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Micro-credit Social Venture Plan

2010-2011
Team Members: Alex Rosenthal, Andrew Tapper, Ben Landau, Tony Rudeen and Arielle Danieli

Table of Contents I. II. III. IV. V. VI. VII. IX. X. Introduction Logic Model Microfinance Overview Market Analysis Competition Market Strategy Loan Services Risk Assessments Team Profiles 3 4 5 6 9 12 15 18 19 20

VIII. Performance Benchmarks

The Madison Fund Social Venture Plan

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 financial conditions of small businesses and low-income entrepreneurs in the Madison, Wisconsin area 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 larger sustainable and green impact in the community. The Madison Fund was founded by University of Wisconsin-Madison students and incorporated in September of 2010. At the time of the composition of this Social Venture Plan, TMF is in its earliest stages of development and has not engaged in activities other than organization. In the future, TMF will accomplish the aforementioned goals by offering affordable micro-loans to small business owners, motivated entrepreneurs and low-income residents in Madison. Borrowers will be those who are unable 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 from friends 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 these funds 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, and it has no plans to pay anyone a salary or service fee in the future. Other than necessary costs to keep the business afloat; utility bills, office space, costs of transportation etc., our aim is to have close to zero expenses so that as close to 100% as possible of the loan pool will be available for loan packaging, and as close to 100% as possible of the loan returns will be reinvested in the loan pool. In this way, the fund will be able to grow at a much quicker rate than it would normally and at a faster rate than its competitors and similar funds.

The Madison Fund Social Venture Plan

II. Logic Model

Inputs
TMF will need these resources to achieve our set of activities

Activities
In order for TMF to carry out its vision, we will accomplish the following activities

Outputs
When these activities are accomplished, we expect to observe these results

Short Term Outcomes

When we accomplish our activities we expect to observe these changes in 1-2 years

Long-term Outcomes
When we accomplish our activities we expect to observe these changes in 2-4 years

Impacts
We expect that if we accomplish these activities we will observe these changes in our organization and community in 7-10 years

-Networking with professors and other non-profits; advisory panel Model for application process, loan origination, and repayment Postings on BuckyNet, social networking

Obtain professional board of directors

Create a loan program outcome success measurement Obtain diverse volunteer staff

More experienced and professional advisory; broaden community outreach and increase community-based referrals Default rate less than 10%, client satisfaction 100% Broader range of ideas and opportunities for volunteers

50 community-based referrals to TMF

200 community-based referrals to TMF/year

Reduce costs of administration transitions, legal/financial guidance to keep TMF expenses as near $0 as possible A majority of net operating capital put in loan pool for new loan origination Highly qualified volunteers contributing skills and knowledge to TMF, keeping costs as near $0 as possible Established community ties lead to more trusting and safe borrower/lender relationship, and ultimately growth An established and sustainable community micro-lender, help create 100 local jobs annually TMF seen as expert guide on microfinance industry and market in Wisconsin A fully operational nonprofit micro-lender will boost employment and strengthen the community

Streamlined loan lifecycle

Increase borrowers by 50% each year

Broader knowledge and skill base, ability to choose staff more selectively Increased loan pool by $20,000 within a year, larger base of potential borrowers Increased number and dollar amount of loans distributed, increased direction of TMF Increase borrowers by 50% each year 10 loans funded

SEO campaign, social marketing

Broaden grassroots support

Local awareness and support of TMF; access to potential borrowers Increased funds for lending; increased awareness More focus on how to best direct TMF efforts Additional credibility for TMF, increased attractiveness for donors Financial stability, allows analysis of TMF performance benchmarks Connect more borrowers to TMF services

Completed research on available grants, completed business plan TMF loan statistics, more staff Complete and submit 501c3 documents Volunteer Staff

Application of grants

Design and implement microloan demand and impact research IRS 501c3 Status

Students committed for all or majority of their college career, Reduce costs of administration transition Increase borrowers by 50% each year, 15 positive reviews or articles in popular media Raise at least $100,000 through grants, have established grant programs to apply for each year Create loan packages tailored specifically to Madison area In-flow of at least $20,000 in private donations a year

