innovative approaches in capital aggregation

TBLI Conference Asia 2010

Alternative Investment Panel

© Copyright ShoreBank International Ltd. 2010 2- CONFIDENTIAL -

Key Points

1. Context: ShoreBank’s lens• Who we are• What we do in development finance & impact investing

2. Principles and Trends• Investors/Investees• Inclusive finance and “Blended Value” transactions• The power of specialization

3. Illustrative Transactions• ShoreCap I• BRAC Africa Loan Fund• LeapFrog Investments


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


ShoreBank’s International Activities – Current Framework

ShoreBank InternationalPakistan

Rio de Janeiro, Brazil

Bucharest, Romania

Johannesburg, SA

TBC Kredit, AzerbaijanBBSB, Belarus(Greenfield Investments)

ShoreCap Management LtdChicago/Johannesburg(Investment Fund Manager)

ShoreBank International UK LtdLondon

ShoreBankSubsidiaries

ShoreCap Exchange(TA Fund Manager)

ShoreBank InternationalIndia

ShoreCap International(Investment Fund)

ShoreBankRetail Bank

SBI Satellite Offices

ShoreBank International LtdChicago/DC(Consulting)

Leon, Mexico ShoreCap II(Investment Fund)

SHOREBANK CORPORATION (Holding Company)

Ramallah, West Bank/Palestine


Knowledge Exchange

Research services

Workshop / Conference

Publications

Knowledge Exchange

Research services

Workshop / Conference

Publications

Four Capabilities – Synergistically Interlinked

CapacityBuilding

Investments

IndustryBuilding

Financial Transactions

ShoreBank’s Global Lines of BusinessShoreBank’s Global Lines of Business

Advisory Services

Strategy

Implementation

Human Capital Development

Advisory Services

Strategy

Implementation

Human Capital Development

Capital Mobilization

M&A

Capital Mobilization

M&A

Fund Management

Financial Invest.

Human Capital Invest

Direct investment (B/S)

Fund Management

Financial Invest.

Human Capital Invest

Direct investment (B/S)


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


Investor SpectrumType / 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


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”


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.

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


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

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


The Capital Plus Model

ShoreCap = Capital Plus

ShoreCap = Capital Plus

ShoreCap Management

and ShoreCap Exchange

ShoreCap Management

and ShoreCap Exchange

Partner Financial Institutions

Partner Financial Institutions

Equity InvestmentEquity Investment

GovernanceGovernance

Capacity BuildingCapacity Building

Peer Knowledge Exchange

Peer Knowledge Exchange


* Investor also made a grant to ShoreCap Exchange. SCE raised $14.1 MM in total.** Investment includes debt.

SCI InvestorsABN 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

InvestmentsBASIX 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

ShoreCap I – Funds Raised and Invested


SathapanaLocation: CambodiaType: Conventional MFIInvestment: $1,250,000

SathapanaLocation: CambodiaType: Conventional MFIInvestment: $1,250,000

BBSBLocation: BelarusType: Greenfield SBBInvestment: $1,271,578

BBSBLocation: BelarusType: Greenfield SBBInvestment: $1,271,578InecoBankLocation: ArmeniaType: Conventional SBBInvestment: $2,000,000

InecoBankLocation: ArmeniaType: Conventional SBBInvestment: $2,000,000

Reliance Fin. Svcs.

Location: The GambiaType: Greenfield MFIInvestment: $711,374

Reliance Fin. Svcs.

Location: The GambiaType: Greenfield MFIInvestment: $711,374

MIC MF BankLocation: NigeriaType: Greenfield MFIInvestment: $1,000,000

MIC MF BankLocation: NigeriaType: Greenfield MFIInvestment: $1,000,000Commercial MFLocation: UgandaType: Conventional MFIInvestment: $1,150,000

Commercial MFLocation: UgandaType: Conventional MFIInvestment: $1,150,000CogeBanqueLocation: RwandaType: Conventional SBBInvestment: $2,000,000

CogeBanqueLocation: RwandaType: Conventional SBBInvestment: $2,000,000

K-Rep BankLocation: KenyaType: Conventional MFIInvestment: $1,800,000

K-Rep BankLocation: KenyaType: Conventional MFIInvestment: $1,800,000

BASIXLocation: IndiaType: Conventional MFIInvestment: $512,000

BASIXLocation: IndiaType: Conventional MFIInvestment: $512,000

BRAC BankLocation: BangladeshType: Established SBBInvestment: $3,210,000

BRAC BankLocation: BangladeshType: Established SBBInvestment: $3,210,000

Planters Dev. Bank

Location: PhilippinesType: Established DBInvestment: $2,000,000

Planters Dev. Bank

Location: PhilippinesType: Established DBInvestment: $2,000,000

Kashf MF BankLocation: PakistanType: Greenfield MFIInvestment: $986,842

Kashf MF BankLocation: PakistanType: Greenfield MFIInvestment: $986,842

Eskhata BankLocation: TajikistanType: Conventional SBBInvestment: $1,400,000

Eskhata BankLocation: TajikistanType: Conventional SBBInvestment: $1,400,000

XacBankLocation: MongoliaType: Conventional SBBInvestment: $1,586,670

XacBankLocation: MongoliaType: Conventional SBBInvestment: $1,586,670

BRAC Afghan. Bank

Location: AfghanistanType: Greenfield SBBInvestment: $1,245,780

BRAC Afghan. Bank

Location: AfghanistanType: Greenfield SBBInvestment: $1,245,780

ShoreCap I – Portfolio


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


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


Fund Mechanics

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LC

Principal & Interest Payments

(LC)

Loan Capital (LC)Loan Capital

(USD)

Principal & Interest

Payments (USD)

Loan Notes

Liberia10%

Tanzania33%

Tanzania33%

Uganda50%

Uganda50%

Southern Sudan17%

Southern Sudan17%

BRAC Operating Entities

Class A Noteholders

65%

Coupon

Class A Noteholders

65%

Coupon

Class B Noteholders

35%

Coupon +Upside

Participation

Class B Noteholders

35%

Coupon +Upside

Participation

BRAC Africa Microfinance Ltd.

BRAC Africa Microfinance Ltd.

Loan Notes

Service Fee(LC)

Fx ConversionFx Conversion

US

D

ServicerServicer

Investors


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


Contacts

Laurie SpenglerPresidentShoreBank International [email protected]

Bridget BurkhardtSenior ConsultantShoreBank International [email protected]

Jan Piercy Executive Vice PresidentShoreBank [email protected]

innovative approaches in capital aggregation

Economy & Finance

substantial development

line of development

development entrepreneurship

economic development

protracted development

enablesour capital

patient capital

lower returns