Why Invest in Financial institutions

How financial institutions contribute to development Access to finance Employment Corporates > 300 employees Medium-sized businesses 50 – 300 employees USD 3 – 15 mill in revenues Small businesses 10 – 50 employees USD 0.1 – 3 mill in revenues Microenterprises < 10 employees Poverty reduction Banks More than 50% of SMEs identify access to finance as a key constraint The missing middle Creating jobs in economically sustainable businesses Total credit gap USD 1.3 trillion Increased tax base Micro- finance SMEs %of jobs less in dev.countries than in Developed countries From informal to formal sector, pay taxes Source: World Bank

Core norfund focus : funding of sme-banks Few pure SME-banks Several inhibitors for SME-banking Norfund contribution Corporate banks Microfinance banks Non-bank FIs … seen as a growth area Different skill set required Bank access to finance Bank ownership Regulations Training support Stable long-term funding Active ownership Influence strategy Governance and compliance We look for the players we believe will be the winners in this segment Financial success and development effects are interrelated SMEs ~50% of jobs From informal to formal sector, pay taxes

Critical to reduce the large unbanked population Opportunity for banks Served by microfinance Subscale and inefficient Limited product offering Banks have been reluctant Too costly to serve New distribution channels Mobile and agency banking Cheap funding Reduce foreign reliance Upsell opportunities Growth business 70-80% of adult population unbanked Informal sector Economically inefficient Norfund’s contribution Finance mass market banking Deposit taking microfinance Electronic distribution channels “Stamp of approval” SMEs ~50% of jobs From informal to formal sector, pay taxes

Current norfund fi portfolio Direct Norfund 30 loans 9 equity investments 4 FI funds Nordic Microfinance Initiative About 10% of Norfund FI portfolio MFIs in Africa and South Asia Arise About 50% of Norfund FI portfolio 10 banks in Sub-Sahara Africa MNOK 3 240 MNOK 1 220 MNOK 590 Asia Central America Africa COMMITMENTS 5,048 MNOK (~650 MUSD) SECTORS as of 31.12.2016