Hivos-Triodos Fonds Annual Report 2010 TLIM

Transcripción

1 Hivos-Triodos Fonds Annual Report 2010 TLIM

2 08 Microfinance is the provision of financial services to low-income people in developing countries. An inclusive financial sector, where the majority of people have access to financial services, provides a sustainable basis for balanced socioeconomic development.

3 Hivos-Triodos Fund Foundation Annual Report 2010 Hivos-Triodos Fund is a joint initiative of Hivos-Triodos Fund is managed by Triodos Investment Management, which is wholly-owned by Triodos Bank.

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5 Contents Page General information 6 Report of the Supervisory Board 7 Annual Report of the Board of Management 8 Key figures 26 Annual accounts 2010 of the Hivos-Triodos Fund Foundation 27 Other information 42 Project descriptions 44 The Board of Management and the Supervisory Board 48 Sustainability reporting 49 Spanish translation 50 Address 71 Publication details 71

6 General information. Objective Hivos-Triodos Fund Foundation (Hivos-Triodos Fund) was formed on 22 December 1994 by the Hivos Foundation and the Triodos Fund Foundation. Its objective is described in the articles of association as follows (article 2): The Foundation s aim is to provide guarantees and loans to development cooperation enterprises and institutions, as well as to bear the risk of participating in projects, all in the broadest sense. The Foundation is a non-profit organisation. Governance The Board of Management comprises Peter Blom and Pierre Aeby, both of whom are members of the Board of Management of Triodos Bank NV. The Board of Management is appointed, suspended and discharged by the Supervisory Board, which also supervises the Hivos-Triodos Fund policy and approves the financial statements. The Supervisory Board is appointed by the Hivos Foundation and comprises Pauline Bieringa, Philip de Haan, Kees Izeboud, Pieter van den Kerkhoff (chairman), Manuela Monteiro and Marc Woltering. Philip de Haan and Pieter van den Kerkhoff stepped down in December 2010 having served for eight years. They were succeeded by Natasja van den Berg and Marcel Karman. Pauline Bieringa has taken over as chair. A Cooperation Agreement has been entered into between Hivos Foundation, Triodos Bank NV, Triodos Investment Management BV and Hivos- Triodos Fund Foundation for the practical implementation of the policy. Triodos Investment Management BV, managed by Marilou van Golstein Brouwers and Bas Rüter, is responsible for the management of the Fund. The Fund Manager of Hivos-Triodos Fund is Frank Streppel. Mode of operation New applications to Hivos-Triodos Fund for finance facilities are assessed as regards their financial criteria and the social and environmental impact of these organisations business activities. The staff of Hivos and Triodos Investment Management use their expertise to play a specific role in this process. Hivos assesses the development relevancy of the applications. Its positive recommendation is a basic condition for providing credit or making an investment. Triodos Investment Management staff then assess the applications on the basis of financial and institutional criteria. Both the intake by Hivos and the financing proposal made by Triodos Investment Management are submitted to the Hivos-Triodos Fund credit committee. Representatives of Hivos and Triodos Bank are members of this committee. Final responsibility lies with the Board of Management of Hivos-Triodos Fund. Hivos-Triodos Fund is responsible for managing the portfolio. Every borrower is reviewed at least once a year to assess whether or not the profile of the relationship still satisfies the criteria of the policy. The management and further development of the portfolio takes place in close consultation with Hivos. The regional offices in Harare (Zimbabwe), Bangalore (India), Jakarta (Indonesia) and San José (Costa Rica) play an important role in this process, as do the responsible members of staff at the Hivos head office. 6

7 Report of the Supervisory Board. The Supervisory Board assessed developments within Hivos-Triodos Fund with regard to fund policy and approved the annual report and annual accounts for 2009 and the budget for 2010 in two meetings held in It its meeting on 30 March 2011, the Supervisory Board approved the annual report and annual accounts for 2010 of the Hivos-Triodos Fund Foundation. The result for 2010 is EUR 1,877,069 (2009: EUR 390,326). This amount comprises operating profit of EUR 1,257,228 (2009: EUR 1,051,141) and a positive exchange rate result of EUR 619,841 (2009: EUR 660,815 negative). The exchange rate result is credited to the exchange equalisation reserve. No movements took place in the generic provision in The volume remained the same at EUR 2,536,053, being 7.6% of the portfolio (excluding participations). In view of the fact that no addition will be made to the generic provision, no appeal will be made to the private guarantors. In its meeting on 14 December 2010, the Supervisory Board approved the new strategic plan for Hivos-Triodos Fund for the period Zeist, the Netherlands, 30 March 2011 Pauline Bieringa (chair) Kees Izeboud Manuela Monteiro Marc Woltering Natasja van den Berg Marcel Karman 7

8 Annual Report of the Board of Management. Hivos-Triodos Fund was set up with the aim of contributing to sustainable economic development in developing countries. Because access to financial services is an essential aspect of this, Hivos-Triodos Fund finances microfinance institutions (MFIs) that provide financial services to people at the lower end of society. These services include loans, savings products, payment services and micro-insurance. Access to these basic financial services enables people to make a living, to utilise their talents and to create employment. An accessible, well-functioning financial sector thus forms an important foundation for building a solid local economy. The microfinance sector has undergone strong growth worldwide in recent years and has become a valuable and integrated part of the financial sector in many countries. Hivos-Triodos Fund welcomes this development but also recognises significant challenges in it for the sustainability of the sector in the longer term. This was one of the reasons for Hivos-Triodos Fund to reassess its strategy for the coming years in Its strategy comprises the following key points: - Hivos-Triodos Fund will continue to explicitly finance those MFIs active in underdeveloped markets that focus their services on vulnerable target groups; - Building on the specific knowledge and experience present in Hivos and in Triodos Bank, Hivos-Triodos Fund has reserved funds for financing broad sustainable development in developing countries in the coming years. The focus will primarily be on sustainable energy and agriculture; - Hivos-Triodos Fund s objective, governance structure and mode of operation will remain largely unchanged and - Hivos-Triodos Fund expects its total portfolio to 8

