long-term and short-
term instruments.
FirstRanker.com - FirstRanker's Choice
F.S Unit - 5
Venture Capital, Micro Finance & Credit
Rating
Venture Capital
? Venture capital is the capital that is available to finance a new business
venture
? The venture capitalist earns his returns primarily in the form of capital
gain
? Generally V.C finance new firms/new ideas and entrepreneurial talent
? V.C does not involve financing the enterprise which is engaged in
trading, broking, investment or financial services and agency.
? It is generally considered as high risk capital
? It is not only capital but generally injection of a lot of skills like
marketing, strategies, management etc
? Origin of venture capital
? Bank of England defines Venture capital as:
?Venture capital investment is defined as an activity by which
investors support entrepreneurial talent with finance and
business skills to exploit market opportunities and thus obtain
long term capital gains?
Features of Venture capital
? New ventures - use new technology, produce new goods,
expectation of high gains
? Continuous involvement - by providing loans or managerial skills
? Mode of investment - equity financing method or loan finance
? Wealth maximisation - capital gain or regular return on debt
? Hands-on approach - value added services ? skills, non-liquid
investment
? High risk- return ventures - huge capital gain at the time of exit
? Nature of firms - Small and medium ? new, high technology
oriented firms
? Liquidity ? depends on success of new venture product.
Objectives venture Capital
? Encourage technology and its commercial application
? Adopt the imported technology to suit the Indian environment
? Setting up of pilot projects
? Technological innovations and modernisation
? Developing appropriate technology
? Meeting the cost of market surveys and market promotion
programmes
Private Equity
?Investments in equity of private companies, not
public limited company
?They may invest in private placement offers of public
limited companies
?Highly illiquid investments and gestation period is
high.
? Usually tend to engage in management of the private
firms
?Differs from venture capital with respect to stage of
development of the firm in which they invest. VC
comes in early at seed/start-up stage while PE comes
in at later stage investments.
Investment Banking perspective in Private Equity
? Deal Origination
? Due diligence
? Deal negotiation
? Deal closing
? Post-acquisition monitoring
? Exit
? Repeat
Private Equity VS Venture capital
? Meaning
? Type of investment
? Company type
? Percentage acquired
? Size
? Structure
? Stage
? Risk and Return
Micro Finance
?Provision of financial services to poor or low
income groups including consumers and self-
employed
?Services include loans, insurance, deposits, etc to
poor entrepreneurs who would not qualify for
bank finance
?According to NABARD, microfinance is
?provision of thrift, credit and other financial
services and products of very small amounts to
the poor in rural, semi urban or urban areas for
enabling them to raise their income levels and
improve living standards?
Characteristics of Micro Finance
? Is a part of rural finance and a developmental tool
? Deals with small loans meant for working capital
? Informal appraisal of borrowers and investments is done
? MFIs go to clients
? Procedure for loan is very simple
? Rate of interest is reasonable
? No restrictions on purpose of loan
? Repayment through income from business and other sources
? Number of accounts are manageable
? Collateral substitutes ? Group or relationships
? Access to repeat loan depends on repayment performance
? Provides an opportunity for self employment
? It is more service oriented and less profit oriented
Future and growth of Micro Finance
? Micro?finance?has?been?a?major?success?and?is?growing?fast?
across?country
? ?Helped?in?providing?social?and?economic?empowerment
? ?But?eradication?of?poverty?is?difficult?by?itself
? Good?governance,?security,?health,?education?and?financial?
inclusion?work?hand-in-hand?in?eradication?of?poverty
? Availability?of?credit?may?be?a?trigger?for?growth?
? MFIs? operate? in? 588? districts? in? India? spread? across? 29?
states
? 166?MFIs?with?a?branch?network?of?12,221?employees?have?
reached?out?to?an?all?time?high?of?39?million?clients?with?an?
outstanding?loan?portfolio?of?Rs?63,853?crore.?
? The? average? loan? outstanding? per? borrower?stood? at? Rs?
11,425?and?94%?of?loans?were?used?for?income?generation?
purposes.
Advantages of Micro Finance
? Financial services are made available to poor people.
? Microfinance helps in the development of an economy by
giving the chance to establish a sustainable means of income.
? Promotes community building and mutual accountability.
? A culture of responsibility and encouragement can be built-up.
? Microfinance programmes can be self-funding.
? Taking out loans, buying insurance, and saving money all teach
people how to be future oriented.
? Microfinance helps women. Almost all micro-borrowers are
women, who develop home businesses. Women are generally
more responsible than men. They use their profits to feed and
educate their children, instead of spend more on booze and
gambling.
Dis-advantages of Micro finance
? Some borrowers have become dependent on loans for household
expenditures rather than capital investments.
? There are some microfinance institutions charging excessive interest
rates.
? Studies of micro-credit programs have found that women often act as
collection agents for their husbands and sons, such that the men
spend the money on themselves while women are burden with the
credit risk.
? Microfinance helps women. That?s good, but not good enough to
transform communities. Communities are formed of equal parts of
men and women, who have a strong affinity for forming bonds with
each other. Development that helps women but doesn?t involve men
has a natural self-limitation.
? Microfinance is small scale. Small businesses become large
businesses sometimes. But more often they don?t.
? Some argue that there?s too much focus on microfinance which will
be motivating less spending in other helping assistances as public
health, welfare and education.
