Isabelle Levard

Inclusive Finance: Responsible investment in microfinanceNovember, 2012

Microfinance / Inclusive Finance: where are the investment opportunities – TBLI Conference

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Microfinance/Inclusive Finance:

Balancing Return on Investment and Social Responsibility, while Expecting Positive Impact

In the last 15 years, the microcredit sector, matured progressively to microfinance and more recently to a broader inclusive finance sector ranging from the offer of microcredits to SME development, housing loans, payments including mobile payment, microinsurance, pensions, etc.

From a non-profit driven industry, having high expectations on impact, the sector evolved into a double line industry, where return on investment is key to attract the funding needed to cover the microfinance industry needs. However, recent failures, particularly in India, are making the investors more cautious about microfinance while Microfinance operators struggle reaching or demonstrating their positive impact

The presentation will briefly describe this evolution before focusing on the case study of Microcred, and how it concretely defines its commitment to inverstors: attractive return and social responsability


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Current stage of development of microfinanceA


5 types of financial servicesDefinition of microfinance?

▪ Target population is the “economically” active poor” which represent more than 75% of the developing world active population

– The “poor” with USD 1-2/day (29% of developing world population)

– The developing world “middle class” with USD 2-13/day (49%)

▪ Loans tend to be small typically ranging from USD 15-1,000

▪ Microfinance started with the development of microcredit in the 1970s with simultaneous efforts in Bangladesh and Latin America

▪ By extension microfinance now covers a full suite of financial services

– Pursuit of opportunities (e.g., microenterprises, quality of life improvements)

– Protection in emergencies (e.g., personal crises, catastrophes)

– Ability to manage life cycle events (e.g., life events, care for the elderly)

Traditional MFIs Commercial players

Players

Market

They have shown that it can be profitable

More commercial players are entering the market

▪ Strong growth in the lastfew years

▪ At most 150 mio active microcredit loans

Credit

MFIs struggle to offer savings because of regulatory hurdles

Postal banks and cooperatives provide the majority of savings accounts to the poor

▪ 4 times more microsavings accounts than microloansSavings

MFIs have better distribution channels

Commercial players can now cover rural and peri-urban areas

▪ Strongly facilitated by new technologies (mobile phones, correspondent banking) and card-based technologies

Payments

▪ High costs in many countries

▪ High share of informal transfers

Remittances

MFIs serve as distribution network

Commercial players are leading because of international networks

MFIs serve as distribution network

Commercial insurers are the most common providers

▪ Market concentrated in Asia▪ Life insurance as the most

common product (health insurance the least common)

Insurance

A. Current stage of development of microfinanceMicrofinance has progressively extended from credit only to 5 types of financial

services

4


686455

4731

221410532

+42% p.a.

942764

501312208

+18% p.a.

1.0821.287

1.4341.4131.2271.142

Total

SOURCE: Mix Market 2000-2010

6752

393526201613111010

+21% p.a.

20102009200820072006200520042003200220012000

▪ Microfinance sector has experienced a strong development since 2000 – Total number of

assets has increased by an average 42%/year

– Total number of MFIs has increased by 18%/year only

▪ Since 2008, there appears to be a consolidation of the market towards fewer and bigger MFIs– MFI total number

has decreased since 2008

– Since 2000, MFI average size has been multiplied by 7

A. Current stage of development of microfinance

The microfinance sector has developed strongly for 10 years and is now consolidating

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Sources: CGAP and Symbiotics MIV survey reports

2010, 2011 and 2012.

Returns are decreasing over the past years but is stagnating between 2010 and

2011. But 2011 reflects a still above performance as compared to 6months LIBOR (0,7%) and 6 months EURIBOR

(1,6%). The overall downtrend attest lower market interest rates, higher loan loss

provision expenses and increasing competition especially in saturated

markets.

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In order to preserve its annual return, investors have no choice but to focus on underserved market and underserved niches (new products), as saturated market, above the potential disastrous effect on micro-entrepreneurs, greatly jeopardize perspectives of return

Returns are still good, but weakened by competition and saturated markets

Microfinance / Inclusive Finance: where are the investment opportunities – TBLI Conference SOURCE: Mix Market 2010

A move from microcredit to financial inclusion, with a wider range of players, but potentially a smaller number of players

An apparently healthier sector though with serious risk of portfolio losses

Higher level of government interest with the objective to impact the sector through better regulation

Increased overall funding with a stronger share of local funding

Increased assessment of institutional performance, both social and financial

Sustained growth of the sector though geographic differences1

A. Current stage of development of microfinance6 major trends characterize the microfinance sector

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2

3

4

5

6


▪ Expanding set of products and providers with a move from microcredit to microfinance/full financial inclusion

▪ Increased competition leading to greater consolidation in the sector, either among MFIs or through the acquisition of MFIs by commercial players seeking to enter the market or strengthen their positions

A move from microcredit to financial inclusion with a wider range of players, but potentially a smaller number of players

▪ Growing trend to assess MFIs’ performance and impact (economic, social, environmental)

▪ Increasing overall profitability of the sector expected in the long run through the use of low-cost distribution channels (e.g., mobile financial services, correspondent banking)

▪ Potential decline in profitability due to higher provisions for expected greater portfolio losses

Increased assessment of performance and increased levels of profitability

2

3

Major impacts on microfinanc

e payers

A. Current stage of developement of microfinance

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▪ Considerable efforts to improve corporate governance and professionalize risk management (e.g., initiatives to improve risk systems/ standardize MIS in all regions)

▪ Credit risk perceived as a real threat for the sector (overindebtedness of millions of microfinance customers?) which can be further fuelled by increased funding and competition between lenders

▪ Greater interest of government in the industry (especially Latin America, BRICS)

▪ Greater importance of national regulatory environment (e.g., regulations to allow nonbank institutions to take savings or sell insurance; regulations to permit technology-enabled approaches)



MIVs are more and more focused on ESG objectives and strengthen their requirements in terms of social impact. Moreover, they are increasing their commitment by approving CCPs.