9 grow to EUR 60 million, while retaining its non-profit objective. Developments in the microfinance sector 2010 was an unsettled year full of contrasts for the microfinance sector. News of positive developments and growth figures alternated with critical reports about high interest rates and overindebtedness among microfinance clients. And the recurring question was: has financial gain become more important than sustainable development of the sector? A significant positive development was that more people from low income groups in developing countries gained access to microfinance. Added to that, many MFIs further expanded their range of services, including savings and insurance services, and a large number of MFIs are increasingly focusing on small Centenary Bank in Uganda Centenary Bank is the market leader in the microfinance sector in Uganda and is also active in rural areas. At year-end 2010, the bank had 105,000 loan clients and 698,000 clients with savings accounts. One of them is Kakembo Florence Najjuka, who has been able to expand her poultry farm with a new shed and a well thanks to a loan from Centenary Bank. 9

10 and medium-sized enterprises (SME). This growth mainly took place in the second half of the year and should be viewed in the light of the sustained economic growth in many developing countries. The quality of the loan portfolios in a large number of countries stabilised or improved in This provides a good basis for further growth and development. Nonetheless, the microfinance sector found itself under pressure in In Andhra Pradesh, one of India s 28 states, local politicians accused MFIs of granting credit on the basis of unclear procedures, high interest rates and unethical collection practices. These accusations led to considerable commotion in national and international media and forced the local government to decide to implement very restrictive regulations and legislation. This had a paralysing effect on the services provided by the MFIs and on the sector. The turbulent growth the microfinance sector in India has experienced in the last few years has put MFIs systems, staff and capital under great pressure. This pressure was intensified by the vast array of comparable standard products that were available to the same clients. Credit methods are often not geared to the needs of the client and overindebtedness is a major problem. The latter also indicates the importance of having a well-functioning credit bureau that records all loans. Building up a good infrastructure is essential to be able to steer the fast growth of microfinance in the right direction. Such infrastructure not only requires a credit bureau, but also effective supervision by a central bank, an independent regulator who supervises MFIs practices, and an ombudsman to whom microfinance clients can turn if they have complaints. Another issue was that investors paid high prices for shares in MFIs on the basis of high growth projections. This put enormous pressure on institutions to generate the growth that had been promised. In itself, growth is good and necessary for achieving greater efficiency, which can lead to institutions charging lower interest rates to their clients. But there is a major risk that growth and the pursuit of as high a profit as possible becomes an end in itself. Growth and profit then become the major priority. The mission and social objectives are pushed into the background. 10 These developments give all players in the sector a clear signal that transparent services, balanced growth and effective regulation and supervision are extremely important to ensure the healthy and sustainable development of the microfinance sector. It draws players back to the very heart of microfinance: offering financial services responsibly and transparently to people on low incomes, in a way that enables them to improve their living conditions. The same core issue that 20number of countries in which Hivos-Triodos Fund is active has been and will remain the underlying principle for Hivos-Triodos Fund in its role of a values-driven investor. The fund focuses on MFIs that pursue balanced growth and profit as well as having their social mission and objectives firmly embedded in the organisation. Product diversification is also important, in which MFIs bring their lending operations into line with their clients personal situation and ability to repay the loan. In addition, clients are in great need of ways of saving, transferring money, taking out insurance and building up a pension. Microfinance cannot be viewed in isolation. The aim is for microfinance to develop to become a valuable and integrated part of the financial sector in developing countries. Overindebtedness: a major concern Overindebtedness among clients of MFIs is a major concern and an important theme for Hivos-Triodos Fund in its contacts with and assessment of MFIs.

