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 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

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 !