05 BIO in Environmental & 27 Enterprises 28 Agribusiness. Table of contents. & Management. Foreword from the Minister

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1 Annual Report 2 9

2 2001 BIO in brief The Belgian Investment Company for Developing Countries (BIO) is a Development Finance Institution (DFI) established in 2001 within the Belgian Development Cooperation framework. The company s mandate is to foster private sector growth in developing and emerging countries to achieve sustainable economic and social prosperity and alleviate poverty. BIO provides long-term financing (equity, quasiequity, loans, and guarantees) to enterprises and the financial sector, either directly or indirectly through intermediary structures. In addition, BIO offers grants for feasibility studies and technical assistance programmes. BIO operates as an additional partner to financial institutions and looks for projects with a demonstrable balance between financial return and development impact. BIO is a member of the European Development Finance Institutions (EDFI).

3 Table of contents Chapters and page number BIO in brief Foreword from the Minister Focus countries Number of words used per chapter in the Annual Report BIO in Highlights 2009 Achievements 2009 Operational overview 10 Environmental & social responsibility Development effects New intervention strategies New targets 18 Portfolio Global portfolio Financial sector Banking on success in the DRC Promoting microfinance in Bolivia 27 Enterprises 28 Agribusiness 30 Organisation & Management

4 BIO IN 2009 Foreword by Charles Michel, Minister of Development Cooperation The Millennium Development Goals, which will be assessed during the Belgian Presidency of the European Union in New York in September 2010, are an archetypal example of the action taken by the Belgian Committee for development. Beyond the three traditional channels of intervention (direct bilateral cooperation, indirect bilateral cooperation, multilateral cooperation), a large amount of financial resources are dedicated to promoting entrepreneurship and the private sector in order to make sustainable economic growth a core element of new strategies in the fighting against poverty. One of the major challenges for The private sector as a catalyst development finance institutions for economic growth (DFIs) such as BIO is to help The private sector is an essential funded businesses realise that engine in the development environmental and social results, process of the countries in and in particular compliance the Southern hemisphere in to workers rights, are an terms of growth, employment, essential part of their success business integration, and the and sustainability and that generation and distribution of such factors must therefore be income. The private sector also incorporated into their strategy. has an important role to play Within the framework of in promoting good governance EDFI working groups on the and adherence to social and harmonisation of standards most environmental standards, European DFIs including BIO have particularly concerning adopted common environmental 25,000 aimed Page 2 the employment law and the impact of business activity on the environment. 72projects jobs created annually and social recommendations, these are known as the Rome Consensus. The Rome Consensus aims to categorise risks and standardise the action taken depending on the level of environmental and social risk identified at the different stages of an investment project s cycle. Going forward, BIO will apply these recommendations to all of its direct investments. Today, no one can deny the influence that the good governance of companies has on their success and their durability. As a result, good governance improves their performance and their access to funding, which in turn stimulates sustainable economic growth. BIO has committed itself to being involved in the awareness of this need, both with its employees and within the companies in which it invests. However, efforts made by the private sector must be carried out voluntarily with proactive steps being taken by countries receiving investments, which must be prepared to implement good governance and fight corruption. Development Cooperation will also contribute to the efforts made by countries to reduce economic under-achievements through adequate development programmes at establishing rules of law

5 BIO IN 2009 by strengthening the legal system, by encouraging African countries to partake in the Harmonisation of Business Law in Africa (HODA), and by encouraging reforms in governmental departments. Increased impact on development DFIs have a significant direct and indirect impact on the development of the countries in which they invest, and this is their primary mission. A recent study shows that via their investments European DFIs collectively contributed, both directly and indirectly, to the creation of two million jobs in They also helped generate EUR 2 billion in tax revenue for the governments of these countries. Working with its project sponsors and its financial counterparts, on average over the past two years BIO has helped to create 25,000 jobs annually, both directly and indirectly, and to generate revenues in hard currency to the order of USD 20 million. New resources, new directions At the end of 2009, upon my proposition the Council of Ministers approved the provision of extra financial resources for BIO of EUR 97 million, increasing the amount disbursed in 2009 to EUR 146 million. Since its creation in 2001, the Belgian government has contributed EUR 346 million to BIO. These additional financial resources have enabled BIO to define new strategic directions. With the creation of the ATHENA Facility aimed at funding very small businesses BIO will strengthen its specialist centres notably in the microfinancing domain and direct and indirect funding of SMEs consolidate its position in Sub-Saharan Africa, and draw attention to first stage processing in the food industry. Another line of strategy will consist in deploying new activities in the domain EUR of private infrastructure project funding, with priority given to energy including renewable energy and to gaining access to water and telecommunications. These infrastructure projects are paramount for creating jobs and for laying the foundations for productivity and future growth. BIO is at a turning point in its existence and the extra resources from which it benefits will ensure that it is able to fully play its role as a protagonist of development in new sectors that are essential to the development of sustainable private businesses and to consolidate the expertise it has acquired over the last eight years. I would like to thank the entire BIO team for the work undertaken and hope to continue its mission in development cooperation with the same energy and passion. 97 million additional financial resources Page 3

6 BIO IN 2009 Focus countries Latin & Central America Caribbean Focus countries 1 Brazil (secondary cities and rural areas) 2 Colombia 3 Dominican Republic 4 El Salvador 5 Guatemala 6 Honduras 7 Nicaragua Focus & partner countries Belgian Development Cooperation 8 Bolivia 9 Ecuador 10 Peru Middle East & North Africa Focus countries Tunisia Focus & partner countries Belgian Development Cooperation Algeria Morocco Palestine Africa Focus countries 15 Angola 16 Burkina Faso 17 Cameroon 18 Congo (Rep.) 19 Ethiopia 20 Equatorial Guinea 21 Ghana 22 Guinea 23 Ivory Coast 24 Kenya 25 Liberia 26 Malawi 27 Madagascar 28 Mauritania 29 Nigeria 30 Sierra Leone 31 Togo 32 Zambia Asia Focus countries Bangladesh Cambodia China (remote areas) India (secondary cities and rural areas) Indonesia Laos Mongolia Pakistan Philippines Sri Lanka Thailand Focus & partner countries Belgian Development Cooperation Vietnam Focus & partner countries Belgian Development Cooperation 33 Benin 34 Burundi 35 Congo (DR) 36 Mali 37 Mozambique 38 Niger 39 Rwanda 40 Senegal 41 Tanzania 42 Uganda Page 4

