Bienvenue

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Crunching the Numbers Negotiating Funding Terms
Louise Schneider-Moretto Senior Director,
Capital Markets GroupWomens World Banking
Tunis May 2008
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Womens World Banking

• Founded in 1979
• Commitment to providing access to finance for
  low-income women
• Today, global network consists of 29 microfinance
  institutions operating in 20 countries
• Plus 24 regulated financial institutions in
  Global Network for Banking Innovation (GNBI)
• 50-member Global Team of trusted advisors
  headquartered in New York

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WWBs Capital Markets Group

• Goal Help network members ACCESS CAPITAL for
  expanding their operations --gt Outreach.
• Activities
• Advisor/Brokers Debt and Equity
• Introduce NMs to potential investors
• Help advise NMs on local and international debt
  terms
• Ensure that such capital access is on favorable
  terms for the MFI and does not layer them with
  undue risk (ex foreign exchange, FX). Help
  negotiate collateral, pricing, tenor.
• 2. Loan Guarantee Program
• Provide partial guarantees to local banks lending
  to NMs (up to US 500,000 guarantee and requiring
  two times leverage)
• Local currency access is key!
• 3. WWB Microfinance Equity Fund (Launch 2008)
• Targeted US20-25million fund to assist NMs who
  wish to transform
• 4. Capacity Building
• Capital Markets Conferences and Trainings (Morgan
  Stanley, Lehman Brothers)
• Financial Risk Management Trainings (Citi)

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• Gradual process highly dependent on local factors
  and MFIs legal structure

Public Equity Markets
Capital Markets Debt Financing
Deposits
Level of Financial Integration
Private Equity
Commercial Loans
Donor or Concessionary Funding
Little to no regulation required
Significant regulation required
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Context Negotiating Commercial Funding

• Microfinance Institutions need large amounts of
  sustainable capital to fuel their growth?
  Commercial Funding
• Commercial Funding Market Rate funding (not
  subsidized) from private investors (not public
  entities or donors)
• Focus on Debt investors or Lenders (local
  banks, international microfinance lenders)
• This commercial funding should reflect the MFIs
  performance (profitable financial institutions
  with a high asset quality microfinance
  portfolio), while noting that some lenders will
  have regulatory or internal bank credit
  requirements that will impact the loan structures
  and pricing.
• Funds provided based on a risk --- reward
  assessment
• Access or Amount should increases with
  performance
• Responsiveness and Efficiency of processing
  faster turnaround generally (funds made available
  when we need them)
• Transparency required (due diligence review)

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What Do You Want from Debt Investors?

• Relationship
• Long term ? grows with your business, understands
  the business, may be able to offer other services
  and have more flexibility when / if needed
• Fair Pricing (low!)
• Increased funding over time for growth
• Tenor to support high growth
• Local currency capital (avoid FX risk)
• Efficiency
• Flexibility ability to draw down and repay when
  you need

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Strategies for Accessing Commercial Bank Debt
Targeting the Right Banks

• Know your market!
• Deepen understanding of local banking system
• Which banks have a longstanding track record and
  solid ranking/rating?
• Develop knowledge and relationships with local
  banking and investor community. Who is most
  interested in microfinance and knows your
  business best or willing to explore? Have they
  lent to other MFIs- on what terms?
• What are the collateral requirements? Limitations
  (legal structure)?
• Look for partners who can analyze your business
  and credit risk on its merits and without
  excessive collateral (i.e., avoid cash deposits,
  personal guarantees, over collateralization, etc)
• Have experienced bankers on your board (contacts)
• Arrange regular meetings with bankers (not once a
  year!)
• Solicit term sheets from several banks. The
  experience of negotiating loans with several
  players will give you a better sense of how
  committed they are to your business and
  institution, and their flexibility to accommodate
  your institutions needs

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Strategies for Accessing Commercial Bank Debt

• Develop Institutional Summary Fact sheet
• Important presentation/marketing piece to tell
  your MFIs story
• Develop strong business plans/projections
• Pursue MF ratings ? Transparency
• Meet periodically with banks deepen
  understanding of local banking system
• Provide list of references
• Accountants, local business leaders, board
  members, etc.
• Use credit enhancements where feasible
• Partial multilateral/donor guarantee instruments

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• Some Tips
• Negotiate hard, but be reasonable
• Negotiate off your lowest commercial source of
  funds, but be open to accepting capital at your
  average cost of funds, especially if it brings
  value - new relationship and diversification of
  funding
• Compare apples-apples (loan tenors)
• You may have to be open to paying a premium for
  that first commercial bank loan or for developing
  that first loan with Bank X. The goal should
  be 1) confirming that you still have a positive
  net margin (know when to say no) and improving
  your loan terms consistently with each subsequent
  renewal.
• Realize that your banker may have some valid
  regulatory or internal credit constraints that
  limit their ability to be flexible on certain
  terms
• Consider collateral enhancements to improve your
  loan terms (ex partial guarantees)
• Avoid pledging your real collateral where
  possible, because each subsequent lender may seek
  the same terms.

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What is the true cost of funds?

• Your local banker offers you a 60,000,000 dinar
  loan at a nominal interest rate of 9
• What are the other factors that you must consider
  in order to determine the effective rate?

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Speaking the Bankers Language
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Comparison of Debt Trends
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Thank you for your attention(Visit us at
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