INVESTMENTPROPOSAL

of JSCB «Mikrokreditbank»

  1. RESUME
  2. GeneralInformation about Microcreditbank

Joint-Stock Commercial Bank “Mikrokreditbank” was establishedin accordance with the Decreeof the Presidentof the Republic of Uzbekistan dated May 5, 2006 No.UP-3750 and provides the entirerangeof bankingservices.

Oneof mainpurposesof the bankisto expand provisionof financialresourcesfordevelopmentof small business, privateentrepreneurship, and establishmentof newjobs byactivizationof individuallaboractivity, familybusiness and outworklabor, ensuring access to microfinancialservicesfor wide groups of population, especially in ruralarea.

The internationalratingcompany «FitchRatings» assignsthe Bank with «B» level rating with «Stable» outlook every year.

The Bank was awarded “The Best Bank of Uzbekistan” nomination twice by the world-wide recognized edition “The Banker” in 2010 and2012.

«Mikrokreditbank» carries out intense activityin the financial market, and actively developsthe network, capital adequacy, stableliquidity, diversifiedgrowthof bank’s assets.

The Bank has established correspondentrelations with leadingbanksworld-wide and has established correspondentrelations with opening of correspondent accounts.

«Mikrokreditbank» isa memberof suchstatefunds, associations and internationalorganizationsas:

The Fund for Guaranteeing Deposits of Population of the Republic of Uzbekistan;

The RepublicanInter-Bank Currency Exchange;

The RepublicanStock Exchange «Tashkent»;

The Associationof Banks of Uzbekistan;

The Chamber of Commerce and Industry of the Republic of Uzbekistan;

The Internationalinformation Dealing System THOMSON REUTERS;

The InternationalSystemof Electronic Payments S.W.I.F.T.;

The InternationalSystemof Payments VISA INTERNATIONAL;

international remittances systems (Western Union, Zolotaya Korona, MoneyGram, Unistream, Contact).

The MicrofinancialCenter (Poland),

The Associationsof Bankers of Asia (Taiwan),

The Microfinancial Information Platform «MIX MARKET»

1.5. Resumeof Marketing Plan

The purposeof marketing planningis to establish positionsof the bankat the current time, directionsof activitythereof and means to achieve the purposes. The marketing plan ismainly based within implementation of activityto earn certain income; it serves as foundation forof all otherkindsof activityof the bank. Current dailydecisions shall be adopted based on the plan.

The essence of the marketingplanincludesachievementof the followingmaintasks of the bank:

assistanceto accelerateddevelopmentof small business and private entrepreneurship;

provisionof financial and organizationalof supportto women and youth includinggraduatesof vocational collegesforactiveengagement thereof to entrepreneurialactivitybyprovisionof credits;

ensuringaccessfor entrepreneurship entities to creditresourcesaimed at expansionof their activity and replenishmentof working assetsforprocurementof raw materials and materialsfor further deeper processing thereof, production and sale of finished products, provision the internal marketwith domestically produced goods, hence, establishing additional working places and raising incomesof population;

Development strategyincludes:
● Attractionof funds from privatelocal and foreigninvestorsto the joint-stock capitalof the bank

● Growthin quantityof servicedcorporateclients
● Expansionof investmentactivityforimplementationstrategically significantprojects.
● Restorationof activityfinancially unstable and economically insolvent enterprises with subsequent attractionof strategicinvestors.
● Developmentof internationalactivity
● Modernizationof information base
● Developmentof newforms of retailfinancialservices
● Maintenance of highrates of bank’s capitalization

Mainconditionfor raising investmentattractivenessof the Bank and maintenance of leadingpositionsamongcommercialbanksin terms of developmentof bankingservices isimprovementof clientpolicy, creation of flexibleeffectivesystemof interaction with clientsbased onneeds of variousclient groups.