7 BIO IN 2009 Highlights 2009 GPR-results 2009 New commitments: 28 GPR-results 2009 Direct and indirect jobs created: about 31,000 GPR-results 2009 Operational costs/available means 93% 1.23% of new projects bolster provision of SME- financing. athena Small credits from EUR 50, ,000 to net commitments EUR (million) net commitments Increase on 2008: 51% infrastructure commitment to Risk Sharing Facility (in EUR): 45,000,000 Page 5

8 BIO IN 2009 Achievements in 2009 Despite the financial crisis, 2009 has been a year of rapid progress. By consolidating its portfolio, BIO has proven its dedication to making healthy investments that clearly contribute to development in target countries. Specific achievements in 2009 included: New financial means The Belgian government committed new funds to the amount of EUR 97 million. As at 31 December 2009, BIO s total means reached EUR 351 million (including capital). EUR (million) TOTAL means: 351 New funds: 97 BIO endorses Client Protection Principles an investor initiative facilitated by CGAP THE MICRO- FINANCE Client Protection Principles outline the minimum levels of service that microfinance clients should expect from providers. BIO welcomes delegations from focus countries BIO has welcomed delegations from Burundi, DRC, Ivory Coast, Benin, Ecuador, Cameroon, Mali and Uganda with the aim of introducing the company and its financing opportunities. BIO applies the Rome Consensus principles to direct investment projects The Principles especially underline that respect for human rights and environmental sustainability are prerequisites for any financing by European Development Finance Institutions (EDFI). The principles give an important and clear signal to the market that all EDFI members follow harmonised standards in their evaluation of environmental and social risks of projects. BIO supports the Institutional Limited Partners Association s (ILPA) Private Equity Principles The principles are a set of guidelines to strengthen the long-term possibility of private equity as an asset class. They focus on strengthening fund governance and the alignment of interest as well as improving investor reporting and transparency. number of applications and approvals In 2009, BIO considered 274 financing applications worth EUR million and approved 28 projects worth a total of EUR 63.8 million. EUR (million) Applied 63.8 Approved Page 6

9 BIO IN 2009 Renewal of the co-operation agreement with CDE The framework agreement aims to facilitate cooperation in the field and in Brussels between the experts of both organisations in terms of sharing information, but also to help businesses already assisted by the CDE to present financing requests to BIO. Net commitments grew by 51 percent As of 31 December 2009, net commitments reached EUR million*, an increase of 51 percent on the 2008 figure of EUR million * Includes EUR 45 million committed to the Infrastructure Co-Financing Facility Increase of renewable energy-related projects BIO has invested in the Renewable Energy Fund Asia renewing its commitment to projects involved in clean or alternative energies. BIO s project pipeline includes an increasing number of projects in this sector. Significant increase of investment in SMEs From EUR 11.4 million at the end of 2008 to EUR 18.5 million at the end of EUR (million) EUR (million) DAY COURSE AIMED AT BIO S INVESTMENT OFFICERS BIO organises structured CREDIT 2009 ANALYSIS training course has been a turning point for BIO will be the year of maturity. The company s course will undergo a significant change in the way it operates but also structurally with new means, new hires, and innovative strategic orientations. Michel Van der Stichele, Chairman of the Board, BIO Page 7

10 BIO IN 2009 Operational overview 2009 has been a crucial year for BIO; activity volumes have increased significantly alongside marked improvements in effectiveness and recognition. Financial means The Belgian government has reconfirmed support of BIO s mission within the framework of its Development Cooperation policy. In the course of 2009, the Government supplied BIO with additional funds in the form of Development Certificates totalling EUR 146 million. Combined with previous allocations, at the end of 2009 the total amount of funds made available to the company for investment (grant activities excluded) is equal to EUR 346 million. Since its inception, BIO has conscientiously applied rules to protect a crucial position of liquidity including: treasury reservations for full amounts relating to undisbursed allocations of signed projects, for projects formally accepted but not yet signed, and partially for projects undergoing due diligence. At the end of 2009, after these deductions the amount of funds available for new investments is EUR 71 million. Human resources In 2009, five people joined BIO. At the end of the year, the team consisted of 26 people, including nine Investment Officers. Activities New applications In 2009, BIO considered 274 financing applications from around the world worth a total of EUR million. Compared with 2008, the number of applications has increased by 13 percent and the total worth has increased by 29 percent. Decisions In 2009, investments for a total of EUR 63.8 million were approved by the Board, which represents an increase of 11.3 percent compared to Contracts signed In 2009, BIO concluded and signed contracts with a combined value of EUR 46.5 million, an increase of 12.3 percent compared to The proportion of direct investments in enterprises has increased significantly (87 percent). Contracts signed with enterprises in 2009: African Minerals (Uganda): Minerals Moablaou (Burkina Faso): Chicken eggs Grands Domaines du Katanga (DRC): Corn SITA (Ivory Coast): Cashew nut PKL (Ivory Coast): Infant cereals LOOP (Cameroon): Lenses Camed (Mali): Pharmaceutical distribution LBCA (Ivory Coast): Laboratory DSM Corridor Group (Tanzania): Harbour logistics Hohhot (China): Coke production Inaloro (Ecuador): Dried herbs Contracts signed with financial sector companies in 2009: ProCredit Bank Congo (DRC): Microfinance Access Bank Tanzania (Tanzania): Microfinance BancoSol (Bolivia): Microfinance Banque de Crédit de Bujumbura (Burundi): Commercial Bank BOA Bank Tanzania (Tanzania): Commercial Bank BOA Group (Africa): Commercial Bank BOA DRC (DRC): Commercial Bank Banco Nacional de Bolivia (Bolivia): Commercial Bank Aquila Capital (Nigeria): Leasing Alios Finance (Zambia): Leasing Lanka Orix (Sri Lanka): Leasing Financiera Summa (Guatemala): Factoring CrediFactor (Nicaragua): Factoring EFP III (Africa): SME Fund Renewable Energy Asia Fund (Asia): SME Fund Page 8

