Going through crisis: ACF case

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Going through crisisACF case

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

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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)

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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

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Economic crisis impact on Kazakhstan
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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 SP 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.

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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

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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

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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

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Revenue less affected than portfolio (KZT mln)
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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 gt30 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

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Results of new strategy

• New lenders came to ACF due to
• positive outlook for country
• shareholder intention to create holding company
• improved company performance

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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

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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

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• Thank you !
• www.asiancreditfund.com