Hire a CFO

IRS 501c3 status, at least 5 loans out

Build Relationship with UW-Madison Small Business Development Center

A resource for financial education classes for clients

Have at least 10 borrowers referred to TMF

Build relationships with similar organizations, establish TMF as most prominent community micro-lender

The Madison Fund Social Venture Plan

III. Microfinance Overview

Microfinance, or micro-credit, is an efficient and successful way to extend small-dollar loans to impoverished people in hopes of encouraging community growth and development. In the past few decades microfinance has become increasingly popular in third-world regions. Its influence has grown and has had major societal and economic influences around the world, alleviating poverty in countries such as Bangladesh, India, and Ecuador. Microfinance in the United States, however, is still a relatively new concept, 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 (for various reasons) for their ventures from traditional credit sources. Micro-credit is a method to assure that low-income people can receive funding for their small businesses and entrepreneurial endeavors when they are unable to obtain capital through traditional lending sources. Funds like The Madison Fund provide very small micro-loans in an attempt to draw borrowers away from dangerous sources of funding and towards a safer and affordable resource. These micro-loans are unsecured, and typically involve borrowers who lack collateral, stable employment, and solid credit histories. Because of these variable factors, borrowers are generally subject to a slightly higher 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 fund directors 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 as flexible in their contracts as TMF strives to be. In Madison, there is much opportunity for microfinance and micro-loans. TMF has conducted research and concluded that Madison, Wisconsin is an ideal location to locate entrepreneurs, business owners, and citizens who could benefit from small affordable loans and the financial assistance of The Madison Fund team.

The Madison Fund Social Venture Plan

IV. Market Analysis

Target Market:
TMF primarily seeks to provide loans to those who are unable to obtain capital through traditional lending sources. Consequently, the un-banked population of the Madison Area represents our target borrowers well. Nearly 71% of un-banked households in the United States classify as low income1 , showing the need for micro-loans among working poor who have no access to traditional capital markets. TMF will focus on supplying its services to these persons by making its target household income bracket 30% to 100% of the Madison areas median household income. Thus, the target household income bracket for TMF borrowers ranges from about $17,300 to $57,700 annually. This range includes 70,000 households in the Madison Area, and the entrepreneurs and small business owners from within this range will be our primary target market.

Market Demographics: 1. Recent research estimates that approximately 4.3% of Wisconsins population is
under-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% of

Hispanics 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 the

immigrant population constitutes a larger proportion of those who start their own businesses. This suggests the pronounced need for microfinance among immigrants.4

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

1 2 3 4 5

FDIC: National Survey of Un-banked and Under-banked Households, pg. 11-12, 2009 U.S. Census Bureau, Data for Dane County, 2009 Ibid (FDIC) SBA, The Small Business Economy, pg 11, 2008 Ibid

The Madison Fund Social Venture Plan

2. The demand for credit can be indirectly observed by size of the payday loan industry, which annually contributes around $10 billion to national GDP. There are 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 volume declined 36% in 2009, as the economic recession prompted traditional banks to tighten their credit policies.6 4. Recent innovations in microfinance business models are increasing the selfsufficiency and profitability of the industry. The FDIC conducted a pilot SmallDollar 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, as well as customer relations.7 5. Alex Counts of the Grameen Foundation has recently noted that with additional capital provided by foundations, donors, and government agencies, there is significant 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 larger loans 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 the recession 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 the microfinance industry across the country, we are taking a much more conservative approach as we begin our business activities. TMF is prepared to absorb a default rate up to 10%. TMF is creating a business model that focuses on preventing defaults for the benefit of the borrowers. A loan default can further worsen the credit and prospects of an already suffering business owner, and TMF will do all in its power to prevent such an occurrence. TMF is prepared to adjust rates, 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, past history with TMF, and commitment to increasing financial competence, such as attending a class or program at the University of Wisconsin-Madisons Small Business Development Center.