11 BIO IN 2009 Subsidies Feasibility studies In 2009, the Board has agreed ten subsidies with a combined value of EUR 666,267: this compares with ten subsidies worth EUR 483,000 in Contracts signed for feasibility studies in 2009: Magrami (Peru): Carob Powder Hidroelectrica Santa Cruz (Peru): Hydro-energy Industrias Sisa (Peru): Vegetables Bricongo (DRC): Bricks L Etoile d Or (DRC): Mail Distribution Ruysenyi Coffee Growers (Rwanda): Coffee Sweet stevia (Colombia): Sweetener Carrière du Moungo (Cameroon): Public construction Technical assistance In parallel with the increased number of direct financings, six technical assistance agreements were signed in 2009 with a total value of EUR 233,194. At the end of 2009, total disbursements amounted to EUR 1,368,000. Regional spread of new commitments In 2009, Africa has remained the most important investment region for BIO. Out of the 28 projects, nearly 50 percent are in Africa. The highest commitment volume was achieved in multiregional funds (16.9 million EUR equalling 27 percent of total commitments), followed by Africa (26 percent), Asia (26 percent) and Latin America (21 percent). Out of the African projects, 12 of 13 are located in Sub-Saharan Africa, where the private sector is still at the lower end of the scale and the investment climate is especially challenging. We are closing a chapter in BIO s history. From a relatively small DFI, BIO will become a bigger player on the field, with additional means and a specialised approach to development finance. Alain De Muyter, Chief Financial Officer, BIO Microfinance/BIO/IFC Rwanda (Rwanda): Microfinance Sapro (Congo): Soap Region Number of new COMMItments Commitment volume Africa 13 26% LAC 8 21% Asia 4 26% Multiregional 3 27% Page 9

12 BIO IN 2009 Environmental and social responsibility A licence to operate BIO defines environmental and social responsibility as a way of doing business that protects, and where possible enhances, the way of life in communities in which the company and its clients operate. BIO considers the environmental and social ramifications of all its interventions throughout the project lifecycle and is continually looking at ways to honour the triple-bottom line, being the three pillars of economy, ecology and society. By incorporating the latest principles and bestpractices outlined below BIO is integrating environmental and social responsibility into all levels of operations, from the strategic business model to everyday decision-making. A licence to operate Today, an organisation s licence to operate no longer refers solely to binding legal obligations but to how it can improve the quality of life for those with whom it interacts; partners, clients, employees, and communities. Often working with intermediary companies on the ground, BIO has limited contact with employees and local communities. However, indirectly BIO plays a vital role by educating and equipping clients to meet international standards of environmental and social responsibility. Furthermore, BIO has taken the initiative to include minimum social and environmental expectations as part of a client s contractual obligations. By doing so BIO is helping clients enhance their own environmental and social licence to operate, building trust and a positive reputation amongst local stakeholders which in turn optimises chances of success. Promoting responsible financing In May 2009, BIO committed to follow the EDFI Principles of Sustainable Financing which stipulates all investment activities must have a positive effect on local communities, especially in regard to respecting human rights and environmental sustainability. Practically, this means that BIO promises to adhere to the highest standards of business integrity; to practice a preventative and precautionary approach to environmental sustainability; to commit to continuous improvement in the management of environmental, social and governance matters, and to encourage client companies to work towards the same standards throughout their supply chain. BIO is proud and keen to promote the practice of responsible financing. Safeguarding labour conditions BIO activities must and do conform to the fundamental social rights set out by the International Labour Organisation (ILO). The ILO International Labour Standards were established to promote opportunities for men and women A licence to operate An organisation s licence refers also to how it can improve the QUALITY OF LIFE for those with whom it interacts. promoting responsible financing BIO promises to adhere to the highest standards of BUSINESS INTEGRITY BIO is proud to promote responsible financing. Page 10

13 BIO IN 2009 to obtain decent and productive work in conditions of freedom, equity, security and dignity. Knowledge and understanding of the ILO Standards imparted during BIO s successful internal training seminar in 2008 has helped achieve strong results in this area during For instance, the GPR 1 report found that 100 percent of BIO s new commitments in 2009 offer social benefits to employees in compliance with ILO Standards. Benefits included: wages higher than local averages, access to housing programmes, preventative measures against HIV/AIDS and other chronic diseases, and compliance with international health and safety regulations. Mitigating risk BIO has recently implemented the risk classification set out in the Rome Consensus, a framework for social and environmental due diligence mutually agreed by members of the European Development Finance Institutions (EDFI). The standardised classifications are based upon expected environmental and social impacts and go on to dictate the level of risk mitigation and monitoring required. Depending on the risk category, mitigating actions range from commissioning a full audit by an independent expert to completing a simple self-assessment; from constant reporting by an external organisation to ad-hoc reporting, only if conditions change or a specific incident occurs. Eventually subjecting all cofinanced projects to the rigours of the Rome Consensus sits comfortably alongside the internal processes BIO deploys to mitigate and monitor potential impacts of all new commitments. Going forward, BIO will continue to play an active role in the advancement and harmonisation of environmental and social responsibility within the DFI community and will continue to work with clients towards a more socially equal and environmentally sustainable world. Safeguarding labour conditions Mitigating risk BIO activities conform to the SOCIAL RIGHTS set out by the ILO. BIO has recently implemented the RISK CLASSIFICATION set out in the Rome Consensus. 1 The GPR report is compiled by DEG to ascertain developmental impacts of BIO projects. The full report is available on our website. Page 11

