Hivos-Triodos Fund Foundation

Transcription

1 Hivos-Triodos Fund Foundation Annual Report 2014 TLIM

2 Microfinance is the provision of financial services to people on low incomes. An inclusive financial sector in which everyone has access to these services provides a sustainable basis for balanced socioeconomic development.

3 Hivos-Triodos Fund Foundation Annual Report 2014 Hivos-Triodos Fund Foundation is a joint initiative of Hivos and Triodos Bank. Triodos Investment Management is wholly owned by Triodos Bank and is also the fund manager of the Hivos-Triodos Fund

4 Key figures amounts in euros At year-end 2014 At year-end 2013 Participations (managed for third parties) 25,805,251 32,080,049 Number of contracts Cumulative preference shares (excluding provisions) 44,556 Number of contracts 1 Loans provided 44,204,056 33,513,094 Number of contracts Subordinated loans provided 407, ,432 Number of contracts 1 2 Total portfolio before deduction of specific provisions and including receivables from loans and assets managed for third parties 70,464,421 66,298,131 Committed investments 4,173,582 4,620,678 Equity 12,587,572 9,190,448 Result For 2014 For 2013 Income 4,086,820 3,872,985 Expenditure -2,447,093-2,301,196 Operating profit 1,639,727 1,571,789 Exchange rate result 1,757,397-2,101,008 Deficit in the Exchange Equalisation Reserve made up by Hivos 529,219 Result 3,397,

5 Contents Page General information 6 Report of the Supervisory Board 7 Annual report of the Board of Management 8 Annual Accounts 2014 Hivos-Triodos Fund 23 Other information 43 Board of Management and Supervisory Board 45 Appendix: Hivos-Triodos Fund portfolio 46 Sustainability reporting 50 Address and publication details 51 5

6 General information Objective Stichting Hivos-Triodos Fonds (Hivos-Triodos Fund) was formed on 22 December 1994 by the Hivos Foundation and the Triodos Fund Foundation. Its objective is described as follows in the articles of association: The Foundation s objective is to provide guarantees and loans to enterprises and institutions involved in development cooperation, 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 Executive Board of Triodos Bank NV. The Board of Management is appointed, suspended and removed from office by the Supervisory Board; the latter also supervises the policies pursued and adopts the annual accounts. The Supervisory Board is appointed by Hivos and comprises Natasja van den Berg (chair), Marcel Karman, Peter Valks (until November 2014), Han de Groot, Elsbeth Aubel- Bezemer and Edwin Huizing. Hivos, Triodos Bank, Triodos Investment Management BV and Hivos- Triodos Fund have entered into a Cooperation Agreement to implement the practical aspects of the policy. The Board of Management of Triodos Investment Management BV comprises Marilou van Golstein Brouwers and Michael Jongeneel. The Fund Manager of Hivos-Triodos Fund is Willem Enklaar. Mode of operation New applications for investments from the fund are assessed based on 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 the process. Hivos assesses the development relevance of the applications. Its positive recommendation is a basic condition for lending or investing. Staff at Triodos Investment Management 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 credit committee at Hivos-Triodos Fund. Representatives of Hivos and Triodos Investment Management are members of this committee. Final responsibility lies with the Board of Management of Hivos-Triodos Fund. Triodos Investment Management is responsible for managing the fund s portfolio. Borrowers are reviewed at least once a year to assess whether or not their individual profile is still in line with policy. The portfolio is managed and developed further in close consultation with Hivos. Regional offices in Harare (Zimbabwe), Nairobi (Kenya), Jakarta (Indonesia), La Paz (Bolivia) and San José (Costa Rica) play an important role in this, as do the responsible members of staff at the Hivos head office. 6

7 Report of the Supervisory Board The Supervisory Board held two meetings in At these meetings the Supervisory Board assessed developments within Hivos-Triodos Fund in the light of policy and adopted the annual financial statements for 2013 and the budget for The format of the annual financial statements was addressed at the meeting held on 10 April The strategy to be pursued by Hivos-Triodos Fund in 2015 was discussed at both meetings. The Supervisory Board was informed of the progress of talks between Hivos and Triodos Investment Management on that strategy. The Supervisory Board adopted the Hivos-Triodos Fund annual report and financial statements for 2014 in its meeting held on 8 April The result for 2014 was EUR 3,397,124 (2013: EUR 0, after Hivos had made up the deficit). This amount comprises the operating result of EUR 1,639,727 (2013: EUR 1,571,789) and a positive exchange rate result of EUR 1,757,397 (2013: EUR 2,101,008 negative). The exchange rate result will be added to the Exchange Equalisation Reserve. After settlement of the result, equity in 2014 amounted to EUR 12,587,572. This is well above the agreed minimum of EUR 2,500,000 and consequently no appeal needed to be made to the guarantors in Peter Valks tendered his resignation at his own request at the meeting of the Supervisory Board held on 26 November The Supervisory Board is currently looking for a replacement. Zeist, the Netherlands, 8 April 2015 Elsbeth Aubel-Bezemer Natasja van den Berg (chair) Han de Groot Edwin Huizing Marcel Karman 7

8 Annual report of the Board of Management Stichting Hivos-Triodos Fonds was set up with the aim of contributing to sustainable socioeconomic 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 in the lower income strata of society. Giving people access to loans, savings products, payment services and micro-insurance enables them 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. Hivos-Triodos Fund gives priority to financing MFIs that are chiefly active in rural areas where access to microfinance is still limited. Since 2011, Hivos-Triodos Fund has been expanding its activities to include renewable energy and sustainable agriculture. By investing in these sectors, Hivos-Triodos Fund wants to promote access to renewable energy and contribute to the development of a sustainable agricultural sector in developing countries. As such, Hivos-Triodos Fund is building on the knowledge and experience of Hivos and Triodos Bank in these areas. Investments preferably take place through local financial institutions, such as MFIs and funds that focus on small and medium-sized enterprises. In addition, Hivos-Triodos Fund is interested in investing directly in businesses and organisations active in the renewable energy sector or in sustainable agriculture. Market developments Cautious recovery of the world economy The world economy showed signs of a cautious recovery in Industrialised countries displayed slight growth figures again, mainly driven by the plentiful availability of cheap credit and fewer government spending cuts. On a global scale, the financial sector remained vulnerable to shocks, partly because more stringent capital requirements still have to be put into effect. Developing countries profited from the improvement in the economic situation in industrialised countries in 2014 and are still showing growth of 5% on average (source: IMF, World Economic Outlook). This growth is expected to continue, especially in South and East Asia and in Sub-Saharan Africa. As a result of this economic growth, demand for financial products and services continued to rise in these countries and markets, helping MFIs and banks, including those in Hivos-Triodos Fund s portfolio, to grow further in The quality of these institutions loan portfolios is stabilising in most countries. The risk of overindebtedness is present and some institutions and countries are at a slightly higher risk. This remains an important priority for Hivos-Triodos Fund. Development of the sector The stable growth of investments in the microfinance sector continued in The annual report published by Symbiotics, the 2014 Symbiotics MIV Survey, substantiated this, reporting growth rates ranging from 9% in South Asia to 13% in Latin America, 17% in Eastern Europe & Central Asia and 18% in East Asia. The volume of investments in the Middle East & North Africa and Sub-Saharan Africa is much smaller. A significant development is that these regions are showing strong growth, however, of 44% and 34% respectively. The continuing growth also means that financial institutions need for investments remains considerable. International investment funds play an important role in meeting this need. According to the report mentioned above, total investments by these funds amounted to USD 9.9 billion (EUR 9.3 billion); some 6.5% of this is provided by the microfinance funds managed by Triodos Investment Management, including Hivos-Triodos Fund. The most important market developments are described on the next page. 8

