1. Copyright 2008 – SKS Microfinance Pvt. Ltd. SKS Microfinance “Product Diversification & Innovation” Presentation for Forum on Microenterprise Asuncion, Paraguay October 2008 This presentation is solely for viewing. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from SKS Microfinance. CONFIDENTIAL

2. Copyright 2008 – SKS Microfinance Pvt. Ltd. 3 million Members 5.4 Million life insurance policies US $400 Million outstanding US $980 Million cumulative disbursed 1.1 million health insurance lives 99% On-time Repayment Rate 12,400 employee base 1,413 branches Presence in over 36,000 villages SKS IS INDIA’S LARGEST MFI AND HAS SCALED TO 16 STATES WITH 3 MILLION MEMBERS SINCE 1998 Branch office SKS is one of the fastest growing MFIs in the world, with a Annual Growth of 200%

3. Copyright 2008 – SKS Microfinance Pvt. Ltd. SURVEY A VILLAGE RECRUIT MEMBERS PROVIDE TRAINING DELIVER SERVICES AT DOORSTEP SKS FOLLOWS A GRAMEEN LENDING METHODOLOGY, FEATURING JOINT LIABILITY GROUPS AND DOORSTEP DELIVERY

4. Copyright 2008 – SKS Microfinance Pvt. Ltd. WITH THIS MODEL, SKS CAN REACH THE POOR EFFICIENTLY AND AT THEIR DOORSTEP Upper Poor 70 million households in India with some assets ($1-$2/day PPP) Very Poor 80 million households in India with no assets (up to $1/day PPP) Borrowers earn returns (ROI) of 100% and borrowers increase annual income 11% more than non- borrowers

5. Copyright 2008 – SKS Microfinance Pvt. Ltd. MICROFINANCE HAS BEEN PROVEN AS BUSINESS MODEL, BUT MOST MFIs ARE NOT ABLE TO SCALE… 73% of MFIs Serve <2,500 Clients (2321 Institutions) 16% of MFIs serve 2,500 – 10,000 Clients (515 Institutions) 9% of MFIs serve 10,000 – 100,000 Clients (276 Institutions) 2% of MFIs serve >100,000 Clients (49 Institutions) Source: Microcredit Summit Close to 90% of MFIs serve less than 10,000 clients

6. Copyright 2008 – SKS Microfinance Pvt. Ltd. …RESULTING IN A HUGE UNMET DEMAND FOR MICROFINANCE Source: EDA rural report “Maturing of Indian Microfinance”, World Bank. Current micro- credit by MFIs Total micro-credit demand, India Rs. 240,000 ($55 Billion) Rs. 20,000 ($5 Billion) Projected micro-credit demand, in crores Assumptions Existing market: Rs. 20,000 crores Basis: NABARD; EDA Rural Report, “Maturing of Indian Microfinance” Poor households: 150 million Basis: World Bank poverty statistics, India Avg. credit demand / HH: Rs. 20,000 Basis: EDA Rural Systems Adjustment for service difficulties: 20% Basis: adjustment made to reflect inaccessible poor in rural areas (~7%) and half of underserved urban poor (0.5 x 26% = 13%) covered in part by moneylenders and informal sources, but largely untapped

7. Copyright 2008 – SKS Microfinance Pvt. Ltd. THERE ARE 3 CONSTRAINTS TO SCALING MF... Capital Capacity Costs Scalable processes from the business world Deploying technology to automate and lower transaction costs A profit-oriented model to access commercial capital AND THE SKS SOLUTION

8. Copyright 2008 – SKS Microfinance Pvt. Ltd. Products Financial Services Non- Financial Fund Based Fee Based Enterprise Consumer Housing Education Remittances Insurance Investment Savings Food & groceries Mobile handsets, lights, fans, water purifiers Consumer Packaged Goods (FMCG) Health (e.g. immunizations) Commercial Non- commercial Disaster Management SKS AIMS TO LEVERAGE BRAND AND INFRASTRUCTURE TO DISTRIBUTE MORE PRODUCTS TO BOP SKS aims to provide access and affordability to world-class products for the poor

9. SKS IS WELL-POSITIONED TO LINK FINANCIAL SERVICE PROVIDERS AND MEMBERS, IMPROVING ACCESS TO ENTIRE SUITE OF SERVICES Financial Services Product Universe Savings Savings Account Checking Account Term DepositDebt/Credit Personal Loan MortgagesSME Loans Credit/Debit Cards InvestmentMutual Funds Pension Funds Insurance Life Insurance Health Insurance Property Insurance Other Forms Service Universe Transactional Wire Transfers DomesticRemittancesBill Payment Check Cashing Informational Account Information Securities Quotes Access to the full universe of financial services is critical to financial independence and improving the livelihood of the rural poor SKS has the distribution network, member loyalty and brand strength to educate members of product offerings and negotiate profitable revenue models with service providers

10. Copyright 2008 – SKS Microfinance Pvt. Ltd. Example: HEALTH INSURANCE OFFERED IN PARTNERSHIP WITH ICICI LOMBARD AND TAILORED TO CLIENTS’ NEEDS Product “Swayam Shakti” health insurance cover for catastrophic illnesses Premium of US$ 6-9 Upfront payment reduces cost to client “Cashless” benefit at network hospitals eliminates out-of-pocket expense, reimbursement for out-of-network hospital expenses up to US$500 Insurance available for member, spouse, and up to two children Includes maternity care, pre-existing diseases, extended hospitalization, and accident coverage India’s number one private general insurance company Sustainable claims ratio of under 100% Partner Swayam Shakti has scaled to cover over 1.1 million lives in total!