14 BIO IN Development effects Each spring, the GPR report provides BIO with a snapshot of performance and is useful when developing future strategy and setting targets. GPR is the corporate-policy assessment tool developed by DEG, the German Development Finance Institution (DFI), and used by many other DFIs to independently measure success across two of the standard GPR performance indicators; development effects/ sustainability, and strategic role of the DFI. Looking at new commitments from the perspective of anticipated impacts, BIO s 28 new commitments in 2009 were considered to have a good development quality and attained a rating of 2.7 out of a scale of six, one being very good. Notably 93 percent of new commitments bolster the provision of SME financing either directly or indirectly, an exemplary result when compared with that achieved by other DFIs. The level of new commitments offering local currency financing has marginally increased this year to 39 percent. A total of five individual projects scored so well under the GPR ratings framework that they were placed within the highest category, these are specifically: a large equity investment in the Mekong Brahmaputra Clean Development Fund in Asia, a EUR 6 million equity investment in the Renewable Energy Asia Fund (REAF) a loan of USD 5 million to Hohhot City Gas in China, a EUR 750,000 loan to SON Fish Farm in Uganda, and a substantial loan to Clean Food palm oil in Cameroon. Influentially at a macroeconomic level, the GPR report predicts that BIO s new commitments will contribute EUR 8 million to net government revenues annually an increase of 43 percent on levels forecast in And, the key characteristic of additionality, which refers to the provision of financial services not ordinarily available, was proven in 100 percent of cases. The following summary of GPR findings emphasises BIO s success in delivering on the company s pledge to contribute to sustainable development and poverty reduction in developing countries by supporting the creation and expansion of a sound, MSMEbased, private sector. Expanding markets Sustainable expansion of the private sector relies heavily on the diversification of markets and their interlinking infrastructure. Focusing just on new commitments in productive companies in 2009, 89 percent of these projects will deliver positive structural/market effects including: introducing new products, improving quality, strengthening competition and exports, and regional or sectorspecific diversification. Over half the productive companies are making a valuable contribution to improving physical linkages such as roads, communications, and utility supply. The report predicts that BIO financing will result in an increase of investor confidence in the target countries which will in turn help to attract additional investment expanding markets even further. Page 12

15 BIO IN 2009 For the fourth year running, the outcome of the GPR assessment of BIO s new commitments in 2009 has been strong with some particularly convincing results in the areas of SME financing provision, contribution to local capital markets, and local company development. Hugo Bosmans, Chief Executive Officer, BIO Across the whole portfolio 88 percent of projects received some form of best-practice training, sometimes via technical assistance grants. In real terms, commitments in 2009 are expected to create 1,900 new jobs taking the total number of people employed in portfolio companies to 9,400 with approximately 22,000 people likely to be employed indirectly as a result of BIO s interventions. Supporting companies Institution building is an essential process towards accountability and transparency in the privatesector. In this regard, the GPR report identified that 44 percent of BIO s portfolio projects support the scaling up of organisational and management capacities in institutions and 31 percent succeeded in implementing an Environmental and Social Monitoring System (ESMS). Companies in target countries also benefit from the role BIO plays in technology and know-how transfer especially in the areas of management and production technology. The report found that every single new commitment by BIO in productive companies in 2009 will contribute to a transfer of technology and/or know-how. Developing people Millennium Development Goal number three (MDG3) relates to the provision of gender equality and the empowerment of women. On a par with 2008 results, five of BIO s new commitments in 2009 are deemed to contribute to MDG3 as they have positive effects on gender equality or on the empowerment of women. What is more, BIO is proactively developing the skills of all managers and employees with 100 percent of productive companies benefiting from basic to advanced training programmes as well as the establishment of Corporate Social Responsibility provisions. Page 13

16 BIO IN 2009 BIO outlines new intervention strategies BIO has identified strategies that will allow it to improve its impact; both in the private sector of developing countries and vis-à-vis other Development Finance Institutions (DFIs). The aim of these strategies is to address three crucial elements: To optimise the impact on development (from a qualitative and quantitative point of view) To support sustainable projects To be an additional resource (to participate where the need is greatest), in terms of the market and other DFIs The type of sectors supported by BIO, the geographical guidelines and the range of services offered to its partners are also resources that will allow it to successfully fulfill its mission and to achieve these aims. These new intervention strategies have been defined to specifically take into account their impact on social and economic development in areas which do not fully benefit from long-term market funding. The strategies involve not only an enlargement of the target group, but also the specification of priority sectoral guidelines. BIO will focus its efforts in the following sectors: Access to basic financial services for micro, small and mediumsized enterprises (loans, savings, insurance) The food industry, everything concerning food agriculture (aimed at feeding local populations), export farming, rearing, and the processing of raw food materials Basic infrastructure, specifically access to energy, water, telecommunications, and transport infrastructure Intervention in these sectors contributes directly to 3 of the 10 Millennium Development Goals: Reducing poverty by half, by 2015 and ensuring full employment and the possibility for all, including women and young people, to find decent and productive work. Preserving the environment, notably through access to drinking water for all: reducing by half, by 2015, the proportion of the population who do not have access to drinking water or basic cleaning services. Implementing a global partnership for development, notably: pursuing the implementation of an open, multilateral, predictable and non discriminatory commercial and financial system. Ensuring, with the cooperation of the private sector, that new technologies, particularly information and communication technologies are accessible to all. Page 14

17 Goals support sustainable projects optimise impact on development be an additional resource Sectors Financial services agriculture industry Basic infrastructure Millennium development goals Reducing poverty by half implementing A global partnership Preserving the environment

18 BIO IN 2009 New targets infrastructure Particular effort will be made in less developed countries particularly in Africa where the need for infrastructure is more evident. Renewable energy BIO is involved in 2 funds dedicated to renewable energy projects: the Central American Renewable Energy & Cleaner Production Facility (CAREC) and the Renewable Energy Asia Fund (REAF). A 3 rd deal is in the process of being finalised with a fund in Asia. 3 FUNDS Infrastructure A quality infrastructure is an indispensable condition to the development of a country and a region; however, the majority of the population in low-income and least developed countries (LIC and LDC) cannot access basic services due to a lack of suitable equipment. Until now, BIO did not have the necessary resources to fund largescale projects, particularly those involving infrastructure. Thanks to the availability of new resources, and in cooperation with other institutions BIO will now be able to undertake activities benefitting this sector via a partnership with FMO, its Dutch counterpart with solid experience in this area. Collaboration between the two institutions will enable co-financing of infrastructure projects under the same terms and conditions. Within the framework of this agreement, BIO will be able to provide capital assistance, longterm loans, and quasi-capital at market conditions in: Private projects, as well as in publicprivate partnerships of which the main objective is to support the local private sector Projects with proven financial viability Projects which support local infrastructure development for the benefit of the private sector (local population and private businesses in the formal and informal sectors) From a sectoral point of view, BIO will primarily concentrate on the energy sector with particular emphasis on renewable and sustainable energy, access to water, telecommunications and transport. From a geographical point of view, particular effort will be made in less developed countries particularly in Africa where the need for infrastructure is more evident. Renewable energy Energy is one of society s engines of development. Industrial civilisation was built around the use of carbon at the end of the 18 th century, and oil at the end of the 20 th century. The reduction in fossil fuels, research into reduced energy dependence and the fight against greenhouse gas emissions, calls for the increased use of renewable energy resources. Today, more than 2 million people worldwide do not have access to electricity due to fragile economies, heavy and costly infrastructure and due to their geographic isolation. Access to electricity ensures better living conditions (hygiene, health and education) and prospects for economic development. It is becoming evidently clear that developing energy alternatives in countries where the energy deficit is at its harshest is vital. Access to energy, in particular to renewable energy, is therefore a big opportunity for these populations to see improvement in their daily lives. BIO is now seeking to increase its contribution in this sector in order to promote sustainable development in regions where there is a large gap between energy supply and demand. BIO is already involved in three funds dedicated to backing renewable energy projects: Page 16