The marketing plan of «Mikrokreditbank» for 2016provides for the followingtargetbenchmarks:

Return on Equity (ROE) – not lower than 10%;

Return on Assets (ROA) – not lower than 3%;

Levelof Current Liquidity – 90%;

Indicatorof Capital Adequacy – 25%;

Profitabilityof branches – not lower than 10%;

Proportion of incomeearning assets in total assetsof the bank – not lower than 50%;

Earning of net interest margin of the bank – not lower than 5%;

Shareof interestincomes in interestexpenses – not lower than 100%;

Shareof commission incomes in netoperatingincome – not lower than 45%;

Assets (credit portfolio) per one employee – twofold growth;

Netoperatingincomeper one employee – twofold growth;

Ratio of operatingcosts to netoperatingincome (Cost/Income Ratio) – not higher than 80%;

To increase the share in internalmarketof international remittances to 15%;

Growthin depositsof population and economic entities – by 30%;

Growthof the share of commercialcreditsextendedto small business and privateentrepreneurship in totalcreditportfolioof the bank – by 30%;

Maintenance of earned incomesfrom credit investments in total incomesof the bank – not lower than 60%;

Maintenance of the share of problem credits in total creditportfolioof the bank – not higher than 3%;

Strict maintenance of the levelof security of long-termcreditsof the bankwith long-termdeposits– 100%;

Growthof total capitalalso by additional issuance of shares – by 20%; every year

Growthof balance sheet profit – twofold;

Strict maintenance of growthin assetsproportionately to growthof capital;

Issuancedeposit certificatesinto circulation –30.0billion soums every year.

1.6. Projectionof Main Financial Indicators

In order to ensure of stabilityof the bank as well as to increase assets,it is plannedto increase total capitalof the bank to 91,8million USD equivalent and to increase authorized capital to 87,6million USD equivalentin 2016. Furthermore, it is projectedto increaseassets, at least, by 10% and increase total assets to 384,1million USD equivalentin 2016.

Besides, an objective was set to increasetotal volumeof depositsby 32% or to 195,4million USD equivalent, and long-termdepositsby 40% or 38,6million USD equivalent, byincreasing the number of clients and launching newkindsof banking services.

Itis plannedto carry out diversificationof client base in 2016, bylaunching newkindsbankingservices and improving qualityof service. At the same time, special attentionwillbe given to clients with averageannualturnover.Itis projectedto attract34 thousand newclients and increase the number thereof to 370 thousand during the year.

According to results of 2016,it is plannedto earn incomefrom bankingservicesprovided to clients in the amount of121,1million USD equivalentas well as to spend expenses related to main activity and improvementof service qualityin the amount ofmillion 116,5 USD equivalent. The projection for netprofitamounts to 2.0million USD equivalent.

in million USD equivalent

No. / Indicators / Projectionfor 2016
Total Assets / 384,1
Total Capital / 91,8
Authorized Capital / 87,6
Total Credits / 297,2
TotalDeposits / 195,4
TimeDeposits / 98,2
Number of Clients / 370 000
TotalIncomes / 121,6
TotalExpenses / 116,5
NetProfit / 2,0

1.6. MainAdvantages and Risks of Project

Taking into considerationpositive prospects for developmentof the bank,the mainadvantagesforstrategicinvestorsshall be the following:

expandedbranchnetworkin the entire regionof the republic (ranks 4th);

operational experience in the financialsectorof the republic (22 years of activity);

highly qualifiedemployees with long operational experience;

sustainablebusinessposition in servicing of long standing partners;

existenceof clients’trust and stableliquidity;

more moderateindicatorof netinterestmargin compared to the average one throughout the bankingsector;

highbusinessactivity;

sufficientlevelof material and technical resources;

supportof shareholders;

experiencedteamof managers.

At the same time,the mainrisk factorsof the projectshall be:

Riskof capital inadequacy;

Corporaterisks;

Risksrelated to termination of licenses;

Risks dependant on inflation and devaluation;

Socialrisks;

Currencyrisk;

Liquidity risks.

