Enabling Qapital Impact Report 2021

Women

Micro-Entrepreneurs

SDGs

Impact Investing

Impact Report 2021

Enabling Qapital AG

Table of Content Enabling Responsibilty 4 Enabling Qapital AG 6 Enabling ESG 9 EMF Microfinance Fund 12 Enabling Asia 16 Enabling Africa & ME 18 Enabling LATAM 20 Enabling EECCA 22 Spark+ Africa Fund 24 Financial inclusion during the Covid-19 pandemic

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EQ during Covid-19 32

August 2021 Enabling Qapital AG, Poststrasse 26, 6300 Zug, all rights reserved.

For any questions please don’t hesitate to contact us via: info@enabling.ch All information contained in this document is for information purposes only and is the intellectual property of Enabling Qapital AG. Redistribution is prohibited unless consent to do so has been given by Enabling Qapital AG. Enabling Qapital AG does not accept any liability for any loss or damage, how ever it is caused, arising from any errors or omissions or reliance on any of the information contained in this material.

The information and opinions contained in this document have been derived from sources believed to be reliable and in good faith or constitute Enabling Qapital AG’s judgement as at the date of this document but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness and any opinions are subject to change and may be superseded without notice. Any information contained in this material is not to be relied upon as authoritative or taken in substitution for the exercise of judgement. This document is not, and should not be construed as, an offer or solicitation to sell or buy any investment or product. Enabling Qapital AG accepts no liability whatsoever for any loss arising from any use of the material.

The material may not be reproduced, distributed or published for any purpose without the express written authorization of Enabling Qapital AG. Enabling Qapital AG and its affiliates and/or their officers, directors and employees may own or have positions in any investment mentioned herein or any investment related thereto and may from time to time add or dispose of any such investment.

Zurich | Zug | Geneva | Ruggell | Quito | Karachi | Bishkek | Nairobi | Bangalore 2

Dear investors, partners, and readers, We are pleased to present to you our first Enabling Qapital Impact Report.

We take our mission, societal and environmental impact very seriously and strive to move money to meaning.

The COVID-19 pandemic has strengthened our conviction and ambition to invest with a purpose.

Our partners and team-members in emerging markets make us who we are, Enabling Qapital. We believe that with our decentralized approach and the commitment of the EQ team we are able to generate the highest impact. Since its inception, Enabling Qapital has hired more than 20 talented professionals in Ecuador, Kenya, Mongolia, India, Kyrgyzstan, Pakistan, USA and Switzerland.

Focusing on clear values, Enabling Qapital was founded in the beginning of 2020. With a vast track record in banking, impact investing, financial inclusion and access to energy, the four Managing Partners took over the EMF Microfinance Fund as a first advisory mandate in May 2020. We are very proud that within the first year under our advisory, the EMF Microfinance Fund has reached its highest AuM ever, and therefore the most micro-entrepreneurs.

In addition, we are proud to be developing a first-of-its-kind clean cooking fund. Targeting one of the most significant and under-recognized social and environmental challenges in the developing world.

SPARK+ Africa is a pioneering fund in cooperation with the Clean Cooking Alliance and the anchor investors African Development Bank and the European Commission. Its unique positioning helps to grow an industry that enables low-income consumers to improve their health, reduce climate and environmental impacts, empower women, and improve livelihoods. With this second mandate we shift our focus from pure microfinance into the broader field of impact investing and thereby address root causes from different angles.

We appreciate everyone who is joining us on this journey. Thank you to our investors and investees for your trust and to our employees for their tireless effort and commitment towards the company, its values and clients.

We look forward to working with you towards the achievement of our vision, and to continue to invest in a way which empowers people and planet.

Sincerely, your Co-Founders and Managing Partners, Xavier Pierluca, Chuck Olson, Remo Oswald, Roger Müller

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Enabling Responsibilty Our Mission “Moving Money to Meaning” We want to provide professional investment advisory services to sociallyminded investors and enterprises globally. We embrace our role in society and business through a servant leadership approach, where our goal as leaders is to serve all of our stakeholders.

Definition; Servant Leadership A servant-leader focuses on the growth and well-being of people and their communities. While traditional leadership generally involves the accumulation and exercise of power by one at the “top of the pyramid,” servant leadership is different. The servant-leader shares power, puts the needs of others first and helps people develop and perform as highly as possible1.

Robert K. Greenleaf Center for Servant Leadership

1

Xavier Pierluca

Co-Founder & Managing Partner “As EQ invests for impact and achievement of the Sustainable Development Goals, we have also built a corporate culture which embraces the concept of leadership as an act of service. This philosophy is embedded throughout our corporate governance and decision-making processes, and we strive to embrace it in all of our internal and external stakeholder relationships.”

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Our Vision “A World where investment empowers people and embraces the planet” We believe in a world where investments provide a financial and social return that compensates investors for the risks of an investment and where all investments are carried out with an objective to have a positive economic, social, and environmental impact.

UN.org, Sustainable Development Goals

At Enabling Qapital, we are committed to contributing to the UN Sustainable Development Goals (SDGs). The SDGs are focal points of all our business activities, and in the long-term we aim to cover all 17 SDGs in the products that we offer. With our two current funds, we actively address 14 SDGs.

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Zug | Zurich Geneva

Quito

EMF Microfinance Fund invested EMF Microfinance Fund pipeline Spark+ Africa Fund pipeline EMF Microfinance Fund invested Spark+ Africa Fund pipeline EMF Microfinance Fund pipeline Spark+ Africa Fund pipeline Disbursements as of July 2021

Enabling Qapital AG The name of our company is derived from the term for emotional intelligence – the emotional quotient, or EQ. With this, we want to underline our commitment to the highest ethical standards in our investment and business activity.