2,300 endorsers of the Smart Campaign in 2011

Funders are beginning to analyze their “social” added value more

deeply About 200 social rating in 2011

63% of microfinance investors, doing good and social performance are their first investment motivations. Only 11% percent of the investors surveyed ranked financial

return as their primary investment motivation.

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Investors are being more demanding about social and environmental performance. This is improving transparency and accountability on social performance in microfinance.- Values of responsibility (Smart Campaign on client protection and the Principles for Investors in Inclusive Finance)- Corporate ethics- Social performance management

Microfinance, Responsible Investment, a stable financial return, a socially focused fund


Balancing return and social responsibility : the case study of MicroCred

I.MicroCred overviewII.Commitments to investorsIII.Social Responsability

B

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B

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MicroCred builds and manages microfinance institutions in Africa and in China

Shareholding structure MC S.A.

Africa: 5 institutions 154,583 clients EUR 74.3M loans EUR 36.8EUR savings 1,233 staff

China: 2 institutions10,589 clientsEUR 39.4EUR loans189 staff

Network

MicroCred is: an investment company that builds and manages microfinance institutions in emerging markets (Africa & China). MicroCred’s mission is to provide qualitative financial services that are accessible and adapted to the needs of the individuals that are underserved and unserved by the financial sector, particularly the micro, small and medium entrepreneurs. Its objective is to improve the living conditions of clients and their families, and to contribute to the economic development of countries in wich it operates. MicroCred also committed to implementing a fair human resources policy while respecting the environment it operates in.

B. Balancing return and social responsibility

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B.I. MicroCred overview – as of September 2012


As of September 2012, MicroCred served more than 160,000 clients in the world.

Operational Results as of September 30, 2012Operational Institutions 6Institutions in Pre-Operational stage 1Institutions in the pipeline 2Total Number of Clients 165 172Total Number of Active Borrowers 70 585Gross Outstanding Portfolio (EUR) 113 824 565PAR>30 1,51%Outsanding Saving Portfolio (EUR) 20 634 748Total Number of Active Savers 154 583Number of Branches & Outlets 55Staff 1 422

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

0

20 000 000

40 000 000

60 000 000

80 000 000

100 000 000

120 000 000

déc.-07 déc.-08 déc.-09 déc.-10 déc.-11 sept.-12

Number of active borrowers

Volume (EUR)Oustanding Loan Portfolio & Number of Active Loans

Mali

Sichuan

Côte d'Ivoire

Nigeria

Nanchong

Sénégal

Madagascar

Active Loans 0

50 000

100 000

150 000

200 000

250 000

300 000

0

5 000 000

10 000 000

15 000 000

20 000 000

25 000 000

déc.-07 déc.-08 déc.-09 déc.-10 déc.-11 sept.-12

Number of saving accounts

Volume (EUR)

Client Savings (Number and Volume)

Côte d'Ivoire

Nigeria

Sénégal

Madagascar

Total Active Saving Accounts

B.I. MicroCred overview – as of September 2012

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B

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B.II. MicroCred commitment to its investors

Market Opportunity: Microfinance has produced growth of ~42% p.a. in recent years. Despite the 2009 financial crisis, a recent J.P. Morgan survey1 concludes that the outlook for equity investment remains positive. Whilst South Asia and Latin America may have become overheated, opportunities await in Africa and China for those with experience of building successful greenfield institutions

Risk Diversification: MicroCred is growing a proven model into 14 high performing banks / NBFIs by 2015. The growth will be focused in 14 underserved markets with low risk correlation

Uncorrelated Asset Class: In the last 10 years, microfinance has proven to be an uncorrelated asset class in every major emerging market crisis (e.g. LatAm, Asia, and more recently the Global Financial Crisis)

Long Term Investment: MicroCred offers an opportunity to invest in a company offering strong and stable performance over the long term. MicroCred is building its microfinance portfolio in the next 5 years and high yield will be offered to long-term investors

Opportunity to Leverage at Low Risk: MicroCred has an equity to assets ratio of 30% (compared to emerging markets banks average of 10.9%1), and a positive liquidity gap (borrowings are of longer duration than average loans) – thus equity investors can benefit from increased future leverage at low risk

1 “Microfinance Global Valuation Survey 2010”, J.P. Morgan and CGAP, 02 March 2010 2 “Shedding Light on Microfinance Equity Valuation”, J.P. Morgan and CGAP, February 2009

--------------------- Financial Considerations :

MicroCred is raising 30 MEUR from 2012 to start 8 new microfinance banks and NBFIs by 2015; Targeted IRR above 20% by 2020 By the end of 2017, MicroCred will reach more than 750,000 clients with have more than MEUR 740 active

loans, with a PAR below 2,5%

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A microfinance investment effectively diversifies an investment portfolio – it is a non-correlated asset class


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Source: “Microfinance Insights” Aug’09

Top two reasons why GPs find microfinance attractive:

1. “Low correlation to other asset classes”2. “Less impact from global financial crisis”

• Research concludes that MFIs “display virtually no correlation with global capital markets”

• JP Morgan offers a Beta of < 1 for Compartamos, reflecting its ability to diversify an investment portfolio

JP Morgan states 3 main reasons for counter cyclicality:

1) Original risk management techniques: small loans, short maturities, personal cashflow evaluation, family and neighbour interviews, monthly collection

2) Client base in safer sectors: provide essential products (e.g. food or clothing), less integrated into formal economy, not dependent on imports or currency fluctuations.