11 It is part of the risk and sustainability analysis carried out by the fund. Hivos-Triodos Fund furthermore works actively to draw attention to this topic and it supports the Microfinance Transparency and Client Protection Principles. Microfinance Transparency is a global initiative that offers countries individual, clear and explicit lists of effective interest rates that MFIs charge when granting loans ( The Client Protection Principles are an ethical code for the entire sector that includes the provision that a client may not be financed if repayment is beyond his or her capabilities. Hivos-Triodos Fund stimulates MFIs to sign up to this code ( To further analyse the problem of overindebtedness, Triodos Investment Management, the manager of Hivos-Triodos Fund, in conjunction with the Council for Microfinance Equity Funds and responsability Social Investments AG took the initiative in 2010 to investigate the extent of overindebtedness in a number of markets. This study is an important first step to establish an early warning index to help prevent future overindebtedness crises in microfinance markets. The research was carried out by the University of Zurich and published in January The entire study and the Executive Summary can be downloaded from com/microfinance. Principles for Investors in Inclusive Finance In early 2010, a group of investors that included Triodos Investment Management and Her Royal Highness Princess Máxima of the Netherlands, in her capacity as the UN Secretary-General s Special Advocate for Inclusive Finance for Development, took the initiative to set up Principles for Investors in Inclusive Finance. The motive for drawing up these Principles for Investors in Inclusive Finance (of which microfinance forms a part) is for them to contribute to the embedding of socially responsible investment in this sector. The Principles were developed by a broad group of investors in conjunction with UNPRI (United Nations Principles for Responsible Investment) and in close consultation with CGAP (the Consultative Group to Assist the Poor) and other players in the sector. The Principles were launched in The Hague, the Netherlands, on 27 January 2011 at a meeting organised by the Dutch Ministry of Foreign Affairs. An initial group of 41 international investors signed the Principles, committing themselves to the provision of honest, transparent and responsible financial services to low income groups in developing countries. More information about the Principles can be found at Partner in development In the context of the market developments outlined above, Hivos-Triodos Fund selects MFIs that specifically offer added value with respect to society or the environment. This added value can be found in a variety of areas, such as: - products and services aimed specifically at women to offer them equal opportunities in society; - savings or loan products that stimulate the use of sustainable energy. Examples of these include financing facilities for the use of solar energy or small-scale biogas systems; - offering financial services to minority groups, in underdeveloped or inaccessible places and - special financial services aimed at agriculture; preferably organic and/or fair trade certified. Hivos-Triodos wants to continue to stimulate the effective use of financial services with high added value in years to come. The partnership between Hivos and Triodos Bank enables the fund to do this in a unique way. Practical and financial support from Hivos combined with the sustainable banking expertise of Triodos Bank make it possible for Hivos-Triodos Fund to accept risks that would not be feasible for most funds. Expansion model The partnership between Hivos and Triodos Bank enables Hivos-Triodos Fund to support an organisation at an early stage until it reaches a level of independence. To this end, in collaboration with Hivos, Hivos-Triodos Fund has developed the Lifecycle Model, based on the needs of an organisation in the various stages of its development. 11

12 MICROFINANCE PORTFOLIO HIVOS-TRIODOS fund 31 december 2010 HONDURAS l Hermandad de Honduras ODEF Financiera guatemala l Génesis Empresarial EL SALVADOR l AMC Apoyo Integral NICARAGUA l FDL Ecuador l Maquita INSOTEC D-MIRO Banco Solidario PERU l Mibanco 12 BOLIVIA l Crédito Amigo S.A. ProMujer

13 Kazakhstan l Bereke KazMicrofinance Kyrgyzstan l Bai Tushum Mol Bulak Finance SUDAN l BRAC Southern Sudan INDIA l Bhartiya Samruddhi Finance Bellwether Microfinance Fund cambodia l AMK AMRET KENyA l KWFT DTM East TIMOR l Moris Rasik Tuba Rai Metin Malawi l OIBM uganda l BRAC Uganda Centenary Bank Uganda Finance Trust SRI LANKA l LOLC Micro Credit South AFRIcA l AfriCap Microfinance Company Small Enterprise Foundation Tanzania l Akiba Commercial Bank BRAC Tanzania FINCA Tanzania indonesia l Bank Andara Bank Sahabat MBK 13

14 In the initial start-up phase, an organisation will generally need donations to fund its institutional capacity as its own revenues are usually insufficient. To tackle this problem, the Hivos Seed Capital programme has been developed for the microfinance sector. Hivos-Triodos Fund can finance the organisation in the subsequent growth phase, while, where necessary, Hivos can continue to support the organisation with funds for technical assistance in specific areas. The support given to microfinance institution FDL in Nicaragua for green financing is a good example of this. Financing an organisation is still a high-risk proposition in this phase. As the organisation becomes more professional and grows further, it will increasingly be able to attract finance independently on the capital market. Other funds (Triodos Fair Share Fund and Triodos Microfinance Fund) managed by Triodos Investment Management are providers in this market. This leads to the regular release of funds which Hivos- Triodos Fund can then use to finance new innovative initiatives. Hivos-Triodos Fund views the expansion of its associates as an important objective in the development of autonomous, independent organisations. Mitra Bisnis Keluarga (MBK) in Indonesia is a good example of an institution where this expansion model is working. MBK grants group loans to female entrepreneurs. By so doing, the institution focuses on the lowest income group and is mainly active in West and Central Java. The focus on women is also reflected in MBK's workforce, which is almost exclusively female. MBK evolved out of Ganesha Foundation, which was supported for a number of years through the Hivos Seed Capital programme. By year-end 2010, MBK had become an institution with over 200,000 clients, whom it serves through a network of 160 small branches. MBK wants to generate further growth in the coming years. The loan from Hivos-Triodos Fund supports MBK in its aspiration. Exchanging expertise Another priority is to promote the mutual exchange of knowledge and expertise between MFIs worldwide. This mainly takes place at the institutions in which Hivos-Triodos Fund is a shareholder, where it takes an active part on the Boards of these institutions. A senior officer from Triodos Bank has a seat on the Board of Directors as Managing Director or as Alternate Director, Lifecycle model Hivos Seed Capital Hivos-Triodos Fund (Hivos guarantee) Capital market Financial sustainability* Triodos Investment Management advice Loans Participations Hivos technical assistance * Financial sustainability is the extent to which an organisation is able to cover its total expenditure from the income it generates (excluding donations). 14