9 Technology as an important driver To be able to continue to stand out in the market, the use of technological capabilities is becoming increasingly important to MFIs. By making intelligent use of the available technology, institutions with new products are not only able to serve their clients more effectively but also become more efficient in managing risks and operations. We have seen examples in various countries of how organisations are expanding their product range or reaching rural areas more easily by making use of technology. In East Africa in particular, the march of mobile banking is putting pressure on traditional business models. Even the poorest farming families in the most remote areas are now able to transfer money and save and borrow small amounts by using their mobile phones. That is having an enormous effect on daily life. A large proportion of the MFIs in the Hivos- Triodos Fund portfolio make use of mobile telephony as a means of reaching more clients. Technology also has an effect on the development of alternative distribution channels. Petrol stations and kiosks are now being used as agents of the MFIs, enabling less populous areas to be served efficiently. There is evidence that technological development is an important driver for the scalability of businesses active in renewable energy and sustainable agriculture. Hivos-Triodos Fund looks specifically at the extent to which institutions make use of technological capabilities when it assesses its investments. 33.6% percentage of the portfolio invested in Africa Legislation and regulations as an opportunity and a threat Just as in Europe and the United States, there is increasingly active government regulation and controls with regard to the financial sector in developing countries. In general, the frameworks within which institutions operate are improving, both as regards regulations and supervision and the appearance of credit bureaus. The revival of the microfinance sector in India is striking. The central bank in India responded sharply to a crisis in the microfinance sector in the state of Andhra Pradesh in 2010 by imposing strict regulations on pricing and client protection. Last year, however, we saw a different face of the same central bank when it created opportunities for MFIs to obtain a banking licence. Hivos-Triodos Fund welcomes this development since it gives clients of MFIs in India access to a broader product range and by doing so, enables them to meet their financial needs more effectively. Regulations in some countries often focus on MFIs pricing by imposing interest rate caps. This was the case in such countries as Zambia, Bolivia and various countries in West Africa in recent years. Interest rate caps can have a positive effect in an environment where interest rates are high. However, the regulations applied are often insufficiently specific and therefore usually have negative side effects for the market and the development of institutions. One of the consequences can be that institutions focus on clients who are easy to serve, making it less straightforward for clients in rural areas to access financial services. Increasing interest in the SME sector In addition to lending to very small businesses, there is growing interest in lending to small and medium-sized enterprises (SMEs). SMEs are an important economic driving force and remit taxes that serve as a source of income for local government. Entrepreneurs in this sector often find it difficult to get credit. It is estimated that more than half of SMEs in developing countries have little 9

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11 ANNAPURNA Annapurna provides group loans to women in India to encourage them to start and run businesses. They are accountable to each other and, in addition, they improve the businesses they are working for. Providing these women with financial services enables them to develop themselves socially and economically. 11

12 or no access to credit or financial services (source: IFC/World Bank). MFIs are playing a positive role in this by growing in tandem with the small-scale businesses in their portfolio. In addition, there are financial institutions that focus explicitly on SMEs. These banks can also make a significant contribution to introducing sustainability to the financial sector, for example by focusing on renewable energy and the agricultural sector. Added value of Hivos-Triodos Fund Hivos-Triodos Fund clearly stands out from other market players by its emphasis on funding MFIs that are active in rural areas and underdeveloped markets. Furthermore, Hivos-Triodos Fund focuses specifically on MFIs that offer financial products that increase access to renewable energy and promote the development of a sustainable agricultural sector. Examples of this include the use of solar power or small-scale biogas systems and agricultural loans tailored to the operations of small-scale farmers. In December 2012, Hivos- Triodos Fund set up a special programme in collaboration with Hivos and Enclude, which will run until Under this programme, MFIs in the portfolio are granted access to technical support to further develop products aimed at the agricultural sector and by so doing, increase interest in sustainable agricultural methods. Agreements were made in 2014 with three of the institutions in the Hivos-Triodos Fund portfolio to provide this technical support: KOMIDA in Indonesia, Ugafode in Uganda and Annapurna in India. Hivos-Triodos Fund also invests in SMEs that focus on renewable energy and sustainable agriculture by means of direct and indirect investments (through investment funds or financial institutions that focus specifically on SMEs in these sectors). When investing in sustainable agriculture, Hivos-Triodos Fund applies a number of criteria: the company must promote small-scale agriculture and sustainable farming practices and pursue fair trade. When investing in companies that actively use renewable energy, Hivos-Triodos Fund analyses the extent to which the methods used actually lead to access to energy and a reduction in CO 2 emissions. Another important criterion is that local poor communities benefit from the renewable energy generated. An example from the portfolio is Intellegrow in India, an organisation that provides debt finance, which was provided a loan by Hivos-Triodos Fund in SMEs in the agricultural sector and the renewable energy sector are among the businesses that receive funding from Intellegrow. Intellegrow also provides capital to innovative SMEs that actively facilitate payment services for poor households in India. Furthermore, Hivos-Triodos Fund increased its existing investment in Sembrar Sartawi in Bolivia in This institution provides loans to producers in the agricultural sector. For 2015, Hivos-Triodos Fund aims to have 25% of its portfolio fund and encourage SMEs that are active in sustainable agriculture and renewable energy. Life cycle model The partnership between Hivos and Triodos Bank enables Hivos-Triodos Fund to support an organisation at an early stage until it reaches a certain level of institutional stability. To that end, Hivos-Triodos Fund and Hivos have jointly developed a life cycle model based on the needs of organisations in the various stages of their development. In the first stage, an organisation primarily needs donations to build capacity. At that point, the income earned is not enough to fund that. In the next stage of growth, Hivos-Triodos Fund can provide the organisation with funding to enable it to develop further. At the same time, where necessary, Hivos can continue to support specific areas of the organisation with funds for technical assistance. Even at this stage, financing the organisation is still a high-risk proposition. Once the organisation has grown and become more professional, it will be increasingly able to raise money on the capital 12

13 market. Triodos Fair Share Fund and Triodos Microfinance Fund, which are also managed by Triodos Investment Management, are also available for that purpose. This model ensures the regular release of financial resources that Hivos-Triodos Fund can use for innovative initiatives. Hivos-Triodos Fund views the development of clients as an important objective. In 2014, four MFIs in the Hivos- Triodos Fund portfolio grew sufficiently to be financed by microfinance funds managed by Triodos Investment Management or other more commercial investors. AMRET in Cambodia was one example. Hivos-Triodos Fund provided this institution its first loan in Due in part to this loan, AMRET was able to grow strongly and develop as a regulated institution to become one of Cambodia s market leaders. During its relationship with Hivos-Triodos Fund, AMRET developed into a leading player with a focus on funding renewable energy and sustainable agriculture. Given AMRET s professional development, bigger scale and growth, the institution became eligible for funding from Triodos Fair Share Fund and Triodos Microfinance Fund in Hivos-Triodos Fund ended its relationship with AMRET completely in Sustainability as a core value Hivos-Triodos Fund provides finance exclusively to those financial institutions that seek to balance people, planet and profit. This is at the core of Hivos- Triodos Fund s investment policy and is embedded in its analysis and decision-making process. The fund s sustainability analysis makes clients its priority, primarily focusing on transparency, a varied product range and attention for the environment. How Hivos-Triodos Fund analyses and assesses these themes is explained below, illustrated with examples from the portfolio. Hivos-Triodos Fund endeavours to have the organisations in which it invests make progress on these themes during the relationship. Hivos seed capital Life Cycle Model Hivos-Triodos Fund 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 meet its total expenditure from the income it generates (excluding donations). 13

