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Micro-credit Social Venture Plan2010-2011

Team Members: Alex Rosenthal, Andrew Tapper, Ben Landau,Tony Rudeen and Arielle Danieli


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The Madison Fund Social Venture Plan 2

Table of Contents

I. Introduction 3II. Logic Model 4

III. Microfinance Overview 5

IV. Market Analysis 6

V. Competition 9

VI. Market Strategy 12

VII. Loan Services 15

VIII. Performance Benchmarks 18

IX. Risk Assessments 19

X. Team Profiles 20


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I. Introduction

The Madison Fund, Inc. (TMF) is a non-profit micro lender based in Madison,Wisconsin. TMF was organized in order to improve the economic and financialconditions of small businesses and low-income entrepreneurs in the Madison, Wisconsinarea and to provide these business owners with safe and affordable capital for their

business activities. These loans are aimed at borrowers with little or no collateral, credit,income and resources. TMF also aims to fund and enable businesses that have a largersustainable and green impact in the community.

The Madison Fund was founded by University of Wisconsin-Madison studentsand incorporated in September of 2010. At the time of the composition of this SocialVenture Plan, TMF is in its earliest stages of development and has not engaged inactivities other than organization. In the future, TMF will accomplish the aforementionedgoals by offering affordable micro-loans to small business owners, motivatedentrepreneurs and low-income residents in Madison. Borrowers will be those who areunable to secure loans from traditional sources because of poor credit, insufficiently large

borrowing demands, or fear of receiving loans from a bank. Because of TMFs loans,these people will not have to resort to seeking loan sharks, credit cards, or loans fromfriends and family members and will be helped by TMFs staff along the way.

The Madison Funds primary activities will include raising funds (donations will be tax-deductible once the 501(c)3 Application is approved by the IRS or upon partnership with a fiscal sponsor) to add to TMFs primary loan pool, and lending thesefunds to borrowers in the Madison area. The business model that TMF strives to use will

be as cost effective as possible. It is our ambition to keep all expenses as low as possible.Ideally, the organization will be maintained and managed by students motivated by social

development and the relevant internship and volunteer experience and not by a salary.

As of now, TMF does not pay anyone a salary or fee for services of any type, andit has no plans to pay anyone a salary or service fee in the future. Other than necessarycosts to keep the business afloat; utility bills, office space, costs of transportation etc., ouraim is to have close to zero expenses so that as close to 100% as possible of the loan poolwill be available for loan packaging, and as close to 100% as possible of the loan returnswill be reinvested in the loan pool. In this way, the fund will be able to grow at a muchquicker rate than it would normally and at a faster rate than its competitors and similarfunds.


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II. Logic Model

InputsTMF will needthese resources toachieve our set ofactivities

Activities In order for TMF tocarry out its vision, wewill accomplish the

following activities

OutputsWhen these activities areaccomplished, we expect toobserve these results

Short Term

OutcomesWhen we accomplishour activities we expectto observe thesechanges in 1-2 years

Long-term

OutcomesWhen we accomplish ouractivities we expect toobserve these changes in2-4 years

ImpactsWe expect that if weaccomplish these activities wewill observe these changes inour organization andcommunity in 7-10 years

-Networking with professors andother non-profits;advisory panel

Obtain professional board of directors

More experienced and professional advisory; broaden communityoutreach and increasecommunity-basedreferrals

50 community-basedreferrals to TMF

200 community-basedreferrals to TMF/year

Reduce costs ofadministration transitionslegal/financial guidance tkeep TMF expenses asnear $0 as possible

Model forapplication

process, loanorigination, and

repayment

Create a loan program outcomesuccessmeasurement

Default rate less than10%, client satisfaction100%

Streamlined loanlifecycle

Increase borrowers by50% each year

A majority of netoperating capital put inloan pool for new loanorigination

Postings onBuckyNet, socialnetworking

Obtain diversevolunteer staff

Broader range of ideasand opportunities forvolunteers

Broader knowledgeand skill base, abilityto choose staff moreselectively

Students committed forall or majority of theircollege career,Reduce costs ofadministrationtransition