6 7

<http://www.oregonlive.com/business/index.ssf/2009/02/micro_loans_on_rise_in_portlan.html> FDIC Quarterly, 2010, Volume 4, No. 2: The FDICs Small-Dollar Loan Pilot Program 8 <http://www.msnbc.msn.com/id/29258701/>

The Madison Fund Social Venture Plan

Furthermore, TMF will provide assistance and support throughout the lifespan of the 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 be able 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 affordable as possible. However, there are fundamental risks involved that need to be accounted for. Microfinance organizations with similar business models to TMF consistently set interest rates between 12% and 15%. Despite the uncertainty of the borrowers in the microfinance industry, 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 dollar amounts. While supplying clients with capital for profit-seeking ventures, TMF will offer financial advice and assistance. TMF will build a tight nit community among its employees and borrowers in which resources and support will be readily available. TMF reaches beyond the finances and into the hearts of the businesses in which we are helping.

The Madison Fund Social Venture Plan

V. Competition
The Banking Industry
Traditional lending sources will not compete with The Madison Fund. Such institutions are not usually willing to lend the small dollar amounts that TMF specializes in. 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, at most, only 5% of their loans are aiding small business. Since the start of the 2000s, the small business loan share of banks loan and asset portfolios has steadily declined, especially in the smallest loan size category.10 Thus, TMF views itself as separate from traditional lending sources.

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 international microfinance institutions (MFI's), which in turn loan out smaller amounts to many borrowers, for its large loan portfolio and capital, as well an established presence in the community. 2) Working Capital for Community Needs (WCCN), a nonprofit that partners with individuals and organizations in Latin America and the U.S. to create economic opportunities, for its focus on a key demographic.

10

Data was taken from the SBA: Small Business and Micro Business Lending in the U.S., table 1B, pg. 26, 2008 SBA: Small Business in Focus: Finance, pg. 14, 2009

The Madison Fund Social Venture Plan

3) Microfinance Leadership Initiative, a UW-Madison student organization that aims to 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 and innovative microfinance model geared specifically for U.S. markets. 2) Grameen America, a national nonprofit, for its rapid expansion in the U.S. and its role a leading policy advocate for microfinance in the U.S. 3) The Elmseed Enterprise Fund, a nonprofit in New Haven, Connecticut, for its small interest loans and social media marketing In our Competitive Analysis we conclude that many of these benchmark organizations provide models for TMF to imitate. Adapting proven techniques to our market and community will strengthen the TMF model. We conclude that there are opportunities for partnership, as the nonprofit sector is collaborative in nature.

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Microfinance Organizations
Competitor
Envest

Strengths
-Established community presence, many partners -International presence Well financed

Weakness
-Does not lend in Madison

Threats
-Environmental focus could push into TMFs Energy Efficiency Loan None at present

Opportunities
-Cooperation in the future could lead to expansion of TMFs geographic coverage -Cooperation could lead WCCN to direct more funds locally, boosting TMFs loan pool -Cooperation could lead to expanded TMF staff

Key Insights
-Reliance on private donors is not necessarily most effective way to raise capital -TMF can focus on local markets with low risk of competition -Student population is a key resource

WCCN

-Many partners -International presence

Microfinance Leadership Initiative -Well establish presence in student community

Capital Good Fund

-Innovative microfinance model developed for U.S. -Financial stability -Yunus as spokesperson -Extremely well financed, and stable

-Focused on loans to Latin America and women -Have more activities than just microfinance -Does not actively operate as a microlender -Focuses only on increasing awareness of microfinance -Have many expenses, less in loan pool than possible -Group loan model does not translate well in the United States -Have not introduced innovations to microfinance model

-Could compete with TMF for student volunteers -Rapidly expanding

-Partnership could allow TMF to utilize well tested business models -Their push for microfinance policy in the U.S. government strengthens all micro-lenders None at present

Grameen America

-Rapidly Expanding

-Efficient loan application process -Model geared towards U.S. urban area -Impact of policy