15 which enables him or her to contribute the specific knowledge and experience present in Triodos Bank. As in previous years, Triodos Investment Management hosted a workshop in 2010 at which members of Boards of MFIs from 14 countries were able to exchange experiences. These MFIs are part of the Triodos microfinance funds portfolio. Participants shared their visions and experience of providing services to small businesses (SME) and of how providing finance facilities in this sector can strengthen these institutions missions. They also discussed their choice of partners. Donors and socially responsible investors still play a major role in microfinance, but the number of profitdriven investors has risen in recent years. This comes with the risk that making a profit becomes the principal goal and that the institution s social mission and vision fades into the background. The participants presented cases highlighting the behaviour of various finance providers in difficult times and in times of rapid growth, and the importance of having partners with a long-term perspective. 76% percentage of female loan clients Sustainability Management Systeem As a global pioneer of sustainable banking, Triodos Bank symbolises banking that encompasses a stable balance between people, planet and profit. This Triple Bottom Line vision is also the driving force for Hivos-Triodos Fund s financing policy. The fund provides financing for those institutions that seek to achieve this balance and want to develop further. These are institutions whose activities put them close to the people, root them in the real economy, strengthen the community and are transparent. The mission and social objectives of the MFIs and the way they are embedded in the organisation are also an extremely important topic of discussion during visits to and contacts with these institutions and their clients. Triodos Investment Management has developed a Sustainability Management System to effectively and precisely unveil and analyse this aspect, and to assess MFIs' attitude to overindebtedness and transparency. This system tracks the standards and guidelines drawn up by the CGAP Social Performance Task Force ( a consultative body for a large number of players in the microfinance sector. Triodos Investment Management plays an active role in this. The Sustainability Management System clarifies MFIs social and environmental performance. A number of indicators have been included for each MFI in the table on pages 16 through 19, such as the number of loan and savings clients, the average loan amount, the percentage of female clients and the percentage of rural clients. Apart from this, the Sustainability Management System provides information about the supply and diversity of an MFI s products, the sectors in which the MFI's loan clients are active, what the institution is doing to prevent their clients from becoming overindebted and whether the MFI specifically focuses on the environment as a theme, by for instance offering loans to purchase a solar panel 15

16 Overview microfinance institutions financed by Hivos-Triodos Fund as at 31 December 2010 and 2009 Number of loan clients Percentage of women Institution Country Akiba Commercial Bank Tanzania 18,973 15,547 60% 60% AMC El Salvador 13,807 13,770 56% 59% AMK Cambodia 251, ,818 86% 85% Amret Cambodia 223, ,708 84% 84% Apoyo Integral El Salvador 45,256 29,477 60% 63% Bai Tushum Kyrgyzstan 29,317 27,469 46% 46% Banco Solidario Ecuador 133, ,387 61% 60% Bank Sahabat Purba Danarta Indonesia 151,589 ***** 73% ***** Bereke Kazakhstan 6,954 6,028 90% 89% Bhartiya Samruddhi Finance India 1,721, ,748 73% 63% BRAC Southern Sudan Sudan 18,498 14, % 100% BRAC Tanzania Tanzania 119,116 89,818 98% 99% BRAC Uganda Uganda 107, ,489 98% 99% Centenary Bank Uganda 97, ,906 30% 24% Crédito Amigo S.A. Bolivia 14,199 8,984 76% 75% D-MIRO Ecuador 36,463 29,359 62% 66% Equity Bank Uganda Uganda *** 56,000 *** 50% FDL Nicaragua 67,095 76,689 57% 56% Financiera Confianza Peru *** 71,898 *** 51% FINCA Ecuador Ecuador *** 53,334 *** 75% FINCA Tanzania Tanzania 54,196 41,253 85% 73% FINCA Uganda Uganda *** 45,135 *** 66% Génesis Impresarial Guatemala 129,744 92,322 69% 77% Hermandad de Honduras Honduras 11,187 10,375 55% 49% INSOTEC Ecuador 7,950 6,147 56% 45% KazMicroFinance Kazachstan 30,322 23,609 74% 73% KWFT DTM Kenya 416, , % 100% LOLC Micro Credit Sri Lanka 45,094 22,758 44% 20% Maquita Ecuador 6,407 4,918 49% 51% Mibanco Peru 394, ,342 54% 54% 16

17 Loan portfolio ( x 1,000) Average loan amount ( ) % clients in rural areas Number of saving clients ,708 19,091 1,197 1,228 0% 0% 128, ,414 12,235 11, % 68% ** ** 23,789 17, % 100% 4,569 5,234 49,990 37, % 99% 18,660 3,293 55,685 41,272 1,230 1,400 51% 45% ** ** 28,783 23, % 12% ** ** 220, ,684 1,653 1,058 0% 1% 76,148 72,626 39,277 **** 259 **** 22% **** 44,895 **** 2,973 1, % 39% ** ** 271, , % 97% ** ** 1,534 1, * * ** ** 12,741 7, % 61% ** ** 10,612 9, * 77% ** ** 128, ,323 1,156 1,202 66% 67% 731, ,746 3,138 1, % 46% ** ** 22,307 13, % 0% ** ** *** 32,982 *** 589 *** 60% *** 350,000 46,384 48, % 73% ** ** *** 76,717 *** 1,063 *** 12% *** ** *** 17,410 *** 326 *** 30% *** 14,789 9,718 5, % 44% ** ** *** 8,356 *** 185 *** 44% *** 80,758 48,885 29, % 86% ** ** 8,493 6, % 100% 15,706 14,232 5,499 3, % 58% ** ** 27,790 20, % 60% ** ** 119, , % 70% 426, ,188 41,911 19, % 80% ** ** 9,647 6,034 1,506 1,227 0% 0% 14,184 11, , ,565 2,412 2,104 12% 14% 384, ,044 17