Highly qualifiedvolunteers contributingskills and knowledge toTMF, keeping costs asnear $0 as possible

SEO campaign,social marketing

Broaden grassrootssupport

Local awareness andsupport of TMF; accessto potential borrowers

Increased loan pool by $20,000 within ayear, larger base of

potential borrowers

Increase borrowers by50% each year, 15

positive reviews orarticles in popularmedia

Established communityties lead to more trustingand safe borrower/lenderrelationship, andultimately growth

Completedresearch onavailable grants,completed

business plan

Application ofgrants

Increased funds forlending; increasedawareness

Increased numberand dollar amount ofloans distributed,increased directionof TMF

Raise at least $100,000through grants, haveestablished grant

programs to apply foreach year

An established andsustainable communitymicro-lender, help create100 local jobs annually

TMF loanstatistics, morestaff

Design andimplement micro-loan demand andimpact research

More focus on how to best direct TMF efforts

Increase borrowers by 50% each year

Create loan packagestailored specifically toMadison area

TMF seen as expert guideon microfinance industryand market in Wisconsin

Complete andsubmit 501c3documents

IRS 501c3 Status Additional credibility forTMF, increasedattractiveness for donors

10 loans funded In-flow of at least$20,000 in privatedonations a year

A fully operationalnonprofit micro-lenderwill boost employmentand strengthen thecommunity

Volunteer Staff Hire a CFO Financial stability,allows analysis of TMF

performance benchmarks

IRS 501c3 status,at least 5 loansout

Build Relationshipwith UW-MadisonSmall BusinessDevelopmentCenter

Connect more borrowersto TMF services

A resource forfinancial educationclasses for clients

Have at least 10 borrowers referred toTMF

Build relationships withsimilar organizations,establish TMF as most

prominent communitymicro-lender


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III. Microfinance Overview

Microfinance, or micro-credit, is an efficient and successful way to extendsmall-dollar loans to impoverished people in hopes of encouraging community growthand development. In the past few decades microfinance has become increasingly popularin third-world regions. Its influence has grown and has had major societal and economicinfluences around the world, alleviating poverty in countries such as Bangladesh, India,and Ecuador. Microfinance in the United States, however, is still a relatively newconcept, which many overlook as an effective way to combat poverty. There are many

people living under the American poverty line who are unable to receive funding (forvarious reasons) for their ventures from traditional credit sources.

Micro-credit is a method to assure that low-income people can receive funding fortheir small businesses and entrepreneurial endeavors when they are unable to obtaincapital through traditional lending sources. Funds like The Madison Fund provide verysmall micro-loans in an attempt to draw borrowers away from dangerous sources offunding and towards a safer and affordable resource. These micro-loans are unsecured,and typically involve borrowers who lack collateral, stable employment, and solid credithistories. Because of these variable factors, borrowers are generally subject to a slightlyhigher interest rate, which reflects the increased risk of defaulting. However, low

principle amounts ensure interest payments are not overly burdensome.

Usually, funds that provide micro-loans offer more than just capital. For instance,The Madison Fund is designed to assist clients in managing their finances and venture

plans, creating a trusted relationship with the borrower. This results in a number of benefits to the borrower, including the ability to approach TMF loan officers and funddirectors with problems that may arise. TMF will aid all of its clients in finding solutions

to such problems and preventing loan defaults. It is very difficult to find a bank that is asflexible in their contracts as TMF strives to be.

In Madison, there is much opportunity for microfinance and micro-loans. TMFhas conducted research and concluded that Madison, Wisconsin is an ideal location tolocate entrepreneurs, business owners, and citizens who could benefit from smallaffordable loans and the financial assistance of The Madison Fund team.


