Microfinance & Socially Responsible Investing How Do the Two Intersect? Socially Responsible Investing – Here & Abroad Sanjay Sinha, Microcredit Enterprises June 26, 2009

Agenda World of Poverty What is Microfinance SRI as a Funding Model for Microfinance Microcredit Enterprises Business Model Concluding Remarks

Multidimensional Face of Poverty P O V E R T Y Material Deprivation (Low Food Consumption/Poor Housing) Low Human Develop. Acute Vulnerability to Adverse Shocks (Illness, Economic Crisis, Natural Disaster Lack of Voice

Our Global Village If there were only 100 people in the entire world…

Our Village has Neighborhoods One neighborhood has 61 Asians Another has 13 Africans 12 Europeans are in towns 8 Hispanics live in a barrio 5 Americans in the suburbs

63 of Us Have Jobs; 37 Do Not

33 People in our Village Live in Poor Housing

18 Villagers Do Not Have Safe, Clean Water in their Homes

10 People Earn 54% of the Village’s Total Income

70 of Us are Hungry Every Day Some of Us are Not

One Year in Our Village 3,000 people died at the World Trade Center in New York (2001) 300,000 people died from a tsunami in the Indian Ocean (2004) 11 million children died from starvation (every year)

World Population 6.7 Billion

Access to Financial Services by Annual Income 4 Billion People With Little to No Access Full Access- 100 Million Some Access -1.7 Billion Maybe Banked Unbanked Destitute

Microfinance - Introduction Evolution of the Market With $27 and 42 Families

Financing Options - Microfinance Charitable contribution: The individual donates to a non-profit microfinance organization and then claims a tax deduction, which reduces the net cost of the donation. Socially Responsible Investment (SRI): An investment, usually in the form of a loan, is made in a fund or other investment vehicle which, in turn, makes loans to overseas microfinance institutions. Typically, the loan has a term of three years and includes a fixed interest rate that is almost always below the rate on standard marketplace investments. Guarantee Risk Pool Model : A pledge of collateral assets and/or a personal guarantee secures a line of credit which, in turn, is used to make loans to overseas microfinance institutions. In the event of an overseas financial loss, for at least an 18 month period a Guarantor has promised to bear the tax-deductible loss on an equitable, pro rata basis with all other Guarantors. Guarantors maintain complete control of their assets, and therefore receive all investment returns from their portfolios.

Microfinance - Growth Who are the Funders? Microfinance 63% Debt 47% Investors 53% Donors $11.6 Billion

Microfinance - Why is Repayment High? Many Reasons High Repayment Group Lending Peer Monitoring Frequent Repaymt. Progressive Lending Social Standing Dynamic Lending

Microfinance – Number of Borrowers How Many Are Borrowing?

Microfinance – Growth Phase How Many More Can Borrow? 3.5 – 4 Billion People

What is the Relationship between Poverty and Microfinance? Access to financial services Access to financial services Increase & diversify incomes Increase & diversify incomes Build assets Build assets Mitigate risk Mitigate risk Plan for the future Plan for the future Make choices Make choices Increase food consumption Increase food consumption Invest in education & health Invest in education & health Invest in housing, water, sanitation Invest in housing, water, sanitation

Microfinance - Growth $25 Billion Industry

The Microcredit Guarantor Enterprises Model

The Microcredit Enterprises Model Guarantors ($1 million units)

The Microcredit Enterprises Model Lender/Bank Line of Credit Guarantors ($1 million units) 4% - 5% Interest

The Microcredit Enterprises Model Microfinance Institution (MFI) Lender/Bank Line of Credit Guarantors ($1 million units) 4% - 5% Interest 8% - 10% Interest

The Microcredit Enterprises Model Microfinance Institution (MFI) Lender/Bank Line of Credit Guarantors ($1 million units) 4% - 5% Interest 8% - 10% Interest 25% - 35% Interest

The Microcredit Enterprises Impact MCE $25 Million Loans 15 Countries 38 Guarantors 89% Female 45 Loans/25 MFIs 514,000 Reached

Microfinance - Challenges A Few….. Microfinance Liquidity Exchange Rate TransparencyInflation

Microfinance – Self Regulation What Can Be Done?….. Self Regulation Best Practices Funding Diversity Close to Customer Financial Discipline Stay

Microfinance – Self Regulation What Has Been Done?….. 4/08 Pocantico Non- Abusive Collection Method Restructure Loans 25 Industry Leaders Avoid Reckless Lending Transparent Pricing

Microfinance - Silver Lining Relatively Reliable Business –Could continue to attract socially responsible investors looking to diversify Credit Crunch Could Slow Down the Pace of Growth Allowing MFIs to Focus On: –Back to the Basics –Borrower Protection –Transparency –Governance

Microfinance - Summary “Character Not Collateral” It Has Made a Difference It is not the Answer to Solving Poverty Attempts at Self Regulation and Transparency Should Maintain Strong Industry Metrics –Minimize Predatory Lending –Provide More Funding of Second and Third Tier MFIs

If You Keep Your Food in a Refrigerator Your Clothes in a Closet Have a Roof Over Your Head Bed to Sleep In You are richer than 75% of the world’s population. There is an Opportunity Cost

What Can You Do? Become a Guarantor Donate to the Permanent Fund to Alleviate Extreme Poverty Invest in an Interest-Bearing Note Educate Your Community

For Your Attention…….