Standard Chartered Bank

Microfinance : Participation

Strategy

Prashant Thakker2008

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Introduction to Standard Chartered Bank

Founded in 1853 and formed from the merger of the Standard Bank of British South Africa and the Chartered Bank of India, Australia and China in 1969

Headquartered in London with global business hubs based in Singapore, Hong Kong and Dubai, SCB is uniquely positioned in Asia, Africa and the Middle East.

Footprint in 75 countries, SCB has over 70,000 employees of over 100 nationalities

Listed on both the London Stock Exchange and the Stock Exchange of Hong Kong and is in the top 25 FTSE-100 companies, by market capitalisation

Long term credit rating A2 (Moody’s) and A+ (S&P)

As at 31 Dec 2007, total assets stood at US$329 billion and operating income was US$ 11 billion

Serving Consumer and Wholesale Banking customers

Fully committed to its key markets – has made a number of strategic acquisitions over recent years

Leading the Way in Asia, Africa and the Middle East

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NORTH EAST ASIAChinaHong KongJapan*MacauSouth KoreaTaiwanAustralia*

SOUTH ASIAAfghanistanBangladeshIndiaNepalSri Lanka

United KingdomJersey Falkland IslandsFrance*Switzerland*AustriaGermanyItaly LuxembourgMonacoSpainSweden

THE AMERICASArgentina**Bahamas*Brazil**Colombia*Mexico*Peru*United States of America*Venezuela*CanadaCayman IslandsChileUruguay

AFRICABotswanaCameroonGambiaGhanaCote d’IvoireNigeriaSierra LeoneSouth AfricaMauritiusKenyaTanzaniaUgandaZambiaZimbabwe

SOUTH EAST ASIABruneiCambodia**IndonesiaLaos**MalaysiaSingaporeThailandVietnamPhilippines

MENAJordanOmanQatarTurkey**Iran**UAE PakistanLebanonBahrainEgypt

* Wholesale Bank (no retail branch network)** Representative Office (no retail branch network)Countries in Blue – SCB presence Countries in Green – AMEX presence

KazakhstanPolandRomaniaRussiaUkraine

EUROPE

Standard Chartered Global Network of 75 countries

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Development Organisations ( DO)

Well-established ‘Development Organisations’ team in over 35 countries dedicated to serving Multilaterals, Bi-laterals, International NGOs, Social Investors and Microfinance institutions.

Part of Financial Institutions Group in Wholesale Banking. Full range of international banking products and services required to

support programmes, projects and crisis response Working in partnership with clients to ensure that our products and

services are tailored to meet their unique requirements The ideal commercial banking partner given our

Historical presence Branch network Experience Understanding of local conditions

Unique and co-ordinated account management model – Local, regional and global expertise available to our clients GAM (Global Account Manager) based in the UK and US or HQ location RAM (Regional Account Manager) FAM (Field Account Manager)

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Bangkok

Tokyo(?)

Country / region focused RMs at investment countries as MF loan originators Ensure GAMs/ business head at Investor centres cover the ever growing interest in MF

JoBurg

Dubai

Lagos Nairobi

LatAmMF/ DO Investor Centers MF/ DO investment / aid flow countries

New YorkLondon

Europe

Geographic Coverage

Geographic Coverage reflects Investment Flows in the Microfinance Sector

Delhi

Beijing

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Our Commitment to Microfinance

21st September 2006, New York – Commitment by Standard Chartered Chief Executive, Mr Mervyn Davies, at the second annual Clinton Global Initiative.

The commitment is the establishment of a $500million Microfinance Facility [over a five year period]. Standard Chartered will provide development organizations and fund managers with $500million of credit and financial instruments as well as technical assistance to finance microfinance institutions (MFIs) in Africa and Asia. It is estimated this facility will benefit 4 million people who are currently excluded from participation in the financial sector, over a five-year period.

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Value Proposition

Provide access to credit and financial services to MFIs in Africa and Asia and to contribute to poverty reduction and economic empowerment.

NetworkNetwork

Local Currency funding, Cross border loans, Debt Capital markets, Transaction Banking solutions, FX and Derivatives - for the MFIs and Investors.

