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A P2P marketplace for Microcredit

http://www.micrograam.com

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MicrofinanceMicrofinance is not what you believe

What is microfinance? What is not microfinance?

A working economic model: Social business or “Philanthropy”

A powerful tool of financial inclusion and economic development

A new market, with new clients

One of the fastest growing economic sector in the world

Not charity nor philanthropyNot giving but lending

Not a magical tool to eradicate poverty

Not an exclusive financial investment for rich people

Not as risky as it may appear(average repayment rate of 97%)

New Models For Microfinance

Traditional market model: one central organization (financial, governmental, non-profit institution or corporation) serving many individuals

- Large-scale impersonal markets - Low resolution preference expression

New innovative market models: flexible dynamic capital allocation systems that provide democratic, more immediate, low-cost, affinity-directed capital

- Benefits to individuals: freedom, convenience, preferences articulation

- Benefits to groups: virtual aggregation of group, power to conduct transactions

Goal

Create a system that favors borrowers so that they get the lowest interest rate that a free market will bear

Investors are benefited as the principle is returned with nominal interest as well making it a social cause

Connect people / NGO's / MFI's, who are in need of capital, directly with people who are interested in lending

Participate in a solution that can help alleviate global poverty by helping people help themselves

How MicroGraam addresses the challenges?

Traditional m

onopolies

MF

Is

MicroG

raam

Interest paid by borrowers

100+%

25-50%*

5-15%

•source: Kiva.org(Kiva invests via MFIs)Average MFI interest is 25%

Need: Reduce overheadIn ecosystem to minimizeInterest paid by borrowers

MicroGraam’s success is aligned with the reduction in interest that the borrower pays; MicroGraam has also minimized the overhead in back-office work, payment transaction overhead, etc.

MicroGraam has built a demand-side technology platform for peer-to-peer microfinancing, and a blueprint to franchise this model out to other geographies over time.

MicroGraam has already established a network of partnerships with NGOs and SHGs representing millions of borrowers in India.

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Microfinance Infrastructure

MicroGraam Platform NGOs &

BorrowersLifecycle

ManagementPayment Projects Portfolios

Auction Negotiation

Micro-Loans

Target: Individual investors•1 year investment horizon•Peer2Peer investing•Launched Feb 2010•Auctions & negotiationsto reduce interest rate

Micro-Portfolios

Target: Foundations, HNI, FI•Multi-year investment horizon•MicroGraam created portfoliobased on geography, industryand reputation ranks•Launch scheduled in Q2CY10•Enable foreign investments

Micro-Ventures

Target: All•Short-term investment•Build-to-order model•Pre-fund artisans in NGOs •Investor is returnedinvestment minus good sale price, and any interest•Launch scheduled in summer

MicroGraam Portfolio Overview

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Micro-Loans

Investor invests on borrower(s)based on auction process

Borrower Profiles

Borrower Profiles

Field Partners post borrower profiles and distribute investments

Field Partners collect repayments and

manage delinquency

Borrowers are subject to Field Partner’s due diligence and credit

processes

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Investor invests on Portfolio of Borrowers belonging to one or

more NGO or IndustryPortfolioProfiles

Portfolio Profiles

Field Partners post portfolio of borrowers

and distribute investments

Field Partners collect repayments and

manage delinquency

Borrowers are subject to Field Partner’s due diligence and credit

processes

Micro-Portfolios

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Investor invests / pre-pays artisan group

Investor gets return & goods at end of term (in a few months)

VentureProfiles

VentureProfiles

Field Partners post portfolio of borrowers

and distribute investments

Field Partners collect repayments and manage delinquency

Field Partners also help organizeand execute on deliverables

Micro-Ventures

Artisan Venture Unit -- 3Artisan Venture Unit -- 2Artisan Venture Unit -- !

