LOAN ANALYSIS AND RECOMMENDATION Mitra Bisnis Keluarga

LOAN ANALYSIS AND RECOMMENDATION
Mitra Bisnis Keluarga (MBK Ventura)
Indonesia
November 17, 2012
I.
Basic Information
Charter:
Year Established:
MFI Network:
Loan Portfolio:
Outreach:
II.
Non-Bank Financial Institution
2002
N/A
$34.3 million
324,298 clients; 100% women clients; 90% rural
Proposed Loan Terms
Principal:
US$500,000, Indonesian Rupiah equivalent
Term:
3 years1
Interest Rate:
7% USD, approximately 13% IDR
Origination Fee:
TBD – depending on final pricing
Currency:
IDR
Default Int. Rate:
Interest Rate + 5% over outstanding loan balance
Disbursement:
November 30, 2012
Repayment Terms2: One year bullet, renewable at Borrower’s discretion up to three years
Diversification Compliance: Yes
Per Guarantor Exposure: $6,944
III.
Recommendation: Approve Loan
MCE has worked with MBK since 2007, when it had a portfolio of $1 million. Since then, the MFI has
grown rapidly but has consistently maintained a very low average loan size ($106). When MCE made
its first loan to MBK, the MFI’s gross loan portfolio totaled $1mm. MBK now has a portfolio of over
$34mm. Throughout MCE’s relationship with MBK, the MFI has successfully paid off four different loans
for a total of $1.5mm. Currently, MCE has an active loan of $1.35 million to MBK.
1
Because hedge costs related to the Indonesian Rupiah are significantly cheaper on a one-year, rather than three-year basis,
the proposed loan to MBK is a one year loan, renewing annually, for a maximum of three years.
2
No collateral.
1
MBK focuses its efforts on Indonesia’s poor female micro-entrepreneurs on the island of Java, using
the CASHPOR Housing Index to assess the poverty levels of its clients. With its strong social mission,
MBK is touching some of Indonesia’s very poorest, where estimates suggest that almost half of the
country’s 240 million people live on less than $2 per day.
In early 2011, MBK reconfirmed its social commitment by redistributing a portion of its profits to clients
and staff, offering lower interest rates to clients and higher wages to its 100% female field staff.
Overall, the MFI has been strongly committed to lowering interest rates to its clients.
MBK has successfully moved all of its debt financing to local currency, rather than Dollars or Euros. An
additional $500,000 to MBK at this time allows MCE to take advantage of favorable swap rates while
increasing MCE’s portfolio in Southeast Asia with an MFI that has outstanding mission alignment with
MCE, excellent leadership, strong portfolio quality, and a solid operating history.
IV.
MFI Historical Background
MBK was founded in 2002 and commenced its microfinance lending operations in 2003, with the goal
of providing working capital to women entrepreneurs throughout the island of Java. Modeled on the
Grameen Bank and ASA Bangladesh banking methodologies, MBK employs the group guarantee
lending model to enable its clients to develop their microenterprises.
MBK serves Indonesian women from the poorest households in rural and semi-rural villages in western,
central and eastern Java. MBK’s clients are mainly involved in the preparation and sale of food,
agriculture, and livestock farming. In order to assess client poverty levels, MBK uses the CASHPOR
Housing Index, a tool developed by Cashpor, a successful Indian MFI, to identify poor households in a
cost effective manner. The index is based on the material used to build the walls/roof/floor of the house,
and is based on the premise that poor people spend their money on basic necessities and sometimes
social obligations, while any surplus is invested in their houses. The Housing Index uses a scale of 115, with 15 suggesting households with an economic status above the poverty line. MBK will only lend
to those that score under 10 on the index.
MBK was originally an NGO and obtained its venture capital operating license from the Capital Market
and Financing Institutions Supervisory Board (BAPEPAM-LK) of the Ministry of Finance in November
2006. As a non-bank finance company, MBK is not allowed to mobilize client savings, although the MFI
encourages the groups (“centers”) to save informally.
MBK currently has 208 branches operating throughout Indonesia’s island of Java.
Institutional*Characteristics
No.$of$Offices
No.$of$Loan$Officers
No.$of$Total$Staff
MBB*2009*
Dec109
Dec110
Dec111
Sep112 Benchmark
$$$$$$$$$$$$$$$$$$$$113 $$$$$$$$$$$$$$$$$$$$160 $$$$$$$$$$$$$$$$$$$$193 $$$$$$$$$$$$$$$$$$$$208 $$$$$$$$$$$$$$$$$$$$$73
$$$$$$$$$$$$$$$$$$$$583 $$$$$$$$$$$$$$$$$$$$926 $$$$$$$$$$$$$$$$1,104 $$$$$$$$$$$$$$$$1,047
$$$$$$$$$$$$$$$$$$$$779 $$$$$$$$$$$$$$$$1,218 $$$$$$$$$$$$$$$$1,466 $$$$$$$$$$$$$$$$1,439 $$$$$$$$$$$$$$$$$$$705
Borrower&Characteristics
Number'of'Borrowers
%'Women
%'Rural
%'Deeply'Impoverished
MBB&2009&
Dec/09
Dec/10
Dec/11
Sep/12 Benchmark
''''''''''''144,951 ''''''''''''218,507 ''''''''''''276,607 ''''''''''''324,298 '''''''''''139,505
100%
100%
100%
100%
95%
90%
90%
90%
90%
72%
65%
67%
69%
*Poverty levels determined by the CASHPOR Housing Index analysis
2
V.
Financial & Portfolio Analysis
A. Profitability: Steady profitability throughout last few years
Profitability
Net$Income$(includes$donations,$taxes,$and$non3operating$
revenue$&$expenses)$(US$)
Net$Operating$Profit$Before$Taxes$(US$)
Return$on$Assets*
Return$on$Equity*
Portfolio7Yield*
Personnel$Expense$Ratio$(%$of$GLP)*
Administrative$Expense$(%$of$GLP)*
Provision$Expense$Ratio$(%$of$GLP)*
Financial$Expense$Ratio$(%$of$GLP)*
Interest7Rate7Margin
Operating7Profit7Margin
Operational7Self7Sufficiency7
*"Annualized"
•
•
•
•
•
•
•
Dec.10
Dec.11
MBB720097
Sep.12 Benchmark
$$$$$$$$1,759,825 $$$$$$$$1,432,716 $$$$$$$$$$$$508,783 $$$$$$$$$$$$810,470
$$$$$$$$1,782,979 $$$$$$$$1,232,233 $$$$$$$$$$$$667,726 $$$$$$$$$$$$992,821
16.8%
7.1%
2.3%
2.5%
116.6%
36.4%
13.1%
17.3%
58.8%
59.4%
53.3%
42.9%
19.7%
25.1%
26.2%
19.2%
11.1%
11.2%
10.3%
7.8%
0.6%
0.0%
0.2%
0.0%
12.7%
13.2%
14.0%
12.5%
81.6%
78.1%
74.3%
72.4%
36.1%
17.9%
6.8%
10.4%
156.4%
121.7%
107.3%
111.7%
2.2%
13.3%
24.0%
7.8%
116.0%
MBK has maintained strong profitability consistently throughout the last few years, following a
net loss in 2008 as a result of unrealized foreign exchange losses on its USD-denominated
debt.
Following the currency crisis of 2008, MBK actually raised rates to its clients to cover its costs.
