150 Units Philanthropic Equity80 Units Debt

2009 — 2013Private Offering Memorandum

2009 — 2013 Private Offering Memorandum

$63,000,000

The purpose of this Offering is to scale Root Capital’s impact on global poverty, allowing us to increase prosperity for one million farm households in developing countries by linking rural small and growing businesses with capital markets. From 2009 – 2013, we aim to:

Triple our loan portfolio such that in 2013, we will lend $121 million to more than 350 grassroots businesses representing one •million small-scale producers.Expand our financial education and training program so that 200 more rural enterprises have the capacity to grow their operations •and access capital from local financial institutions.Link rural small and growing businesses with local banks and microfinance institutions, thereby unlocking significant amounts of •capital to fuel the growth of these grassroots enterprises.

Between 2009 and 2013, we will build a sustainable social enterprise capable of delivering on our mission in perpetuity. To scale our operations and achieve 100% self-sufficiency in our lending program, we require $40 million in additional debt capital and $15 million in Philanthropic Equity. The Philanthropic Equity will be tracked using the SEGUESM accounting method.

Units of debt will provide a range of terms and rates. *The terms of the note offering are not described here but can be found in the Note Offering Disclosure Statement and the related form of promissory note and loan agreement. Units of Philanthropic Equity represent a perpetual interest in the economic and social benefits of Root Capital’s work. That interest is strictly philanthropic, with no provision for cash returns at any time.

Expenses associated with this Offering were funded by generous support from the Rockefeller Foundation. Proceeds will not be 1. used for Offering expenses.In the event of over-subscription, Root Capital may, at its discretion, increase the offering of units of debt and Philanthropic Equity 2. by up to 20%.

During the growth period, we will also raise $8 million in Ongoing Philanthropy. This supports Root Capital’s ongoing revenue model and is therefore distinct from one-time Philanthropic Equity and is not included in the Growth Capital requirements.

The financial guidelines and reporting obligations described in this memorandum comply fully with Nonprofit Finance Fund’s Sustainable Enhancement Grant (SEGUESM) methodology.

Growth Capital# of Units Unit Price Proceeds to Root Capital

Senior Debt* 68 $500,000 $34,000,000Subordinated Debt* 12 $500,000 $6,000,000Philanthropic Equity 150 $100,000 $15,000,000

# of Units Unit Price Proceeds to Root Capital

Ongoing Philanthropy -- -- $8,000,000

March 26, 2009

Savannah Fruits CompanyShea ButterGhanaBorrower since 2007

Investing at the root of rural communities.

Investing at the root of grassroots businesses.

Investing at the root of the environment that sustains us all.

Root (n)1. the underground portion of a plant that draws food and water from soil2. one’s ancestry, culture or locale3. a base or support4. an essential part or element

Investing with Root Capital

Root Capital is a nonprofit social investment fund that is

pioneering finance for grassroots businesses in rural areas of

developing countries. We provide capital, financial education,

and market connections to small and growing businesses that

build sustainable livelihoods and transform rural communities

in poor, environmentally vulnerable places.

Since our launch, we have provided more than $120 million

in credit to 235 grassroots enterprises in 30 countries,

maintaining a 99% repayment rate from our borrowers and a

100% repayment rate to our investors.

Art AtlasHandcraftsPeruBorrower since 2005

Viñas ChequenWineChileBorrower since 2007

KavokivaCocoaIvory CoastBorrower since 2007

Nuts of AfricaCashewsKenyaBorrower since 2007

Organic BloomingFlowersEcuadorBorrower since 2008

TecnoajíChili PeppersColombiaBorrower since 2008

CosatínHoney and CoffeeNicaraguaBorrower since 2002

La VozCoffeeGuatemalaBorrower since 2001

Meet One of Our Borrowers

Gumutindo Coffee CooperativeMt. Elgon, Eastern UgandaFounded in: 1998Root Capital borrower since: 2005

Gumutindo, which translates to “excellent coffee” in the local Lugisu language, is a second-level Ugandan coffee cooperative representing six smaller primary societies and 6,000 farmers. The only coffee cooperative in Uganda that is both Fair Trade- and organic-certified, Gumutindo has created opportunities for its members to access premium prices that have helped sustain incomes during downturns in the global coffee market. In addition to marketing its members’ product, Gumutindo trains farmers in organic production practices.

Since becoming a Root Capital borrower, Gumutindo has received a total of $1.5 million in loans, growing its revenues by nearly 200%, and increasing the annual amount it has paid to its farmer members by 170%.

Meet Two of Gumutindo's Members

Jane Khainza (above left) is a member of Gumutindo’s Peace Kawomera Cooperative. She tends to the family’s coffee trees while her husband serves as Peace Kawomera’s treasurer. They now own additional land and support 13 children with their coffee income.

Recently elected Chairman of Gumutindo's Nasufwa Coffee Association, Robert Gonyi (left) has more than doubled his coffee yield since joining the cooperative. He has invested some of his coffee earnings in a small shop that sells basic food items and supplies. He has also reinvested a portion of his coffee profits to purchase an additional plot of land and expand his coffee production.

Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5I.

Obstacles to Growth for Grassroots Businesses . . . . . . . . . . . . . . . . . . . . . . 7II.

Root Capital’s Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10III.

Growth Plan: Four Key Initiatives for Sustainable Impact . . . . . . . . . . . . . 14IV.

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18V.

Social and Environmental Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21VI.

Five-Year Financial Operating Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22VII.

Comprehensive Funding Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27VIII.

2009 – 2013: Philanthropic Equity Offering Terms and Conditions . . . 30IX.

Appendices

A. Awards and Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

B. Press . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

C. Executive Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

D. Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

E. Organizational Structure – 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

F. Pro Forma Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

G. Our Colleagues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

2002 – 2008 Root Capital Metrics Executive Summary

Access to capital and markets increases prosperity by enabling businesses to grow, communities to thrive, and economies to flourish. Across the developing world, the absence of capital and the isolation from viable markets exclude the rural poor—approximately 75% of the 2.6 billion people living on less than $2 a day—from the formal economy. As a result, they make a subsistence living that exposes them to drought and disease, strains the natural environment, and limits opportunities for long-term economic development.

Since Root Capital’s founding in 1999, our mission has been to pioneer finance for grassroots businesses that build sustainable livelihoods and transform rural communities in poor, environmentally vulnerable places. Trapped in the “missing middle,” or the gap between microfinance and corporate banking, businesses such as farmer and artisan cooperatives in Latin America and Africa lack access to capital to expand their operations and generate economic opportunities for marginalized populations. Root Capital bridges this gap by providing capital, delivering financial education, and strengthening market connections so that rural small and growing businesses (SGBs) can lift entire communities out of poverty and strengthen the health of our planet.

Through innovative approaches to development finance, Root Capital reaches remote populations that traditional banks have long overlooked. We provide loans ranging from $25,000 to $1,000,000 to rural enterprises and agricultural entrepreneurs that link small-scale farmers and artisans to competitive markets. As of year-end 2008, we had disbursed a total of $120 million to 235 grassroots businesses in 30 developing countries while maintaining a 99% repayment rate from our borrowers. Beyond our direct impact on hundreds of businesses and

hundreds of thousands of rural producers and their families, our long-term objective is to demonstrate viable models and attract commercial financial institutions so that they extend financial services to rural populations on a much larger scale. As we have grown our loan portfolio, we have found that for many of the businesses we finance, access to capital is not enough. They must also develop the managerial capacity to use it efficiently. To address the corresponding need for accounting and appropriate financial systems, we launched a financial education program in 2006. This program is designed to train leaders of rural businesses in basic bookkeeping and financial management and to help them attract capital from commercial banks and other financial services providers. To date, we have trained leaders from 55 farmer and artisan associations in Mexico and Central America and have begun to offer training to rural SGBs in Africa.

Building on this record, Root Capital now seeks to scale our impact both by directly financing and training a much larger number of grassroots businesses and by accelerating the adoption of our lending model by local financial institutions. In 2013, we plan to serve more than 350 grassroots enterprises representing one million farmers, artisans, and other small-scale rural producers. Our goal is to triple our disbursements from $41 million in 2008 to $121 million in 2013. At the same time, we will build the financial acumen of managers and members of 140 grassroots businesses. By demonstrating the “bankability” of these enterprises, Root Capital will catalyze investment by commercial lenders in these underserved markets.

I .

Number of Grassroots Businesses Financed

2002 2003 2004 2005 2006 2007 20080

40

60

80

120

160

Number of Producers Benefited

2002 2003 2004 2005 2006 2007 20080

70,000

140,000

210,000

280,000

2002 2003 2004 2005 2006 2007 20080

200

400

600

800

Acres Under Sustainable Production (000s)

2002 2003 2004 2005 2006 2007 2008$-

$11,000

$22,000

$33,000

$44,000

Average Lending Capital vs. Disbursements (000s)

Average lending capital

Total amount disbursed

Earned revenue from lending and investment activities

Lending operating expenses

2002 2003 2004 2005 2006 2007 2008$0

$90,000

$180,000

$270,000

$360,000

Borrower Enterprise Revenue (000s)

2002 2003 2004 2005 2006 2007 2008$-

$750

$1,500

$3,000

Net Earned Revenue vs. Lending Operating Expense (000s)

$2,250

4 5

To achieve this impact, Root Capital seeks to raise $55 million in Growth Capital by 2013, comprised of $15 million in Philanthropic Equity and $40 million in low-interest debt. This Growth Capital will:

Enable us to achieve financial sustainability in our lending operations by 2013. •Provide the necessary lending capital to triple our loan portfolio from 2008 to 2013. •Fund a portion of our financial education and field-building activities through 2013. •

We will also raise $8 million in Ongoing Philanthropy that represents a reliable stream of revenue to fund our operating platform and the balance of our financial education and field-building activities.

An investment in Root Capital will unlock access to financial services and create a path from subsistence living to sustainable livelihoods for millions around the world.

I I . Obstacles to Growth for Grassroots Businesses

Throughout the developing world, small-scale farmers and artisans are marginalized from the formal economy and relegated to a subsistence living that stresses the natural environment and offers few opportunities for long-term prosperity. Small and growing businesses, such as farmer and artisan associations, have the potential to increase household incomes so that the rural poor can build sustainable livelihoods. Yet these businesses often lack the necessary tools for success—capital, management capacity, market access, and an enabling operating environment.