18 Overview microfinance institutions financed by Hivos-Triodos Fund as at 31 December 2010 and 2009 MBK Indonesia 211,155 **** 100% **** Mol Bulak Finance Kyrgyzstan 59,136 27,642 81% 85% Moris Rasik East Timor 10,700 11,089 90% 89% ODEF Financiera Honduras 27,454 28,976 59% 60% OIBM Malawi 51,152 45,013 60% 54% Pride Tanzania Tanzania *** 99,022 *** 65% ProÉxito Honduras *** 518 *** 72% ProMujer Bolivia 90,695 80,619 96% 96% Small Enterprise Foundation South Africa 69,333 62,133 99% 99% Thaneakea Phum Cambodia Camboia *** 91,213 *** 90% Tuba Rai Metin East Timor 3,862 **** 99% **** Uganda Finance Trust Uganda 22,585 20,175 70% 70% Total 4,699,197 3,629,123 * Data unavailable ** Not applicable *** Loan repaid in 2010 **** Not financed in 2009 Apart from providing financing facilities directly to MFIs, Hivos-Triodos Fund is also an active shareholder in two investment funds that focus specifically on MFIs in Africa (AfriCap Microfinance Investment Company) and in India (Bellwether Microfinance Fund). The number of loan clients these investment funds reach and the percentage of female customers are listed below. Bank Andara also appears in this table. This wholesale bank in Indonesia offers financial products and services to local MFIs to enable them to further professionalise their activities. Hivos-Triodos Fund is one of the founding shareholders of Bank Andara. Number of loan clients Percentage of women AfriCap Microfinance Investment Company, Zuid-Afrika * * * * Bank Andara, Indonesië 257, ,758 30% 38% Bellwether Microfinance Fund, India 3,367,318 1,895,066 99% 84% * Data unavailable 18

19 12,626 **** 60 **** 100% **** ** **** 19,075 6, % 73% ** ** 3,350 2, % 65% ** ** 22,767 20, % 66% 43,063 36,010 23,888 20, % 15% 323, ,380 *** 19,106 *** 193 *** 16% *** ** *** 549 *** 1,058 *** 0% *** ** 25,484 19, % 16% ** ** 13,095 8, % 100% ** ** *** 12,136 *** 133 *** 75% *** 4, **** 178 **** 74% **** 2,735 **** 11,169 9, % 71% 151, ,225 2,325,694 1,812,202 2,364,882 2,535,609 19

20 Key observations about the total MFI portfolio Number of loan clients reached by the MFIs in Hivos-Triodos Fund s portfolio 4,699,197 Average loan amount EUR 493 Percentage of female loan clients 76% Percentage of rural loan clients 68% Number of savings clients reached by the MFIs in Hivos-Triodos Fund s portfolio 2,364,882 Regional spread Hivos-Triodos Fund has a very diversified portfolio and its relatively large share in Africa serves to set the fund apart from other investors in the sector. The Sustainability Management System was developed further in 2010 enabling MFIs to now be classified by their sustainability. This classification emerges by evaluating MFIs on four dimensions: 1. products & services; 2. responsible banking; 3. environment and 4. social responsibility. The extent to which the MFI has a clear vision and objective for each of these dimensions is assessed, as well as how far these are embedded in processes and systems and how this is expressed in their day-to-day operations. The sustainability assessment plays a crucial role in Hivos-Triodos Fund s investment decisions. It also offers opportunities for continuing to work with the MFIs on improving their sustainable financial services to achieve a stable balance between people, planet and profit. The Sustainability Management System has five categories (SBA: Sustainability Management Assessment) defined as follows: SBA 1: Excellent, the MFI has a score that is 80% of the maximum score or higher; SBA 2: Good, the MFI has a score between 60% and 80% of the maximum score; SBA 3: Average, the MFI has a score between 40% and 60% of the maximum score; SBA 4: Below average, the MFI has a score between 20% and 40% of the maximum score and SBA 5: Poor, the MFI has a score lower than 20% of the maximum score. The histogram at the bottom of this page shows the Hivos-Triodos Fund MFI portfolio distributed over the five categories and the different regions. For the most part, Hivos-Triodos Fund has invested in categories SBA 2 and SBA 3, and has only 2.6% and 0% in categories SBA 4 and SBA 5 (the lowest score). Portfolio by region (amounts in thousands of euros) Latin America % 14, % East Asia and Pacific 11, % 6, % Eastern Europe and Central Asia 5, % 3, % Africa and the Middle East 10, % 11, % South Asia 5, % 5, % Others % % 46, % 42, % 20

21 Apart from this, the system provides information about the supply and diversity of an MFI s products, the sectors in which the MFI's loan clients are active, what the institution is doing to prevent their clients from becoming overindebted and whether the MFI specifically focuses on the environment as a theme, by for instance offering loans to purchase a solar panel. The following applies to the MFIs in Hivos-Triodos Fund s portfolio: Product diversification A diversified supply of credit products is important to be able to respond effectively to the client's specific situation. Of the MFIs in Hivos-Triodos Fund s portfolio, 93% offer several loan products. The breakdown is shown in the next column. In addition, clients are in great need of ways of saving, transferring money and taking out insurance. - 45% of the MFIs in the portfolio offer savings products - 59% of the MFIs in the portfolio offer microinsurance - 39% of the MFIs in the portfolio have a diversified product supply, including mobile banking, payment services and bank cards. Lending methodologies Sectors 47% GROUP LOANS 36% INDIVIDUAL LOANS 8% SMEs 6% Other 3% CONSUMER LOANS 46% TRADE AND COMMERCE 28% AGRICULTURE 14% OTHER 9% SERVICES 3% MANUFACTURE Sustainability score microfinance portfolio % % 50.5% LATIN AMERICA EAST ASIA AND PACIFIC SOUTH ASIA % SBA1 SBA2 SBA3 2.6% SBA4 0% SBA5 AFRICA CENTRAL ASIA AND EASTERN EUROPE 21