However, the MFI quickly lowered them, and has consistently lowered its rates throughout the
last few years, indicated by the downward trending portfolio yield figures.
Due to recent growth and in combination with efficiency gains from merging a number of very
small rural branches, MBK’s overall expense ratios have come down significantly this year.
Personnel expenses, which were higher in 2010 and 2011 in response to competitive pressures,
have come down as a percent of portfolio on the back of strong portfolio growth.
MBK has worked diligently to lower its administrative expenses. While the MFI has achieved
strong economies of scale in its rapid growth of the last few years, its commitment to serving the
rural poor suggests that it will always maintain a significant administrative expense base.
However, strong portfolio growth has also helped bring down these ratios.
Consistently excellent portfolio quality has allowed MBK to maintain a low provision expense
ratio.
MBK’s management has worked hard to transfer all of its debt to local currency versus hard
currency loans. More favorable swap rates this year have led to a fall in the MFI’s average cost
of debt.
Efficiency(and(Productivity
Borrowers'per'Employee
Portfolio'per'Employee
Borrowers'per'Loan'Officer
Portfolio'per'Loan'Officer
Cost'per'Borrower*'
*"Annualized"
•
Dec.09
Dec209
''''''''''''''''''''186
''''''''''''106,501
''''''''''''''''''''249
''''''''''''142,306
''''''''''''''''''''166
Dec210
''''''''''''''''''''179
''''''''''''100,887
''''''''''''''''''''236
''''''''''''132,700
''''''''''''''''''''206
Dec211
''''''''''''''''''''189
''''''''''''138,164
''''''''''''''''''''251
''''''''''''183,468
''''''''''''''''''''240
Sep212
''''''''''''''''''''225
''''''''''''227,020
''''''''''''''''''''310
''''''''''''312,017
''''''''''''''''''''249
MBB(2009(
Benchmark
'''''''''''''''''''173
'''''''''''''''''''321
'''''''''''''''''''224
MBK’s efficiency metrics continue to improve as the MFI achieves greater economies of scale.
3
Portfolio2Yield
70%
60%
10%
3%
15%
50%
14%
13%
40%
13%
1%
30%
0%
0%
11%
10%
Margin
3%
Financial
13%
Provision
0%
11%
Admin
8%
20%
Personnel
10%
20%
0%
26%
25%
19%
Dec<10
Dec<09
Dec<11
Sep<12
Personnel
40,000,000
1,600
34,301,561&
35,000,000
30,000,000
1,200
25,000,000
1,000
22,584,149&
20,000,000
800
13,666,977&
15,000,000
10,000,000
600
8,825,989&
400
5,000,000
-
1,400
200
Dec$09
Dec$10
GLP (US$)
Total Employees
Dec$11
Sep$12
-
Total Loan Officers
B. Loan Portfolio: Excellent portfolio quality
Portfolio(Characteristics
Gross%Loan%Portfolio%(USD)
Total%Number%of%Loans
Average%Loan%Balance%per%Borrower
Average%Loan%Balance/GNI%per%Capita
•
•
MBB(2009(
Dec009
Dec010
Dec011
Sep012 Benchmark
%%%%%%%%8,825,989 %%%%%%13,666,977 %%%%%%22,584,149 %%%%%%34,301,561 %%%%%24,333,205
%%%%%%%%%%%%144,951 %%%%%%%%%%%%259,980 %%%%%%%%%%%%276,607 %%%%%%%%%%%%319,719
%%%%%%%%%%%%%%%%%%%%%%61 %%%%%%%%%%%%%%%%%%%%%%63 %%%%%%%%%%%%%%%%%%%%%%82 %%%%%%%%%%%%%%%%%%%%106 %%%%%%%%%%%%%%%%%%%165
3%
3%
4%
5%
20%
MBK’s average loan size ($106 as of September 2012), although very low, has been trending
higher each year in an attempt to maintain pace with rapidly rising food prices in Indonesia. The
majority of MBK’s clients are involved in the food industry (direct production through agriculture,
using food as inputs for food preparation/sale, etc) and therefore are especially affected by
rising food prices.
Regional diversity is very strong, with over 200 branches spread throughout the island of Java.
Three to five branches normally report to a District Level branch, of which there are 53. MBK’s
largest District holds 6.25% of the total portfolio.
4
•
•
•
MBK’s largest exposure by sector is to trade at 75% of the portfolio, which mainly includes
handicraft and food preparation businesses. Other sectors include agriculture (9%),
manufacturing (9%) and livestock (6%).
99.7% of MBK’s loans are less than $500, all of which have a 50 week tenor. Only recently has
MBK raised its maximum loan size (from $500 to $700) in order to keep pace with clients that
have been in the program for a number of years and now have demand for larger loans.
Of it’s more than 300,000 loans, MBK only has 1,100 that are over $500.
Portfolio
40,000,000
350,000
34,301,561
35,000,000
30,000,000
300,000
250,000
25,000,000
22,584,149
200,000
20,000,000
10,000,000
150,000
13,666,977
15,000,000
100,000
8,825,989
50,000
5,000,000
-
Dec$09
Dec$10
GLP (US$)
Portfolio(Quality
PaR>1&Days
PaR>30&Days&(includes&refinanced/restructured)
Write?Off&Ratio
Risk&Coverage&Ratio
PAR&>&30&+&restructured&/&Equity
(PAR&>&30&days&+&restructured&?&Loan&Loss&&Provision)&/&Equity
•
•
Dec$11
Sep$12
-
Number of Borrowers
Dec009
0.04%
0.01%
0.00%
20455%
0.02%
?4.48%
Dec010
0.03%
0.00%
0.00%
194857%
0.00%
?2.85%
Dec011
0.01%
0.01%
0.00%
5986%
0.05%
?3.22%
MBB(2009(
Sep012 Benchmark
0.00%
0.00%
1.89%
0.00%
0.40%
39099%
98%
0.01%
?3.64%
MBK has consistently maintained excellent portfolio quality, with only $538 worth of portfolio
over 30 days past due as of the end of September, resulting in a Par>30 ratio of 0.0016% easily representing the best portfolio at risk in all of MCE’s portfolio.
MBK’s portfolio quality is consistently excellent because:
o All centers (groups of 20 women) go through six weeks of training before loan
disbursement. Financial literacy is a key part of this training, as is informal savings
among the group
o All loans are group loans – if and when a client is unable to make her share of a loan
payment, the groups are urged to cover her payment through their internal group
savings
o Participation in weekly client meetings is strictly enforced
o MBK is one of the only MFI in Java serving such poor householders – with loans ranging
from $50-$700. Commercial banks that claim to be serving the microfinance market
have $2,000 as their lowest loan sizes. Two new institutions that are competing for
MBK’s same niche have little brand recognition and are still very small. With MBK as the
only real game in town, clients do everything they can to maintain a good reputation in
order to increase the chance of obtaining larger loans in the future.
5
MBK’s branch network is extensive, allowing MBK’s loan officers to have daily contact
with clients in even the most rural of areas.