Lack of Capital

Access to capital is critical for grassroots businesses such as farmer cooperatives where there is a lag between planting a crop, harvesting and processing it, and receiving payment from buyers. When a rural SGB, such as a coffee or cocoa cooperative, cannot pay its farmers when they deliver product during the harvest, the farmers often sell to local middlemen for cash upfront at a price that is a fraction of their product’s value. To avoid this scenario, grassroots businesses seek short-term working capital loans to cover the period of time between when they purchase product from their farmers and when they get paid months later by their buyers.

However, rural businesses that require $25,000 to $1 million to purchase product from their members or invest in processing machinery are typically considered too large to be served by microfinance institutions and too small, too risky, and too remote to secure financing from conventional banks. Figure 1 highlights a dual vacuum in the capital markets: 1) location – the rural finance gap and 2) capital need – the “missing middle” between microfinance and corporate banking.

Figure 1. "Missing Middle" and Rural Finance Gap

The Role of Small and Growing Businesses in Rural Communities

Root Capital supports small and growing businesses (SGBs)—private enterprises and worker-owned cooperatives and associations—that are based in rural areas and have socially responsible and environmentally sustainable practices. SGBs represent the smaller end of small- and medium-sized enterprises (SMEs) and are characterized by their high growth potential.

Examples of SGBs include:A cooperative of 4,200 small-scale coffee farmers in Rwanda. •A private business in Ecuador that purchases fresh mangos, bananas, and oranges from small-scale farmers and •processes them for export as dried fruit.An association of 780 sesame farmers in Bolivia. •A private company in Zambia that purchases honey from 5,000 traditional beekeepers. •

Rural SGBs build sustainable landscapes and livelihoods in the following ways:Economic benefits. • Rural SGBs link remote producers to markets that increase their incomes by consistently paying prices for their products that are well above those of local intermediaries. Grassroots businesses also generate rural employment, including managers, accountants, agricultural extension staff, drivers, and workers at processing plants.Natural resource management. • Rural SGBs provide training in sustainable production to avoid deforestation, increase re-forestation, reduce chemical use, improve water and soil management, and enhance the health of watersheds and the people and animal species that depend upon them.Community development. • Rural SGBs channel price premiums and grant funding into local communities to support education, health, and cultural activities. Social empowerment. • Farmer and artisan associations offer members opportunities for participatory decision-making and are a source of community ownership and pride. They also stem migration to urban areas by offering producers opportunities to support their families through traditional agricultural and artisanal activities.

Microfinance Institutions

Missing Middle

Rural Finance Gap

Venture CapitalPrivate Equity

Banks

Capital Need

$1MM

$10K

$0KUrban Rural

Location

76

“Access to credit through Root Capital has helped us in many ways. With your support we’ve been able to provide more prompt payment to members. Now members can meet the needs of their families for food and education, and improve their lands as well.”

Erick Geovani VelásquezCoffee farmer, member, and bookkeeper Asociaciόn Unidos para Vivir Mejor (ASUVIM), Guatemala

At the lower end of the market, microfinance institutions have historically managed the high costs of servicing small loan amounts by focusing on entrepreneurs in urban or densely populated rural areas. Likewise, commercial banks in developing countries have traditionally overlooked rural markets for reasons including:

Perceptions among urban bankers that there are few •viable businesses to finance and that the agricultural sector is inherently high-risk and low-return.Cultural biases held by middle-class urbanites against •rural producers.Physical challenges to reaching remote areas. •Lack of experience in export and trade finance within •certain local and state-owned banks, and within certain industries (particularly markets for specialty products).Regulatory issues relating to the mandatory risk classification •of agricultural lending (e.g., reserve requirements).

employment, and improved natural resource management for greater long-term sustainability and economic opportunity.

Difficult Operating and Policy Environment

Rural SGBs often face unaccommodating operating and policy environments. Most developing countries have yet to establish an enabling environment that addresses the specific needs of rural SGBs in their banking systems, legal and regulatory frameworks, and public institutions (e.g., few countries have an equivalent to the U.S. Small Business Administration). While there are numerous examples of thriving grassroots businesses in these countries, their growth is stifled by a lack of support in navigating challenging conditions and applying best business practices.

Political uncertainty related to recovering agricultural loans in periods of crisis. •External risks, including price and weather risk. •Familiarity with attractive alternative sectors, primarily consumer loans and business loans to urban enterprises. •

Banks that are willing to lend in rural areas typically require hard collateral in the form of deeds to land and buildings and coverage ratios of two to three times loan value. These practices exclude all but the most formal, best capitalized (i.e., largest), and often most politically connected companies.

Limited Financial Management Capacity

Managers and leaders of rural SGBs frequently lack expertise in bookkeeping and basic financial management. They often need some level of assistance in implementing standard financial statements, objective accounting systems, written financial policies and capitalization strategies, and interrelated plans of production, collection, and sales. Without these skills, rural businesses struggle to manage their operations efficiently, are unable to build reliable track records, and are therefore deemed high credit risks by local banks.

Poor Market Access

Disaggregated producers in remote areas typically lack 1) information about market movements to know when to sell their products, 2) direct access to these markets so that they can respond to advantageous conditions, and 3) sufficient volumes to negotiate favorable terms. By organizing themselves into cooperatives and associations, or by supplying private enterprises that aggregate hundreds of other suppliers, small-scale producers can overcome all three limitations at once. In many cases, these rural SGBs are able to sell high-quality products to export markets that pay premium prices. Tighter integration of rural producers into global value chains can lead to higher incomes, increases in rural

98

Root Capital’s Model

Root Capital increases prosperity for the rural poor by pioneering finance for “unbankable” small and growing businesses in remote communities of Latin America and Africa. By leveraging market demand for sustainable products from developing countries, Root Capital addresses the interrelated problems of rural poverty and environmental degradation. Employing a technique frequently referred to as value chain finance, Root Capital provides credit to rural SGBs that is secured against assignment of payment for their future sales to buyers in North America and Europe. With demand for agricultural products projected to increase by at least 50% over the next two decades and similar growth in markets for natural products, Root Capital sees tremendous economic opportunity in strengthening the link between rural producers and global markets.

Our long-term objective is to attract local financial institutions into underserved markets so that they respond to the capital needs of rural SGBs on a large scale. With access to capital and expertise in how to manage it, grassroots businesses can strengthen their operations, increase revenues, and generate significant economic, social, and environmental benefits that improve the livelihoods of rural producers and the sustainability of their communities.

Root Capital is uniquely positioned to meet the needs of rural SGBs and achieve our desired impact for the following reasons:

Our streamlined loan evaluation system enables us to approve and disburse a loan within weeks of receiving an application. •We have deep industry relationships throughout the value chain, enabling us to understand and leverage the dynamics of •the entire market.We have developed an effective lending model and a systematized risk management system based on ten years •of operations. Our regional office structure enables us to efficiently service our existing clients and respond to the needs of •potential borrowers. Our local lending and financial education and training staff understand the business context and culture. •We hire field staff with direct experience working in management positions of rural SGBs. This equips our team with •first-hand familiarity with the challenges of running a financially viable grassroots business and an understanding of the role credit can play in helping SGBs improve their operations.

Our three-prong strategy—Finance, Advise, and Catalyze—is designed to respond to the market failures and inefficiencies that exclude rural grassroots businesses from affordable credit (see Figure 2). We aim to develop an inclusive system that addresses the capital constraints and capacity-building needs of the rural “missing middle.”

I I I .

Figure 2. Root Capital’s Strategy

AdviseBuilding Local

Capacity

FinanceInnovating Rural

Finance

CatalyzeFostering the Field

Strategy 1: Finance

Root Capital provides loans ranging from $25,000 to $1,000,000 to private enterprises and to businesses comprised of small-scale producers organized into associations. Annual interest rates, which typically range from 10% to 12% in U.S. dollars, are designed to be competitive with local bank rates. That is, we aim to extend finance to businesses not currently reached by commercial lenders without distorting the market through interest subsidies. We offer:

Short-term trade credit loans • with terms of up to one year that are generally oriented around a harvest or production cycle. These loans are typically used by borrowers to cover costs during the months between purchasing raw product from their farmer and artisan suppliers and receiving payment from their buyers. Long-term fixed-asset loans • with terms of up to five years for investment in processing equipment, infrastructure, and general operations.

The majority of our loans employ a form of value chain finance, depicted in Figure 3, whereby the main security is future sales contracts from buyers, primarily in North America and Europe. Root Capital uses factoring agreements, or lending against signed purchase orders between grassroots businesses and their buyers, for short-term and long-term loans. The purchase agreement, in effect, replaces or decreases the need for traditional collateral as it represents a discrete, future revenue stream pledged to repay our loan. When the product is shipped, the buyer pays Root Capital directly for interest and principal payments due on the loan. To date, we have applied this factoring model with over 75 buyers, ranging from specialty importers such as Equal Exchange and Sustainable Harvest to large global buyers such as Barry Callebaut, Green Mountain Coffee Roasters, McIlhenny Company, Starbucks Coffee Company, The Home Depot, and Whole Foods Market. More traditional, asset-backed loans comprise approximately 20% of our portfolio, although even in these situations we leverage long-term value chain relationships between borrowers and buyers to mitigate risk.

Strategy 2: Advise

To help rural SGBs access capital investment to grow their operations, Root Capital trains grassroots business leaders and engages with the financial institutions that we aim to attract to this market.

Training Rural SGBsOur training focuses on the “Five Financial Fundamentals,” which include building financial statements, managing credit

Figure 3. Root Capital’s Value Chain Finance Model

1. Order goodsGrassroots Business

Buyer

Root Capital

3. Ship goods

2. Make loans with purchase order as

collateral 4. Pay for goods

5. Remit payment, net of loan principle and interest

1110

collateral, financial planning, developing internal credit systems, and implementing financial policies. Through our pilot training program in Mexico and Central America, we have found that these skills are the most critical—and most often lacking—for rural SGBs applying for financing from a social or commercial lender. We deliver our training through two channels:

Financial Education and Training WorkshopsTwo- to five-day training sessions enhance the competitiveness of farmer and artisan associations and prepare them to administer larger and more complex operations through financing from Root Capital and local financial institutions. Workshop topics include:

Basic financial management for grassroots business leaders and entrepreneurs, which teaches businesses to organize their •internal finances and create financial statements.Creation and management of an internal credit fund for rural SGBs, enabling them to meet the individual credit needs of •their farmer members, particularly during the cashless off-season, by issuing microloans. In the absence of microfinance institutions in many rural areas, farmer and artisan cooperatives play a critical role in extending finance to their members with repayment generally linked to the sale of product at the harvest.Financial literacy for farmers and artisans who serve on their peer-elected boards of directors, providing them basic financial •skills so they can play an active role in overseeing their businesses.Preparation for a loan from a local financial institution, detailing the commercial bank loan application process, the appropriate •presentation of financial records, and lessons on how to manage debt.