19 BIO IN 2009 Large companies BIO will favour projects which have a significant impact on local development. (very) small businesses Commitment to the ATHENA Facility (EUR million) Funds for recepient companies Funds for technical assistance the Central American Renewable Energy & Cleaner Production Facility (CAREC) in Central America, the Renewable Energy Asia Fund (REAF) and the Mekong Brahmaputra Clean Development Fund, also in Asia. In addition, BIO supports multisectoral funds which have one or several investments in the renewable energy sector, although this may not necessarily be their main target. In 2009, several direct investments in companies involved in hydro and wind energy were approved by BIO s Board of Directors and others are currently being assessed. Large companies BIO can now contribute to funding existing and start-up companies whose size exceeds the European criteria defining SMEs. BIO will contribute by funding these companies directly or indirectly via other financial institutions. BIO will favour projects which have a significant impact on local development, in terms of employment, wealth creation or transfer of knowledge and technology. (Very) small businesses International specialists have highlighted the shortcomings in funding the economic activity of (very) small business in developing countries over a long period of time. Many such businesses are run by entrepreneurs who wish to leave the informal sector but cannot gain access to the necessary financial resources. Adequate funding of this sector, which by definition is composed of less structured and smaller businesses, can nevertheless have a major impact on development. In cooperation with the Centre for the Development of Enterprise (CDE), BIO has created the ATHENA Facility which is a unique initiative aimed at supporting the creation and expansion of these small businesses. Supporting businesses that create jobs Thanks to the ATHENA Facility, BIO and the CDE are building on their synergies to fulfill a common objective: to facilitate access by very small businesses to financial resources through an approach which combines the development of skills and access to credit. This initiative originates from the synergy between the CDE s network of local establishments, which aims to support businesses without providing funding, and BIO which can grant funding but does not have its own local network. This partnership aims to encourage sustainable economic development, by granting specific funding suitable to very small private businesses in the African, Caribbean and Pacific States. It is based on decisionmaking and follow-up procedures that are simplified and adapted to this target group. The amount of individual credits will be between EUR 50,000 and EUR 300,000. BIO has committed a sum of EUR 3 million to the ATHENA Facility and EUR 300,000 for technical assistance. Assistance and local monitoring of companies, enabling investments to be controlled in order to reduce risk, will be carried out by the CDE. Page 17

20 Investment areas Financial Institutions Investment Funds Enterprises Infrastructure Strengthen and professionalise the financial sector Provide capital to SMEs and MFIs Access to LT financing Improve basic infrastructure needs for private sector Invest in mature MFIs Support small and innovative Non-Bank Financial Institutions Develop strong partnerships Finance SME-orientated commercial banks Be a catalyst for capital mobilisation Play a pioneering role in underserved markets Promote responsible investment Play a role in governance Diversify sources of funding Promote sound management principles Contribute to formalisation of businesses Demonstrate importance of private infrastructure financing in economic growth Accelerate local infrastructure plans Promote environmentally responsible energies Fill gap between energy offer and demand Improve population s living conditions

21 portfolio Global portfolio Net commitments At a constant USD/EUR rate by 31 December 2009, BIO s net commitments reached EUR million, an increase of 51 percent on the 2008 figure of EUR million. Net Commitments are defined as the volume of financing contracts signed, less cumulated repayments, plus contracts formally approved by the Board of BIO but not yet signed. Beneficiaries Enterprises 10% Infrastructure 20% Financial Institutions 35% Investment Funds SME 25% Investment Funds MFI 10% Outstanding investments In 2009, the volume of disbursements less the repayments grew by 15 percent over the year, from EUR million to EUR million. The portfolio can be defined in various ways: Instruments In 2009, 56 percent of the outstanding investments portfolio consisted of long-term loans. The remaining 44 percent was made up of equity participations. Geographical spread Several BIO investments are made to institutions or companies covering more than one country, region or even continent. The latter case is categorized as being multiregion. As of 31 December 2009, the geographical spread of BIO s portfolio was as follows: 32% 19% 21% 28% Asia Latin America Africa Multiregion More specifically, 56 percent of total outstanding commitments are channelled into partner countries of the Belgian Development Cooperation. When referring exclusively to direct investments in enterprises, 77 percent of BIO s investments go to partner countries. Regarding feasibility studies for newly signed projects, focus lies once again on partner countries which receive 72 percent of all BIO grants. Treasury In December 2009, the government allocated new funds for EUR 97 million to BIO. Funds received by BIO are not invested immediately; some projects are awaiting signature or entry into force. Others, though already signed, are not disbursed in one go but rather over several months or even years. BIO applies a cautious treasury policy within which a financial reserve is constituted to cover: 100 percent of undisbursed amounts promised via signed contracts 100 percent of amounts relating to contracts formally approved by the Board but not yet signed 66 percent of the value of projects approved for detailed due diligence Only the remaining treasury funds after deduction of these amounts is considered as freely available for new investments. Excluding funds dedicated to subsidies, at the end of 2009 BIO s treasury amounted to EUR million out of which EUR million is considered to be reserved. This leaves an amount of EUR 71 million free for new investments. EUR (million) treasury: Reserved Available for new investments 71 Page 19