3) Positive liquidity gap: MFIs can access long-term debt funding from international development banks

Previous Events Largest MFI Worst Impact

Asian financial crisis BRI (Indonesia) NPL peaked at 5.7%

Bangladesh Floods (2001)

Grameen NPL peaked at 6.9%

0

10

20

30

40

H1 - 07 H2 - 07 H1 - 08 H2 - 08 H1 - 09 H2 - 09 H1 - 10

MicroCred positive liquidity gapAverage borrowing duration

Average loan to client

“Do you find microfinance investments more or less attractive in light of the global financial crisis?”

Historical robustness in previous crises:

Month

s

A majority of general partners find microfinance particularly attractive in

today’s climate

An attractive asset in an uncertain climate Uncorrelated to other investments

Sources: Can Microfinance Reduce Portfolio Volatility?, Nicolas Krauss and Ingo Walter, NYU Stern, March 2008Shedding Light on Microfinance Equity Valuation, JP Morgan and CGAP, February 2009

A microfinance investment offers diversification benefits to the wider portfolio



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13% 6%

10%8%

8%45%6%

32%63%

9%

0%

20%

40%

60%

80%

100%

Total EquityTransactions

Total DebtInvestments

South Asia

Latin America & Caribbean

Eastern Europe & Central Asia

Africa + MENA

China, E Asia& Pacific

Virtually all historical microfinance investment has gone into

LatAm, India/Bangladesh or Eastern Europe

Sources: Adapted from CGAP Deal Book 2009; data from MIX Market; and “International Funding of

Microfinance Institutions”, ADA

Equity Transactions:

Focused primarily on India

and Bangladesh

Microfinance investment before 2010

Debt Investments:

Overwhelmingly invested into Latin

America & Eastern Europe

Recent trends

Recent regulation improvements are igniting growth in the

Middle East, China and Africa – where there is a huge market

awaiting

Source: Microcredit summit campaign report

“Penetration” = Total MFI loans/# poor families

Recen

t R

eg

ula

tory

Imp

rovem

en

ts

The Middle East, Africa and China are great growth opportunities of the future


Objectives

MicroCred’s mission is to provide financial services to micro entrepreneurs excluded from the traditional financial sector by building a group of leading microfinance banks and finance companies. MicroCred Holding will cover at least 14 markets with a strong focus in Africa and China by 2015.

Generate Financial Returns while reach large number of unserved clients

Be an African Responsible Microfinance Leader (with strong focus on francophone Africa)

Be a Chinese Responsible Microfinance Leader

Broaden product range .

Proposed distribution of MFIs by 2015Distribution of MFIs in 2009

Products in 2015Products in 2009

1

2

3

SME loan

SavingsMicro loan

Group guarantee loan

Card

Term Deposits

Credit Savings Channel & Services

Mission

SME loan

SavingsMicro loan Card

ATM

Insurance

M-Banking

Term Deposits

Rural Finance

Housing

RemittancesSavings Plan

Credit Savings Channel & Services

Group guarantee loan

Leasing

(Financial projections assume 8 new investments with similar growth profile to existing MicroCred subsidiaries)

4

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0%

20%

40%

60%

80%

100%

120%

140%

160%

Half 1 Half 2 Half 3 Half 4 Half 5 Half 6 Half 7 Half 8 Half 9 Half 10 Half 11

Cumulative Operational Self Sufficiency (OSS) Normalized strat year

Madagascar Sénégal Nanchong Nigeria Côte d'Ivoire Sichuan Target 5 years acti

0%

50%

100%

150%

200%

250%

Half 1 Half 2 Half 3 Half 4 Half 5 Half 6 Half 7 Half 8 Half 9 Half 10 Half 11

Bi-annual Operational Self Sufficiency (OSS)

Madagascar Sénégal Nanchong Nigeria Sichuan Côte d'Ivoire Target

0

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

180 000

0

2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

14 000 000

16 000 000

18 000 000

20 000 000

H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12

LO productivity (EUR)Savings Portfolio (EUR)

Growth in Deposits vs. Lending Productivity

Madagascar Sénégal Nigeria Côte d'Ivoire Lending Productivity

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

0

20 000 000

40 000 000

60 000 000

80 000 000

100 000 000

120 000 000

H1 07 H2 07 H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12

PAR (%)Outstanding Portfolio

(EUR)Portfolio growth vs. PAR

Madagascar Sénégal Nanchong Nigeria Côte d'Ivoire Sichuan PAR

Portfolio growth vs. PARGrowth in Deposits vs. Lending Productivity

Profitability of MicroCred institutions,

monthly Operational Self Sufficiency 5 years after launch

Cumulative OSS reached within three years,

positive retained earnings allowing for dividends from Y5

Impact of 2009 financial crisis was minimal Loan Officer productivity

not impaired by deposits growth

Profit generation

Profit generation

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Business Plan MicroCred – June 2012

B

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MicroCred’s Social Performance Management Philosophy

Beyond ethical considerations, the will to develop MicroCred’s Social Performance Management is driven by the strong belief that working towards social performance enforces and secures institutional soundness and long run financial performance.