14 Making the client a priority Transparency Hivos-Triodos Fund analyses how the MFI handles overindebtedness and transparency. The fund also evaluates the way in which the MFI aligns loans with the client s ability to repay them, which policy the MFI pursues with regard to interest rates, and the way in which the MFI communicates with clients about its products and the obligations they involve. The Client Protection Principles 1 describe these aspects in detail. These principles have been signed by 80% (2013: 88%) of the MFIs in the portfolio. The reason for the decline is that Hivos-Triodos Fund added two MFIs to its portfolio during the year, neither of which has signed the principles yet. At the same time, various MFIs that have signed the principles have repaid their investment. Responsible interest rates Profit may never be the only objective when pursuing a balance between people, planet and profit. For that reason, Hivos-Triodos Fund analyses the level of interest rates an MFI calculates and the profit the institution envisages making. Hivos-Triodos Fund assesses each MFI s interest rates and the profit it is aiming for against a number of benchmarks. In so doing, the fund focuses on the products the MFI offers, the economic context and the market in which the institution operates, and how the MFI relates to other providers. Financial literacy Financial literacy and training of clients and potential clients is becoming increasingly important to MFIs and banks. An example from the portfolio is INSOTEC in Ecuador, which offers its clients a training course focusing on all facets of enterprise. Varied product range It is essential for clients of MFIs to have access to other financial products as well as loans. They also want to be able to save, take out insurance and transfer funds. Hivos-Triodos Fund s strategy in relation to the development and supply of products is therefore an essential part of the assessment of its investments. Hivos-Triodos Fund also investigates whether the MFI grants loans to SMEs. As it does so, Hivos-Triodos Fund is particularly interested in SMEs in the sectors of renewable energy and sustainable agriculture. The employment these companies create and the taxes they pay represent a direct contribution to the development of the local economy. A growing number of MFIs in the fund s portfolio focuses on this target group. In 2014, Hivos-Triodos Fund increased its investment in IDEPRO in Bolivia, an MFI with 26% of its portfolio devoted to loans to SMEs in the agricultural sector. Product diversification (percentage of MFIs that provide other financial services) Insurance products 83% Payment services 43% Savings products 43% Diversification in the size of the loans (as a percentage of the total loan portfolio of the MFIs) Micro loans 60% SME loans 24% Consumer credit 10% Other loans 6% Target groups that are difficult to reach 1 See 14

15 Women often find it difficult to access financial services. The same applies to people living in rural areas. Consequently, Hivos-Triodos Fund works with innovative MFIs that accommodate these difficult to reach target groups. An example from the fund s portfolio is Annapurna in India. This MFI mainly works in parts of the state of Orissa, where access to microfinance is limited. Annapurna provides both loans and savings products. Alternative distribution channels Alternative distribution channels, such as mobile telephony and service points, play an increasingly important role. These techniques enable more people, especially those in areas that are difficult to reach, to access financial services at a lower cost. One example is Centenary Bank in Uganda. Clients of this bank can use their mobile phones to look at their bank balances and perform financial transactions. Agricultural sector Many people in developing countries earn their income in the agricultural sector. This is precisely the sector that has extremely limited access to effective financial products. The uncertain cash flow and risks of crop failure and natural disasters make MFIs reluctant to serve them. Hivos-Triodos Fund encourages MFIs to be active in precisely this extremely important sector and makes use of its international network to support them in this. In doing so, the fund also focuses on the importance of sustainable agricultural practices. Of the organisations in the portfolio, 64% have more than 15% of their portfolio outstanding in the agricultural sector. A good example is IPR in Cambodia, where 99% of its loan portfolio consists of loans to the agricultural sector. Edpyme Alternativa in Peru supplies products specifically tailored to providing finance facilities for crops and animals to agricultural clients. Emphasis on the environment Hivos-Triodos Fund also maps the activities the MFI initiates to make care for the environment a priority. Awareness is a first step. Many MFIs in the fund s portfolio organise training courses and other activities to inform their clients about care for the environment and the role they can play in that. Hivos-Triodos Fund furthermore analyses whether the MFIs provide green products and services to promote sustainable agriculture and renewable energy. Examples are loans to purchase solar panels, a biogas installation or an energy-efficient oven. Fundación FACES in Ecuador takes the impact on the environment into account when assessing its clients. It also offers training programmes that focus on care for the environment. In 2014, 63% of the MFIs in the portfolio used procedures to exclude environmentally harmful sectors from finance facilities (2013: 64%). Of the MFIs in the portfolio, 27% provide loan products aimed at improving the environment (2013: 42%). The table in the Appendix on pages 46 to 49 of this report shows a number of core indicators for each MFI in the Hivos-Triodos Fund portfolio, such as the number of savings and loan clients, the average amount borrowed and the percentage of female clients and clients in rural areas. These and other indicators are shown at fund level on page 18. The lower total number of savings and loan clients is due to the ending of the relationship with a number of large institutions such as Mibanco in Peru and AMRET in Cambodia. At the same time, the fund has added some smaller institutions to its portfolio, in line with its strategy. The same reason applies to the drop in the percentage of rural clients. A number of the institutions with which Hivos-Triodos Fund ended its relationship had provided relatively high average loans, due for example to the varied product range they provided to micro entrepreneurs and SMEs. That explains why the average loan for each client has fallen. 15

16 Hivos-Triodos Fund Portfolio 31 December 2014 GLOBAL Leapfrog Financial Inclusion Fund MFX Solutions ACTIVE IN LATIN AMERICA EcoEnterprises Fund II HONDURAS l COMIXMUL Hermandad de Honduras GUATEMALA l ASDIR EL SALVADOR l AMC NICARAGUA l Asociacion Fonde de Desarrollo ZAMBIA l Agora Microfinance FINCA Zambia MALAWI l FINCA Malawi ECUADOR l Banco Solidario CACMU Fundación FACES INSOTEC Maquita PERU l EDPYME Alternativa Fondesurco Microfinanzas Arariwa BOLIVIA l IDEPRO Sembrar Sartawi SOUTH AFRICA l Small Enterprise Foundation 16

17 KAZAKHSTAN l Bereke UGANDA l Centenary Bank EFC Uganda Ugafode EAST-TIMOR l Tuba Rai Metin CAMBODIA l AMK IPR INDIA l Annapurna Microfinance Bhartiya Samruddhi Finance Caspian Impact Investments Intellegrow TANZANIA l Akiba Commercial Bank FINCA Tanzania INDONESIA l KOMIDA MBK Bina Artha Ventura Bank Andara 17

18 Core indicators of the MFIs in the Hivos-Triodos Fund portfolio* Total number of loan clients reached by MFIs in the portfolio 2,537,340 3,383,141 Total number of savings clients reached by MFIs in the portfolio 1,960,011 3,136,318 Average loan EUR 553 EUR 787 Percentage of female loan clients 78% 73% Percentage of clients from rural areas 52% 57% Number of employees of the MFIs in the portfolio 16,126 24,875 * Clients reached through investments in Bank Andara, AfriCap Microfinance Investment Company, MFX Solutions, EcoEnterprises Fund II, Leapfrog Financial Inclusion Fund, Caspian Impact Investments and Aldea Global have not been included in the key indicators. Regional spread Hivos-Triodos Fund has a highly diversified portfolio in which its relatively high proportion of clients in Africa distinguishes it from other investors in the sector. Risk classification Hivos-Triodos Fund uses a risk classification system that classifies risks objectively. The total portfolio is divided into risk categories 1 (low risk) to 5 (high risk). Several factors, such as country risk, the maturity of the financial sector and the level of supervision by the regulator are assessed. The graph on page 19 shows that Hivos-Triodos Fund mainly provides finance facilities in the high risk categories, with the aim of supporting organisations in their early stages of development. As at 31 December 2014, 91.7% of the portfolio had risk profile 3 or 4. This breakdown is in line with Hivos- Triodos Fund s strategy. Portfolio per region (amounts in thousands of euros) Number of clients % of the Number of portfolio clients % of the portfolio Latin America % % East Asia and Pacific % % Eastern Europe and Central Asia 1 0.6% 1 1.0% Africa and Middle East % % South Asia % 2 4.3% Other 2 2.5% 2 2.3% Total % % 18