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IV. Market Analysis

Target Market:

TMF primarily seeks to provide loans to those who are unable to obtain capitalthrough traditional lending sources. Consequently, the un-banked population of theMadison Area represents our target borrowers well. Nearly 71% of un-banked householdsin the United States classify as low income 1 , showing the need for micro-loans amongworking poor who have no access to traditional capital markets. TMF will focus onsupplying its services to these persons by making its target household income bracket30% to 100% of the Madison areas median household income. Thus, the targethousehold income bracket for TMF borrowers ranges from about $17,300 to $57,700annually. This range includes 70,000 households in the Madison Area, and theentrepreneurs and small business owners from within this range will be our primarytarget market.

Market Demographics:

1. Recent research estimates that approximately 4.3% of Wisconsins population isunder-banked. This equates to nearly 250,000 people across the state. 2

2. The FDIC estimates that nearly 30.4% of African-Americans and 32.6% ofHispanics are un-banked. This suggests that the need for microfinance is

pronounced among African-American and Hispanic households. 3

3. The Small Business Administration Office (SBA) research indicates that theimmigrant population constitutes a larger proportion of those who start their own businesses. This suggests the pronounced need for microfinance amongimmigrants. 4

Market Demand:

1. The U.S. Small Business Administration Office (SBA) states that the recentcollapse of financial markets, especially the credit freeze in short-term funding,has had a devastating impact on small businesses. The SBA research concludesthat despite the Federal Open Market Committees extraordinary efforts to easemonetary policy, there is an inadequate supply of credit to small firms. 5

1 FDIC: National Survey of Un-banked and Under-banked Households, pg. 11-12, 2009

2 U.S. Census Bureau, Data for Dane County, 2009

3 Ibid (FDIC)

4 SBA, The Small Business Economy, pg 11, 2008

5 Ibid


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2. The demand for credit can be indirectly observed by size of the payday loanindustry, which annually contributes around $10 billion to national GDP. Thereare approximately 30 payday loan store locations in the immediate Madison area.

3. Tougher bank lending rules are driving more small businesses and startups

towards micro loans. The Small Business Administrations (SBA) loan volumedeclined 36% in 2009, as the economic recession prompted traditional banks totighten their credit policies. 6

4. Recent innovations in microfinance business models are increasing the self-sufficiency and profitability of the industry. The FDIC conducted a pilot Small-Dollar Loan Program that ended in 2009. Over the course of the program, 28

participating banks made 34,400 micro loans, totaling to 40.2 million dollars.Participating lenders noted the small loans increased long-term profitability, aswell as customer relations. 7

5.

Alex Counts of the Grameen Foundation has recently noted that with additionalcapital provided by foundations, donors, and government agencies, there issignificant room for growth in the U.S. microfinance industry. 8

Industry Default Rates:

Surprisingly enough, the default rates for micro-loans, compared to that of largerloans aimed at the general market, have been extremely low. In some regions, the rate has

been as low as 2%. The estimated default rate for microfinance groups before therecession was between 6% and 8%. They have risen slightly since. TMF has based its

business model and has set its interest rates according to our expected default rate.

Although TMF is expecting rates that are similar to the standard through themicrofinance industry across the country, we are taking a much more conservativeapproach as we begin our business activities.

TMF is prepared to absorb a default rate up to 10%. TMF is creating a businessmodel that focuses on preventing defaults for the benefit of the borrowers. A loan defaultcan further worsen the credit and prospects of an already suffering business owner, andTMF will do all in its power to prevent such an occurrence. TMF is prepared to adjustrates, payments, and even principals in order to create a healthy financial situation for the

borrower. Such adjustments will be made based on the borrowers business plan, pasthistory with TMF, and commitment to increasing financial competence, such as attending

a class or program at the University of Wisconsin-Madisons Small BusinessDevelopment Center.

6

7 FDIC Quarterly, 2010, Volume 4, No. 2: The FDICs Small-Dollar Loan Pilot Program

8


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Furthermore, TMF will provide assistance and support throughout the lifespan ofthe loan to make the payment process as fluent as possible. TMF will also network its

borrowers with other borrowers and business owners in the area in hopes that they will beable to share experience, knowledge and expertise with one another.

