Brownbag presentation: Financial Products

20 July 2010

Agenda

•  Portfolio 2010 targets per financial product

•  Structure of each credit

•  Risks of different products and evaluation

•  Criteria for client selection

Loan Products: Overview

•  Pre Harvest Credit •  Trade Credit •  Long-Term Working Capital •  Capital Expenditure •  Buyer Finance

90%

4% 4%1% 1%

YTD  Loan  Type  Distribution

TC

BIF

CAPEX

PREHARV.

LT  WC

Loan  Type AmountTC 170,047,748      BIF 8,143,310                CAPEX 7,474,701                PREHARV. 2,143,000                LT  WC 835,000                      TOTAL 188,643,759      

Loan Products: Snap-shot

Loans 737                                        Clients 271                                        Countries 33                                            

Loan Products: Snap-shot

0

50

100

150

200

250

300

350

MAC SAM EAF NOR ASI SAF WAF

TC

PRE  HARV

LT  WC

CAPEX

BIF

MAC SAM EAF NOR ASI SAF WAF TOTALBIF 2 34 1 37CAPEX 30 12 17 2 1 62LT  WC 2 2 1 5PRE  HARV 2 7 9TC 274 253 68 1 11 10 7 624TOTAL 310 274 86 35 12 12 8 737

Loan Products: How they relate to our clients?

Loan Products: Pre-Harvest Credit

Used to support individual producers’ cash needs before the harvest season

-  purchase of organic fertilizers and other

inputs -  Hire labor to support in weeding, pruning,

fertilizing activities

Example:

 Client:  Aprocassi    #  of  producers:  308    Loca8on:  Peru    Industry:  FTO  Coffee    Amount:  $100K    Use  of  funds:  organic  fer8lizers,  general  crop  maintenance    Buyer:  Sustainable  Harvest  

Loan Products: Pre-Harvest Credit Structure - Factoring: Letters of intent or sales contracts with qualified buyers are required. - Repayment: Buyers are required to make all contract payments to Root Capital. - Term: One to 24 months. - Loan-to-value ratio: 20% to 60% of sales invoice value. - Base interest rate: 10.0% for AAA/AA clients

10.5% for A clients 11.0% for B clients, no maximum

- Collateral: Sales contracts (and personal guarantees if private) - Geographic eligibility: Developing countries in Africa, the Caribbean and Latin America

Loan Products: Pre-Harvest Credit Risks -  Entity: Weak internal credit program, low producer loyalty, hidden debts

- Product: High risk of yield variability, theft. - Management: Lax use of funds. - Collateral/Buyer: Letters of intent might not become actual contracts, buyer faces risk. -  Context: Weather, crop prices

 Criteria  client  selec8on:    Coopera)ves  and  private  businesses    New  or  exis)ng  client  

Loan Products: Trade Credit

Used by our clients to purchase products from their producer members and to meet operating expenses during the harvest season

Example:

 Client:  Red  Guaconejo      #  of  producers:  152    Loca8on:  The  Dominican  Republic    Industry:  Cocoa    Amount:  $120K    Use  of  funds:  purchases  from    producers    Buyer:  Taza  Chocolate  

Loan Products: Trade Credit Structure - Factoring: Sales contracts with qualified buyers are required. - Repayment: Buyers are required to make all contract payments to Root Capital. - Term: One to 12 months. - Loan-to-value ratio: 60% to 85% of sales invoice value. - Base interest rate: 9.5% for AAA/AA clients

10.0% for A clients 10.5% for B clients, no maximum

- Collateral: Sales contracts (and personal guarantees if private) - Geographic eligibility: Developing countries in Africa, the Caribbean and Latin America

Loan Products: Trade Credit Risks -  Entity: Low producer loyalty, hidden debts,

- Product: Non-delivery of product, quality problems, some yield variability, theft. - Management: Risk management, Corruption - Collateral/Buyer: Cancelation of contracts, Buyer faces crisis -  Context: Weather, crop prices, transport

 Criteria  client  selec8on:    Coopera)ves  and  private  businesses    New  or  exis)ng  client  

And for everything else…

x2

x10

Used to meet general business working capital needs over a medium/long term - Improves liquidity while the organization capitalizes - provides loans to farmers for farm renovation. Example:

Loan Products: Long Term Working Capital

 Client:  Gumu8ndo      #  of  producers:  ~2,500    Loca8on:  Uganda    Industry:  Coffee    Amount:  $100K    Use  of  funds:  recapitaliza8on  to  overcome  a  bad  2006/2007  season    Buyer:  Equal  Exchange,  InterAmerican  Coffee  

