Delhi, 15 th March, 2011

1. Product Pricing: Balancing Financial Viability with Social Impact Royston Braganza CEO Grameen Capital India Delhi, 15th March, 2011

2. Cheering the sector

3. Something amiss?

4. Big boys doing great doesn’t mean “all is well”

5. There could well be a shock in store

6. Should the minnows be excluded from the field

7. Don’t underestimate them…. Nuture them

8. UDRS – to be more inclusive among MFIs

9. Rate caps – a ‘doosra’

10. Could we be getting it wrong with ‘caps’

11. Thank You

12. Period of introspection- 2007 to 2010: “Did we score equal points in delivering Accounting Returns as well as Social Returns?” Typical P&L Structure - Indian MFI & Global Peers : Comparative Chart Indian MFIs profit margins compared to the World: Very High Source: M-CRIL Microfinance Review 2010: Microfinance Contributes to Financial Inclusion

13. How Successful were Indian MFIs in Passing Benefits Achieved through Economies of Scale to End Customers ? Trend in Portfolio Yield & Operating Expense Ratio (OER) Yield & 0ERs for MFIs Globally • Yields are higher compared to Indian MFIs, but so are the OERs • Average OERof Indian MFIs in India has declined dramatically over the past few years • Substantial widening in the margin available to the average MFI for covering financial expenses, loan loss provisions and surplus • Two factors contributing to above: • Economies of scale achieved by Indian MFIs • Higher clients/loan officer ratio (average in excess of 400 per loan officer and for some MFIs as high as 700). This has led to weakening relationships between MFIs and their customers • Did MFIs pass on the benefit of economies of scale to customers in terms of lower lending rates ? • If the above was successfully achieved, could the recent crisis be avoided? Source: M-CRIL Microfinance Review 2010: Microfinance Contributes to Financial Inclusion

14. Do Established, Bigger Players Face the Challenge of Creating Equanimity Between Lending and Borrowing Rates? Impact of Loan Size on the OERs of the Indian MFIs • Some correlation is there between the age of an MFI and loan size (newer MFIs tend to have smaller loan sizes) • Stronger correlation with the fast growing institutions that both incur higher costs when they are in their growth phase and have lower loan sizes on account of having large numbers of new clients OER >=10,000 <10,000 6,000 to <8,000 <4,000 4,000 to <6,000 Loan Size Per Borrower • So Equanimity might NOT be there for two category of MFIs: • New MFIs • Fast Growing MFIs Source: M-CRIL Microfinance Review 2010: Microfinance Contributes to Financial Inclusion

15. Clause 7.8 Malegam Committee Report Margin Cap • 10% over the cost of funds ----> for the larger MFIs (loan portfolio exceeding INR1000 million) • 12% over the cost of funds -----> for the smaller MFIs (loan portfolio not exceeding INR1000 million) In addition to the overall margin cap, a cap of 24% on the individual loans imposed Source: Malegam Committee Report

16. … as demonstrated by mandates from clients May 2008 March 2009 Debt & Structured Finance Transactions Cumulatively placed INR 3,350 Mn of debt with domestic and foreign banks over the last 18 months Bandhan Bandhan INR 150 Mn INR 750 Mn Term Loan Portfolio Sale November 2008 March 2008 SKS Microfinance BISWA INR 250 Mn INR 250 Mn Short Term Facility Portfolio Sale July 2008 June 2010 SKS Microfinance EMFIL INR 1,800 Mn INR 100 Mn Portfolio Sale Debt Placement

17. … as demonstrated by mandates from clients (contd.) Equity Transactions Completed transactions worth more than INR 2,500 Mn; Pipeline > INR 2,000 Mn November 2008 March 2010 December 2009 October 2010 Ujjivan SMILE Sonata Finance Disha Microfin INR 940 Mn INR 500 Mn INR 200 Mn INR 100 Mn Equity Placement Equity Placement Equity Placement Equity Placement July 2010 March 2010 August 2010 In Progress Swadhaar Finserve Janalakshmi Svasti Microfinance MIMO Finance INR 275 Mn INR 500 Mn INR 55 Mn INR 280 Mn Equity Placement Equity Placement Equity Placement Equity Placement