MBK’s provisioning is more than adequate, given the low Par>30 numbers. MBK’s provisioning
policy is:
o
•
Days in
Arrears
0-30
31-90
91-120
121-180
>180
Provision
1%
5%
10%
50%
100%
C. Growth: Significant portfolio and client growth
Growth
Borrower&Growth
GLP&Growth
•
•
•
•
Dec*09
37%
60%
Dec*10
51%
48%
Dec*11
27%
65%
Sep*12
26%
55%
MBK has experienced significant portfolio and client growth over the past few years. Growth this
year has been slightly curbed by delays in funding – 68% of MBK’s debt is from international
lenders, all of whom are European with the exception of MCE. As a result of the Eurozone crisis
this year, funding has been slower to materialize than expected.
Because MBK is a Grameen and ASA replicator and has only one standard product, it is quick
and efficient for MBK to start a new branch and train new loan officers. This model has
contributed to MBK’s ability to scale so rapidly and consistently.
Despite the rapid growth, MBK’s average loan size has remained around $100 throughout its
operating history. Taking into account sometimes high inflationary pressures in Indonesia, MBK
has seen a very slight rise in average loan size.
MBK continues to expect significant growth in the near to medium term, given that they are the
only well-known MFI on Java consistently offering loans under $2,000.
Growth'Rate
70%
60%
50%
40%
30%
20%
10%
0%
Dec509
Dec510
Borrowers
Dec511
Sep512
GLP
6
D. Funding & Capital Structure: High leverage
Capital'Structure
Liability/Equity,Ratio
(Debt,<,Sub.,Debt)/(Equity,+,Sub.,Debt)
Equity/Assets,Ratio
Capital,Adequacy,Ratio
Gross,Loan,Portfolio/Total,Assets
Cost,of,Funds,Ratio*
•
•
•
•
•
MBB'2009'
Dec.09
Dec.10
Dec.11
Sep.12 Benchmark
4.42x
3.96x
5.18x
5.91x
5.38x
2.90x
3.14x
4.26x
5.13x
,,,,,,,,,,,,,,,,,,,0.18 ,,,,,,,,,,,,,,,,,,,0.20 ,,,,,,,,,,,,,,,,,,,0.16 ,,,,,,,,,,,,,,,,,,,0.14 ,,,,,,,,,,,,,,,15.61
23%
23%
19%
16%
,,,,,,,,,,,,,,,,,,,0.69 ,,,,,,,,,,,,,,,,,,,0.70 ,,,,,,,,,,,,,,,,,,,0.82 ,,,,,,,,,,,,,,,,,,,0.86 ,,,,,,,,,,,,,,,,,,0.77
9.7%
11.8%
13.2%
12.5%
MBK’s portfolio/assets ratio is strong at 86%. Utilization rates in past years have not been as
high as MBK was forced to take cash reserves for potential foreign exchange losses on USD
and EUR-denominated debt, while also using cash to enter into back-to-back structures.
Because MBK’s currency risk has now been completely resolved, the MFI can use the majority
of its assets for its loan portfolio.
Debt to equity has remained high over through 2011 and 2012. While MBK’s leverage is helped
by almost $700,000 in subordinated debt from Cordaid, overall, debt/equity is on the high end.
This risk may ease in the near term, as MBK is in the final stages of negotiations with two
potential equity investors (the International Finance Corporation and PT Sampoerna3), which
would boost MBK’s equity base significantly. Both organizations have completed due diligence
and are now negotiating towards a valuation that all sides can agree to.
Exposure to foreign exchange risk is zero. MBK has only local currency funding, and has no
foreign exchange risk.
MBK demonstrates no asset-liability mismatch in the short-term. MBK’s mismatch presents
itself in the one-year time frame, as is expected given that all the loans they issue are for a 50
week period. This mismatch does not pose a problem, as MBK will continue issuing new 50week loans in the short and medium term.
Solvency
Liabilities/Assets
Net.Treasury/Current.Liabilities
Interest.Coverage.(earnings)
PAR.>.30.+.restructured./.Equity
(PAR.>.30.days.+.restructured.M.Loan.Loss..Provision)./.Equity
•
Dec*09
Dec*10
Dec*11
Sep*12
.....................0.8 .....................0.8 .....................0.8 .....................0.9
.....................0.1 .....................0.1
2.97x
1.81x
1.26x
1.38x
0.02%
0.00%
0.05%
0.01%
M4.48%
M2.85%
M3.22%
M3.64%
A listing of MBK’s debt is provided on the following page:
3
The International Finance Corporation (IFC) is the private sector arm of the World Bank. PT Sampoerna is a large
Indonesian conglomerate involved in agriculture, finance, property, telecommunications and timber, with a long history in
the tobacco and cigarette industries (from which they withdrew in 2005 when the cigarette business was purchased by Phillip
Morris). The Sampoerna Foundation is widely recognized as the first social business institution in Indonesia.
7
Lender
US$
Outstanding
Currency
Balance
(Sep-12)
Interest
Rate
Collateral
Origination
Date
Maturity
Date
283,785
1,898,206
440,926
1,042,970
725,884
11.75%
8.20%
12.75%
12.00%
9.30%
No security
80% Portfolio
No security
No security
No security
Jun-09
Sep-08
Aug-09
Aug-09
Oct-09
Jun-14
Sep-13
Aug-14
Nov-12
Apr-13
Cordaid I
OikoCredit
Cordaid II
Bank BNP Paribas
Triple Jump I
IDR
IDR
IDR
IDR
IDR
Cordaid III
IDR
719,437
10.75%
No security
Dec-09
Dec-13
Incofin I
IDR
1,042,970
12.90%
No security
Dec-09
Dec-12
Triple Jump II (Netherlands)
IDR
351,658
9.30%
No security
Jun-10
Apr-13
Triodos I
IDR
2,085,941
12.00%
No security
Aug-10
Oct-13
Bank Syariah Mandiri I
IDR
521,485
12.50%
50%SBLC
Sep-10
Sep-13
Bank Syariah Mandiri II
IDR
552,774
12.50%
50%SBLC
Nov-10
Sep-13
Triodos II
IDR
521,485
12.00%
No security
Nov-10
Oct-13
Symbiotics V
IDR
928,661
12.17%
No security
Feb-11
Feb-13
Triple Jump III (Netherlands)
IDR
765,763
12.17%
No security
Feb-11
Feb-14
Bank Syariah Mandiri III
IDR
1,011,681
12.50%
50%SBLC
Apr-11
Mar-14
Incofin II
IDR
1,303,713
10.60%
No security
Apr-11
Oct-12
Triple Jump IV (Netherlands)
IDR
1,701,995
10.84%
No security
Apr-11
Apr-14
MicroCredit Enterprise V
IDR
1,349,030
12.17%
No security
Jul-11
Jul-14
Triodos III
IDR
886,525
12.00%
No security
Aug-11
Sep-13
Bank Syariah Mandiri IV
IDR
1,042,970
12.50%
50%SBLC
Sep-11
Sep-14
Bank Muamalat I
IDR
1,042,970
13.00%
50%SBLC
Jan-12
Jan-14
Bank Syariah Mandiri V
IDR
1,042,970
12.50%
50%SBLC
Feb-12
Feb-15
Bank BNP Paribas
IDR
813,517
12.17%
No security
Feb-12
Feb-13
Bank Standard Chartered
IDR
2,607,426
9.63%
50%SBLC
Mar-12
Mar-14
Bank Andara
FMO
Bank Standard Chartered
IDR
IDR
IDR
1,564,456
2,856,070
1,147,267
13.43%
10.14%
9.63%
50%SBLC
No security
50%SBLC
Mar-12
Apr-12
Apr-12
Mar-14
Apr-16
Apr-14
FMO
IDR
1,965,165
10.14%
No security
Jun-12
Apr-16
ResponsAbility III
IDR
1,479,819
13.94%
No security
Jul-12
Jul-13
Incofin III
IDR
1,042,970
13.83%
No security
Jul-12
Jul-14
Symbiotics IX
IDR
1,000,521
12.67%
No security
Sep-12
Sep-13
ResponsAbility IV
Bank Muamalat II
IDR
IDR
499,218
1,564,456
14.19%
13.00%
No security
50%SBLC
Sep-12
Sep-12
Sep-13
Sep-14
TOTAL
37,804,684
Denotes Subordinated Loan
•
•
43% of MBK’s debt is due to mature between this year and next. While MBK’s management is
confident that they will be able to renew their maturing loans, the time commitment to its funders
was one of the main drivers in MBK seeking equity investments.
Numerous conversations are ongoing in parallel to the equity diligence to ensure that MBK will
not have to shrink its portfolio in order to repay debt that is coming due.
8
E. Projections4: Beating historical projections; new projections show strong growth
• MBK projections from two years ago show the MFI reaching 200,000 clients by the end of 2014
and reaching a portfolio of $37 million by the end of 2011. While MBK has hit its client numbers
much earlier than anticipated, portfolio growth has been slower than expected, with MBK
reaching $34 million in portfolio as of the end of September 2012. Much of this has been driven
by the lack of competition in the areas, mixed with MBK’s commitment to maintaining small loan
sizes.
• MBK continues to project ambitious targets for portfolio growth over the next 3-5 years, as
demonstrated in their projections below.
Projections+(US$)
Period
Total+Assets
Total+Liabilities
Total+Equity
HISTORICAL
PROJECTIONS
Dec211
Sep212 0
2012
2013
2014
2015
+++++++++++++27,398,908
+++++++++++++39,836,092
+++++++++++++47,795,998 +++++++++++++68,879,997 +++++++++++++98,773,495 +++++++++++142,033,493
+++++++++++++22,966,578
+++++++++++++34,069,217
+++++++++++++41,758,498 +++++++++++++60,238,497 +++++++++++++86,446,496 +++++++++++124,256,994
+++++++++++++++4,432,330
+++++++++++++++5,766,875
+++++++++++++++6,037,500 +++++++++++++++8,641,500 +++++++++++++12,326,999 +++++++++++++17,776,499
Net+Operating+Income+(before+tax)
Oper.+Self+Sufficiency
Return+on+Assets
Portfolio+Yield
+++++++++++++++++++667,726
107.3%
2.3%
53.3%
+++++++++++++++++++992,821
111.7%
2.5%
42.9%
+++++++++++++++1,512,000 +++++++++++++++3,475,500 +++++++++++++++4,914,000 +++++++++++++++7,266,000
112.3%
120.5%
120.7%
121.4%
3.1%
4.5%
4.4%
4.5%
41.8%
38.1%
37.8%
37.6%
Gross+Loan+Portfolio
Loan+Portfolio+Growth
+++++++++++++22,584,149
64.8%
+++++++++++++34,301,561
54.7%
+++++++++++++44,939,998 +++++++++++++62,191,497 +++++++++++++89,617,496 +++++++++++129,160,494
111.3%
38.4%
44.1%
44.1%
PAR+>+30
WriteUoff+Ratio
Risk+Coverage+Ratio
0.0%
0.0%
+++++++++++++++++++++59.86 x
0.0%
0.0%
+++++++++++++++++++390.99 x
0.0%
0.0%
0.0%
0.0%
0.7%
1.1%
1.0%
1.0%
++++++++++++++++++++++++++++U
++++++++++++++++++++++++++++U
++++++++++++++++++++++++++++U
++++++++++++++++++++++++++++U
36.5%
0.2%
14.0%
27.0%
0.0%
12.5%
++++++++++++++++++++++++++++4.3
++++++++++++++++++++++++1.26 x
++++++++++++++++++++++++++++5.1
++++++++++++++++++++++++1.38 x
Operating+Expense+Ratio+(%+of+GLP)
Loan+Loss+Provision+Ratio
Funding+Expense+Ratio
Debt/Equity+Ratio
Interest+Coverage
•
24.7%
0.3%
12.2%
19.7%
1.1%
10.9%
19.7%
1.0%
10.7%
19.3%
1.0%
10.7%
++++++++++++++++++++++++++++6.9 ++++++++++++++++++++++++++++7.0 ++++++++++++++++++++++++++++7.0 ++++++++++++++++++++++++++++7.0
++++++++++++++++++++++++1.37 x ++++++++++++++++++++++++1.60 x ++++++++++++++++++++++++1.60 x ++++++++++++++++++++++++1.62 x
Management has pared back MBK’s projections to show more moderate portfolio growth,
decreasing portfolio quality and significantly lower retained earnings and total equity. Included in
the projections below is only a very small new equity infusion:
Period
Total+Assets
Total+Liabilities
Total+Equity
HISTORICAL
Dec$11
Sep$12
+++++++++++++27,398,908
+++++++++++++39,836,092
+++++++++++++22,966,578
+++++++++++++34,069,217
+++++++++++++++4,432,330
+++++++++++++++5,766,875
MCE7PROJECTIONS7$7Management7Case
2012
2013
2014
2015
+++++++++++++35,971,583 +++++++++++++50,106,444 +++++++++++++63,518,421 +++++++++++++85,303,303
+++++++++++++30,972,275 +++++++++++++43,867,961 +++++++++++++55,825,204 +++++++++++++75,251,060
+++++++++++++++4,999,308 +++++++++++++++6,238,483 +++++++++++++++7,693,217 +++++++++++++10,052,242
Net+Operating+Income+(before+tax)
Oper.+Self+Sufficiency
Return+on+Assets
Portfolio+Yield
+++++++++++++++++++667,726
107.3%
2.3%
53.3%
+++++++++++++++++++992,821
111.7%
2.5%
42.9%
+++++++++++++++++++156,052 +++++++++++++++++++542,034 +++++++++++++++1,939,645 +++++++++++++++3,145,367
101.3%
103.2%
109.1%
112.0%
0.4%
0.9%
2.6%
3.2%
43.0%
42.0%
41.0%
40.0%
Gross+Loan+Portfolio
Loan+Portfolio+Growth
+++++++++++++22,584,149
64.8%
+++++++++++++34,301,561
54.7%
+++++++++++++35,091,514 +++++++++++++49,128,119 +++++++++++++63,866,555 +++++++++++++83,026,521
65.0%
40.0%
30.0%
30.0%
PAR+>+30
WriteUoff+Ratio
Risk+Coverage+Ratio
0.0%
0.0%
+++++++++++++++++++++59.86 x
0.0%
0.0%
+++++++++++++++++++390.99 x
2.0%
3.0%
3.0%
3.0%
1.0%
1.0%
1.0%
1.0%
++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x
36.5%
0.2%
14.0%
27.0%
0.0%
12.5%
++++++++++++++++++++++++++++4.3
++++++++++++++++++++++++1.26 x
++++++++++++++++++++++++++++5.1
++++++++++++++++++++++++1.38 x
Operating+Expense+Ratio+(%+of+GLP)
Loan+Loss+Provision+Ratio
Funding+Expense+Ratio
Debt/Equity+Ratio
Interest+Coverage
4
27.0%
3.0%
12.4%
25.0%
2.8%
12.9%
23.0%
1.8%
12.8%
21.0%
1.8%
12.9%
++++++++++++++++++++++++++++5.3 ++++++++++++++++++++++++++++6.2 ++++++++++++++++++++++++++++6.5 ++++++++++++++++++++++++++++6.9
++++++++++++++++++++++++1.04 x ++++++++++++++++++++++++1.10 x ++++++++++++++++++++++++1.27 x ++++++++++++++++++++++++1.33 x
See Appendix B for Optimistic and Pessimistic cases
9
VI.