Loan Products: Long-term Working Capital Structure - Factoring: Sales contracts, letters of intent and pledge of future contracts with qualified buyers are required. - Repayment: Buyers are required to make all contract payments to Root Capital. - Term: One to four years. - Loan-to-value ratio: 60% to 85% of sales invoice value. - Base interest rate: 9.5% for AAA/AA clients

10.0% for A clients Not available for B clients

- Collateral: Sales contracts (and personal guarantees if private) - Geographic eligibility: Developing countries in Africa, the Caribbean and Latin America

Loan Products: Long-term Working Capital Risks -  Entity: Weak financial controls, hidden debts

- Product: One bad harvest - Management: Corruption - Collateral/Buyer: Need to find new buyers in out years. -  Context: Industry changes

 Criteria  client  selec8on:    Coopera)ves  and  private  businesses    Qualified  lending  records  with  Root  Capital  

Used to purchase or improve fixed assets such as equipment, vehicles, property or processing facilities.

Example:

Loan Products: Capital Expenditure

 Client:  Kilicafe      #  of  producers:  9,150    Loca8on:  Tanzania    Industry:  Coffee    Amount:  $400K  (3  CAPEX  loans)    Use  of  funds:  purchases  of  low-­‐water  use  central  pulperies  (CPUs),  and  the  construc8on  of  a  bonded  export  warehouse    Buyer:  Starbucks,  Peet’s  Coffee  

Loan Products: Capital Expenditures Structure - Factoring: Sales contracts with qualified buyers are required. - Repayment: Buyers are required to make all contract payments to Root Capital. - Term: One to seven years. - Loan-to-value ratio: Maximum 67% LTV on land/buildings. - Base interest rate: 9.5% for AAA/AA clients

10.0% for A clients Available for B clients on a case-by-case basis

- Collateral: Equipment, fixed assets, real property - Geographic eligibility: Developing countries in Africa, the Caribbean and Latin America

Loan Products: Capital Expenditures Risks -  Entity: Suboptimal use of assets, hidden debts

- Product: One bad harvest - Management: Corruption - Collateral/Buyer: Need to find new buyers in out years. -  Context: Industry changes

 Criteria  client  selec8on:    Coopera)ves  and  private  businesses    New  or  Exis)ng  Clients  

Used by North American or European importers to finance their purchases from community-based suppliers (Inventory financing) or provide advance payments to their suppliers. Example:

Loan Products: Buyer Finance

 Client:  Alter  Eco  USA    #  of  small  scale  suppliers:  ~68,500    Loca8on:  United  States    Industry:  Cocoa,  quinoa,  rice    Amount:  $300K    Use  of  funds:  purchases  of  raw  materials  (cocoa,  sugar,  peanuts)  for  the  produc8on  of  FT  chocolate  from  small  coopera8ves  in  Central,  South  America,  and  Africa    Buyers:  Wholefoods  

Loan Products: Buyer Finance Structure - Factoring: Not applicable - Repayment: Operating revenue - Term: Three months to five years. - Loan-to-value ratio: 40% to 60% of qualified inventory and/or

50% to 80% of qualified accounts receivable. - Base interest rate: 10.0% for AAA/AA clients

10.5% for A clients 11% for B clients, no maximum

- Collateral: Inventory, business assets and personal guarantees. - Geographic eligibility: Canada, Europe and the US.

Loan Products: Buyer Finance Risks -  Entity: Hidden debts,

- Product: Non-delivery of product, quality problems - Management: Risk management, corruption - Collateral/Buyer: Lack of control over collateral -  Context: Weather, crop prices, transport

 Criteria  client  selec8on:    Commercial  importers  of  goods  produced  by  community-­‐based  suppliers  located  in  developing  countries.  

Loan Products: Long-term Trade Credit

Used by our clients to purchase products from their producer members and to meet operating expenses during multiple harvest seasons

Example:

 Client:  ?????  

x3

Loan Products: Long-term Trade Credit Structure - Factoring: Sales contracts with qualified buyers are required each year. - Repayment: Buyers are required to make all contract payments to Root Capital. - Term: 24 to 36 months. - Loan-to-value ratio: 40% to 85% of sales invoice value. - Base interest rate: 9.5% for AAA/AA clients

10.0% for A clients Not available for B clients

- Collateral: Sales contracts (and personal guarantees if private) - Geographic eligibility: Countries in Africa, the Caribbean and Latin America

Loan Products: Long-term Trade Credit Risks -  Entity: Low producer loyalty, hidden debts,

- Product: Non-delivery of product, quality problems, some yield variability, theft. - Management: Risk management, Corruption - Collateral/Buyer: Cancelation of contracts, Buyer faces crisis -  Context: Weather, crop prices, transport

 Criteria  client  selec8on:    Coopera)ves  and  private  businesses      Qualified  lending  records  with  Root  Capital