Garmeen Foundation

Grameen+Foundation+USA%0d%0aCapital+Markets+Initiatives+and+Social+Empowerment+A+Presentation+to+7th+Annual+BYU+MicroEnterprise+Conference+by+Alex+Counts%2c+Julie+Stahl%2c+Anne+Hastings+and+Chris+Dunford+March+12%2c+2004%0d%0a%0d%0a%0cBenefits+of+Commercialization%0d%0aInvestors+and+lenders+demand+increased+efficiency+and+transparency+%ef%82%ab+New+efficiencies+can+mean+lower+costs+to+borrowers+%ef%82%ab+Increased+transparency+and+professionalism+leading+to+lower+risk+of+error+and+fraud+%ef%82%ab+Tapping+into+virtually+unlimited+sources+of+capital+for+expansion+%ef%82%ab+Reduction+of+time+management+spends+%e2%80%9cfundraising%e2%80%9d%0d%0a%ef%82%ab%0d%0a%0d%0a%0cRisks+of+Commercialization%0d%0a%ef%82%ab%0d%0a%0d%0aExclusion+of+poorest+people+and+areas%0d%0a%ef%82%ab+to%0d%0a%0d%0areduce+perceived+portfolio+risk+among+MFI+lenders%2fowners%0d%0a%0d%0a%ef%82%ab%0d%0a%0d%0aPhasing+out+of+complementary+services+(BDS%2c+credit+with+education)+and+social+impact+experimentation%0d%0a%ef%82%ab+to%0d%0a%0d%0areduce+costs+and+increase+profits%0d%0a%0d%0a%e2%80%9cMission+Drift%e2%80%9d%3a+Overarching+poverty+reduction+objective+slowly+diluted%2flost+%ef%82%ab+Ownership+is+increasingly+foreign+and+from+traditional+banking+sector%0d%0a%ef%82%ab%0d%0a%0d%0a%0cRisk+Mitigation%0d%0a%ef%82%ab%0d%0a%0d%0aRight+mix+of+incentives+for+MFI+loan+officers%0d%0a%ef%82%ab+Grameen%0d%0a%ef%82%ab%0d%0a%0d%0aBank+Five+Star+System%0d%0a%0d%0a3+stars+for+financial+performance+%ef%82%ab+2+for+social+impact%0d%0a%0d%0a%ef%82%ab+Apex+%ef%82%ab+MFI%0d%0a%0d%0aorganizations+choice+of+MFIs%0d%0aof+SHARE+%26+GF-USA%0d%0a%0d%0a%ef%82%ab+Case%0d%0a%0d%0achoices+for+key+management+and+governance+posts+(case+of+Fonkoze)+%ef%82%ab+Donors%2fInvestors+attention+and+valuing+of%3a%0d%0a%ef%82%ab+Poverty%0d%0a%0d%0atargeting%2c+poverty+impact+(monitoring+%26+results)%2c+experimentation+%26+complementary+services+%ef%82%ab+Ensuring+that+ownership+is+predominantly+local+and+ideally+includes+clients+themselves%0d%0a%0d%0a%0cGF-USA%e2%80%99s+Partners+in+India%0d%0a%ef%83%98%242.1+million+invested+since+December+2000+%ef%83%98Quadruple+growth+from+80%2c000+to+330%2c000+borrowers+in+3+years%0d%0aSHARE%0d%0a%23+of+Active+Clients+Branches+Cum+Loans+Disbursed+(US%24)+197%2c943+99%0d%0a%0d%0aASA%0d%0a68%2c781+27%0d%0a%0d%0aCFTS%0d%0a27%2c769+17%0d%0a%0d%0aSKS%0d%0a21%2c946+9%0d%0a%0d%0aGrameen+Koota%0d%0a9%2c083+9%0d%0a%0d%0aSNEHA%0d%0a6%2c059+4%0d%0a%0d%0aTotal%0d%0a331%2c581+165%0d%0a%0d%0a71%2c031%2c219%0d%0a%0d%0a14%2c124%2c871%0d%0a%0d%0a11%2c183%2c363%0d%0a%0d%0a5%2c529%2c670%0d%0a%0d%0a1%2c228%2c917%0d%0a%0d%0a1%2c824%2c421%0d%0a%0d%0a104%2c922%2c461%0d%0a%0d%0aPortfolio+O%2fS+(US%24)%0d%0aPAR+%3e+30+Days%0d%0a%0d%0a16%2c773%2c450+0%25%0d%0a%0d%0a3%2c528%2c145+2.7%25%0d%0a%0d%0a2%2c213%2c363+4.44%25%0d%0a%0d%0a1%2c766%2c496+0%25%0d%0a%0d%0a494%2c654+0%25%0d%0a%0d%0a483%2c189+0%25%0d%0a%0d%0a25%2c259%2c296%0d%0a%0d%0a%0cSecuritization%3a+Creating+a+Secondary+Market+for+Micro-finance%0d%0a%0d%0a%0cSecuritization%3a+Structure+and+Credit+Enhancement%0d%0a%ef%81%b6Bank+identifies+an+MFI%e2%80%99s+portfolio+for+buyout%0d%0a%ef%83%bc+Based+on+fulfillment+of+minimum+criteria+and+past+performance+of+portfolio%0d%0a%0d%0a%ef%81%b6MFI+assigns+portfolio+to+Bank+and+receives+payment+for+value+of+principal+assigned+at+Par+or+at+a+Premium+%ef%81%b6MFI+continues+to+collect+receivables+from+the+borrowers+thus+maintaining+its+relationships+%ef%81%b6MFI+provides+Bank+a+credit+enhancement+in+the+form+of+a+First+Loss+Deficiency+Guarantee+(FLDG)+%ef%81%b6FLDG+is+based+on+the+expected+losses+in+the+portfolio%0d%0a%ef%83%bc+Expected+loss+rates+derived+from+detailed+study+of+past+portfolio+data%0d%0a%0d%0a%0cSecuritization%3a+Pricing%0d%0a%ef%83%98+Advantage%3a+Can+differentiate+the+financial+risk+of+an+MFI+from+its+operational+risk+%ef%83%98+Pricing+based+on%3a+%ef%82%a7+Past+portfolio+performance+%ef%82%a7+Quality+of+MFI%e2%80%99s+governance+%26+management%2c+operating+systems+%26+MIS+%ef%83%98+Credit+Enhancement+(FLDG)+improves+rating+of+portfolio+thus+achieving+highly+competitive+pricing+%ef%83%98+Typical+pricing%3a+%ef%82%a7+Applicable+Securitization+Discounting+Rate%3a+8-8.5%25+%ef%82%a7+Interest+rate+on+term+loans+to+MFIs+from+banks%3a+11-14%25%0d%0a%0d%0a%0cExample%3a+SHARE+Securitization%0d%0a%ef%80%aa+SHARE+sold+%244.3+million+of+its+portfolio+to+ICICI+Bank+in+Jan+04%0d%0a%ef%80%aa+42%2c000+loans+from+26+branches+as+of+10.31.03+%ef%80%aa+Continues+to+act+as+collection+agent%0d%0a%0d%0a%ef%80%aa+ICICI+discounted+the+FV+of+principal+and+interest+of+these+receivables+at+8.75%25+%ef%80%aa+Repayments+will+all+be+made+by+Jan+05+%ef%80%aa+All+future+loans+originated+in+these+branches+will+be+thru+Partnership+Model+%ef%80%aa+Boosts+SHARE%e2%80%99s+ROA+and+ROE%0d%0a%0d%0a%0cGrameen+Foundation+USA+role+in+SHARE+securitization%0d%0a%ef%83%bcGF-USA+supporting+SHARE+since+2000+%e2%80%93+total+investments+of+approx.+%24650k+%ef%83%bcGrant+to+SHARE+of+%24325%2c000+for+8%25+FLDG+(in+cash+collateral+account+at+ICICI)+%ef%83%bcAchieved+leverage+of+12x+on+donors%e2%80%99+%e2%80%98investment%e2%80%99+%ef%83%bcKey+part+of+GF-USA%e2%80%99s+5+yr+Strategic+Plan+%ef%83%bcPre-cursor+to+work+of+Grameen+Capital+India%0d%0a%0d%0a%0cICICI+Bank+Partnership+Model%0d%0a%ef%83%98+ICICI+Bank+partners+with+selected+MFIs+on+long-term+basis+%ef%83%98+MFI+sets+up+field+organization+as+a+service+provider+for+promotion+and+management+of+borrowers+%ef%83%98+ICICI+Bank+provides+credit%2c+savings+and+other+services+such+as+insurance+directly+to+the+borrowers+%ef%83%98+MFI+plays+active+role+in+monitoring+and+collection+(incented+to+maintain+low+PAR+by+required+FLDG)+%ef%83%98+ICICI+Bank+provides+working+capital+assistance+to+MFI+to+meet+cost+of+promotion+during+initial+years+%ef%83%98+MFI+repays+the+working+capital+loan+from+donor+funds+when+available+or+from+service+charges%0d%0a%0d%0a%0cPartnership+Model%0d%0aExample%3a+CASHPOR+Pilot%0d%0aICICI+Bank+1+check%0d%0a%0d%0aBatched+loan+applications+for+approval%0d%0a%0d%0aBatch+repayment%0d%0a%0d%0aCFTS%0d%0aIndividual+checks%0d%0a%0d%0aUttar+Pradesh%0d%0a%e2%80%a2+Group+formation+%e2%80%a2+Loan+applications+%e2%80%a2+6%25+service+fee%0d%0a%0d%0aRural+Bank+Branch%0d%0a%0d%0aIndividual+repayments+at+12.5%25+interest%0d%0a%0d%0a%0cBenefits+of+Securitization+and+Partnership+Model%0d%0a%ef%81%b6+Releases+funding+constraints+so+MFI+can+expand+outreach+exponentially+%ef%81%b6+Frees+up+MFI+management+time+spent+on+fundraising+%ef%81%b6+Enables+each+party+to+do+what+it+does+best+%ef%83%bc+MFIs+do+the+social+mobilization+%ef%83%bc+Banks+provide+financing+%ef%81%b6+The+FLDG+structure+retains+the+incentive+for+the+MFI+to+strictly+monitor+PAR+%e2%80%93+assuring+constant+pipeline+of+good+quality+assets+for+banks%2finvestors+%ef%81%b6+Will+permit+deepening+of+the+market+and+entry+of+new+investors+for+micro+finance+%e2%80%93+foreign+banks%2c+mutual+funds%2c+retail+investors%0d%0a%0d%0a%0cThe+Vision%3a+Commercially+Viable+Business+Models+for+Delivering+MF+to+the+Poorest%0d%0a%ef%83%98+Partnerships+have+worked+best+with+MFIs+that+have+demonstrated+capability+in%3a+%ef%82%a7+Poverty+targeting+(focus+on+the+poorest)+%ef%82%a7+Managing+information+systems+%ef%82%a7+Maintaining+high+levels+of+performance+and+governance+standards+%ef%83%98+Dedicated+action+research+team+(ICICI%e2%80%99s+SIG)+%ef%82%a7+Product+development+%ef%82%a7+Impact+assessment%2fdue+diligence+of+partner+MFIs+%ef%82%a7+Key+volunteers+pushing+the+frontiers+%ef%83%98+Partnerships+with+other+service+providers+%ef%82%a7+Capacity+building+for+emerging+MFIs+%ef%82%a7+Systems%2c+Training%2c+Rating%0d%0a%0d%0a%0cGrameen+Capital+India%0d%0a%ef%81%b6GF-USA%2c+ICICI%2c+and+Citigroup+launching+company+that+will+drive+mainstreaming+of+capital+markets+financing+for+MFIs+%ef%81%b6Key+businesses%3a%0d%0a%ef%81%b6FLDGs+to+facilitate+securitizations+and+other+structured+finance+transactions+for+MFIs+%ef%81%b6Advisory+services+to+MFIs+and+banks%2finvestors+%ef%81%b6Standardization+efforts+for+financial+measurement%2f+reporting+and+data+transfer%0d%0a%0d%0a%ef%81%b6Set+up+to+take+integration+of+MF+with+capital+markets+to+other+regions+with+similar+potential%0d%0a%0d%0a%0cGrameen+Capital+India%3a+Year+1%0d%0aGF-USA+and+Citigroup%0d%0a%24+505k+seed+capital%0d%0a%0d%0aGRAMEEN+CAPITAL+INDIA%0d%0a%241m+initial+capital%0d%0a%0d%0a%24495k+seed+capital%0d%0a%0d%0aICICI+Bank+%26+Local+Partner%0d%0a%0d%0aCredit+Enhancements%2fGuarantees%3a+%7e%24800k+initial+Initial+%247.5m+leveraged+from+sale+of+MFI+commerci+al+paper%0d%0a%0d%0aMFIs+(SHARE%2c+ASA%2c+CFTS%2c+SKS%2c+etc)%0d%0a%0d%0aCapital+Markets%0d%0a%0d%0aEnd+Borrowers%0d%0a%0d%0aYears+2-5%3a+Additional+%2410-15+m+in+credit+guarantees%2fgrants+to+be+raised+from+development+institutions+(AID%2c+Ford%2c+IFC)%2c+individuals+and+foundations+resulting+in+%24100+million+in+MFI+funding+and+outreach+to+1+million+BPL+households.%0d%0a%0d%0a%0c