Qualitative Analysis
A. Credit Rating: Alpha - positive, Micro-Credit Ratings International Limited; March 2010
•
•
•
•
•
Alpha - positive means: Reasonable safety, good systems. Recommended.
Strengths include: healthy capital adequacy, diversified funding base, strong portfolio growth,
profitable operations, excellent portfolio quality
Weaknesses include: limited independent oversight and new second line of management, high
operating expenses, moderate internal controls, partially un-hedged foreign currency debt,
excess liquidity
Since M-CRIL’s rating was conducted in March 2010, MBK has 1) refinanced all its hard
currency debt with local currency debt, 2) brought on a third, independent board member, 3)
strengthened its senior management team to protect against key person risk, and 4)
implemented a new MIS that will impose stricter internal controls in order to address the
weaknesses noted by the rating. See Governance and Management sections below for greater
detail.
In the last 5 weeks, both the IFC and PT Sampoerna have been on the ground with MBK and
each conducted a two week due diligence trip. MBK passed the operational diligence for both
sides.
B. Products: Singe loan product
• MBK offers only a single loan product – a working capital loan for women lent through a
Grameen-style group lending methodology.
• In addition to the loan product, MBK provides (and pays for) insurance for all its clients’ loans.
In the case of client death, MBK is paid the remainder of the principal balance due by the
insurer, and the families of the deceased clients bear no burden to repay the loan.
• MBK has recently raised its $500 loan limit to $700 due to increasing demand from clients that
have worked with MBK for many years and are pushing against the $500 ceiling. Because
there are very few other institutions offering loans under $2,000, there is significant demand
within this middle space.
Product
Loan Size
(US$)
Annual
Interest
Rate
Commission
/Fees
Tenor
(Months)
Collateral
Basic Working Capital
Group Loan
120-700
19% flat;
41% APR
equivalent
0
12
10% mandatory
savings deposit
C. Competition & Market Position: Virtually no competition historically; some minor players now
•
•
•
•
MBK has faced virtually no competition in the Javanese market through the last few years. A
few commercial banks, including Danamon and BTPN, have pushed into Indonesia’s vast
potential microfinance market, but with their smallest loans at $2,000 and an urban target base,
they have posed virtually no competition to MBK.
Just recently, BTPN has lowered its smallest loans to $1,000 and is starting to entice away
some of MBK’s clients at higher loan levels.
Another new player, DMP Microfinance, has recently received a venture capital license (the
same license MBK has) and been poaching staff from MBK throughout 2011. Staff turnover
stabilized once MBK raised salaries last year.
Bank Rakyat Indonesia (BRI), Indonesia’s oldest state bank, has a microfinance portfolio and
over 4,000 branches, but it too has historically concentrated on urban areas, where MBK has
virtually no presence. BRI also requires collateral for their borrowers, which most of MBK’s
clients are unable to provide.
10
•
•
Overall, competition is increasing, albeit from a very low base. In loans under $1,000, MBK
maintains over 70% of the market share in Java.
MBK’s only competitive disadvantage at this time is the fact that new players entering the
marketing are not requiring the same credit discipline – underwriting standards are not as strong
as MBK’s, and other institutions are willing to make individuals loans, thus excusing borrowers
from attending client meetings in the way MBK requires.
D. Ownership: Founders as owners
• Shafiq Dhanani and Liz Sweeting, MBK’s Founders and current President Director and CEO
(who are married to each other), placed the majority of their life savings into starting MBK, and
currently own 98.4% of the institution, via an Indonesian holding company.
• The remainder of MBK is owned by Mr. Narhuddin Alie, one of MBK’s Board members, and a
long-time professional with the United Nations Industrial Development Organization.
Shareholder
PT. Bina Usaha Keluarga
(representing Shafiq and Liz)
Mr. Narhuddin Alie
•
98.8%
1.2%
If negotiations with the IFC and Sampoerna are successful, MBK’s projected ownership
structure would shift to the following:
Shareholder
PT. Bina Usaha Keluarga
(representing Shafiq and Liz)
International Finance
Corporation
PT Sampoerna
Mr. Narhuddin Alie
•
Ownership
Percentage
Ownership
Percentage
63.8%
17.5%
17.5%
1.2%
The potential addition of new equity holders is an important turning point for MBK, which has
historically been owned and controlled by its two-cofounders.
E. Governance: Relatively informal governing board
• MBK’s Board has three independent members, listed below, in addition to MBK’s two founders,
MBK’s CFO and MBK’s HR Director.
• MBK’s Board meets quarterly, although meetings are relatively informal.
• Internal Audit reports directly to the Board and is the most formal committee of the Board.
• While Mr. Dhanani and Ms. Sweeting are very clearly the leaders of the organization from a
strategic and operational perspective, MBK’s Board has become more formal and more vocal
over the last few years, adding independent oversight to an organization that has long gone
virtually unsupervised from a governance point of view.
• MBK has a strict no dividend policy until 2015, at which point the policy will be reviewed.
Board of Commissioners
Member
Years
on
Board
Narhuddin Alie; Chief
Commissioner
5
Benny Kosinda; Commissioner
5
Background
Masters in Human Settlements Development; National Project
Manager, United Nations Industrial Development Organization
(UNIDO)
Masters in Economics; 8 years of experience with Asian
11
Abuzar Asra; Commissioner
Development Bank as Senior Financial Analyst; former Senior
Auditor, PWC
PhD, Development Economics. Former Senior Statistician,
Asian Development Bank
0.5
F. Management: Very strong co-founder presence – drastically improved senior management team
• MBK is led by the institution’s co-founder, Mr. Shafiq Dhanani, President Director. He holds a
PhD in Development Economics from Oxford University. Previous experience includes work for
various international development organizations in Africa and Asia, including the World Bank
and Asian Development Bank. He also has approximately 16 years experience in various
Indonesian government departments. Mr. Dhanani is a strong leader and a savvy business
person, and has long been irreplaceable as the leader of the organization.
• MBK’s other co-founder is the organization’s CEO and Mr. Dhanani’s wife. She holds a PhD in
Economics from Flinders University and has worked as a consultant for various international
development organizations in Africa and Asia and has about 16 years experience working in the
Indonesian Ministry of Education
• Both Mr. Dhanani and Ms. Sweeting are foreign nationals. They eventually plan to pass MBK on
to local leadership in the medium term, when they retire (currently estimated to take place in
2020).
• In order to start the process of passing the management baton, MBK has put in a significant
amount of effort into reinforcing and improving the strength of its senior managers.
• The three key members of that management team include MBK’s Director of Operations,
Director of Finance and Director of HR/Admin. These three as a team would have the capacity
to maintain MBK’s operations if Liz and Shafiq were to suddenly leave, but need more grooming
before one of them is experienced enough to take over entirely.