We hold ourselves accountable to the same standards that we expect from our investees. Consequently, our internal business culture mirrors our external engagement.

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For us a good investment goes beyond just financial performance.

For us a good investment unites social, environmental and financial performance.

Some of the logic behind EQ is that by integrating social intelligence (or EQ) into our analytical processes, we are able to find and nurture socially focused investees that provide a financial and social return to socially minded investors.

Our business is aligned with the UN Sustainable Development Goals and Principles for Responsible Investment. Enabling Qapital combines investing with high expertise, high impact, and a high EQ. Across four continents, EQ TeamMembers are working from multiple timezones and strive to continuously move money to meaning.

Meet our team on LinkedIn:

Bishkek

Karachi Bangalore

Nairobi

...speak 14 different languages

..have 9 different nationalities

..have 226 year experience in finance with 120 in sustainable finance

We highly value global cooperation and embrace different cultures. Our team is located on four continents, nine countries and collectively we are speaking 14 languages. We are not only united by our common goal, but also through characteristics that expand over the professional environment. As a merger of our whole team, we proudly present the combination all EQ colleagues.

We...

.. went to school and university for 364 years ..live on average in a City with 2.9 Million Inhabitants .. are on average 34 years young 1.72m 7

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Enabling ESG ESG stands for the evaluation of non-financial aspects of doing business considering the environment, social and governance factors. In accordance with its mission “Moving Money to Meaning”, the company embraces its role in society and business by a servant leadership approach, where EQ cooperates with all stakeholders to combine the financial with social and environmental performance.

Environmental At EQ we take our corporate responsibility towards the environment very seriously. We exclude companies that engage in environmental degradation practices, look for an internal environmental policy, and actively advertise the offering of green energy products by our investees. Furthermore, EQ encourages its clients to engage in affordable, reliable, and modern energy services. Internally, EQ aims to be a CO2 neutral company, with an ongoing certification process. Our new SPARK+ Africa fund is expected to reduce carbon emissions by 15.9 Mt of CO2 equivalent. By replacing inefficient stoves with more sustainable clean cooking solutions, we eliminate emissions of open fires and forest degradation for wood fuel.

Social To achieve a high social impact with every investment is at the core of all our activities. We cherish the social impact of microfinance which promotes gender equality, access to education and enables the end clients to improve their livelihood. A dedicated and sustainable microfinance investment leads to improved safety in communities and better health care infrastructure. These can be active measures against malnutrition. During every investment assessment, the social performance of an institution is examined. The company is evaluated based on indicators of their social performance. The company is evaluated on indicators that assess the treatment of clients, treatment of employees, their own social strategy, their balancing of social and economic factors and secondary economic development activities. Based on their rating in each of the parameters a social rating for each examined investee is generated.

Governance EQ is continuously working together with MFIs to increase their awareness and expertise in good corporate governance and sustainability. The goal is to have well-balanced, active and well-thought through corporate governance. In our opinion, good corporate governance is essential for a well-functioning institution. Our proprietary screening and risk management is best-in-class and at the heart of the whole investment cycle. During the screening, investment targets are examined regarding their board structure, independence and female representation. Additionally, we have developed Client Protection Principles to maximize the protection of microfinance clients in every part of the world.

Roger R. Müller

Co-Founder & Managing Partner “We want to empower employees, clients, partners and everybody involved in our activities but also embrace the planet while doing so. We are convinced that economic growth and environmental protection can and should go hand in hand.”

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ESG Rating

Our methodology

ESG refers to the three pillars of corporate sustainability: Environmental, Social and Governance. As part of our in-depth due diligence process, an individual ESG analysis of the potential investee is conducted. The investee must showcase its abilities and ambitions for sustainbable business practices. We provide internal ESG training for our team. Each ESG rating is evaluated at the investment committee to help ensure that our investees live up to our high ESG standards.

By adhering to high internal standards and a tested methodology, we guarantee the integrity and sustainability of all investments. Our partners are chosen based on our assessment of their ESG performance and sustainable financial risk management processes.

EQ’s ESG Rating uses a three-pillar framework (as seen below) to assess investees’ policies and practices of the company, as well as its general client and stakeholder interactions.

The approach is based on the skills and experience of our team, which combines pioneers in impact investing and microfinance, with motivated talent, diverse cultural backgrounds, and mission-driven challenges.

ESG Score - Recommendations - Next Steps

ESG Design Principles Inputs

Design of questionnaire Definition of principles Points of emphasis Communication about ESG

Processes & Actions Outputs

Analysis of relevant data Board structure Company structure Company values

Impact Outcome

Impact on final beneficiaries Impact on environment Impact on company External communication

Chuck Olson

Co-Founder & Managing Partner “EQ completes a social rating just like many of the other impact investors. The difference between EQ and our competitors is that we also try to live up to the same standards that we hold our investees to, which is what a good servant leader would be expected to do.”

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EMF Microfinance Fund The Enabling Microfinance Fund is designed for quali­ fied investors and targets both financial and diversification-focused investors. Also for specialized impact investors seeking to benefit from the growth of emerging markets through sustainable and inclusive investments it is a very attractive investment opportunity. It serves institutional investors (pension funds, insurance companies, asset managers and banks) as well as private investors (directly or through private wealth managers), family offices, and foundations.