Root Capital seeks alliances and opportunities for “trainings of trainers,” enabling Root Capital to reach a greater number of grassroots business managers and elected leaders in need of improved financial skills.

One-on-One Technical AssistanceDuring Root Capital’s due diligence process with prospective borrowers, our investment officers conduct rapid diagnostics to determine if they have adequate financial management capacity to complete loan applications and manage debt. In cases where some capacity is lacking but businesses otherwise meet our lending criteria, investment officers provide targeted pre-investment technical assistance (typically two or three days on-site) to business managers. These engagements aim to improve their skills and help them develop systems such as cash budgeting, internal controls, and the use of financial management reports. We also conduct one-on-one technical assistance with a sub-set of our borrowers with a lower level of managerial capability. These clients receive training and capacity building during the course of a year with the aim of strengthening their financial management so that they can maximize the benefits of their loans and build a credit history—the first steps on the path to eventually accessing finance from other financial institutions.

A third group of borrower enterprises with significantly more capacity receives an “extra push” to assist them in accessing finance from third-party financial institutions. Investment officers spend two or three days with these organizations to address specific weaknesses in their credit applications and help them apply for financing from local financial institutions.

Bank AdvisoryRoot Capital assists local financial institutions in entering rural markets by demonstrating the success of our existing lending operations and by training institutions to apply value chain finance to rural SGBs. We train their investment staff on the adoption of our model, transfer market knowledge, and share risk mitigation techniques for sourcing and monitoring these loans. We also co-invest with local banks that are interested in this market opportunity but not yet prepared to take on the full risk of such deals.

Strategy 3: Catalyze

Root Capital is helping to foster the field of development finance and catalyze the creation of a new capital class that bridges the “missing middle” between microcredit and commercial lending. Through the third prong of our organizational strategy, Catalyze, we engage in the following initiatives to elevate the field of SGB finance.

Share Knowledge and Best PracticesRoot Capital authors white papers and other publications to document and disseminate the insights we gather while implementing our model of value chain finance in developing countries. Examples of relevant issues to share include risk mitigation strategies, structuring high-volume cross-border transactions, geographic and product expansion, and balancing our own financial performance as a hybrid social investment fund with our impact on the livelihoods of the rural poor.

Engage in Networks and AlliancesRoot Capital is an active participant—and in two cases a founding member—in innovative industry networks that convene like-minded development entrepreneurs to advance a common agenda for greater access to finance, business training, and markets in support of small and growing businesses. We play a leading role in:

Aspen Network of Development Entrepreneurs (ANDE), an alliance that aims to alleviate poverty and improve lives through •investments in, and technical assistance to, SGBs in developing countries. Root Capital is a founding organization and a member of ANDE’s Executive Committee.Ashoka’s Social Investment Entrepreneur Fellows, a global network that seeks to transfer innovations between social •financiers and the capital markets.Finance Alliance for Sustainable Trade (FAST), a trade association for social lenders, mainstream financial institutions, and •related supply chain stakeholders. Root Capital is a founder and board member of FAST.

Form Partnerships and PilotsBy collaborating with organizations and individuals working with grassroots businesses at various points in the value chain, Root Capital strengthens the industry for sustainable products, providing benefits to rural SGBs and their farmer and artisan suppliers. We collaborate with the following categories of partners:

Global buyers to facilitate ethical, sustainable value chains with origins in developing countries. •Technical assistance providers and other NGOs in areas such as agricultural production, business development, natural •resource management, and third-party certification.Social impact investors at both local and global levels to incubate new solutions for increasing incomes that improve •livelihoods for the rural poor.

Build TalentTo address the increasingly complex problems faced by rural communities, Root Capital is dedicated to attracting professionals to the industry who are equipped to offer innovative and practical solutions. Through our training programs for grassroots business leaders and our Root Fellows program for young professionals, Root Capital is working to build the next generation of development entrepreneurs to spread financial innovations and socially responsible business practices.

1312

Growth Plan: Four Key Initiatives for Sustainable Impact

Over the next five years, Root Capital will triple our lending activity, refine and expand our financial education and training services for both grassroots businesses and local banks, and play a leadership role in the field of SGB finance. In conjunction with these goals, we will continue to build our organizational infrastructure to ensure the sustainability of Root Capital as a social enterprise.

1. Finance: Triple Lending Activity

Expand and Regionalize Lending TeamA key driver in Root Capital’s growth plan is building our lending team. Between 2009 and 2013, we will increase the number of investment officers from seven to 16 and the number of portfolio servicing and monitoring officers from five to 11. Concurrently, we will expand our lending field offices from locations in Kenya, Costa Rica, Nicaragua, and Peru to include an additional office in West Africa, likely Ghana, in 2012. Of the new lending team members to be hired between 2009 and 2013, the majority will be located outside of the United States. This expanded geographical presence is critical to our ability to pursue opportunities quickly, ensure rigorous portfolio monitoring, and deeply understand local business environments and cultures.

Enhance Financial Product InnovationRoot Capital will develop and test new products and services in areas such as cash flow-based lending for local supply chains tied to domestic and regional sales, insurance and hedging products for grassroots businesses, payments to communities for ecosystem services such as carbon offsets and watershed management, and loan syndication with local and global banking partners. We will also expand our lending in specialized areas, such as clean technology and loans for internal credit facilities.

To accommodate the dynamic needs of growing grassroots businesses, we will offer larger, more varied loans to our established borrowers. At the same time, we will reach out to new borrowers in familiar industries and expand into new industries and countries. We anticipate that non-coffee industry loans will grow from 24% of our portfolio in 2008 to more than 50% in 2013. Finally, we will continue to leverage the placement of our capital by pursuing co-lending opportunities with banks and other social finance institutions. In 2008, we leveraged $4 million in loan capital for our borrowers through co-investments; we project that this figure will grow to $12 million by 2013.

Refine Lending and Risk Management PracticesAs Root Capital scales our lending operations, we will continue to implement best-practice policies and procedures from the commercial banking, microfinance, and social investment industries. In pursuit of that goal, we have developed a two-part credit evaluation system that enables investment officers and other members of Root Capital’s Credit Committee to identify the strengths and weaknesses of an enterprise and determine the most appropriate structure and terms for each loan. The first part of the credit evaluation system assesses an enterprise based on its financial soundness, its social and environmental impact, and the quality of its management team. We then analyze the particular details of the credit request (e.g., loan amount, interest rate, collateral, repayment structure). Root Capital’s Credit Committee compares the enterprise analysis with the loan details to determine if the credit request is appropriate for the particular organization.

We have also developed a numerical portfolio risk classification system, which rates risk on each individual loan on a regular basis to provide a continuous understanding of the risk levels throughout the portfolio. To ensure that Root Capital’s

I V .

systems to service, monitor, and collect our loans are clear and replicable, we have created a Loan Policy Manual that details our lending practices, including underwriting standards, loan products, pricing, loan approval authority, and risk management system.

Upgrade Information Technology SystemsRoot Capital is developing information technology systems to increase the efficiency of our loan origination and portfolio management processes. In 2009, we will systematize our loan pipeline development through Salesforce.com, which will allow us to efficiently monitor and analyze potential borrowers. It will also facilitate our geographic expansion by improving connectivity between regional offices.

At the same time, we are creating a customized and automated loan management system that tracks the details of each loan so that we can better monitor and analyze the risk profile of the portfolio. We can then incorporate this information back into the loan origination process to more effectively manage the quality of our portfolio.

Expand Global Value Chain RelationshipsCore to Root Capital’s strategy is embedding our lending activity in global value chains for leading importers, wholesalers, and retailers in our target industries. This allows us to mitigate risk and achieve economies of scale while using credit to foster long-term relationships between buyers and suppliers in sustainable global supply chains. As part of our portfolio growth plan, we plan to forge new partnerships with major global buyers by 2013. These relationships will support our growth in industries such as cotton, cocoa, sugar, fresh produce, and sustainable timber products.

2. Advise: Expand Financial Education and Training Program

Increase Advise Staff and Geographical PresenceBy 2013, we will be offering financial education and training in Latin America and Africa. We will be staffed with four full-time business trainers in northern Latin America, three in South America, and one in Africa. Root Capital investment officers will also play an important role in delivering pre-investment technical assistance as part of their standard responsibilities.

Conduct Workshops on the “Five Financial Fundamentals” In 2007 and 2008, Root Capital served 55 cooperatives in Costa Rica, El Salvador, Guatemala, Honduras, Mexico, and Nicaragua through our pilot financial education and training program. Taking the lessons learned from our pilot program, we developed the “Five Financial Fundamentals,” which include training modules focused on building financial statements, managing credit collateral, financial planning, developing internal credit systems, and implementing financial policies. We will continue to offer this training through workshops, one-on-one technical assistance, and inter-organizational exchanges.

Formalize Pre-Investment Technical AssistanceWe will expand our ability to help prospective Root Capital borrowers who require support in preparing and presenting their financial information in order to qualify for a loan. Our pre-investment technical assistance program provides two to three days of targeted one-on-one support that focuses on areas such as forecasting, preparing a cash flow, and organizing financial statements. Investment officers located in Latin America and Africa will dedicate an average of 15% of their time to providing this assistance.

1514

Develop Capacity to Link Banks to Rural Businesses Our long-term objective is to “crowd in” competition by accelerating the entry of local banks into the rural SGB market. We are careful not to displace local banks that may already be serving prospective clients, and we have a policy of not competing with local financial institutions when they are willing to finance potential clients on reasonable terms. We ask borrowers whether they have applied for local bank finance and, if not, encourage them to research their options before applying to Root Capital. As we have seen in Latin America, it is critical to do more than simply demonstrate success; we must proactively accelerate the entrance of local banks into the market. We will hire a director who will engage bank executives and facilitate relationships between Root Capital investment officers and commercial lenders at the local branch level. Our investment officers will then introduce bankable clients to their counterparts at local financial institutions, assist clients in the application process, and provide support on deal structuring and risk mitigation as needed to facilitate bank lending to our most successful clients.

3. Catalyze: Unlock Rural Capital Markets

Build Partnerships and NetworksRoot Capital will play a leadership role in improving access to financial services for rural grassroots businesses, while focusing industry attention on small and growing businesses in general. By sharing our experiences with other potential financial services providers and working with colleague organizations through networks such as ANDE, Ashoka’s Social Investment Entrepreneur Fellows, and FAST, we will draw attention to the urgent need to increase financial services targeting the rural “missing middle.”

