Value of information

5th FINANCIAL INFRASTRUCTURE AND RISK MANAGEMENT TRAINING Value of information Mohamed Refaat El-Houshi,MBA Managing Director I-Score Egypt Rabat - 22-25 September, 2014 Session 2. 1

Presentation Content Introduction to I-Score Impact of I-Score & Future plans: Growth in consumer loans Improved asset classification Future plans (Product Time Line) MFI case study: (Cross Lending) case study Account monitoring (Case study) Value of utilizing early alert system to avoid future bad loans (in terms of number and value). Value of Information: (Case Study) Compare new loans performance with enquiry on disbursement vs. new loans performance granted without enquiry. In terms of quality & direct effect on bottom line profit. 2

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Introduction to I-Score August 2005 January 2008 The Central Bank of Egypt approved the establishment of Egypt s first Credit Bureau. The Egyptian Credit Bureau I-Score. The Central Bank of Egypt awarded the Egyptian Credit Bureau I-Score with the Operational License Founders & shareholders 25 banks in addition to the Social Fund for Development Board of Directors 11 members representatives of their respective banks. Project & Technology Consultant In Sept 2006, I-Score and Dun & Bradstreet International (D&B) signed a contract appointing D&B as Project and Technology Consultants to provide I-Score with the technology and know-how of Credit Bureau Application. Target market 1. Banking Sector 2. Non Banking Sector 3. Suppliers of Goods and Services Protection of privacy According to the rules and regulations of CBE, individuals and SMEs information will be dealt with confidentially & will be released to users to whom t h e y a p p l i e d f o r c r e d i t 4

I score Regulatory & Data Submission model CBE EFSA Aggregate info > 30K Banks & Mortgage Finance & Leasing Finance I-Score Telecom Individuals MFIs (No group lending network yet) Microfinance Companies Retailers NTRA SFD 5

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Growth in Consumers Loans EGP millions ( source CBE publications) Jun- 08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Feb-14 Consumer Loans 78,332 84,588 92,792 99,207 112,427 127,968 136,638 150000 Consumer Loans EGP millions 100000 50000 0 Revolution 2011 2013 Consumer Loans EGP millions page 7

Improved Asset Classification % ASSET CLASSIFICATION ACCOUNTS % Average 2009 Average 2010 Average 2011 Average 2012 June 2013 (source : IScore database) % % % % % A) PERFORMING 91 92.23 92.21 91.41 92.26 B) SUB_STANDARD (30-90 DPD) 3.6 2.72 2.66 2.91 2.89 C) DOUBTFUL (90+ DPD) 1.2 0.89 0.75 0.76 0.67 D) BAD ** 4.2 4.17 4.38 4.92 4.19 ** Bad represent 150+ DPD (Days Past Due) for loans and 180+ for Credit Cards.** 92,5 92 91,5 91 90,5 90 % Performing Revolution 2011 2013 Avrg-09 Avrg-10 Avrg-11 Avrg-12 Avrg-13 Performing 5 4,5 4 3,5 % Bad Rate Avrg-09 Avrg-10 Avrg-11 Avrg-12 Avrg-13 Bad page 8

PRODUCTS TIME LINE Products available. Products in pilot phase/development phase Products under study/requires external factors change to launch the project. 2008 2009 2010 2011 2012 2013 2014 Credit Reports Credit Reports Credit Reports Credit Reports Credit Reports Regular Report Regular Report Regular Report Microfinance Report Microfinance Report Microfinance Report New Credit Report New Credit Report New Credit Report Credit Reports Credit Reports Regular Report Microfinance Report New Credit Report Scoring Scoring Scoring Scoring Scoring NID Matching NID Matching NID Matching NID Matching NID Matching Bankruptcy Bankruptcy Bankruptcy Bankruptcy Bankruptcy P2P P2P P2P P2P Portfolio review Portfolio review Portfolio review Portfolio review MIS Report MIS Report MIS Report MIS Report Account Monitoring Account Monitoring Account Monitoring Account Monitoring Negative List Dev. Negative List Dev. Negative List Dev. Signature Verification Signature Verification Signature Verification Scoring Via ATM Self Inquiry Via Internet and Banks Portals Application Scoring Connection with NID SME Rating Co. Suspect Reporting Protesto Scoring Via ATM Self Inquiry Via Internet and Banks Portals Application Scoring Connection with NID SME Rating Co. Suspect Reporting Protesto SMS Product Phase ققااععددةة تتننففييذذ االلا أححككاامم Collateral Registry Basel II Compliance Collection Services 9