The Enabling Microfinance Fund is a long-standing private debt fund, which targets promising, transforming, and growing microfinance institutions with high social impact and a commercial loan level. Through our rigorous due diligence, we strive for a low market correlation, optimized risk-return profile, and a high social impact.

Enabling Microfinance Fund

The above grafic shows the visualisation of the internal calculation of focus areas of the EMF Microfinance Fund.

Microfinance institutions

Micro-Entrepreneurs $

$

$ $

$

$

Source: Enabling Qapital AG & www.igi-global.com/newsroom/archive/riskebiz-creating-value-investment-chain/968/, www.africaevaluation.org, MicroRate: Trends in Microfinance Investment; Microfinance Club Of New York, April 12, 2012

In collaboration with:

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13

Over

99.6%

179’000

of the loans underwritten by our investment officers have been fully repaid (since 2008)

73%

of our investees have high marks in social audits or have received recognition/awards for their business activities

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55% of end clients live in a rural setting

78% of investees have articulated social targets

93% of the investees have a client feedback management

55% of the investees have conducted social impact studies, audits or external ratings

50% of the investees have an internal environment policy

45% of investees offer financial education services for their clients

Micro-Entrepreneurs are reached by the

EMF Microfinance Fund

6’262’271 Micro-Entrepreneurs are reached by our investees

54%

of clients are female

63% of the investees have ESG guidance at board level

68% of investees have female representation at board level

83% of investees have female representation at senior management

85% of the investees have an exclusion list for environmental degradation practices

52% of the investees have product offerings for affordable, reliable and modern energy services

100% of the investees offer training programs for their employees

Data as of end of July 2021

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Enabling Asia As the largest and most populous continent, Asia offers a vast selection of rising emerging market with huge potential for the microfinance sector. Microfinance has its roots in Bangladesh and Asia is still the market with the highest number of credits.

The number of female adults with an account has nearly tripled over the last ten years.

45% of adults (15+) still do not interact regularly with the financial system.

It is the market with the highest number of borrowers and organizations.

Source: Global Findex Database

Asia 3000

0.7

2500

0.6 0.5

2000

0.4

1500

0.3

1000

GDP per Capita

“South and Southeast Asia is a very diverse region, where we work with a wide variety of companies: from large and very well-established microfinance institutions in India to smaller entities in the Philippines. We also keep an eye on innovative Fintech models to continue working in new ways in providing financial inclusion to underserved micro small and medium clients.”

Eleonora has 10+ years ‘experience in impact investing, microfinance and emerging markets.

Prior to EQ she was CEO of a FinTech in Myanmar increasing access to finance for SMEs. Eleonora holds a Master´s degree from University of Pisa and has proven business experience in 20+ countries across Asia, Europe and Africa.

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2017

2014

2011

2008

2005

2002

1999

1996

1993

1990

1987

1984

1981

1978

1975

1972

1969

1966

0

1963

Regional Manager - Asia

0.1 1960

Eleonora Castaldo

0.2

500

0

HDI *

Data Source: World Bank *HDI, the Human Development Index measures key dimensions of human development and thereby includes: • A long and healthy life, measured by life expectancy • Access to education, measured by expected years of schooling of children at school-entry age and mean years of schooling of the adult population • And a decent standard of living, measured by Gross National Income per capita adjusted for the price level of the country.

Spotlight MFI ASA Pakistan ASA Pakistan is a is a for-profit, non-depository Microfinance Institution, which was founded in 2008. With their head office in Karachi, they have a strong commitment to financial inclusion and socio-economic progress. Their vision is to reduce poverty by improving the lives of the underprivileged with a key focus on female entrepreneurs.

ASA Pakistan is a subsidiary of ASA International which is one of the world’s largest international microfinance institutions providing small, socially responsible loans to low-income entrepreneurs, across Asia and Africa.

Enabled by her first loan through ASA PAKISTAN, Mehwish Muhammad Ashraf started a small business with the purchase of a sewing machine in 2016.

With an initial loan of 20,000 Pakistani Rupees (~USD 125), she managed to increase her monthly salary by Rs. 5,000 (~USD 31). Over time, she qualified for higher loans up to Rs. 60,000 (~USD 375) and in 2019 her income grew to a stable Rs. 25,000 (~USD 155) per month.

Mehwish Muhammad proudly explains how she was able to repair the house and build an extra room for her sewing business with the additional earnings from her small business.

Myanmar, Pakistan, Cambodia, India, Mongolia, Philippines, Sri Lanka, Indonesia, Singapore 17

Enabling LATAM LATAM includes twenty different nations in South and Central America. It is the market with the highest volume of microfinance transactions in the world.

Accounts for nearly half of the Microfinance volume globally.

“Latin America is the most commercially advanced microfinance market in the world,” says Roy Jacobowitz, vice president for resource development at ACCION, one of the world’s largest microfinance institutions.

Less than 50% of adults (15+) have an account.

Source: Global Findex Database

LATAM 12000

0.7

10000

0.6 0.5

8000

0.4

6000

0.3

4000

0.2

2000

Regional Manager - LATAM “Latin America provides the opportunity of working with well-established MFIs, which have a long trajectory in supporting the still underserved micro borrowers and smaller business that are the back bone of the region’s economy.”

Agustin has been working in microfinance for 6 years. Prior to joining EQ, he supported the Ecuadorian government with its conditional cash transfer program at the Ministry of Economic and Social Inclusion in Quito. He holds a Master`s degree in International Development with a focus on Latin America and Global Economic Policy from Sciences Po Paris.