Advance Thought LeadershipRoot Capital will continue to raise awareness about rural finance within the broader international development field by publishing or presenting our work to thought leaders, practitioners, policymakers, and the general public. Our senior staff will present at conferences for leading commercially- and socially-oriented investors or banking representatives. Finally, we will publish high-profile documents, including articles in trade journals and mainstream press, white papers, and case studies for international business schools.

4. Further Strengthen Global Operating Platform

Broaden Fundraising BaseTo develop a strategy to reach our ambitious funding goals, Root Capital’s Business Development and External Affairs team has worked closely with our Board of Directors and senior management to design and implement a fundraising

campaign, an important part of which is this Private Offering Memorandum. We currently receive funds from corporations, foundations, individuals, socially responsible investment organizations, religious groups, and public agencies. Through this Offering, we aim to broaden our funding base, particularly among corporations, foundations, and high net worth individuals. We will concomitantly grow our fundraising management systems to facilitate donor and investor interaction and cultivation.

Hone Marketing Strategy and Build Communications PlanBuilding on our branding work in 2008 with London-based communications firm ?What If!, Root Capital will develop a brand messaging hierarchy to articulate our story to reach each of our target audiences. To create higher levels of visibility and awareness, we will produce additional branded and standardized materials; take part in events, award opportunities and conferences; increase press results; and enhance and leverage our website and communication vehicles. We will also expand current investor, donor, and corporate initiatives through targeted outreach and stewardship programs. Finally, to continue to build our credibility to support systematic change, we will strengthen our relationships in the rural finance industry and position Root Capital as an expert in the field.

Maintain Strong InfrastructureDuring 2008, Root Capital invested significantly in staff and systems to develop an infrastructure to support an international loan fund of our size. With the explicit goal of establishing our organization as a “best place to work,” upcoming projects include completing the implementation of our IT strategy, developing more sophisticated tools and processes to integrate our field offices, and focusing more heavily on professional and organizational development.

1716

“The Rockefeller Foundation is proud to support Root Capital as part of our commitment to promote impact investing. During a time when philanthropic and government dollars alone are not sufficient to address the world’s social, environmental, and economic challenges, innovative solutions such as impact investing can and must complement more traditional strategies to finance development.”

Judith RodinPresidentThe Rockefeller Foundation

Risk Management

Three categories of risk—portfolio, entity, and global economic—relate to our ongoing work and are addressed on a continual basis through our organizational structure, policies, and processes. Portfolio risk is “external” in the sense that it measures risks having to do with the performance of borrowers, markets, and buyers; entity risk is “internal” in that it relates to Root Capital’s own performance.

Portfolio Risk (External)

As a lender, managing portfolio risk is critical to our core business. The following table identifies key areas of lending risk related to a given loan and strategies to mitigate these risks in our pre-investment credit evaluation process and our post-investment monitoring system.

These strategies are incorporated into our rigorous credit evaluation, approval, and monitoring process. Some of the key structures and management tools are described below.

Risk Rating in the Loan Origination ProcessAs part of the loan approval process, potential borrowers are given a risk rating using a proprietary scorecard system that evaluates the loan on multiple indicators in five areas: entity, production, management, collateral, and context. A scorecard

combines objective factors drawn from the applicant’s financial statements with subjective (yet standardized) evaluations in areas such as management capacity.

External Investment CommitteeThe External Investment Committee, made up of select members of Root Capital’s Board of Directors and non-board members, has the authority to approve or reject loans. The Committee delegates approval for certain categories of loans, particularly for loan renewals under specified dollar limits, to an Internal Investment Committee made up of Root Capital’s senior lending staff. Notwithstanding that delegation, any loan judged by the Internal Investment Committee to present an unusual risk profile must be presented to the External Investment Committee.

Loan Monitoring SystemRoot Capital staffs a loan monitoring team dedicated solely to monitoring the risk of all outstanding loans. The monitoring team collects data on 19 risk metrics in five areas of risk for all loans and calculates a risk rating on a regular basis (monthly or quarterly, depending on the loan). The risk ratings are used to categorize loans for the loan classification system.

Loan Classification SystemRoot Capital employs the loan classification system established for U.S. commercial credit by the Office of the Comptroller of the Currency (OCC). Root Capital’s system involves a judgmentally based risk rating that classifies all outstanding loans into OCC categories (current, specially mentioned, substandard, doubtful, loss), each of which allocate a specified percentage of the outstanding balance to an allowance for loan loss accrual. We update this calculation monthly to ensure adequate loan loss allowances and reserves. The classifications also specify required actions for deteriorating loans, including collateral re-evaluation and loan documentation review.

Risk Management CommitteeThis Committee works across all board committees to ensure that we identify and address the key risks facing Root Capital. The Committee helps Root Capital establish policies and procedures for assessing and monitoring risks with the goal of creating a culture of risk awareness. For example, the Committee has helped Root Capital introduce the pre-investment risk rating system, our loan evaluation process, and our at-risk portfolio classification system.

Entity Risk (Internal)

In addition to managing external risks associated with our portfolio, we perform a similar analysis of risk within our organization. Risk management within Root Capital is led by the Risk Management Committee and our Executive Team and includes the following key areas of focus.

Operational RiskThis encompasses the potential for error, fraud, or failure to perform within Root Capital’s internal systems. As we have grown, we have continually strengthened internal controls. In 2008, we hired a director of loan operations responsible for setting and assuring compliance with policies and controls for loan approval, documentation, and disbursement. In

Table 1. Lending Risk and Mitigation

Type of Lending Risk Root Capital Mitigation StrategiesCredit Risk Production / delivery risk Use selection criteria that require successful sales history and buyer references; conduct due

diligence visits to inspect operations; evaluate organization’s price risk management system Operational risk Conduct due diligence visits which include management meetings; review key staff

qualifications; review internal controls Liquidy risk Analyze financial statements, seasonal cash budgets, and key ratios

Market / Context Risk Market risk Lend against forward contracts or purchase commitments; look for premium pricing including

certification premiums; limit advance to up to 60% of value of committed sales; draw upon partners and industry experts to conduct independent research on market trends

Country risk Review country legislation on lending regulations and currency controls; avoid countries or regions experiencing conflict

Currency risk Match currency of loans to revenues (to date, dollarized loans to dollarized sales); expand portfolio over time to include hedging products and other options for mitigating currency risk

Counterparty Risk Integrity risk Lend against forward contracts with reputable firms, preferably buyers with long-term

relationships with clients and/or Root Capital Liquidity risk With new and unfamiliar buyers, request financial statements and incorporate into credit

decision; run credit reports on new buyers; assess business’ outlook in context of market trends

V .

1918

Social and Environmental Impact

In addition to financial standards, Root Capital screens potential borrowers based on a series of social and environmental criteria. We review enterprises’ social practices such as the prices paid to suppliers, employee wages and benefits, social programs offered and community investments made, and the quality of their work environments. We consider environmental criteria such as soil and water conservation, the impact of the organizations’ agricultural practices, and their processing standards.

When an applicant meets our criteria and a loan is approved, ongoing monitoring and evaluation of social and environmental impact is designed to enhance our services, make continual operational improvements among our borrowers, and elevate the field of rural finance by sharing our impact results. We project the following results in our key social and environmental performance metrics between 2009 and 2013.

As Table 2 summarizes, from 2009 through 2013 Root Capital plans to disburse a total of $433 million in short-term working capital loans and long-term credit facilities to 570 rural SGBs. These loans will help to improve livelihoods for 1.6 million smallholder farmers and artisans and their families. We project that the grassroots businesses we support will generate more than $5 billion in revenue during the five-year period, while directly purchasing more than $4 billion in goods from the small-scale farmers and artisans that supply them. We aim to improve the financial management capacity of 200 businesses through targeted financial training.

The small-scale producers in our portfolio will oversee a total of four million acres of sustainable crops that have the potential to improve household incomes while protecting the surrounding landscapes, ecosystems, and species. Sustainable cultivation includes wild-harvested products such as nuts and native plants for essential oils, agroforestry crops such as shade-grown coffee and cocoa, and agricultural products such as sesame and bananas. While organic and other environmental certifications contribute to our analysis of each loan, we do not restrict our funding to certified products. With a broader approach, we are able to lend to environmentally sound businesses that have the lowest possible impact on their landscapes but may not be certified due to financial constraints, lack of economic incentive, or underdeveloped certification schemes in certain industries.

V I .addition, we have launched automated systems to track our existing loans and potential borrowers. With these automated systems, we can more quickly reconcile and analyze data and identify issues requiring our attention.

Liquidity RiskTo manage our liquidity, we update our cash flow projections weekly, looking at loan disbursements and repayments as well as notes payable to our investors, allowing us to ensure that lending commitments can be met with the available loan capital. If during peak harvest periods projected disbursements exceed available cash, we respond by reducing lending commitments, drawing on a line of credit, or seeking co-investments.

Balance Sheet Risk Root Capital has built a strong balance sheet. At the end of 2008, we had a debt to equity ratio just below 3:1, a cash-based Loan

Loss Reserve equal to 10% of our outstanding loans to borrowers, and an operating reserve equal to six months of operating expenses. By 2013, our debt to equity ratio will increase to 4:1, while we maintain both reserves.

Global Economic Risk

We continually monitor and assess the impact of the economic recession on our risk management practices and on our operations in general. We anticipate that U.S. and European importers may experience long-term liquidity challenges due to the reduced availability of credit, resulting in slower payment to our borrowers from their buyers. Furthermore, decreased consumer purchasing power in industrialized countries may lower the overall demand for higher-priced specialty foods and certified products.

However, a potential positive result for our borrower enterprises is that falling consumer demand and declines in global commodity prices could increase the relative price premium to farmers selling differentiated, high-value products. Additionally, depreciating emerging-market currencies could benefit exporters in the countries in which we work.

On balance, the global credit crisis is likely to further limit the availability of local commercial credit to rural SGBs, resulting in increased demand for Root Capital’s lending.

Table 2. Key Metrics, 2008 — 2013

2008E 2009P 2010P 2011P 2012P 2013P Total: 2009-2013P

Amount Disbursed $41.2 MM $53.1 MM $69.3 MM $85 MM $104.7 MM $121 MM $433 MM

# Loans Disbursed 158 194 245 299 354 392 1,484

# Borrower Enterprises 144 184 228 287 317 353 570*

# Rural Producers Benefited 220,000 335,000 450,000 635,000 795,000 1 MM 1.6 MM*

Borrower Enterprise Revenue $324 MM $492 MM $700 MM $1BN $1.3 BN $1.6 BN $5.1 BN

Purchases from Rural Producers $261 MM $397 MM $565 MM $811 MM $1 BN $1.3 BN $4.1 BN

# Businesses Trained 55 65 70 90 115 140 200*

Total Acreage Under Sustainable Cultivation

760,000 1.1 MM 1.4 MM 1.9 MM 2.2 MM 2.5 MM 4 MM*

*Figures are based on total unique enterprises from 2009 through 2013. Individual enterprises and their associated metrics may be represented in multiple years due to loan renewals or repeat participation in training.