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Experience with Egyptian Microfinance Network (2011) Sample 3 companies NUMBER OF CUSTOMERS TOTAL BALANCE OTHERS NUMBER OF CUSTOMERS OTHERS TOTAL BALANCE TOTAL(LE) 363,510 638,636,156 12,694 14,292,055 I-SCORE NUMBER OF TOTAL BALANCE IN I-SCORE TOTAL 90+ DPD TOTAL BALANCE 90+ NUMBER OF NEGATIVE NUMBER NUMBER OF OF LEGAL DISHONERD ACTIONS CUSTOMERS DPD LIST CHQ s 50,259 494,702,958 5,861 51,556,076 1,818 465 94 11

Experience with Egyptian Microfinance Network Customers Relationship 14,0% 3,0% 83,0% No other relationship I-Score Other Companies 12

Experience with Egyptian Microfinance Network (cont.) Score distribution: % 1-DEFAULTING (300-400) 2 2-HIGH RISK (401-625) 22 3-GOOD (626-700) 19 4-VERY GOOD (701-750) 30 5-OUTSTANDING (751-HIG) 21 6-SCORE IS NOT AVAILABLE 6 21% Score distribution 6% 2% 22% 30% 19% 1-DEFAULTING (300-400) 2-HIGH RISK (401-625) 3-GOOD (626-700) 4-VERY GOOD (701-750) 5-OUTSTANDING (751-HIG) 6-SCORE IS NOT AVAILABLE 13

Comparison Between MF Network Relationship Analysis as of September 2011 vs. September 2013 Egyptian Micro Finance Network Total Customers Egyptian Micro Finance Network Total Outstanding Balances Egyptian Micro Finance Network Total Facilities Egyptian Micro Finance Network Total 90+ Bad Accounts Egyptian Micro Finance Network Total 90+ Bad Amount NPL (90+ ACC) NPL (90+ AMT) Egyptian Micro Finance Network Sep-11 106,914 285,209,231 107,172 6,737 11,299,638 Sep-12 208,699 587,752,207 209,642 6,294 10,486,126 Sep-13 218,102 593,215,247 219,043 6,342 12,200,080 6.29% 3.96% 3.00% 1.78% 2.90% 2.06% Findings on Egyptian Micro Finance Network data 10 Egyptian Micro Finance Network total number of customers increased from 106,914 to 218,102 Egyptian Micro Finance Network total number of Facilities increased from 107,172 to 219,043 Non Performing Loans (90+) Account Rate enhanced from 6.29% to 2.90% Non Performing Loans (90+) Amount Rate enhanced from to 3.96% to 2.06% 5 0 SEP-11 SEP-12 SEP-13 NPL 90+ ACC NPL 90+ AMT 14

Comparison Between I-Score / MF Network Relationship Analysis as of September 2011 vs. September 2013 NUMBER OF CUSTOMERS TOTAL BALANCE IN I-SCORE L.E. NUMBER OF LOANS BAD ACCOUNTS 90+ DPD BAD ACCOUNTS NPL (90+ 90+ DPD ACC) AMOUNT I-Score relationship with Sep-11 Egyptian Micro 19,228 247,065,612 30,464 3,543 33,827,530 Finance Network Sep-12 37,137 539,384,008 57,616 4,031 42,927,656 Sep-13 35,799 562,259,847 53,572 4,870 41,190,124 Findings on Egyptian Micro Finance Network data which has relation with I-Score database NP L (90+ AMT) 11.63% 13.69% 7.00% 7.96% 9.09% 7.33% Egyptian Micro Finance Network total number of customers increased from 19,228 to 35,799 Egyptian Micro Finance Network total number of Facilities increased from 30,464 to 53,572 Non Performing Loans (90+) Account Rate enhanced from 11.63 % to 9.09% Non Performing Loans (90+) Amount Rate enhanced from 13.69% to 7.33% 15 10 5 0 SEP-11 SEP-12 SEP-13 NPL (90+ ACC) NPL (90+ AMT) 15

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Account Monitoring Service Case study Proactively Monitor Your Active Accounts With Real Time Notifications Of Risk Level Changes To Act On Time To Minimize Losses 17

Example Scenario - Without Account Monitoring Service l Bank A approve Credit Card l June 2010 l Default on Bank A l Feb 2011 l May 2011 l Scheduled Account Review l Bank A 18

Example Scenario - With Account Monitoring Service l Subscribes for Monitoring Products l June 2010 l NDPD > 60 days alert Is triggered l October 2010 l Default on Bank A l Feb 2011 l July 2010 l Take preventive steps l May 2011 l New credit facility added alert is triggered from Bank B l Scheduled Account Review l Bank A 19

Account Monitoring Service Case study Alert Description Addition to negative list Change of the current status of a Legal Suit Exceeding the credit limit by 120% for any current facility (not closed) In Case of Death Negative changes on the Credit Facility New Legal Suit Overdue More than 60 Days Reporting of any under privileged debts for any credit facility High Risk High Risk High Risk High Risk High Risk High Risk High Risk High Risk Group Increase of any Credit limit by 30% or more New facilities from different Bank No. of Inquiries within a month exceeding 3 No. of Open Credit Facilities exceeding 5 Increase Customer's Exposure Increase Customer's Exposure Increase Customer's Exposure Increase Customer's Exposure Change in Address or Telephone Numbers Full payment date made for a credit facility under negative list Removal from negative list (Full payment + 5 years or wrong report) Positive Change Positive Change Positive Change 20

