Tentative Offer from SEEDFINANCE Corporation. Section 1 - describes briefly SEEDFINANCE Corporation...

Tentative OfferTentative Offerfromfrom SEEDFINANCE SEEDFINANCE CorporationCorporation

Section 1Section 1 - - describes briefly SEEDFINANCE describes briefly SEEDFINANCE CorporationCorporation

Section 2Section 2 - - describes briefly the key points describes briefly the key points of our tentative offer of our tentative offer

Section 3Section 3 - - describes the various benefitsdescribes the various benefits

Section 1Section 1

describes briefly SEEDFINANCE describes briefly SEEDFINANCE CorporationCorporation

• The SEEDFINANCE Corporation is The SEEDFINANCE Corporation is registered with the SEC, with authorized registered with the SEC, with authorized capital of PhP 120 million, registered as a capital of PhP 120 million, registered as a financing company.financing company.

Our paid-up capital is now nearly 80 Our paid-up capital is now nearly 80 million pesos. Increase our authorized capital million pesos. Increase our authorized capital stock from 120 million pesos to 900 million stock from 120 million pesos to 900 million pesospesos

•• We have partnered with PNB Capital to We have partnered with PNB Capital to help raise equity and debt capital for us, and help raise equity and debt capital for us, and there are on-going negotiations now where there are on-going negotiations now where new investors to come in new investors to come in

Our social missionOur social mission: :

To build capacities of local rural To build capacities of local rural microfinance organizations, microfinance organizations, including cooperatives, so they including cooperatives, so they can deliver appropriate and can deliver appropriate and affordable financial and non-affordable financial and non-financial services to poor and low-financial services to poor and low-income households. income households.

• We are owned 60% by CARE USA, and We are owned 60% by CARE USA, and co-owned 40% by SEAD Inc (a microfinance co-owned 40% by SEAD Inc (a microfinance NGO) and a number of partner cooperatives NGO) and a number of partner cooperatives and microfinance organizations. and microfinance organizations. Many of CBL shareholders are also network Many of CBL shareholders are also network members and shareholders of our Company. members and shareholders of our Company.

•• We have a 9-man Board of Directors and We have a 9-man Board of Directors and a 5-man Executive Committee. a 5-man Executive Committee.

•• Computerized accounting systemComputerized accounting system

•• Our Company is led by a President /CEO Our Company is led by a President /CEO who also leads a Senior Management Team who also leads a Senior Management Team comprising of 4 top managerscomprising of 4 top managers

•• Partners with 78 Partner Financial Partners with 78 Partner Financial Institutions (PFIs), consisting mostly of Institutions (PFIs), consisting mostly of primary cooperatives. CBL is one of our primary cooperatives. CBL is one of our pioneer partners since 2002. pioneer partners since 2002.

The number of PFIs is expected to reach The number of PFIs is expected to reach 100 within the next 2 or 3 ears. 100 within the next 2 or 3 ears.

•• Our Company was established by CARE Our Company was established by CARE Philippines in 1993 as a microfinance project. Philippines in 1993 as a microfinance project.

We provide training, technical assistance and We provide training, technical assistance and loans to small and medium size Microfinance loans to small and medium size Microfinance Institutions (MFIs) in the country. Institutions (MFIs) in the country.

We have a solid track record of building the We have a solid track record of building the institutional capacities of partner MFIs. institutional capacities of partner MFIs.

•• We are essentially a wholesale We are essentially a wholesale microfinance financing company microfinance financing company

•• The network of partners are the The network of partners are the customer base of the Company and also serve customer base of the Company and also serve as the channel to deliver or sell microfinance as the channel to deliver or sell microfinance products products

•• Through this network of PFIs, this Through this network of PFIs, this company is reaching out to 1.2 million company is reaching out to 1.2 million microfinance end-clients microfinance end-clients

•• Various products and services: loans of Various products and services: loans of various types and purposes, training and various types and purposes, training and consulting services, project management consulting services, project management services, technical assistance services, etc. services, technical assistance services, etc.

