International Impact Investing Challenge April 8, 2011 Team B3

1. EMCO emerging market capital opportunity fund International Impact Investing Challenge April 8, 2011 Team B3

2. They must be nuts… What we can learn from a cashew producer in India. Kala founded Sai Agro Industries, a cashew manufacturing and distribution company, 5 years ago in Pune, India. Sai Agro has $5M in revenues, employs 50 workers, and has the potential to scale even further—creating more jobs and community benefits. But Kala lacks access to the $1.25M needed to invest in a new processing facility to facilitate that growth.

3. Sai Agro is not alone The “Missing Middle” presents a financial and social opportunity. The value of the gap in South and East Asia is $280-350 billion. 45-55% of formal SMEs in emerging markets do not have a loan but need credit. SOURCE: Beyond Profit

4. Existing SME Funders EMCO will build on the success of existing SME investors, integrating best practices to achieve greater scale. EMCO emerging market capital opportunity Small ScaleLarge Below Market Returns Market Rate

5. EMCO Fund I Overview Tiered capital structure enables institutional investors to achieve market rate returns. Benchmark: Emerging Markets Corporate Debt, 9%* BENEFITS 1 Institutional investors beat the benchmark by achieving 10% returns 2 Foundations can leverage their capital more than 5 to 1 3 Development organizations can leverage their capital more than 4 to 1 *From JP Morgan Impact Investing Report

6. Performance Institutional investor returns can be achieved even in the case of significant loan losses. Institutional Investor IRR % of Loans that Default Severity of Loan Losses For our FOUNDATION investors: 21% of loan portfolio can sustain 75% losses before Class C returns are not achieved

7. EMCO Organization Robust, on the ground presence to support deal selection, impact measurement, and network services. EMCO, LP (based in Mumbai) EMCO Advisors (non-profit) EMCO Fund (for profit) 4 Impact Officers 5 support staff 2 Partners 10 Analysts 3 Associates 4 Network Officers Operating expenses covered by an average annual management fee of 0.9% Non-profit advisors funded by grant money

8. Banks and other partners enable scaling Local partners are critical for deal flow, due diligence, local business insights, and follow-on support What do our partners bring? Sophisticated national banks, such as ICICI and State Bank of India, already have banking relationships and dedicated SME units that see a huge volume of loan opportunities. MFIs create a steady pipeline of growing businesses, with a supportive network Impact Investors, such as Acumen, seek to leverage up their investments. Entrepreneur networks such as Intellecap, BID Network, & Endeavor enable businesses to be investment-ready EMCO “Pre-Certified” Debt leverage High Potential Top 5% Microfinance Institutions Entrepreneur Support Networks Impact Investors Commercial Banks SME SME SME SME SME SME

9. Target Investments Investment Process EMCO loans target borrowers that are just below the bank’s existing risk threshold. • Medium-sized enterprises • Expansion-stage companies, poised at an inflection point • High potential for growth and job creation, aligned with macro trends, differentiated strategies, strong management teams • Loan amounts: $500K - $2M • Average loan size: $1.25M • Interest rates: Prime+4% • Loan term: 5-year, fully amortizing • All deals syndicated with local banks. Class A (senior co-invest): 56% Loan Structure and Subordination Due Diligence Local Bank (junior co-invest): 20% • Deals flow to EMCO through local partners, with preference given to “pre-certified” businesses • EMCO analysts review business fundamentals, risks, and growth potential, and pre-approve loss guarantees up to 24% • Syndication deal offered back to local banks for their approval • Banks and EMCO share responsibility for ongoing monitoring 1st Loss Reserves & subsidies: 24%

10. Kala’s loan What this structure means for Kala. Subordinated to bank Senior to bank

11. Creating an Ecosystem SMEs need more than just capital. They need management expertise and business support services to help them grow and thrive. • EMCO Advisors • (non-profit) • Form strategic relationships with existing service providers • Offer a “one-stop shop” for SME owners • Track and measure impact of portfolio SMEs through quarterly reporting structures Annual operating budget of$993K covered by grant partners Borrowers in the Network are required to submit impact and financial reports quarterly with annual audits Borrowers are encouraged to use the EMCO Network Certified business support services

12. Measuring the Impact Financial and social incentives are aligned. Identifying Responsible Borrowers Impact Tracking for Portfolio Companies The EMCO Advisors will track and measure economic development through quality job creation and wage increases. EMCO will only lend to businesses that are environmentally and socially sound, consistent with IFC/OPIC standards. EMCO will aim to be a 4-5 star GIIRS rated fund, with a focus on a strong “workers” and “governance” score Projected Impact of EMCO Fund I 10,000 new jobs created 19% increase in annual wages 69% employees with health/pension benefits Multiplier effect for local economies SOURCES: SEAF methodology & http://www.opic.gov/doing-business/investor-screener#4

13. Risks Standard risks of doing business in emerging markets exist, but can be mitigated.

14. Looking Forward The success of this fund will create a new platform for SME investments in emerging markets.

15. APPENDIX

16. Local Bank IRR with Various Loss Scenarios Class B IRR with Various Loss Scenarios Class C IRR with Various Loss Scenarios

17. Market Opportunity SMEs in Emerging Markets present a sizeable opportunity for both financial and social impact. Formal SMEs in developing countries provide about 45% of employment and 33% of GDP. The value of the gap in South and East Asia is $280-350 billion. 45-55% of formal SMEs in emerging markets do not have a loan but need credit. # of businesses % SOURCE: McKinsey and IFC Report, “Two Trillion and Counting”