1. Microfinance consolidation: Advantages and disadvantages 18 th MFC Annual Conference 5-6 Novemebr 2015, Prague, Czech Republic Mr. Braco Erceg, MCC “MIKROFIN“, Bosnia and Herzegovina

2. Why consolidaton in Bosnia and Herzegovina and why in 2006? 10 years of maturity of the sector. 10-12 well performing MFIs. None of them countywide MFI. Legal form: NGOs supervised by the MoF. Some 30 banks. Around 4 million people. Week economy. New Law on MFIs to be adopted. Banking Agency to take over the regulation and supervision of the sector. Uncertainty! General issue for all the FIs: Is there market for everyone and what to do next?

3. MFIs Mikrofin and Benefit has decided to merge. Why? And why merger, why not acquisition? Mikrofin was looking for the new markets and country wide presence. Benefit was looking for a larger structure and more secure future. Together we had an ambition to create largest and countrywide MFI and to become market leader in the upcoming years. At the time of merger Mikrofin had: Assets of around 56 M Euros; loan portfolio of around 49 M Euros; 36 Branches. Benefit had: Assets of around 11 M Euros; loan portfolio of around 10 M Euros; 25 Branches. At the time of merger Mikrofin was around 5 times bigger than Benefit in terms of the assets and loan portfolio. Parallel Branches only in two locations (total 61 Branch). Mikrofin today has 69 Branches. Acquisition would, perhaps, better describe the nature of the transaction. It was difficult for Benefit to accept. Key compromise #1.

4. “Technical“ aspects of merger Board approvals, all documents preparation and delivery to the authorities. No formal approvals needed from the MoF. Agreement to continue working as Mikrofin. Appointment of the new BoD (5 members; one from former Benefit BoD and four from former Mikrofin BoD). Court registration of the new entity in February 2007. Timeframe: around 12 months for “technical“ aspects. Integration of MIS, loan books, accounting, network.. Both MFIs participated in the implementation of the WB microfinance projects in B&H (LIP I&II). Had similar systems, policies, procedures, structures…. No major problems. Timeframe: around next 12 months. First audited FS of the “new Mikrofin“ issued as of 31st December 2007.

5. Substantial aspects of merger – what we got? We created largest and country wide MFI. Good market position. Promising future. Mikrofin is today still the largest MFI in B&H and eight times in a row ranked for the best MFI in the country (from 2007 to 2014). Few more mergers after 2006. Today we have some 5-6 MFIs which cover more than 90% of the microfinance market. Three largest ones cover around 70% (EKI, Mikrofin and Partner). Two bankruptcies of the larger MFIs over the last five years.

6. What have been the key challenges Most of the staff related issues. You can easily integrate MIS, portfolio, accounting. Its different with people!! Different institutional cultures. Benefit was more like “one man show“ MFI in terms of management and decision making while Mikrofin was more decentralized. Most of the staff of Mikrofin was in its thirties or less while most of the staff of Benefit was in its fifties. Most of the original staff of Benefit left new MFI over time. The # 1challenge: What to do with the former top management of Benefit? At some point of time you have two CEOs, two CFOs, two COOs.. We kept the original positons for some time and being responsible for management of the former Benefit network. Key compromise # 2. This concept has been abandoned later. None of the former top managers of Benefit was in Mikrofin after 2010.

7. Conclusions and Recommendations Don't be afraid of consolidation! If done in time and good planned can create a chain of future values. Don't think individually! Think institutionally and even more important think about the benefits your clients will have in the future. Don't compromise. The price you will pay later will be only higher! Good luck!!

8. Thank you!! Mr. Braco Erceg Investor Relations Manager Phone: + 387 51 230-343 E-mail: berceg@mikrofin.comberceg@mikrofin.com Web: mikrofin@mikrofin.commikrofin@mikrofin.com