2120

“Root Capital is an innovative organization tackling complex and systematic problems. Through the provision of credit to low-income communities it is helping to build healthy, sustainable livelihoods and protect threatened habitats.”

Sally OsbergPresident and CEOSkoll Foundation

$7.5 million of “burn capital” consumed

Five-Year Financial Operating Plan

By the end of 2013, we will have tripled the revenue earned from interest and fees such that our lending business, Finance, will be operationally breakeven. At the same time, we will have significantly grown the donations that support specified Advise and Catalyze actitivities (we refer to these philanthropic dollars as “fee-for-service” philanthropy to distinguish them from more general fundraising). As a result of the increase in these revenue streams, by 2013 we will see a significant reduction in our overall fundraising burden. Table 3 summarizes how we will achieve this goal.

VII.

Table 3. Root Capital Financial Growth Plan(000s, except for loans disbursed)

2008E 2009P 2010P 2011P 2012P 2013P

Loan Activity Overview # Loans Disbursed 158 194 245 299 354 392 Average Loan Size $261 $274 $283 $284 $296 $308 Total Disbursements $41,242 $53,128 $69,328 $84,979 $104,716 $121,001 Average Loans Outstanding $19,461 $23,461 $30,862 $39,334 $49,513 $58,661FinanceEarned Revenue (Interest & Fees) $2,105 $2,860 $3,740 $4,756 $5,865 $6,921Interest Expense & Allowance for Loan Loss ($920) ($881) ($1,197) ($1,422) ($1,700) ($1,833)Net Earned and Financial Revenue $1,185 $1,980 $2,543 $3,333 $4,165 $5,088Finance: Direct Operating Expenses ($1,608) ($2,314) ($2,817) ($3,171) ($3,520) ($3,842)Finance: Indirect Operating Expenses ($665) ($951) ($987) ($1,108) ($1,178) ($1,207)Finance: Surplus / (Deficit) ($1,089) ($1,286) ($1,262) ($946) ($534) $39Finance: Sustainability % 52% 61% 67% 78% 89% 101%Advise and Catalyze“Fee-for-Service” Philanthropy $120 $140 $225 $460 $800 $1,150Total Operating Expenses ($795) ($1,225) ($2,026) ($2,430) ($2,658) ($2,812)

Philanthropy Revenue and Burn CapitalOperating Surplus (Deficit) Before Ongoing Philanthropy

($1,764) ($2,371) ($3,063) ($2,916) ($2,392) ($1,623)

Ongoing Philanthropy (Non “Fee-for-Service”)

$2,759 $300 $600 $1,000 $1,321 $1,623

Operating Deficit Before Burn Capital $994 ($2,071) ($2,463) ($1,916) ($1,071) $0

Burn Capital Consumed $0 $2,071 $2,463 $1,916 $1,071 $0

disbursed in 2008. Our average loans outstanding will increase to approximately $59 million, an increase of almost $40 million from our 2008 levels of approximately $19 million.

FinanceDuring the growth period, we estimate that the amount of revenue earned from interest and fees through Finance will increase from $2.1 million in 2008 to more than $6.9 million in 2013. (Annual interest rates charged on our credit products are projected to average approximately 10%). After interest paid and allowance for loan loss, our net earned and financial revenue is estimated to reach $5.1 million in 2013, compared with $1.2 million in 2008. This means that net earned and financial revenue from lending operations would grow on average at 34% per year while associated operating expenses would increase at an average of 17%. Thanks to these economies of scale, by 2013 Finance will cover its fully loaded (direct and indirect) costs and contribute positively to the bottom line.

Advise and CatalyzeDuring the growth period, we aim to increase the amount of philanthropy we raise to support the delivery of our Advise and Catalyze products and services. We project that this “fee-for-service” philanthropy will grow to $1.2 million by 2013, a ten-fold increase from the $120,000 raised for this purpose in 2008. Growth will be achieved through an expansion of our development staff, who will expand relationships with existing corporate partners as well as establish new relationships with global buyers, economic development agencies, individuals, and foundations. Expenses associated with our Advise and Catalyze work will grow from $800,000 in 2008 to approximately $2.8 million in 2013.

Ongoing (Non "Fee-for-Service") PhilanthropyAs “fee-for-service” philanthropic revenues grow, and as Finance achieves economies of scale, we will invest in our ability to raise Ongoing (non "fee-for-service") Philanthropy. We plan to increase this repeatable philanthropy from $300,000 in 2009 to $1.6 million in 2013. While we have already demonstrated an ability to raise philanthropic support that is well in excess of the 2013 target (we raised $2.9 million in 2008 including $120,000 in “fee-for-service” philanthropy) we believe there are opportunities to improve the ease and efficiency with which we raise these funds. Net Operating Surplus/(Deficit) and Burn Capital ConsumedAs Root Capital grows over the next five years, we will incur operating deficits across the three prongs of our strategy (Finance, Advise, Catalyze). These deficits, which are projected to total $7.5 million, will be covered by the “Burn Capital,” i.e., dollars raised as part of this Offering to cover operating expenses during our expansion. (See Section VIII for details on the components of our campaign). At the end of the growth period, our operations—lending, financial education and training, field building work, and fundraising—will collectively be strong enough to be self sustaining.

Lending Activity OverviewIn 2013, we project disbursing approximately 392 loans, an increase from 158 in 2008. During the growth period, our average loan size will increase slightly from $261,000 in 2008 to $308,000 in 2013. Driven primarily by the increase in the number of loans booked each year, we therefore estimate disbursing more than $120 million in 2013, nearly tripling the $41 million we

“Root Capital goes way beyond the delivery of credit to promote financial capacity in the countryside in a way that comprehensively builds rural enterprises into 'bankable' businesses.”

Maria Teresa VillanuevaProject Team LeaderInter-American Development Bank

2322

As detailed in Table 3 and further highlighted in Figure 4 below, by year-end 2013 we will have demonstrated that our operating model is economically sustainable.

By 2013, • Finance will be 100% self sufficient, generating $6.9 million in revenue from interest and fees, an amount sufficient to cover the $1.8 million of financial expense (interest paid and allowance for loan loss) and the $5.1 million of operating expense. From this point on, our lending activities will contribute directly to our bottom line.By 2013, our • Advise business will generate half of its revenue ($1 million) through philanthropic “fee-for-service” relationships that directly support our financial training and education activities. At the same time, we will have built up our capacity to secure ongoing philanthropic donations that help cover our Advise operating expenses of $2 million.By 2013, we will be gaining significant traction in attracting revenue for our • Catalyze activities, “earning” $200,000 in “fee-for-service” philanthropy. We will also have an enhanced capacity to reliably raise the $600,000 required to cover the remaining expenses associated with Catalyze’s activities.

Root Capital Financial Growth Plan (numbers drawn from Table 3)

2008E 2009P 2010P 20011P 2012P 20013P0

100

Loans Disbursed

50

200

150

250

300

350

400

450

2008E 2009P 2010P 2011P 2012P 2013P$0

$800

$1,400

Advise and Catalyze “Fee-for-Service” Philanthropy (000s)

$1,200

$1,000

$600

$400

$200

2008E 2009P 2010P 20011P 2012P 20013P$0

$6,000

Net Earned and Financial Revenue (000s)

$4,000

$3,000

$2,000

$1,000

$5,000

2009P 2010P 2011P 2012P 2013P$0

$1,800

Ongoing (Non "Fee-for-Service") Philanthropy (000s)

$1,200

$1,000

$600

$200

$1,400

$400

$800

$1,600

2008E 2009P 2010P 2011P 2012P 2013P$200

Finance: Surplus / (Deficit) (000s)

-$400

-$600

-$800

-$1200

$0

-$200

-$1,000

-$1,400

2009P 2010P 2011P 20012P 2013P$500

Operating Surplus / (Deficit) before Burn Capital (000s)

-$1,000

-$2,000

-$3,000

-$500

-$2,500

-$1,500

$0

Figure 4. Portrait of Sustainability — 2013

2524

Finance

Interest and Fees: $6.9Financial Expense: ($1.8)Operating Expense: ($5.1)Surplus (Deficit): $0

Catalyze

“Fee-for-Service”: $0.2Ongoing Philanthropy: $0.6Operating Expense: ($0.8)Surplus (Deficit): $0

Advise

“Fee-for-Service”: $1.0Ongoing Philanthropy: $1.0Operating Expense: ($2.0)Surplus (Deficit): $0

Comprehensive Funding Requirements

As Table 5 details, Root Capital’s growth plan requires $63 million in total capital between 2009 and 2013—$55 million in Growth Capital ($40 million in debt and $15 million in Philanthropic Equity), and $8 million in Ongoing Philanthropy and “fee-for-service” philanthropy. This infusion of funds will bring our lending operation to 100% self sufficiency and enable us to become a sustainable enterprise.