Industry Interest Rates:Because of the high risk involved in TMFs small and unsecured loans, the

standard rates charged on the loan packages will be slightly higher than that of traditional banking sources. TMF will make a valiant effort to keep its rates as low and as affordableas possible. However, there are fundamental risks involved that need to be accounted for.Microfinance organizations with similar business models to TMF consistently set interestrates between 12% and 15%. Despite the uncertainty of the borrowers in the microfinanceindustry, microfinance has discovered unprecedented success.

The reason for microfinances incredible success is the ability of loan officers and

organization directors the develop relationships with borrowers that go beyond the dollaramounts. While supplying clients with capital for profit-seeking ventures, TMF will offerfinancial advice and assistance. TMF will build a tight nit community among itsemployees and borrowers in which resources and support will be readily available. TMFreaches beyond the finances and into the hearts of the businesses in which we are helping.


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V. Competition

The Banking Industry

Traditional lending sources will not compete with The Madison Fund. Suchinstitutions are not usually willing to lend the small dollar amounts that TMF specializesin. In our research, we look at the ratio of micro-loans to total business loans(SSBL/TBL) at one hundred of the U.S.s leading lending institutions. 9 We find that 74%of these lenders have a SSBL/TBL ratio ranging from 0.00 to 0.05. This means that, atmost, only 5% of their loans are aiding small business.

Since the start of the2000s, the small businessloan share of banks loanand asset portfolios has

steadily declined, especiallyin the smallest loan sizecategory. 10 Thus, TMFviews itself as separatefrom traditional lendingsources.

Microfinance in Madison and the U.S.

TMF will benchmark itself against these few competitors in the Madison,Wisconsin area:

1) Envest, a cooperative that that offers capital directly as a loan to internationalmicrofinance institutions (MFI's), which in turn loan out smaller amounts to many

borrowers, for its large loan portfolio and capital, as well an established presencein the community.

2) Working Capital for Community Needs (WCCN), a nonprofit that partners withindividuals and organizations in Latin America and the U.S. to create economicopportunities, for its focus on a key demographic.

9 Data was taken from the SBA: Small Business and Micro Business Lending in the U.S., table 1B, pg. 26, 2008

10 SBA: Small Business in Focus: Finance, pg. 14, 2009


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3) Microfinance Leadership Initiative, a UW-Madison student organization that aimsto increase knowledge of microfinance, for its establishment on campus.

TMF will benchmark itself against these competitors in the United States:

1)

The Capital Good Fund, a Rhode Island nonprofit, for its rapid growth andinnovative microfinance model geared specifically for U.S. markets.

2) Grameen America, a national nonprofit, for its rapid expansion in the U.S. and itsrole a leading policy advocate for microfinance in the U.S.

3) The Elmseed Enterprise Fund, a nonprofit in New Haven, Connecticut, for itssmall interest loans and social media marketing

In our Competitive Analysis we conclude that many of these benchmarkorganizations provide models for TMF to imitate. Adapting proven techniques to our

market and community will strengthen the TMF model. We conclude that there areopportunities for partnership, as the nonprofit sector is collaborative in nature.


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Microfinance Organizations

Competitor Strengths Weakness Threats Opportunities Key Insights Envest -Established community

presence, many partners-International presenceWell financed

-Does not lend inMadison

-Environmentalfocus could

push intoTMFs EnergyEfficiencyLoan

-Cooperation in thefuture could lead toexpansion ofTMFs geographiccoverage

-Reliance on private donors isnot necessarilymost effective wayto raise capital

WCCN -Many partners-International presence

-Focused on loansto Latin Americaand women-Have moreactivities than justmicrofinance

None at present -Cooperation couldlead WCCN todirect more fundslocally, boostingTMFs loan pool

-TMF can focus onlocal markets withlow risk ofcompetition

MicrofinanceLeadershipInitiative

-Well establish presence instudent community

-Does not activelyoperate as a micro-lender-Focuses only onincreasingawareness ofmicrofinance