•• Income streams: (2) interest incomes Income streams: (2) interest incomes on loans, (2) consultation and training fees, on loans, (2) consultation and training fees, (3) small grants from donors for special (3) small grants from donors for special projects. •projects. •

•• Our new income streams: (1) Our new income streams: (1) commissions on the sale of airtime (SMART commissions on the sale of airtime (SMART Telecom), (2) share in the remittance fees Telecom), (2) share in the remittance fees earned by mobile banking units – SMART earned by mobile banking units – SMART Money, (3) share in the installation of ATM Money, (3) share in the installation of ATM machines and hosted core banking systems in machines and hosted core banking systems in PFIs, (4) share in ATM transaction fees. PFIs, (4) share in ATM transaction fees.

•• The major foreign creditors are: The major foreign creditors are: MicroVest (USA), Oikocredit (Netherlands), MicroVest (USA), Oikocredit (Netherlands), DWM (USA), SNS (Netherlands), PlaNIS DWM (USA), SNS (Netherlands), PlaNIS (France), ResponsAbility (Switzerland), CARE (France), ResponsAbility (Switzerland), CARE USA and Symbiotics (USA). The major local USA and Symbiotics (USA). The major local creditors are: BPI, BPI-Globe Banko, and creditors are: BPI, BPI-Globe Banko, and Small Business Corporation. Small Business Corporation.

There are on-going negotiations with ACCION There are on-going negotiations with ACCION International, Elevar Equity, and Land Bank of International, Elevar Equity, and Land Bank of the Philippines. the Philippines.

We also receive some grants from PCFC for We also receive some grants from PCFC for capacity development of selected PFIs. capacity development of selected PFIs.

Microvest, ACCION International and other Microvest, ACCION International and other international investors are interested in international investors are interested in supporting this bank acquisition project, if it supporting this bank acquisition project, if it will result to helping hundreds of will result to helping hundreds of cooperatives and millions of poor people.cooperatives and millions of poor people.

Our total assets = 530 million pesos; will Our total assets = 530 million pesos; will reach 800 million pesos by Dec-2011 reach 800 million pesos by Dec-2011

Total capital = 80 million pesos Total capital = 80 million pesos Capital will increase to 290 million by year- Capital will increase to 290 million by year-endend

Net-Profit Profit before-tax = PhP 6.4 million Net-Profit Profit before-tax = PhP 6.4 million

•• ROE = 9.4 % ROE = 9.4 % •• Capital Adequacy Ratio = 22% Capital Adequacy Ratio = 22% •• Portfolio at Risk = 2.6%Portfolio at Risk = 2.6%

Our social missionOur social mission: :

To build capacities of local rural To build capacities of local rural microfinance organizations, microfinance organizations, including cooperatives, so they including cooperatives, so they can deliver appropriate and can deliver appropriate and affordable financial and non-affordable financial and non-financial services to poor and low-financial services to poor and low-income households. income households.

Section 2Section 2

describes briefly our tentative describes briefly our tentative offeroffer

The current dire situation of the bank: The current dire situation of the bank:

1)1) The deteriorating financial condition of The deteriorating financial condition of CBL has put the Bank in BSP’s Prompt CBL has put the Bank in BSP’s Prompt Corrective Action (PCA). If there is no Corrective Action (PCA). If there is no additional equity capital, that may mean the additional equity capital, that may mean the failure of the PCA, the eventual collapse of failure of the PCA, the eventual collapse of the bank, and the BSP shall be forced to shut the bank, and the BSP shall be forced to shut it down. it down. 2)2) CBL lacks qualified and aggressive CBL lacks qualified and aggressive management team management team 3)3) CBL needs to reorganize to strengthen CBL needs to reorganize to strengthen operations;operations;4)4) Management needs creativity in Management needs creativity in developing strategies to be more developing strategies to be more competitive;competitive;

Real situation: Real situation:

5) 5) Personnel lacks the appropriate training Personnel lacks the appropriate training in their respective areas of operationin their respective areas of operation