22 portfolio Financial sector BIO s Financial Sector department provides financial support to microfinance institutions, commercial banks, Non-Bank Financial Institutions (NBFIs), investments funds and companies, through the provision of long-term loans and equity. These investments aim to provide access to long-term financing for SMEs and microfinance institutions. in eur k Net commitments 184, ,625 Outstanding investments 119, ,017 Outstanding investments Sectors Geographical spread Regional overview Africa Balanced portfolio across Africa (North, West, East and Central Africa) Not active in South Africa Microfinance Institutions 29% Commercial Banks 15% Non-Bank Financial Institutions Microfinance Institutions Funds 19% 12% SME Funds 25% Africa 25% Asia 22% Latin America 20% Multiregion 33% Pioneering role in Central Africa (BANK OF AFRICA DRC) Presence through SME funds in North Africa (CNAV and MPEF II) Investment in AfricInvest: across the region Grofin in East Africa NBFIs: Alios, Aquila Capital Partnership with EFP (European Financing Partners) Page 20

23 portfolio Latin America Strong presence in Peru, Nicaragua, and Bolivia Substantial portfolio in Microfinance Pioneering role in renewable energy (CAREC) Local currency fund (Locfund), and rural Microfinance (RIF) Emphasis set on priority countries of Belgian Development Cooperation (Peru, Ecuador and Bolivia) Asia Good portfolio in Non-Bank financial Institutions and private equity Highest commitment volume in India, followed by Sri Lanka, Cambodia and Vietnam (partner country) Focus on renewable energies (REAF and Mekong Clean Brahmaputra Fund) Balanced equity-debt ratio Catalyst role in demonstrating ability of PE to mobilise capital in financially immature markets (Mekong II) Major development effects in Financial institutions/banks: Training effects Mobilisation of savings Diversification of credit allocation Private equity funds: Employment effects Diversification of credit allocation Mobilisation of savings All of BIO s new commitments in the financial services and private equity funds sectors contributed to the development of local capital markets by mobilising savings and investment capital. Local savings are a precondition for locally financed investments i.e. where no foreign debt is required Investments in turn are the basis for further growth, employment and poverty reduction. All BIO s new projects also contribute to the diversification of capital allocation and thereby to the deepening of the financial sector. They provide finance to business segments which so far have not been or are insufficiently serviced by existing finance institutions. Diversification of the financial sector has been achieved by half of all new commitments. From a development point of view, the diversification of the financial sector is important because the existence of a modern and efficient financial sector strongly correlates with a country s economic growth. In this regard, five projects finance a novel type of institution while five projects also provide new and innovative financial products in their respective country/region. A noteworthy 94 percent of BIO s new commitments contribute to local company development. The provision of consultancy and technical advice delivers results in several different areas, specifically: the upgrading of companies, improvement of corporate governance, introduction of environmental and social standards, and improvement of accounting and reporting standards within the end-borrower and investee companies. Receiving long-term finance from BIO effectively signals to the wider financial sector that the recipient financial institution/private equity fund adheres to prudent finance principles. All projects are given access to much needed long-term finance. In 44 percent of the new projects BIO supports the scaling up of organisational and management capacities within the institutions, while in 38 percent of the projects information and control systems are being improved. In 31 percent of the projects BIO contributes to an implementation of an Environmental and Social Monitoring System (ESMS) at the financial institutions/fundmanagement level. 2 The full GPR Report is available at Page 21

24 Case study Paul Derreumaux, President of the BOA Group E.Legouhy Banking on success in the DRC In July 2009, BIO committed a USD 2 million equity co-investment to the Bank of Africa (BOA) to establish a new Greenfield bank in the Democratic Republic of Congo; BANK OF AFRICA DRC (BOA-DRC). BOA will invest USD 6 million in the bank and PROPARCO, BIO s peer organisation in France will contribute a further USD 2 million. The resulting ownership structure sees BOA Group holding 60 percent of shares with BIO and PROPARCO each holding 20 percent. Here, Paul Derreumaux, President of the BOA Group, provides a personal insight into the benefits of this collaboration and the challenges of establishing a new bank in the DRC. Q. The BOA Group already operates 12 banks in 11 countries in Africa; how will BOA-DRC and its investment partners benefit from the existing network? Beyond the fact that BOA-DRC will service a large market displaying strong potential and undergoing vast reconstruction, the new bank will benefit from being part of the Bank of Africa network in three significant ways. Firstly, as this is the sixth financial institution we have created, we are well versed in managing the establishment of a new bank; secondly all the necessary technical, organisational and marketing skills already exist within the network, and thirdly on a regional level BOA-DRC will enjoy synergies with sister organisations particularly in countries such as Uganda, Burundi and Kenya. Q. Which aspects of the financial services market in the DRC do you feel were the convincers to establishing a new bank? It is not so much the current market as the future market which has attracted our interest. Indeed, the current supply of banking services is a long way off what it should be in such a large and heavily populated country. In 2009, one of our internal communications slogans was The BOA Group believes in the future of Africa, meaning that we are entering the DRC market to stay and to grow and because we are certain that the emergence of a successful modern banking system which is available to all, is one of the keys to economic turnaround. We believe that the country is destined for a great future. Q. What are the main operational challenges within the financial industry in the DRC? Without counting the traditional challenges linked to the business environment, post-conflict requirements, or the political climate, the greatest and most exciting challenge is in my view bringing the Congolese people back into contact with the banking system. Indeed, at least one generation of urbanites, let alone those in the provinces, have lived without using any form of banking. The few existing banks work almost solely with the business community. It is therefore essential to reshape, and in some cases instil completely new consumer behaviour. In short, it is necessary to inspire the confidence of the Congolese people so that they trust the banking system once again. With the support, means and credibility of the entire BOA Group and our investment partners, BOA- DRC will contribute to this process as best as possible. Q. Competition in the financial sector is forecast to increase with the relative stabilisation of the country; how is BOA-DRC geared up to address the challenges of a more competitive playing field? More than anywhere else in Africa, I believe that banks which succeed in the DRC will be those that know how to demonstrate their rigour and seriousness and are able to quickly construct a national network. First and foremost, an educational programme is needed to explain the role of banks and to dispel Page 22

25 2 million investment (USD) BY BIO 25 employees 300,000 technical assistance grant (USD) 56 percent female employees NETWORK OF 12 BANKS 6 TH GREENFIELD BANK OF BOA GROUP