To ensureminimizationof risks,the Supervisory Council develops and approves bank’s policy each year; the bankhas Risks Department;Risks Management Committeewhich consists of members of the Supervisory Council is operative.

  1. Descriptionof Enterprise:
  2. Historyof Creation of Enterprise;

JSCB «Mikrokreditbank» was establishedunder the Decreeof the Presidentof the Republic of UzbekistanUP-3750 “On Establishment of Joint-Stock CommercialBank «Mikrokreditbank» dated May 5, 2006on the basis of JSC “Tadbirkor” (registeredon April28, 1993 No.37) and the Resolutionof the Cabinet of Ministersof the Republic of UzbekistanNo.78 “On Measureson Organizationof Activity and Strengthening of Material and Technical Resources of Joint-Stock Commercial Bank "Mikrokreditbank" dated May 6, 2006.

Furthermore,the following were adopted:

- Decreeof the Presidentof the Republic of Uzbekistan 10.11.2008 No.UP-4051 «On Measureson Further Expansion of Activity of Joint-Stock Commercial Bank "Mikrokreditbank" to Support Entrepreneurship Entities»,

- Resolutionof the Presidentof the Republic of Uzbekistan dated 29.03.2013 No.PP-1945 «On Additional Measures to Raise Capitalization of Open Joint-Stock Commercial Bank «Mikrokreditbank».

- Resolutionof the Presidentof the Republic of Uzbekistan dated 26.10.2015 No.PP-2420 «On Additional Measures on Further Raising Capitalization of Banks and Strengthening Investment Activity Thereof»

2.2.Information about Owners

Shareholders / Number of shares / Million USD* / %
1. / Ministry of Finance of the Republic of Uzbekistan. / 146 933 690 / 54,3 / 62,7
2 / Central Bank of the Republic of Uzbekistan. / 50 018 726 / 18,5 / 21,4
3. / LLC «Neftegazdeposit» / 6 000 000 / 2,2 / 2,6
4. / National Bank for Foreign Economic Activity of the Republic of Uzbekistan / 4 436 329 / 1,6 / 1,9
5. / Joint-Stock Company «Uzbektelecom» / 3 842 827 / 1,4 / 1,6
6. / JSCB «Asakabank» / 3 202 247 / 1,2 / 1,4
7. / JSCB «Uzpromstroybank» / 3 002 247 / 1,1 / 1,3
8. / Insurance Company «Uzbekinvest» / 2 561 797 / 0,9 / 1,1
9. / JSCB «Agrobank» / 2 000 000 / 0,7 / 0,9
10. / Other (natural and legal entities with ownership share of less than 1%) / 12 239 932 / 4,5 / 5,2
Total / 234237 795 / 86,6 / 100,0

* Exchange rate as of April 18, 2016, 1USD=2888,39 Soums

As of April 1, 2016, the authorizedcapitalamounts to 86.6million USD equivalent including the state-owned share of 84.1 %represented by the Ministry of Finance and Central Bankof the Republic of Uzbekistan.

In accordance with the Decreeof the Presidentof the Republic of UzbekistanPP-2454 «On Additional Measures for Attractionof Foreign Investors to Joint-Stock Companies» dated 21.12.2015, state shares of the bankat least 15%are offered to stock exchange trading for foreign investors.

2.3.Organizational Legal structure (the schememust be given in appendix);

Appendix1.

2.4.Management:

-Management structure in Appendix2;

-Resumeof chief managers in Appendix3.

2.5.Personnel.

-Quantityof employeesby categories is given in Appendix4;

- Salaries rates by categories are given in Appendix5.

2.6.FinancialIndicators for Last 5Years (Production and Sale Volumes, Net Profit).