6)6) Majority of the personnel are close to Majority of the personnel are close to their “retirement” stage having worked with their “retirement” stage having worked with the Bank for more than 15 years;the Bank for more than 15 years;

7)7) Reporting (particularly to the Board) Reporting (particularly to the Board) and monitoring system is deficient despite and monitoring system is deficient despite the existence of policies;the existence of policies;


8) Management lacks review of credit 8) Management lacks review of credit policies particularly on collateral free loanspolicies particularly on collateral free loans

9)9) Shareholders up to the present time do Shareholders up to the present time do not receive dividends; shareholders are not receive dividends; shareholders are concerned on the protection of their concerned on the protection of their investments;investments;

10)10) There is a need to look for a market There is a need to look for a market niche; new products need to be designed to niche; new products need to be designed to complement the products of the primary complement the products of the primary coopscoops


11) 11) There are serious weaknesses in the There are serious weaknesses in the bank’s organizational structure, manpower bank’s organizational structure, manpower complement and the systems and procedures complement and the systems and procedures operating within the bank. operating within the bank.

12)12) CAMELS composite rating is “2” which CAMELS composite rating is “2” which means that CBL has serious financial and means that CBL has serious financial and managerial deficiencies resulting into managerial deficiencies resulting into unsatisfactory performance.unsatisfactory performance.


13) 13) The bank recorded net operating losses The bank recorded net operating losses during the four years under review. In year-during the four years under review. In year-end 2010, net income booked was P132K. end 2010, net income booked was P132K. Ratio of net income to total assets (ROA) was Ratio of net income to total assets (ROA) was a low 0.3% vis-à-vis the industry’s 2%. a low 0.3% vis-à-vis the industry’s 2%.

Likewise, ratio of net income to capital (ROI) Likewise, ratio of net income to capital (ROI) of 2.4% was lower than the industry’s 11.6%.of 2.4% was lower than the industry’s 11.6%.


14) Paid –up capital of P11M was impaired due to 14) Paid –up capital of P11M was impaired due to the P6M deficit in retained earnings.the P6M deficit in retained earnings.

15)15) Past due loans continuously increased from Past due loans continuously increased from P6M in 2007 to P10.9M in 2010. P6M in 2007 to P10.9M in 2010.

16) Past due ratio of 29.7% in 2010, which is 3 16) Past due ratio of 29.7% in 2010, which is 3 times higher than the industry’s 9%.times higher than the industry’s 9%.


Given the above condition, CBL has to improve its Given the above condition, CBL has to improve its management, systems, products, and its collection management, systems, products, and its collection efforts to reduce the Bank’s High Past Due Rate, efforts to reduce the Bank’s High Past Due Rate, which is the main cause of the bank’s deteriorating which is the main cause of the bank’s deteriorating financial condition. financial condition.

CBL likewise needs to come up with strategies, CBL likewise needs to come up with strategies, formulate and implement a business improvement formulate and implement a business improvement plan to enable the Bank to entice more depositors plan to enable the Bank to entice more depositors and/or investors to increase the capitalization of and/or investors to increase the capitalization of the bank.the bank.


If the BSP shut down CBLIf the BSP shut down CBLMany people and institutions will lose:Many people and institutions will lose:

All the depositors All the depositors The Shareholder primary coops The Shareholder primary coops SEEDFINANCE will be affected tooSEEDFINANCE will be affected tooAll preferred shareholdersAll preferred shareholdersAll creditorsAll creditorsThe BOD members The BOD members

Our tentative offer is for a Our tentative offer is for a SPECIAL PARTNERSHIP arrangementSPECIAL PARTNERSHIP arrangement that that can be summarized in three wordscan be summarized in three words

RescueRescue

Develop Develop

UpgradeUpgrade

Phase 1 - Phase 1 - RescueRescue

The objective of this Phase is to The objective of this Phase is to prevent the possibility of the BSP prevent the possibility of the BSP closing down the bank due to negative closing down the bank due to negative equity and due to poor management.equity and due to poor management.

