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Social Investment Matters

Asad MahmoodManaging Director, Global Social Investment Funds

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Agenda

Social Investment DefinedOur Belief– Potential– Challenges– Solutions

The Market for Social Investment Our Vision, Mission and StrategyThree 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 directly 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

Microfinance

Healthcare

Any social venture with a cash flow can be financed by bringing differently motivated money to a common platform

AffordableHousing

Education

Agriculture

AlternateEnergy

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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

The social ventures also have to contend with

unique perceptual issues

Doing good can only be achieved through charity:

“You can’t charge interest to the poor”

Lack of recognition of the full potential of the poor:

“They are worthy of charity but aren’t capable of

running a business”

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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

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

Social Ventures have limited resources

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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Socially Motivated

Commercial Investors

Foundations and

International Financial

Institutions

Senior Debt

Subordinated Debt

Equity and

Grant Capital

Stratified-Risk Capital StructureBefore Financing

Social Venture

Service Delivery to

the Poor

Paying Patients/

Customers

Investment Capital

Social Venture

Paying Patients/

Customers

Cash Flows Service Delivery

Improved Service Delivery to

the Poor

After Financing

Deutsche Bank, by increasing the availability of investment capital, helps increase the level of outreach of social ventures to the poor

Scale-Up of Social Finance

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The Market for Social Investment

Source: ‘Blended Value Map’ Jed Emerson, 2004

$2.16

$17

$0.225 $0.0160

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Traditional InvestmentFunds

"Screened" Funds Charitable Donations Private SocialInvestments

in U

S$ T

rillio

ns

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.

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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.

“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.

Use the Bank’s 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.

Mission

Strategy

Vision

Deutsche Bank & Social Investment

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Funds under DB Sponsorship or Management

DB-Microcredit Development Fund

Launched in partnership with DB Private Wealth Management in US and UKPioneered structures for investing in local currencyFacilitates linkages between MFIs and local financial institutionsSeeks to increase scale of MFIs so they can become commercially sustainableHas lent more than $ 5MM to nearly 50 MFIs in 27 countries

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Established 9 years ago, it was the first

commercially oriented microfinance fund launched by a global bank

Products Deposits or financial guarantees

Term Up to 5 years

Interest Rates Commercial rate on local bank loan; discount on the guarantee

Size $25,000 - $250,000

Currency Guarantee in US Dollars

Amortization Varies with local loan

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DB Start-up Fund

Funds early stage, commercially viable MFIsActs as catalyst to unlock local equity/stakeholder supportFavors locations under-served by microfinanceCapitalized with funds from Deutsche Bank, Cordaidand other social investorsA $1MM fund launched in 2005. Commitments to more than 5 MFIs.

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Funds under DB Sponsorship or Management

First start-up fund for microfinance institutions

Products Debt and equity-like structures

Term Up to 5 years

Interest Rates Flexible rate structures

Size $25,000 - $100,000

Currency US Dollars or local currency (with FX risk-sharing)

Amortization Bullet maturity

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First commercial fund to provide financing in the locally demanded currency.

Largest microfinance fund of its kind at launch date

Facilitates capital access for commercially focused MFIs in locally demanded currencyOffers flexible, sophisticated financial instrumentsPresents microfinance as an emerging asset class to investorsBrings 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

Global Commercial Microfinance Consortium

Financial Times “2006 Sustainable

Deal” finalist

Funds under DB Sponsorship or Management

Products Fixed and floating rate financial products; interest, currency and credit swaps; loan guarantees; direct loans

Term Up to 5 years

Interest Rates Commercial microfinance rates

Size Single and multiple draws up to $4.5 MM

Currency Locally demanded currency

Amortization Bullet maturity

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Senior Debt$63.35 MM

Sub Debt, Equity & Grant Capital

$17.25 MM

Class A $5.5 MM

DFID $1.5 MM

USAID Guarantee

$15 MM

Class B $6.25 MM

Global Commercial Microfinance Consortium

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Capital Structure Investment Partners

SubDebt $4MM

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Sample StructureStandby Letter of Credit with Leverage

HNL equivalent

Commission in USD / L/C Guarantee Fee

Custodian

$US Collateral Deposit

Inte

rest

in H

NL

HonduranBank

Interest on Collateral

Deutsche Bank Microfinance Fund

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Issues Letter of Credit

Honduran MFI

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Sample StructureLocal Currency Source: DB Branch

Loan in Pakistani Rupee

Interest Rate on Pakistani Rupee Loan

US$ Guarantee

DepositInter-

company Guarantee

Guarantee fee in US$

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Deutsche Bank

Microfinance Fund Interest on

US$ Deposit

DB London DB Karachi

Pakistani MFI

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Sample StructureLocal Currency Source: Local Bank