26 Case study Client: Bank of Africa DRC (BOA DRC) Country: Democratic Republic of Congo Type of investment: Equity investment Investment amount: USD 2,000,000 Time period: Contract signed in 2009 Development impacts: 01 Enabling access to credit by the private sector 02 Knowledge transfer 03 Job creation the perceived danger of investing money therein. Furthermore, banking networks need to rapidly expand over the majority of the country, both to meet demand of customers who wish to access financial services nation-wide; as with mobile telephone services and also to provide the best measures in terms of reputation and credibility coverage over a large territory is a major criteria in this. Just as the establishment of a viable financial system and the introduction of new successful services contribute to development, the increasing density of networks and number of branches will effectively contribute towards the stability and unity of the DRC. Q. In addition to the USD 2 million investment BIO has committed a technical assistance grant of USD 300,000, how will this help? As I mentioned earlier, experienced teams from within the BOA Group are involved in preparing the ground for establishing BOA-DRC and this carries a cost. The subsidies offered by BIO will help us bear these costs. Due to unique conditions in the DRC, costs are considerably higher than in other markets where we have established new banks so this money is doubly useful. Q. What do you believe will be the main development impacts for the country and its citizens in the opening of BOA-DRC? In short, the provision of banking services for the private individual. This naturally means enabling access to all financial services, and perhaps most notably to credit. As far as the business community is concerned, we hope to be in a position to support many large companies, SMEs and microcompanies that are in themselves the creators of wealth and employment which the country so badly needs. In terms of job creation, we shall begin operations with 25 employees of which 56 percent will be female and are planning for the rapid expansion of our network so there should be further recruitment opportunities to come. Q. In what ways do you find the BOA Group benefits from working with Development Finance Institutions such as BIO? Other than the obvious financial benefits, I would say that collaboration with organisations such as BIO offers the BOA Group clear competitive advantages in two main areas. It allows us to be exposed to, and enriched by, structures and beliefs other than our own; this is particularly true when it comes to bestpractice in environmental and social responsibility. For the past three decades, the BOA Group has sought to play an active community role in countries in which we operate; collaboration provides additional expertise allowing us to fulfill this aim with an increasing amount of relevance. The other main area of advantage lies in the establishment of long-term relationships with international organisations. Working with organisations such as BIO tends to support BOA Group s vision by motivating our continued development and bolstering our originality. The Democratic Republic of Congo is one of three Central African Countries identified by the Belgian Development Cooperation as priority destinations for investment by BIO. BOA-DRC is scheduled to begin operations in March/April Page 24

27 Case study Kurt Koenigsfest, General Manager of BancoSol Promoting microfinance in Bolivia Bolivia boasts one of the most evolved microfinance industries in Latin America with the sector accounting for over 37 percent of total deposits and seven percent of the country s GDP. Despite such advances, levels of private investment in Bolivia are still among the lowest in the region and are being placed under additional pressure by the spill-over effects of the weakened US economy. Banco Solidario S.A. (BancoSol) is one of four leading microfinance institutions (MFIs) in Bolivia and the recipient of a USD 5 million senior loan from BIO that will facilitate the all important growth in private sector investment. Principally the loan, which is for a period of four years, will provide BancoSol with the necessary resources required to demonstrate the attractiveness and sustainability of microfinance mechanisms to the private sector. Here, Kurt Koenigsfest, General Manager of BancoSol, describes the challenges faced when developing the Bolivian microfinance industry, challenges that will be easier to surmount with this significant loan from BIO. Q. The microfinance industry in Bolivia is one of the most advanced in Latin America; why is it important to stimulate additional growth in this sector? By December 2008 Bolivia s microfinance loans portfolio represented 7.38 percent of GDP and its deposits portfolio was around of 6.04 percent of the same indicator. The growth of this sector can help to improve Bolivia s economic development. Besides, growth of the microfinance industry automatically stimulates wealth generation because more poor people have access to financial resources in order to improve themselves. More micro entrepreneurs are able to improve their quality of life and more importantly cover their basic needs. Because of this BancoSol s mission is also a social one. All players in this sector agree that microfinance has an essential role to play in economic growth, poverty reduction and the country s democratisation. Q. What socio-economic challenges do you foresee hampering the growth of microfinance in Bolivia? There are five main socioeconomic factors that could negatively affect growth of microfinance in Bolivia. Firstly, as foreign resources represent a significant part of any MFIs funding structure, an adverse investment climate means instability in the rules of the game; thus, external funders will be more reticent to invest in the country despite an interest to support this sector. This would limit the growth of loan portfolios by reducing financing capacity. Secondly, interest rates are often fixed to protect the poor but the practice can lead to a reduced credit offering. Setting interest rate caps can often be prohibitive as prices can be too low to allow for a sustainable credit offering. This is especially true when administrative costs are high as is the case when offering small loans to a low income population. Thirdly, the effectiveness of Free Trade Treaties is very important. Their objective are to stimulate the expansion and diversification of the exchange of goods and services by: promoting conditions of free competition, eliminating barriers to the movement of capital and people within a territory, and increasing opportunities for investment. Fourthly, challenges lie in the productive structure of Bolivia s microenterprises. There is a need to create organisations which are flexible, dynamic, require low start-up capital, and have the capacity to survive during a crisis. Page 25

28 Case study Client: Banco Solidario S.A. (BancoSol) Country: Bolivia Type of investment: Senior loan Investment amount: USD 5,000,000 Time period: Contract signed in 2009 Development impacts: 01 Demonstrating the attractiveness and sustainability of microfinance 02 Mobilisation of investment capital for the poorest segments of society 03 Diversification of the economy Microenterprises that give value to microfinance are an expression of the capacity of a country to generate auto-employment. And finally, although several socio-economic factors influence the dimension and characteristics of poverty, there is no doubt that education constitutes a very powerful tool in reducing poverty. Q. BancoSol is one of the larger microfinance organisations in Bolivia; how is the bank best placed to motivate growth in the sector? There are many factors that will help BancoSol to motivate growth in the microfinance market. The most important one being that BancoSol focuses on loans below USD 20,000. The bank s strategy aligns with its mission to help people to more easily access the financial resources they need. Another factor is that around the world BancoSol is a recognised pioneer in microfinance market development, an indicator of this being that many microfinance institutions visit BancoSol to learn from our know-how. Q. How do you see this loan working in practice, both in terms of the partnership and economic development? Our experience of working with BIO has been one of efficiency in all procedures relating to granting and disbursement of the credit line. The degree of professionalism of the people that managed the operation permitted a smooth overall process. In terms of economic development, in practice this loan will mean that BancoSol can direct financial resources more efficiently to serve those sectors of the economy where credit facilities are needed most. We look forward to working with BIO on a long-term basis. Despite the challenges outlined here by Kurt Koenigsfest, projections point to continued growth in the level and diversification of microfinance in Bolivia. Through this loan to BancoSol BIO is excited to be playing a part in that growth. This being said, due to the strong anticipated effects of this loan on employment, training, institution building, savings mobilisation, credit allocation and diversification of the financial sector, the project achieved a noteworthy GPR rating of two out of six, one being the very best. Bolivia is one of the priority countries set out by the Belgian Development Cooperation. Page 26