What is MicroCred’s Social Performance management Policy?

MicroCred’s Social Performance Management Policy was designed from 2010 and formalized in 2011. It was introduced to the managers of all affiliates in December 2011 and its implementation started in January 2012.

The Policy is consistent with the Smart Campaign’s Client Protection Principles, with the United Nations’ Principles for Responsible Investment and with the current developments of Universal Standards for Social Performance Management by the Social Performance Task Force.

It is the baseline tool that shall guide the management of social performance in all affiliates. It defines:

1 Objectives in terms of social performance;2 Processes to set up, to translate them into practice;3 Indicators to gather and analyze to check on the efficiency of processes.

Part of the Policy will be implemented uniformly; some will be adapted to the particularities of each subsidiary. MicroCred’s strategy of the Social Performance Management is based on sharing and replication of best practices.

B.III. Social Responsability

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Objectives & implementation of the Policy

B. How MicroCred is being responsible?

B.III. As an operating microfinance institution: Social Performance Management

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MicroCred intends to “Do no harm”, “Do its best” and follow up on its success in “Doing good”, concerning the following stakeholders:

B. How MicroCred is being responsible?

B.III. As an operating microfinance institution: Social Performance Management

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Microfinance / Inclusive Finance: where are the investment opportunities – TBLI Conference – Arnaud Ventura

MicroCred intends to “DO NO HARM”, “DO ITS BEST” and follow up on its success in “DOing GOOD”,

concerning the following stakeholders: 1)Clients : Quality, Affordability and Accessibility of services. Wide range of Financial services offer set in adequacy with clients needs. Ensure Client Protection, through standard guidelines and processes.

2)Staff: Offer equal opportunity, favor staff diversity, maintain employability of staff, propose fair remuneration, support social dialogue, develop conditions for self accomplishment at work.

3)Environment: Limit and measure Environmental impact of financed activities, Promote positive impact products

4)Community: Build Local Capacity and raise interest of young professionals, support localentrepreneurship.

5)Shareholders: Maintain regular and transparent transmission of information, efficient administration, maximize use of resources .

MicroCred Social Performance Stakeholders

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Implementation

In each affiliate, the implementation of MicroCred’s Social Performance Managment Policy will involve the following steps:1. Define its own mission and quantitative objectives related to it. The quantitative objectives build consistency between local needs, by-laws and products characteristics.2. Develop precise social processes;3. Assessing practices and results by benchmarking quantitative indicators to objectives;4. Using the information obtained to improve systems and further refine social objectives.


Budget approuvé (1)

Budget revisé (2)

Budget realisé (3)

% var. (3) / (1)

% var. (3) / (2)

Nombre de banques 6 5 4REVENUS 3 067 303 1 101 403 1 247 252 41% 113%

Revenus d 'A T 3 067 303 1 043 627 1 013 547 33% 97%

Revenus financiers 118 499 N A N A

Autres revenus 57 776 115 206 N A 199%

REVENUS HOLDING 2007 (EUR)

Impact indicatorsVariations of clients’ incomex% of borrowers whose revenue has increased by more than 25% p.a.x% of borrowers whose revenue has increased by 5 to 25% p.a.

x% of borrowers whose revenue has varied by less than +/- 5% p.a. x% of borrowers whose revenue has decreased by more than 5% p.a.Average increase in revenues per borrower p/Loan cycle (in %)

Clients’ ability to generate employment% of borrowers whose employees have increased by more than 50%Average number of jobs created by each borrower per year% of jobs preserved by the client

Variations of clients’ ability to plan for their future needsEvolutions of amounts saved by borrowers

Intention

Indicators

B.I. Definition of Mission, Performance Targets & Impact Objectives

B. SPM towards CLIENTS

ProcessesAffiliates shall define their specific mission and outcome objectives in coordination with the CSR unit at MCH level. The steps to follow are: 1. Affiliates: Brainstorm to determine the mission taking into account target clients, outreach and outcome objectives; 2. Affiliates : Define relevant indicators & performance targets related to these indicators addressing each objective, in

coordination with MicroCred Holding; 3. Affiliates: Present social mission and indicators to the Board; 4. Board: Validates social mission, social indicators and performance targets (see exhaustive list in Appendix 1); 5. Affiliates: Ensure that local Board, management and staff are aware of the mission and committed to it (in particular

through incentive) and ensure that indicators are all collected, entered in the MIS, analysed & trigger decisions; 6. Board: Follows up on progress using indicators & monitors results through external audit on an annual basis

Each MicroCred affiliates shall define its own mission and the corresponding objectives in terms of outcome. The chosen objectives shall build consistency between local needs, by-laws and products characteristics.

DO GOOD

DO OUR BEST

Targeting & Outreach indicators # of Active clients Distribution by Loan Amount at disbursement Average Loan Size/ % GNI # of new clients p.a.# of SME loans/total number of loans# of TPE loans/total number of loans# of low-end TPE loans/total number of loans% of poor1 borrowers (at various stages of clients history)% of very poor2 borrowers (at various stages of clients history)

1poor= individual personal income below national poverty line2very poor= individual personal income below half of the national poverty line

Here are examples of indicators that could be considered relevant to measure outreach and outcome. The indicators chosen can be picked among this list or proposed by affiliates.