Elmseed

-Well established community presence -Operate as a volunteer organization

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 grassroots connection 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, have an established presence on the University of Wisconsin-Madison campus, and foster a relationship with the UW-Madison Small Business Development Center. TMF will bring on 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 local market conditions and TMF service data. TMF will use performance benchmarks and market 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 the un-banked and under-banked continue to demand capital for their projects and ideas, it is estimated that only 2% of the potential market is being served11 . 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, poor modeling, lack of funding, and lack of borrowers. The Madison Fund strives to keep costs as near zero as possible. TMF relies on volunteer staff for operations, and pays out no salaries. TMF has no plans of paying out salaries in the future. TMF strives to put every cent received in donations, grants, and loan repayment directly back into our loan pool. In this way, TMF avoids the burden of slow 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. In order to succeed, TMF will focus on using and developing innovative micro-lending models geared specifically for the U.S. The Capital Good Fund (CGF), a nonprofit microlender based in Rhode Island, has demonstrated the effectiveness of altering the classic microfinance 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 in the United States, bolstering Rhode Island employment and preventing 4 tons of carbon dioxide emissions12 . TMF will adapt models from innovators such as CGF to fit the Madison area market, as well as develop region-specific programs to target organic farmers and other small businesses. An insufficient capital stock can result in slow growth of microfinance institutions. Without the proper funding, MFIs must wait for outstanding loan repayment in order to replenish their loan pool. Invaluable time is lost and business expansion is impossible. The Madison Fund ambitiously seeks out private donations and grants to assure that its capital reserve is ample enough to avoid this problem. Kiva.org has demonstrated the importance of raising individual donations online. Through an inventive online lending channel, Kiva.org has helped fund nearly 300,000 loans around the world, totaling $222,286,225 in value13 . TMF has constructed its website to ensure that the donation process is as hassle-free for the donor as possible. TMF will avoid failing to obtain 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 organization and marketing to overcome these challenges.

Customer Acquisition
TMF utilizes four important competitive advantages in positioning in the Madison area 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 mouth marketing strategy. Making connections with local community centers, such as churches and small business development centers, allows TMF to expand its cliental. Wherever it is appropriate to do so, TMF places flyers and brochures expounding the benefits of microfinance services and loans. In the future, TMF will strive to utilize radio ads, which have 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, so that the community may put a face with the organization. Online social media and networking is a key tool utilized by TMF. Internet forums, 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 13

http://www.capitalgoodfund.org/ourimpact/bythenumbers http://www.kiva.org/about/stats

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microfinances role in aiding community growth. TMF will launch a PR campaign to gain 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 of mouth campaign. The UW-Madison Small Business Development Center is a key resource for referrals. TMF is partnered with local nonprofit Nehemiah, which aids community development through tested training programs. Partnerships such as this allow TMF to extend further into the community and reach out to borrowers. TMF uses its green focus to gain community support. UW-Madisons We Conserve 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 the needs of four types of borrowers: small business owners, entrepreneurs, those interested in making their businesses/homes more energy efficient, and those applying for naturalization in the US. The borrower will be assisted throughout the life of the loan by setting 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 and organizational skills to ensure that he/she is in the best position possible to keep up with monthly financial responsibilities. The borrower may ask for more help from TMFs staff as 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 rate due to higher risk of default, our primary goal is to assist entrepreneurs and business owners of Madison. All interest rate payments are reinvested into the TMF loan pool and the 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 an extreme 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 of repayment, 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 recent financial 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 Energy Efficiency 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 an idea for growth, but also has an outline for how he/she plans to utilize funds. In addition to the business plan, potential borrowers must present financial documents including but not 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 most reliable and well prepared to take on the loan liability, and will thus be considered for one of TMFs loan packages. Finally, if a borrower obtains a loan, he/she must decide on a meeting schedule with 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 trusting relationship between the loan officer and the borrower. No borrower may take out another loan to repay an existing one.

Small Business Loans

The Small Business Loan package provides funds to small business owners struggling to 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 a history 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 a growing, thriving, or weakening small business. The nature of the recipients business is not of primary concern, and probable borrowers may work in a wide array of employment from restaurants to day-care centers. TMF will target business owners who are unable to secure loans by traditional means and who will benefit greatly from a small and unsecured loan. A borrower must demonstrate an ability to follow the repayment schedule, 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 limited or 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 to TMF in the need for start-up seed capital for their business plans. If entrepreneurs also find themselves struggling with their financial organization or management, TMF will be readily available with all the assistance it can provide, including (if necessary) referral to a more expert source such as the Wisconsin Small Business Development Center. These loans will be relatively similar to the Small Business Loan Package except the target borrowers are entrepreneurs rather than business owners. The amounts of these loans will range from $500-$5,000. Again, the nature of the business is not of primary concern, though these borrowers must have a business plan coupled with a clear purpose and 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 TMF can assist them in that process.

