Going through crisis:ACF case

ACF Presentation Prepared by Zhanna Zhakupova, Executive Director Microcredit Organization Asian Credit Fund LLC

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)

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

Economic crisis: impact on Kazakhstan

9,8%

13,5%

9,8%9,3%

9,6%

9,7% 10,7%

8,9%

3,2%

1,1%

7%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Kazakhstan GDP growth rate (2000 - 2010)

%

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.

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

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

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

Revenue less affected than portfolio (KZT mln)

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

Results of new strategy

New lenders came to ACF due to positive outlook for country shareholder intention to create holding

company improved company performance

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

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

Thank you !

www.asiancreditfund.com