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SVMN October 2007 Meeting - Calvert Foundation & eBay Microplace (Shari Berenbach)

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Microfinance presentation on Calvert Foundation, eBay Microplace; for Silicon Valley Microfinance Network (SVMN.net) by Shari Berenbach

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SVMN October 2007 Meeting - Calvert Foundation & eBay Microplace (Shari Berenbach)

  1. Calvert Foundation MicroPlace’s First Issuer Shari Berenbach Silicon Valley MicroFinance Network November 5, 2007
  2. Calvert Foundation <ul><li>Calvert Social Investment Foundation (Calvert Foundation): Independent non-profit organization launched in 1995 by the Calvert mutual fund company—known for Socially Responsible Investing. </li></ul><ul><li>Mission- Maximize the flow of capital to disadvantaged communities. </li></ul><ul><li>Key Statistics – YE 2006 </li></ul><ul><ul><li>Total Assets $145 Million </li></ul></ul><ul><ul><li>Total Calvert Community Investment (CCI) Note Sales $119 Million (minimum $1,000) </li></ul></ul><ul><ul><ul><li>Calvert Mutual Fund single largest investor ($25 Million) </li></ul></ul></ul><ul><ul><ul><li>2,500 other average US investors – sold via brokers and financial planners. </li></ul></ul></ul><ul><ul><li>International MicroFinance Portfolio $35 Million (50 outstanding transactions) </li></ul></ul><ul><ul><li>Historically – 65% US domestic lending ( e.g. Affordable Housing, Community Development) and 35% International lending.(e.g. Microfinance, Fair Trade, Social Enterprise.) </li></ul></ul><ul><ul><li>Portfolio performance- Losses less than 0.2%, Lending methodology grounded in strict single borrower limits, active monitoring of portfolio. </li></ul></ul><ul><li>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. </li></ul>
  3. “ Calvert Continuum” of enterprises and brand? <ul><li>The ‘Calvert Continuum’ offers an innovative model of corporate ‘blended value’. </li></ul><ul><li>Calvert Foundation, a set of non-profit social enterprises, leverages master brand. </li></ul><ul><li>Twice as recognized as any other social investment brand, and regarded as the leader in retail and small institutional markets (Yankelovich survey). </li></ul>CF
  4. Calvert Foundation - three social enterprises 1. 2. 3.
  5. Calvert Community Investments Framework Calvert Community Investments 2,600 Investors $120 Million CCI $120 Million Portf. 220 Groups Repaid Repaid <ul><ul><li>Reduces risk </li></ul></ul><ul><ul><ul><li>Security enhancement (loan loss reserves, sub-debt, net assets) </li></ul></ul></ul><ul><ul><ul><li>Portfolio diversification </li></ul></ul></ul><ul><ul><li>Provides transparency </li></ul></ul><ul><ul><ul><li>Due diligence and monitoring </li></ul></ul></ul><ul><ul><ul><li>Social impact reporting </li></ul></ul></ul><ul><ul><li>Provides professional management </li></ul></ul><ul><ul><ul><li>Financial administration </li></ul></ul></ul><ul><ul><ul><li>Legal structuring </li></ul></ul></ul>Individuals Foundations/ Donor Advised Corporations Religious organizations Investment dollars Loans INVESTORS BORROWERS Community development loan funds Community development corporations Micro-finance institutions Non-profit facilities / Coop’s Social enterprises
  6. | 6 Standard ‘wedding cake’ structure shields retail investor from risk – Establishes framework for MFI targeting Community Development, Microfinance and Social Enterprises Senior Capital Subordinate Debt Guarantees Net Assets Loss Reserves Governance Professional Management Analysis, Packaging and Admin Corps Faith Based Institutions Investment Funds Foundations Individuals
  7. Calvert Foundation <ul><li>Track record year-by- year steady growth </li></ul><ul><li>Note sales historically distributed to the US public by brokers and financial planners </li></ul><ul><li>Initial loans to MicroPlace participants funded through CCI Note sales raised through conventional channels. </li></ul>
  8. Calvert Foundation’s Community Investor Profile 2005 *
  9. Calvert Foundation - MicroPlace Collaboration Value Proposition <ul><li>On-line Sales Dream Come True! </li></ul><ul><ul><li>Significant Resources to Build Out Functioning Platform </li></ul></ul><ul><ul><li>Streamlined systems allow us to dramatically drop minimum investment </li></ul></ul><ul><ul><li>Address cost of clearing on-line – Typical 3% charges </li></ul></ul><ul><ul><li>Mobilize substantial traffic to site </li></ul></ul><ul><ul><li>Mass marketing know-how </li></ul></ul><ul><li>Calvert Foundation Brings to the Table: </li></ul><ul><ul><li>Demonstrated Potential of Retail Note - 10 Year Track Record </li></ul></ul><ul><ul><li>Issuer Construct that Permits Targeting </li></ul></ul><ul><ul><li>Recognized Social Investment Brand Name </li></ul></ul><ul><ul><li>Capacity to Mobilize Philanthropic Support to Protect Investors (with Help!) </li></ul></ul>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 Fdn Jr. Subdebt – MacArthur Foundation, Doen Foundation, DeutscheBank Sr. Subdebt - OPIC
