1. M ICROFINANCE IN L ARGE C OUNTRIES India, China and Brazil FOROMIC, OCT 2010

2. AGENDA Enabling environment Market Demand Regulation Type of Institutions supported Results of government interventions Operational Effectiveness Operational Effectiveness and Productivity Managing growth and Technology Customer perspective Who are the main clients Quality of products and services received Main Challenges and Future Trends Capital markets Main Challenges and Future trends

3. E NABLING E NVIRONMENT DimensionChinaIndiaBrazil Total Population Billions 1,320 MM1,002 MM192 MM % of poor population 8%60%22% # of poor population 105 MM600 MM42.4 MM # of Microenterprises approx. 60 MM urban 230 MM rural 100 MM22 MM # of Microfinance clients 1.6 MM26.4 MM178,560 Market Penetration MFI 17.2%26.4%0.81% # Clients other institutions (Cooperatives, Banks) 48 MM65.1 MM736,400 Regulation to promote the sector Banks should open branches in rural areas mandatory 40% of bank loans directed to social sector 2% of savings lend to microfinance Interest rates caps15% declining base None Institutions approved by central bank or governmentMCC; V&T banks / 1, cooperatives Co- operatives NBFC-MFIs, SHGs / 2 Banks, OSCIP, SCM / 3 1/ MCC=Micro Credit Companies; V&T Banks = Village and Township Banks 2/ NBFC = Non Banking Finance Companies; SHG= Self Help Groups 3/ OSCIP = Organizacion de Sociadade Civil de Interesse Publico; SCM = Sociedad de Credito a Microemprendedor

4. Source: 1: Chinese Association of Microfinance (CAM) presentation on trends of MF in China (figures based on portfolio outstanding by type of Institutions 2: Microfinance India: State of the Sector 2008, N Srinivasan. ACCESS Development Services 3: Brasil 2009, Informativo y Analisis de las Microfinanzas (MIX) %

5. T YPE OF S ERVICE P ROVIDERS / C HALLENGES India Co-operative Banks - Largely promoted sine 1950s. Amul – milk producer biggest success story. Risk of political interference. (SHG): Banks have been able to lend to the poor via the bank linkage to SHG (Self Help Group) intermediated by NGOs in India. Provides largest source of microfinance. This approach has presented several challenges relating to sustainability and has not been able scale up as fast NBFC-MFIs (NBFC-MFIs): In recent years MFI (group lenders) have grown rapidly, proving to be a more sustainable, however challenge of mission drift between profit & poverty alleviation. China Rural Cooperatives are the main players in the sector, however traditional problems with management and inadequate lending methodologies require an important investment to modernize those actors with best practices in microfinance New Actors like private and state banks are reluctant to lend below certain thresholds US$ 5,000, limiting the access to the services to important segments of the sector in the country

6. Brazil Banks have become the main actors in Brazil, through specialized units that offer microfinance to groups or individually. Banks have been able to scale via the use its banking platform and technology (bank agents linked via POS to the internet), enabling the access of millions banking services (transactional services). Nonetheless banks have still a limited outreach with lending products to the micro enterprise segment, and are not using in many cases strong risk assessment models T YPE OF S ERVICE P ROVIDERS / C HALLENGES

7. E NABLING E NVIRONMENT What are the right type of government interventions to promote Microfinance? What type of institutions governments should promote? Who is the population segment that MF should target (Poorest of the poor, small business, SME) What are the trades off of each institution in relation to outreach, sustainability and quality of services provided

8. O PERATIONAL E FFECTIVENESS AND P RODUCTIVITY DimensionIndia / 40 MFI China / 8 MFI Brazil / 23 MFI Avg. Portfolio outstanding in MM US$20.73.93.17 Avg. # of outstanding clients151,0003,4522,928 Average loan outstanding in US$1501,7471,418 Outstanding clients / LO45979205 Loan Officers / Total staff59%56%48.9% Portfolio / Total Assets81.1%88.8%88.2% Operating expenses / Total assets10.3%9.81%24.5% Financial Expenses / Total Assets8.3%0.8%5.8% Yield on gross portfolio (nominal)25.7%14.78%41.8% ROE10.5%1.88%13.73% MFI Benchmarks in BIC countries, as of Mar 2009 What are the main drivers of productivity in each country? What are the efficiency limits of these models? What are the trade offs of each approach in relation to quality of services vs. impact to the target segments? Source: Mix market, 2009

9. R ESULTS O PERATIONAL E FFICIENCY Productivity and Efficiency: India show highest productivity levels in conjunction with high ratios of operational staff vs. total staff Average loan size is lower in India what decreases its operational efficiency = Operational costs / Avg. Assets Nonetheless India’s low salaries structure and high productivity levels compared to Brazil and China helps them have low operating expenses (10.3%) compared with (24.5%) in Brazil Portfolio yields in China are very low (14.8%) what makes it very hard for institutions to be sustainable

10. G ROWTH TRENDS AND DRIVERS Number of outstanding clients in three leading MFI in BIC

11. M ANAGING G ROWTH Dimension200520072009 Brazil / Crediamigo # of Branches 193170258 # of staff 9821,4332,180 India / NBFI# of Branches 847782,029 # of staff 8096,42521,154 China / NBFI# of Branches 11426 # of staff 85138298 Figures for two leading MFI and one bank in BIC How MFI particularly in India have manage to grow in one year what MFI in other regions had required 15 years of hard work? What are the challenges and operational risk that come with those phenomenal growth rates? How MFI in India are managing those pressures? What is the future role of technology in the BIC countries Source: Mix market, 2009

12. W HO A RE THE MAIN CLIENTS AND QUALITY OF SERVICES ? DimensionChinaIndiaBrazil Average loan size / US$7631131,031 Average Loan / GNI per capita21.3%10.91%13.3% Lending methodologyGroup and IL GroupIL % of women’s clients77%100%58% Product diversification: main loans offered (micro, business, consumption, housing) low med Savingsno Who are the main clients ? Poorest of the poor, micro and small business, consumption, SME? Why Microfinance institutions are so slow innovating products and improving its customer services? What are the trade offs between scale and product innovation and quality of services? How technology can help in the future? Source: Mix market, 2009

13. C APITAL M ARKETS AND M ICROFINANCE What is the role of capital markets in the development of microfinance? What are the opportunities and risks for Microfinance when entering the capital markets Is it possible to have dynamic but socially responsible capital markets in Microfinance?