CapabilitiesCapabilities

Brand ValueBrand Value

Leverage alliances with Development Organization customers . The Bank is using these alliances to mitigate risk, develop the sector and provide technical assistance

Strategic AlliancesStrategic Alliances

Presence in developing economies for over 100 years, where the problem of financial exclusion is acute. Currently supporting MFIs in 16 countries

Access to Finance is core to SCB’s Sustainability Strategy

Support Intermediaries that provide financial services to a section of the population that is un-served or under-served by the formal financial sector.

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Financial Institutions

Development Organisations

Microfinance Experts

Governments

Afr

ica,

Asi

a an

d M

iddl

e Ea

st

Wholesale Microfinance

Economic development

Sector development

Poverty reduction

BusinessC S R

Microfinance End UsersInvestors

Provision of• Loans • Social development• Group formation• Training

Community Lending

Enterprise Financing

GroupLending

Individual Lending

Microfinance Institutions

Local Currency Funding, GM, TB,

DCM

Risk Participation,Asset distribution

Technical Assistance &

Training

Thought Leadership, regulatory framework

SCB Microfinance Approach

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Microfinance Business Model

Standard Chartered Bank Board of Directors Corporate

Responsibility Committee

Wholesale Bank Management Wholesale Bank

Risk committeeGroup Markets

and Institutional Risk - MIRM

Financial Institutions Management teamGroup Head DOsGlobal Business

Head , Microfinance Microfinance

Central team

Group Account Managers (GAMs) in MF Investor centersRegional &

country Heads of FI / DOProduct partners:

Transaction banking, Global markets, Consumer Banking

Senior Relationship Managers / RMsCredit AnalystsCredit and Risk control.Country / Regional MIRM

Defines PhilosophyApproves

Participation Provides

aspirationThought

leadership

Strategy Implementation

Defines Participation Model Approves

business StrategyAgree Risk

parameters

Prepares Strategy

Recommends credit standards

Drives business approach & objectives

Global Portfolio Management

Define Corporate responsibility linkage

Manage & develop Investor / network relationships

Support Regional / country targets

Execute client specific products needs

Business development

Identify client needs

Initiate credit processes

Local credit approval.

Implement Corporate responsibility links

Country portfolio management

WHO

WHAT

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Microfinance Loan cycle

Relationship Managers – Sources

deals

Credit Analyst scores and gradesMFI needs

MIRM approvesCRC executes

Customer Sales Risk Assessment

Credit ApprovalControl & Documentation

• Business and account Strategy

• Assessment of customer needs

• KYC & Constant monitoring

• Suitable product sales

• Score sheet and risk grading

• Limit application• Co-ordination

with CRC

• Ongoing risk reviews

• Covenant monitoring

• Approves- Underwriting

standards - Risk grading- Specific deals

covenants & EL

• Inputs into - Account plan- country/ regional

strategy- Early Alert & recovery- Minimum pricing

• Documentation based on approvals

• Country specific legal issues

• Security and collateral management tracking loan lifecycle

Con

tinuo

us

Mon

itorin

g

Microfinance Central team &

product partners support loan cycle

as required

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Products/Services suite for MFIs

Term Loans: As part of our wholesale approach, we provide term loans (up to 3 yrs) to MFIs to further on lend to Self Help Groups (SHG), individuals or enterprises.

Revolving Loans & Overdraft facilities: Depending on the needs of the MFI, we also provide MFI with revolving loans or overdraft facilities for working capital needs.

Debt Capital markets: As MFI achieve scale, we would like to assist our clients to access the debt capital markets directly.

Rates and FX solutions: Our MFI partners are increasingly diversifying their funding base to include FCY loans. We provide syndications, rates and FX solutions to MFI as well as investors

Cash Management & Cross Border Remittance solutions: The Microfinance sector achieves an out reach that no other formal channel can. However to effectively manage its cash flows it needs a partner bank to help its operations. We are a strong transaction bank in most of the core markets and increasingly focusing on this segment to provide tailor made solutions.

Advisory and Governance support: Irrespective of its business prospects, we wish to offer whatever support we can to this sector. Not strictly a ‘paid’ service, this is often more important to our partners than the funding we offer.