VIII.Analysis of Growth Drivers

Table 4. Drivers of Root Capital’s Growth Projections

Revenue (000s) 2008 2013* CAGR Drivers of Growth ExpectationsFinance Interest 1,637 5,830 28.9% Grow average outstandings from $19MM to $59MM •

Grow average interest rate from ~9% to 10.1% • Fees & Co-lending Revenues

293 623 16.3% Grow loans disbursed from $41MM to $121MM •Average fee remains stable at ~0.5% •

Interest Earned or Cash 174 468 21.8% Grow rate earned on cash from 2.3% to 3.0% •Grow average undeployed capital from $7.4MM to $16MM •

Interest Expense (484) (1,391) 23.5% Increase in average notes payable from $19MM to $58MM •Maintain cost of debt at 2.5% •

Allowance for Loan Loss (436) (442) 0.3% Increase net growth in loans receivable from $5MM in ‘08 to $8.8MM in ‘13 •Maintain allowance at 5% •

Advise “Fee-for-Service” 120 1,000 52.8% Increase “sales” of • Advise days from approximately 170 to 950Grow daily rate from $700 to $1,050 •

Catalyze “Fee-for-Service” -- 150 -- Increase number of paid • Catalyze engagements from 0 to 15Grow average fee per engagement to $10,000 •

Philanthropy 2,759 1,623 -10.1% Decrease annual fundraising burden from $2.8MM to $1.6MM •Improve institutionalization and systematization of fundraising efforts •

Total Revenue 4,063 7,861 14.1%

Operating Expense (000s) 2008 2013* CAGR Drivers of Growth ExpectationsFinance Executive Management 58 85 9.8% Maintain 0.4 Executive FTE •

4% real and 4% inflation growth expense per year • Credit Evaluations and Portfolio Servicing & Monitoring

1,206 3,083 26.5% Grow credit evaluation FTEs from 7 to 16 •Maintain number of loans disbursed/FTE at around 25 •Grow average loan size moderately from $261k to $308k •Increase total disbursements from 158 loans totaling $41MM to 392 •loans totaling $121MM due to growth in Credit Evaluation FTEsGrow Portfolio Servicing and Monitoring FTEs from 5 to 11 •Grow assets under management/FTE from $8MM to $11MM due to •enhanced sytematization as well as automation of portfolio administration

Debt Fundraising 315 673 20.9% Grow FTEs from 3.4 to 5 in Business Development •Invest in additional outreach activities, website, and materials •

Advise Executive Management 29 43 10.2% Maintain 0.2 Executive FTE •4% real and 4% inflation growth expense per year •

Program Management and Delivery

236 1,602 61.5% Hire Vice President in 2008 •Grow US based management from 0.4 to 1.4 FTE •Grow site based staff from 2 to 13 •

Catalyze Executive Management 88 1,602 10.0% Maintain 0.6 Executive FTE •4% real and 4% inflation growth expense per year •

Program Management and Delivery

225 588 26.1% Grow FTE from 2.4 to 6 •Invest in additional outreach activities, website, and materials •

Operating Platform

Executive Management 117 171 10.0% Maintain 0.8 Executive FTE •4% real and 4% inflation growth expense per year •

Finance & Administration 586 1,059 15.9% Grow FTEs from 2.8 to 5.6 •Add HR Director, Operations Associate, and Staff Accountant •4% real and 4% inflation growth expense per year •

Contribution Fundraising 210 449 20.9% Grow FTEs from 2.2 to 4 •Invest in additional outreach activities, website, and materials •

Total Operating Expense 3,096 7,861 26.5%Surplus / (Deficit) 994 (0)

* Projected

Table 5. Root Capital Comprehensive Funding Requirements (2009 — 2013)

$MM 2009P 2010P 2011P 2012P 2013P Total

I. Growth Capital A. Debt 7.2 7.5 8.0 8.5 8.9 40.0 B. Philanthropic Equity Burn Capital Finance Direct Operating Expenses 2.3 2.8 3.2 3.5 3.8 15.7 Net Financial & Earned Income 2.0 2.5 3.3 4.2 5.1 17.1 Finance Burn / (Contribution) 0.3 0.3 (0.2) (0.6) (1.2) (1.4) Advise 0.3 0.8 0.9 0.8 0.6 3.5 Catalyze 0.5 0.6 0.6 0.6 0.5 2.8 Operating Platform 0.9 0.8 0.6 0.3 0.1 2.7 Total Burn Capital 2.1 2.5 1.9 1.1 (0.0) 7.5 Balance Sheet Expansion Loan Loss Reserve 0.5 0.8 0.9 1.0 0.9 4.1 Operating Reserve 0.4 0.3 0.2 0.2 0.2 1.4 Permanent Lending Capital 0.8 0.0 0.3 0.6 1.0 2.6 Total Balance Sheet Expansion 1.7 1.1 1.4 1.8 2.1 8.1 Total Philanthropic Equity 3.8 3.6 3.3 2.9 2.1 15.6 Total Growth Capital (A+B) 10.9 11.0 11.3 11.4 11.0 55.6

II. Ongoing PhilanthropyAdvise 0.1 0.2 0.4 0.7 1.0 2.4Catalyze 0.0 0.0 0.1 0.1 0.2 0.3Operating Platform 0.3 0.6 1.0 1.3 1.6 4.8

Total Ongoing Philanthropy and “Fee-for-Service”

0.4 0.8 1.5 2.1 2.8 7.6

Total Funding Requirements (I+II) 11.4 11.9 12.7 13.5 13.8 63.3Total Debt (IA) 7.2 7.5 8.0 8.5 8.9 40.0Total Philanthropy (IB+II) 4.2 4.4 4.8 5.0 4.9 23.3

Total Funding Requirements 11.4 11.9 12.7 13.5 13.8 63.3

2726

Growth Capital

Debt ($40 million)To achieve our goal of attracting $40 million in new debt capital—$34 million in senior and $6 million in subordinated debt—we will deepen our relationships within our current investor segments, which include industry partners (e.g., specialty coffee roasters), charitable foundations, socially responsible investment firms, religious orders, and high net worth individuals. We aim to raise $6 million of this debt subordinated with a 1% coupon. The structure and rate of this tranche addresses our key obstacles for attracting mainstream capital—risk and return. The subordination provides an additional layer of insulation to senior debtors in the event of a default, thereby partially addressing risk concerns for those considering an investment in Root Capital. The 1% coupon provides us the flexibility to accept notes at rates above the average cost of capital of 2.5% that we must maintain to achieve financial breakeven in our lending operations by 2013. Hence, this piece of our capital structure is catalytic, not only supporting our revenue model to help us reach threshold scale, but also playing a critical role in attracting mainstream capital over time.

While we do not plan to formally approach commercial debt markets during this period of growth, we do expect that these markets will be important to the next phase of our growth once we have attained threshold scale. Other strategies to attract commercial debt will include considering vehicles such as credit enhancements from multilateral organizations or pooled callable guarantees from high net worth individuals. These tools would expand our ability to access financing from global banks. Finally, we will likely take advantage of lines of credit to cover short-term lending capital needs that arise during peak lending months. Any such short-term borrowing is not included in the debt Growth Capital requirements.

Philanthropic Equity ($15 million)The anticipated uses of the $15 million of Philanthropic Equity we plan to raise include burn capital and balance sheet expansion.

Burn Capital ($7.5 million) To effectively scale our operations, we require philanthropic capital to subsidize our activities and achieve breakeven in our lending operation.

Finance • . Due to the favorable economics of our “spread” business as we grow and the existing maturity of our lending operations by 2011, Finance will cover all of its direct costs, and, in aggregate, through 2013 will contribute $1.4 million to covering the costs of the operating platform. By 2013, Finance will cover its fully loaded costs and begin contributing positively to the bottom line.Advise. • As Advise activities grow in the coming years, this line of business will require increasing subsidy, totaling $3.5 million during the five-year growth period. However, we will use this Growth Capital not merely to subsidize operations but rather to focus on building a long-term business model that creates a standard offering that appeals to a wide range of donors. To do this, we will continue to develop relationships with industry partners, commercial financial institutions,

and multilateral organizations to support the financial education and training services we provide to grassroots businesses. Key current partners include Green Mountain Coffee Roasters and Starbucks Coffee Company, which recognize the value of our financial education program in advancing supply chain security. We project that by 2013, we will raise $1 million in revenue through such “fee-for-service” relationships.Catalyze. • From 2009 – 2013, we plan to spend $2.8 million to develop and systematize our Catalyze activities. These activities will include actively disseminating our learning from the field through writing and public appearances, collaborating with other institutions to increase SGB access to capital markets, and creating a training program to introduce young professionals to this growing field. Operating Platform. • Underpinning the scaling and growth of these three programs is our operating platform, which includes our finance and administration, general management, and contribution fundraising. Of the $7.5 million of “burn capital,” $2.7 million will be used to support the building and maintenance of this infrastructure.

Balance Sheet Expansion ($8.1 million)Expansion of Loan Loss Reserve. • Essential to our strategy is maintaining a Loan Loss Reserve level appropriate for lending in high-risk markets. In addition to the Allowance for Loan Loss, which is an expense on our income statement, we will grow our Loan Loss Reserve by $4.1 million over the five-year period such that we maintain reserves equal to 10% of loans outstanding. Expansion of Operating Reserve. • We will use $1.4 million of the Philanthropic Equity to increase our operating reserve as we grow, maintaining it equal to six months of operating expenses. In doing so, we will help protect our operations from unanticipated shocks. Expansion of Permanent Loan Capital. • To continue serving the most vulnerable segment of our grassroots business clients as we grow lending volumes, we aim to raise $2.6 million in philanthropic capital to augment our permanent loan capital pool. This ensures capital availability for our borrowers, while building a healthy capital structure that underpins our organizational growth.

Ongoing Philanthropy and “Fee-for-Service” Revenue ($7.6 million)

In the course of raising $55 million in Growth Capital ($40 million in debt and $15 million in Philanthropic Equity), we will be investing in our capacity to more reliably raise money from philanthropic services. We will do this in two ways. First, between 2009 and 2013, we anticipate raising $2.7 million in donations that directly support our Advise and Catalyze activities (i.e., gifts that support services such as the delivery of financial education and training or the authoring of a publication). After 2013 we will continue to build these businesses to ensure their sustainability. Second, during the growth period we will similarly invest in our capacity to fundraise efficiently to support our overall mission. By building our team and systematizing our donor cultivation and stewardship practices, we will achieve significant advances in our fundraising ability. We project that this will translate into raising $4.8 million in Ongoing Philanthropy during the growth period, positioning us to meet our ongoing fundraising need every year thereafter.

2928

“After several years of working with Root Capital and seeing not only its impressive track record, but also the direct benefit to farming communities, we started discussing how to expand the relationship. We assessed it from the perspective of a blended-value investment vehicle that could provide Starbucks a modest financial return, but more importantly, generate a tremendous social return in farming communities worldwide.”

Sue Mecklenburg VP Sustainable Procurement PracticesStarbucks Coffee Company

2009 — 2013: Philanthropic Equity Offering Terms and Conditions

All Philanthropic Equity Investment associated with this Root Capital 2009 – 2013 Private Offering Memorandum is subject to the donor imposed terms and conditions enumerated below, which comply with the SEGUESM (Sustainable Enhancement Grant) methodology developed by Nonprofit Finance Fund, a certified Community Development Financial Institution based in New York City. The SEGUESM methodology is designed to provide philanthropic investors with an equity-like experience.

