1. International Impact Investing Challenge April 8, 2011 Team B3

2. They must be nuts… Kala founded Sai Agro Industries, a cashew manufacturing and distribution company, 5 years ago in Pune, India. Sai Agro has $5M in revenues, employs 50 workers, and has the potential to scale even further—creating more jobs and community benefits. But Kala lacks access to the $1.25M needed to invest in a new processing facility to facilitate that growth. What we can learn from a cashew producer in India.

3. Sai Agro is not alone SOURCE: Beyond Profit The value of the gap in South and East Asia is $280-350 billion. 45-55% of formal SMEs in emerging markets do not have a loan but need credit. The “Missing Middle” presents a financial and social opportunity.

4. Existing SME Funders Below Market Returns Market Rate Small Scale Large EMCO will build on the success of existing SME investors, integrating best practices to achieve greater scale.

5. EMCO Fund I Overview Tiered capital structure enables institutional investors to achieve market rate returns. Benchmark: Emerging Markets Corporate Debt, 9%* 1 1 Institutional investors beat the benchmark by achieving 10% returns 2 2 3 3 Foundations can leverage their capital more than 5 to 1 Development organizations can leverage their capital more than 4 to 1 BENEFITS *From JP Morgan Impact Investing Report

6. Performance Institutional Investor IRR Institutional investor returns can be achieved even in the case of significant loan losses. 10%20%30%40%50%60%70%80%90%100% 10% 20% 10% 30% 10% 40% 10% 50% 10% 9.9% 60% 10% 8%4% 70% 10% 6%1%-4% 80% 10% 6%1%-5%-9% 90% 10% 8%1%-5%-9%-16% 100% 10% 9.9%4%-4%-9%-16%- Severity of Loan Losses % of Loans that Default For our FOUNDATION investors: 21% of loan portfolio can sustain 75% losses before Class C returns are not achieved

7. EMCO Organization EMCO, LP (based in Mumbai) EMCO, LP (based in Mumbai) EMCO Fund (for profit) EMCO Fund (for profit) EMCO Advisors (non-profit) EMCO Advisors (non-profit) 2 Partners 3 Associates 10 Analysts 4 Impact Officers 4 Network Officers Robust, on the ground presence to support deal selection, impact measurement, and network services. 5 support staff Operating expenses covered by an average annual management fee of 0.9% Non-profit advisors funded by grant money Operating expenses covered by an average annual management fee of 0.9% Non-profit advisors funded by grant money

8. Banks and other partners enable scaling Local partners are critical for deal flow, due diligence, local business insights, and follow-on support SME Microfinance Institutions Entrepreneur Support Networks SME EMCO Commercial Banks High PotentialTop 5% “Pre-Certified” Impact Investors Debt leverage What do our partners bring? Sophisticated national banks, such as ICICI and State Bank of India, already have banking relationships and dedicated SME units that see a huge volume of loan opportunities. MFIs create a steady pipeline of growing businesses, with a supportive network Impact Investors, such as Acumen, seek to leverage up their investments. Entrepreneur networks such as Intellecap, BID Network, & Endeavor enable businesses to be investment-ready What do our partners bring? Sophisticated national banks, such as ICICI and State Bank of India, already have banking relationships and dedicated SME units that see a huge volume of loan opportunities. MFIs create a steady pipeline of growing businesses, with a supportive network Impact Investors, such as Acumen, seek to leverage up their investments. Entrepreneur networks such as Intellecap, BID Network, & Endeavor enable businesses to be investment-ready

9. Investment Process Medium-sized enterprises Expansion-stage companies, poised at an inflection point High potential for growth and job creation, aligned with macro trends, differentiated strategies, strong management teams Loan amounts: $500K - $2M Average loan size: $1.25M Interest rates: Prime+4% Loan term: 5-year, fully amortizing All deals syndicated with local banks. Target Investments EMCO loans target borrowers that are just below the bank’s existing risk threshold. Loan Structure and Subordination 1 st Loss Reserves & subsidies: 24% Local Bank (junior co-invest): 20% Class A (senior co-invest): 56% Deals flow to EMCO through local partners, with preference given to “pre- certified” businesses EMCO analysts review business fundamentals, risks, and growth potential, and pre-approve loss guarantees up to 24% Syndication deal offered back to local banks for their approval Banks and EMCO share responsibility for ongoing monitoring Due Diligence

10. Kala’s loan Loan Sources EMCO Class C (Foundations)12% $150,000 EMCO Class B (Gov't & Aid orgs)12% $150,000 Local bank (junior co-invest)20% $250,000 EMCO Class A (senior co-invest)56% $700,000 Sum100% $1,250,000 MonthlyAnnual Payment Required: $32,185 $386,224 As a % of Sai Agro Revenue:7.7% Fees One-Time Loan Fees Charged (2%)$25,000 Subordinated to bank Senior to bank What this structure means for Kala.

