Going through crisis: ACF case

1. Going through crisis:ACF case ACF Presentation Prepared by Zhanna Zhakupova, Executive Director Microcredit Organization Asian Credit Fund LLC

2. Asian Credit Fund (ACF) • Microcredit organization based in Almaty • Founded by Mercy Corps in 1997 • During 1997 -2007 primary focus was secured development lending to small and micro enterprises to foster job creation • $22 mln. to 5,528 small and micro entrepreneurs to sustain and create more than 22,000 jobs • Average outstanding loan balance at YE 2007 was $7,200 (150% of GNI per capita)

3. ACF - development lending institution • Special development loan products • SME Growth Loan • Residential Mortgage and Home Improvement Loan • Partnership with corporations • Mittal Steel SME Resource Fund – cooperation for regional development • Chevron – artisans development • Strategic Philanthropy targeted rural youth

4. Economic crisis: impact on Kazakhstan

5. Economic crisis: impact on Kazakh banks • Four of the major banks were rescued by the government at the end of 2008 • At the end of 2009 Kazakhstan's total external debt was $111.7 billion or 104% of GDP • By S&P the current share of problem loans of Kazakh banks is 40% to total loan portfolio, with restructured loans is about 50%. • The total write-off in baking system since crisis equaled to 8.6% to GDP.

6. Impact of crisis on ACF performance • SME sector was heavily affected: a 50% decline in income • Impact on ACF performance • ACF delinquency escalated: the highest PAR was 22.9% in April 2009, with restructured loans as far as 40% • Financial cost increased • Currency devaluation by 20% in February 2009: hedging cost increased two times • LLR expenses significantly increased • Demand for loans decreased and loan portfolio was declining • Company income shrinkage undermined company long term existence

7. ACF Action Plan • Introduction of group loan product in April 2008 • Targets underserved (rural households) - no mission drift • Smaller size of loans – less riskier • Higher margin • Managing bad debts • Debt Collection Unit • Appropriate LLR • Debt work out strategy for each client • As of 30 September ACF collected 50% of write offs

8. ACF Action Plan • Keep ACF lenders and shareholder updated on actions and results • Keep discipline and manage staff moral – no layoffs, new hiring • Financial Literacy and Debt Counseling to better manage client relationship

9. Revenue less affected than portfolio (KZT mln)

10. Results of new strategy • In July 2010 company reached break-even • company continued showing profit then each month • As of end of October 2011 • PAR >30 days + restructured loans is 2.2% • active clients increased from 700 to almost 7,500 • LOP reached pre-crisis level of $4.0 mln after the lowest level of $1.75 mln. in Jan 2010 • staff number increased from 30 to 100 • significant geographic outreach to rural areas

11. Results of new strategy • New lenders came to ACF due to • positive outlook for country • shareholder intention to create holding company • improved company performance

12. Lessons learned New business model can be a right response to crisis Appropriate loan products Diversification of lending capital sources is must Foreign currency risk shall not be only responsibility of MFI and/or its clients

13. Current challenges • Interest rate ceiling introduced by country in May 2011 • Managing operational cost in sparsely populated country • Financial costs are still high • intentionally high LLR • most of loans to ACF are of high price • Equity investment is required

14. Thank you ! www.asiancreditfund.com