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Intention

MicroCred has the objective to offer a full range of financial products and services, in order to meet clients’ elementary financial needs.

Indicators

MicroCred affiliates shall ensure that:

A strategy Plan is designed annually (presenting development plan in terms of products, channels, payment system).

Each affiliate builds local initiative to develop relevant innovative products (Ex. of savings products adapted to rubber collectors in IC, Loans dedicated to funding of clean technologies, housing, etc.)

# of products offered by the affiliate # of products used by clients# of clients per product # of transactions per clients per service

C.III.1 A Large Range of Product Offer…

B.III. Quality and Adequacy of products and services


MicroCred has the objective to minimize time and money transaction costs through the development of network, distribution channels and diverse payment systems.

MicroCred commits to:

Facilitate access to products and services through development of appropriate distribution networks (Outlets, Mobile Banking, etc)

Accelerate transactions through the introduction of diverse payment systems (ATM, Mobile Banking,..)

A.III.2. … easily Accessible

# of Branches & outlets# of external points of services (ATM, Network partners)# Population having access to MC Services (total population of areas covered)Distance to access the most remote clientTime to access the most remote client

ProcessesProcesses

Intention

Indicators

SME loan

SavingsMicro loan

Clean Tech

Card

ATM

M-Banking

Term Deposits

Rural Finance

Leasing

RemittancesSavings

PlanHousing

Credit SavingsChannel &

Services

Insurance

Rural Savings

Plan

DO OUR BEST

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Intention

Processes

MicroCred has the objective to offer High quality services and to constantly improve and adjust its product offering to market evolution.

Indicators

MicroCred affiliates shall ensure that: Each new product is validated by a Market study and focus groups; its adequacy with the affiliate’s mission is checked Clients’ opinions are collected through Annual Client Satisfaction study in a way that allows freedom of speech Focus groups are conducted annually to ensure adequacy of product design with clients’ needs Services are fast, secured, transparent and easily understandable. Products are affordable, cost of services are defined in line with market offer and regulatory framework. Repayment capacity of clients are taken into account to define loan amount. Repayment timeline and installments are adaptable according to clients’ activities and household constraints

Number of clients having participated in client satisfaction surveys p.a. % of satisfied clientsClient retention rate Number of surveys of clients having resignedMain stated reasons for drop out Average length of treatment per loan Maximum waiting time in service points before being served Average waiting time in service points before being served

B.III.3. … and of High Quality

B.III. Quality and Adequacy of products and services

B. SPM towards CLIENTS DO OUR BEST

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Budget approuvé (1)Budget revisé (2)Budget realisé (3)% var. (3) / (1)% var. (3) / (2) Nombre de banques 654REVENUS 3 067 3031 101 4031 247 25241%113%Revenus d'AT 3 067 3031 043 6271 013 54733%97%Revenus financiers 118 499NANAAutres revenus 57 776115 206NA199%REVENUS HOLDING 2007 (EUR)

MicroCred Group subscribed to the Smart Campaign, that provide clients with internationally recognized minimum standards to protect them against abusive practices of MFIs. The seven principles are:

1)Appropriate product design and delivery. Providers will take adequate care to design products and delivery channels in such a way that they do not cause clients harm. Products and delivery channels will be designed with clients’ characteristics taken into account.

2)Prevention of Over-Indebtedness. Providers will take adequate care in all phases of their credit process to determine that clients have the capacity to repay without becoming over-indebted. In addition, providers will implement and monitor internal systems that support prevention of over-indebtedness and will foster efforts to improve market level credit risk management (such as credit information sharing).

3)Transparency. Providers will communicate clear, sufficient and timely information in a manner and language clients can understand so that clients can make informed decisions. The need for transparent information on pricing, terms and conditions of products is highlighted.

4)Responsible pricing. Pricing, terms and conditions will be set in a way that is affordable to clients while allowing for financial institutions to be sustainable. Providers will strive to provide positive real returns on deposits.

5)Fair and respectful treatment of clients. Financial service providers and their agents will treat their clients fairly and respectfully. They will not discriminate. Providers will ensure adequate safeguards to detect and correct corruption as well as aggressive or abusive treatment by their staff and agents, particularly during the loan sales and debt collection processes. (This criterion includes the criteria formerly named “Appropriate Collections Practices” and “Ethical Staff Behavior”)

6)Privacy of client data The privacy of individual client data will be respected in accordance with the laws and regulations of individual jurisdictions. Such data will only be used for the purposes specified at the time the information is collected or as permitted by law, unless otherwise agreed with the client.

7)Mechanisms for complaint resolution. Providers will have in place timely and responsive mechanisms for complaints and problem resolution for their clients and will use these mechanisms both to resolve individual problems and to improve their products and services.

Each MicroCred subsidiary shall implement the standard processes developed by the group and ensure that systems are in place to guarantee the respect of those principles.

B.IV. Clients protection Principles (0/7)


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Budget revisé (2)

Budget realisé (3)

% var. (3) / (1)

% var. (3) / (2)

Nombre de banques 6 5 4REVENUS 3 067 303 1 101 403 1 247 252 41% 113%

Revenus d 'A T 3 067 303 1 043 627 1 013 547 33% 97%

Revenus financiers 118 499 N A N A

Autres revenus 57 776 115 206 N A 199%


MicroCred ensures that:

An on-site evaluation and indicators calculation is performed for each loan renewal, including evaluation of the client repayment capacity: (Section 3.1.5 Repayment Capacity, Operational-Guidelines).A maximum of 70% of the monthly repayment capacity shall be used for monthly repayment installation.