  10. What is MicroPlace? Individual investors Security Issuers $250 $250 $300 $500 $500,000 $1,000,000 MFIs $500,000 $1,000,000 <ul><li>Purchase securities on MicroPlace web site </li></ul><ul><li>Direct investment funds to MFI of choice </li></ul><ul><li>Receive interest & principal payments from security issuers </li></ul><ul><li>Subject to NASD Approval, MicroPlace will become a Registered securities broker (U.S. regulatory body) </li></ul><ul><li>Operates website and mass-markets to U.S. investors </li></ul><ul><li>Tracks investments directed to each MFI </li></ul><ul><li>Assists issuers with investor and payments management </li></ul><ul><li>Create securities and register them for public sale to U.S. individuals </li></ul><ul><li>Use proceeds from security sales to fund loans to MFIs </li></ul><ul><li>Underwrite & monitor loans directly or through sub-advisors </li></ul><ul><li>Responsible for paying interest & principal to investors </li></ul><ul><li>Borrow funds from issuers </li></ul><ul><li>Use financing raised to fund microfinance activities </li></ul><ul><li>Repay principal and interest to issuers </li></ul><ul><li>Provide detailed MFI information to maximize investor interest </li></ul>1 A 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 MicroPlace is an online brokerage that raises capital for Microfinance institutions & funds through the sale of securities 1 to U.S. individual investors
  11. Calvert Foundation- Microfinance Investment Strategy <ul><li>Conservative : 10 Year Track Record, Consistent Performance, No MFI losses </li></ul><ul><li>Diverse : Support NGO and regulated MFIs; retail MFIs, wholesale funds, and structured transactions </li></ul><ul><li>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. </li></ul><ul><li>Support Innovation : Securitized transactions- CDOs, Syndicated loans. </li></ul>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
  12. Minimum Investment Criteria According to the MicroBanking Bulletin, operational self-sufficiency is defined as Financial Revenue / (Financial Expense + Net Loan Loss Provision Expense + Operating Expense) *   Leverage: Equity / Total Assets greater than or equal to 12% 11   Charge-offs less than or equal to 5.00% 10   Portfolio at Risk over 30 days less than or equal to 6.00% 9   Demonstrated community support (and support from other funders) 8   Sound financial condition, including ability to repay investment 7   Portfolio diversification 6   Minimum loan portfolio of $3 million 5   Minimum total assets of $5 million 4   Strong and seasoned management where CEO has been with the institution more than 12 months 3   Minimum two-year track record where Operating Self Sufficiency* is greater than or equal to 100% 2   Minimum three-year track record with audited financial statements 1   Organizations that meet the initial criteria identified in A, must also meet most of the following criteria:     Financial and Other Criteria: B.   Supports diverse communities in urban and/or rural areas in developing countries 3   Contributes to growing the local economy, expanding opportunity or promoting work-related activities, homeownership and non-traditional business owners 2   Focuses on low-income communities and individuals, as well as organizatons without access to traditional sources of capital 1   Desirable MFIs are those with an explicit development mission that:     Development Criteria: A.
  13. Sub-Advisor Strategy <ul><li>Build-on Industry Players (and not simply duplicate capacity) </li></ul><ul><ul><li>Calvert Foundation already co-investing into syndicated structures. Also, already have history of using third parties for due diligence. </li></ul></ul><ul><ul><li>Recognize that to reach Tier II MFIs need field capacity to source and supervise transactions. </li></ul></ul><ul><ul><li>By aligning interests create win/win for sub-advisor. Allows sub-advisor to organize various pots of money into single transaction. </li></ul></ul><ul><ul><li>Establish framework to scale-up to significant volume in short time. </li></ul></ul><ul><li>March 2007 -Issued Sub-advisor RFP to 24 known Players </li></ul><ul><ul><li>Sub-advisors recommended pipeline that they are already working on </li></ul></ul><ul><ul><ul><li>Resulted in 90 MFI pipeline, Provided drill down on existing terms in the market. </li></ul></ul></ul><ul><ul><li>May – Selected 7 Firms </li></ul></ul><ul><ul><ul><li>Three have worked successfully – sourcing and closing 16 transactions </li></ul></ul></ul><ul><ul><ul><ul><li>MicroVest, Triple Jump, and Unitus </li></ul></ul></ul></ul><ul><ul><ul><li>Two withdrew due to issues unrelated to MicroPlace </li></ul></ul></ul><ul><ul><ul><li>Two have been slow to perform (competition for time and resources) </li></ul></ul></ul><ul><li>What we have learned – Sub-advisor experience </li></ul><ul><ul><li>Complex legal document – perhaps took too long to finalize and negotiate </li></ul></ul><ul><ul><ul><li>Challenging of building something in a vacuum </li></ul></ul></ul><ul><ul><li>Very hot market- competing pressures to keep Sub-advisors focused on our transactions. </li></ul></ul><ul><ul><li>Opportunity cost of time for Sub-Advisor significant – smaller transaction size means lower income to Sub-Advisors – particularly during initial ramp-up phase </li></ul></ul><ul><ul><li>Now, beginning to source transactions ourselves – and bring in Sub-Advisors into the underwriting and monitoring. </li></ul></ul>
  14. Calvert Foundation: Loan Product Details <ul><li>Amount : </li></ul><ul><ul><li>Minimum guaranteed loan amount: $250,000 to $500,000– to be disbursed upon execution of loan documents </li></ul></ul><ul><ul><li>Maximum approved loan amount: to be determined based on credit quality and financial position** </li></ul></ul><ul><ul><li>Funds raised via MicroPlace to be disbursed quarterly until max approved amount reached (see following slides for detailed explanation) </li></ul></ul><ul><li>Tenor : 3 – 5 yrs </li></ul><ul><li>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) </li></ul><ul><li>Payments : majority bullet loans with interest-only payments until maturity </li></ul><ul><li>Collateral : minimal to none. Negative pledge required. </li></ul><ul><li>Currency : US Dollar or local currency in select countries where back-to-back arrangements or cost-effective hedge available to Calvert Foundation </li></ul>**not to exceed the lesser of 20% of Total Assets or $3 million.
  15. 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
  16. 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 <ul><li>At loan signing, Calvert Foundation disburses $250K minimum to MFI </li></ul><ul><li>Listing of Calvert Community Investment Note targeted to MFI goes live on MicroPlace </li></ul><ul><li>After 90 days, $400,000 has been raised from U.S. investors via MicroPlace </li></ul><ul><li>MFI receives additional disbursement of $150,000 </li></ul><ul><li>After another 90 days, an additional $350,000 has been raised from U.S. investors via MicroPlace </li></ul><ul><li>Total raised to date is now $750,000 </li></ul><ul><li>MFI receives additional disbursement of $350,000 </li></ul><ul><li>At Day 240, an additional $250,000 has been raised from U.S. investors via MicroPlace </li></ul><ul><li>At this point, the MFI has reached its maximum approved loan capacity </li></ul><ul><li>Listing is removed from MicroPlace </li></ul><ul><li>MFI receives additional disbursement of $250,000 on Day 270 </li></ul>
  17. 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 <ul><li>At loan signing, Calvert Foundation disburses $250K minimum to MFI </li></ul><ul><li>Listing of Calvert Community Investment Note targeted to MFI goes live on MicroPlace </li></ul><ul><li>After 90 days, $200,000 has been raised from U.S. investors via MicroPlace </li></ul><ul><li>Because the MFI has already received $250,000, no additional disbursements are made </li></ul><ul><li>After another 90 days, an additional $200,000 has been raised from U.S. investors via MicroPlace </li></ul><ul><li>Total raised to date is now $400,000 </li></ul><ul><li>MFI receives additional disbursement of $150,000 </li></ul><ul><li>At Day 270, an additional $350,000 has been raised from U.S. investors via MicroPlace </li></ul><ul><li>Total raised to date is now $750,000 </li></ul><ul><li>MFI & Calvert Foundation determine whether to continue the listing on MicroPlace for another 90-day period </li></ul>
  18. MFIs At Launch 1 5 10 5 11 16 Total 0 0 4 3 1 4 Africa 0 3 1 0 4 4 Eurasia 0 2 0 0 2 2 Asia 1 0 5 2 4 6 Latin America Bank NBFI NGO Tier I Tier II Total Region Kenya Women’s Finance Trust, PRIDE Tanzania, Lapo (Nigeria), Sinai Aba Trust (Ghana) Africa Imon(Tajikstan), Findev (Azerbijan), Azercredit (Azerbijan), Credo (Georgia) Eurasia TPC (Cambodia), Credit (Cambodia) Asia Fundeser (Nicaragua), D-Miro (Ecuador), Banco Solidario (Ecuador), Prestanic (Nicaragua), ProMujer Bolivia Latin America
  19. Looking Ahead Partial Pipeline List Big Challenge Ahead – Addressing Local Currency Concerns! Kenya: Faulu Kenya; Uganda: Uganda Finance Trust, UML, Finca Uganda Africa Kazakstan: Bereke; Kyrgyzstan: Inexmibank Eurasia India: IIRM, BSS, SKS, Grameen Koota, FWWB India Mongolia: Xac Bank: Pakistan: Kashf Asia Peru: Alternativa, ProEmpresa, Crear Tacna, ProMujer Bolivia: FIE, Crecer; Honduras: Finca; Nicaragua: FINDES Latin America