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Microfinance presentation on Calvert Foundation, eBay Microplace; for Silicon Valley Microfinance Network (SVMN.net) by Shari Berenbach
Citation preview
Calvert FoundationMicroPlace’s First Issuer
Shari BerenbachSilicon Valley MicroFinance NetworkNovember 5, 2007
2MicroPlace confidential
Calvert Foundation
• Calvert Social Investment Foundation (Calvert Foundation): Independent non-profit organization launched in 1995 by the Calvert mutual fund company—known for Socially Responsible Investing.
• Mission- Maximize the flow of capital to disadvantaged communities.
• Key Statistics – YE 2006– Total Assets $145 Million– Total Calvert Community Investment (CCI) Note Sales $119 Million (minimum
$1,000)• Calvert Mutual Fund single largest investor ($25 Million)• 2,500 other average US investors – sold via brokers and financial planners.
– International MicroFinance Portfolio $35 Million (50 outstanding transactions)– Historically – 65% US domestic lending ( e.g. Affordable Housing, Community
Development) and 35% International lending.(e.g. Microfinance, Fair Trade, Social Enterprise.)
– Portfolio performance- Losses less than 0.2%, Lending methodology grounded in strict single borrower limits, active monitoring of portfolio.
• Operationally self-sufficient, relying on interest margin to cover costs. Foundation is not endowed, loan capital is raised through sale of Calvert Community Investment Notes, all capital must be returned to investors upon maturity.
3MicroPlace confidential
“Calvert Continuum” of enterprises and brand?
CF
The ‘Calvert Continuum’ offers an innovative model of corporate ‘blended value’.Calvert Foundation, a set of non-profit social enterprises, leverages master brand. Twice as recognized as any other social investment brand, and regarded as the leader in retail and small institutional markets (Yankelovich survey).
4MicroPlace confidential
Calvert Foundation - three social enterprises
Social enterprises Statistics Description Community Investment Note ("CIN")
1995 launch 2,600 investors Assets: $120mm
Low-risk, low-return security, available nationally to individuals and institutions, used to provide financing for community development intermediaries on flexible terms
Community Investment Partners ("CIP")
1998 launch 24 Clients Assets: $40mm
Core capabilities on fee for service basis: – Due diligence and asset administration
services – Investor note administration on behalf of
other issuers – CIN-like securities registrations – Structuring and underwriting of
investments for direct investments from foundations and social investors
Calvert Giving Fund ("CGF")
2001 Fall launch
300 donors Assets:$20mm
Donor advised fund offering mix of socially-responsible and community investment options (e.g. CIN), and providing web-based flexibility for giving and investing options
1.
2.
3.
5MicroPlace confidential
Calvert Community Investments
2,600 Investors
$120 Million CCI
$120 Million Portf.
220 Groups
Repaid Repaid RepaidRepaid
Calvert Community Investments Framework
– Reduces risk
• Security enhancement (loan loss reserves, sub-debt, net assets)
• Portfolio diversification
– Provides transparency
• Due diligence and monitoring
• Social impact reporting
– Provides professional management
• Financial administration
• Legal structuring
IndividualsIndividuals
Foundations/Donor Advised
Foundations/Donor Advised
CorporationsCorporations
Religiousorganizations
Religiousorganizations
Communitydevelopment
loanfunds
Communitydevelopment
loanfunds
Community development corporations
Community development corporations
Micro-financeinstitutions
Micro-financeinstitutions
Non-profit facilities /Coop’s
Non-profit facilities /Coop’s
Socialenterprises
Socialenterprises
Investmentdollars
Investmentdollars LoansLoans
INVESTORS BORROWERS
6MicroPlace confidential
Community Development, Microfinance and Social Enterprises
Senior Capital
Subordinate DebtGuaranteesNet Assets
Loss Reserves
Governance
Professional ManagementAnalysis, Packaging and Admin
Corps
Faith BasedInstitutions
Investment Funds
Foundations
Individuals
| 6
Standard ‘wedding cake’ structure shields retail investor from risk – Standard ‘wedding cake’ structure shields retail investor from risk – Establishes framework for MFI targetingEstablishes framework for MFI targeting
7MicroPlace confidential
Calvert Foundation
Cumulative CCI Notes and Loan Portfolio
$0$10,000,000$20,000,000$30,000,000$40,000,000$50,000,000$60,000,000$70,000,000$80,000,000$90,000,000
$100,000,000$110,000,000$120,000,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Cumulative CCI Notes Cumulative Net Portfolio
•Track record year-by- year steady growth•Note sales historically distributed to the US public by brokers and financial planners •Initial loans to MicroPlace participants funded through CCI Note sales raised through conventional channels.