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GDP per Capita

2017

2014

2011

2008

2005

2002

1999

1996

1993

1990

1987

1984

1981

1978

1975

1972

1969

1966

1963

Agustin Villalba

1960

0

0.1 0

HDI

Data Source: World Bank

Spotlight MFI FINCA Guatemala FINCA International is a pioneer in Microfinance with more than 30 years` experience. FINCA’s programs benefit millions of people across five continents and twenty countries. FINCA Guatemala was founded it 1998 and serves 35,000 clients through its 30 branches across the whole country. Its vision is to alleviate poverty through durable solutions that help people increase their wealth, create jobs, and improve their quality of life.

Claudia Arenas (left) with Begoña Leiva, our Investment Analyst from Ecuador.

Claudia Arenas is a successful business woman with a clothing business in Guatemala.

She has been a client of FINCA Guatemala for eight loan cycles and several years. Therefore, she was able to increase her loan volume to now approx. 4000 USD and continuously expand her business.

Guatemalas economy was strongly affected by the COVID pandemic, which put many businesses at risk. Through moratoria and a close cooperation with FINCA Claudia managed to keep the business going throughout the pandemic. She plans to continue collaborating with FINCA Guatemala to enable further growth.

El Salvador, Guatemala, Mexico, Nicaragua, Panama, Chile, Colombia, Ecuador, Paraguay, Peru 19

Enabling Africa & Middle East In comparison to LATAM and Asia, Africa is still underserved in terms of financial inclusion. With its young population and growing education, this continent holds a big promise for its economic future.

There is still a big pay gap, as women only receive 10% of the credits in comparison to men.

Africa has the lowest account ownership percentage with only 43% of adults having an account.

Source: Global Findex Database

ME & Africa 0.5 0.4 0.3 0.2

GDP per Capita

2017

2014

2011

2008

2005

2002

1999

1996

1993

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1987

1984

1981

1978

1975

1972

1969

1966

0.1 1963

Regional Manager - Africa

0.6

1960

Kilonzo Mbwele

2000 1800 1600 1400 1200 1000 800 600 400 200 0

0

HDI

Data Source: World Bank

“In Africa, we have financed financial institutions for productive lending purposes. We continue to see the need for funding, particularly with significant improvement in financial inclusion over the last decade in part due to mobile payment options, digital platforms, FinTechs, and downscaling of both banks and MFIs.” Kilonzo has an extensive track record in the finance ecosystem in sub-saharan Africa. He has been working with MFIs and Banks in this region since 2013 and holds a Bachelor of Science degree in Actuarial Science from the University of Nairobi, is part of the Association of Chartered Certified Accountants (ACCA) and an M.Sc. Professional Accountancy candidate.

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Spotlight MFI Sumac Microfinance Bank Sumac Microfinance Bank is a microfinance institution based in Kenya, with branches all over the country. Sumac`s product offerings include Accounts, Loans, Trade Finance, Forex, Bancassurance and Mobile Banking.

Githunguri is a beneficiary of the Kilimo Biashara (agribusiness) product offered by Sumac. He started his journey with Sumac in 2015 when he started farming in Chuka (Meru County, Kenya) with five cows. Dairy farming in Chuka posed quite a few challenges, one of them being the low pricing of the products. In 2018, Sumac supported him with a scheme that allowed him to lease land in Githunguri, which is an area with much better pricing and readily available feed, making his farming business profitable again.

Through the relationship with Sumac, Richard has managed to grow his business to generate a monthly income of about USD 4,800 from the high-quality milk of his 20 cows. His returns enabled him to build a house for his family and reinvest part of the proceeds into the business.

From left to right: Richard on his farm, two credit officers from Sumac and Kilonzo our Regional Manager for Africa.

Kenya, Tanzania, Mozambique, Botswana, DRC, Ghana, Malawi, Namibia, Nigeria, Uganda 21

Enabling EECCA After their independence in 1990 the countries in the EECCA region had to rebuild their economies. Nowadays, the region has been experiencing a stronger shift towards financial inclusion and a more sustainable economy. Due to its high potential the region remains very attractive for impact investors who want to achieve a high impact alongside a stable return.

The difference in account ownership between men and women has grown from 2% in 2014 to 7% in 2017.

After a decline in the Microfinance market until 2017, the market shows again stable growth.

The absolute number of male and female borrowers is almost evenly matched.

Source: Global Findex Database

Urmat Imankulov

Regional Manager Eastern Europe & Caucasus

EECCA 90000

0.76

80000

0.74

70000

0.72 0.7

60000

0.68

50000

0.66

40000

“EQ works with diverse MFIs ranging from non-commercial financial service providers to downscaling commercial banks in the EECCA region. The lending methodologies may also differ significantly from one another. Ranging from traditional security-based lending to data-driven and unsecured approaches. This provides more opportunities for financial inclusion for self-employed individuals, households, and micro and small businesses.”

Urmat has nearly 14 years of experience in microfinance, credit and institutional rating, impact investment, sovereign assets and currency hedging instruments in emerging and frontier markets. After starting his career as internal auditor for a international microfinance network.

He worked for a microfinance rating agency and as investment officer for different regions in Asia, Europe and Africa. Urmat graduated from the Economic Department of the Kyrgyz – Russian Slavic University in Bishkek.

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0.64

30000

0.62

20000

0.6

10000

0.58

0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 GDP per Capita

HDI

0.56

Data Source: World Bank

Spotlight MFI JSC Lazika Capital Lazika Capital is represented by 18 branches in Georgia. They offer local entrepreneurs and farmers loans with a volume up to 100.000 GEL (~32.000 USD) with different interest and payment plans. The working low and middle income population in Georgia has been Lazika Capital’s primary target audience since its inception in 2000.

