Presentation title in Arial bold 28pt DB_wh_templ_2000_ec.pot

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Social Investment Matters
Asad MahmoodManaging Director, Global Social
Investment Funds
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Agenda

• Social Investment Defined
• Our Belief
• Potential
• Challenges
• Solutions
• The Market for Social Investment
• Our Vision, Mission and Strategy
• Three Main Components of Our Work
• Domestic Social Finance
• International Social Finance
• New Initiatives Fund
• New Initiatives in Social Investment
• Eye Fund I
• Enterprise Social Fund
• Our Team / Our Strength

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Social Investments Defined

• Most investments have indirect social value in
  terms of expansion of the economy or creation of
  jobs, etc.
• Social investments by their very intent are
  designed to achieve social goals through
  commercial approaches
• Social investments are about BOTH a maximization
  of value to society and a maximization of profits

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Our Belief Potential
Any social venture with a cash flow can be
financed by bringing differently motivated money
to a common platform
Microfinance
Education
Alternate Energy
Healthcare
Agriculture
Affordable Housing
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Our Belief Challenges of Social Venture

• Low volume of transactions and lack of robust
  cash flows
• Lack of liquidity
• No track record on investment risk
• Perceptions out of line with real issues

The social venture industry is no different than
any other nascent industries marked by

• Doing good can only be achieved through charity
• You cant charge interest to the poor
• Lack of recognition of the full potential of the
  poor
• They are worthy of charity but arent capable
  of running a business

The social ventures also have to contend with
unique perceptual issues
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Our Belief Challenges with Socially Responsible
Institutional Investors

• Do not want to sacrifice return
• Do not want additional risks
• Evaluate social investments by the same measures
  they use to judge highly commercial developed
  markets
• Rating
• Daily Quotes
• Liquidity

Common attitude of socially responsible
institutional investors
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Our Belief The Solutions
Social Ventures have limited resources

• Credit enhancement can mitigate the issue of
  track record and risk perception
• Subsidy can enhance weak cash flows to meet
  minimum investors requirement
• Increase volume will create the required
  liquidity and help mitigate other elements of
  risks like price quotes, etc

Growth will come with increased capacity
Capacity can only be increased through capital
investments

Develop structures that meet social and
investors needs
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Scale-Up of Social Finance
Stratified-Risk Capital Structure
Before Financing
After Financing
Paying Patients/ Customers
Senior Debt
Paying Patients/ Customers
Investment Capital
Socially Motivated Commercial Investors
Social Venture
Social Venture
Service Delivery to the Poor
Improved Service Delivery to the Poor
Subordinated Debt
Foundations and International Financial
Institutions
Equity and Grant Capital
Deutsche Bank, by increasing the availability of
investment capital, helps increase the level of
outreach of social ventures to the poor
Cash Flows
Service Delivery
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The Market for Social Investment
Where 14 billion in Community Development
Financial Institutions, 2 billion in double
bottom line funds and 200 million in Program
Related Investments
In the US, 2.4 trillion is earmarked for social
purposes, yet 90 of this is in passive
Screened funds and only 0.1 is invested in
funds actively targeting a social and financial
return.
Source Blended Value Map Jed Emerson, 2004
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Deutsche Bank Social Investment
To be the investment banker for social
capital Deutsche Bank embraces social
investing as a specialized investment banking
business with the dual objective of profitability
and social return.
Vision

• To be a catalytic leader in providing socially
  responsible lending, investing and philanthropic
  resources, acting as an agent of development and
  growth in distressed communities globally.

Mission
Use the Banks social financing
expertise, investment banking skills, structuring
capabilities, business resources and worldwide
relationships to create financial instruments
that benefit social enterprises, and in the
process transfer financial know-how among both
clients and investors.
Strategy
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Three main components of our work
Financier of affordable housing and economic
development projects in distressed US cities and
communities
Domestic Social Financing
Domestic focus
Provides catalytic financing for innovative
projects in the areas of healthcare, education
and affordable housing
New Initiatives Fund
Provides financing through both for-profit and
not-for-profit funds and DB balance sheet for
financeable social projects worldwide, with an
emphasis on microfinance
International Social Financing
International focus
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Domestic Social Financing
BEFORE
AFTER
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CRA Background