Citizenship Loans
The Citizenship Loan is designed for those submitting or planning to submit an Application for Naturalization with the US Citizenship and Immigration Services Bureau. These borrowers are Madisons future citizens, and are an essential part of creating a unified, more inclusive city. With this loan package, applicants will obtain both guidance and financial support to lessen the unexpected burden of the application process and fee. The Citizenship Loan Package will provide the borrower with $675the fee that the US Bureau of Citizenship and Immigration Services charges for submission of an Application for Naturalization.

Energy Efficiency Green Loans

The Energy Efficiency loan package is designed for clients interested in increasing environmental sustainability by moving towards greener practices, resulting in alleviating the burden of energy bills. Every business and household in the United States has room for improvement when it comes to becoming more environmentally friendly. Ideally, the green loan will pay for itself in saved costs. The Energy Efficiency or Green Loan Package is will reduce energy costs and improve 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 its reduced monthly energy costs.

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VIII. Performance Benchmarks

Ratio Sustainability
Operational SelfSufficiency Operating Revenue/(Operating Costs + Loan Loss Provisions + Financing Costs) (Net Operating IncomeTaxes)/Average Assets Measures if enough revenue has been earned to cover direct costs, and indicates if TMF if becoming increasing self-sufficient Measures how well TMFs assets generate revenue

Formula

Purpose

Return on Assets

Asset Management
Loan-Loss Provision Ratio Loan-Loss Provision/Average Performing Assets Amount Written Off/Average Loans Outstanding Balance of Past Due Loans/Value of Loans Outstanding Capital/Total Performing Assets Total Liabilities/Total Performing Assets Indicator of provisioning requirements on current loan portfolio A rough indicator of TMFs overall portfolio quality, a tool for combating default risk Measures amount of default in current portfolio

Loan-Loss Ratio

Portfolio in Arrears

Capital Adequacy
Capital to Assets Ratio Debt to Asset Ratio Measure of general capital sufficiency Indicator of how much of TMFs assets are financed through debt

Liquidity
Current Ratio Current Assets/Current Liabilities Number of Active Borrowers/Number of Personnel Operating Expense/Average Gross Loan Portfolio Operating Expense/Average Number of Active Borrowers Indicates TMFs ability to meet shortterm credit obligations Measures the overall productivity of TMF staff Overall measure of TMF efficiency

Team Efficiency
Personnel Productivity

Operating Expense Ratio

Cost Per Borrower

A rough measure of how much TMF spends on each borrower

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IX. Risk Assessment

Default Risk
Historically, due to the unique structuring of the microfinance lending system and the close attention and relationship that the institution builds with the borrower, default rates 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 rate is expected to be slightly higher. Additionally, TMF is a new organization in a market that has not yet been exposed to microfinance. TMF expects default rates similar to those around the nation and slightly higher than those in developing or emerging market regions. TMF has been organization specifically in such a way that default risk is minimized. 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 low administrative costs, and an appropriate interest rate. In addition to these offsetting factors, TMF will mitigate default risk by working closely 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 than a 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 a rate of 95%. Expansion of TMF operations will occur at a slow rate, so as to ensure our capital is used wisely and efficiently. TMF has been structured in order to ensure that incoming revenue from donations, grants, and loan payments is sufficient enough each year to keep TMF operational 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 2013 Departments of Chinese, Economics and Mathematics alex.rosenthal@madisonfund.org | (800) 294-7517 Andrew Tapper Executive Director University of Wisconsin-Madison Class of 2013 Departments of Economics and Mathematics andrew.tapper@madisonfund.org | (847) 513-3005 Ben Landau - Managing Director University of Wisconsin-Madison Class of 2013 Department of Economics, School of Business ben.landau@madisonfund.org | (800) 294-7517 Tony RudeenMarketing University of Wisconsin-Madison Class of 2013 Department of Economics, School of Business tony.rudeen@madisonfund.org | (800) 294-7517 Arielle DanieliLoan Services University of WisconsinMadison Class of 2013 Department of Accounting, School of Business arielle.danieli@madisonfund.org | (847) 293-5522

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The Madison Fund, Inc.

1360 Regent St. Suite 124 Madison, WI 53715 P: (800) 294-7517 info@madisonfund.org www.madisonfund.org

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