PTR UR Ram Rell eet leg Deans) er rinkeee |) © caiaieastee FEE Q vie:t0insnicvas pve PREM ©) devcoping mater © erven tneUnbankes CCAP, Loans are approved instantly, often, within seconds Individual decisions are undertaken without a one-by-one human reviow Borrowers can receive funds and repay remotely without visiting a B&M location Collateral restricts access and generally requires an in person interaction Loans for businesses and P2P have specific characteristics We focus on Africa, Asia and Latin America Products that do not require a prior bank account can reach the unbanked This business model requires higher annualized interest rates to breakeven when compared to longer term loans Simplified example: Assumptions: Term = 1 month Amount $20 Scenario B Cost of capital month (6%) Operational 4. costpertoan ‘°° |[ CCAP Scenario A m fo SS ; (Detautt rate) > - Z Ww Breakeven interest rate 18.8% per month vv Breakeven interest rate » 12,2% per month No (299%) Breakeven interest rate ) 6.3% per month —_/ (109%)There are several factors that affect the business model and impact SUT Eee Ru LCs + Smartphone penetration: The availability of a direct digital channel through ‘smariphones or online enables the tech-led models to use apps as access points + Digital footprint: The availabilty of digital data on potential borrowers enables better scoring of applicants and helps manage the default rate + KYC requirements: In person KYC requirements limit the expansion of tech-led models and new entrants, that don't have a physical channel they can leverage + Interest rate caps: Regulation on interest rates that considers digital short term loans in the same light as annual or multiannual loans can make the business model for small liquidity loans unsustainable, as interest is only charged for short periods of time and on small amounts + Lending license requirements: Simplied processes to get lending licenses can ‘enable new players to enter the market without requiring a partnership with a bank, increasing the competition CCAP, CCC + Digital Credit does not seem to be a passing fad, it is growing and becoming more mainstream, offering banks and other formal Fls a role in developing the digital ecosystem + Digital Credit offers a source of revenue for providers and a clear value proposition for customers, and therefore it has the potential to be a gateway product that strengthens the digital ecosystem by bringing in more users and providers to the space + Itis leading to a new kind of credit market, where Telcos, banks, MFIs and Fintechs are participating, for a product that did not exist before but can fill an important need for low income customers + This new market poses new challenges for customers, providers and regulators, as it follows a different business model, it evolves at a fast pace and it attracts a more diverse group of players CCAP.There are unique aspects of the digital credit product that make it CTRL Le etl M Mua ELLY Example: Digital Credit Microfinance Type of loan Short term Medium term Need being Short term liquidity need due to. Financing for an asset to be used addressed itregular income in a productive activity Target Anyone that has a short term need MSME owner, farmer, self- Requirements Breakeven loan size Breakeven interest rate for cash No collateral or formal proof of income generally required $10-§50 employed A business plan or functioning business and collateral are generally required $300-$600 15% 40%. CCAP