TITLE PAGE FOR PRESENTATIONS

Challenges and success storiesof expanding financial services to the underserved in Africa

September 2009

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Never underestimate your customer…

• Pan-African micro-financier employing 3 000 staff through more than 300 branches across 14 countries

• One of the JSE’s “big three” listed micro-financiers

• South African Reserve Bank approval to invest significantly outside of South Africa

• Double-bottom line approach through a defined social mission

Blue in a nutshell

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45

21

8

4

1

NAZARm ZARm

West Africa (1%)

7

1

6

165

16

ZARm 65

228

6

34

224

10

83

ZARm

ZARm

ZARm

East Africa (12%)

• We have operations in 13 African countries and a holding company in Mauritius

• Our strategy remains to expand in selected African markets subject to economics

• We are targeting Angola, Mozambique, Ghana and Egypt for expansionStaff

Branch

BookZARm

Southern Africa (87%)

258

12

157

44

15

ZARm 95

518

178

ZARm 709

226

12

199

172

5

138

28

4

74

36

2

20 ZARm

ZARm

ZARmZARm

ZARm

a pan-African financial services group…

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…supported by international equity holders and funders

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Operational niche and target audience

Gainfully employed but under or un-banked

Diverse product portfolioDiverse funding base

Inclusive

Poorest of poorExclusive

Limited reachSingle productDonor funded

Limited corp gov

Moderate to higher income earner

Diverse product portfoliobut cost and risk

exclusive

Mainstream banksTraditional micro-financiers

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Operational challenges

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• Cultural differences

• Infrastructure• Lack of road infrastructure • Airline routes limited, time consuming & expensive• Branch footprint allows access to finance in remote areas• Information and Communication Technology• Property• Cost of doing business• Banking infrastructure

Rank Cost Item Score1 RENT 7.62 FOOD 7.43 EDUCATION 6.14 ELECTRICITY 5.75 TRANSPORT 5.56 WATER 5.07 CAR 5.08 PROPERTY RATES/TAXES 4.99 FAMILY RESPONSIBILITIES 4.010 MEDICAL COSTS 3.911 ACCOUNTS FURNITURE 3.412 ACCOUNTS CLOTHES 3.413 HOLIDAYS 2.614 ENTERTAINMENT 2.4

Unpacking demand side constraints – priority of monthly repayments

Research study initiated by Blue Financial Services on

perceptions around the NCA

Demand side constraints

Current economic crisesInflationary pressures (food, transport, rent)RetrenchmentSupply side decline (higher hurdle rate to qualify for credit)Reduction in longer term credit facilitiesCurrent economic crises larger than benefits of interest rate cuts; placing continual pressure on individuals to stay ahead.

Regulatory impactTotal credit exposure needs to be taken into considerationStructured around affordability and minimum discretionary income (take-home pay)In a declining economic environment supply side becomes more conservative as result of regulation around reckless lending activities.

• Branch location

• Diversified financial services offering as opposed to salary advances only

• Loan approval in less than an hour

• Premium retail bank branch look and feel – staffed by citizens of operating country

• Superior service and delivery standards

• Upfront consultation

• No hidden fees

Addressing the issues

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Branch layout and location are key value drivers...

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...and products are tailored to suit client needs

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Success story: Isaac Kanguya, part time tourism officer, full time oxcart builder

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Importance of a robust IT infrastructure

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• Centralised business model

• Virtual Private Network ensures real-time access to management accounts in all regions

• Comprehensive contingencies in place and audited on a regular basis

• Offline capability

• Debtor management through combination of off-the-shelve as well as custom developed software

• Insurance

Centralised control allows cost effective risk management

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Africa

Biggest risks Fastest risers1 Management quality 1 Too little funding2 Staffing 2 Refinancing3 Corporate governance 3 Competition4 Credit risk 4 Liquidity5 Macro-economic trends 5 Macro-economic trends6 Liquidity 6 Credit risk7 Interest rates 7 Staffing8 Too little funding 8 Ownership9 Competition 9 Interest rates10 Fraud 10 Foreign currency

Impact of the global credit crises – MFI’s perspective

2009 Microfinance Banana Skins Survey

Different concerns on the African continent

The African response was very different from the rest, focusing strongly on institutional issues, particularly weaknesses in management, governance and staffing.

Economic crisis issues took second place, though they were seen as fast-rising, particularly liquidity and credit risk.

A rising worry was the threat to funding and refinancing. There was much concern that the crisis would cause weaker MFIs to fail and damage confidence in the sector as a whole.

2009 Microfinance Banana Skins Survey

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Success story – Mercy Mubanga, part time typist, full time chicken farmer

Responsible finance

Importance of minimum discretionary income thresholds

All loans based on affordability – taking total credit exposure into account

Importance of first language interaction

Matching loan term to usage

Enforcing usage – through disbursement to supplier or service provider

Education through mass media: good vs bad credit decisions

Continuous access to industry experts on SMME products

Hands-on approach, especially with SMME products

Financial education

Taking out a loan safely

Education on customer rights- copy of contract- disclosure of total debt amount (interest; insurance, fee structure)

Government involvement

Lobbying for credit bureaus

Potential of Africa as early adopters because of lack of any current systems and regulation:

- Doing it right first time, e.g other countries learning from South African example

Conclusion

In times of chaos – excellence prevails, opportunity is rife and entrepreneurship is born.

Anon.

 

www.blue.co.za