Evaluating Social Performance

September 2013

2011 SPM Silver Award Signatory to the PIIF Top 50 Impact Investment Firms Endorse Client Protection GIIRS Pioneer Fund &

Top 2 Quintiles of GIIRS

Companies

Caspian Advisors - Background

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Background Who we are:

– Caspian was set up in 2004 as an impact investment manager investing in socially responsible, multiple bottom line businesses delivering financial and social value.

What we do:

– We deploy private capital into impact sectors, including microfinance, affordable housing, last mile banking and small business financing.

Funds Under Management

– Two Equity Funds ~$100 invested across 14 Social Impact Businesses

– One Debt Fund Target $40 mn (Under Fund Raise), completed Fist close of $10mn

Private and Confidential

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Background What our team offers:

– experience in building organizations, conceiving and launching investment vehicles, and engaging the right teams to manage these vehicles

– Successful entrepreneurial, fund management and investment banking track record

– Extensive relationships within the Indian impact investing space, including international and local equity investors, lenders, promoters, managers, rating agencies, regulators, industry associations and the press

– Caspian Funds are GIIRS Pioneer Funds; Four star rating in 2011 , 2013

What we aim to achieve:

– To channel capital effectively into diverse impact businesses through various financial instruments to enable their growth and viability, and to manage these investments responsibly to provide a financial and social return to investors

Private and Confidential

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Caspian’s Portfolio

16 companies in the portfolio across Equity and Debt Investments

• 6 Microfinance Institutions

• 3 Small Business Finance Intermediaries

• 3 Mortgage Finance Institutions

• 2 housing Developers

• 1 Affordable School Finance company

• 1 Last Mile Banking provider

Exit Track record

Caspian has so far exited 11 of its Equity Investments

Private and Confidential

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Evaluating Social Performance

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Caspian’s approach to impact investing

Private and Confidential

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Originate

• Identify strong social companies serving target market

• Provide companies with flexible instruments that meet their needs & our criteria

Reach people responsibly

• Increases # clients

• Opens branches in underserved areas

• Develops new products and services

Clients are better off

Access to affordable and convenient financial products and services will enable clients to:

•Grow businesses

•Hire more people

• Increase income/ assets

•Afford basic necessities (food, housing, healthcare, education)

Social Performance Management • Collect environmental and social performance data to establish baseline.

• Include evaluation of social and environmental criteria (mission, target market, objectives) in due diligence and Investment Memos

• Social and environmental considerations are included in term sheets, shareholders agreements, and/or side letters of new investments

• Social and environmental performance indicators are monitored

– Collect data on quarterly basis with updates on investees’ environmental and social performance activity

• Perform internal assessment of progress toward social performance objectives annually for each Portfolio Company based on monitoring inputs

• Perform internal assessment of progress toward social performance objectives annually for the Funds

• Use tools, like GIIRS assessment, to collect, monitor, and analyze data of the social and environmental performance of Portfolio Companies and Fund and report progress internally and to investors

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Social Performance Management For example we include special covenants in our investment agreements

• Exclusion list that the companies will not finance

• Follow client protection principles

• Perform Social Performance rating

• Business Principles Undertaking

• ESG Management System as a whole must be implemented.

• Many investees have a % of Profits [5%] allocated for SPM

• While we have dedicated senior resource in our Investment or Credit Committee as a focal point for Social performance, it is integral in what we do

• All Investment Memos have an SPM analysis

• All Investment Directors are responsible for Social and Financial Performance of their portfolio investments.

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Examples of Metrics and Reporting

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Average Loan Size # Clients

% Female Clients % Rural Clients

# of Workers Employed by Portfolio Companies

# of Jobs Created by Portfolio Companies

% of Customers from Underserved Communities

% of Customers who are Poor or Low Income

% of Companies Prohibiting Child Labor

% of Companies Monitoring Environmental Impacts

Clients

Company

Community & Environment

SPM data- [MHFC] Summary

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As of Dec-11 Dec-12

Loan Portfolio (USD ‘000s) 5,066 10,304

# of Active Clients 1,236 2,352

Avg Loan Size (USD) 7,748 8,102

% Women Clients NA NA

% Urban 100% 100%

# Field Officers 11 15

# Employees 44 57

# of Projects Approved 59 111

% of Portfolio by:

SME 0% 0%

Consumption 0% 0%

Housing/ home improvement 100% 100%

Other 0% 0%

% of Clients by:

Low Income (Rs 7,000-15,000) 50% 43%

Middle Income (Rs 15,000-60,000) 36% 36%

Informal Sector 51% 51%

First-time Home Owner (estimates) 90-95% 90-95%

Key Indicators 

Challenges Social Performance Management is integral to Caspian…

– Meeting Caspian’s own social objectives and goals

– Meeting/ exceeding industry standards and best practices in credible and measurable way

– Being able to respond to/ counter negative perceptions of microfinance with data points (not just anecdotes)

… but there are challenges to implementation

– Limited resources

– Prioritization: financial sustainability/ profitability vs positive client impact

– Too qualitative: hard to define and measure metrics

– Getting buy-in from investees, especially introducing new requirements post-investment

Important to introduce early and work together to set goals

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Thank You

For further information on Caspian, please visit www.caspian.in

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