• It was a common practice for bankers to exclude
  low-income neighborhoods and people of color from
  their lending products, investments, and
  financial services a practice known as
  redlining
• In the 1970s, activists in Chicago and across the
  country brought strong pressure on banks to lend
  equitably to all those in their communities
• In 1975, Home Mortgage Disclosure Act (HMDA)
  requirements
• Community Reinvestment Act (CRA) established by
  Congress in 1977 during the Carter administration

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DB Social Investments

• Deutsche Bank was the first wholesale bank to
  receive an outstanding rating from the Federal
  Reserve Bank for performance and innovation in
  carrying out community development activities
  (social investments) via the Community
  Development Group
• Deutsche Bank has maintained a top rating for the
  past 12 year
• 385 million portfolio invested primarily in
  affordable housing, economic development in
  distressed communities
• 1 billion invested with only one loss of 61,000
  

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Domestic Social Investments

• Total portfolio of 385 million
• 4TH QTR 2006
• Credit Portfolio
  Original Commitment
• Housing Tax Credit Bridge Loans
  88,1000,00
• Loans to Intermediaries 63,156,087
• Real Estate Loans 94,167,946
• Soft Loans (Recoverable Grants)
  5,952,290
• Total Credit Portfolio
  251,376,323
  
• Investment Portfolio
• Housing Tax Credits 70,954,594
• Other Investments
  59,541,721
• Total Investment Portfolio
  130,496,315

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Selected Partners
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Closing Assistance Support for Homebuyers (CASH)

• Enables low-moderate income first-time homebuyers
  who lack cash for closing costs and downpayment
  to buy homes in NYC, Suffolk, Nassau and
  Westchester Counties
• Launched in 1994 by Neighborhood Housing Services
  of New York (NHS) and Deutsche Bank (BT) funded
  in four rounds
• CASH loan used for closing costs and/or up to 2
  of downpayment Loan receivables
• Borrowers must graduate from a home buying
  counseling program
• Loan loss reserve (15 of facility) funded by
  lenders and foundations
• Loan loss reserve (15 of facility) funded by
  lenders and foundations

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Low Income Housing Tax Credit

• The Low Income Housing Tax Credit (LIHTC) Program
  is federal program that encourages development of
  affordable rental housing by giving CBOs (and
  other developers) access to equity capital
• Deutsche Bank invests in LIHTC through various
  funds and partnerships
• Deutsche Bank also makes bridge loans to
  syndicators, secured by investor obligations
  this enables syndicator to provide construction
  funding
• Deutsche Bank has committed (as of 9/30/06)
  56.5MM of LIHTC investments and 115.7MM of
  LIHTC bridge loans

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Mt. Hope Community Center New Markets Tax Credit

• New Markets Tax Credit (NMTC) Program is a
  federal program that encourages 15 billion in
  new private sector investment, fueling business
  growth in low-income communities.
• Mt Hope, 19-year old CBO located in South Bronx,
  seeking to develop new community center (tdc
  15.6 million)
• 4.22MM NMTC investment, 2.11MM each from
  Deutsche Bank and Citibank target return of 8.4
  (after-tax) approx 9 year term
• Leverages 10.0MM in subsidized public and
  private loans

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International Social Financing
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Funds under DB Sponsorship or Management

• Launched in partnership with DB Private Wealth
  Management in US and UK
• Pioneered structures for investing in local
  currency
• Facilitates linkages between MFIs and local
  financial institutions
• Seeks to increase scale of MFIs so they can
  become commercially sustainable
• Has lent more than 5MM to nearly 50 MFIs in 27
  countries

DB-Microcredit Development Fund
Established 9 years ago, it was the first
commercially oriented microfinance fund
launched by a global bank
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Funds under DB Sponsorship or Management

• Funds early stage, commercially viable MFIs
• Acts as catalyst to unlock local
  equity/stakeholder support
• Favors locations under-served by microfinance
• Capitalized with funds from Deutsche Bank,
  Cordaid and other social investors
• A 1MM fund launched in 2005. Commitments to more
  than 5 MFIs.