19 Percentage of the MFI portfolio by risk category* Risk Risk Risk Risk Risk 5 *This graph assumes that participations are valued at their acquisition price. Investments in Bank Andara, AfriCap Microfinance Investment Company, MFX Solutions, EcoEnterprises Fund II, Leapfrog Financial Inclusion Fund, Caspian Impact Investments and Aldea Global are not included. Portfolio development Hivos-Triodos Fund s total portfolio, including assets managed by third parties, rose by 6.3% to EUR 70 million. The most important reasons for the rise are the change in value of participations, growth in the loan portfolio and the effect of appreciation of various currencies in which Hivos-Triodos Fund has extended loans. Hivos-Triodos Fund provided finance facilities to 46 clients in These are listed in the Appendix starting on page 46. A brief description of each client can be found on under Know where your money goes. Participations Hivos-Triodos Fund acquired no new participations in It sold its participation in Mibanco in Peru in 2014, a bank that has grown to become one of the largest financial institutions in the country. As one of the first shareholders in Mibanco, Hivos-Triodos Fund made a substantial contribution to the development of this institution. Hivos-Triodos Fund also partially sold its equity stakes in MFX Solutions, Caspian Impact Investments and Leapfrog Financial Inclusion Fund. These partial sales were prompted by contractual agreements. Bank Andara in Indonesia is going through a difficult period, partly because of problems in its portfolio. The institution's Board of Management is taking the necessary measures and Hivos-Triodos Fund is keeping a close eye on the situation. The revenue from the sale of participations accrues to Hivos. Hivos has converted the revenue in 2014 into a subordinated loan to Hivos-Triodos Fund, which the fund will use for investments in the coming years. Five largest positions* Loans 2014 Centenary Bank, Uganda 23% Bellwether Microfinance Fund, India 7% Sembrar Sartawi, Bolivia 4% Intellegrow, India 4% Edpyme Alternativa, Peru 3% *as a percentage of the outstanding portfolio (loans and participations) based on market value Hivos-Triodos Fund primarily extends loans to MFIs that can be used to provide loans to small-scale businesses in particular. The fund mainly finances the growth of an MFI s loan portfolio by means of medium-term loans under market-compliant terms. The average term of the loan is between two and three years. New loans were granted to 19 institutions, five of which were new clients: EFC in Uganda, Intellegrow and Annapurna in India, Edpyme Alternativa in Peru and IPR in Cambodia. Six MFIs repaid the finance facilities they had received from Hivos-Triodos Fund in full in Four of these MFIs have prolonged the relationship with Triodos Fair Share Fund and/or Triodos 19

20 Microfinance Fund or other more commercial finance providers. These institutions are Uganda Finance Trust in Uganda, Kenya Women Finance Trust in Kenya, AMRET in Cambodia and Génesis Empresarial in Guatemala. This development is in line with Hivos-Triodos Fund s life cycle policy. Statement of income and expenditure in 2014 The income from loans rose by 4.8% to EUR 4,057,267. The expenditure of EUR 2,447,093 relates to financing costs, the management fee, publicity expenses, the auditor s fee and other charges. The operating result after deducting these charges rose by 4.3% to EUR 1,639,727. This increase is due to a higher average volume of loans throughout the year. Exchange rate result At year-end 2014, 74% of the loan portfolio had been issued in local currency and 26% in US dollars. The high percentage of loans in local currency is typical of Hivos-Triodos Fund. The exchange rate risk is hedged where possible. The exchange rate risk of the US dollar is always hedged, unless the structure of the investment makes this impossible. The table on the next page shows the loan portfolio in local currency and in US dollars, and the hedging of the exchange rate risk. If hedging of the exchange rate risk is not possible or economically feasible, Hivos-Triodos Fund may decide to bear the risk itself. Hivos-Triodos Fund is able to bear this considerable risk partly because Hivos is prepared to assume responsibility for these exchange rate risks in the loan portfolio. This also prevents the exchange rate risk from being passed on to the MFI s clients was a year of extreme volatility on the currency markets. The US dollar exerts great influence on many local currencies. The fund saw a substantial rise in the value of the dollar against the euro, particularly at the end of the year. This also had an impact on the other currencies in which Hivos-Triodos Fund makes investments. Looking at the year as a whole, the value of the US dollar rose by about 11%. After setting off the result of forward exchange transactions, exchange rate movements resulted in a positive exchange rate result for the loan portfolio of EUR 1,757,397 (2013: EUR 2,101,008 negative; Hivos cleared the negative result caused by the negative exchange rate). This exchange rate result will be added to the Exchange Equalisation Reserve by way of profit appropriation in Exchange rate results on participations are not credited to or debited from the result of Hivos-Triodos Fund due to the special financing agreement between Hivos and Hivos- Triodos Fund. Exchange rate result set-off (amounts in euros) Deductible results Exchange rate result 1,757,397-2,101,008 Settlement Credited to the Exchange Equalisation Reserve 1,757,397 Debited from the Operating result -1,571,789 Payable by Hivos -529,219 20

21 North-South Plan Private individuals in the Netherlands can become involved in funding projects in developing countries through the North-South Plan set up by Hivos and Triodos Bank. They can do so in two ways: - By opening a Triodos North-South Savings Account at Triodos Bank. The money in these accounts is used as a source of funding for the loan Triodos Bank extends to Hivos-Triodos Fund. - By issuing a guarantee to cover the facility Triodos Bank provides for the Fund. The volume of North-South savings fell by 5% to EUR 106 million in The number of savers rose by 1% to 9,230. The volume of North-South guarantees (468 guarantors in total) remained stable at EUR 1,418,900. North-South savers may choose to donate some or all of the interest due to them to Hivos, giving Hivos a means of covering the additional costs associated with the North-South Plan. Outlook Hivos-Triodos Fund expects that the MFIs in all regions will continue their stable growth in Positive growth figures are forecast for most of the countries where the fund is active. That means that MFIs need for financing facilities will continue and Loan portfolio currency spread (amounts in euros) Volume investments Hedged (or no exposure) Not hedged Percentage of the loan portfolio Investments in local currencies 30,510,314 5,212,816 25,297, % Investments in US dollars 14,101,275 13,739, , % Subtotal of portfolio excluding the value of currency hedging instruments 44,611, % Currency hedging instruments -1,104, % Total value of investments at the end of ,506, % North-South funds deposited with Triodos Bank (amounts in euros) Amount Number Amount Number North-South deposit accounts 1,396, ,627, North-South savings accounts 105,493, ,809,985 8,944 Total 106,890, ,437,762 9,136 21

