11.2010 0528 tbli_lip

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11.2010 0528 tbli_lip

  1. 1. Disclaimer : Living in Peace, a Japan-based NPO does NOTsolicit investments or sell financial products.
  2. 2. Key MessagesAbout Living in Peace •Mission •Organization •HistoryHow to minimize due diligence costs •Economics of predatory lending •Initiatives of LIP to minimize DD costs •Challenges
  3. 3. About Living in Peace
  4. 4. 2009.11.15一番大切なのは本人の意志Mantra : Opportunity for everyone
  5. 5. Organization Representative Director Taejun Shin Project Manager (Microfinance) Akiko Sugiyama Project Manager (Education) Noriko Matsuda Number of full-time employee 0 Number of directors 7 Number of part-time workers +50 Number of supporters +800 Email transaction / day (incl. weekend) +100 Range of working hours /day (incl. weekend) 0 – 20 Main office location Cloud Cup of coffee I had since the establishment +5,000
  6. 6. History Launched “Microfinance Fund for MDGs” Closed collaboration agreement with CARD MRI Closed collaboration agreement with Music Securities Hosted microfinance forum together with World Bank Fund closed; JPY 40+ million from 400+ Established investors sent to MFI in Cambodia
  7. 7. LIP Microfinance for MDGs LIP Planning / MFI selection / Monitoring (Japan) Partnership CARD MRI (Philippines) Music Investment & Securities Operational (Japan) Support TK Agreement Intermediary Investment Samic Investors (Japan) Limited (Cambodia)
  8. 8. How to Minimize DD Costs
  9. 9. Predatory lending under way“Now a second line of attack has been launched, inwhich for-profit microfinance firms are accused oflending recklessly to people too poor to repay theloans.” The Economist (UK) “Froth at the bottom of the pyramid”
  10. 10. Increase in investments should not be accusedUSD Bn Less than 10% of market’s cash needs Source : CGAP
  11. 11. Investments could be skewed
  12. 12. Ticket to Cambodia : $ 1,000
  13. 13. 5 days payroll : $1,000
  14. 14. Hotels, meals, etc : $5,000
  15. 15. DD trip by two analysts : + $ 5,000
  16. 16. How the math works in $ 100K investment
  17. 17. How the math works in $ 1M investment
  18. 18. Tend to be high-cost / high-performance High Normal ResearchPerformance LowPerformance Low Cost High Cost
  19. 19. We seek “Alpha” High Normal ResearchPerformance LIP α LowPerformance Low Cost High Cost
  20. 20. System specLIP MFI Evaluation System (LMES)Evaluation target Small-to-mid size MFIEvaluation cost Less than $100Lead-time One weekEvaluation contents Credit risk and social performanceEvaluation methodology Scoring based on logit analysisData source 1 Information provided by MFIData source 2 Answers to the questionnaireSystem completion target year 2013Accessibility High (web-base system)
  21. 21. Strength of part-time organization12%10% 8% 6% 4% 2% 0% Gross Return Ticket Hotels etc Payroll Net Return
  22. 22. Purpose of the system12%10% 8% 6% 4% 2% 0% Gross Return Ticket Hotels etc Payroll Net Return
  23. 23. Components of the research •Strategy •Management CapabilityManagement Quality •Information Management System •HR / Governance •Portfolio Quality •Operation SustainabilityFinancial Performance •Balance-sheet Quality •Cash Flow Stability •Macro-economic Performance •Political StabilityCountry Performance •Quality of MFI Regulation •MFI Competitive Situation •Operating Area •Borrower TypeSocial Performance •Contents of Service •Social Responsibility
  24. 24. The biggest challenge – information riskContents of Risk Mitigation •Require several source of information that should tie outFraud •Come up with the questions-mix to detect fraud •Evaluate quality of the system given its output and thenSystem Capability impose stress testInput Quality •Evaluate the quality given the several information resource(Human-error) and impose stress test
  25. 25. Two Remarks on LMES
  26. 26. We believe in modeling “The arguments often heard that because of the humanelement, of the psychological factors etc., or because there is –allegedly- no measurement of important factors, mathematics will find no application, can all be dismissed as utterly mistaken. Almost all these objections have been made, or might have been made, many centuries ago in fields where mathematics is now the chief instrument of analysis.” Von Neumann and Morgenstern “Theory of Games and Economic Behavior”
  27. 27. 2009.11.15We welcome those who do it better
  28. 28. Thank you!taejun.shin@gmail.com

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