Credit Rating
? Credit rating refers to assessment of the credit worthiness of
individuals and corporations. It is based on history of borrowing and
payments as well as availability of assets and liabilities.
? Credit rating started in USA in 1909 by John Moody and spread
across the globe
? In India it started in 1993 by the establishment of CRISIL (Credit
Rating Information Services of India Ltd.)
? Followed by establishment of IICRA (Investment Information and
Credit Rating Agency) promoted by IFCI
? Credit Analysis and Research (CARE) as a subsidiary of IFCI in
1995
? Duffs and Phelps Credit Rating (DCRI) was established for rating
NBFC for fixed deposits in 1995
? According to Moody ?Credit rating is an opinion on the future
ability and legal obligation of the issuer to make timely payments of
principal and interest on a specific fixed income security.?
? Rating is represented by an alphabetical symbol like AAA, AA, A
etc
Features of credit Rating
? Based on information: It is based on published information and has
limitations. Privileged and confidential information is hard to get
which decides success of rating system
? Many factors affect rating: There is no formula. Rating depends
upon many factors like management quality, corporate strategy,
economic outlook, international environment. Committee consists of
experts in finance and rating.
? Rating by more than one agency: Debt issues are usually rated by 2
or more agencies and the ratings may differ e.g AA, AA+ or AA-
? Monitoring the already rated issues: Agencies have to monitor the
debt servicing capabilities on a periodic basis and upgrade/downgrade
? Publication of ratings: Ratings done at the behest of issuers are
accepted and then published. Changes have to be published
irrespective of acceptance
? Right to appeal: Issuer can furnish additional relevant information
and appeal for a revision which the rating agency will consider.
? Rating of rating agencies: Rating agencies are assessed on the basis
of public opinion based on quality of services offered, consistency
and integrity.
? Rating is for the instruments and not the company: Two
instruments issued by the same company may have different
ratings depending upon term, guarantees, etc.
? Rating is not applicable to equity shares: There is no
obligation of servicing of debt in equity context and hence there
is no rating done
? Credit v/s financial analysis: Rating is much broader than just
financial analysis. Rating done by experts based on a number of
factors .
Objectives of Credit Rating
? To restore the Confidence in capital market
? Provides assessment of credit worthiness
? Information to investors
? Provide a basis for risk-return decision
? Helps in framing public policy guidelines on
institutional investments
Types of Credit Rating
?Financial instruments rating including bonds
and Commercial papers
?Customer rating refers to assessment of credit
worthiness of customers to whom goods are
sold on credit
? Borrower rating is to assess the ability of a
borrower to repay the debt. If the borrower is a
country the evaluation of creditworthiness of
such country is made referred as sovereign
rating.
Benefits of Credit Rating
For investors
? Information service
? Systematic risk assessment
? Professional competency
? Easy to understand
? Low cost
? Efficient portfolio management
? Information and research
For the Company
? Easy to raise resources
? Reduced cost of borrowing
? Reduced cost of public issues
? Builds up image
? Facilitates growth
? Recognition to unknown companies
Credit Rating Information Services of India Limited (CRISIL)
? The Credit Rating Information Services of India Limited was
promoted in 1987 by ICICI and UTI. It has its head office in
Mumbai.
? The principal objective is to rate debt obligation of Indian companies.
? The rating provides guide to the investors as to the degree of
certainty of timely payment of interest and principal on a particular
debt instrument.
? CRISIL?s business operate from 8 countries including USA,
Argentina, Poland, UK, India, China, Hong Kong and Singapore.
Services offered by CRISIL
?Credit Rating Services
?Advisory Services
?Training Services
Link for you tube video
https://www.youtube.com/watch?v=J2THOI-IF6U
Credit Rating Agencies
Investment Information and Credit Rating Agencies of India (ICRA)
? CARE was incorporated on April 21, 1993, and commenced its operation
in October, 1993.
? It undertakes rating of all types of debt instruments like commercial
paper, fixed deposits, bonds, debentures, and structural obligations,
involving an independent and professional assessment of debt servicing
capabilities of companies.
Onida Individual Credit Rating Agency (ONICRA)
? A private company, Onida Individual Credit Rating Agency has been set
up by Onida Finance.
? It undertakes rating for credit cards, leasing, hire/purchase transaction,
housing finance, and bank finance.
? The main objective of these agencies is primarily to restore the confidence
in the capital market and to provide unbiased assessment of the
creditworthiness of the companies issuing debt instrument
Duff Phelps Credit Rating (DPCR)
? Duff Phelps Credit Rating India Pvt. Ltd. Is another private
sector credit rating agency set up in 1996.
Fitch Ratings
? Fitch Ratings India Ltd. Is the latest agency to do credit
rating from the foreign sector.
? In addition to debt instruments, it also rates companies and
countries on request.
Brickwork Rating
? Brickwork Rating Private Ltd was initiated in the year 2007
by Sangeeta Kulkarni, the company was formed with aim
and task to rate credits.
? The top rated areas of operation for the company are ranged
for NSD, Commercial Papers, MSME rating based on the
interest payment of debtors.
Rating Symbols for different Companies
? The rating symbols are symbolic expressions of the opinion or
assessment of the credit rating agency regarding the investment,
credit quality, grade of the debt, obligation, instrument, etc.
? Separate symbols have been assigned for long-term and short-
term instruments.
FirstRanker.com - FirstRanker's Choice
This post was last modified on 18 February 2020