The evaluation of financial ratios of the client is done and checked by credit committee during the risk analysis. Over-indebted clients are prohibited from receiving a loan:(Section 3.1.11 Financial Ratios, Ope-Guidelines).

Future indebtedness of the business < 60% (liabilities of business including new MC loan / total business assets)Future total indebtedness < 30% (liabilities of business including new MC loan + liabilities of household / total business assets + total household properties)

Loan sizes increase only with a demonstrated repayment capacity for the larger loan (Section IXV, Loan Renewal, Master Loan Manual)

Regular audits of clients are completed :(Section XX. Audit Manual) Validation of consistency of expenses and revenues data, which were collected by Commercial Officers. Validation of use of loan.

Credit bureau information is used when available (Section 3.1.10 Loan Evaluation, Ope- Guidelines)Loans are restructured if clients experience a significant reduction in income (Section 3.1.20 Restructuring, Ope-Guidelines)Commercial Officers are educated on the risk of Over-Indebtness (List of Training Manuals: CPP Training Module)Clients are warned about the danger of over-indebtness. (Leaflet on Clients’ prevention against Over-indebtness)

Intention

Processes

MicroCred takes reasonable steps to ensure that credit will be extended only if borrowers have demonstrated an adequate ability to repay, and do not have an excessive level of debt.

B.IV.2 Client Protection - Avoidance of Over-Indebtedness (2/7)

B. SPM towards CLIENTS DO NO HARM

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MicroCred shall ensure that:

General Banking Conditions (GBC) are redacted and available to all staff (3.1.28 GBC, Ope-Guidelines- Master GBC).

General Conditions of the Bank are exposed in all branches (Master GBC Poster and Master Price List Leaflet for each product).

General Banking Conditions (GBC) are displayed on posters on the wall of branches (clients waiting area) GBC are detailed on Leaflets (Price List & condition per product) available to clients in each branch

All terms and conditions of the product are listed to the client before the signature of the contract, (Master Loan Manual, Section I- Loan Process)

Loan contracts are clearly understandable by clients and read upon request (Master Loan Manual, Section I- Loan Process)

Receipts are provided for each transaction (Section VII. Reimbursement, Master Loan Manual)

Benchmark on competitor pricing offer is realized annually by each subsidiary. (Section I/ Product Definition/ Master Loan Manual)

Commercial Team is trained to : (COsTraining Modules) Communicate General Conditions of MicroCred to clients in an understandable way. Understand competitors offer and explain MC pricing in comparison to that of competitors.

Intention

Processes

The pricing, terms and conditions of MicroCred products (including interest charges, insurance premiums, fees, etc.) will be transparent and will be adequately disclosed in a form understandable by clients.

B.IV.3 Client Protection - Transparency (3/7)


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Budget revisé (2)

Budget realisé (3)

% var. (3) / (1)

% var. (3) / (2)

Nombre de banques 6 5 4REVENUS 3 067 303 1 101 403 1 247 252 41% 113%Revenus d'AT 3 067 303 1 043 627 1 013 547 33% 97%Revenus financiers 118 499 NA NAAutres revenus 57 776 115 206 NA 199%



The Code of Ethics, defining the behaviour to adopt towards clients is signed by all MicroCred staff (Master -Code of Ethics)

The “Collections Code of Conduct” is signed and adopted by all MicroCred staff involved in the collection process.(Master Collections Code of Conduct)

The disciplinary policy is applied in case of violation of the codes (Section II.8 Sanctions, Internal Rules)

Loan is restructured if client experiences a significant reduction in income (Section 3.1.19. Rescheduling, Ope-Guidelines)

A periodical audit on collection practices is conducted by the internal audit department and reviewed by the CEO and senior management (Section XX, Audit on Collection practices).

System of Clients complaints collection is in place , under three ways : Box in Branches, SMS System and Hotline are available. (Procedures for Clients complaints Management)

Procedures for Resolution of Clients complaints are applied (Procedures for Clients complaints Management)

Intention

Processes

Debt collection practices will be neither abusive nor coercive. Appropriate training to COs will be implemented ensuring best practices in loan recovery and risk management.

B.IV.5 Client Protection – Fair and respectful treatment of clients (5/7)

a) Appropriate Collections Practices


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The Code of Ethics, defining the behaviour to adopt by staff at their work place is signed by all MicroCred staff (Master -Code of Ethics)

A Sexual Harassment Policy, is read, signed, well-known and applied by all MicroCred staff.

Disciplinary policy is applied in case of violation of the codes (Section II.8 Sanctions, Internal Rules, & Procedures of Disciplinary Sanctions)

Training is provided to all staff on Code of Ethic and to Commercial Agents on Collection Code of Conduct (list of Staff Training Cessions).

System of Clients complaints collection is in place through three ways : “Suggestions Box” in Branches, SMS System and Hotline service. (Procedures for Clients complaints Management)

Intention

Processes

MicroCred staff will comply with high ethical standards in their interactions with clients. MicroCred will train its staff to professional ethics and good practices and sanction any kind of favouritism or corruption. This is supported by the largely standardized decision making process, which eliminates moral hazard between clients and staff.