22 that there is still a role to be played by Hivos-Triodos Fund in satisfying this need. The fund expects to add a number of new institutions to its portfolio in Hivos-Triodos Fund also expects further growth in the sectors of renewable energy and sustainable agriculture, which may lead to more investment opportunities for the fund. One of the things the fund observes is that business models in the renewable energy sector that show an interest in energy generators for domestic use are noticeably scalable and therefore suitable for investment. There is visible demand for long-term finance facilities in the agricultural sector. However, the creditworthiness of organisations makes it difficult to meet this demand at present. Nonetheless, the fund is seeing strong and increasing demand for finance facilities in the agricultural sector. Hivos- Triodos Fund envisages specific opportunities to expand its portfolio in renewable energy and sustainable agriculture in One possible expansion is an investment in a fund aimed at providing funding for small and medium-sized business in the agriculture and energy sectors in East Africa. Due to its good asset level, Hivos-Triodos Fund expects that any provisions for losses in its portfolio can be borne by its own equity. Given the continuing high risk attached to the finance facilities granted, an appeal to the guarantors cannot be ruled out in Hivos-Triodos Fund will not make any statement forecasting the exchange rate result on finance facilities in local currencies. The cost structure of Hivos-Triodos Fund is not expected to change significantly in 2015 compared to previous years. Zeist, the Netherlands, 8 April 2015 Board of Management Pierre Aeby Peter Blom Triodos Investment Management is working in conjunction with Hivos on a strategic plan for the years following 2015 and expects to be able to present a proposal for this to the Supervisory Board in early It will also provide for a further repositioning towards investments in SMEs in the renewable energy and sustainable agriculture sectors. When developing this strategic plan, Hivos and Triodos Investment Management will take account of market developments and the specific funding needs of the various sectors. 22

23 Annual Accounts 2014 Stichting Hivos-Triodos Fonds Page Balance sheet as at 31 December Statement of income and expenditure in Notes to the balance sheet and the statement of income and expenditure 26 23

24 Balance sheet as at 31 December 2014 before profit appropriation (amounts in euros) Note* Assets Fixed assets Cumulative preference shares Loans provided 2 44,204,056 33,513,094 Subordinated loans provided 2 407, ,432 Currency hedging instruments 3-1,104, ,363 43,506,626 34,483,889 Current assets Receivables, prepayments and accrued income 4 1,803,238 1,384,429 Cash at bank and in hand 5 7,321, ,452 9,124,989 2,298,881 Total assets 52,631,615 36,782,770 Liabilities Equity General reserve 7 9,190,448 9,190,448 Result for financial year 3,397,124 12,587,572 9,190,448 Long-term liabilities Loans 8 24,584,022 24,584,022 Subordinated loans 9 10,012,751 Current liabilities Current liabilities, accruals and deferred income 10 2,881,545 2,735,056 Debts to credit institutions 6 2,565, ,244 Total liabilities 52,631,615 36,782,770 Off-balance sheet liabilities, assets and rulings 11 Committed investments Participations (relating to assets managed for third parties) 1,567,713 1,791,377 Loans provided 2,931,399 2,829,301 Assets managed for third parties Hivos participations 25,229,744 31,447,895 Cordaid participations 575, ,153 * See notes to the balance sheet 24

25 Statement of income and expenditure in 2014 (amounts in euros) Note Income Income from cumulative preference shares 12 21,279 Income from loans and subordinated loans provided 13 4,057,267 3,871,324 Interest on cash at bank and in hand 14 7,420 7 Donations received ,654 Expenditure 4,086,820 3,872,985 Management fee 16 1,406,844 1,117,471 Auditor s fee and consultant s fee 17 20,862 24,533 Interest expenses 18 1,003,772 1,139,168 Other expenses 19 15,615 20,024 2,447,093 2,301,196 Operating profit 1,639,727 1,571,789 Exchange rate result 20 1,757,397-2,101,008 Deficit in the exchange equalisation reserve made up by Hivos 529,219 Result 3,397,

26 Notes to the balance sheet and statement of income and expenditure (amounts in euros) General The original Annual Accounts were prepared in Dutch. This document is an English translation of the original annual accounts. Where there are discrepancies between the English and Dutch versions, the latter prevails. The Foundation was formed on 22 December These financial statements represent its twentieth financial year, which ended on 31 December This report has been drawn up in line with the Guideline for Annual Reporting (Richtlijn voor Jaarverslaglegging (RJ)) 640 for not-for-profit organisations. The participations financed by third parties were removed from Stichting Hivos-Triodos Fonds s balance sheet in They are now presented, together with the funding received from third parties, under off-balance sheet liabilities, assets and rulings and the relevant notes. 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 when they are received. Loans and subordinated loans provided Loans and subordinated loans provided are carried at their amortized cost price net of specific provisions for doubtful debts, taking account of exchange rates as at the balance sheet date. The projects financed with loans are by their nature high-risk. Consequently, losses on the original investments must be taken into account. A specific provision is made for anticipated loan losses and the associated interest payable if a project is actually expected to be discontinued. Provisions are made based on estimates made by the Manager. The Manager will use the services of multidisciplinary credit and valuation committees acting independently from operational matters to make managerial assessments in the most prudent way possible. Currency hedging instruments Currency hedging instruments are only arranged to hedge currency risk. The fund applies cost-price hedge accounting to process assets, liabilities and results arising from currency hedging instruments for loans. This means that all receivables and liabilities arising from these instruments are carried at the exchange rates as at the balance sheet date. Changes in value with regard to these items are recognised in the Profit and Loss account through unrealised changes in value. The result at the time these contracts are entered into will be amortised throughout the lifetime of the contract. The fund has generic hedging and other documentation available for the application of cost-price hedge accounting. The effectiveness of the hedging is assessed throughout the reporting period. Other assets and liabilities Other assets are carried at income expected, taking account of a possible provision for doubtful debts in the case of receivables. Other liabilities are carried at payments expected. A specific provision is made for expected claims on guarantees. 26

27 Loss set-off If the fund s equity falls below EUR 2.5 million, 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. If the exchange rate results at the end of the year produce a negative balance, this will be debited from the Exchange Equalisation Reserve in the subsequent financial year, entered under equity, by means of proposed profit appropriation in the financial year. Should the Exchange Equalisation Reserve be insufficient and unable to be made up from the operating profit, the loss arising from exchange rate results will be borne by Hivos on the basis of the Cooperation Agreement between the parties. Foreign currency Assets and liabilities in foreign currency are converted using the year-end exchange rates. Changes in balance sheet items and in income and expenditure are converted from foreign currency at the average exchange rate in the month in which the changes are recognised. Any conversion differences that arise are debited or credited to the result. Currency hedging instruments are arranged, as described in note 4, to hedge exchange rate differences on loans. Accounting policies for determining the result The result is determined based on the allocation of income and expenditure to the corresponding period. Managing financial risks The use of financial derivatives and other financial instruments involves various financial risks. The policy pursued by the Manager of Hivos-Triodos Fund with respect to these risks is set out below. Market risk Market risk is the risk that the value of an investment will fluctuate as a result of variations in the following external factors: I. exchange rates (currency risk) II. interest rate level (interest rate risk) III. market price (market price risk) I. At year-end 2014, the major portion of Hivos-Triodos Fund s finance facilities had been extended in local currency. Most of these had not been hedged by currency hedging instruments. The finance facilities in US dollars are almost entirely hedged by means of these instruments. The composition of the loan portfolio is shown below by currency and indicating whether or not it is hedged. 27

