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Innovative Approaches in Capital Aggregation


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Jan Piercy, Executive Vice President - Shorebank Corporation - USA …

Jan Piercy, Executive Vice President - Shorebank Corporation - USA

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  • 1. TBLI Conference Asia 2010 Alternative Investment Panel
  • 2. Key Points
    • Context: ShoreBank’s lens
      • Who we are
      • What we do in development finance & impact investing
    • Principles and Trends
      • Investors/Investees
      • Inclusive finance and “Blended Value” transactions
      • The power of specialization
    • Illustrative Transactions
      • ShoreCap I
      • BRAC Africa Loan Fund
      • LeapFrog Investments
  • 3. ShoreBank Snapshot
    • Founded in 1973 to maintain banking services and arrest decline in Chicago’s red-lined communities. Shareholders provided “patient capital”, equally valuing social impact & profitability
    • First & largest “CDFI” (community development financial institution) in the U.S.
    • Has grown to over $2.0 billion in assets & additional U.S. banking presence in Cleveland, Detroit, Portland/Seattle
      • Bank achieves returns equal or superior to banks of comparable size that do not focus on low-income communities
      • Managed to “triple bottom line” of development impact, conservation & profitability
    • Core competencies in:
      • Financing residential real estate rehabilitation
      • Small business lending
      • Promoting wealth accumulation for lower-income families
  • 4. ShoreBank’s International Activities – Current Framework ShoreBank International Pakistan Rio de Janeiro, Brazil Bucharest, Romania Johannesburg, SA TBC Kredit, Azerbaijan BBSB, Belarus (Greenfield Investments) ShoreCap Management Ltd Chicago/Johannesburg (Investment Fund Manager) ShoreBank International UK Ltd London ShoreBank Subsidiaries ShoreCap Exchange (TA Fund Manager) ShoreBank International India ShoreCap International (Investment Fund) ShoreBank Retail Bank SBI Satellite Offices ShoreBank International Ltd Chicago/DC (Consulting) Leon, Mexico ShoreCap II (Investment Fund) SHOREBANK CORPORATION (Holding Company) Ramallah, West Bank/Palestine
  • 5.
    • Knowledge Exchange
    • Research services
    • Workshop / Conference
    • Publications
    Four Capabilities – Synergistically Interlinked Capacity Building Investments Industry Building Financial Transactions ShoreBank’s Global Lines of Business
    • Advisory Services
      • Strategy
      • Implementation
      • Human Capital Development
    • Capital Mobilization
    • M&A
    • Fund Management
      • Financial Invest.
      • Human Capital Invest
    • Direct investment (B/S)
  • 6. SBI Capital Mobilization Philosophy
    • We Believe –
    • In the ability of the private sector to make great strides in economic development and create financial returns for investors
    • In the capacity of private sector instruments and disciplines to create opportunities for developing communities not otherwise available
    • In the partnership of private and public/NGO investors to create leverage that allows communities to help themselves achieve their goals
    • In applying a collaborative approach – adapting our methods to existing structures and strategic development plans of partner institutions
    • In developing vehicles that provide mission-oriented investors with a combination of reasonable financial returns and substantial development impact
    • In designing vehicles that provide the opportunity for greater impact by combining financial return and development impact-oriented investors
  • 7. Investor Spectrum Type / Return Expectation Examples Advantages Disadvantages Commercial (annual returns of >10%)
    • Pension Funds
    • Large International Banks
    • Some MIVs
    • Other Institutional Investors
    • Large sums of capital