11. EMCO Advisors Network Legal support services Infra- structure service providers Strategy consultants Account- ants and auditors Marketing and Branding services Business mentors EMCO Advisors (non-profit) Form strategic relationships with existing service providers Offer a “one-stop shop” for SME owners Track and measure impact of portfolio SMEs through quarterly reporting structures EMCO Advisors (non-profit) Form strategic relationships with existing service providers Offer a “one-stop shop” for SME owners Track and measure impact of portfolio SMEs through quarterly reporting structures Creating an Ecosystem Annual operating budget of$993K covered by grant partners Borrowers in the Network are required to submit impact and financial reports quarterly with annual audits Borrowers are encouraged to use the EMCO Network Certified business support services SMEs need more than just capital. They need management expertise and business support services to help them grow and thrive.

12. Measuring the Impact SOURCES: SEAF methodology & http://www.opic.gov/doing-business/investor-screener#4http://www.opic.gov/doing-business/investor-screener#4 EMCO will only lend to businesses that are environmentally and socially sound, consistent with IFC/OPIC standards. Identifying Responsible Borrowers The EMCO Advisors will track and measure economic development through quality job creation and wage increases. Financial and social incentives are aligned. Impact Tracking for Portfolio Companies 10,000 new jobs created Projected Impact of EMCO Fund I 19% increase in annual wages 69% employees with health/pension benefits Multiplier effect for local economies EMCO will aim to be a 4-5 star GIIRS rated fund, with a focus on a strong “workers” and “governance” score

13. Risks Corruption and nepotism Independent advisors with a pulse on local businesses and players Default risk Business support services & robust staffing of due diligence team Currency risk Booming economy in India expected to continue Standard risks of doing business in emerging markets exist, but can be mitigated.

14. Looking Forward Robust financial returns attract institutional investors Deep social impact through job creation and economic development Prove the model in India, expand to other regions Potential for securitization that could revolutionize SME lending The success of this fund will create a new platform for SME investments in emerging markets.

15. APPENDIX

16. Local Bank IRR with Various Loss Scenarios Class B IRR with Various Loss Scenarios Class C IRR with Various Loss Scenarios % of Loans that Default 12.5%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0% 10.0%12.5% 20.0%12.5% 30.0%12.5% Severity40.0%12.5% 11.5%7.4% of Loan50.0%12.5% 12.4%7.4%1.0%-8.7% Losses60.0%12.5% 11.5%5.0%-4.3%-8.7% 70.0%12.5% 12.4%5.0%-6.7%-8.7% -9.4% 80.0%12.5% 7.4%-4.3%-8.7% -10.7%- 90.0%12.5% 11.5%1.0%-8.7% -10.7%-- 100.0%12.5% 7.4%-8.7% -9.4%--- % of Loans that Default 10%20%30%40%50%60%70%80%90%100% 10%5% 20%5% 30%5% 3%-4% Severity40%5% 1%-10%-- of Loan50%5% -4%---- Losses60%5% -4%----- 70%5% 1%------ 80%5% -10%------ 90%5% 3%------- 100%5% -4%------- % of Loans that Default 10%20%30%40%50%60%70%80%90%100% 10%1% 20%1% -3%-8% 30%1% -3%-11%--- Severity40%1% -8%----- of Loan50%1% -8%------ Losses60%1% -3%------- 70%1% -11%------- 80%1% -------- 90%1%-3%-------- 100%1%-8%--------

17. Market Opportunity SMEs in Emerging Markets present a sizeable opportunity for both financial and social impact. SOURCE: McKinsey and IFC Report, “Two Trillion and Counting” # of businesses Formal SMEs in developing countries provide about 45% of employment and 33% of GDP. The value of the gap in South and East Asia is $280-350 billion. % 45-55% of formal SMEs in emerging markets do not have a loan but need credit.