Your SlideShare is downloading. ×
Powerpoint slides.
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Saving this for later?

Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime - even offline.

Text the download link to your phone

Standard text messaging rates apply

Powerpoint slides.

681
views

Published on


0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
681
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
6
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. NewBank Microfinance: Microcredit in the Ukraine Fuqua School of Business Duke University Holly Dice, Andrew Khoo, Sara Kirchoff, Robert M. Little & Hartaj SIngh
  • 2. Agenda
    • Scenario
    • What is Microfinance?
    • Characteristics of Microfinance Loans
    • Overview of Ukraine
    • Business Plan
    • Key Takeaways
    • Conclusion
  • 3. Scenario
    • Ukrainian-American entrepreneur wants to give back to his native country by fostering small and family owned businesses
    • Willing to provide $2.5MM in interest free loans
    • Wants to verify feasibility and sustainability of a for-profit microfinance lending institution in the Ukraine
  • 4. What is Microfinance?
    • Providing financial services to the poor and micro enterprises
    • Currently 7,000 microfinance Institutions worldwide ($2.5 billion).
    • Individual and group-based lending
    • Small size of loans makes it inefficient for commercial banks to target these markets
    • Successfully pioneered by Grameen Bank in 1976
  • 5. Characteristics of Microfinance Loans
    • Size: $25 to $100,000
    • Term: 6 months to 2 years
    • Collateral: typically none
    • High interest rates: 25% to 51% in Asia
    • Low default rates: <5%
    • Labor and resource intensive to administer and monitor
    • Dependent upon social pressures for loan repayment
    • Aggressive penalty structures
  • 6. Overview of Ukraine
    • Declared independence from Soviet Union in August 1991
    • Population: 49.8 million
    • GDP: $30.4 billion ($610/capita)
    • Inflation: 28.5%
    • Currency: Hryvnia (5.6 hryvnia/US$1)
    • Prime lending rate: 42%
    • Major industries: coal, electric power, metals, machinery & equipment, agriculture
    • Moody’s Credit Rating: Caa1
  • 7. Overview of Ukraine (cont.)
    • Economy
    • Post-independence GDP contraction
      • Approximately 40% of pre-independence size
      • First year of GDP growth (5.6%) in 2000
    • Shadow economy accounts for 60% of total economy
    • Periods of hyperinflation in the early 1990s
    • Economy expected to grow in 2001-2002
  • 8. Ukrainian Banking Sector
    • Primarily finance state-run enterprises
    • Suffers from problem loan rate of 20%
    • Loans of short maturities, usually 6 months
    • Nominal interest rate is currently around 50%
    • Inadequate development of financial services
    • Banks are information source for tax collectors
    • Viewed as inefficient and lacking in small loans expertise
  • 9. Business Plan
    • Utilize microcredit lending models to construct a sustainable for-profit microcredit bank in Ukraine
    • Target business opportunities:
      • Below the ‘high-end’ lending activities of the World Bank, EBRD and various for-profit multinational banks
      • Above the ‘low-end’ lending activities of Grameen Bank model in Bangladesh
      • Loan sizes to range from $10,000 to $100,000
  • 10. Business Plan
    • Initially set up 1 branch growing to 8 in year 5
    • Loan advisors will handle 15-25 accounts
    • Require groups of 5 or more to cross guarantee loans (assumed default rate of 10%)
    • Collateral: depending on size of loan (10-20% in savings account)
    • Interest rates: 50%
    • Source of funding:
      • interest-free loan of $2.5MM for first 3 years
      • staged equity financing totaling $6.5MM in years 2-5
      • approach capital markets or commercial sources
  • 11. Results of Model
    • 5000+ loans issued by 2010
    • Total loan portfolio value in 2010 of approx. $25MM
    • Interest-free loan repaid by Year 5
    • NPV $1.9MM
    • CAGR 34%
  • 12. Real Options
    • Opportunity to expand into other financial services
    • Ability to scale-back operations during periods of economic turmoil
    • Option to provide larger loans ($100K+) to proven borrowers
    • Value associated with proving the financial-viability of model to encourage establishment of other banks as conditions improve
  • 13. Risks - Firm Specific
    • Funding
    • Market demand for microfinance loans
    • Competition
    • Default rate and late payment of loans
    • Lack of collateral
    • Financial sustainability
    • Improper management
    • Recruitment of loan advisors
  • 14. Risks - Ukraine
    • Political instability
    • Economic environment
    • Currency exposure
    • Regulatory environment
    • Expropriation
  • 15. Cost of Equity Calculations
  • 16. Interest Rate Calculations
    • Ukraine Commercial (lower bound) – 50%
    • Ukraine Informal Moneylenders (upper bound) – unknown?
    • Microcredit Summit recommended rate: 35% to 51% for Asia
  • 17. Conclusion
    • Feasible at 29.4% Cost of Capital
    • Anticipated financial return of $1.9MM
    • Investment in this bank would be attractive to:
      • Development banks
      • Companies with a long-term development stake
  • 18. Key Takeaways
    • Risk assessment
      • Microfinance
      • Ukraine
    • Calculation of cost of capital and interest rates
    • Trade-offs between financial and socio-economic returns
  • 19. Potential Development Bank Funds
  • 20. Profile of Similar Banks
  • 21. Cost of Debt
    • Debt Markets
    • II Credit Rating – 17.7
    • Opacity – use Russia as proxy (O-Factor 84, Tax Equiv 43%, Op Risk Prem – 1,225)
    • Development Banks
    • Worldbank – 12% to 15% for Asian economies
    • European Bank of Reconstruction and Development – LIBOR + 3% =