22 Environment - 83% of the MFIs develop activities to protect the environment; - 29% of the MFIs grant finance facilities for green projects and - 38% of the MFIs pursues an active policy to limit the impact of their own organisation on the environment. The activities the MFIs are initiating to make care for the environment a priority are still in their infancy, but the intention is certainly there. Overindebtedness - 59% of the MFIs have signed up to the Client Protection Principles and - 93% of the MFIs have sufficient to many measures to limit the risk of overindebtedness. The Triodos microfinance funds, including Hivos- Triodos Fund, received the CGAP MIV ESG award in October 2010 in recognition of the way they integrate environmental, social and governance (ESG) factors in their investment decisions. CGAP (Consultative Group to Assist the Poor) introduced this award to put the worldwide best in class investors in the microfinance sector in the spotlight. Risk classification Hivos-Triodos Fund operates a risk classification system in which credit risks are ranked objectively. As such, the total portfolio is classified into risk classes 1 (low risk) through to 4 (high risk). Associates are classified into risk class 5 if a provision has been made for them or their continuity is at risk. To this end, various factors such as country risk, the degree of maturity of the financial sector and the level of supervision by the regulatory authority are assessed. The graph below shows that 68.1% of the portfolio is in the higher risk classes. This high percentage sets the fund apart from many other providers who predominantly finance microfinance institutions in risk classes 1 and 2. Development of the portfolio The total portfolio held by Hivos-Triodos Fund has increased by 10.0%, from EUR 42.6 million to EUR 46.8 million. In total, Hivos-Triodos Fund financed 51 institutions in Five largest outstanding finance facilities (as a percentage of total portfolio) Bellwether Microfinance Fund, India 7.9% AMK, Cambodja 7.1% Bank Andara, Indonesië 5.8% Centenary Bank, Uganda 3.6% Mibanco, Peru 3.4% Percentage of mfi-portfolio per risk profile % % % LATIN AMERICA EAST ASIA AND PACIFIC SOUTH ASIA % Risk1 Risk 2 Risk 3 4.8% 4.9% Risk 4 Risk 5 AFRICA CENTRAL ASIA AND EASTERN EUROPE 22

23 Participations No new participations were taken on in The most important development in the participation portfolio concerned BICC/Banex in Nicaragua. The continuity of BICC/Banex had become at risk in 2009 due to external factors including the economic crisis and a powerful lobby against the honouring of loan obligations in Nicaragua (No Pago movement). Added to that, internal challenges were an issue as a consequence of previous years very rapid growth which exceeded the capacity of internal control. Various attempts were made in 2010 to reach a recapitalisation and restructuring agreement between shareholders and finance providers in order to be able to continue Banex banking activities. These attempts failed. The local regulator initiated the liquidation of Banex in August 2010 due to its eroded capital position. Banex was able to honour the savings of all its local savers in full. The bank is currently under the regulation of a board of liquidators. The liquidation is expected to be completed in Hivos-Triodos Fund recognises that its investment in BICC/Banex may have to be completely written off. Loans Hivos-Triodos Fund provides loans to MFIs, which they in turn can use to provide loans mainly to small businesses. The fund chiefly finances the growth of an MFI s loan portfolio by means of medium-term loans (with an average term of between two and three years) at conditions in line with the market. New loans have been granted to 19 MFIs, three of which are new clients. The new clients are MBK and Bank Sahabat Purba Danarta in Indonesia and Tuba Rai Metin in East Timor. Six MFIs repaid their loans from Hivos-Triodos Fund in full in The relationship with three of them will be maintained by other microfinance funds managed by Triodos Investment Management. This development is in line with the fund s expansion policy. Further details of all the participations and new loan partners are given in the project descriptions on pages 44 to 47. Financial results Statement of income and expenditure in 2010 As a consequence of the growth in the loan portfolio, the proceeds from loans rose to EUR 3,423,862. Expenses related to the cost of financing facilities, the management fee, publicity costs, the accountant s fee and other expenses. The operating result net of these expenses rose by 19.6% from EUR 1,051,141 to EUR 1,257,228. Currency exchange result In 2010, 53.0% of the portfolio was held in local currencies (2009: 51.8%). This high percentage is a characteristic of Hivos-Triodos Fund. The exchange rate risk is hedged where possible. Where this is not possible or economically feasible, the fund may decide to bear the risk itself. Hivos-Triodos Fund can afford to take on this considerable risk thanks to Hivos, which is prepared to assume responsibility for these currency risks. This avoids transferring the currency exchange risk to the MFIs clients was again a year of high volatility on the currency markets. The US dollar exerts great influence over many local currencies. Because of this, the exchange rate result at Hivos-Triodos Fund is significantly influenced by exchange rate movements between the US dollar and the euro. Economic uncertainties in the Eurozone have led to enormous fluctuations, with the euro depreciating by 7.7% against the US dollar over the year. This resulted in a positive exchange rate result for Hivos-Triodos Fund, after setting off forward transactions of EUR 619,841 (2009: EUR 660,815 negative) against the result. This result is credited to the exchange equalisation reserve. Addition to the generic provision No new additions to the specific provisions were made in Hivos-Triodos Fund s risk profile implies that results can be quite different from year to year, which can lead to wild fluctuations and claims on the North-South guarantors. To absorb this, Hivos-Triodos Fund maintains a generic provision of between 5% and 10% of its outstanding loan portfolio. By year end 2010, the 23