-Couldcompete withTMF forstudentvolunteers

-Cooperation couldlead to expandedTMF staff

-Student populationis a key resource

Capital GoodFund

-Innovative microfinancemodel developed for U.S.-Financial stability

-Have manyexpenses, less inloan pool than

possible

-Rapidlyexpanding

-Partnership couldallow TMF toutilize well tested

business models

-Efficient loanapplication process-Model gearedtowards U.S. urbanarea

Grameen America -Yunus as spokesperson-Extremely well financed,and stable

-Group loanmodel does nottranslate well in theUnited States

-RapidlyExpanding

-Their push formicrofinance

policy in the U.S.governmentstrengthens allmicro-lenders

-Impact of policy

Elmseed -Well established

community presence-Operate as a volunteerorganization

-Have not

introducedinnovations tomicrofinancemodel

None at present None at present -Efficient volunteer

labor


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VI. Market Strategy

Overview

In 2011: The Madison Fund will partner with the local nonprofit Nehemiah. This partnership will provide TMF with fiscal sponsorship and an established grassrootsconnection to the community. TMF will raise $40,000 in private donations and grants,funding 15 loans.

In 2012: The Madison Fund will have 10 positive reviews in popular media, havean established presence on the University of Wisconsin-Madison campus, and foster arelationship with the UW-Madison Small Business Development Center. TMF will bringon 5 new volunteer staff members to specialize as loan officers and market strategists.TMF will raise $100,000 in private donations and grants, funding 50 new loans.

In 2013: The Madison Fund will bring on a research specialist to analyze localmarket conditions and TMF service data. TMF will use performance benchmarks andmarket research to more effectively meet the needs of the community. TMF will raise$100,000 in private donations and grants, funding 100 new loans.

Obstacles to Success

The need for microfinance in the United States is greater than ever. Although theun-banked and under-banked continue to demand capital for their projects and ideas, it isestimated that only 2% of the potential market is being served 11 . Many microfinance

organizations experience slow growth and have trouble entering local capital markets.The Madison Fund identifies four major obstacles to success: high service costs, poormodeling, lack of funding, and lack of borrowers.

The Madison Fund strives to keep costs as near zero as possible. TMF relies onvolunteer staff for operations, and pays out no salaries. TMF has no plans of paying outsalaries in the future. TMF strives to put every cent received in donations, grants, andloan repayment directly back into our loan pool. In this way, TMF avoids the burden ofslow growth due to high service costs.

While classic microfinance models, such as group borrowing, have been

successful in third world countries, entrance in a U.S. market requires adaptation. Inorder to succeed, TMF will focus on using and developing innovative micro-lendingmodels geared specifically for the U.S. The Capital Good Fund (CGF), a nonprofit micro-lender based in Rhode Island, has demonstrated the effectiveness of altering the classicmicrofinance model to better fit the local market. CGFs innovative DoubleGreen ! Loan

11 http://www.nytimes.com/2008/11/09/magazine/09nix-t.html?scp=1&sq=check%20casher&st=cse


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and grassroots marketing campaigns have made them one of the leading micro-lenders inthe United States, bolstering Rhode Island employment and preventing 4 tons of carbondioxide emissions 12 . TMF will adapt models from innovators such as CGF to fit theMadison area market, as well as develop region-specific programs to target organicfarmers and other small businesses.

An insufficient capital stock can result in slow growth of microfinanceinstitutions. Without the proper funding, MFIs must wait for outstanding loan repaymentin order to replenish their loan pool. Invaluable time is lost and business expansion isimpossible. The Madison Fund ambitiously seeks out private donations and grants toassure that its capital reserve is ample enough to avoid this problem. Kiva.org hasdemonstrated the importance of raising individual donations online. Through an inventiveonline lending channel, Kiva.org has helped fund nearly 300,000 loans around the world,totaling $222,286,225 in value 13 . TMF has constructed its website to ensure that thedonation process is as hassle-free for the donor as possible. TMF will avoid failing toobtain sufficient capital reserves by making use of technological advances and proper

grassroots marketing campaigns.MFIs may find it difficult to connect with clients. This is due to lack of borrower

knowledge of the benefits of credit, financial literacy, and sustainable practices.Borrowers may also find it difficult to connect with MFIs due to a lack of technology,education, and health/family issues. The Madison Fund relies on grassroots organizationand marketing to overcome these challenges.