Investor’s Investment Options

Individual– Up to Rs. 1 lakh Person to Person Investing model Auction or Negotiation Model Expected Returns up to 6% for 4-Star and 7.5% for 3-Star Ranked NGOs Period of investment 12-18 months

Individual or Group Investment – Rs 1 to Rs. 10 lakhs Portfolio Investment Auction or Negotiation Model or Portfolio Investment for Investment > Rs. 5 lakhs Expected Returns up to 8% for 4-Star and 9% for 3-Star Ranked NGOs Period of investment 12-24 months

Institution Investment – Rs. 10 lakhs and above Portfolio Investment Expected Returns up to 9% for 4-Star and 10% for 3-Star Ranked NGOs Period of investment >36 months

Why Invest in Micro Credit as an Asset?

Superior quality: <3% credit loss, attributed to concept of social collateral, shorter maturity of products and continuous follow-up

Strong underlying business model: Group liability and social reputation

Diversification: Low correlation with other asset classes and within asset class - very high granularity of loans

High growth rate: Three of the largest MFIs in India – SKS, Share Microfinance and Spandana have shown near 100% YoY growth rates

Good Returns: These are double-bottom line assets—social and commercial returns. Commercial returns to the extent of 6-8% can be expected for individual social investors. Social returns depend on each investors’ preferences.

Risk Comparison

Best In Class Thematic (eg. environmental)

Micro Credit SME

Investment Universe Large capsMulti-sectors

Small & Mid capsSector specific

NGOs or financialinstitutions

Small & MediumEnterprises

Nature of Underlying Asset Listed Listed

Almost entirelynon listed

Non listed (Private Equity)

Categories of InvestorsInstitutional &Retail

Mainly retailHigh net worth individuals, institutional, potentially retail

SophisticatedHigh Net WorthIndividuals

Profitability Similar toBenchmark

Higher thanBenchmark

Small profitability High Profitability

Volatility Limited byconstruction

High Low (<1%) N/A

Social & environmental contributions Medium High Very high High

Risks Low Medium Low by experienceHigh by perception and sector characteristic

Very high

Investment Risk

All investments carry some risk

Micrograam platform is built around a network of local field partners screening the Businesses who would like to obtain a loan . All Businesses interested in obtaining a Loan undergo a thorough investigation process to make sure they provide healthy economic prospects for growth before they are classified as investment Businesses . The due diligence process include a background check to track record, reputation

Historically, 97% of poor people have actually paid back their loans through good and bad economic cycles. This means that the institutions that work with our borrowers can generally pay you back too. And, Micrograam thoroughly vets these institutions to make sure they meet certain business and regulatory requirements

Key Differentiation

Only organization in India that uses an online auction based investment bidding process

First organization in the world to provide negotiation based determination of terms of credit by all parties

Reduce interest rates by working with NGOs and SHGs Social investors help determine the interest rate of the loan, not

financial institutions Reduces the loan origination cost A platform for an open, competitive microfinance marketplace Reputation rankings of NGOs and borrowers for transparency Unique business model of pay-for-performance ensures that

MicroGraam’s interests are aligned with that of a reputable borrower

MicroGraam EcoSystem

Borrowers

Groups (SHGs)

MicroGraam’s Partners – A Snapshot

MicroGraam’s Partners – A Snapshot (contd..)

About The Founding Team

Sekhar Sarukkai, PhD, voted recently as a top 25 CTO by Information Week, is a successful serial entrepreneur based in the silicon valley. The last company he founded (Securent) was acquired by Cisco systems. The previous company that he had co-founded is now part of Oracle. Previously he worked at HP labs and NASA research, and holds a PhD in computer science from Indiana university. He has a passion for application of technologies in ways to better humanity.

Rangan Varadan, PhD, brings in extensive experience in financial services domain. His current focus and interest are in the area financial inclusion in India. He is working towards taking branchless banking services to the villages in the most efficient manner using technology and through partnership with grass-root level organizations. Previously he was heading the Banking and Capital Markets Domain Group at Infosys Technologies Limited. His experience in the financial services domain encompasses the areas of securities trading, investment management, risk management, and economic modeling. Rangan holds a PhD in finance and economics from Lehigh University. He is also a fellow of the Institute of Chartered Accountants of India.