DB Start-up Fund
First start-up fund for microfinance institutions
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Funds under DB Sponsorship or Management

• Facilitates capital access for commercially
  focused MFIs in locally demanded currency
• Offers flexible, sophisticated financial
  instruments
• Presents microfinance as an emerging asset class
  to investors
• Brings together social investors, development
  agencies and first-time institutional investors
• 80.6 MM nearly fully committed with more than 40
  deals approved in about 21 countries

First commercial fund to provide financing in
the locally demanded currency. Largest
microfinance fund of its kind at launch date
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Capital Structure
Investment Partners
Senior Debt63.35 MM
USAID Guarantee
15 MM
SubDebt 4MM
Sub Debt, Equity Grant Capital17.25 MM
Class A 5.5 MM
Class B 6.25 MM
DFID 1.5 MM
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First German Fund for Microfinance

• Firstever microfinance fund for German Investors
• Collaborative approach German private investors
  and development agencies
• Target Rating BBB- or higher
• Target capitalization 60 MM
• Further establishes microfinance as an investible
  asset class

The Fund

• Up to 5 MM (or locally demanded equivalent)
• 7 year maturity
• 100 subordination
• Tier II Capital compliant (Basel guidelines)

The Offering
First fund with German investors. The first
rated sub-debt fund in the microfinance space
Launched Summer 2007
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Sample StructureStandby Letter of Credit with
Leverage
Honduran Bank
Deutsche Bank Microfinance Fund
Issues Letter of Credit
HNL equivalent
US Collateral Deposit
Interest in HNL
Custodian
Interest on Collateral
Honduran MFI
Commission in USD / L/C Guarantee Fee
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Sample StructureLocal Currency Source DB Branch
DB Karachi
DB London
US Guarantee Deposit
Inter-company Guarantee
Deutsche Bank Microfinance Fund

Interest on US Deposit
Interest Rate on Pakistani Rupee Loan
Loan in Pakistani Rupee
Pakistani MFI
Guarantee fee in US
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Sample StructureLocal Currency Source Local Bank
US Purchase of credit risk
Colombian Bank (Panama Branch
Deutsche Bank Microfinance Fund
Interest in US (minus margin)

Interest in US
Loan in US
US / Colombian Peso Cross Currency SWAP
Colombian Bank
Colombian MFI
Interest in Pesos
Colombian Peso Loan
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Deutsche Banks Microfinance Footprint
EuropeBosnia Herzegovina Serbia
AlbaniaGeorgia Kosovo
Moldova Albania
Romania Russian Federation
Central AsiaAzerbaijan MongoliaKazakhstan
Middle East North Africa Morocco Jordan
Latin America the Caribbean
Honduras Haiti Nicaragua Bolivia Colombia Mexico
Chile Argentina Uruguay Ecuador Peru Dominican
Republic El Salvador Brazil
East Asia and the Pacific Cambodia Philippin
es Samoa
South Asia India Pakistan
Africa - SubSahara Benin Kenya Uganda Mozambique S
outh Africa Tanzania Rwanda
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First German Fund for Microfinance
Indicative Capital Structure
Investment Vehicle
Investment Manager
Pass Through Entity
Senior tranche
EUR Equivalent in local demanded currency, USD
Junior tranche
Target Rating BBB-
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Business Engagement in Microfinance
Underwriting
Several issuances in Europe for one of the
largest microfinance institutions in the world
Asset Securitization
First asset securitization in Bulgarian market
Selected to bid for mandate on EUR400 MM Eastern
European microfinance portfolio owned by leading
development agencies in the region
Asset Management
Knowledge Transfer
Partner MFI senior management (from Treasury,
Accounting and Risk Management) will intern with
DB
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Business Engagement in Microfinance
Assistance from DB product and industry experts
in structuring transactions Active volunteer
program
DB In-country Engagement
Private Spanish Foundation
Managing 4 million microfinance loan portfolio
targeted at low income and lower-middle income
countries
34 million investment on the European Fund for
Southeast Europe (EFSE) Equinoccio Fund in Mexico
Other Transactions
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Coming Soon
Multi-facility Vehicle
Developing multi-facility (grant, debt, equity)
investment vehicle for microfinance to be
marketed to single-country investors/donors
Advisory Role
Advising in the creation and management of other
funds
CDO- Consortium II"
200 MM Multi-Issuer Rated Deal
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Eye Fund I
Using debt to reach scale, and tapping new
sources of capital
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Eye Fund I - Three Driving Forces