Customer Acquisition

TMF utilizes four important competitive advantages in positioning in the Madisonarea and obtaining borrowers: nonprofit status in the community, grassroots organization,local partnerships, and a green focus.

TMF drives awareness of its activities by utilizing a grassroots and word of mouthmarketing strategy. Making connections with local community centers, such as churchesand small business development centers, allows TMF to expand its cliental. Wherever itis appropriate to do so, TMF places flyers and brochures expounding the benefits ofmicrofinance services and loans. In the future, TMF will strive to utilize radio ads, whichhave proven effective with other nonprofit micro-lenders such as the Capital Good Fund.TMF will also take advantage of local outdoor markets and set up information stands, sothat the community may put a face with the organization.

Online social media and networking is a key tool utilized by TMF. Internetforums, such as Facebook and Twitter, are an essential way to reach into the community.These forums allow TMF to advertise its services, as well as foster conversations about

12 http://www.capitalgoodfund.org/ourimpact/bythenumbers

13 http://www.kiva.org/about/stats


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microfinances role in aiding community growth. TMF will launch a PR campaign togain press in leading national microfinance blogs and forums. TMF has invested a large

portion of its expense into an accessible, easy-to-navigate, and resourceful website.TMFs website utilizes search engine optimization (SEO) strategies to ensure potential

borrowers are directed quickly to the site. This investment will allow TMF to launch an

online marketing campaign that reaches into the community for borrowers and donors.

TMF takes advantage of its university and community connections for its word ofmouth campaign. The UW-Madison Small Business Development Center is a keyresource for referrals. TMF is partnered with local nonprofit Nehemiah, which aidscommunity development through tested training programs. Partnerships such as thisallow TMF to extend further into the community and reach out to borrowers.

TMF uses its green focus to gain community support. UW-Madisons WeConserve sustainability initiative is a key indicator of the communitys environmental

stance. TMF hones in on this attitude, offering an energy efficient loan package, to

expand its market to organic farmers and other sustainable small businesses.


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VII. Loan Package Services

Introduction

TMF is organized to provide basic financial assistance and loans to meet theneeds of four types of borrowers: small business owners, entrepreneurs, those interestedin making their businesses/homes more energy efficient, and those applying fornaturalization in the US. The borrower will be assisted throughout the life of the loan bysetting up a comprehensive repayment plan and by meeting with his or her loan officer

periodically. Meetings will help the borrower to acquire and/or polish business andorganizational skills to ensure that he/she is in the best position possible to keep up withmonthly financial responsibilities. The borrower may ask for more help from TMFs staffas well as the network to connect and interact with other of TMFs borrowers/clientele.The sections below describe The Madison Funds four different loan packages and details

pertaining to each.

Interest Rates

TMF will set interest rates at 12-15%, (variation in this range is due to TMFs perceived borrower default risk). Though this figure is higher than the market interest ratedue to higher risk of default, our primary goal is to assist entrepreneurs and businessowners of Madison. All interest rate payments are reinvested into the TMF loan pool andthe Madison community.

TMF is absolutely willing and able to negotiate openly and safely with a borrower. For example, if a borrower cannot pay during a month in which there is anextreme circumstance, they are welcomed to bring this problem up with their loan officer,and a number of possible solutions can be discussed including but not limited to, delay ofrepayment, interest readjustment, principal readjustment, an interest-only payment, or a

principal-only payment.A number of factors will be considered in determining TMFs willingness to

adjust terms of payment; (1) Borrowers past history with TMF, (2) Borrowers recentfinancial documents, including tax returns, bank statements, etc, (3) Borrowers business

plan, (4) Borrowers commitment to increasing financial competence.

