The document summarizes microfinance as small loans provided to low-income individuals who lack access to traditional banking. It discusses the history and philosophy of microfinance, how it works through peer lending circles, and its growth centers globally. Key risks for microfinance investors include foreign exchange risk, difficulty assessing credit risk for many small borrowers, and potential volatility. The document also analyzes financial performance and growth metrics for microfinance institutions.

1. Microfinance An emerging asset class? By Erol Alaluf, Carol Rodrigues, Cagri Ilhan University of Toronto Nov. 24, 2009

3. A solution to end poverty? Or An emerging asset class?

7. How poor are these people?

11. Major centers of Microfinance

12. Regional distribution of MFIs Source: Microbanking Bulletin #18 Region Number of MFIs % of total Countries with the most in the region Africa 69 14% Ghana (13); Ethiopia (12)‏ Asia 117 24% Philippines (37); India (32)‏ ECA 98 20% Bosnia (13); Russia (11)‏ LAC 179 37% Peru (37); Ecuador (20); Bolivia (17)‏ MENA 24 5% Morocco (7); Egypt (6)‏

13. Regional distribution of MFIs

15. Investing in microfinance

17. RISKS: the returns and risks vary depending on the investment vehicle, and the MFIs in which the fund invests. 1- Foreign Exchange Risk 2- Risk Assessment Problem 3- Default risk 4- Volatility

21. Risks: Volatility The volatility of MFI returns are lower than commercial banks in those markets because MFI funds are invested in the informal sector, so they don’t take macro-economic shocks in those countries on the chin as the banks do

26. Revenues Yield on gross portfolio, real (%) - Median Values 2005 2006 2007 All 23.6 23.0 22.2 Africa 22.6 22.2 21.5 Asia 18.3 19.5 18.5 ECA 23.1 21.9 19.6 LAC 26.3 25.2 25.1 MENA 25.5 23.3 25.5

27. Overall Financial Performance Return on assets (%) - Median Values 2005 2006 2007 All 1.0 1.6 1.5 Africa (1.2)‏ (0.8)‏ (0.6)‏ Asia 0.9 1.2 0.6 ECA 1.4 1.7 1.1 LAC 1.5 2.3 2.1 MENA 2.6 2.4 2.0

28. Overall Financial Performance II Return on equity (%) - Median Values 2005 2006 2007 All 4.4 6.9 7.3 Africa (4.9)‏ (1.5)‏ (0.5)‏ Asia 4.4 6.8 5.0 ECA 4.4 6.3 6.2 LAC 5.9 8.9 9.3 MENA 5.8 4.9 7.9

29. Loans outstanding Average outstanding balance (USD) - Median Values 2005 2006 2007 All 474 515 643 Africa 174 241 325 Asia 120 139 164 ECA 1,127 1,404 1,931 LAC 642 684 848 MENA 241 264 345

30. Risk and Liquidity Loan loss rate (%) - Median Values 2005 2006 2007 All 0.9 0.9 1.0 Africa 1.4 1.7 1.5 Asia 0.6 0.7 0.9 ECA 0.4 0.5 0.3 LAC 1.2 1.3 1.7 MENA 0.3 0.2 0.5

32. Expansion of MFIs Total Assets (MM USD) - Median Values 2005 2006 2007 All 6.67 9.06 13.72 Africa 5.46 7.6 11.06 Asia 5.32 8.35 11.76 ECA 7.08 10.39 20.59 LAC 8.15 10.2 15.32 MENA 6.84 9.28 12.44

33. Expansion of MFIs

35. Kiva