Nugzar Kvaratskhelia is a seasoned and experienced entrepreneur, who initially started from a very rudimental setting. He and his family are living in a small village named Rukhi, in Georgia. In 2005 he started cooperating with Lazika and begun with a small wood workshop. With the first granted loan by Lazika he started to expand.

Lazika has been supporting him for over 16 years and he was able to gradually build up his business with a total of 19 loans.

Over time, Nugzar broadened his business. He started producing metal & plastic goods, purchased a mini tractor and built a greenhouse. Additionally, he started beekeeping, bought a cattle milking machine, and expanded his farm to cattle breeding. The increased revenues enabled him to build a house, buy a car, and support his family.

Kosovo, Romania, Bosnia Herzegovina, Uzbekistan, Moldova, Tajikistan, Georgia, Kyrgyzstan, Montenegro, Kazakhstan, Albania, Belarus, Azerbaijan, Armenia 23

Spark+ Africa Fund Investing in Clean Cooking

The core mission of the fund is that ‘no one’s life should be limited by how they cook’.

SPARK+ Africa is a $50-70 million impact fund investing in scalable, next-generation companies that offer clean, modern cooking energy solutions to base-of-thepyramid consumers in Sub-Saharan Africa. The Fund is structured as a blended capital facility and benefits from catalytic first loss capital from the African Development Bank and the European Commission.

The above grafic shows the visualisation of the internal calculation of focus areas of the EMF Microfinance Fund.

Spark+ Africa Fund

Distributors

$

$

Intermediaries

$

In collaboration with:

24

Endclients

$

Spark+ CLIENT STRORY?

25

15.9MT CO2equivalent projected

reduced

Economic, Social and Environmental Impacts Traditional cooking is responsible for up to 25% of global black carbon emissions, a key climate change factor3 52% of forest loss in Africa is caused by firewood and charcoal production3 550,000 people in Africa, and 4 million globally, die prematurely every year from indoor air pollution, which is more of a burden on health than malaria, HIV, and TB combined4 Women and girls are disproportionately affected, as they spend hours cooking and collecting fuel The Fund will target measurable impact including:

- Access to energy: number of people who purchase clean cooking energy solutions

- Environmental impact: reduction of greenhouse gas emissions (carbon dioxide and black carbon)

- Household finances and energy poverty: financial savings on cooking fuel expenditures

- Investment and sector growth: debt, equity raised by investees, entry of new companies

- Greater profitability for sector companies

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34 billion USD 46 countries

predicted market size for clean cooking sector in of Sub-Saharan Africa1

900

million people in sub-Saharan Africa lack modern cooking solutions2

Peter George

Co Managing Partner Spark+ Africa Fund “SPARK+ Africa will bring much needed debt and equity capital to solutions that will save forests and improve the lives and livelihoods of the nearly 900 million Africans who currently depend on fuel wood, charcoal, and kerosene to cook. We look forward to partnering with the many enterprising and passionate entrepreneurs innovating to bring clean, modern, and affordable cooking fuels to consumers across the continent.”

First loss capital provided by anchor investors:

1 World Bank 2 IEA - International Energy Agency, 2018 3 Global Earth Works Foundation & McKinsey Energy Insights, 2018 4 WHO, May 8, 2018

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Financial inclusion during the With regards to the current situation, we wanted to shed light on the reactions in the financial inclusion market during this global pandemic. In order to ensure a neutral sentiment the following note has been written by independent researchers Annette Krauss and Julia Meyer.

Annette Krauss, UZH, and Julia Meyer, UZH and ZHAW, 8 May 2021 As soon as the Covid-19 outbreak escalated into a large-scale pandemic, households, firms, and financial markets around the world started to experience its economic fallout. Global stock markets declined sharply in early 2020 before showing signs of a fragile recovery in the summer of 2020, and the financial service industry largely followed this pattern (Chart 1). When it comes to financial inclusion---financial services that serve low-income and vulnerable populations in developing economies--- several characteristics of these investments may, despite considerable uncertainty, actually play to their advantage and contribute to their resilience against the crisis.

Chart 1: Financial industry and global stocks (S&P)

To date, it is not clear how the financial impact of the Covid-19 crisis, which was reaching new heights in several developing markets, including India, at the time of this report, will be absorbed by individual institutions and their clients in the medium term. Evidence from earlier financial crises indicates that microfinance markets typically react with a delay to global crunches (Wagner and Winkler 2013; Di Bella 2011).

The current crisis is more comprehensive than previous ones as it affects both financial service demand---through direct impacts on the health and income security of financial inclusion clients and their families---and financial service supply---through lockdowns and macroeconomic effects of subsequent government responses.

Nevertheless, the cross-sectional impact on financial inclusion investments to date has been less severe than perhaps expected. This is likely due to those characteristics of the market that are sometimes considered problematic by investors who focus on short-term liquidity and transaction costs, but that help shield the financial institutions and, potentially, the populations they serve, against crises.

How do clients cope?