    • Market discipline
    • Financially sophisticated
    • Demand high financial returns
    • May require ratings -> higher transaction costs
    • Stringent reporting requirements
    • Typically impatient
    • Place little value on social return
    Quasi-Commercial (annual returns of 5-10%)
    • IFIs
    • Most MIVs
    • Corporations
    • Foundation MRI Windows
    • Growing pool of capital
    • Care about social return
    • Less risk averse than commercial investors
    • Willing to accept lower returns than commercial investors
    • IFIs tend to dictate terms and reporting is cumbersome
    • Corporations usually invest for CSR purposes – development finance is a non-core activity
    • Smaller pool of capital than commercial
    Sub-Commercial (annual returns of 1-5%)
    • Foundation PRI Windows
    • International Donors
    • Development Banks
    • HNW Individuals
    • Lower financial return expectations
    • Willing to accept significant risk
    • Decision process sometimes complex, protracted
    • Development banks often move slowly
    • Cumbersome reporting requirements
    Donors (development impact only)
    • Foundations
    • Governments
    • Capital does not have to be repaid
    • Funds may be restricted
    • Smaller pool of capital
  • 8. Impact Investing
    • World Economic Forum, Skoll Social Entrepreneurship Forum, Ashoka Changemakers Network, and more…
    • Formation of “ANDE”: the Aspen Network for Development Entrepreneurship in 2008
    • Global Impact Investment Network (GIIN) formation in 2009
    • G20 “Inclusive Finance Initiative” & upcoming SME Finance Challenge Competition in 2010
    Significant recent expansion of intermediation facilitating “impact investing”
  • 9. The Power of Specialization
    • Specializing in Local Solutions
    • Global Platform and Reach
    • Local Perspective and Techniques
    Key is recognizing, analyzing and understanding divergent expectations and worldviews; local operating realities require tailored approaches. ShoreBank’s approach to specialization is grounded in local market knowledge which enables our “capital plus” intermediations to be responsive to local community needs and to help build resilient local communities
  • 10.
    • Fund management company established in 2003 – wholly owned by ShoreBank Corporation
    • Manages ShoreCap I – $28.3 million fund closed in 2003 and will manage SCI II, a $100 million fund that has had its first close.
    • “ Capital Plus” approach
    • Providing management services to ShoreCap II and ShoreCap Exchange
    • Logical extension of ShoreBank’s activities
    SCM works to generate competitive returns for investors and significant development impact by providing investees with a combination of patient capital, governance, capacity building services and peer learning opportunities Illustrative Transaction - ShoreCap Management
  • 11. The Capital Plus Model ShoreCap = Capital Plus ShoreCap Management and ShoreCap Exchange Partner Financial Institutions Equity Investment Governance Capacity Building Peer Knowledge Exchange
  • 12. * Investor also made a grant to ShoreCap Exchange. SCE raised $14.1 MM in total. ** Investment includes debt. ShoreCap I – Funds Raised and Invested SCI Investors ABN AMRO * $2,500,000 BIO*/ EIB* $3,833,000 Calvert World Values Fund $1,000,000 CDC Group $4,000,000 The Evslin Family Foundation* $250,000 Finnish Fund $1,000,000 FMO* $2,500,000 The Ford Foundation* $3,000,000 The Gatsby Charitable Foundation* $1,750,000 International Finance Corporation* $2,500,000 ShoreBank Corporation $2,500,000 The Skoll Foundation* $1,000,000 Asian Development Bank* $2,500,000     TOTAL FUNDS RAISED $28,333,000 Investments BASIX India $512,000 Bank for Small Business Belarus $1,271,578 BRAC Bank Bangladesh $3,210,000 BRAC Afghanistan Bank Afghanistan $1,245,780 Cambodian Entrepreneur** Cambodia $1,250,000 Commercial Microfinance Uganda $1,150,000 CogeBanque Rwanda $2,000,000 Eskhata Bank** Tajikistan $1,400,000 InecoBank** Armenia $2,000,000 K-Rep Bank Kenya $1,800,000 MIC Microfinance Bank Nigeria $1,000,000 Planters Development Bank** Philippines $2,000,000 Reliance Financial Services** The Gambia $711,374 Xac Bank** Mongolia $1,586,670 Kashf Microfinance Bank Pakistan $974,405 TOTAL FUNDS INVESTED   $22,111,807