2.6. FinancialIndicators for Last 5Years

(in million USD equivalent)

Indicator / 2011 / 2012 / 2013 / 2014 / 2015
Assets / 275,8 / 296,7 / 320,6 / 345,3 / 425,3
Total Capital / 95,4 / 88,6 / 98,6 / 91,6 / 90,0
Authorized Capital / 87,3 / 80,7 / 90,9 / 82,6 / 80,1
Current Liquidity Ratio (min. 0.30) / 0,3 / 0,3 / 0,3 / 0,2 / 0.815
Capital Adequacy Ratio (min. 0.10) / 0,2 / 0,2 / 0,1 / 0,1 / 0.215
Credit Portfolio / 213,2 / 221,1 / 250,0 / 270,4 / 293,8
Share Portfolio / 4,1 / 6,2 / 5,6 / 5,1 / 3,9
Deposits of Legal Entities / 47,2 / 54,4 / 53,3 / 90,1 / 164,8
Deposits of Natural Entities / 33,2 / 40,0 / 47,0 / 58,3 / 75,6
Net Profit / 2,1 / 0,8 / 0,2 / 0,2 / 0,5
Actual Number of Permanent Staff (man) / 3769 / 3737 / 3862 / 3816 / 4015
  1. Organizationof Production:

3.1. Technologies;

ASBT-3 (AutomatedSystemofBankingTechnologies)isusedasacentralizedandautomatedbankingsystem. Software which operates in this systemhas functionsconforming to requirementsof the bank and enables to automatizebusiness processes. At the present time,more than 60 modules and sub-systems operate in ASBT-3 complex.

Extensivefunctional capabilities of the automatedbankingsoftware ensures completion of payments and provision of high-quality bankingservicesto own clients even under conditions of increasing volumes.

Communication channelsbetweenthe head office and branchesare arranged as follows:

1. Bankingtelecommunicationnetworkof the Central Bank; 2.Wirelesscommunication channelsof the national communication operator “Uzmobile” is used as a backup channel. Channel capacity speedis 1-2 Mbit/sec. CISCO software and hardware are used to ensure safety and effectiveness. ASBT-3 data base is installed on serverinstallations IBM Power 740.

RAID technology is used to ensure reliable data storage.Oracle software is used as data base management system. Supporton technical and software conditions of the servers is implementedby specialistsof companies with respectivecertificates and by experiencedemployeesof the bank. Data exchanged is carried out via fiber-opticcommunication lines between the main and backup centers. The backup centeris arranged based on Standby system.At the present time,there is sufficient capacity of the servers enabling to process data transmitted by all branchesof the bank.

3.2.ProductionAssets, Capacities, and Infrastructure

As ofJanuary 01, 2016,85branches and 140 mini-banksprovide bankingservicesto the population in regionsof the republic.

Fixed assets totaling 21,5 million USD equivalent are recorded in the balance sheet of the bank. These include 11,5 million USD equivalentof buildings and premises, 750thousand USD equivalentof transport vehicles, 8,6 million USD equivalentof furniture and computer equipment, 750thousand USD of equipment intended for payments and etc.

3.3.Necessity in New/AdditionalProduction Equipment

No necessity

3.4.Raw Materials Resources

No necessity

3.5.Environmental Impact of Enterprise

No impact.

  1. Descriptionof Services/Goods

Products

Mikrokreditbankprovides the entirerangeof bankingservices to legal and natural entities.

-Openingaccounts, payments and settlements, cash-office servicingof accounts of natural, legal entities and correspondent banks;

-attractionof deposits;

-provisionof creditsin its own nameon conditionsof repayment, fee payment and time maturity using attractedfunds;

-managementof monetary funds in accordance with agreementsentered into with ownersof funds or with persons who dispose such funds;

-encashment or collection of monetary funds, promissory notes, payment and settlement documents;

-Provisionof guaranteesand othercommitments which provide for execution thereof in monetary form from third parties;

-issuance, purchase, and saleof securities, trustmanagementof securitiesin accordance with an agreement entered into with a client, provisionof investment intermediary services, and consultingservices;