28 Loan portfolio currency spread (amounts in euros) Volume of investments Hedged (or no exposure) Not hedged Percentage of the loan portfolio Bolivia, Bolivian bolivianos (BOB) 3,058,412 3,058, % Cambodia, Cambodian riel (KHR) 2,432,942 2,432, % Honduras, Honduran lempira (HNL) 2,084,867 2,084, % Indonesia, Indonesian rupiah (IDR) 5,310,931 5,310, % India, Indian rupee (INR) 6,716,947 4,550,611 2,166, % Kazakhstan, Kazakhstani tenge (KZT) 455, , % Malawi, Malawian kwacha (MWK) 888, , % Peru, Peruvian sol (PEN) 4,467,924 4,467, % Tanzania, Tanzanian shilling (TZS) 1,402,005 1,402, % Uganda, Ugandan shilling (UGX) 587, , , % South Africa, South African rand (ZAR) 983, , % Zambia, Zambian kwacha (ZMW) 2,121,620 2,121, % Total in local currency 30,510,314 5,212,816 25,297, % Total investments in US dollars 14,101,275 13,739, , % EUR 0.0% Subtotal of portfolio excluding the value of the currency hedging instruments 44,611, % Currency hedging instruments -1,104, % Total value of the loan portfolio at yearend ,506, % II. Hivos-Triodos Fund s result depends in part on developments in the capital market. Depending on the composition of the portfolio, a change in the capital market interest rate can have either a positive or a negative effect on the results of Hivos-Triodos Fund. III. Investments in participations involve a market price risk. The value of this investment category is affected by a multiplicity of external factors, including prospects for macro-economic growth and the rate of inflation. The greater the fluctuation in the development of these factors, the greater the market risk. The fund cannot defend itself against macro-economic factors that cause changes in the value of investments. Changes in the value of participations are borne by third parties. 28

29 Credit risk Credit risk is the risk that a creditor or counterparty cannot or will not fulfil its obligations. The fund issues finance facilities that are almost exclusively risk-bearing and are generally not backed by mortgage or other collateral. Hivos-Triodos Fund has provided an explanation of the credit and concentration risk on page 18. Liquidity risk Liquidity risk is the risk that Hivos-Triodos Fund has no possibility of obtaining the financial means it needs to be able to fulfil its financial obligations at a certain moment. This scenario is not applicable in the short term, since the operating profit from operational activities is considered to be sufficient for the time being to cover current liabilities. Although investments made by the fund are illiquid, they could be sold if there is a need for resources in the short term. A standard part of every loan agreement is an assignment right for Hivos-Triodos Fund. This is the lender s right to transfer (sell) the loan to another party without requiring the permission of the borrower and without the borrower being able to prevent it. The fund may also negotiate early repayment. The Manager had neither the wish nor the need to make use of the option to sell loans in Moreover, Hivos-Triodos Fund has a hold strategy for its investments. The fund s investment policy aims to maintain the finance facility for the entire term of the loan and not to sell it unless absolutely necessary for the sake of the management of the fund (liquidity risk). Cash flow risk Cash flow risk is the risk that future cash flows associated with a financial instrument will fluctuate in volume. Future income from participations is difficult to predict and can fluctuate. The fund has investments in loans with variable interest rates and is therefore exposed to a cash flow risk depending on future interest income. 29

30 Assets Fixed assets 1. Cumulative preference shares Cumulative preference shares At 1 January 44,556 51,123 Foreign exchange differences 3,025-6,567 Write-down of preference shares -47,581 At 31 December 44,556 Provision for cumulative preference shares At 1 January -44,556-51,123 Foreign exchange differences -3,025 6,567 Write-down of provision 47,581 At 31 December -44,556 The cumulative preference shares were written down in A settlement took place during the financial year and a sum of 21,279 was received.. 2. Loans and subordinated loans provided Movement in loans At 1 January 33,513,094 33,886,552 Advance 14,562,122 18,804,987 Repayment -7,203,097-16,511,209 Foreign exchange differences 3,331,937-2,667,236 At 31 December 44,204,056 33,513,094 30

31 Subordinated loans At 1 January 660, ,088 Advance 372,087 Repayment -292, ,102 Foreign exchange differences 40,053 6,359 At 31 December 407, ,432 Remaining term of the loans (including subordinated loans), overdue (payable on demand) < 1 year 19,285,352 14,425,699 - > 1 year and < 2 years 17,949,031 8,847,568 - > 2 years and < 3 years 7,050,723 10,239,827 - > 3 years and < 4 years 407, ,966 - > 4 years and < 5 years 372,466 44,611,589 34,173, Currency hedging instruments Movements in currency hedging instruments At 1 January 310, ,773 Movements relating to valuation of contracts -2,089, ,601 Movement in forward points (transaction result) 673,728-13,465 At 31 December -1,104, ,363 The term is broken down as follows: Shorter than one year -459,070-20,150 One to five years -645, ,513-1,104, ,363 The fund used currency hedging instruments to the value of EUR -1,104,963 at year-end 2014 in the form of forward foreign exchange contracts solely to hedge the currency risk of its investments. These are contracts in which Hivos-Triodos Fund has made a commitment to buy or sell the agreed foreign currency amounts on the agreed dates. 31

32 At year-end 2014, sales contracts worth USD 16,625,000 had been agreed (year-end 2013: USD 15,425,000). There were no outstanding sales contracts in KHR at year-end 2014 (2013: KHR 1,000,000,000). At year-end 2014, sales contracts worth KZT 100,694,405 had been agreed (year-end 2013: KZT 143,849,150). There were no outstanding sales contracts in BOB at year-end 2014 (2013: BOB 3,500,000). At year-end 2014, sales contracts worth INR 348,700,000 had been agreed (year-end 2013: INR nil). At year-end 2014, sales contracts worth UGX 693,110,000 had been agreed (year-end 2013: UGX nil). Current assets 4. Receivables, prepayments and accrued income Specification of receivables, prepayments and accrued income Interest due on loans 1,080, ,450 VAT due 635,136 65,760 Receivables on loans 80,860 Interest due on liquid assets 6,640 Due from Hivos to make up the deficit 529,219 1,803,238 1,384, Cash at bank and in hand Rabobank current accounts (EUR) 374, ,392 Rabobank current accounts (USD) 306, ,038 Rabobank, current account (ZAR) 23 Kotak Mahindra Bank, current account (INR) 140,976 Rabobank, deposit account (EUR) 6,500,000 7,321, ,452 Cash at bank and in hand is at the free disposal of Hivos-Triodos Fund, with the exception of the funds in the deposit account at Rabobank. The balances of the Rabobank current accounts in USD at year-end 2014 amounted to USD 370,470 (2013: USD 317,511). The average interest rate on the Rabobank current account in EUR was nil (2013: nil). The average interest rate on the Rabobank current account in ZAR was 3.64% (2013: 3.22%). No interest is paid on the Rabobank current accounts in USD. The interest on the two deposit accounts is 0.20% and 0.25%. 6. Debts to credit institutions This concerns the negative balance of cash at bank and in hand at Triodos Bank. At year-end 2014, this amounted to EUR -2,565,725 (year-end 2013: -273,244). The debit interest on this account was 4.0% on average in 2014 (2013: 4.0%). 32

33 Liabilities Equity 7. General reserve At 1 January 9,190,448 8,479,183 Movements in Exchange Equalisation Reserve -571,370 Deficit cleared by Hivos 529,219 Movements in foreign exchange differences -2,101, ,085 Addition of result from last financial year 1,571,789 1,547,720 At 31 December 9,190,448 9,190,448 As a consequence of negative exchange rate results and losses in the portfolio dating from prior to 2014, Triodos Bank called upon the guarantors to make up the deficit, in accordance with the Cooperation Agreement with Hivos and the agreements on the North-South Guarantee. This resulted in a recourse claim by the guarantors against Hivos-Triodos Fund. Remission of this recourse claim will be added to the General Reserve. The cumulative remission of the recourse claims by Hivos and the North-South Guarantors amounted to EUR 7,714,