8MicroPlace confidential
11/03/2007 1
GENDER Total
Women 55%MenMen 45%45%
Refused (9)
AGE Total< 30 3%30-39 9%40-49 17%5050--6565 42%42%> 65 29%Refused (3)
# CHILDREN IN HOUSE Total00 73%73%1 11%2 11%3 + 4%Refused (6)
HOUSEHOLD ANNUAL INCOME Total
< $50,000 32%$51 $51 -- 100,000100,000 42%42%$101 - $250,000 19%>$250,000 7%Refused (22)
TOTAL FINANCIAL ASSETS Total< $100,000 13%$101 $101 -- $250,000$250,000 19%19%$251- $500,000 26%$501 - $ 1 Million 24%> $1 Million 18%Refused (27)
CHARITABLE CONTRIBTUTIONS(% of Annual Income) TotalUnder 1% 5%1-3% 14%4-7% 25%8-15% 35%16-25% 10%Over 25% 3%Refused (15)
USE FINANCIAL ADVISOR? 61% SRI ADVISOR ? 29%
AVERAGE CALVERTFOUNDATION INVESTOR*
•55% Female
•88% Ave 40+
•72% Age 50+
•No children in household.
•Internet Access
Household Income
•32% <$50,000
•74%< 100,000
Total Financial Assets
•47% Assets in SRI & CI
•61% Fin. Advisor (29% Use SRI)
*Based on 400 survey responses (16%) from a group of 2,200 Calver t Foundation investors (July 31, 2005).
ASSETS - SOCIALLY RESPONSIBLE INVESTMENTS (SRI) (%) 39%
TOTAL INVESTOR SRI
ASSETS - COMMUNITY INVESTMENTS (CI) (%) 8 %
Calvert Foundation’sCommunity Investor Profile 2005*
9MicroPlace confidential
Calvert Foundation - MicroPlace Collaboration
Value Proposition
• On-line Sales Dream Come True!– Significant Resources to Build Out Functioning Platform– Streamlined systems allow us to dramatically drop minimum investment – Address cost of clearing on-line – Typical 3% charges– Mobilize substantial traffic to site– Mass marketing know-how
• Calvert Foundation Brings to the Table:– Demonstrated Potential of Retail Note - 10 Year Track Record– Issuer Construct that Permits Targeting– Recognized Social Investment Brand Name– Capacity to Mobilize Philanthropic Support to Protect Investors (with Help!)
To allow Calvert Foundation to ramp-up CCI Note liabilities – needed to ramp up balance sheet capacity Grant funded net worth & LLR – Omidyar Network, Rockefeller FdnJr. Subdebt – MacArthur Foundation, Doen Foundation, DeutscheBankSr. Subdebt - OPIC
10MicroPlace confidential
What is MicroPlace?
MicroPlace is an online brokerage that raises capital for Microfinance institutions & funds through the sale of securities1 to U.S. individual
investorsIndividual investors Security Issuers
$250
$250
$300
$500
$500,000
$1,000,000
MFIs
$500,000
$1,000,000
• Purchase securities on MicroPlace web site
• Direct investment funds to MFI of choice
• Receive interest & principal payments from security issuers
• Subject to NASD Approval, MicroPlace will become a Registered securities broker (U.S. regulatory body)
• Operates website and mass-markets to U.S. investors
• Tracks investments directed to each MFI
• Assists issuers with investor and payments management
• Create securities and register them for public sale to U.S. individuals
• Use proceeds from security sales to fund loans to MFIs
• Underwrite & monitor loans directly or through sub-advisors
• Responsible for paying interest & principal to investors
• Borrow funds from issuers
• Use financing raised to fund microfinance activities
• Repay principal and interest to issuers
• Provide detailed MFI information to maximize investor interest
1A security is a contract that can be assigned a value and traded. In the United States, all securities must meet state registration requirements before they can be sold to the public. Examples include a note, stock, preferred share, bond, or virtually any other financial asset. In general, any transaction that involves an investment of money in an enterprise, with an expectation of profits to be earned through the efforts of someone other than the investor, is a transaction involving a security.