Despite the global nature of the pandemic, differences between local markets are striking, both in terms of timing and severeness of the implications. On the demand side at the individual client level, the picture looks quite diverse. Besides the health distress of those directly affected by the pandem-

160 140 120 100 80 60 40 20 0 01.10.19

01.01.20

01.04.20

01.07.20

S&PBanksSelectIndustryIndex

Source: S & P Global, accessed through spglobal.ch on May 7, 2021

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01.10.20

01.01.21

S&PGlobal1200

01.04.21

Covid-19 pandemic

ic, the vulnerability of micro, small and medium enterprises (MSMEs) and their income earning potential differs vastly depending on sector of activity, local, and individual circumstances; for instance, a higher share of MSMEs in hospitality services and trade experienced revenue declines than those active in entertainment, construction and health care (Daley et al. 2021). Oxfam estimates long-term negative effects particularly on the poorest population segments as the crisis exacerbates unequal access to basic public services in health, education, and social safety (Berkhout et al. 2021).

MSMEs have experienced their margins and markets evaporate particularly through lockdowns, with several new studies showing over-proportional risks of permanent business closure for women-owned MSMEs (Jain 2020, Daley et al. 2021). Even before the most recent wave of the disease, COVID-19 had resulted in the closure of up to 15 percent of MSMEs in Colombia, India, Indonesia, and Nigeria, according to a case-study based analysis by the Center for Financial Inclusion (Noggle 2021), and up to 28 percent in Subsaharan Africa, according to illustrative survey-based evidence provided by the IFC (Daley et al. 2021). Most businesses that have managed to stay open have experienced losses and are struggling to cover operating expenses while relying on multiple coping strategies, according

to client interviews coordinated by the Social Performance Task Force (SPTF February 2021). MSMEs have also been found to save and borrow less from formal sources, reflecting reduced business opportunities for the traditional type of financial inclusion services.

At the same time, positive news regarding the number of people with access to a formal account or other digital financial services prevailed due to the crisis. This includes government-led strategies, for example in Brazil, where the number of people without a bank account dropped by 73 percent due to an instant payment system launched by the Central Bank that aimed at delivering COVID-19-related government transfers, and Peru, where, as the result of a newly introduced law, all citizens must now have a digital savings account. Since the early stages of the pandemic, there has also been a rise in the use of commercial digital financial accounts and apps in developing, emerging and developed markets alike (Fu and Mishra 2020). Commercial suppliers include traditional financial inclusion providers as well as FinTech firms (FinDev January 2021).

Finally, survey evidence shows that the majority of MSMEs have been reopening fast or plan to reopen whenever possible (Daley et al.

2021), despite significant and perhaps lasting changes in business strategies that include going online,

modifying services, and relying on less employees while at the same time seeking longer-term and more resilient financing (Noggle 2021).

These reactions are again a reflection of the necessity-driven strategies of many MSMEs. Overall, financial inclusion clients are emerging from the first local waves of the crisis more vulnerable and less able to draw on existing assets. It is essential therefore that financial institutions serving them adjust their own strategies towards supplying more crisis-resilient, flexible, and longerterm services.

How do financial service providers react?

On the supply side, the crisis has increased risks and affected shortterm performance of individual financial service providers, with diverse effect sizes across the global financial inclusion industry. On the lending side, aggregated data shows a fast, albeit fragile, recovery of credit disbursements and repayment since the summer of 2020 (CGAP and Symbiotics April 2021), although new contractions can be expected in those economies hit by the most recent wave of the pandemic. Early on, payment moratoria were instigated at different times and for different periods by regulators in at least 115 countries, and lenders also introduced grace periods on a voluntary basis. While the exact terms of these moratoria or grace periods decide whether suppliers or clients bear the brunt

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of the effects (CGAP 2020a, CGAP 2020b, Jain 2020), and lasting effects cannot be expected in times of recurrent crisis peaks that prevent or slow down economic recovery, these measures provided the short-term stability needed to develop additional adjustment strategies for business continuity and financing.

Financial service providers’ responses in the short and medium term go beyond managing liquidity, credit, and interest rate risks through restructuring and reprogramming of loans (CGAP 2020a). There has also been a return to more risk-averse lending policies (Daley et al. 2021).

These rely on capital buffers and a comparably low level of risky leverage, both typical for lenders that had performed well prior to the crisis. Providers also strived to manage operational and market risks through focusing on human resources and client relationships. On the one hand, the crisis has intensified the speed at which financial institutions are embracing FinTech in front-office operations. This has been in response to the increasing demand of digital products for savings and payments due to lock-

down and financial relief packages (FinDev January 2021). Financial service providers also continued to increasingly outsource credit-risk, KYC and other mid- and back-office functions to FinTech providers. Increasing reliance on FinTech aims at increasing efficiency and reducing transaction costs for clients, but it also implies an increased risk from fraudulent operations and cyber risk (FinDev February 2021), thus requiring an ongoing need for capital and capacity investments, with uncertain effects on short-term cash flows.

On the other hand, the crisis reminds financial institutions also of the well-known but sometimes neglected need to promote affordable and safe deposit, payment and other non-credit services (Daley et al. 2021; FinDev April 2021). Some even state that the crisis confirms the advantage of the “high-touch, customer-centric” approaches (Robb and Spiro 2021).

Overall, the most recent global supplier data aggregated by CGAP and Symbiotics (April 2021) show a moderate increase in aggregate credit risk as measured through the prominent, albeit starkly lagging in-

dicator, PAR30, a slowing down of loan portfolio growth rather than portfolio contraction, which to date is limited to Asia, and a slight reduction in the number of borrowers.

In those local markets where the expiration of a moratorium occurs simultaneously to a new Covid-19 wave, these effects may increase.

Yet, the aggregated market data reflects overall remarkable levels of solvency and bottom-line results so far.

How have international investors responded?

To date, the aggregated performance and liquidity of major financial inclusion investment vehicles show resilience and have reached pre-crisis levels (Meyer 2021). Chart 2 shows a temporary performance dip, due to strong adjustments in their net asset values recorded in March and April 2020, when many investment vehicles started to increase provisions to prepare for potential future losses.