Borrower Requirements

Prior to inquiring about and committing to a lending agreement, TMF asks that potential borrowers of the Small Business Loan, Entrepreneurship Loan, and EnergyEfficiency Loan meet several basic requirements. The first of these is to create and

present a well thought-out business plan. This ensures that the borrower not only has anidea for growth, but also has an outline for how he/she plans to utilize funds. In additionto the business plan, potential borrowers must present financial documents including butnot limited to: tax returns, bank statements, and proof of a business checking account. If


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potential borrowers do not have these documents, TMF will gladly assist potential borrowers in obtaining them. Borrowers who meet these criteria are considered mostreliable and well prepared to take on the loan liability, and will thus be considered for oneof TMFs loan packages.

Finally, if a borrower obtains a loan, he/she must decide on a meeting schedulewith a loan officer to update on progress. Borrowers and loan officers should constantly be in touch, and TMF believes that these update meetings will foster a strong and trustingrelationship between the loan officer and the borrower. No borrower may take outanother loan to repay an existing one.

Small Business Loans

The Small Business Loan package provides funds to small business owners strugglingto keep their businesses afloat during financially difficult times, and to owners looking

for an extra boost to help expand operations. Borrowers utilizing this loan will have ahistory of business in the greater Madison area, and despite past successes or lack thereof,they are discovering a need for increased capital in their small business.

The Small Business Loan ranges from $500-$5,000 to help support the funding of agrowing, thriving, or weakening small business. The nature of the recipients business isnot of primary concern, and probable borrowers may work in a wide array ofemployment from restaurants to day-care centers. TMF will target business owners whoare unable to secure loans by traditional means and who will benefit greatly from a smalland unsecured loan. A borrower must demonstrate an ability to follow the repaymentschedule, which can be displayed through fluent financial organizational skills, credit

histories, average monthly income, expected revenues, etc.

Entrepreneurial Loans

The Entrepreneurial Loan package is designed for those who have either limitedor no history of business practice. These entrepreneurs possess the ideas, skills, talents, or

plans for operations, but are finding it difficult to begin business. Entrepreneurs come toTMF in the need for start-up seed capital for their business plans. If entrepreneurs alsofind themselves struggling with their financial organization or management, TMF will bereadily available with all the assistance it can provide, including (if necessary) referral toa more expert source such as the Wisconsin Small Business Development Center.

These loans will be relatively similar to the Small Business Loan Package exceptthe target borrowers are entrepreneurs rather than business owners. The amounts of theseloans will range from $500-$5,000. Again, the nature of the business is not of primaryconcern, though these borrowers must have a business plan coupled with a clear purposeand detailed outline for the funds that they will receive. Borrowers receiving this loan


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package must open a business banking account if they do not have one already, and TMFcan assist them in that process.

Citizenship Loans

The Citizenship Loan is designed for those submitting or planning to submit anApplication for Naturalization with the US Citizenship and Immigration Services Bureau.These borrowers are Madisons future citizens, and are an essential part of creating aunified, more inclusive city. With this loan package, applicants will obtain both guidanceand financial support to lessen the unexpected burden of the application process and fee.

The Citizenship Loan Package will provide the borrower with $675the fee thatthe US Bureau of Citizenship and Immigration Services charges for submission of anApplication for Naturalization.

Energy Efficiency Green Loans

The Energy Efficiency loan package is designed for clients interested in increasingenvironmental sustainability by moving towards greener practices, resulting in alleviatingthe burden of energy bills. Every business and household in the United States has roomfor improvement when it comes to becoming more environmentally friendly. Ideally, thegreen loan will pay for itself in saved costs.

The Energy Efficiency or Green Loan Package is will reduce energy costs andimprove the energy efficiency of lighting, appliances and other operational components.

Not only can new and improved appliances assist in creating a more sustainable society, but also it can greatly reduce energy costs and dependence. Spending more money to purchase an Energy Star rated appliance for example, can help to pay for itself in itsreduced monthly energy costs.