Phase 1 - Rescue Phase 1 - Rescue

1)1) Investment into Preferred Shares: With the Investment into Preferred Shares: With the approval of the BSP and the shareholders of CBL, approval of the BSP and the shareholders of CBL, SEEDFINANCE will be allowed to convert 8.5 million SEEDFINANCE will be allowed to convert 8.5 million pesos of its loans to CBL into equity, through CBL pesos of its loans to CBL into equity, through CBL issuance of Preferred Shares Series __. issuance of Preferred Shares Series __. 2)2) Board representative: The shareholders shall Board representative: The shareholders shall allow one representative from our Company to sit allow one representative from our Company to sit as a non-voting representative to your Board of as a non-voting representative to your Board of Directors, to provide management and governance Directors, to provide management and governance advice to your bank.advice to your bank.

Phase 1 - Rescue Phase 1 - Rescue

3)3) Pro-bono Consultant: CBL shall appoint Pro-bono Consultant: CBL shall appoint SEEDFINANCE as a “management consultant”, on SEEDFINANCE as a “management consultant”, on pro-bono basis. This makes our management pro-bono basis. This makes our management advice and services essentially FREE to the bank. advice and services essentially FREE to the bank.

4)4) MOU: Signing up a MOU describing the key MOU: Signing up a MOU describing the key basic management changes and improvements basic management changes and improvements that will have to be made, which will include some that will have to be made, which will include some steps to improve collections and internal systems. steps to improve collections and internal systems. The MOU will also contain the key steps under The MOU will also contain the key steps under Phases 1, 2 and 3. Phases 1, 2 and 3.

Phase 2 – DevelopPhase 2 – Develop

The objectives of this Phase are (a) to The objectives of this Phase are (a) to develop the deposit-taking and lending develop the deposit-taking and lending business of the bank, so that it will become business of the bank, so that it will become a profitable small bank, and (b) to exit the a profitable small bank, and (b) to exit the PCA program of the BSP.PCA program of the BSP.

Phase 2 – Develop Phase 2 – Develop

5)5) Additional Capital Infusion: SEEDFINANCE will Additional Capital Infusion: SEEDFINANCE will infuse new additional capital to finance the growth infuse new additional capital to finance the growth of CBL’s loan portfolio; additional 30 to 50 million of CBL’s loan portfolio; additional 30 to 50 million pesos. The loan portfolio of CBL must be increased pesos. The loan portfolio of CBL must be increased to generate sufficient revenues to generate sufficient revenues


6) Develop New Products and Services: We shall 6) Develop New Products and Services: We shall improve the deposit-taking products and loans of improve the deposit-taking products and loans of the bank to make them attractive to primary the bank to make them attractive to primary cooperatives and local people. cooperatives and local people.

7) 7) Install Better Marketing Systems and Install Better Marketing Systems and linkages: Intensify the promotions of bank’s linkages: Intensify the promotions of bank’s services to the local community and other services to the local community and other cooperatives in other places. We shall develop cooperatives in other places. We shall develop linkages with partner cooperatives, so we can sell linkages with partner cooperatives, so we can sell

through our partners.through our partners.


8)8) Negotiations on conditional sale of Negotiations on conditional sale of shares, with individual shareholders of the shares, with individual shareholders of the bank, to have conditional purchase bank, to have conditional purchase agreements. This is necessary incentive to agreements. This is necessary incentive to SEEDFINANCE SEEDFINANCE

9)9) Exit PCA: we shall convince BSP to lift Exit PCA: we shall convince BSP to lift

PCAPCA

Section 3Section 3

The objective of this Phase is: (a) to The objective of this Phase is: (a) to gather new and bigger shareholders gather new and bigger shareholders and investors who will put more and investors who will put more money into the bank, and (b) to money into the bank, and (b) to convert CBL into a Thrift Bankconvert CBL into a Thrift Bank

Phase 3 – Upgrade Phase 3 – Upgrade

Develop a new Business PlanDevelop a new Business Plan:: Together with you and all shareholders of the Together with you and all shareholders of the bank, we shall agree to become a bigger bank, we shall agree to become a bigger bank in the future, and develop a new bank in the future, and develop a new Business Plan which will guide us through the Business Plan which will guide us through the growth process. To serve more cooperatives growth process. To serve more cooperatives and millions of poor and low-income Filipinos, and millions of poor and low-income Filipinos, we shall aim to become a big microfinance-we shall aim to become a big microfinance-oriented development bank in the future. oriented development bank in the future.