SEGUE • SM. The word “SEGUESM” refers to Sustainable Enhancement Grant, a fully GAAP-compliant grant-making methodology developed by Nonprofit Finance Fund.Exclusion of Note Offering. • SEGUESM terms and conditions do not under any circumstances apply to Root Capital’s debt offering, which is described separately in Root Capital’s Note Offering Disclosure Statement and the related form of promissory note and loan agreement.Philanthropic Equity Investment. • The words “Philanthropic Equity Investment” refer to contributions that are entirely charitable in nature and will generate no financial returns to the investor. Philanthropic Equity Investment Offering. • This Private Offering contains up to 180 non-assignable Root Capital 2009 – 2013 SEGUESM Units, at $100,000 per Unit. Philanthropic Equity Investor. • The words “Philanthropic Equity Investor” refer to any person or institution that has made a charitable grant to Root Capital pursuant to the Philanthropic Equity component of this 2009 – 2013 Private Offering Memorandum.SEGUE • SM Unit. A SEGUESM Unit is defined as a formal mechanism by which Root Capital recognizes the roles played by Philanthropic Equity Investors who provide equity-like capital required to produce a Root Capital enterprise that is fully self-sustaining under its chosen long-term business model. Holding SEGUESM Units does not constitute ownership in Root Capital. Philanthropic Equity Investors hold no board seats, unless formally invited by Root Capital to join the Board, and have no voting rights. Maintenance of Capitalization Table. • Root Capital will maintain a definitive list of SEGUESM Philanthropic Equity Investors, identifying their names, contact information, and invested amounts. This roster will not be altered unless a new Philanthropic Equity Investor is added, either in connection to the Root Capital 2009 – 2013 Private Offering Memorandum, or in connection to subsequent Root Capital philanthropic equity offerings.Identification of Philanthropic Equity Investors. • Root Capital will provide each Philanthropic Equity Investor with the 2009 – 2013 SEGUESM Capitalization Table. Starting with the close of fiscal year 2009, any change in the roster of Philanthropic Equity Investors or amounts invested by each will be communicated within 90 days of the most recent quarter end to all Philanthropic Equity Investors. Each Philanthropic Equity Investor will be offered the option to be listed as “Anonymous” on this shared communication. New SEGUE • SM Sub-Account. Root Capital will establish a new temporarily restricted sub-account, called “Root Capital 2009 – 2013 SEGUESM”, which will be tracked and reported upon as part of Root Capital’s standard internal financial reporting. All Philanthropic Equity proceeds from this offering will be accounted for through this SEGUESM Sub-Account.Campaign Close. • Root Capital will affirmatively declare a close of the campaign associated with this Root Capital 2009 – 2013 Private Offering Memorandum and communicate an Official Close Date to all Philanthropic Equity Investors.Permissible Flows. • The Root Capital 2009 – 2013 SEGUESM temporarily restricted Sub-Account may be increased only by temporarily restricted funder commitments or grants from Philanthropic Equity Investors that are explicitly identified as members of the 2009 – 2013 SEGUESM Philanthropic Equity Investor group. Following the Official Close Date, no commitments or grants of any kind may be added to this Sub-Account. Communication of Inflows and Outflows. • Philanthropic Equity Investors will regularly be informed, at a summary level, of all annual inflows and outflows from the Root Capital 2009 – 2013 SEGUESM Sub-Account.

IX.

Accounting Treatment for Subsequent Philanthropic Equity Funding. • Any subsequent investment of Root Capital philanthropic equity will be accounted for using accounting methods similar to those used for the Root Capital 2009 – 2013 Private Offering Memorandum, but tracked separately, using a separate temporarily restricted sub-account. Exhaustion of SEGUE • SM Funds Before Release of Subsequent Philanthropic Equity Funds. Subsequent rounds of Root Capital philanthropic equity may be raised at any time. However, subsequently raised funds may not be released unless and until all funds from this round have been fully released.Investor Report. • Beginning in the first quarter of 2010 and ending fourth quarter 2016, Root Capital will produce a quarterly report that provides a comprehensive view of financial and programmatic results as compared to annual and quarterly operating objectives. From time to time, at the discretion of Root Capital’s management and board, the metrics included in the report may be changed to reflect Root Capital’s evolving business dynamics. Each quarter, a copy of this report will be sent to each Philanthropic Equity Investor.Information Rights for Nonprofit Finance Fund. • Nonprofit Finance Fund will receive copies of all information that is disseminated to Philanthropic Equity Investors, as described in this statement of investment terms and conditionsRestrictions on Investment Proceeds. • Root Capital’s use of 2009 – 2013 Philanthropic Equity Investment proceeds is hereby, until December 31, 2015, restricted as follows:

At the end of each fiscal year, Root Capital will provisionally calculate its Change in Unrestricted Net Assets 1. “as if” no releases were to be made from temporarily restricted Root Capital 2009 – 2013 Philanthropic Equity Investment funds.If this provisional calculation yields a Change in Unrestricted Net Assets greater than 5% of operating expenses, 2. then Root Capital 2009 – 2013 Philanthropic Equity Investment funds may not, in that fiscal year, be released except as noted below in items 4 and 5.Otherwise, Root Capital 2009 – 2013 Philanthropic Equity Investment funds will be released such that the 3. Change in Unrestricted Net Assets is equal to up to 5% of operating expenses. In addition, if, at fiscal year end, Root Capital’s Loan Loss Reserve is less than 10% of Loans Receivable, 4. additional Root Capital 2009 – 2013 Philanthropic Equity Investment funds may be released such that the Loan Loss Reserve is equal to 10% of Loans Receivable.In addition, if, at fiscal year end, Root Capital’s debt to equity ratio (calculated using all unrestricted and 5. temporarily restricted net assets except those restricted for programs by time or purpose) is greater than 3:1, additional Root Capital 2009 – 2013 Philanthropic Equity Investment funds may be released such that the debt to equity ratio is no more than 4:1.Beginning January 1, 2016 and thereafter, use of any remaining Root Capital 2009 – 2013 Philanthropic Equity 6. Investment proceeds are not subject to donor-imposed restrictions.

3130

Appendices

A. Awards and Recognition

B. Press

C. Executive Team

D. Board of Directors

E. Organizational Structure – 2009

F. Pro Forma Financials

G. Our Colleagues

Awards and Recognition

SVN Innovation Award. • Supports the “next generation” of socially responsible leaders by providing them access to the people and resources that can help support the growth and success of their enterprises.Clinton Global Initiative Member. • The 2008 CGI Annual Meeting convenes global leaders to devise innovative solutions to some of the world’s most pressing challenges.World Economic Forum Young Global Leader. • Awarded annually to recognize and acknowledge the top 200-300 young leaders from around the world for their professional accomplishments and commitment to society.Fast Company/Monitor Group Social Capitalist Award. • Recognizes innovative nonprofits applying business savvy to social problems.Charity Navigator 4-Star Rating. • Evaluates charities on a 4-star rating system.Skoll Award for Social Entrepreneurship. • Supports social entrepreneurs whose work has the potential for large-scale influence on critical challenges of our time.

Ashoka Fellowship. • Recognizes the world's leading social entrepreneurs for their innovative solutions to some of society's most pressing social problems.Fast Company/Monitor Group Social Capitalist Award. •Charity Navigator 4-Star Rating. •Skoll Award for Social Entrepreneurship. •

World Business Award in Support of the Millennium Development Goals. •“40 Under 40” Award from the Boston Business Journal. •Fast Company/Monitor Group Social Capitalist Award. •Charity Navigator 4-Star Rating. •Skoll Award for Social Entrepreneurship. •

Yale S.O.M-Goldman Sachs Foundation Award. •Skoll Award for Social Entrepreneurship. •

A .

2008

2007

2006

2005

3332

Press

Stanford Social Innovation Review. • “Root Solutions: Nonprofit lender Root Capital connects rural farmers and artisans with the corporations that crave their products.” Spring 2009Ode. • “Never Let a Crisis Go to Waste: Social entrepreneurs see the economic upheaval as a chance to go mainstream.” March 2009

MarketWatch. • “Social Venture Network Announces 2008 Innovation Award Winners.” October 13, 2008MarketWatch. • “Clinton Global Initiative Announces Innovative Coffee Partnership.” September 26, 2008Financial Times. • “Investors Boost the ‘Missing Middle.’” June 24, 2008 LA Times. • “The Price of Hunger.” June 23, 2008Miami Herald. • “Root Capital Helps Grassroots Eco-ventures.” April 21, 2008 Inc.com. • “Do-Gooder Finance.” February 2008

NuWire Investor. • “Top 15 Charities for Investors for 2007.” November 26, 2007 The Milken Institute and the German Marshall Fund of the United States. • “Transatlantic Innovations in Affordable Capital for Small- and Medium-Sized Enterprises.” October 2007 Microfinance Insights. • “From Grower to Green Market: Bridging the Rural Finance Gap.” September 2007 Boston Business Journal. • “Root Capital founder wins prestigious non-profit fellowship.” October 17, 2007 ReportonBusiness.com. • “Giving Back.” June 23, 2007

Fast Company. • “Prime Partners: EcoLogic Finance.” December 2006Boston Business Journal. • “40 Rising Stars.” October 6, 2006 Fresh Cup Magazine. • “40 Under 40, Filling the Finance Gap for Coffee Growers.” August 2006

Miami Herald. • Foote, William. “A Healing Brew: Community-based Commerce Helps Mend the Broken Nation of Rwanda.” November 29, 2004 New York Times. • “Berry Sales to U.S. Offer Security to Amazon Farmers.” August 4, 2004LA Times. • Foote, William Fulbright. “Swimming Against Tide of Overfishing.” December 29, 2002Miami Herald. • “Loan assists coffee growers; Fund brightens a bleak market.” March 6, 2002 LA Times. • “Loan Program Stirs Hope for Poor Mexican Coffee Growers.” November 11, 2000 Wall Street Journal. • “Sen. Fulbright’s Kin Does Well by Doing Good in Latin Climes.” January 28, 2000 Wall Street Journal. • Foote, William Fulbright. “In Guatemala, Organic Farms Sprout on Civil War Turf.” October 9, 1998

B .

2009

2007

2006

Prior

Executive Team

William F. Foote, Founder & CEOMr. Foote began his career as a financial analyst in the Latin American Corporate Finance group at Lehman Brothers, and as a journalist in Mexico and Argentina. In March 2008 he was named a Young Global Leader by the World Economic Forum, and he was named an Ashoka Global Fellow in September 2007. Mr. Foote is on the Executive Committee of the Aspen Institute’s Aspen Network of Development Entrepreneurs (ANDE) and is a founding Board member of the Finance Alliance for Sustainable Trade (FAST). He is a life member of the Council on Foreign Relations and serves on the Boards of the Open Learning Exchange (OLE) and E+Co, which finances businesses that supply clean and affordable energy in the developing world. Mr. Foote holds a B.A. from Yale University and a M.Sc. in development economics and economic history from the London School of Economics. He is fluent in Spanish and Portuguese.