• Of the three, Mr. Prawoto, MBK’s Director of Finance, is the most likely at this stage to
potentially take over for Shafiq. With 30 years of experience in the corporate world, as well as
good English skills, Mr. Prawoto is already managing local lending relationships.
• All MBK’s field staff are women.
• MBK’s internal audit team has been greatly strengthened in the last year. The team is currently
9 people and is tasked with visiting each branch at a minimum of twice a year. The team is
slated to grow steadily as MBK’s branch network expands.
Years
w/ MFI
Years in
Position
10
10
10
10
3
1
10
3
Mr. Prawoto; Director of
Finance
2
2
Mr. Jatnika; Head of MIS
5
3
Mr. Jachja; Head of
Internal Audit
4
2
Manager; Position
Mr. Dhanani;
President/Director
Ms. Sweeting;
CEO/Deputy Director
Mr. Ramdhani; Director of
Operations
Ms. Santi; Director, HR
and Admin
Background; Comments
PhD, Economics, Oxford University. Founder, MBK. Former
team leader/senior program advisor for various World Bank
funded health and education programs in Indonesia
PhD, Education, University of Sussex. Former Education
Consultant, World Bank. Audit experience
Former CFO, Bakrie Microfinance
Former Branch Manager, MBK; Former small business
owner
Prior experience as Finance and Accounting Manager for
publicly listed Indonesian trading company; former Audit
Manager, local Indonesian commercial bank
Former MIS Officer, MBK. Bachelor Degree Electrical
engineering
Former Branch Manager and Senior Auditor, local
commercial bank. Accounts and Credit training from
Indonesian National Banking Institute
12
G. MIS: Successful implementation completed in 2011; current MIS working well
• MBK chose to move to a new MIS, BR.Net, at the end of 2010 and the new system was
successfully implemented in 2011.
• The new system has provided MBK with a number of benefits, including:
o Integrated portfolio and accounting system; automatic consolidation
o Cloud-based computing and storage – each of MBK’s 55 District Branches is online
in real-time. Smaller branches that report into District Branches report data each day
via SMS, which is available at the head office level by close of business each day.
This is a dramatic improvement over MBK’s old system, where branch data was
consolidated manually once every two weeks, resulting in significant information
delays at the head office level.
o The majority of field staff are now using point of sale devices to report disbursement
and payment information in real time to the system
H. Client Protection Principles: Early endorsement; received Smart Campaign Assessment, Aug ‘12
• MBK underwent a Client Protection Assessment in August 2012, conducted by members of the
Smart Campaign, scoring “adequate” to “more than adequate” on the five main principles
(scores below represent scoring from the report). From the report –“By scoring adequate (3.0)
on an indicator, the practices mostly meet the requirement and are consistently applied and
internal incentives support the principle and generally meet the letter of the law.”
• Prevention of overindebtedness: 3.1/5/0
• Transparency: 3.0/5.0
• Responsible Pricing: 3.6/5.0
• Appropriate Collections Practices: 4.1/5.0
• Ethical Staff Behavior: 3.4/5.0
• Mechanism for Complaint Resolution: 2.8/5.0
• Privacy: 2.9/5.0
• Key areas for improvement included:
I.
Technical Assistance:
• MBK has received technical assistance from Bandan, a very successful microfinance institution
based in Calcutta, India, regarding new product development.
• On the MIS side, MBK has enjoyed technical assistance from Ujjivan, and MFI based in
Bangalore, India, who has implemented the same systems.
13
VII.
Summary Risk Analysis
MBK operates successfully within the standard risk environment for MFIs operating in developing
countries. These risks include, but are not limited to, country risk, political risk, economic risk and
environmental risk. This section focuses on internal and external risks that might adversely affect
MBK’s future performance. For a detailed country summary refer to Appendix A as well as the attached
Economist Intelligence Unit Country Report.
External Factors
A. Natural Disaster – Natural disasters, including earthquakes, tsunamis and typhoons, are a major
risk facing the Indonesian economy. While there is no easy mitigant to this risk, MBK has taken
prudent steps to protect itself from this type of disaster through incredible regional diversification. In its
first few years of operations, MBK’s loan portfolio was primarily clustered around its headquarters,
which are located a few hours outside of Indonesia’s capital, Jakarta. In its first major expansion, MBK
pushed into central Java, farther away from the coasts and approximately 10-12 hours away by bus
from the head office. MBK now operated in Central, Western and Eastern Java and benefits from
excellent diversification within the island itself. Moreover, MBK has invested in insuring each loan it
makes, where, in the case of death, the insurance company pays MBK the remaining principal balance
on the loan, theoretically leaving MBK unexposed.
Internal Factors
A. Fraud – The risk of fraud is a constant in microfinance, and is especially so with an organization as
large and decentralized as MBK. MBK has experienced a number of small cases of fraud over the past
few years, with the most recent example a few months ago (a loan officer pocketed the informal
savings of her groups, totaling about $300). The fraud was detected by regular staff rotation, the money
was returned and the loan officer was dismissed. Most cases of fraud follow this type of pattern,
revolving around the voluntary savings programs that the women run within their loan groups, as MBK’s
system does not monitor or require those savings, and loan officers are therefore handling sums of
cash. Staff rotation is a key mitigant to fraud and all loan officers are rotated every six months. MBK
also requires a guarantee by each staff members’ parents, who guarantee to pay for any fraud, and any
costs related to recouping that fraud. With regard to internal controls, each branch goes through a
series of surprise visits each year, including two visits each year by internal audit and monthly surprise
visits by area managers. Additionally, branch managers conduct surprise visits to various group
meetings each day. MBK has a zero tolerance policy with respect to fraud.
B. Key Person Risk – As noted in the Management section above, MBK’s current President Director,
as well as the CEO, who are the organization’s co-founders, are foreigners with strong leadership skills
and a personal stake in the game (given that their money provided the seed capital for the
organization). Below them, a strong second line of management is solidifying, but there is no one
person at present who could easily take over all the duties of MBK’s co-founders. MBK’s management
team recognizes this issue, and a new line of leadership is being groomed.
C. New Shareholders – Given Shafiq and Liz’s plans to retire in the next 7-8 years, along with
consistently high leverage, MBK is actively looking for partnerships with potential equity investors.
Recent negotiations have gone well with the IFC and PT Sampoerna, but a breakdown in these
negotiations is always possible. If the new equity infusion goes forward, one key risk is mission drift, as
PT Sampoerna is likely investing with a profit motivation in addition to its social motivation. While new
investors will bring added expertise, especially to MBK’s Board, they could also bring about a shift in
strategic focus. A major mitigant to this issue is that Shafiq and Liz plan to maintain majority control for
the foreseeable future. Moreover, there is a strict no dividends policy in place until 2015.
14
APPENDIX A
FAILED STATES INDEX 20115
The index is compiled using the Fund for Peace's internationally recognized methodology, the Conflict
Assessment System Tool (CAST). It provides snapshots of state vulnerability or risk of violence during a window
in time. It indexes and scans over 30,000 articles and reports using Boolean logic. The data used in each index
were collected from May to December of 2007. The CAST software calculates the number of positive and
negative hits for 12 indictors used for the Failed States Index and then experts review the scores and articles to
confirm accuracy. The creators of the index say, “A state that is failing has several attributes. One of the most
common is the loss of physical control of its territory or a monopoly on the legitimate use of force. Other attributes
of state failure include the erosion of legitimate authority to make collective decisions, an inability to provide
reasonable public services, and the inability to interact with other states as a full member of the international
community....States can fail at varying rates through explosion, implosion, erosion, or invasion over different time
6
periods.”