B.IV.5 Client Protection – Fair and respectful treatment of clients (5/7)

b) Ethical Staff behaviour


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Intention MicroCred has timely and responsive mechanisms for complaints and problem resolution for its clients (SMS, oral, written).


MicroCred shall ensure that: (Procedures for Clients complaints management)

A hotline is available to clients during office hours.

A dedicated person is in charge of collecting complaints and manage each issue until resolution.

Suggestion Boxes together with adapted forms and pencils are available in each branch (for written suggestions or grievances)

A mechanism for the handling and redress of grievances is in place.

Quarterly report on complaint resolution is provided to the management.

Clients’ opinion are collected through Annual Client Satisfaction study (Master Client’s Satisfaction Study)

Focus groups are conducted annually to ensure adequacy of product design and client’s needs.

Clients are informed of the two tools at their disposal: Green line and SMS Services are mentioned on the contract. Suggestion Box

Audit of Monthly Complaint report and resolution (Master Manual of Audit)

Processes


B.IV.7 Client Protection – Mechanisms for Complaint Resolution (6/7)


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Intention

As an international company, MicroCred wish to respect all cultures and relies on the diversity of its teams and the broadest scope of talents available to be more innovative, more effective and more competitive.To do so, MicroCred ensure that recruitment and promotion processes are free from any discrimination.


MicroCred ensure Diversity and Equal Opportunity :

In Recruitment:HR Policy prohibits all recruitment based on race, color, national origin, religion, sex, physical disability,

medical condition, age, sexual orientation or citizenship discrimination. (Section I.1 Code of Ethics) MicroCred promotes diversity in its recruitment while complying with skills adequacy to the job.

In Promotion:No discrimination of any kind for staff promotion (Promotion based on performance)Development of promotion opportunities within the group (Career Plan)

Every year, the HR Manager provides indicators of Staff diversity.

Processes


B.b.1 Diversity and Equal Opportunity

Indicators% of women staffWomen/Men average salary ratio (for similar responsibilities)

B. SPM towards STAFF



% of local branch managers % of local middle managers% of staff from each religion% of staff from each ethnical group

DO OUR BEST

DO NO HARM

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Intention

MicroCred builds up resources and tools to ensure that each employee develop and preserve a high level of employability through:

Maintaining and Developing skills

Training Implementation and skills acquisition

Building of career Opportunity and Mobility


MicroCred implement the following processes in each institution of the Group:

5 year Career plan defined for each position with RH Department

Initial training provided to each new incomer, including on social performance management

Regular internal trainings provided, including on social performance management

Annual Individual assessment of performance (including social performance) and skills evaluation realized by the management.

Mobility opportunities offered to each staff at least once in his/her career. International mobility is extended to “high level” local employees.

External Training opportunities offered to high potential staff (seminar / conferences)

Processes


B.b.2 Employability

Indicators

# of staff trained p.a.# of refreshment training p.a. # of internal promotion p.a.# of internal promotion from commercial officer to middle manager p.a.

B. SPM towards STAFF DO

OUR BEST

DO NO

HARM

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Intention

MicroCred offer each employee fair and competitive remuneration levels, fairly structured according positions and experience, and in line with market offer.MicroCred implement processes to share the value created between shareholders and collaborators of the group.


The following systems are in place:

Financial Compensation:Transparent Salary Grid based on responsibilitiesFix and variable remuneration based on experienceNo discrimination in remuneration against gender, handicap or physical characteristicBonus System based on achievement of social objectives defined annually for each employeeEvolution of Salary according to cost of life

Non Financial Compensation:Medical Insurance coverage offered to all employees

Processes

B.b.3 Fair Compensation

Indicators

Remuneration Ratio CEO / average Commercial Officer (not necessarily made public)Average salary CO / Average salary CO of competition (not necessarily made public) % of salary increase p.a. on averageAverage salary/GNI per capitaAverage salary of front office staff/average salary of back office staff


OUR BEST

DO NO HARM

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Intention



Social dialogue and employee information in MicroCred shall be based on respect and dialogue.

B.b.4 Transparent Communication

B. SPM towards STAFF DO NO HARM

DO OUR BEST

Indicators

Processes

In addition to legal requirements, dialogue with employee representatives has per objective to :

Bring regular and transparent information on the company evolution to the employee (Strategy, Results, Organizational and Management changes…)

Dialogue with staff on subjects allowing collaborators to anticipate all necessary evolution to succeed in company strategy. => Dialogue concerns incentive, working conditions, training, as well as organization evolutions.

# of meetings between top management and staff p.a.# of newsletters displayed to all staff members in their own language

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Intention

Make MicroCred one of the best places to work, creating optimal working conditions and working environment, ensuring good security and health conditions for all the employees.