24 Carry-over loss 2010 (amounts in euros) Carry-forward results Currency exchange result 619, ,815 Settlement Credited to the Exchange Equalisation Reserve 619,841 - Charged to Hivos - 660,815 generic provision stood at EUR 2,536,053. This is 7.6% of the portfolio. No addition to the generic provision was therefore needed in 2010 and once again no appeal was made to the private guarantors. North-South Plan Hivos and Triodos Bank intend their North-South Plan to give private individuals in the Netherlands the opportunity to become involved in financing projects in developing countries. This can be done in two ways: - Private individuals can open a North-South internet savings account with Triodos Bank. The volume of these accounts is used as a source of finance for the loan Triodos Bank provides to Hivos-Triodos Fund. The North-South internet savings account is an accessible savings account with an interest rate in line with the market. - Private individuals who want to support Hivos- Triodos Fund further can act as a guarantor for the facility Triodos Bank provides to the fund. The volume of North-South savings increased by 12.0% in 2010, from EUR 80.1 million to EUR 89.7 million. The number of savers increased by 8.5% to 8,441 (2009: 7,779). The volume of North-South guarantees (515 in total) fell from EUR 1.6 million to EUR 1.5 million as a result of the release of 10-year guarantees. Besides financing Hivos- Triodos Fund, North-South funds are the source of other financing in developing countries for the Triodos Group. North-South savers are able to donate their interest to Hivos as a means of covering the additional costs associated with the North-South Plan. North-South funds deposited with Triodos Bank (amounts in euros) Amount Number Amount Number North-South deposit accounts 2,114, ,984, North-South savings accounts 87,566,827 8,230 78,084,009 7,571 Total 89,681,328 8,441 80,068,725 7,779 24

25 Outlook Hivos-Triodos Fund wants and is able to play a role as an investor in the further sustainable development of the microfinance sector. In so doing, Hivos-Triodos Fund puts the interests of microfinance clients at the forefront. The prospects for 2011 are cautiously positive. MFIs loan portfolios are expected to show slight growth but the differences between regions will remain substantial. The greatest growth is expected in Asia, although within this continent the situation in India is still very uncertain. Hivos-Triodos Fund will follow developments in India closely and, where possible, contribute to the discussion on how microfinance can be organised responsibly and transparently. Hivos-Triodos Fund expects to be able to grow to EUR 50 million in Of the fund s specific objectives, financing MFIs remains its most important activity. Starting in 2011, finance facilities that stimulate that sustainable development in developing countries will also increasingly be made available. These finance facilities focus primarily on access to sustainable energy and the development of sustainable agriculture. Due to the enduring high risk of finance facilities granted by Hivos-Triodos, an addition to the generic provision is always a possibility. This addition will initially be funded from the operational result of the Hivos-Triodos Fund. If this is not sufficient, the guarantee issued by Hivos will be invoked. Hivos-Triodos Fund does not expect any claim on the other North-South guarantors in The fund makes no forecasts as regards the exchange rate result of finance facilities in local currencies. Zeist, the Netherlands, 21 april 2011 Pierre Aeby Peter Blom Board of Management 25

26 Key figures (amounts in euros) Participations at year-end 13,499,118 13,566,316 Number of contracts at year-end Cumulative preference shares at year-end * 45,765 41,300 Number of contracts at year-end 1 1 Loans provided at year-end 32,611,890 28,994,068 Number of contracts at year-end Subordinated loans provided at year-end 698,620 - Number of contracts at year-end 2 - Total portfolio before deduction of specific provisions and including receivables from loans at year-end 46,855,393 42,601,684 Committed finance facilities at year-end 5,152,059 4,500,659 Equity at year-end 4,952,133 2,414,249 Generic provision at year-end 2,536,053 2,536,053 Result Income 3,464,930 3,251,994 Expenditure -2,207,702-2,200,853 Operating result 1,257,228 1,051,141 Exchange rate result 619, ,815 Result 1,877, ,326 Claim on Hivos Foundation to set off the exchange rate loss at year-end 660,815 * The only investment in cumulative preference shares has been completely provided for since the end of

27 Annual accounts 2010 Hivos-Triodos Fund Foundation. Page Balance sheet as at 31 December Statement of income and expenditure for Notes to the balance sheet and statement of income and expenditure 30 27

28 Balance sheet as at 31 December Before appropriation of result (amounts in euros) Note* Assets Fixed assets Participations 1) 13,499,118 13,566,316 Cumulative preference shares 2) 0 0 Loans provided 32,611,890 28,994,068 Subordinated loans provided 3) 698,620-46,809,628 42,560,384 Current assets Forward foreign exchange contracts 4) - 8,749 Interest Rate Swaps 4) 49,011 - Receivables and deferred assets 5) 423, ,912 Liquid assets 6) 534,413 1,750,974 1,006,829 2,155,635 Total assets 47,816,457 44,716,019 Liabilities Equity General reserve 7) 3,075,064 2,023,923 Result for financial year 1,877, ,326 4,952,133 2,414,249 Generic provision 8) 2,536,053 2,536,053 Subordinated loan taken out 9) 14,657,685 13,747,489 Long-term liabilities 10) 20,584,022 23,084,022 Short-term debts and deferred income 11) 748,603 2,934,206 Forward foreign exchange contracts 4) 833,309 - Liquid assets 6) 3,504,652 - Total liabilities 47,816,457 44,716,019 Committed finance facilities Participations 3,854,613 1,667,598 Loans provided 1,297,446 2,833,061 28

