THE INDIAN CONTEXT 6TH OCTOBER, 2009 ALOK PRASAD MICROFINANCE BANANA SKINS

Since the last Citi Risk Roundtable Political Political Stability Focus on Inclusive Growth Focus on Rural Economy Economy Aftershocks of the global meltdown: Fiscal Stimulus Inflation vs. Growth Financial Sector/Banks relatively stable Lending to MFIs by PSU banks Drought.....Floods ! Regulatory NBFC Capitalization Norms BC guidelines changes Cash In/Out permitted at MEs Guidelines for Mobile Banking Issued MNBCs ( Chit Fund companies) prohibited from accepting deposits

MFIs (FY ) 3 Overall growth at 63.60% Top 5 MFIs grew at 78% ( compared to 63% last year) Next 10 slowed down to 29.50% ( compared to 71.60% in ) Urban borrowers have increased from 3.5MM to 4.7 MM ( + 34% ) – Ticket Size ? Rural borrowers have increased from 6.9 MM to 13.2 MM ( + 91%) Growth More NBFCs Mission Drift ?? Profitability Model Structure Increase in Loan Sizes - 38% with loan sizes > Rs as compared to 20% previous year Geographic Concentration 50% of microfinance still in South ( 11 MM clients ) North (2 MM) and East ( 5 MM) West (4 MM) Portfolio

MFIs across Tiers FY Factors No of EntitiesMarket Share YoY Growth Commercial Funding Equity Top 5 MFIs > $ 10 MM GLP 590%78.2% Next 10 MFIs $ 1- $ 10 MM GLP 105%29.5% Urban Startups Rural Other MFIs > $ 1 MM GLP 5005%Flat / NegativeAlmost Absent

28 MFI’s received equity (2004-Till Date) Equity – For either Existing Rural MFIs or Startup Urban MFIs Existing Rural Focused MFIs (50%) 14 Urban Focused Startups (50%) 28 MFIs (100%) Rural Startups ?

Business Environment/Regulatory Risk 6 Citi Microfinance – September 2009 Social Risk (e.g.. Kolar) Geographic Concentration Risk Increasing Urban Focus (Consumer Finance ?) Natural Factors (Drought, Flood) Political Risk MF Bill 2009 Regulatory Risk Pricing PSL PSU Banks Non-financial Offerings

End Client – Key Risks 7 Citi Microfinance – September 2009 Competition Weak End Use Monitoring Multiple Borrowing Over Indebtedness Credit Risk Natural Calamities Life Cycle Events

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Liquidity and Funding Risk Equity – For either Existing or Startup Urban MFIs. 9 No.TypeLegalMFICiti ClientFocusLEAD INVESTORS 1ExistingNBFCSKS Microfinance:ExistingRuralSequoia, Odyssey, SVB, Columbia Capital Llc,Sandstone, Kismet, SVB 2ExistingNBFCAsomi Finance:NoRuralIFC Aavishkaar,Goodwell India Microfinance Development Co. Ltd. 3ExistingNBFCGrameen Financial Services:ExistingRuralAIMVCF, Aavishkaar Goodwell 4ExistingNBFCJagannatha Financial ServiceNoRuralLok Capital Group 5ExistingNBFCESAF NBFCProspectRuralDia Vikas Capital 6ExistingNBFCBhartiya SamruddhiExistingRuralLok, Aavishkaar Goodwell,Microfinance Development Co. Ltd., SIDBI 7ExistingNBFCNavachetna Microfin ServicesNoRuralHNIs 8ExistingNBFCGrama Vidiyal MicrofinanceExistingRuralMicroVest, Unitus Equity, Vinod Khosla 9ExistingNBFCBISWA NBFCNoRuralBellwether 10ExistingNBFCShareExistingRuralAavishkar, Legatum 11ExistingNBFCSpandana Spoorthy FinancialExistingRuralValiant Capital Partners 12ExistingNBFCMAS Financial ServicesNoUrbanIndia Advantage Fund VII (Mezzanine Fund-I) 13ExistingNBFCSatin Creditcare NetworkProspectUrbanLok Capital Group 14StartupNBFCUjjivan Financial ServicesProspectUrbanBellwether, Dell, AW H., Sequoia, LokCapital,IFIF, Unitus 15StartupNBFCArohan Financial ServicesProspectUrbanLok Capital Group, Michael and Susan Dell Foundation 16StartupNBFCEquitas Micro Finance IndiaProspectUrbanBellwether, India Financial Inclusion Fund, MVA Ventures 17StartupNBFCSwadhaar FinServeProspectUrbanACCION, Dell Foundation, Unitus 18StartupNBFCMadura Micro FinanceProspectUrbanUnitus Equity Fund 19StartupNBFCMoksha-Yug Access IndiaNoUrbanUnitus Equity Fund 20StartupNBFCAU Financiers IndiaNoUrbanIndia Business Excellence Fund 21StartupNBFCSuryoday MicrofinanceProspectUrbanAavishkaar Goodwell 22StartupNBFCSonataProspectUrbanBellwether 23StartupNBFCMIMOProspectUrbanBellwether 24StartupNBFCSahaytaProspectUrbanBellwether 25StartupNBFCJanalakshmiProspectUrbanBellwether 26StartupNBFCParaCap FinProspectUrbanBellwether 27StartupNBFCTridentProspectUrbanBellwether 28StartupNBFCRISEProspectUrbanHNI's