-provisionof information and consulting services in respect to bankingactivity;

-provisionof specialpremises or steel depositaries in premisesforstorageof documentsand othervaluable to natural and legal entities;

-purchaseof cash and non-cashforeign currencyof legal and natural entities (residents and non-residents), saleof foreign currency on their accounts;

-attractionfunds of foreignfinancialinstitutions and channeling thereof to financingprojectsin real sector of economy, rural enterprises, developmentof small business and private entrepreneurship and otherprojects;

-implementationof payments recognizedin internationalbankingpractice in respect to export and import and otheroperationsof clients;

-issuanceof plasticpayment cards and provisionof electronicbankingservices;

-provisionof financialleasing and factoring services;

-implementationof financing operationsusing state budgetaryfunds;

-attractionforeigncreditlines and grants forprovisionof microfinancialservices and provisionof microcredits;

-provisionof otherservices specifically stated in licensein accordance withinternationalbankingpractice.

  • Objective and Scope of Application;

Provisionof banking servicesto legal and naturalentities on the territoryof the Republic of Uzbekistan. Provisionof consulting services and seminarson provided servicesof Mikrokreditbank.

  • MainCharacteristics;

Since the bank works with population and entrepreneurs,Mikrokreditbankhasan extensivebranchnetwork throughout the entire republic. 85 branches and 140 mini-banksprovide bankingservices.

  • DistinctiveFeatures, Benefits/Advantages of Clients;

It is special that infrastructureof the bank mainly covers all regionsof the republic, and ruralarea. Greatexperienceexists in microfinancing. The bank provides comprehensiveprogramin microfinancing starting from seminars and consultations, issuance ofmicrocredit, repayment thereof and extension of larger credits. Jointly with concernedorganizations, the bank organizes programforyouth, graduatesof vocational colleges and womenentrepreneurs.

  • Availability or Necessity of Licensing;

TheCentral Bank of the Republic of Uzbekistanhas issued License to Carry out Banking Operations No.37 dated 04.08.2014 and GeneralLicense to Carry out Operations in Foreign Currency No.61 dated 04.08.2014 to Mikrokreditbank. (Copiesof the licensesare attached)

  • Readiness to Issue and Carry out Products;

At the present time, the bank provides bankingservices.

  • Necessityof Certification, Existence of Certificates;

No necessity in certificationis present.

  • Necessity and Possibilities for Modernization of products;

Based on needs of clientsand population, the bank develops and implementsnewfinancialproductsin accordance withthe existing legislation. The bank is sufficiently flexibleforof introductionof competitive and effective newproducts.

  • Terms of Delivery and Packaging;

One may use servicesof Mikrokreditbankby visiting a branch or mini-bank nearest to the place of residence. The bank alsoprovides distanceservicingto clients.

DistanceServices of Bank:

forlegal entities

  • “SMS-Bank”
  • “Internet-Bank”

fornaturalpersons

  • “Omonat-SMS”,
  • “SMS-Tulov”,
  • “CLICK”
  • Guarantees and Service.

As a commercial bank,Mikrokreditbankattractsfree availablemonetaryfundsof legal and natural entities and provides creditsin its own name and own risk.Servicesare providedon contractual basisin accordance with the existing legislationof the Republic of Uzbekistan.For instance, no operations of a client are disclosed to third parties in accordance with the Law of the Republic of Uzbekistan «On Bank Secrecy»; 100% repayment of depositsof citizens in a bank is guaranteed in accordance with the Law «On Guarantees of Protection of Deposits of Citizens in Banks».

All disagreements in respect to agreements are resolved by means of negotiations, and disputable matters are decided by means of judicial settlement.Inaccordance with the legislation if lawsof the Republic of Uzbekistancontradict international acts,international acts shall prevail.

5. MARKET REVIEW

5.2. GeneralAnalysis of Uzbekistan Market

Today 26 banks functioning in the banking sector of Uzbekistan:

3State commercial banks, 11 Commercial banks,

8private banks 4banks with foreign capital.