34 Long-term liabilities 8. Loans Interest rate Interest rate fixed until Triodos Bank, loan I, maturity date 1 January % 1 December ,084,022 4,084,022 Triodos Bank, loan II, maturity date 1 January % 1 January ,500,000 5,500,000 Triodos Bank, loan IV, maturity date 1 January % 1 December ,000,000 4,000,000 Triodos Bank, loan V, maturity date 1 January % 1 July ,000,000 4,000,000 Triodos Bank, loan VI, maturity date 1 January % 1 January ,000,000 3,000,000 Triodos Bank, loan VII, maturity date 1 August % 1 August ,000,000 4,000,000 24,584,022 24,584,022 Hivos has provided guarantees amounting to EUR 20,398,279 for the loans provided by Triodos Bank to Hivos- Triodos Fund. In addition, private individuals and various institutions have provided guarantees for the loans provided by Triodos Bank. These amounted to EUR 1,418,900 as at 31 December Subordinated loans Interest rate Interest rate fixed until Hivos Foundation maturity date 1 October % 1 October ,012,751 10,012,751 On 1 October 2014, Hivos extended a subordinated loan worth EUR 10,012,751 for the purpose of funding microfinance institutions and similar entities. The subordinated loan comprises EUR 8,242,868 which has been placed in a deposit account and EUR 1,769,883. The interest on the amount in the deposit account is the same as the interest rate paid on the deposit account for the duration of the deposit term (2014: %). After the deposit term ends, an interest rate of 3% will be due on the sum with which the current account is cleared. If an amount remains after clearing, that amount will be used to open a new deposit on which the deposit interest rate will be owed. The interest on the sum of EUR 1,769,883 will be 3% from 1 January

35 Current liabilities 10. Current liabilities, accruals and deferred income Finance facilities received in advance from Hivos Foundation 1,381,827 1,932,870 Management fee 933, ,271 Interest payable on Triodos Bank credit facility 271, ,304 Repayment of loans received in advance 225, ,966 Miscellaneous 34,948 19,000 Liabilities to guarantors 18,745 18,745 Auditor s fee and consultants fees 15,300 14,900 2,881,545 2,735,056 At year-end 2014, the interest rate on the Triodos Bank current account credit facility was 4% (2013: 4%). The total current account credit facility provided by Triodos Bank amounts to EUR 7,050,808 (2013: EUR 7,050,808). The credit facilities provided by Triodos Bank, recognised under long-term and current liabilities, are hedged by third-party guarantees. Specific provisions will be made for losses suffered by Hivos-Triodos Fund as a consequence of bad and doubtful debts in the portfolio. If the additions to the provisions exceed the operating profit, an appeal will be made to the General Reserve of Hivos-Triodos Fund on the provision that a minimum of EUR 2,500,000 remains in the General Reserve. If the Specific Provision would lead to a decrease in the General Reserve to a level below EUR 2,500,000, an appeal will be made to the guarantee Hivos has given to Triodos Bank for the sum needed to maintain the General Reserve of Hivos-Triodos Fund at EUR 2,500,000. If the guarantee from Hivos is insufficient, an appeal will be made to the private guarantors. After paying, the guarantors will succeed to Triodos Bank s rights in this matter, which means that the sum will become a liability owed by Hivos-Triodos Fund to the guarantors. The fund assumes that the guarantors will waive this liability, clearing this waived amount from the general reserve. At year-end 2014, liabilities to guarantors comprised amounts not yet waived by the guarantors in respect of carry-over losses for the period between 1995 and Liabilities to private guarantors As of 2004, an explicit waiver is no longer necessary under the new contract of surety and Hivos-Triodos Fund assumes that the guarantors will waive the right to payment of the sum spent settling the losses. Private guarantors with contracts of surety commencing before 2004 still have the option, legally speaking, to claim repayment of the amounts waived in future. At year-end 2014 this possible liability amounted to nil, as the Fund made no appeal to the private guarantors from 2004 to year-end

36 11. Off-balance sheet liabilities, assets and rulings Participations managed by Hivos Participations, which are equity interests that do not serve the Fund s long-term operations, are valued at the last known stock exchange quotation if the participations involve securities quoted on an active stock exchange. The fair value of participations that do not involve securities quoted on an active stock exchange or that do not have a regular market quotation can be determined in various ways: firstly, on the basis of the most recent market quotation, taking new market developments into account; secondly, by using the profitability value, return value and/or net asset value, individually or in combination, which may be deemed relevant in connection with the purpose for which the investment is maintained; or thirdly, by using the market value of comparable investments for which there is an active market with regular market quotations. Hivos-Triodos Fund does not owe a management fee in respect of participations, as direct arrangements have been made for this between Hivos and Triodos Investment Management. Movements in participations At 1 January 31,447,895 34,781,919 Acquisitions 419, ,676 Sales -11,860,439-55,603 Write-off as a result of bankruptcy -1,938,535 Movements in foreign exchange 2,093,630-2,954,313 Revaluation 3,128,884 1,371,753 At 31 December 25,229,744 31,447,895 Subordinated loans Hivos has provided Hivos-Triodos Fund with a subordinated loan as a means of financing participations. This subordinated loan is interest-free and has no due date. When a participation is sold, Hivos-Triodos Fund repays that part of the subordinated loan not covered by the proceeds from the sale. If the proceeds from the sale of a participation are not sufficient to repay the subordinated loan, Hivos shall waive that part of the subordinated loan not covered by the proceeds from the sale. Proceeds from participations that exceed the value of the subordinated loan will be paid to Hivos after carried interest has been paid to Triodos Investment Management. 36

37 Movements in the subordinated loan At 1 January 15,500,224 15,790,581 Movements in connection with advances 1,517,940 Movements in connection with repayments* -2,996,173 Waiver in connection with write-off as a result of bankruptcy -1,808,297 At 31 December 12,504,051 15,500,224 *Movements in connection with repayments relate to the following subordinated loans: AfriCap Microfinance Investment Company 45,079 Bellwether Microfinance Fund 714,525 Mibanco 1,580,941 MFX Solutions 38,566 Leapfrog Financial Inclusion Fund 617,062 Dividends Dividends received by Hivos-Triodos Fund will be immediately at the disposal of Hivos. Movements in dividends Dividends received 766, ,536 Dividends passed on -766, ,536 At 31 December Currency hedging instruments for participants These currency hedging instruments relate to investments in participations. These contracts are only taken out to hedge the currency risk on participations managed by Hivos. Movements in currency hedging instruments At 1 January -9,134-57,407 Movements in valuation of contracts -187,438-51,810 Movements in forward points (transaction result) 359-3,537 At 31 December -196,213-9,134 37

38 The term is broken down as follows: Shorter than one year -150,370-45,838 One to five years -45,843 36, ,213-9,134 Amounts to be set off Amounts to be set off relate to foreign exchange differences and positive and negative revaluations of participations. Movements in amounts to be set off At 1 January 17,880,543 19,644,373 Movements in connection with revaluation of participations -5,948, ,165 Movements in connection with foreign exchange differences on participations 2,306, ,633 Movements in connection with forward foreign exchange contracts -131,268-51,032 At 31 December 14,107,522 17,880,543 The movements in connection with the revaluation of participations relate to both unrealised revaluations and the effect of the settlement with Hivos as a result of the sale of various participations. This relates to the sale of Mibanco and the partial sale of participations in AfriCap Microfinance Investment Company, Bellwether Microfinance Fund, Leapfrog Financial Inclusion Fund and MFX Solutions. The difference between the balance of the subordinated loan, the amounts to be set off and the value of the participations concerns funding for participations paid in advance by Hivos. This balance is recognised on the Hivos-Triodos Fund balance sheet under the balance sheet item Current liabilities, accruals and deferred income. Other participations This concerns the investment for a participation made by Cordaid. Cordaid has provided Hivos-Triodos Fund with a subordinated loan as a means of financing this participation. This subordinated loan is interest-free and has no due date. When the participation is sold, Hivos-Triodos Fund will repay that part of the subordinated loan that relates to the participation from the proceeds from the sale. If the proceeds from the sale of the participation are not sufficient to repay the subordinated loan, Cordaid will waive the deficit. Proceeds that exceed the value of the subordinated loan will be paid to Cordaid. 38