MicroCred ensure that processes are in place to ensure:

1)Internal Rules ensuring: Commitment to treat all employees with fairness, dignity and respect. (Code of Ethics)Respect of collaborator, prevention of moral harassment (Internal Rules)Prevention of sexual harrassment through a Sexual Harassment Policy which is read, signed, well-known and applied by all MicroCred staff. Disciplinary policy is applied in case of violation of the Sexual Harassment Policy.Implication of staff in strategy, encourage social dialogue, train Management on importance to consider / respect its staff, relation to performance, etc.2)Optimal working conditions:Security rules and guideline are established locally for the security of local and international staff (Security Guide)Measures taken in favor of good working conditions (Ergonomic material, embellishment of work place, etc).3)Measure Staff satisfaction :Mechanism in place to collect staff complaints at any time. The process ensures confidentiality & prevention of retaliationStaff satisfaction is evaluated regularly

Processes


B.b.5 Well-being at Work

IndicatorsTurnover rate Dropout rate# of exit interviews/#of exitted staff% of staff having had accidents at work% of staff satisfaction


OUR BEST

DO NO HARM

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Intention

MicroCred took the commitment to respect International and national legislations and to exclude financing of activities listed in the exclusion list defined by its shareholders. MicroCred wants also to limit the negative social and environmental impact of the activities it finances, by introducing tools of measure and follow up.


As defined in the Social & Environmental Procedures, MicroCred commits to:

Increase staff awareness on Social and Environmental risk, by appropriate Training on Social & Environmental Procedures.

Implement Social and Environmental Tools through the loan cycle, including: Respect of Exclusion List

Measure of negative Social & Environmental Impact of the loan (Risk classification A to C)

Take appropriate measures according to risk (Awareness form , S&E clause)

Increase clients awareness and encourage them to modify some of their habits.

Follow up of indicators, propose measures to improve a given sector of activities (if negative impact on environment is identified for a particular activity.)

Annual Audit on SEMS implementation, realized by MCH

Processes


B.c.1 Limit Social & Environmental Impact of Activities

% of loans with Environmental risk A, B, C% of loans with risk linked to Env, S&S, WActivity(ies) presenting highest repartition of risk (A) (% of risk per type of activity financed) % of clients throwing their waste into the street

Indicators

B. SPM towards the ENVIRONMENT DO NO HARM

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B.c.2 Promote positive impact of our products on the environment

Intention

MicroCred wishes to promote integration of new products with a positive impact on the environment and clients (reduce energy costs, improve sanitary conditions, bring access to clean technologies..). MicroCred believes the introduction of such products can bring a positive return for the company (in terms of outreach, image) and for the local community (better integration, recognition).

Processes

Introduce new products and support funding for their introduction, such as:

Clean, renewable technology which both reduce adverse environmental impacts and create economic assets (Clean cookstoves, biogaz, LED,..)

Eco-business opportunities for micro-entrepreneurs Ecological building with local, natural building materials Safe water and improved sanitation systems – creating assets out of waste Use Carbone Finance to finance them

Indicators

# of environmentally friendly products# of "clean Tech" loans disbursed

B. SPM towards the ENVIRONMENT DO OUR BEST

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Intention Attracting talent is a major challenge for the future of MicroCred. Therefore, the Group wants to invest in enhancing its reputation and become an employer of choice. In this context, developing relationships with schools and universities can offer students many opportunities to discover microfinance and integrate local institutions.

Build Relationships with schools and universities:

MicroCred plan to develop relationships and sustainable partnerships with a selection of local schools and universities, giving students the opportunity to discover microfinance and be informed of career opportunities within the Group, while benefiting from the expertise of MicroCred experts.

The contribution of MicroCred teams to develop talent and knowledge of students, coupled with training programs and individual coaching, will help them to grow and better address their professional lives.

Processes


B.d.1 Build Local Capacity

B. SPM towards the COMMUNITY

Indicators# of man-hours dedicated to community projectsBudget dedicated to community projects# of schools/universities served# of students served# of courses offered

DO OUR BEST

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B.d.2 Support Local Entrepreneurship

Intention MicroCred intent to favor local entrepreneurships in the countries were institutions are settled.

Processes

In front of equal quotes (similar price and quality), MicroCred will privilege local providers. (Code of Ethics I.1 Relation to providers).

B. SPM towards the COMMUNITY DO OUR BEST

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MicroCred Group- SPM Policy–October 2011



MicroCred takes the following responsibilities towards its shareholders:

Effective transmission of information: The shareholders of MicroCred are provided at regular intervals complete information about the activities, financial and operational results, as well as Social Performance Indicators.

Address their concern/ Reactivity: MicroCred Management made its best efforts to address efficiently and quickly all requirements expressed by the Shareholders and obligations as defined in the Shareholder Agreement.


B. SPM towards SHAREHOLDERS




Indicators

% of of timely delivery of information

DO NO HARM

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MicroCred Group- SPM Policy–October 2011

B. Reporting obligations of affiliates

Accountability towards the microfinance sector:

Each new affiliate shall register to the Smart CampaignAll affiliates shall:

oProvide the required financial data to the Mix Market on an annual basisoProvide the required social data to the Mix Market on an annual basis

Accountability to affiliates’ staff, to the Holding and to shareholders:

All affiliates shall internally report their SPM indicators quarterly (developed in 2012)All affiliates shall provide the SPM section of the Management monthly.

Intention

Processes

Each affiliate shall be accountable for its social performance, be it towards the microfinance sector OR to its own staff, to the Holding and to the shareholders.

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45

44 rue de Prony75017 ParisFrance

Tél. 33 (0) 1 49 21 26 47Fax 33 (0) 1 49 21 26 27www.microcredgroup.com

483177093 RCS Paris Société anonyme à directoire

et conseil de surveillance au capital de 28.973.964 Euros

Contact:

Isabelle Levard

Member of the Management Board

Deputy CEO MicroCred Group

Executive President MicroCred China

[email protected]

Economy & Finance

Isabelle Levard