1. Debt Finance Techniques forMFIs and Agri-CommoditiesMicrofinance & Sustainable Development Summit January 27, 2010

2. Outline About IFMR Capital 3 Cases Equitas micro-loan securitisation (IFMR Trust Pioneer II) Multi-originator micro-loan securitisation (IFMR Capital MOSEC I) Commodity-backed warehouse receipt financing

3. IFMR Capital Mission “To provide efficient and reliable access to capital for every institution that impacts low-income households” IFMR Capital is an Indian non-banking finance company (NBFC) functioning as a financial guarantee company, setup in 2008. Sectors of focus include: Microfinance Agri-commodity backed finance (pilot) Small enterprise finance (pilot) Part of IFMR Trust, based in Chennai, India IFMR Rural Finance (Regional rural financial institutions) IFMR Mezzanine Co. (Mezz finance for MFIs) IFMR Ventures (Incubates & invests in rural supply chain companies)

4. Financial System Design

6. Market intelligence

7. Due diligence of MFIs based on Underwriting Guidelines

8. Evaluation of portfolio to be purchased

9. Structuring the transaction

10. Modeling expected cashflows

11. Legal due diligence

12. Working with the rating agency

13. Negotiations with the investors

14. Finalisation of transaction structure

15. Providing second loss credit enhancement

16. Post-purchase

17. Continuous follow-up on underlying portfolio with originator

19. IFMR Trust Pioneer II 1st Mutual fund investment Context No deposits or external debt for NBFC-MFIs Regulatory driven lending (seasonal, concentrated) Indian mutual funds: seeking short term assets Securitization: how to promote healthy structures? Aim To establish microfinance as a high quality asset class Demonstrate a P1+ rating for a micro-loan backed securitization Legal form: Tradable security Widen sources of finance for MFIs to key capital markets investors such as mutual funds and bank treasuries Set a new pricing benchmark for microfinance securitizations Promote structures that are capital efficient (Par vs premium) Establish market standards for evaluating the credit quality of micro-loan portfolios originated by MFIs

20. IFMR Trust Pioneer II – November 2009 IFMR Trust Pioneer II

21. Structure P1+ 65% of Pool $7 MM Investors Equitas (MFI) sells 55,993 micro-loans ICICI-Prudential AMC, Dhanalakshmi Bank 1 SPV buys loans and issues PTCs (securities) 3 Axis Bank AA 17% of Pool $1.8 MM 2 CRISIL (S&P) rates securities BBB 18% of Pool $1.9 MM IFMR Capital, Axis Bank Cash Collateral 10.6% of Pool Equitas (MFI) bears first loss risk IFMR Trust Pioneer II

22. Time Tranching Accessing <1 yr portion of yield curve improved pricing benchmark Commercial paper rated P1+ yielded approx 5-6% at time of deal IFMR Trust Pioneer II

23. Case IIIFMR Capital MOSEC IFacilitating access to capital markets for small MFIs

24. IFMR Capital MOSEC I 1st Multi-originator securitisation Context 500+ small & medium sized MFIs (100 million unbanked households) Indian banks have consolidated lending to largest 10-20 MFIs Cost of borrowing avg 12-15% Small MFIs lack sizeable unencumbered portfolio for securitization Revolver securitization structure not captured by RBI guidelines

25. Loan-to-Originate Product After due diligence, if a small MFI meets Underwriting Guidelines & Eligibility Criteria, IFMR Capital provides short-term liquidity (2-4 month loans) for MFIs to originate portfolio Portfolio can then be pooled with other small MFIs’ portfolios and securitized -The unencumbered portion of their portfolios is minimal -IFMR Capital issued line of approx $1 MM to each MFI to make fresh loans IFMR Capital MOSEC I

26. IFMR Capital MOSEC I – Summary, January 2010 IFMR Capital MOSEC I

27. Structure P1+ 76% of Pool $5.2 MM Investors Asirvad Sahayata Sonata Satin Dhanalakshmi Bank 1 SPV buys loans and issues PTCs (securities) 3 Unrated 24% of Pool $1.6 MM IFMR Capital 2 CRISIL (S&P) rates securities Cash Collateral 13% of Pool All 4 MFIs bear first loss risk IFMR Capital MOSEC I

28. Case IIIAgri-Terminal Markets Network EnterpriseFacilitating access to markets & credit for small farmers

29. Farmers’ Dilemma Farmers want price upside: Prices are the lowest at harvest time. Solution: Warehouse receipt financing Farmers also need liquidity: A need for cash today leads to forced selling at low prices. Solution: Local access to commodity exchanges & end buyers Farmers need market access: Local mandi & middlemen offer low prices vs national exchanges

30. Access to markets

31. Access to risk management tools

32. Access to commodity market and credit Finance partner for loans ATMNE Branch Clearing & Trading member of NSEL Nat’l Spot Exchange 4. Provide cash / loan 3. Sell or Lodge w/h receipt Farmer / Trader 1. Deposits Commodity IFMR Rural Finance or MFI Warehouse / 3rd party Collateral Manager 2. Issue warehouse receipt A choice to farmer to sell spot or to hold for future

33. ATM NE: Dharampur Village, Gujarat

35. Replication through partnerships with MFIs, NGOs and Cooperative societies.

36. ATMNE will provide trading and settlement backend to partners

37. Exploring ways to accredit warehouses for storage of commodities in rural areas and taking grading, sorting and packaging services close to farmers

38. Short distance commodity transportation pilots to facilitate farm to market as well as inter-markets movement

40. Product and Market DevelopmentPricing and Evaluation Framework Perception of due diligence team Evaluation based on benchmarks Scoring is on a 5-point scale: 0, 5, 10, 15 & 20 across each of the above sections.

41. Product and Market DevelopmentPricing and Evaluation Framework

42. Click next to see an ATMNE Video

43. Farmer Education

44. Trading Platform

45. Quality Testing of Groundnuts