Beirut - May 2009

Foreign Commercial Investment in Microfinance – Overview of Market Trends

Cedric Lombard

Director

Sanabel 6th Annual Conference

Symbiotics

Symbiotics - Professional Services for Microfinance Investors and Fund Managers

Volume Under Advisory/ Management Investment Portfolio by Region

RCCA SAM CEE CAM EAP MENA

RCCA; Volume MUSD; 116 SAM; Volume

MUSD; 109

CEE; Volume MUSD; 85

CAM; Volume MUSD; 42

EAP; Volume MUSD; 23

MENA; Volume MUSD; 3

RCCA; Nb of MFIs; 22

SAM; Nb of MFIs; 31

CEE; Nb of MFIs; 16

CAM; Nb of MFIs; 15 EAP; Nb of MFIs;

8 MENA; Nb of MFIs; 2

Volume MUSDNb of MFIs

Q2-

05

Q4-

05

Q1-

06

Q2-

06

Q3-

06

Q4-

06

Q1-

07

Q2-

07

Q3-

07

Q4-

07

Q1-

08

Q2-

08

Q3-

08

Q4-

08

Q1-

09

050

100150200250300350400450500

0

20

40

60

80Quarterly (right)Cumulated (left)

State of Commercial Financing – Market Patterns

Number of MIVs ($ Million)* 103

Market Volume ($ Million)* 6’500

Average MIV Assets ($ Million)* 63

MIV Juridiction (%Total Assets)

Western Europe 81.4%

North America 11.5%

Geographical Distribution (% MP)

Central & Eastern Europe (33.6%)

South America (22.4%)

Russia, Caucasus & Central Asia (14.3%)

Central America, Mexico & Caribbean (11.7%)

Sub-Saharan Africa (8.3%)

East Asia & Pacific (5.8%)

South Asia (3.8%)

Middle East and North Africa (0.2%)

Market Data

Source: 2008 CGAP MIV Survey

* Symbiotics estimates for 2008; all other data are for 2007

» Very few commercial investment to MEDA countries» 0.2% of MIV portfolio & 0.8% of Symbiotics portfolio » Share of MENA’s MFIs in MIX Market database: 2.7% (USD 1.12 bln market)

Recent Trends – Slower but Positive Growth of MIVs

Year MIVs (Nb)

Total Volume($ bl.)

Growth Rate

2004 45 1.10 -

2005 63 1.50 36%

2006 75 3.05 103%

2007 91 5.43 78%

2008 103 6.50 18%

» Slow but positive growth in 2008, fueled by socially oriented investors:» Large pension funds maintain their allocation as part of their SRI strategy » Public investors invest more in response to the global credit squeeze » Retail investors continue to make new allocations to support microentrepreneurs in emerging markets

» Leading MIVs constitute the main potential source of growth:» Positive track record (risk-return profile) » Critical size attracting institutional investors

2004 2005 2006 2007 20080

1

2

3

4

5

6

7

0

20

40

60

80

100

120Volume (USD Billi...

Lux MIVMarket Growth

2006 2007 2008 20090

500

1,000

1,500

2,000

2,500MF PortfolioTotal Assets

2004 2005 2006 2007 2008 20090.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

100

107

114

121

128

Monthly performance (left)Index Value (right)

Recent Trends – Stable Interest Rates but Higher Spreads

2006-05

2006-07

2006-09

2006-11

2007-01

2007-03

2007-05

2007-07

2007-09

2007-11

2008-02

2008-04

2008-06

2008-08

2008-10

2008-12

2009-02

2009-040%

2%

4%

6%

8%

10%

12%

0

5

10

15

20

25

30

35

Nb of Deals Average Coupon Average Reference RateAverage Spread

Spread Analysis SMX Index USD

» Stable interest rates

» Lower reference rates

» Higher credit premiums

» Increasing cost of hedging

» Increasing cash level for redemptions

» Lower but still positive net returns

Recent Trends – Slow deterioration of the MFIs Risk

SYM 50

Key Indicators Mar. 2009 Δ 3m Δ 12 m

Assets ($ ml.) 92.9 2.29% 17.70%

Loan Portfolio ($ ml.) 69.8 -2.03% 12.65%

Active borrowers 45’007 2.36% 18.33%

Average loan 1’996 -4.44% -3.95%

Debt/equity ratio 4.29 -0.91% 0.23%

Portfolio yield 29.48% -3.22% -2.06%

Cost of funding 8.75% -5.34% 1.21%

OER 14.73% -3.12% 2.22%

OSS 110.08% -8.48% -13.81%

ROE 4.12% -72.89% -82.56%

PAR> 30 days 4.46% 36.68% 57.04%

Risk coverage ratio 127% -29.60% -76.78%

6.0%

7.0%

8.0%

9.0%

10.0%

Cost of Funding

2.0%

2.5%

3.0%

3.5%

4.0%

Portfolio at Risk

Investors’ Expectations – Towards increased partnerships

» The struggle to maintain high quality MFIs and progessively

» Need for transparency

» Compare to the benchmarks

» Find a growingly better equilibrium between subsidized and commercial funding sources

» Work on solutions jointly with the lenders in order for them to lend loans in local currencies with affordable hedging instruments