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Global Markets Exotic Currencies Reserve Currencies Risk Management Interest Rate Derivatives Online Treasury (internet

based) Economic Research

Investment Banking Export & Project Finance Debt Capital Markets Corporate Advisory

Consumer Banking (for staff) Credit/Smart Card Branch Banking Payroll

Cash Management Regional Solutions Payment & Collection Account Services Straight2Bank (internet

banking) Liquidity Management

Trade Finance Short-Term Trade Guarantees/Bonds Supranational Trade

Products/Services suite for Investors

Credit Term lending Structured Finance

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Provide credit of up to USD300 million by the end of 2008 It is our aim is to provide a cumulative USD 300 million of credit by this year,

providing greater support to our existing MFI customers and grow our Microfinance programme to include new clients in other countries in our network. The next phase of priority countries are Pakistan, Sri Lanka, Afghanistan, Philippines, Indonesia, Vietnam, Cambodia, Nigeria and China.

Distribute Microfinance assets through a capital markets structure We will seek investor participation through an appropriate structure that will help us

to achieve scale and accelerate support to the MFIs as well as provide a platform for investors to leverage our network and participate in the sector across Asia and Africa

Thought Leadership program in Africa and Asia Standard Chartered has already organized, sponsored or participated in

programmes that support the growth of the Microfinance industry. We also support innovation in the sector We would like to advocate positive policy and regulation in the markets we operate specific to the Microfinance sector needs.

Technical Assistance to core MFI clients with key partners A formal TA and training strategy is being formulated. We will provide training to

MFIs in areas where the bank has natural skill sets e.g. Credit, Governance etc and will partner with experts in this field to finance the TA to the MFIs

Our Priorities

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New initiatives

• Service model for SRIs : Developing a product delivery and service model for Socially Responsible Investors and Microfinance Funds & Intermediaries

• Agri Microfinance: Exploring opportunities to tie up Microfinance capabilities with Agriculture and Structured Trade Financing

• Private Bank offering: Attempting a link up Microfinance investment opportunities for SC Private Bank customers.

• Apex Infrastructure body: Evaluating a Investment that will help create an Apex Financial Infrastructure company for Microfinance in Key SCB markets

Socially Responsible Investors in Microfinance

Asian InvestorsMissing the action?

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Sector Outlook is positive

2005 UN year of Microcredit, Nobel peace prize for Prof. Muhammed Yunus and Grameen for 2006 has ensured international attention on the Microfinance industry.

Country governments are adopting this tool as part of their policy towards poverty eradication. Many regulators are introducing enabling regulations and recognition of MFI as part of the formal financial sector.

Microfinance is among the few asset classes that offer a double bottom-line return – economic and social returns.

Industry gradually moving towards a wider definition that addresses financial inclusion rather than provision of credit and other services.

‘Mainstream’ private sector interest is growing, support of innovation and experimentation is strong.

Interest of commercial finance sector, and the rise of the Social Commercial Investor has seen large capital flows into the sector.

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Opportunity for the Asian investor

Currently less than 15% of all foreign flows into Microfinance are in Asia and Africa ( Asia accounts for 7%)

Markets are maturing with high growth rates from South Asia, and South East Asia and China.

Microfinance Institutions are now becoming larger and more professional. Regulatory environment is improving.

There are more than 75 Sector specific investment funds operating out of US/ Europe apart from multilats and bilats.(not a single Asian fund )

Many of the established Commercial banks as well as private equity majors are now participating in the sector but few have Asia focus.

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Possible participation options

Direct (at Institutional level - MFIs) or

Indirect (Government, Microfinance Investment vehicles, funds)

in

EquityDebt Developmental funds

Recommended reading Reille, Xavier, and Sarah Forster. 2008. “Foreign Capital Investment in Microfinance:

Balancing Social and Financial Returns.”Focus Note 44. Washington, D.C.: CGAP. A billion to gain ? : A study on global financial institutions and microfinance – March 2008;

ING Research Microfinance : An emerging investment opportunity- Uniting social investment and financial

returns – December 2007; Deutsche Bank Research.