respons Ability Social Investments AG MFI a risky

respons. Ability Social Investments AG MFI – a risky business? respons. Ability Social Investments AG www. respons. Ability. com AMFA conference Baku, Azerbaijan October 2012 Viktoriya BYCHENOK

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Who we are Leader in Social Investments § Founded 2003 § >1 billion Au. M § Products in various asset classes (debt, equity, etc. ) § Focus on investment themes: Microfinance, Fair Trade and Emerging Infrastructure § Geographical focus: Developing countries and emerging markets § 90 employees § 5 offices in Switzerland, France, Peru, Kenya, India § FINMA-regulated asset manager § Strong focus on risk management, transparent reporting und corporate governance respons. Ability Social Investments AG www. respons. Ability. com Page 3

Origins and Ownership Founding Organizations and Shareholders A Global Leader in Wealth Management Largest Swiss Retail Banking Group Traditional Swiss Banquier Privé Traditional Swiss Asset Management Bank Leader in Structured Products A Global Leader in Reinsurance A Leading Social Investor Staff and Management respons. Ability Social Investments AG www. respons. Ability. com Page 4

Investment Topics Broad Range of Products Microfinance Fair Trade Emerging Infrastructure 1. 1 b USD Au. M 50 m USD Au. M § respons. Ability Ventures I respons. Ability Microfinance Leaders § respons. Ability Press Freedom (Voncert)* § respons. Ability Mikrofinanz-Fonds § respons. Ability BOP Investments** § respons. Ability Participations § custom-made mandates § respons. Ability Global Microfinance Fund § respons. Ability Social Investments AG www. respons. Ability. com § respons. Ability Fair Trade Fund * structured Product ** closed-end fund Page 5

Investment Universe Emerging- and Frontier Markets Current Portfolio potential investment universe respons. Ability local presences § § § 70 Countries 253 Microfinance institutions 45 Fair Trade cooperatives 43 Small and medium-sized enterprises 2. 1 Mio people benefit from independent media Source: respons. Ability Social Performance Report 2012 respons. Ability Social Investments AG www. respons. Ability. com Page 6

respons. Ability’s Investment Process respons. Ability Social Investments AG www. respons. Ability. com Page 7

Investment Process Sourcing Screening § Local deal sourcing § Country and market research § Strategic asset allocation § Due diligence Investment Decision § Approval investment committee Investment Execution § Portfolio allocation Monitoring Reporting § Feedback and control § Credit Risk management Risk Management respons. Ability Social Investments AG www. respons. Ability. com Page 8

Risks we assess Country risk Market risk § Political stability § Regulation and supervision § Economic context § Market environment MFI default risk Instrument risk: Operational risk: § Asset quality § Ownership § Governance § Embedded portfolio risk § Sustainability § Controls

MFI default risk: ownership and governance (best practice) Board of Directors Internal Audit Committee Risk Committee Remuneration and nomination committee Board Credit Committee Management Credit Committee ALCO Risk management department Internal control department …

MFI default risk: controls (best practice) Internal Audit / Internal Control • Independence and effectiveness of Internal Audit Department • Physical cross checks with clients and files • Separate unit of Internal Control/Credit Risk management • Formalized procedures, adequately communicated and available to staff • Trainings IT system as tool for internal control • Adaptation to the size and operations • Adequate infrastructure and security (data access, recovery) • Real-time information: reporting tool • IT support External audit • Reputation and quality of report • Frequent change policy

MFI default risk: portfolio (best practice) Client assessment • Adequate repayment capacity analysis • Several levels of credit approval • Client visits before disbursement and monitoring after disbursement • Creditworthiness check via Credit Bureau (clients, guarantors, family) • Separate unit of Credit Risk Management • Rotation of branch managers/credit supervisors Portfolio diversification • Geographical, risky sector, product, branch, clients’ income source, large clients concentration • Adequate risk management policies in place defining limits • Constant monitoring and forecasting Product design • Appropriate product design for targeted clientele (type of business)

Lessons learned: Central Asia Account effects of toxic risk combinations • Weak governance and management (including key person risk) • Volatile macroeconomic environment • Absence of sound regulatory framework for microfinance • Difficult political context • High risk appetite • Weak controls • Inappropriate client analysis • Unreliable MIS data Early warning signs • Deterioration of operating environment • Excessive growth • Possible changes of regulation • Risk related to other assets (placements, subsidiaries, investments) • Worsening economic outlook • Changes of underwriting standards • New products with inappropriate design

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