CAPA FINANCE IFN SA Adrian Chindris General Manager CAPA

1. CAPA FINANCE IFN SA Adrian Chindris General Manager CAPA

2. Romanian financial sector: present • Growth rates: among highest in the CEE / CIS regions – 30 to 40% increase p.a. in the last 4 years • Players: 44 authorized banks and 213 NBFI’s • Services: most institutions adopted a universal commercial banking model, but business drivers are either corporate or retail lending • Financial intermediation (assessed as Loans to private sector / GDP) reached 36.6% at FY’07 vs. 27.2% at the end of FY’06 • Retail lending: has been the source of growth of the sector; loans to household per capita reached 920 EUR/capita at the end of 2007 (138 EUR/capita in 2004); however, since CEE average is 2,431 EUR/capita, there is still a significant gap • Commercial lending: focused mainly on large companies and medium enterprises • Financial Performance: high among other sectors in Romania, but still below the CEE / European levels Overview 2

3. non-banking financial institution (“NBFI”); market leader in the microfinance sector; started as a program of a world-wide non-governmental organization (World Vision) providing loans to entities without access to banks • in march 2008 it has become the single micro-finance NBFI listed in the Special Register of NBR; it triggers strict rules regarding risk management, prudential reporting, internal control systems, corporate governance • entrepreneurial and skilled management team with over 10 years of experience in the industry; 115 employees • business covering 10 regions across the country through 10 urban branches and 21 rural branches • 6,100 individuals and 1,800 entrepreneurs as clients ICAPA: PRESENT Overview

4. I. CAPA: PRESENT • the table below presents IFRS data for 2006 and 2007 and Romanian accounting standards data for 2008 • the growth of 150% in total assets in FY’07 vs FY’06 has been driven by the dynamic of the portfolio • additional USD 10 million loans to customers were acquired by CAPA at year end from RAEF; they were originated by CAPA as well, as part of the exiting intermediation agreement • dynamic in cash and equity positions is derived by a share capital contribution of EUR 9 million paid in by the new shareholders • the company obtained lower ROA and ROE compared with banking industry averages, due to low profitability BS analysis

5. I. CAPA: PRESENT • steady growth year after year reflected in doubling of portfolio (incl. for 2008 budgeted figures) The portfolio (1)

6. I. CAPA: PRESENT • Loans to MSE (micro and small enterprises) steadily grew, reaching a significant weight in the portfolio (65% in 2007) • product characteristics: slightly higher APR’s vs banking, amounts granted up to 40,000 EUR equiv; maturity: max. 5 years; purpose of loan: investment, working capital needs, real estate developments • Loans to individuals grew in absolute numbers, however at a lower pace The portfolio (2)

7. I. CAPA: PRESENT • historically, business evolution was mainly driven by the funding availability • Dec-07 meant a strong improvement of the financial position through the funding brought in by the new shareholders (EUR 9 mill new capital + USD 10 mil new borrowings) • IFI and Banks providing finance comprise: specialized micro-lending funds (Lehman Bro, Microvest, DWM, World Bank, EFSE) and other lenders • characteristics of funding at end of FY’07: • higher APR’s, many and with small amounts per lender, leading to inefficiencies in funding management process • shareholders are the main source of funding in FY’08 • new borrowings, amounting to EUR 20 million, are expected by the end of FY’08 Funding

8. What type of investors/ funders… …are playing roles in microfinance? • NGOs and Development Agencies • Specialised investment funds (with social orientation and with claimed social orientation) • Investment funds – non specialised • Banks • Private structures • Other Is there any difference between the approach of the other institutions?

9. What investors are looking for? MFIs with: • Efficient operations/performing portfolio • Scalability • Profitable or getting close to profitability • Extensive network/good outreach • Strong middle management/strong staff • Acceptable governance structure • Good legal documents and procedures • High leverage of assets • Good quality liabilities • Social impact They are looking to invest into a commercially performing financial institution;

10. How to find capital? • The answer depends on the MFI quality/characteristics and the forecasted evolution of the national economies • Not all the MFIs are ready to receive commercial loans or equity investments • Good MFIs are contacted directly by investment funds and institutional investors (starting the second half of 2007) • Special MFI investment units were created in some large banks in order to ensure early acquisition of the MFIs within certain markets • As a result, any MFI needs to at least have an acceptable growth plan in accordance with the evolution of the national economy • The Board of the MFI need to decide what are the affordable terms of the borrowings from different resources and how does it match the growth plan of the institution • Depending on it, there are a number of sources that can be tapped

11. New equity investor.. Need to be strong an have a high leverage capacity. If not, there are no commercial reasons to bring it in. ADVANTAGES: • Strong focus on risk management and improvement of efficiencies • Capacity to increase equity and leverage (through the existence of more institutions or through its own BS)on it in order to match the evolution of the market • In some cases experience in developing and scale up financial services institutions • Some of the investors had already developed models to be replicated in different environments DESADVANTAGES • MFIs are risk takers and are compensating the risk through methodologies; a commercial investors is usually avoiding such risks and as a result the declining of the outputs of such institution • In most of the cases the social impact remains a reporting issue rather than a part of the general goal • Commercial investors are tempted to follow models already existent and as a result the alignment to the classic financial institutions procedures and behaviour and the normal growth of the market.

12. Recomendations • Ensure the legal status for the MFI that would allow investments (LLP or joint stock) • Drive the MFI on commercial principles and develop a risk management framework • Make sure you know what are the main advantages of the MFI and negotiate on indicators that are linked with them • Make sure you start negotiations before internal growth resources would dry; the rules of the game need to be dictated by the new investment • Do not accept within lending contracts covenants that would induce limits of the independence for decisions regarding equity investments