1 CAPA FINANCE IFN SA Adrian Chindris General Manager CAPA

2 Romanian financial sector: present Growth rates: among highest in the CEE / CIS regions – 30 to 40% increase p.a. in the last 4 years Players: 44 authorized banks and 213 NBFI’s Services: most institutions adopted a universal commercial banking model, but business drivers are either corporate or retail lending Financial intermediation (assessed as Loans to private sector / GDP) reached 36.6% at FY’07 vs. 27.2% at the end of FY’06 Retail lending: has been the source of growth of the sector; loans to household per capita reached 920 EUR/capita at the end of 2007 (138 EUR/capita in 2004); however, since CEE average is 2,431 EUR/capita, there is still a significant gap Commercial lending: focused mainly on large companies and medium enterprises Financial Performance: high among other sectors in Romania, but still below the CEE / European levels Overview

3 non-banking financial institution (“NBFI”); market leader in the microfinance sector; started as a program of a world-wide non-governmental organization (World Vision) providing loans to entities without access to banks in march 2008 it has become the single micro-finance NBFI listed in the Special Register of NBR; it triggers strict rules regarding risk management, prudential reporting, internal control systems, corporate governance entrepreneurial and skilled management team with over 10 years of experience in the industry; 115 employees business covering 10 regions across the country through 10 urban branches and 21 rural branches 6,100 individuals and 1,800 entrepreneurs as clients ICAPA: PRESENT

4 BS analysis the table below presents IFRS data for 2006 and 2007 and Romanian accounting standards data for 2008 the growth of 150% in total assets in FY’07 vs FY’06 has been driven by the dynamic of the portfolio additional USD 10 million loans to customers were acquired by CAPA at year end from RAEF; they were originated by CAPA as well, as part of the exiting intermediation agreement dynamic in cash and equity positions is derived by a share capital contribution of EUR 9 million paid in by the new shareholders the company obtained lower ROA and ROE compared with banking industry averages, due to low profitability I. CAPA: PRESENT

5 The portfolio (1) steady growth year after year reflected in doubling of portfolio (incl. for 2008 budgeted figures) I. CAPA: PRESENT

6 The portfolio (2) Loans to MSE (micro and small enterprises) steadily grew, reaching a significant weight in the portfolio (65% in 2007) product characteristics: slightly higher APR’s vs banking, amounts granted up to 40,000 EUR equiv; maturity: max. 5 years; purpose of loan: investment, working capital needs, real estate developments Loans to individuals grew in absolute numbers, however at a lower pace I. CAPA: PRESENT

7 Funding historically, business evolution was mainly driven by the funding availability Dec-07 meant a strong improvement of the financial position through the funding brought in by the new shareholders (EUR 9 mill new capital + USD 10 mil new borrowings) IFI and Banks providing finance comprise: specialized micro-lending funds (Lehman Bro, Microvest, DWM, World Bank, EFSE) and other lenders characteristics of funding at end of FY’07: higher APR’s, many and with small amounts per lender, leading to inefficiencies in funding management process shareholders are the main source of funding in FY’08 new borrowings, amounting to EUR 20 million, are expected by the end of FY’08 I. CAPA: PRESENT

What type of investors/ funders… …are playing roles in microfinance? NGOs and Development Agencies Specialised investment funds (with social orientation and with claimed social orientation) Investment funds – non specialised Banks Private structures Other Is there any difference between the approach of the other institutions? 8 Particular approach

What investors are looking for? MFIs with: Efficient operations/performing portfolio Scalability Profitable or getting close to profitability Extensive network/good outreach Strong middle management/strong staff Acceptable governance structure Good legal documents and procedures High leverage of assets Good quality liabilities Social impact They are looking to invest into a commercially performing financial institution; 9

How to find capital? The answer depends on the MFI quality/characteristics and the forecasted evolution of the national economies Not all the MFIs are ready to receive commercial loans or equity investments Good MFIs are contacted directly by investment funds and institutional investors (starting the second half of 2007) Special MFI investment units were created in some large banks in order to ensure early acquisition of the MFIs within certain markets As a result, any MFI needs to at least have an acceptable growth plan in accordance with the evolution of the national economy The Board of the MFI need to decide what are the affordable terms of the borrowings from different resources and how does it match the growth plan of the institution Depending on it, there are a number of sources that can be tapped 10

New equity investor.. Need to be strong an have a high leverage capacity. If not, there are no commercial reasons to bring it in. ADVANTAGES: Strong focus on risk management and improvement of efficiencies Capacity to increase equity and leverage (through the existence of more institutions or through its own BS)on it in order to match the evolution of the market In some cases experience in developing and scale up financial services institutions Some of the investors had already developed models to be replicated in different environments DESADVANTAGES MFIs are risk takers and are compensating the risk through methodologies; a commercial investors is usually avoiding such risks and as a result the declining of the outputs of such institution In most of the cases the social impact remains a reporting issue rather than a part of the general goal Commercial investors are tempted to follow models already existent and as a result the alignment to the classic financial institutions procedures and behaviour and the normal growth of the market. 11

Recomendations Ensure the legal status for the MFI that would allow investments (LLP or joint stock) Drive the MFI on commercial principles and develop a risk management framework Make sure you know what are the main advantages of the MFI and negotiate on indicators that are linked with them Make sure you start negotiations before internal growth resources would dry; the rules of the game need to be dictated by the new investment Do not accept within lending contracts covenants that would induce limits of the independence for decisions regarding equity investments 12