(Examples for illustration)
Other issuers to be identified
11MicroPlace confidential
Calvert Foundation- Microfinance Investment Strategy
• Conservative: 10 Year Track Record, Consistent Performance, No MFI losses
• Diverse: Support NGO and regulated MFIs; retail MFIs, wholesale funds, and structured transactions
• Foster Collaboration and Efficiency: Use American and European intermediaries to reduce risk and reach emerging MFIs; Use syndicated lending arrangements to address country and single borrower limits.
• Support Innovation: Securitized transactions- CDOs, Syndicated loans.
2007 + Onward!MicroPlace collaboration will lead to a new MicroFinance Strategy
- CCI Notes distributed and sold on-line- More direct lending in partnership w/ Sub-Advisors to Tier I & II MFIs- Calvert Foundation anticipates becoming a significant issuer on the MicroPlace platform
1995-2007
12MicroPlace confidential
Minimum Investment Criteria
A. Development Criteria:
Desirable MFIs are those with an explicit development mission that:
1 Focuses on low-income communities and individuals, as well as organizatons without access to traditional sources of capital
2 Contributes to growing the local economy, expanding opportunity or promoting work-related activities, homeownership and non-traditional business owners
3 Supports diverse communities in urban and/or rural areas in developing countries
B. Financial and Other Criteria:
Organizations that meet the initial criteria identified in A, must also meet most of the following criteria:
1 Minimum three-year track record with audited financial statements
2 Minimum two-year track record where Operating Self Sufficiency* is greater than or equal to 100%
3 Strong and seasoned management where CEO has been with the institution more than 12 months
4 Minimum total assets of $5 million
5 Minimum loan portfolio of $3 million
6 Portfolio diversification
7 Sound financial condition, including ability to repay investment
8 Demonstrated community support (and support from other funders)
9 Portfolio at Risk over 30 days less than or equal to 6.00%
10 Charge-offs less than or equal to 5.00%
11 Leverage: Equity / Total Assets greater than or equal to 12%
* According to the MicroBanking Bulletin, operational self-sufficiency is defined as Financial Revenue / (Financial Expense + Net Loan Loss Provision Expense + Operating Expense)
13MicroPlace confidential
Sub-Advisor Strategy
• Build-on Industry Players (and not simply duplicate capacity)– Calvert Foundation already co-investing into syndicated structures. Also, already have history of
using third parties for due diligence.– Recognize that to reach Tier II MFIs need field capacity to source and supervise transactions. – By aligning interests create win/win for sub-advisor. Allows sub-advisor to organize various
pots of money into single transaction.– Establish framework to scale-up to significant volume in short time.
• March 2007 -Issued Sub-advisor RFP to 24 known Players – Sub-advisors recommended pipeline that they are already working on
• Resulted in 90 MFI pipeline, Provided drill down on existing terms in the market. – May – Selected 7 Firms
• Three have worked successfully – sourcing and closing 16 transactions
MicroVest, Triple Jump, and Unitus• Two withdrew due to issues unrelated to MicroPlace• Two have been slow to perform (competition for time and resources)
• What we have learned – Sub-advisor experience– Complex legal document – perhaps took too long to finalize and negotiate
• Challenging of building something in a vacuum– Very hot market- competing pressures to keep Sub-advisors focused on our transactions. – Opportunity cost of time for Sub-Advisor significant – smaller transaction size means lower
income to Sub-Advisors – particularly during initial ramp-up phase– Now, beginning to source transactions ourselves – and bring in Sub-Advisors into the
underwriting and monitoring.
14MicroPlace confidential
Calvert Foundation: Loan Product Details
• Amount:– Minimum guaranteed loan amount: $250,000 to $500,000– to be
disbursed upon execution of loan documents– Maximum approved loan amount: to be determined based on credit
quality and financial position**– Funds raised via MicroPlace to be disbursed quarterly until max
approved amount reached (see following slides for detailed explanation)
• Tenor: 3 – 5 yrs
• Pricing: Competitive with MFIs’ available borrowing rates (Manage to 8% Average). Structure: general recourse loan or guarantee/leveraged structure (with guarantee fee assessed to MFI)
• Payments: majority bullet loans with interest-only payments until maturity
• Collateral: minimal to none. Negative pledge required.
• Currency: US Dollar or local currency in select countries where back-to-back arrangements or cost-effective hedge available to Calvert Foundation**not to exceed the lesser of 20% of Total Assets or $3 million.