11. Copyright 2008 – SKS Microfinance Pvt. Ltd. Customer benefits: Products meet unmet needs, improving health, productivity, and quality of life Affordability enhanced through financing and bulk pricing, expanding access and aspirations for poor customers Doorstep delivery provides greater convenience and improves customer experience SKS benefits: Social impact and facilitating new interest in serving poor Generates customer loyalty, builds brand and makes customers happy New revenue streams can build business SKS ALSO PERCEIVES SIGNIFICANT OPPORTUNITY FINANCING/SELLING NON-FINANCIAL PRODUCTS

12. Copyright 2008 – SKS Microfinance Pvt. Ltd. NON-FINANCIAL PRODUCT BUSINESS MODEL CAN BE ADAPTED TO VARIETY OF PRODUCTS TO PROVIDE FEE-BASED REVENUE Our business model SKS collects service revenue for marketing and financing products Product partner is responsible for physical delivery of products to members SKS can sell and finance products with limited additional stress on current operations We are prioritizing products that address the unmet needs of our members (e.g., inaccessibility to clean water or electricity, need mobile telephony for access to prices, clients, etc.) Current products Leading-brand handset D.Light Nova solar- powered lamp Leading-brand water purifier

13. Motivation Objective Key advantages to kirana store members: –Access to working capital in the form of loan product –Procurement of goods at competitive prices and savings in transport cost –High quality products access SKS opportunity: –Large existing base of kirana shop customers – 13% of portfolio, or currently over 300,000 –Monthly revenue streams on commission –Create ready network of engaged kirana shops that may be used for additional product distribution, etc. (e.g., “Sangam Stores”) –Builds customer businesses and enhances loyalty GROCERIES AND FMCG SALES/FINANCING ENABLES PURCHASE OF HIGH QUALITY GOODS AT ECONOMIC PRICES To enable members who own kirana stores to buy groceries and FMCGs at competitive prices from a qualified vendor by offering working capital finance

14. MOBILE BANKING: PILOT PROGRAM COMPLETED AND NOW LOOKING AT NEW TECHNOLOGIES AND PLATFORMS Greater financial inclusion –Provides access to savings and other financial services More convenience –Provides immediate, 24 hr access to banking services without transportation to branches Higher security –Reduces amount of cash a member holds at home and carries in hand Increased efficiency and reduced cost –Reduced paper work & report generation –Reduced time spent by field staff on loan transactions Improved cash management –Cost savings in idle cash sitting in branches –Lowered risk of leakage through elimination of cash from the system Introduction of new revenue streams –From banks, tech providers, operators and handset providers –Introduction of new products and services Advantages for customers Advantages for SKS Cashless transactions will improve our product/service offerings to customers

15. EDUCATION: SKS WILL PROVIDE HIGH QUALITY, LOW COST EDUCATION TO CUSTOMERS’ CHILDRENS Motivation Objective –62% of member’s children are eligible to go to school (up to 5 th standard) and only 33% of them are in-school (SKS MIS) –Quality of schooling in rural, semi-urban areas is poor –Market need for cheap (<$5 per month) but high quality option Increase access to high quality education through: –Launching high quality, low cost branded chain of schools –Providing education loan to members Copyright 2008 – SKS Microfinance Pvt. Ltd. Strategy –Standardize content and brand at HQ level; de-centralize decision- making for local marketing efforts and day-to-day decisions –Focus on teaching above all else: recruiting, training and incentivizing superior teachers – can’t feel like they’re just “doing a job” –Leverage SKS’s local resources to scale rapidly

16. DIVERSIFYING BUSINESS LINES AWAY FROM CORE CARRIES SIGNIFICANT OPPORTUNITY… Deliver big social impact by addressing unmet needs of customer Copyright 2008 – SKS Microfinance Pvt. Ltd. Create new revenue streams and grow business over long-term Build brand and customer retention in increasingly competitive marketplace

17. …AS WELL AS NEW RISKS New efforts require significant management time and resources Copyright 2008 – SKS Microfinance Pvt. Ltd. Channel mis-match requires more creative business models to avoid burdening core operational model Defective products or unpopular ancillary offerings (as well as dilution as we drift from core) can damage brand

18. SKS Microfinance Pvt Ltd. www.sksindia.com paul.breloff@sksindia.com EMPOWERING THE POOR TO BECOME ECONOMICALLY SELF-RELIANT CONFIDENTIAL - This presentation is solely for viewing. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from SKS Microfinance.