Microfinance Forum 2008 (4.Scb MF and Role Of Investors Tokyo1108)

Standard Chartered Bank Microfinance : Participation Strategy Prashant Thakker 2008

Introduction to Standard Chartered Bank Leading the Way in Asia, Africa and the Middle East 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 2

Standard Chartered Global Network of 75 countries EUROPE United Kingdom Kazakhstan Poland Jersey Falkland Islands Romania Russia France* Ukraine Switzerland* NORTH EAST ASIA Austria China MENA THE AMERICAS Germany Hong Kong Jordan Argentina** Italy Japan* Oman SOUTH ASIA Bahamas* Luxembourg Macau Qatar Afghanistan Brazil** Monaco South Korea Turkey** Bangladesh Colombia* Spain Taiwan Iran** India Mexico* Sweden Australia* UAE Nepal Peru* AFRICA Pakistan Sri Lanka United States of America* Botswana Lebanon Venezuela* Cameroon SOUTH EAST ASIA Bahrain Canada Brunei Gambia Egypt Cayman Islands Cambodia** Ghana Chile Indonesia Cote d’Ivoire Uruguay Laos** Nigeria Malaysia Sierra Leone Singapore South Africa Thailand Mauritius Vietnam Kenya Philippines Tanzania * Wholesale Bank (no retail branch network) Uganda ** Representative Office (no retail branch network) Zambia Countries in Blue – SCB presence Zimbabwe Countries in Green – AMEX presence 3

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)  4

Geographic Coverage Geographic Coverage reflects Investment Flows in the Microfinance Sector London Tokyo(?) Europe New York Beijing Dubai Delhi Lagos Nairobi Bangkok MF/ DO LatAm Investor JoBurg Centers MF/ DO investment / aid flow countries 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  5

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. 6

Value Proposition Provide access to credit and financial services to MFIs in Africa and Asia and to contribute to poverty reduction and economic empowerment. Support Intermediaries that provide financial services to a section of the population that is un-served or under-served by the formal financial sector. Network Network Presence in developing economies for over 100 years, where the problem of financial exclusion is acute. Currently supporting MFIs in 16 countries Capabilities Capabilities Local Currency funding, Cross border loans, Debt Capital markets, Transaction Banking solutions, FX and Derivatives - for the MFIs and Investors. Strategic Alliances Strategic Alliances Leverage alliances with Development Organization customers . The Bank is using these alliances to mitigate risk, develop the sector and provide technical assistance Brand Value Brand Value Access to Finance is core to SCB’s Sustainability Strategy 7

SCB Microfinance Approach Microfinance End Users Investors Wholesale Microfinance Group Africa, Asia and Middle East Lending Microfinance Institutions Financial Business Local Currency CSR Institutions Funding, GM, TB, Individual DCM Lending Development Poverty Risk Participation, Provision of reduction Organisations Asset distribution • Loans • Social development • Group formation • Training Technical Microfinance Sector Assistance & development Experts Training Enterprise Thought Financing Leadership, Economic regulatory Governments development Community framework Lending 8

Microfinance Business Model  Group Account Managers (GAMs)  Financial in MF Investor  Wholesale Bank Institutions Senior centers  Standard Relationship Management Management Chartered Bank  Regional & Managers / RMs team  Wholesale Bank country Heads of  Board of Directors Credit Analysts Risk committee  Group Head DOs FI / DO WHO  Corporate Credit and Risk  Group Markets  Global Business  Product partners: Responsibility control. and Institutional Head , Transaction Committee Risk - MIRM Microfinance Country / banking, Global Regional MIRM  Microfinance markets, Central team Consumer Banking Strategy Implementation Business Prepares   development Strategy Manage &  Identify client Recommends develop   Defines   Defines needs credit standards Investor / Participation Philosophy network Model Initiate credit Drives business    Approves relationships processes WHAT approach &  Approves Participation objectives Support business Local credit    Provides Regional / Strategy approval. Global Portfolio  aspiration country targets Management  Agree Risk Implement   Thought Execute client parameters Corporate  Define  leadership specific responsibility links Corporate products needs responsibility Country portfolio  linkage management 9

Microfinance Loan cycle Risk Assessment Customer Sales Relationship Credit Analyst scores MFI needs Managers – Sources and grades deals • Ongoing risk • Score sheet reviews and risk grading • Business and • KYC & Constant account Strategy • Covenant • Limit application monitoring Continuous Monitoring monitoring • Assessment of • Co-ordination • Suitable product customer needs with CRC sales • Inputs into • Approves • Security and • Documentation - Account plan - Underwriting collateral based on - country/ regional standards management approvals strategy - Risk grading tracking loan • Country specific - Early Alert & recovery lifecycle - Specific deals legal issues - Minimum pricing covenants & EL Microfinance Central team & CRC executes MIRM approves product partners support loan cycle as required Control & Credit Approval Documentation 10

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. 11

Products/Services suite for Investors Credit  Cash Management   Term lending  Regional Solutions  Structured Finance  Payment & Collection  Account Services Trade Finance   Straight2Bank (internet  Short-Term Trade banking)  Guarantees/Bonds  Liquidity Management  Supranational Trade Investment Banking  Global Markets   Export & Project Finance  Exotic Currencies  Debt Capital Markets  Reserve Currencies  Corporate Advisory  Risk Management  Interest Rate Derivatives Consumer Banking (for staff)   Online Treasury (internet  Credit/Smart Card based)  Branch Banking  Economic Research  Payroll 12

Our Priorities 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 13

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 14

Socially Responsible Investors in Microfinance Asian Investors Missing the action?

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. 16

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. 17

Possible participation options Direct (at Institutional level - MFIs) or Indirect (Government, Microfinance Investment vehicles, funds) in Equity Debt 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. 18

Microfinance Forum 2008 (4.Scb MF and Role Of Investors Tokyo1108)

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Microfinance Forum 2008 (4.Scb MF and Role Of Investors Tokyo1108) Presentation Transcript