• Approximately 37 million people are blind
  worldwide and another 150 million have serious
  visual impairment, of which 75 are easily
  treatable/preventable (i.e. cataracts, glaucoma)
• Grants are insufficient to meet Vision 2020 goals
• Collective annual spending roughly 250 MM

Global Demand for Affordable, High-Quality Eye
Care

• There are approximately 250 eye care programs
  that are currently self-sustainable
• These programs serve clients from all economic
  strata, with user fees from regular clients
  subsidizing the poor

Proven Sustainable and Profitable Service
Delivery Model

• Leveraging existing financial models and capital
  markets
• Integrating financial institutions, socially
  motivated investors, and the social sector
• Recent success in microfinance as a platform for
  the next-generation of social investments

Creating Competitive Landscape for Social
Investing
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Eye Fund I The Objective
To address the major constraints to a sustainable
eye care sector in the developing world with
increased outreach to the poor.
EYE FUND I

• Diversifying Financial Resources Available to Eye
  Care Programs
• Providing low interest debt financing for
  investment
• Leveraging existing networks to aggregate
  financing needs

• Capacity Building and Human Resources Development
• Improving operations through training and
  organizational development
• Scaling programs to serve the poor, while
  maintaining self-sufficiency

Grant Component

• Laying the Foundation for Systemic Change
• Enhancing the operational capacity of eye care
  programs to boost cashflow from user fees thus
  also increasing the resources available to serve
  the poor
• Developing a replicable methodology for social
  investing, eye care and beyond

LARGER, SUSTAINABLE EYE CARE SECTOR
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Eye Fund I Structural Overview
Oversight Structure
20 MM
Socially Motivated Commercial Investors
Senior Debt 14 MM

• Uses of Financing
• Capital investments for equipment or buildings
• Program expansion
• Bridge Financing
• Replication of program in new region

PRI/Social Investors (1 Return)
Subordinated Debt 4 MM
Development Agencies
Grant 2 MM
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BEFORE
AFTER
Enterprise Social FundAn opportunity to help
create low cost housing for Americas most needy
families through the engagement of the corporate
sector
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Enterprise Social Fund Context

• In the past 30 years, the social housing sector
  has principally relied on the Community
  Reinvestment Act, which required banks to invest
  in underserved communities in the United States
• The Community Reinvestment Act is only directed
  to banks and is driven by the geographic location
  of the banks
• Concentration of financing in big cities

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Enterprise Social Fund Objectives

• Engage the corporate sector as investors in
  social ventures
• Develop an innovative channel to fulfill
  corporate social responsibility and enhance
  shareholder value through a well-protected
  return-based investment rather than as an expense
  for the corporation
• Provide Enterprise, a top social developer, with
  non-traditional sources of flexible and readily
  available financing to assist in the creation of
  affordable housing for low income families
  nationwide

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Enterprise Social Fund Structure

• Enterprise Social Fund LLC
• 15MM 5-year notes with 20 first loss DB
  guaranty
• Tranche A 5.5 / Tranche B 2.5
• Structured to maximize protection of
  noteholders capital

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Deutsche Banks Microfinance Portfolio Management
Capabilities

• Extensive Microfinance Relationship Network
• 77 relationships in 41 Countries
• Impressive Underwriting Record
• Experienced Structuring Abilities
• DB-Microcredit Development Fund
• First-ever fund for microfinance from a Global
  Bank
• Launched in collaboration with Private Wealth
  Management
• Global Commercial Microfinance Consortium
• Presented microfinance as an Asset Class to
  first-time Institutional Investors in 2005
• 3 of the worlds top development agencies in the
  capital structure France, UK and USA
• 90 of loan capital placed within 12 months
• Growing External Demand for Management Skills
• Manages microfinance investments for a prominent
  Spanish family foundation
• Partnership with Cordaid of The Netherlands

Structuring Excellence Track Record
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Portfolio Management Capabilities

• Multidisciplinary Team
• Skillset in Microfinance Institutions, Investment
  Banking, Asset Management, Project Finance,
  International Consulting, Law Accounting
• Multilingual capability (Spanish, French, Urdu,
  Hindi, Romanian, Italian, Korean, English and
  German)
• . with deep industry and banking experience
• Experienced in origination, structuring and
  execution of financings
• 3 funds under current management
• 3 new microfinance funds being structured

Socially Committed, Experienced Deal Team