According to 2015, their total Assets increased by 25,1% and amounted to 23,2 billion USD.

Total capital of commercial banks amounted to almost 23,3%;

Investment credits increased 1,2 times and amounted to 3,6 billion USD;

Credits rendered to real sector of economy increased by 27,3% and amounted to 15,1 billion USD.

Credits extended to small business and private entrepreneurship increased 1,3 times and amounted to 4,3 billion USD., of which microcredits amounted to 800 million USD that 1,3 times higher as compared to 2014;

Credits extended to graduates of vocational colleges increased 1,4 times and amounted to 98,8 million USD;

Balances of deposits increased by 28% and amounted to 12,6 billion USD.

It is necessary to state that,according to results of2015 года, the shareof banking servicesin total structureof financialservices amounted to 88% and increasedmoreчем1.3 times compared with 2014. It is a result of targeted measures undertaken for increasing the volume and improvementof qualityof providedbanking servicesto the population and entrepreneurship entities.

  • Segmentationof Market, Analysis of Capacity, Saturation and Evolution of Market Segments;

Rankingof Mikrokreditbankamong 26 banks:

10th by volumeof assets,

10th by volumeof equity capital,

10th by volumeof credit portfolio,

3rd By balanceof extendedcreditsto private partnerships and corporations,

17thby volumeof investmentportfolio,

15thby volumeof balancesof deposits,

12thby volumeof balancesof depositsof natural entities,

15thby volumeof balancesof depositsof legal entities,

9thby volumeof balancesof depositsof natural entitiesin national currency,

11thby volumeof balancesof depositsof natural entitiesin foreign currency,

15thby volumeof balancesof depositsof legal entitiesin national currency,

17thby volumeof balancesof depositsof legal entitiesin foreign currency,

Increasing attention is paid to developmentof entrepreneurshipin the republic with the population of more than 31.0 million that generates swiftgrowthof demand for banking,particular, microfinancialservices.

It is worth mentioning that there is a considerablepotentialfor enhancing the role of the bank in the banking sectorin general taking into consideration infrastructure and personnel potential as well as unique experience accumulated during the activity of Mikrokreditbank. The managementof the bank stands ready to implementcertain projectsin crediting, remittances, and dealing services. The bank intends to provideservicesof professionalinvestmentintermediary and market maker.

Analysisof Competitive Environment;

  1. The bank hasa widebranchnetwork in remoteregions which ensure provision of bankingserviceson the entire territory of the republic.
  2. Numerous bankingproductsinclude services on financial and organizationalsupportof potentialborrowers. It should be stated that at the same time the bank offers freeconsultationservices and seminarson establishmentof entrepreneurialactivity includingcompilation of a businessplan and mechanismsof provisionof microfinancial services.
  3. Furthermore,the bank launched the mechanismof supportof ownclients when an entrepreneurwho received a startup microcreditreceives newcredits in greater amounts as he/she develops own activity and there are created possibilities for him/her fortransforming into a significant participant of businesssphere.
  4. Mikrokreditbankisa key link in the microfinancing sector in the republic that is also well recognized by the international community.Forinstance, “Mikrokreditbank” ranked 5th among top 10 banks out of 151 banks of microcrediting countries of Central Asia and Europe in accordance with the ranking issued by «Reviewof Microcapital Market» magazine.
  5. As a result of implementationof the rational policyon diversificationof assets, there was established borrowersbase with verylowlevelinterconnection that ensures minimization of sectoral risk.
  • Strategyof Marketing and Sale of Services

The bank distributes and expands itsservicesbyimplementation thereof through thebranchnetwork and remotepoints of sale which consist of 85branches and 140mini-banks and more than 46 special cash offices.

At the present time,more than 4000 employees provide high quality banking services in thesebranches and subdivisions of the bank.