26380 - SCB Microfinance

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Summary of Proposed Investment

Project Number

26380

Company Name

STANDARD CHARTERED BANK

Date SPI Disclosed

Sep 19, 2007

Country

World Region

Industry

Financial Markets

Projected Board Date

Oct 19, 2007

Status

Completed

Sector

Microfinance and Small Business - Non Commercial Banking

Department

Regional Industry - FIG Asia & Pac

Environmental Category

Previous Events

Approved : May 13, 2008
Signed : May 14, 2008
Invested : May 28, 2008

Project Description

The proposed project is a capital markets transaction which consists of the issuance of credit-linked notes (CLN) by a special purpose vehicle (SPV), to be established by Standard Chartered Bank (SCB), to a group of institutional investors including the International Finance Corporation (IFC).

CLN represent the credit risk of 26 micro finance institutions (MFI) that are currently in the portfolio of SCB’s subsidiaries and branches. By issuing the CLN, SCB would be transferring a part of its MFI exposure to such institutional investors thereby creating headroom to allow for more financing to MFI.

The portfolio currently is diversified over 9 countries in Asia and Africa with 58% of the loans originated in Africa and 42% in Asia. However, the exact mix may well change at the closing date and the replenishment period of the transaction.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	45.0
Equity

Development Impact

As part of its commitment at the Clinton Global Initiative, SCB aims to provide $200 million in 2007 in loans and greater support to its existing MFI customers. It is estimated that SCB’s entire $500 million microfinance facility will benefit 4 million people who are currently excluded from participation in the financial sector. Currently, SCB has been extending credit to MFIs in Bangladesh, India, South Africa, Botswana, Zambia, Ghana, Kenya and Uganda. In the next stage, SCB will reach out to MFIs in Pakistan, Sri Lanka, Afghanistan, the Philippines, Indonesia, Vietnam, Cambodia, Nigeria and China.

The proposed transaction is a core element in SCB’s risk management approach and in meeting its goal of reaching the 4 million unbanked customers in Africa and Asia. By assisting SCB to distribute the credit risk exposure of a percentage of its MFI portfolio, the transaction will enable SCB to leverage the coverage and delivery capacity of its unique network in the emerging markets of Asia and Africa. The transaction structure will open a new avenue for SCB and possibly others in a similar position, to sell down the micro finance risk in the international capital markets. What this ultimately means is that this transaction is a precursor to opening up international capital markets for MFI customers in emerging markets. If this and similar initiatives are successful it could mean a quantum increase in the available resources for the MFI sector in many markets. Moreover, as this transaction improves SCB’s efficiency in allocating its capital, it will encourage SCB to continue investing in this business.

As the transaction has a geographically diversified asset portfolio, it affords the opportunity to a wide range of potential international investors to support the MFI sector that otherwise do not have any practical or efficient means to do so. If the transaction can be successfully closed, it should have a significant demonstrational effect and can be replicated and used on a wider basis. This all should lead to greater willingness of commercial banks and other financial institutions to expand their microfinance activities.

SCB views IFC as an important potential partner in developing its MFI business given the long experience and track record IFC has had in this sector in most emerging market regions. IFC’s participation in this transaction will be an important market signal to other investors to participate in a novel transaction of this type. This is because IFC is one of the very few global financial institutions with expertise in microfinance as well as in structuring and investing in innovative and complex financial structures that are not very common in emerging markets. This is evidenced by the fact that SCB brought this transaction to IFC for its views and input early on in its conceptualization stage and has continued to treat IFC not only as a potential investor but also as a value-added partner through the evolution of the project.

This transaction involves IFC’s participation in a SPV that provides credit default protection on a portfolio of microfinance loans to SCB and has been classified as a Category C project according to IFC’s Environmental and Social Review Procedure. Considering the nature of activities supported, SCB will be obligated to exclude from the SPV credit protection, exposures to MFI’s that are included in the IFC’s Microfinance Exclusion List. In addition, SCB will comply with its own social and environmental policy and apply it customary diligence to ensure on-going compliance with the said policy. In following its own procedures, SCB will notify IFC of any material changes to a MFI’s activities that are in breach of SCB’s social and environment policy.

Contacts

For Inquiries About the Project, Contact

Alexander MacKay
Standard Chartered Bank Plc.
Asset Securitisation Group
London, England

Phone: +44 207 457 5426
Fax: +44 207 280 7064

E-mail: Alexander.Mackay@uk.standardchartered.com

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This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. It is not an offer of shares to the public and is intended solely to enhance the transparency of IFC’s activities. This document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC’s Policy on Disclosure of Information that went into effect April 30, 2006.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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