Loan in US$

US$ / Colombian Peso Cross Currency SWAP

US$ Purchase of credit risk

Interest in Pesos

Colombian Peso Loan

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Deutsche Bank

Microfinance Fund Interest in

US$ (minus margin)

Colombian MFI

ColombianBank (Panama

Branch

ColombianBank

Interest in US$

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Deutsche Bank’s Microfinance Footprint

Latin America &the CaribbeanHonduras

HaitiNicaragua

BoliviaColombiaMexicoChile

ArgentinaUruguayEcuador

PeruDominican Republic

El SalvadorBrazil

Africa -SubSahara

BeninKenya

UgandaMozambiqueSouth Africa

TanzaniaRwanda

EuropeBosnia & Herzegovina

Serbia AlbaniaGeorgiaKosovo MoldovaAlbania

RomaniaRussian Federation

East Asia and the Pacific

CambodiaPhilippines

Samoa

South AsiaIndia

Pakistan

Middle East & North AfricaMoroccoJordan

Central Asia

AzerbaijanMongolia

Kazakhstan

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The Fund

First–ever 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 investibleasset class

First German Fund for Microfinance

The Offering

Up to € 5 MM (or locally demanded equivalent)

7 year maturity

100% subordinationTier II Capital compliant (Basel guidelines)

Launch date: September 2007

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First fund with German investors. The first rated Sub Debt Fund in the

microfinance space

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First German Fund for MicrofinanceFirst Rated Sub-debt Fund in the World

EUR Equivalent

in local demanded currency,

USD

MFI 1

MFI 2

MFI 3

MFI ..

MFI ..

MFI ..

MFI ..

MFI 23

MFI 24

MFI 25

Senior Tranche Rated BBB- by Fitch

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Seniortranche

Juniortranche

Investment Vehicle

Investment Manager

Pass Through

Entity

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Business Engagement in Microfinance

Underwriting

Asset Securitization

Knowledge Transfer

Several issuances in Europe for one of the largest microfinance institutions in the world

Partner MFI senior management (from Treasury, Accounting and Risk Management) will intern with DB

Asset Management

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

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Business Engagement in Microfinance

DB In-country Engagement

Assistance from DB product and industry experts in structuring transactionsActive volunteer program

Managing €4 million microfinance loan portfolio targeted at low income and lower-middle income countries

Private Spanish Foundation

€34 million investment on the European Fund for Southeast Europe (EFSE) Equinoccio Fund in Mexico

Other Transactions

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Coming Soon …

CDO-“Consortium II"

+ $200 MM Multi-Issuer Rated Deal

Multi-facility Vehicle

Developing multi-facility (grant, debt, equity)investment vehicle for microfinance to be marketed to single-country investors/donors

Advising in the creation and management of other funds

Advisory Role

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Eye Fund IUsing 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

There are approximately 250 eye care programs that are currentlyself-sustainable

These programs serve clients from all economic strata, with userfees from regular clients subsidizing the poor

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

Global Demand for Affordable, High-Quality Eye Care

Proven Sustainable and Profitable

Service Delivery Model

Creating Competitive Landscape for Social

Investing

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Eye Fund I: The Objective

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

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

EYE FUND I

LARGER, LARGER, SUSTAINABLE EYE SUSTAINABLE EYE

CARE SECTORCARE SECTOR

Grant Component

To address the major constraints to a sustainable eye care sector in the developing world with increased outreach to the poor.

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Eye Fund I: Structural Overview

PRI/Social Investors (1% Return)

Socially Motivated Commercial Investors

SeniorDebt

$14 MM

$20 MM Oversight Structure

Development Agencies

Uses of FinancingCapital investments for equipment or

buildings

Program expansion

Bridge Financing

Replication of program in new region

Subordinated Debt

$4 MM

Grant $2 MM

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BEFORE AFTER

Enterprise Social FundAn opportunity to help create low cost housing

for America’s most needy familiesthrough 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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$0 $12.0MM $15.0MM

The Fund

Tranche A$12 MM Notes

Tranche B$3 MM Notes

Commercial Institutional

Investors

Socially Responsible

Investors

$3 MM DB Guaranty

$$Loans to CBOs

Loans Repaid by

CBOs

Advisory Board of Directors

Credit Committee Fund Manager

$$

$$$$

Enterprise Social Fund StructureEnterprise 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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Structuring Excellence & Track Record

Extensive Microfinance Relationship Network– 77 relationships in 41 Countries

Impressive Underwriting Record– <$65,000 written off since 1998

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 world’s 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

Deutsche Bank’s Microfinance Portfolio Management Capabilities

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Portfolio Management CapabilitiesMultidisciplinary 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