Chart 2: Microfinance investment index based on 13 investment vehicles (EUR) (Meyer / UZH, 2021)

Source: Meyer / UZH, accessed through https://www.csp.uzh.ch/en/research/Academic-Research/Microfinance/microfinance-investment-index-disclaimer0/microfinance-investment-index.html, on May 3, 2021 30

The resilience of the microfinance investment performance is driven by a combination of factors. First, most financial inclusion service suppliers are not listed but funded mainly through direct equity and direct debt, which are less exposed to short-term market movements and investor sentiments than global stock markets. Second, the investment vehicles that channel a large share of cross-border direct debt and equity have a long tradition of managing risks through widespread diversification. Global financial inclusion investment portfolios to date are comparably resilient likely due to this aggregation and risk diversification at global level, which is helpful as long as the Covid-19 crisis waves hit different countries and continents at different times. Third, the global financial inclusion investment community is showing once more its ability to coordinate, share information and even blend financing not only among themselves but also with non-commercial funders, for targeted support measures.

This matters the more, the less local government and public policy responses in countries seem to be able to respond to MSMEs’ pressing demand for longer-term liquidity and continuing access to credit (Cirera et al. 2021).

Examples of this global coordination of responses are varied. Facing the uncertainty related to the pandemic, financial inclusion investors started early on to prepare for a liquidity crisis, and many of them signed an MoU in April 2020 with the aim to coordinate ongoing refinancing efforts. This gave their investees some time to respond to the Covid-19-related market repercussions. Ongoing exchanges in global investor networks beyond the first MoU confirm the desire to avoid liquidity and solvency crises of financial institutions and their clients and a willingness to overcome typical prisoner’s dilemma type of situations among investors. Frequent and regular communication also manifested itself through a series of coordinated efforts to collect and disseminate information on local markets and clients’ well-being and coping strategies, starting as early as May 2020 (ADA et al.

2020). These helped to capture early warning signs of local crisis aggravation. Jointly developed response toolkits include, for instance, operational guidance for suppliers’ staff and client outreach during health crisis peaks and lockdowns, global investors’ guidelines on rescheduling and restructuring, responsible management of covenant breaches, a crisis assessment and moni-

Annette Krauss University of Zurich

Senior researcher at the Department of Banking & Finance and Director of Teaching at the Center of Competence for Sustainable Finance of the University of Zurich. She has nine years experience as microfinance specialist in development agencies in Germany and at the United Nations. Her research focuses on financial inclusion and sustainable banking. Together with Julia, she is managing the executive education programs on Sustainable Finance at UZH.

toring tool (SPTF 2020), crisis response maps including cash-based forecasts, scenario planning, and stress-testing guidance (Abrams 2021; CGAP and Symbiotics February 2021). These tools build overall knowledge while reducing costs of individual investors and investees.

At the same time, they leave sufficient flexibility to adjust strategies and negotiate terms in each individual context.

Last but not least, some wellknown but sometimes underestimated issues of financial inclusion have resurfaced during the crisis; an insufficient focus on product flexibility, long-term risk management and savings and insurance products for many MSME clients, the need to invest in financial capabilities, and, last but not least, given the limited resources of many local governments and regulators, the need to strengthen resilience of clients and local financial service suppliers alike. All of these issues, when not addressed, tend to be to the detriment of the most vulnerable or marginal client segments, and all of them call for continuing efforts to smartly blend responsible investments, venture philanthropy, and public sector funding for financial inclusion.

Julia Meyer

University of Zurich &

University of Applied Sciences of Zurich

Academic associate at the Department of Banking & Finance of the University of Zurich and senior lecturer at ZHAW, where she works on research projects in sustainable finance and teaches at the Bachelors’ and Masters’ level and in executive education. Julia did her PhD on the financial and social performance of microfinance investment vehicles. Together with Annette, she is managing the executive education programs on Sustainable Finance at UZH.

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EQ during Covid-19 Situation at EQ with Covid As economies around the world shut down, companies had to adapt.

For EQ, as an international firm which relies strongly on interpersonal connections, this also had strong implications.

It meant that we had to modify our due diligence process from onsite to digital starting in May 2020 until February 2021 when we resumed onsite due diligence in some regions.

Thanks to the longstanding experience of our regional managers and investment officers, we tapped into our network of MFI and regulatory relationships to act as a first filter.

This made it possible to overcome travel restrictions via online meetings and working with some contractors already living in these markets. Along with the growth of the EMF Fund, EQ also grew, onboard-

ing some of our new employees virtually. This was another challenge for the team, but actually pushed us to work even more closely as a team. Despite having the inability to travel, EQ pushed ahead with its planning and training session in the beginning of 2021, bringing together at times everyone in the company to walk through the strategic objectives of the company for 2021, and to work together to improve the tools and processes used to underwrite investments.

The Business Development Team of EQ faced similar issues as we were not able to rely on conferences and personal meetings to build and maintain relationships with partners and investors. We had to move the interactions online. With direct contact through phone and Zoom calls and a stronger emphasis on online events such as Webi-

nars, the Front Office Team managed to overcome those challenges and was able to build a strong and resilient partnerships. Thanks to the trust of the Investors despite the difficult circumstance the EMF Microfinance Fund was able to attract new assets. Furthermore, sticking to the core of the microfinance industry, our clients rewarded us as well with additional trust.