  • 13. Sathapana Location: Cambodia Type: Conventional MFI Investment: $1,250,000 BBSB Location: Belarus Type: Greenfield SBB Investment: $1,271,578 InecoBank Location: Armenia Type: Conventional SBB Investment: $2,000,000 Reliance Fin. Svcs. Location: The Gambia Type: Greenfield MFI Investment: $711,374 MIC MF Bank Location: Nigeria Type: Greenfield MFI Investment: $1,000,000 Commercial MF Location: Uganda Type: Conventional MFI Investment: $1,150,000 CogeBanque Location: Rwanda Type: Conventional SBB Investment: $2,000,000 K-Rep Bank Location: Kenya Type: Conventional MFI Investment: $1,800,000 BASIX Location: India Type: Conventional MFI Investment: $512,000 BRAC Bank Location: Bangladesh Type: Established SBB Investment: $3,210,000 Planters Dev. Bank Location: Philippines Type: Established DB Investment: $2,000,000 Kashf MF Bank Location: Pakistan Type: Greenfield MFI Investment: $986,842 Eskhata Bank Location: Tajikistan Type: Conventional SBB Investment: $1,400,000 XacBank Location: Mongolia Type: Conventional SBB Investment: $1,586,670 BRAC Afghan. Bank Location: Afghanistan Type: Greenfield SBB Investment: $1,245,780 ShoreCap I – Portfolio
  • 14. Illustrative Transaction – BRAC Africa Loan Fund
    • Constraint – Funding
    • Cannot move funds out of Bangladesh
    • Existing funds needed for continued expansion of Bangladesh programs
    • African MFIs not yet licensed to take deposits
    • Investors previously focused on Latin America and Asia
    • Funds available in Africa pose challenges
      • Small increments -> management time problem
      • Multiple lenders -> multiple requirements and constraints
      • Short-term funding -> constant fundraising
      • High interest rates -> higher interest rates for end borrowers or slower growth
      • Guarantees required -> higher costs
      • Hard currency -> higher risk
      • Start-up nature of operations limits number of willing creditors
  • 15. Illustrative Transaction – BRAC Africa Loan Fund
    • Solution – BRAC Africa Loan Fund
    • Significant quantity of funds – $62.6 million
      • Target based on careful business planning led by SBI
      • Closed in October 2008 – $62.6 million
    • Long term funds – 7.5 years
    • Fixed interest rate – sustainable for BRAC operations but close to market
    • Local currency funding
    • 13 investors
      • Spectrum of financial and developmental return expectations
      • Many new to BRAC
  • 16. Fund Mechanics Management Services Management Contract and Service Fee LC Principal & Interest Payments (LC) Loan Capital (LC) Loan Capital (USD) Principal & Interest Payments (USD) Loan Notes Liberia 10% Tanzania 33% Uganda 50% Southern Sudan 17% BRAC Operating Entities Class A Noteholders 65% Coupon Class B Noteholders 35% Coupon + Upside Participation BRAC Africa Microfinance Ltd. Loan Notes Service Fee (LC) Fx Conversion USD Servicer Investors
  • 17. Illustrative Transaction – LeapFrog Investments
    • Initially committed to raising $100 million within 10 years to
    • invest in microinsurance
    • Ultimately raised $137 million in 18 months
    • Major investors include:
      • J.P. Morgan
      • TIAA-CREF
      • Flagstone Re
      • Soros Economic Development Fund
      • IFC
      • KfW
      • BMZ
      • Proparco
      • Waterloo Foundation
      • ACE Group
    LeapFrog Investments
  • 18. Contacts Laurie Spengler President ShoreBank International Ltd. [email_address] Bridget Burkhardt Senior Consultant ShoreBank International Ltd. [email_address] Jan Piercy Executive Vice President ShoreBank Corporation [email_address]