Account Monitoring Service Case study Tracked the total credit facilities that were active and have less than 30 days past due as of Dec. 2010 (131,330 credit facilities). Flagged all credit facilities that received any alerts notification through the account monitoring service generated from Jan. 2011 to Mar. 2011. Classify the total portfolio (131,330 credit facilities) to three groups based on the alerts received flags: No Alert notification (100,856). Received a Risk Alert notification (8,621). Received Other Alert notification (21,853). Track the performance of all flagged groups through the following 9 months during the period from April 2011 to Dec. 2011. 21

Direct Relation between Alerts and Default Rate 4,5 4 3,5 3 2,5 2 1,5 1 0,5 0 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 All-1.66% No Alerts-1.59% High Risk Alerts-3.87% 22

DEC'10 Active TOTAL TOTAL CREDIT 30+ DELQ. 90+ WRITE 30+ DELQ. 90+ DELQ. WRITE facilities as of D ec'11 CREDIT FACILITIES FACILITIES EXCLUDING WRITE OFF ACCOUNTS Sum ACC. DELQ. ACC. OFF ACC. AMT. L.E. AMT. L.E. OFF AMT. L.E. NO ALERTS 94,618 93,448 1,653 589 1,170 27,496,994 5,252,048 17,048,545 RISK ALERTS 7,976 7,661 265 92 315 4,673,852 872,309 4,622,137 OTHER ALERTS 20,592 20,371 307 106 221 9,288,352 1,986,119 3,835,174 All Portfolio 123,186 121,480 2,225 787 1,706 41,459,198 8,110,476 25,505,856 DEC. 2011 PORTFOLIO PERFORMANCE OF ACTIVE CONSUMERS CREDIT FACILITIES WITH LESS THAN 30 DAYS PAST DUE AS OF DEC'10 DEC'10 Active facilities 30+ DELQ. ACC. 90+ DELQ. ACC. WRITE OFF ACC. 30+ DELQ. 90+ DELQ. WRITE OFF as of Dec'11 AMT. AMT. AMT. L.E. L.E. L.E. % % % % % % NO ALERTS 1.77 0.63 1.25 2.56 0.49 1.59 RISK ALERTS 3.46 1.2 4.11 3.91 0.73 3.87 OTHER ALERTS 1.51 0.52 1.08 2.67 0.57 1.1 All Portfolio 1.83 0.65 1.4 2.69 0.53 1.66 23

Account Monitoring Service Case study Risk Alerts flagged group is very risky compare to all other groups. Cost of alerts service = 131,330 * 1.5LE = 196,995 LE Apply portfolio Default Rate 1.66% = 1,983,384 LE --------------- Risk control cost 2,180,379 LE Actual write-off amount (Risk alerts group) Amount identified to better risk Mgmt =4,622,137LE =2,441,757LE 24

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Inquiries vs. Non-Inquiries (New Approved Facilities from Jan'13 to Mar'14) analysis as of Mar'14 Detailed Analysis: Product Asset ClassificaAon AUTO LOAN A) PERFORMING B) SUB_STANDARD A D) DOUBTFUL A F) BAD TOTAL Total new faciliaes Total FaciliAes with inquiries Total FaciliAes without inquiries Total Outstanding Balance Total Balance with inquiries Total Balance without inquiries NO. NO. % NO. % AMT. AMT. % AMT. % 9,018 763 668 3,376 13,825 186 81.58 11 4.82 6 2.63 25 10.96 228 100.00 8,832 752 662 3,351 13,597 64.96 5.53 4.87 24.65 100.00 20,106,722 8,185,669 1,687,615 184,689 1,342,691 228,391 5,365,114 151,164 28,502,142 8,749,913 93.55 11,921,053 2.11 1,502,926 2.61 1,114,300 1.73 5,213,950 100.00 19,752,229 60.35 7.61 5.64 26.40 100.00 Summery Analysis: Total new faciliaes Total FaciliAes with inquiries Total FaciliAes without inquiries 13,825 228 13,597 Total Outstanding Balance 28,502,142 Total Balance with inquiries Total Balance without inquiries Total Inquiry Normal Cost (I- Score) Expected Bad Rate % Normal Expected Loss Amount (Apply Normal Bad Rate) Total Expected cost (Inquiry Cost & Normal loss) Actual Loss Net Saving Return (Bad Amount (Actual Loss - per unit of non- Expected Cost) inquired) 8,749,913 19,752,229 339,925 1.73 341,241 681,166 5,213,950 4,532,784 13.33 26

Thank You 27