29 Statement of income and expenditure for (amounts in euros) Note* Income Income from participations 12) 687,687 2,098,476 Income from participations passed on 12) -687,687-2,098,476 Income from loans provided 13) 3,423,862 3,201,294 Interest on liquid assets 14) 40,203 48,611 Donations received 15) 865 2,089 Expenditure 3,464,930 3,251,994 Management fee 16) 1,053, ,135 Auditors and consultants fees 17) 16,203 6,517 Interest costs 18) 1,116,923 1,167,871 Other expenses 19) 20,762 44,330 2,207,702 2,200,853 Operating result 1,257,228 1,051,141 Exchange rate result 20) 619, ,815 Result 1,877, ,326 29

30 Notes to the balance sheet and statement of income and expenditure General Stichting Hivos-Triodos Fonds (Hivos-Triodos Fund) was set up on 22 December These annual accounts represent its 16th financial year, which ended on 31 December Accounting principles Participations Participations, which are shareholdings that do not serve the long-term interests of Hivos-Triodos Fund business and are not similar in nature to investments, are valued at their acquisition price in euros. No revaluations in line with the market are carried out. The accounting principles will be changed in 2011 to bring them into line with prevailing accounting standards. Hivos Foundation provides Hivos-Triodos Fund with a subordinated interest-free loan for financing participations. If a participation has to be revalued downwards, Hivos Foundation shall waive a corresponding portion of the loan. When a participation is sold, Hivos-Triodos Fund will repay that part of the loan that relates to that participation. Cash dividends and positive results from sales will be placed at the disposal of Hivos Foundation. Any results from stock dividends will be placed at the disposal of Hivos Foundation when the underlying participations are sold. Hivos-Triodos Fund does not owe any management fee in respect of participations; agreements on this matter have been made directly between Hivos Foundation and Triodos Investment Management BV. Cumulative preference shares Cumulative preference shares are carried at their nominal value net of specific provisions for doubtful debts. Redemption of these shares takes place at their nominal value. Dividends are accounted for in the year they are received. Loans provided Loans provided are carried at their nominal value net of specific provisions for doubtful debts. Projects financed with loans are by their nature high-risk. Consequently, losses on the original investment must be taken into account. A specific provision is made for anticipated loan losses and the associated payable interest in case a project actually has to be discontinued. The need to make specific provisions depends to a large extent on the quality of the information provided about the progress of the project. Other assets and liabilities Other assets are carried at income expected, taking account, in the case of receivables, of a possible provision for non-recovery. Other liabilities are carried at payments expected. A specific provision is made for anticipated claims on guarantees. Generic provision Given the nature and risk profile of the projects, there is insufficient guarantee that the provisions created by Hivos-Triodos Fund will be adequate. There is a chance that additional losses will be incurred on outstanding financing transactions. Because of this, a generic provision has been created to cover general financial transaction risks, which will be charged to the result. The Fund aims to create 30

31 a generic provision of at least 5% and at most 10% of the gross value of the cumulative preference shares, loans, guarantees and receivables from loans at the end of the financial year. Additions to and releases from the specific provisions are charged or added to the generic provision. Alterations to the policy on provisions are planned for 2011 with the aim of bring it better into line with the actual risk in the loan portfolio. Carry-over losses The guarantors will be called upon to pay part of their guarantee to cover losses in the portfolio of cumulative preference shares, loans and guarantees. The aim is to limit this appeal to approximately 10% a year. Losses arising from currency exchange results are firstly charged to the exchange equalisation reserve, entered under equity. If crediting the exchange rate result for the current financial year produces a negative balance in the exchange equalisation reserve, this negative balance will be chargeable to Hivos Foundation. The loss arising from the addition to the generic provision will be recovered from Hivos Foundation and the private guarantors in proportion to the amount of their guarantees. Foreign currency Assets and liabilities denominated in foreign currency are converted using the final known exchange rate in the year under review. Movements in balance sheet items and in income and expenditure in foreign currency are converted using the average exchange rate for the month in which the movements are reported. Any foreign exchange translation differences this produces will be charged or added to the result. Forward foreign exchange contracts are entered into to hedge foreign exchange differences in loans in US dollars, Peruvian sol and South African rand. These are recorded at the last known exchange rates in the year under review. Transaction results are charged or added to the result over the lifetime of the contract. Principles for determining the result The result is determined based on the allocation of income and expenditure to the corresponding period. The results for the enterprises in which participations are held are not taken into account when determining the result. 31

32 Notes to the balance sheet as at 31 December Assets 1. Participations Movements in the participations (amounts in euros) Position as at 1 January 13,566,316 12,805,313 Acquisitions 210,850 2,453,720 Sales -278,048-1,351,190 Depreciation ,527 Position as at 31 December 13,499,118 13,566, Cumulative preference shares Movements in cumulative preference shares (amounts in euros) Position as at 1 January 41,300 39,058 Foreign exchange differences 4,465 2,242 Position as at 31 December 45,765 41,300 Movements in the provision for cumulative preference shares: Position as at 1 January -41,300-39,058 Foreign exchange differences -4,465-2,242 Position as at 31 December -45,765-41,