2011 Rank
Country
2011 Score 2010 Score 2009 Score 2008 Score 2007 Score
3
Sudan
109
112
112
113
114
5
Haiti
108
102
102
99
101
12
Pakistan
102
103
104
104
100
14
Nigeria
100
100
100
96
96
16
Kenya
99
101
101
93
91
25
Bangladesh
94
96
98
100
96
30
Sierra Leone
92
94
92
92
93
31
Kyrgyzstan
92
88
89
89
88
38
Cambodia
89
89
87
86
86
39
Tajikistan
88
89
90
89
89
44
Colombia
87
88
89
89
90
47
Georgia
86
90
92
84
82
50
Philippines
85
87
86
83
82
57
Mozambique
84
82
81
77
77
59
Bolivia
83
85
86
84
82
62
Ecuador
82
82
81
80
80
63
Azerbaijan
82
84
85
81
81
64
Indonesia
82
83
84
83
84
66
Moldova
81
84
85
86
86
66
Nicaragua
81
83
83
82
80
76
India
79
79
78
73
71
78
Honduras
78
80
77
75
75
82
Russia
78
79
81
80
81
88
Vietnam
76
77
77
75
78
94
Mexico
75
76
75
72
73
96
Jordan
75
77
78
77
77
99
Peru
74
77
77
78
76
102
Armenia
72
74
74
71
70
107
Kazakhstan
70
73
73
72
72
114
Ghana
68
67
66
65
62
127
Mongolia
60
60
62
58
58
137
Costa Rica
51
52
53
51
51
154
USA
40
41
41
41
41
Proposed country
Current MCE borrower country
Shown for comparison perspective
5
6
The Fund for Peace. http://www.fundforpeace.org/web/index.php?option=com_content&task=view&id=99&Itemid=140
From http://www.foreignpolicy.com/story/cms.php?story_id=4350&page=8
15
APPENDIX B
PROJECTION SCENARIOS
In addition to the Management Projection scenario, a modified set of projections based on those
provided by the MFI, MCE created optimistic and pessimistic scenarios to reflect potential outcomes
from outperforming and underperforming expectations. These two cases are presented below.
Period
Total+Assets
Total+Liabilities
Total+Equity
HISTORICAL
Dec$11
Sep$12
+++++++++++++27,398,908
+++++++++++++39,836,092
+++++++++++++22,966,578
+++++++++++++34,069,217
+++++++++++++++4,432,330
+++++++++++++++5,766,875
MCE7PROJECTIONS7$7Optimistic7Case
2012
2013
2014
2015
+++++++++++++35,971,583 +++++++++++++54,254,261 +++++++++++++81,678,279 +++++++++++122,814,306
+++++++++++++30,860,834 +++++++++++++47,434,729 +++++++++++++71,905,223 +++++++++++107,914,803
+++++++++++++++5,110,748 +++++++++++++++6,819,533 +++++++++++++++9,773,056 +++++++++++++14,899,502
Net+Operating+Income+(before+tax)
Oper.+Self+Sufficiency
Return+on+Assets
Portfolio+Yield
+++++++++++++++++++667,726
107.3%
2.3%
53.3%
+++++++++++++++++++992,821
111.7%
2.5%
42.9%
+++++++++++++++++++304,640 +++++++++++++++2,278,379 +++++++++++++++3,938,031 +++++++++++++++6,835,263
102.6%
113.7%
116.6%
120.3%
0.7%
3.8%
4.3%
5.0%
43.0%
43.0%
42.0%
41.0%
Gross+Loan+Portfolio
Loan+Portfolio+Growth
+++++++++++++22,584,149
64.8%
+++++++++++++34,301,561
54.7%
+++++++++++++35,091,514 +++++++++++++52,637,270 +++++++++++++78,955,905 +++++++++++118,433,858
65.0%
50.0%
50.0%
50.0%
PAR+>+30
WriteUoff+Ratio
Risk+Coverage+Ratio
0.0%
0.0%
+++++++++++++++++++++59.86 x
0.0%
0.0%
+++++++++++++++++++390.99 x
2.0%
2.0%
2.0%
2.0%
0.5%
0.5%
0.5%
0.5%
++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x
36.5%
0.2%
14.0%
27.0%
0.0%
12.5%
++++++++++++++++++++++++++++4.3
++++++++++++++++++++++++1.26 x
++++++++++++++++++++++++++++5.1
++++++++++++++++++++++++1.38 x
Operating+Expense+Ratio+(%+of+GLP)
Loan+Loss+Provision+Ratio
Funding+Expense+Ratio
Debt/Equity+Ratio
Interest+Coverage
•
•
27.0%
2.5%
12.4%
24.0%
1.3%
12.5%
22.0%
1.3%
12.7%
20.0%
1.3%
12.8%
++++++++++++++++++++++++++++5.2 ++++++++++++++++++++++++++++6.2 ++++++++++++++++++++++++++++6.8 ++++++++++++++++++++++++++++6.9
++++++++++++++++++++++++1.09 x ++++++++++++++++++++++++1.42 x ++++++++++++++++++++++++1.47 x ++++++++++++++++++++++++1.54 x
Under MCE’s optimistic projections (above), MBK remains profitable throughout the life of the
loan under a very favorable operating environment.
Stress testing MBK’s financial health further for conservative, pessimistic projections of growth,
portfolio quality and expense efficiency, shows MBK’s ability to withstand a negative turn in
market dynamics. As shown below, even under management’s most conservative scenario,
MBK maintains profitability with the exception of one year, and has the ability to service MCE’s
interest payments and comfortably pay the loan at maturity as scheduled.