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VIII. Performance Benchmarks

Ratio Formula Purpose Sustainability

Operational Self-Sufficiency

OperatingRevenue/(Operating Costs+ Loan Loss Provisions +Financing Costs)

Measures if enough revenue has beenearned to cover direct costs, andindicates if TMF if becoming increasingself-sufficient

Return on Assets (Net Operating Income-Taxes)/Average Assets

Measures how well TMFs assetsgenerate revenue

Asset Management Loan-Loss Provision Ratio Loan-Loss

Provision/AveragePerforming Assets

Indicator of provisioning requirementson current loan portfolio

Loan-Loss Ratio Amount WrittenOff/Average LoansOutstanding

A rough indicator of TMFs overall portfolio quality, a tool for combatingdefault risk

Portfolio in Arrears Balance of Past DueLoans/Value of LoansOutstanding

Measures amount of default in current portfolio

Capital Adequacy Capital to Assets Ratio Capital/Total Performing

Assets Measure of general capital sufficiency

Debt to Asset Ratio Total Liabilities/TotalPerforming Assets

Indicator of how much of TMFs assetsare financed through debt

LiquidityCurrent Ratio Current Assets/Current

Liabilities Indicates TMFs ability to meet short-term credit obligations

Team EfficiencyPersonnel Productivity Number of Active

Borrowers/Number ofPersonnel

Measures the overall productivity ofTMF staff

Operating Expense Ratio OperatingExpense/Average GrossLoan Portfolio

Overall measure of TMF efficiency

Cost Per Borrower OperatingExpense/Average Numberof Active Borrowers

A rough measure of how much TMFspends on each borrower


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IX. Risk Assessment

Default Risk

Historically, due to the unique structuring of the microfinance lending system andthe close attention and relationship that the institution builds with the borrower, defaultrates to low-income borrowers have been lower than those to the traditional borrowers.Globally, micro-loan default rates have been as low as 2%. In the United States, this rateis expected to be slightly higher. Additionally, TMF is a new organization in a marketthat has not yet been exposed to microfinance. TMF expects default rates similar to thosearound the nation and slightly higher than those in developing or emerging marketregions.

TMF has been organization specifically in such a way that default risk isminimized. TMF has built a default rate of 10% into its financial structure and

projections. We expect the default rate on all outstanding loans to be closer to 5%.Default risk, however, has been accounted for and is offset by unusually lowadministrative costs, and an appropriate interest rate.

In addition to these offsetting factors, TMF will mitigate default risk by workingclosely with all borrowers, and adjusting loan terms and structures to meet the needs of

borrowers. A late or even a temporary interest-free payment is better for both parties thana total default. TMF also encourages early loan repayment.

Capitalization Risk

TMF faces the risk of not being able to fundraise sufficient operating capital.TMF will focus on increasing operational self-sufficiency on a yearly basis, aiming for arate of 95%. Expansion of TMF operations will occur at a slow rate, so as to ensure ourcapital is used wisely and efficiently.

TMF has been structured in order to ensure that incoming revenue fromdonations, grants, and loan payments is sufficient enough each year to keep TMFoperational and to grow or at least sustain the current levels of the loan pool.


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X. Our Team

Alexander K Rosenthal Executive Director

University of Wisconsin-Madison Class of 2013Departments of Chinese, Economics and [email protected] | (800) 294-7517

Andrew Tapper Executive Director

University of Wisconsin-Madison Class of 2013Departments of Economics and [email protected] | (847) 513-3005

Ben Landau - Managing Director

University of Wisconsin-Madison Class of 2013Department of Economics, School of Business

[email protected] | (800) 294-7517

Tony RudeenMarketing

University of Wisconsin-Madison Class of 2013Department of Economics, School of [email protected] | (800) 294-7517

Arielle DanieliLoan Services

University of WisconsinMadison Class of 2013Department of Accounting, School of [email protected] | (847) 293-5522


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The Madison Fund, Inc.

1360 Regent St. Suite 124

Madison, WI 53715P: (800) 294-7517

[email protected]

www.madisonfund.org

Money Lendingf

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