Focusing on MFIs in the sweet spot, we managed to grow our portfolio from roughly 85 million USD AuM in June 2020 to roughly 220 million USD AuM in May 2021. With this growth, we reached more Microentrepreneurs each month, and were able to support individuals, families and communities.

Together with our portfolio companies and other industry experts, we were able to minimize the negative effects of COVID for our investees.

Remo Oswald

Co-Founder & Managing Partner “With the awareness that the Covid implications in EM are not quite behind us yet, however, we can look back and see with pleasure that everyone involved in the microfinance industry understood that together we can master even the greatest challenges. Therefore, we remain confident that we will be able to continue to support people in emerging markets globally and at the same time to provide low correlated and stable returns to investors.”

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With moratoria solutions and carefully advised activites, we and our partners worked together to support the MFI’s with individual solutions. With hard work, cooperation, and targeted measures the investment team secured the cashflow globally and helped to bring money to people, whose economic wellbeing was in great danger during the pandemic.

We strive to be a strong partner to the clients and that our funding helps them to overcome the challenges posed by the COVID-19 pandemic. With EQ we take moving money to meaning seriously.

We would like to thank all our partners and employees, who helped us in these difficult times and we are sure, that together we can navigate through this challenging time!

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References Abrams, J., 2021, Crisis Roadmap for Microfinance Institutions, Washington DC: CGAP Technical Guide, February ADA, Inpulse, Grameen Crédit Agricole Foundation, 2020, Beyond the difficulties posed by the COVID-19 crisis, new opportunities are emerging for microfinance institutions (MFIs), June Berkhout, E., et al., 2021, The Inequality Virus, Oxford: Oxfam International, January Cirera, X., et al., 2021, Policies to Support Businesses through the COVID-19 Shock: A Firm-Level Perspective, Washington DC: World Bank, Policy Research Paper 9506 Daley, C., et al., 2021, Covid-19 and Women-Led MSMEs in Sub-Saharan Africa: Examining the Impact, Responses, and Solutions, Washington DC: IFC, March Di Bella, C.G., 2011, The Impact of the Global Financial Crisis on Microfinance and Policy implications, Washington DC: IMF Working Paper No. 11/175 CGAP, 2020a, Global Pulse Survey of Microfinance Institutions, Washington DC: CGAP, December CGAP, 2020b, Consumer Protection and COVID-19: Borrower Risks as Economies Reopen, Brief, October CGAP & Symbiotics, 2021a, Resilient microfinance industry signals path towards cautious, gradual recovery, Washington DC & Geneva: CGAP & Symbiotics Snapshots Briefs: MFIs During the COVID-19 Crisis, April CGAP & Symbiotics, 2021b, Microfinance institutions maintain rebound, but solvency questions loom, Washington DC & Geneva, CGAP & Symbiotics Snapshots Briefs: MFIs During the COVID-19 Crisis, February FinDevGateway, 2021, FinDev COVID-19 Update | 14 - 27 Jan 2021 FinDevGateway, 2021, FinDev COVID-19 Update | 14 Apr – 05 May 2021 Fu, J., & M. Mishra, Fintech in the Time of COVID-19 Trust and Technological Adoption During Crises, Swiss Finance Institute Research Paper No. 20-38, December Jain, M., 2020, As India’s Credit Sector Falters, So Do Women’s Livelihoods, Blog, The Fuller Project, December

Meyer, J., 2021, Microfinance investment index, University of Zurich / CSP Noggle, E., On the Economic Frontlines of COVID-19: Early Insights From MSMEs Grappling With the Crisis, Cambridge MA: Center for Financial Inclusion / Accion Brief, February Robb, C., & S.B. Spiro, 2021, Discussing Moratoria and Other Pandemic-Era Measures, a Q&A with FINCA Impact Finance, Cambridge MA: Center for Financial Inclusion / Accion, Blog Post S&P Global, 2021, spglobal.com SPTF, 2021, Responding to Covid, Social Performance Task Force, Social Investors Working Group, Meeting Brief, February SPTF, 2020, Crisis Assessment and Monitoring Tool (CAT), Social Performance Task Force, Social Investors Working Group, April Wagner, C., & A. Winkler, 2013, The Vulnerability of Microfinance to Financial Turmoil – Evidence from the Global Financial Crisis, World Development (51), 71-90

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Dear Investors, partners and readers, We truly hope you have enjoyed reading our first Enabling Qapital Impact Report.

Transparency is key when it comes to investments in today’s times and therefore providing you with details of what we have been doing since launch has been at the top of our agenda. We’re excited to show our commitment, our efforts, and dedication.

As you can see, impact has not only been at the core of everything Enabling Qapital does, it accounts for literally 100% of our investment activities. That means that each and every one of our portfolio companies provides a positive impact for low-income households, SMEs and the broader community in developing countries, all while enhancing the social outreach of our company.

We take our role as an enabler in the field very seriously, and always search for how our business could benefit both investors and the movement of the Sustainable Development Goals (SDG) to create a better world. We will continue to support inclusive economies worldwide with the aim of fostering inclusive growth while providing attractive returns - both financially and socially - to our investors.

This report would not have been possible without the hard work of all Team-Members at EQ. We’re truly proud of having such a professional and diversified Team all over the globe in order to drive the positive development we aim for. A special thank you goes to our dedicated Impact Team of Martina Rechsteiner and Johannes Palm that put everything together.

Thank you all for your ongoing trust in EQ and for participating in our effort to create prosperity, in complex times, for those who need it most.

Sincerely, your Chairman of the Board and Member of the Board Kazim Mohamed Ali and Christoph Dreher

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