Period
Total+Assets
Total+Liabilities
Total+Equity
HISTORICAL
Dec$11
Sep$12
+++++++++++++27,398,908
+++++++++++++39,836,092
+++++++++++++22,966,578
+++++++++++++34,069,217
+++++++++++++++4,432,330
+++++++++++++++5,766,875
MCE7PROJECTIONS7$7Pessimistic7Case
2012
2013
2014
2015
+++++++++++++35,971,583 +++++++++++++47,758,822 +++++++++++++59,720,642 +++++++++++++71,611,401
+++++++++++++30,972,275 +++++++++++++43,094,071 +++++++++++++54,424,247 +++++++++++++65,395,616
+++++++++++++++4,999,308 +++++++++++++++4,664,751 +++++++++++++++5,296,395 +++++++++++++++6,215,785
Net+Operating+Income+(before+tax)
Oper.+Self+Sufficiency
Return+on+Assets
Portfolio+Yield
+++++++++++++++++++667,726
107.3%
2.3%
53.3%
+++++++++++++++++++992,821
111.7%
2.5%
42.9%
+++++++++++++++++++156,052 +++++++++++++++++(446,076) +++++++++++++++++++842,192 +++++++++++++++1,225,854
101.3%
97.5%
104.1%
105.0%
0.4%
O0.8%
1.2%
1.4%
43.0%
41.4%
40.4%
39.4%
Gross+Loan+Portfolio
Loan+Portfolio+Growth
+++++++++++++22,584,149
64.8%
+++++++++++++34,301,561
54.7%
+++++++++++++35,091,514 +++++++++++++47,373,543 +++++++++++++59,216,929 +++++++++++++71,060,315
65.0%
35.0%
25.0%
20.0%
PAR+>+30
WriteOoff+Ratio
Risk+Coverage+Ratio
0.0%
0.0%
+++++++++++++++++++++59.86 x
0.0%
0.0%
+++++++++++++++++++390.99 x
2.0%
4.0%
4.0%
4.0%
1.0%
1.5%
1.5%
1.5%
++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x ++++++++++++++++++++++++1.00 x
36%
0.2%
14.0%
27%
0.0%
12.5%
++++++++++++++++++++++++++++4.3
++++++++++++++++++++++++1.26 x
++++++++++++++++++++++++++++5.1
++++++++++++++++++++++++1.38 x
Operating+Expense+Ratio+(%+of+GLP)
Loan+Loss+Provision+Ratio
Funding+Expense+Ratio
Debt/Equity+Ratio
Interest+Coverage
27%
3.0%
12.4%
26%
4.4%
12.6%
24%
2.4%
12.8%
22%
2.2%
13.8%
++++++++++++++++++++++++++++5.3 ++++++++++++++++++++++++++++7.9 ++++++++++++++++++++++++++++8.9 ++++++++++++++++++++++++++++9.3
++++++++++++++++++++++++1.04 x ++++++++++++++++++++++++0.91 x ++++++++++++++++++++++++1.12 x ++++++++++++++++++++++++1.14 x
16
Appendix C
GEOGRAPHICAL DIVERSIFICATION
Country(Risk(Diversification(as(of:
Dec(2010
Oct(2011
Dec(2011
Oct(2012
Armenia
1.8%
2.5%
2.2%
3.2%
Azerbaijan
6.0%
7.4%
6.8%
6.1%
14.7%
3.5%
3.1%
1.4%
Cambodia
9.1%
17.7%
14.4%
11.5%
Colombia
4.3%
3.0%
2.7%
1.2%
Bolivia
Costa(Rica
0.8%
Ecuador
4.7%
8.8%
7.7%
13.3%
Georgia
6.0%
7.1%
6.2%
4.4%
Honduras
0.2%
7.6%
1.5%
2.0%
7.6%
6.5%
2.5%
2.0%
6.7%
1.3%
1.8%
6.7%
8.4%
4.5%
5.4%
5.8%
11.7%
3.1%
3.6%
2.7%
8.5%
0.9%
8.0%
3.6%
0.6%
12.7%
0.6%
10.6%
5.5%
7.0%
1.3%
5.4%
4.3%
6.0%
4.8%
3.2%
0.8%
10.3%
2.0%
0.3%
7.0%
100.0%
100.0%
100.0%
100.0%
Dec(2010
Oct(2011
Dec(2011
Oct(2012
37.8%
12.7%
0.0%
42.7%
6.7%
100.0%
25.4%
27.4%
2.5%
39.0%
5.7%
100.0%
30.2%
26.4%
4.5%
33.9%
5.0%
100.0%
34.5%
23.9%
6.0%
33.2%
2.4%
100.0%
Indonesia
Kazakhstan
Kenya
Kyrgyzstan
Mexico
Moldova
Mongolia
Nicaragua
Nigeria
Peru
Philippines
Sierra(Leone
Tajikistan
Vietnam
2.2%
18.7%
2.2%
MCE's&goal&is&no&more&than&15%&of&outstanding&portfolio&per&country
REGION(DIVERSIFICATION
Latin(America
East(&(S[East(Asia
Eastern(Europe
Central(Asia
Sub[saharan(Africa
17
Appendix E
FINANCIAL RATIO DEFINITIONS
Ratio
Formula
Average Loan per Borrower
Average Gross Portfolio
Average # of Clients
Comments
Source
Portfolio
PAR > 30
Portfolio at Risk > 30 Days
Gross Loan Portfolio
Measures the average loan size
Microfinance Consensus
Guideline - CGAP
Measures portfolio quality. Portfolio at risk is the outstanding
amount of all loans that have one or more installments of
principal past due more than 30 days.
Microfinance Consensus
Guideline - CGAP
Loan-Loss Provision Expense
Average Gross Loan Portfolio
Measures the expense that is being incurred to cover potential
losses in the loan portfolio
Risk Coverage
Loan-Loss Reserve
Portfolio at Risk > 30 Days
Measures how much of the portfolio at risk is covered by an
MFI's loan-loss allowance. A rough indicator of how prepared
an institution is to absorb loan losses in the worst case scenario.
Microfinance Consensus
Guideline - CGAP
Write Off Ratio
Value of Loans Written Off
Average Gross Loan Portfolio
The percentage of an MFI's loans that have been removed from
the balance of the gross loan portfolio because they are unlikely
to be repaid.
Microfinance Consensus
Guideline - CGAP
Measures how well an MFI covers its costs through operating
revenues
Microfinance Consensus
Guideline - CGAP
Provision Expense Ratio
Profitability
Operational Self Sufficiency
Operating Income
Financial Expense + Loan Loss Provision Expense +
Operating Expense
Return on Assets
(Net Operating Income - Taxes)
Average Assets
Measures how well the MFI uses its total assets to generate
returns
Microfinance Consensus
Guideline - CGAP
Return on Equity
(Net Operating Income - Taxes)
Average Equity
Proxy for commercial viability.
Microfinance Consensus
Guideline - CGAP
Indicates the gross loan portfolio's ability to generate cash
financial revenue from interest, fees, and commissions.
Microfinance Consensus
Guideline - CGAP
Measures the percentage of operating revenue remaining after
all financial, loan-loss provision, and operating expenses are
paid
Microfinance Consensus
Guideline - CGAP
Common indicator of efficiency
Microfinance Consensus
Guideline - CGAP
Measures the overall productivity of total MFI human resources
in managing clients with a current loan balance.
Microfinance Consensus
Guideline - CGAP
Operating Expense
Average Number of Active Borrowers
Measures the average cost of maintaining an active borrower
Microfinance Consensus
Guideline - CGAP
Funding-Expense Ratio
Interest and Fee Expenses on Funding Liabilities
Average Gross Loan Portfolio
Shows the blended interest rate an MFI is paying to fund its
financial assets
Microfinance Consensus
Guideline - CGAP
Cost of Funds Ratio
Interest and Fee Expenses on Funding Liabilities
Average Funding Liabilities
Gives a blended interest rate for all of an MFI's funding
liabilities
Microfinance Consensus
Guideline - CGAP
Portfolio Yield
Profit Margin
Cash Financial Revenue from Loan Portfolio
Average Gross Loan Portfolio
Net Opearting Income
Operating Revenue
Efficiency and Productivity
Operating Expense Ratio
Operating Expense
Avg Gross Loan Portfolio
Borrowers per Employee
Number of Active Borrowers
Number of Personnel
Cost per Borrower
Capital Structure
Solvency
Interest Coverage (earnings) Operating Income Before Taxes and Interest Expense
Interest Expense
PAR > 30 days / Equity
PAR > 30 days - Loan Loss
Provision / Equity
Portfolio at Risk > 30 Days
Equity
Portfolio at Risk > 30 Days - Loan Loss Provision
Equity
Measures the ability of an MFI to cover its interest expense
Measures the ability of an MFI to cover its portfolio at risk with
its own equity
Measures the ability to cover its portfolio at risk with its loan
loss provision and equity
19