Diego Brenes, VP Lending, OriginationMr. Brenes oversees the lending team, particularly focused on origination and evaluation of clients and deals. A Costa Rican national, Mr. Brenes worked as a financial controller and an investment officer with two venture capital funds in Central America prior to joining Root Capital. Before that, he worked in commercial banking as a branch manager, loan officer, and financial analyst. Mr. Brenes holds an M.Sc. in environmental science from Lund University (Sweden) and a B.A. in business administration from Universidad Autónoma de Centro América (Costa Rica). He is fluent in Spanish, English, and Portuguese.

Liam Brody, VP Business Development & External Affairs Mr. Brody builds relationships with key partners in the private sector and directs Root Capital’s business development strategy. Prior to joining Root Capital, he served as deputy director of Oxfam’s private sector department. Previously, he was the director of sustainable coffee at Green Mountain Coffee Roasters and led Oxfam International’s campaign to end the global coffee crisis, which led to the introduction of Fair Trade-certified coffee by some of the world’s largest coffee sellers. Mr. Brody holds a Master of Education in Social Policy from the Harvard Graduate School of Education and a B.S. in Agricultural and Extension Education from Cornell University.

Bonnie C. Cockman, VP Finance & Administration Ms. Cockman directs Root Capital’s finance, human resources, information technology, legal, and office administration systems. Prior to joining Root Capital, Ms. Cockman worked as the vice president of finance for Conservation International over an 8-year period when the organization grew from $30 million in annual expenses to $115 million. She also served as director of finance for Georgetown University’s Center for Intercultural Education and Development. Ms. Cockman is a

CPA and holds an honors degree in business from the University of North Carolina at Chapel Hill.

Cynthia L. Greene, VP Global ProgramsMs. Greene oversees Root Capital’s lending, education and training, and strategy and innovation efforts. Ms. Greene has extensive experience solving strategic, operational, and financial issues at international companies and nonprofits. Prior to joining Root Capital, she worked for Electric Insurance, General Electric’s insurance company, managing the growth and profitability of its Midwest business. Previously she worked for The Boston Consulting Group and in investment banking for J.P. Morgan in New York and Venezuela. She holds an M.B.A. from The Wharton School, an M.A. in international affairs from Johns Hopkins’ School of Advanced International Studies, and a B.A. in math and environmental studies from Dartmouth College. She speaks English and Spanish.

Namrita Kapur, VP Strategic PartnershipsMs. Kapur manages relationships with key partners and develops major strategic initiatives. Prior to joining Root Capital, Ms. Kapur was an equity research analyst at the investment bank, Adams, Harkness & Hill (now CanAccord Adams). She has previously directed programs for the Environmental League of Massachusetts and Berkshire Natural Resources Council, and worked as a consultant for the United Nations Development Program. She currently serves on the Board of the Environmental League of Massachusetts. Ms. Kapur holds an M.B.A. from Yale University, an M.E.M. from Yale School of Forestry & Environmental Studies and a B.A. in molecular biology from Princeton University. Along with English, she speaks Hindi, Portuguese and Spanish.

José Luis Rojas Villarreal, VP Lending, Portfolio ManagementMr. Rojas oversees Root Capital’s lending program, particularly focused on monitoring, collections, and portfolio risk management. Prior to joining Root Capital, Mr. Rojas worked as an equity research associate at UBS Warburg in Mexico, as a pro-bono consultant at the Soros Foundation in Mongolia, a consultant at the United Nations in Ethiopia, and as an aluminum industry analyst/consultant at CRU International. He is currently a member of the Boston Securities Analyst Society and holds the Chartered Financial Analyst designation. Mr. Rojas holds an M.I.A. in international finance and economic development from Columbia University, and a B.A. in international relations and economics from the University of Pennsylvania. A Mexican national, he is fluent in Spanish, English, and French.

C.

3534

2008

Board of Directors

Deborah Drake – Board ChairProgram Manager, Investing in Inclusive Finance, Center for Financial Inclusion, ACCION International

Kenneth S. AnsinDirector, Enterprise Bank and Trust Company

Henry A. (Hank) CauleySenior Officer, Pew Environment Group, Pew Charitable Trusts

Frank HicksVice President of Investment Opportunities, Bio-Logical Capital

Thomas A. KanebPartner, Miralta Capital

Juan P. MorilloPartner, Clifford Chance US LLP

Laurel J. NeylonSenior Regional Director, Office of Capital Giving, Faculty of Arts and Sciences, Harvard University

Matthew PatskyPartner and Portfolio Manager, Winslow Management Co.

Jonathan RosenthalPrincipal, Just Works Consulting

Nancy RosenzweigSocial Enterprise Entrepreneur

John F. TaylorBoard Chair, Alliance to End Hunger

Jean L.S. Hazell – Director EmeritaResearch Associate, Harvard Business School

D. Organizational Structure – 2009E.

VP Finance & Adm

VPBus Dev & EA

VPStrategic Partnerships

Director Marketing & Communications

Director Impact Assessment

Director Institutional Relations

Director Human Resources

VP Portfolio Management

Mg. Dir. Philanthropic Investments

VPGlobal Programs

VP Origination

Regional Director Africa

Regional Director Latin America

Director Education & Training

Director Strategy & Innovation

Director Loan Operations

CEO

Board of Directors

3736

Pro Forma Financials(000s, except for loans disbursed)

F. Our Colleagues

Despite the growing number of social finance organizations targeting rural SGBs in developing countries, the marketplace remains nascent with demand for capital far outstripping supply. The scope of capital aggregators and alternative investment programs serving rural SGBs in the developing world ranges from purely financial institutions with a social orientation to environmental groups that see finance as one of many ways to achieve their conservation goals.

The following are financial institutions committed to sustainable production and trade that focus on deploying capital to SGBs in developing countries:

AlterFin (Finland) Calvert Social Investment Fund (US)CORDAID (The Netherlands) EcoEnterprises Fund (US)Etimos (Italy) Oikocredit (The Netherlands) Rabobank Foundation (The Netherlands) RSF Social Finance (US) Shared Interest (UK) SosFaim (Finland) Triodos Sustainable Trade Fund (Netherlands) Verde Ventures (US)

Several of these institutions have come together to form the trade association Finance Alliance for Sustainable Trade (FAST), of which Root Capital is a founding member.

Another set of organizations is focused on supporting enterprises and entrepreneurs in the developing world that create jobs and build capital while providing other social goods, such as environmental stewardship and improved access to healthcare. These institutions work across industry verticals from sustainable trade to renewable energy to housing and health and include:

Acumen Fund (US) Agora Partnerships (US)BlueOrchard Finance, S.A. (Switzerland) E+Co (US)Endeavor (US) Grassroots Business Fund (US)Kickstart (US) Small Enterprise Assistance Fund (US)TechnoServe (US) United Villages (US)VisionSpring (US)

Root Capital is a founding member and active participant in the Aspen Network of Development Entrepreneurs (ANDE), which includes the organizations above and others working to promote economic development in the developing world.

G.

2008E 2009P 2010P 2011P 2012P 2013PLending Activity # Loans Disbursed 158 194 245 299 354 392Average Loan Size $261 $274 $283 $284 $296 $308Total Disbursements $41,242 $53,128 $69,328 $84,979 $104,716 $121,001Average Loans Outstanding $19,461 $23,461 $30,862 $39,334 $49,513 $58,661

Finance Interest Earned on Loans $1,637 $2,312 $3,017 $3,866 $4,879 $5,830 Fees $293 $309 $384 $460 $553 $623 Interest Earned on Cash $174 $239 $338 $429 $433 $468Earned Revenue $2,105 $2,860 $3,740 $4,756 $5,865 $6,921 Allowance for Loan Loss ($436) ($247) ($402) ($442) ($521) ($442) Interest Expense ($484) ($634) ($794) ($980) ($1,180) ($1,391)Net Earned and Financial Revenue $1,185 $1,980 $2,543 $3,333 $4,165 $5,088 Finance: Operating Expense ($2,274) ($3,265) ($3,804) ($4,279) ($4,698) ($5,049)Finance: Surplus / (Deficit) ($1,089) ($1,286) ($1,262) ($946) ($534) $39Finance: % Sustainability 52% 61% 67% 78% 89% 101%

Advise and CatalyzeAdvise and Catalyze: “Fee-for-Service” $120 $140 $225 $460 $800 $1,150Advise and Catalyze: Operating Expense ($795) ($1,225) ($2,026) ($2,430) ($2,658) ($2,812)Advise and Catalyze: Surplus / (Deficit) ($675) ($1,085) ($1,801) ($1,970) ($1,858) ($1,662)

Philanthropy Revenue and Burn Capital

Op. Surplus / (Deficit) before Ongoing Philanthropy ($1,764) ($2,371) ($3,063) ($2,916) ($2,392) ($1,623)Ongoing Philanthropy (non “Fee-for-Service”) $2,759 $300 $600 $1,000 $1,321 $1,623Growth Capital to Cover Operating Deficits $0 $2,071 $2,463 $1,916 $1,071 $0Net Operating Surplus / (Deficit) $994 $0 $0 $0 $0 $0Growth Capital for Balance Sheet Expansion $400 $1,694 $1,127 $1,393 $1,815 $2,084Change in Net Assets $1,394 $1,694 $1,127 $1,393 $1,815 $2,084

Balance SheetAssets

Cash and Equivalents $9,940 $13,723 $14,296 $14,920 $14,852 $17,042Loans Receivable Net of Allowance $18,543 $23,238 $30,885 $39,280 $49,171 $57,569Other Receivables $716 $909 $1,198 $1,497 $1,860 $2,165Other Assets $206 $160 $113 $67 $73 $78Total Assets $29,405 $38,029 $46,492 $55,764 $65,957 $76,855Liabilities

Notes Payable $21,757 $28,554 $35,749 $43,499 $51,751 $60,439Other Liabilities $387 $520 $660 $789 $915 $1,041Total Liabilities $22,143 $29,074 $36,409 $44,288 $52,666 $61,480Net Assets

Net Assets Available for Lending $3,272 $4,042 $4,046 $4,307 $4,876 $5,914Loan Loss Reserves $1,952 2,446 $3,251 $4,135 $5,176 $6,060Operating Reserves $2,038 $2,468 $2,786 $3,034 $3,239 $3,400Total Net Assets $7,262 $8,956 $10,083 $11,476 $13,291 $15,375Total Liabilities and Net Assets $29,405 $38,029 $46,492 $55,764 $65,957 $76,855

3938

This page intentionally left blank.