15MicroPlace confidential
The Loan Process
Calvert Foundation sub-advisor evaluates and recommends MFI for loan
Calvert Foundation approves MFI for due diligence, signs term sheet with MFI and sub-advisor
Sub-advisor conducts due diligence on MFI (on-site visit, review of reports)
Calvert Foundation Credit Committee reviews / approves maximum loan amount to MFI
Formal loan agreement negotiated and signed. Calvert Foundation disburses minimum loan amount to MFI.
Listing for Calvert Community Investment Note targeted at MFI appears on MicroPlace for 90 days
MicroPlace investors purchase Calvert Community Investment Note targeted at MFI
After 90 days, Calvert Foundation disburses incremental funds invested above minimum loan amount, up to max
approved
1
2
3
4
5
6
7
8
90-day listing cycles continue until maximum approved funding is raised, or otherwise agreed by Calvert Foundation & MFI
Estimated Timing:30 days
Estimated Timing:30 days
Estimated Timing:90 days per listing
cycle
16MicroPlace confidential
Loan Disbursement Process – Example #1
Minimum Guaranteed Amount: $250,000
Maximum Approved Amount: $1,000,000
0 Days 90 Days
180 Days
270 Days
$250,000
$500,000
$750,000
$1,000,000
Amount Raised from MicroPlace Investors
Amount Disbursed to MFI from Calvert Foundation
• At loan signing, Calvert Foundation disburses $250K minimum to MFI
• Listing of Calvert Community Investment Note targeted to MFI goes live on MicroPlace
• After 90 days, $400,000 has been raised from U.S. investors via MicroPlace
• MFI receives additional disbursement of $150,000
• After another 90 days, an additional $350,000 has been raised from U.S. investors via MicroPlace
• Total raised to date is now $750,000
• MFI receives additional disbursement of $350,000
• At Day 240, an additional $250,000 has been raised from U.S. investors via MicroPlace
• At this point, the MFI has reached its maximum approved loan capacity
• Listing is removed from MicroPlace
• MFI receives additional disbursement of $250,000 on Day 270
17MicroPlace confidential
Loan Disbursement Process – Example #2
Minimum Guaranteed Amount: $250,000
Maximum Approved Amount: $1,000,000
0 Days 90 Days
180 Days
270 Days
$250,000
$500,000
$750,000
$1,000,000
Amount Raised from MicroPlace Investors
Amount Disbursed to MFI from Calvert Foundation
• At loan signing, Calvert Foundation disburses $250K minimum to MFI
• Listing of Calvert Community Investment Note targeted to MFI goes live on MicroPlace
• After 90 days, $200,000 has been raised from U.S. investors via MicroPlace
• Because the MFI has already received $250,000, no additional disbursements are made
• After another 90 days, an additional $200,000 has been raised from U.S. investors via MicroPlace
• Total raised to date is now $400,000
• MFI receives additional disbursement of $150,000
• At Day 270, an additional $350,000 has been raised from U.S. investors via MicroPlace
• Total raised to date is now $750,000
• MFI & Calvert Foundation determine whether to continue the listing on MicroPlace for another 90-day period
18MicroPlace confidential
MFIs At Launch
Region Total Tier II Tier I NGO NBFI Bank
Latin America
6 4 2 5 0 1
Asia 2 2 0 0 2 0
Eurasia 4 4 0 1 3 0
Africa 4 1 3 4 0 0
Total 16 11 5 10 5 1
Latin America
Fundeser (Nicaragua), D-Miro (Ecuador), Banco Solidario (Ecuador), Prestanic (Nicaragua), ProMujer Bolivia
Asia TPC (Cambodia), Credit (Cambodia)
Eurasia Imon(Tajikstan), Findev (Azerbijan), Azercredit (Azerbijan), Credo (Georgia)
Africa Kenya Women’s Finance Trust, PRIDE Tanzania, Lapo (Nigeria), Sinai Aba Trust (Ghana)
19MicroPlace confidential
Looking Ahead
Latin America
Peru: Alternativa, ProEmpresa, Crear Tacna, ProMujer
Bolivia: FIE, Crecer; Honduras: Finca; Nicaragua: FINDES
Asia India: IIRM, BSS, SKS, Grameen Koota, FWWB India
Mongolia: Xac Bank: Pakistan: Kashf
Eurasia Kazakstan: Bereke; Kyrgyzstan: Inexmibank
Africa Kenya: Faulu Kenya;
Uganda: Uganda Finance Trust, UML, Finca Uganda
Partial Pipeline List
Big Challenge Ahead – Addressing Local Currency Concerns!