29 portfolio Enterprises BIO s Enterprises department invests in SMEs and large businesses through the provision of long-term loans and equity, for amounts between EUR 300,000 and EUR 3 million. Priority sectors include agribusiness, manufacturing and ICT/telecommunications. in eur k Net commitments 32,285 17,311 Outstanding investments 18,505 11,361 Outstanding investments Sectors Agribusiness 43% Health 17% Information & 7% Communication Technologies Manufacturing 33% Geographical spread Africa 72% Asia 22% Latin America 6% Major development effects in Social effects Training effects Structural effects All of BIO s new commitments contribute to technology transfer in management, corporate organisation, marketing, and production technology. With the new investments, investee companies will endow their staff with social benefits through compliance with ILO core labour standards, wages above the local average, housing programmes, preventive measures against HIV/ AIDS and other chronic diseases. In addition, investee companies will become compliant with international standards on health and safety at work. A total of 89 percent of BIO s new commitments will create positive structural/market effects through the introduction of new products, improvements in the product quality, strengthening of competition and the export sector, contribution to regional or sectoral diversification, and by creating local business linkages which tend to foster the integration of local companies into the global value chain. Also, 5 percent of BIO s new commitments in productive companies are making a notable contribution to local infrastructure with respect to the improvement of roads and the communication system as well as the supply of water and energy. 3 The full GPR Report is available at Page 27

30 portfolio Agribusiness Production shortfalls in Sub-Saharan Africa spur new investments Sub-Saharan Africa (SSA) is the only region in the world where food production has fallen consistently over the past three decades. This is despite the agricultural sector employing nearly two thirds of the population 4. Existing agricultural production shortfalls are set to be compounded by the World Bank s prediction that by 2015 demand for food in the region will be double levels recorded in This critical need coupled with a refreshed mandate from the Belgian Ministry for Development Cooperation to focus on the agribusiness sector has spurred some exciting new investments by BIO during A robust agribusiness sector and corresponding levels of domestic food security are imperative for the sustainable growth of the private sector in developing countries. Some of the challenges to agricultural growth such as high prices of inputs and the viability of exports are caused by conditions in global markets. However, other hurdles such as a lack of basic infrastructure, modern machinery and processes can be attributed to long-term underinvestment by the domestic public and private sectors. This is where BIO can and is, making a significant difference by providing long-term financing for expansion and modernisation across the food supply chain in SSA. Better baby food in the Ivory Coast EUR ( 000) BIO SUBSIDY: BIO committed a EUR 700,000 loan to Protein Kissee-La SA (PKL), an established food processing company in the Ivory Coast. One of the company s leading brands is Farinor baby food, which is the only local brand to compete with imported products from Danone and Nestle. Farinor baby food is about 50 percent cheaper than European alternatives. In order to comply with all food quality and safety standards PKL will build a new closed-production plant and storage facility for Farinor. In addition, PKL will expand its product range to include various new package sizes that address the needs of different markets. The project will be financed with the eight-year loan from BIO and supported by a technical assistance subsidy of EUR 10,000. Development impacts of the loan and subsidy include the transformation of locally produced cereals, import substitution and upskilling in terms of international health and safety standards. Page 28 4 Based on statistics from the Forum for Agricultural Research Africa (FARA)

31 portfolio Feeding more poultry and livestock in Senegal BIO disbursed a loan of EUR 700,000 to SEDIMA in Senegal to expand their existing animal feed plant in Dakar. The plant currently produces chicken and ruminant feed for the local market and export predominantly to Mauritania and Mali. Expansion will include the launch of new granulated and high-energy products and a drive to more than double production by Other financiers of the expansion project include the owner, Mr Babacar Ngom, and local banks. BIO awarded a medium term loan of five years that will be dedicated to the sourcing and purchasing of imported equipment for modernisation. Expansion will create an additional 21 permanent and 20 temporary jobs. BIO also granted a subsidy of EUR 60,000 for training purposes. Planting more corn in the DRC aimed increase of Corn yield (tonnes) 3,400 7,000 Prices (%) Flour Corn BIO agreed a USD 1.35 million loan for Grands Domaines Du Katanga (GDK) in the DRC to double the size of their existing corn plantation. With a maximum repayment term of nine years, the aim of the loan is to increase annual corn yield from 3,400 to 7,000 tonnes. In addition, the loan may contribute to the building of a flour processing plant; flour commands prices 20 percent higher than that of corn. Increased yield will be achieved by modernising machinery and processes as well as the transfer of mechanical, electrical and topographical expertise via a technical assistance grant of EUR 78,085. In developmental terms, the loan will increase local food supply, create new jobs and advance the company along the food supply chain. Globally, the agribusiness sector in developing countries is characterized by many Very Small Enterprises (VSEs) that are often too large to qualify for microfinancing. To increase access to finance at this lower meso-financing level, BIO has launched the ATHENA Facility in partnership with the Centre for the Development of Enterprise (CDE). By granting relatively small amounts of credit (between EUR 50,000 and EUR 300,000) to VSEs in sectors including agribusiness, the ATHENA facility will start addressing production shortfalls at the grassroots level. BIO has allocated EUR 3 million to finance the Facility and EUR for technical assistance. Local project management and support will be undertaken by CDE experts already in the field in African, Caribbean and Pacific (ACP) countries. At the end of 2009, projects in the agribusiness sector accounted for nearly 50 percent of BIO s total commitments to enterprises and it is anticipated that this will rise to 70 percent in the future. Page 29