Gather a Group of ShareholdersGather a Group of Shareholders:: SEEDFINANCE shall gather interested SEEDFINANCE shall gather interested investors and stakeholders who are willing to investors and stakeholders who are willing to invest substantial money into the bank. invest substantial money into the bank. Besides Besides SEEDFINANCE itself, potential investors will be invited, such as, are: Philippine SEEDFINANCE itself, potential investors will be invited, such as, are: Philippine National Bank, ACCION International, CLIMBS, Asia United Bank, Small National Bank, ACCION International, CLIMBS, Asia United Bank, Small Business Corporation, several international investors, various big primary Business Corporation, several international investors, various big primary cooperatives in the industry, etc. The existing shareholders of CBL can still cooperatives in the industry, etc. The existing shareholders of CBL can still remain as shareholders of this bank albeit their shareholdings will be diluted remain as shareholders of this bank albeit their shareholdings will be diluted

unless they invest more money into the bankunless they invest more money into the bank. .


Convert CBL into a Thrift BankConvert CBL into a Thrift Bank: We : We shall ask the BSP to convert the status shall ask the BSP to convert the status of the bank into a Thrift Bank, of the bank into a Thrift Bank, specifically into a “Development specifically into a “Development Bank”. Bank”. The minimum requirement now to have a Thrift Bank status is 250 million The minimum requirement now to have a Thrift Bank status is 250 million

pesos, so we shall be required by the BSP to show our proposed shareholders. We shall pesos, so we shall be required by the BSP to show our proposed shareholders. We shall show BSP the group of old and new investors who are willing to put in a total of 250 million show BSP the group of old and new investors who are willing to put in a total of 250 million pesos as fresh equity capital into this bank. pesos as fresh equity capital into this bank.

Disclosure:Disclosure:

This offer is tentative and This offer is tentative and exploratory. This is not yet exploratory. This is not yet formally approved by our BOD formally approved by our BOD and shareholdersand shareholders

Section 3Section 3

describes briefly the various describes briefly the various benefits benefits

Benefits: Benefits:

a)a) Saving the bank will mean Saving the bank will mean protecting the deposits of the depositors: protecting the deposits of the depositors:

b)b) Saving the bank will mean saving Saving the bank will mean saving our investments our investments

c)c) Wide linkages with primary Wide linkages with primary cooperatives and banks: SEEDFINANCE has cooperatives and banks: SEEDFINANCE has 78 partner cooperatives, rural banks and 78 partner cooperatives, rural banks and microfinance NGO across the whole country, microfinance NGO across the whole country, and we can link CBL to many of these and we can link CBL to many of these cooperatives. cooperatives.

Benefits: Benefits:

d)d) New technologies. SEEDFINANCE New technologies. SEEDFINANCE can bring new technology through its can bring new technology through its partnership with SMART telecom, ENCASH partnership with SMART telecom, ENCASH ATM and other resource agenciesATM and other resource agencies

e)e) Better internal governance. Better internal governance.

f)f) Will allow SEEDFINANCE to offer Will allow SEEDFINANCE to offer more financial servicesmore financial services

g)g) Will benefit hundreds of primary Will benefit hundreds of primary cooperatives and millions of poor people: our cooperatives and millions of poor people: our country. country.

Thanks for listening and Thanks for listening and considering this proposalconsidering this proposal

Tentative Offer from SEEDFINANCE Corporation. Section 1 - describes briefly SEEDFINANCE Corporation...

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