11.2010 0528 tbli_lip
TRANSCRIPT
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Disclaimer : Living in Peace, a Japan-based NPO does NOT solicit investments or sell financial products.
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Key Messages
About Living in Peace •Mission •Organization •History
How to minimize due diligence costs •Economics of predatory lending •Initiatives of LIP to minimize DD costs •Challenges
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About Living in Peace
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一番大切なのは本人の意志
2009.11.15
Mantra : Opportunity for everyone
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Organization Representative Director Taejun Shin
Project Manager (Microfinance) Akiko Sugiyama
Project Manager (Education) Noriko Matsuda
Number of full-time employee 0
Number of directors 7
Number of part-time workers +50
Number of supporters +800
Email transaction / day (incl. weekend) +100
Range of working hours /day (incl. weekend) 0 – 20
Main office location Cloud
Cup of coffee I had since the establishment +5,000
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History
Established
Hosted microfinance forum together with World Bank
Closed collaboration agreement with Music Securities
Closed collaboration agreement with CARD MRI
Launched “Microfinance Fund for MDGs”
Fund closed; JPY 40+ million from 400+ investors sent to MFI in Cambodia
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LIP Microfinance for MDGs
LIP (Japan)
Music Securities
(Japan)
CARD MRI
(Philippines)
Samic Limited
(Cambodia)
Investors (Japan)
Partnership
TK Agreement Intermediary
Planning / MFI selection / Monitoring
Investment & Operational
Support
Investment
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How to Minimize DD Costs
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“Now a second line of attack has been launched, in which for-profit microfinance firms are accused of lending recklessly to people too poor to repay the loans.”
The Economist (UK)
“Froth at the bottom of the pyramid”
Predatory lending under way
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Increase in investments should not be accused
Less than 10% of market’s cash needs
USD Bn
Source : CGAP
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Investments could be skewed
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Ticket to Cambodia : $ 1,000
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5 days payroll : $1,000
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Hotels, meals, etc : $5,000
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DD trip by two analysts : + $ 5,000
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How the math works in $ 100K investment
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How the math works in $ 1M investment
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Tend to be high-cost / high-performance
High Performance
Low Performance
High Cost Low Cost
Normal Research
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We seek “Alpha”
High Performance
Low Performance
High Cost Low Cost
Normal Research
LIP
α
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System spec LIP MFI Evaluation System (LMES)
Evaluation target Small-to-mid size MFI
Evaluation cost Less than $100
Lead-time One week
Evaluation contents Credit risk and social performance
Evaluation methodology Scoring based on logit analysis
Data source 1 Information provided by MFI
Data source 2 Answers to the questionnaire
System completion target year 2013
Accessibility High (web-base system)
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Strength of part-time organization
0%
2%
4%
6%
8%
10%
12%
Gross Return Ticket Hotels etc Payroll Net Return
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Purpose of the system
0%
2%
4%
6%
8%
10%
12%
Gross Return Ticket Hotels etc Payroll Net Return
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Components of the research
Management Quality •Strategy •Management Capability •Information Management System •HR / Governance
Financial Performance •Portfolio Quality •Operation Sustainability •Balance-sheet Quality •Cash Flow Stability
Country Performance •Macro-economic Performance •Political Stability •Quality of MFI Regulation •MFI Competitive Situation
Social Performance •Operating Area •Borrower Type •Contents of Service •Social Responsibility
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The biggest challenge – information risk
Contents of Risk Mitigation
Fraud •Require several source of information that should tie out •Come up with the questions-mix to detect fraud
System Capability •Evaluate quality of the system given its output and then impose stress test
Input Quality (Human-error)
•Evaluate the quality given the several information resource and impose stress test
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Two Remarks on LMES
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“The arguments often heard that because of the human
element, of the psychological factors etc., or because there is –allegedly- no measurement of important factors,
mathematics will find no application, can all be dismissed as utterly mistaken. Almost all these objections have been
made, or might have been made, many centuries ago in fields where mathematics is now the chief instrument of
analysis.”
Von Neumann and Morgenstern “Theory of Games and Economic Behavior”
We believe in modeling
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2009.11.15
We welcome those who do it better