39 Movements in other participations At 1 January 632,153 1,233,121 Funds received to buy and manage a participation Movements in connection with revaluations of participations -134, ,745 Movements in connection with foreign exchange differences on participations 78, ,223 At 31 December 575, ,153 Committed finance facilities Committed finance facilities are loans and participations that Hivos-Triodos Fund has approved and/or committed to but which have not yet been fully taken up by the organisation receiving the investment. After payment, the committed participations will also be managed by Hivos. Committed loans provided Fundeser, Nicaragua 1,652,906 PT Bina Artha Ventura, Indonesia 663,866 Intean Poalroath Rongroeurng (IPR), Cambodia 413,227 EFC Uganda, Uganda 201,400 Bellwether Microfinance Fund, India 2,000,000 Fundación FACES, Ecuador 363,827 Koperasi Mitra Dhuafa (KOMIDA), Indonesia 465,474 2,931,399 2,829,301 Committed participations EcoEnterprises Fund II, United Kingdom 1,103,300 1,207,259 Leapfrog Financial Inclusion Fund, Mauritius 464, ,118 1,567,713 1,791,377 Miscellaneous Hivos-Triodos Fund had talks with the Dutch Tax and Customs Administration in 2014 about Hivos-Triodos Fund s possible liability for corporate income tax. The outcome was that Hivos-Triodos Fund is not liable for corporate income tax up to and including The Dutch Tax and Customs Administration will re-evaluate the situation again in 2017 for the period after

40 Income 12. Proceeds from participations and cumulative preference shares These relate to the proceeds from the bankrupt estate of CRAC San Martin. 13. Income from loans and subordinated loans provided Interest received on loans and subordinated loans provided, as well as arrangement fees charged to borrowers when loans are granted are recognised here. 14. Interest on cash at bank and in hand Interest received on cash at bank and in hand is recognised here. 15. Donations received The interest donated to Hivos-Triodos Fund by clients of Triodos Bank, as well as donations received from third parties are recognised here. Expenditure 16. Management fee The management fee paid to Triodos Investment Management BV comprises the following two elements: a fee of 3.25% (2013: 3.25%) of the value of cumulative preference shares, loans including foreign exchange differences on forward foreign exchange contracts relating to USD loans, guarantees and receivables from loans at the end of the financial year; a fee of 2.5% (2013: 2.5%) of the highest outstanding principal sum during the year for short-term trade finance with a maximum term of 12 months. 17. Auditor s fee and consultants fees 2014 budget Auditor s fee 15,000 15,300 15,900 Consultants fees 8,000 5,562 8,633 23,000 20,862 24,533 The consultants fees comprise fees for legal advice, tax advice and projects. 40

41 18. Interest expenses Interest charges on credit facilities from Triodos Bank entered under long-term and current liabilities are recognised here. 19. Other expenses 2014 budget Publicity expenses 15,000-1,449 10,285 Office expenses 16,000 17,064 9,739 31,000 15,615 20,024 Office expenses include the cost of foreign and domestic payment transactions, the cost of courier services, levies and contributions. Publicity expenses are lower than budgeted due to a reversal of an accrual and deferred income accrued in Exchange rate result Unrealised changes in the value of loans 3,350,145-2,669,410 Foreign exchange differences on forward foreign exchange contracts -1,558, ,241 Transaction results on forward foreign exchange contracts -142, ,489 Foreign exchange differences in cash at bank and In hand and other receivables 107, ,350 1,757,397-2,101,008 Comparison of operating result with budget The Supervisory Board approved the budget for 2014 at the end of 2013, showing a budgeted operating result of EUR 1,521,000. The actual operating result was EUR 1,639,727. A higher volume of outstanding finance facilities during the year is the main reason for the result being higher than budgeted. Affiliated parties Hivos-Triodos Fund is affiliated to the following legal entities: 1 Triodos Investment Management BV manages Hivos-Triodos Fund for which it receives a competitive management fee. At the same time, Triodos Investment Management BV is entitled to receive carried interest on the sale of participations, if the conditions for this are met. 2 Triodos Bank NV is the sole shareholder in Triodos Investment Management BV. 41

42 3 Triodos Bank NV - Triodos Bank NV has made credit facilities available in a current account at market rates. - Triodos Bank NV has made six loans available at market rates. - Hivos-Triodos Fund concludes forward foreign exchange contracts with Triodos Bank NV at market rates. 4 Hivos-Triodos Fund, together with Triodos Sustainable Finance Foundation (formerly Triodos-Doen), Triodos Fair Share Fund and Triodos SICAV II - Triodos Microfinance Fund grants finance facilities (syndicated loans) and participations managed by Triodos Investment Management BV. 5 Hivos provides contracts of suretyship for finance facilities extended by Triodos Bank NV to Hivos-Triodos Fund and subordinated loans for the purpose of funding participations. 6 Hivos-Triodos Fund is a shareholder in MFX Solutions LLC. Forward foreign exchange contracts are also concluded with this party. Zeist, the Netherlands, 8 April 2015 The Board of Management of Hivos-Triodos Fund Foundation Pierre Aeby Peter Blom 42

43 Other information Profit appropriation The articles of association of Hivos-Triodos Fund contain no guidelines for profit appropriation. The result for 2014 was EUR 3,397,124 (2013: EUR nil). This amount comprises an operating profit of EUR 1,639,727 (2013: EUR 1,757,397) and a positive exchange rate result of EUR 1,783,030 (2013: EUR 2,101,008 negative). The operating result will be added to the general reserve and the exchange rate result will be added to the Exchange Equalisation Reserve. Post balance sheet events To date, no events have occurred since the balance sheet date that would provide further information at the balance sheet date. Independent auditor s report The independent auditor s report is on the next page. ANBI status Hivos-Triodos Fund has been granted charitable status by the Dutch Tax and Customs Administration (Algemeen Nut Beogende Instelling (ANBI)). The RSIN (Legal Entities and Partnerships Information Number) for Hivos-Triodos Fund is

44 Independent auditor s report To: the Board of Management of Stichting Hivos-Triodos Fonds We have audited the accompanying financial statements 2014 of Stichting Hivos-Triodos Fonds, Zeist, which comprise the balance sheet as at 31 December 2014 and the profit and loss account for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information. The board of management s responsibility The board of management of the Foundation is responsible for the preparation of the financial statements that give a true and air view of the financial position and of the result in accordance with Dutch GAAP Directive 640 for non-profit organisations. Furthermore, the board of management is responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the board of management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements 2014 give a true and fair view of the financial position of Stichting Hivos-Triodos Fonds as at 31 December 2014 and of its result for the year then ended in accordance with Dutch GAAP Directive 640 for non-profit organisations. Amstelveen, 20 April 2015 KPMG Accountants N.V. M. Frikkee RA 44

45 Board of Management and Supervisory Board Board of Managament Pierre Aeby Peter Blom Supervisory Board Elsbeth Aubel-Bezemer Natasja van den Berg (chair) Han de Groot Edwin Huizing Marcel Karman Triodos Investment Management BV Marilou van Golstein Brouwers, Managing Director Michael Jongeneel, Managing Director Willem Enklaar, Fund Manager 45

46 Appendix: Hivos-Triodos Fund Portfolio: microfinance institutions financed by Hivos-Triodos Fund as at 31 December 2014 and 2013 Number of loan clients Percentage of women Institution Country Agora Microfinance Zambia Zambia 7,382 9,619 55% 51% Akiba Commercial Bank Tanzania 29,249 28,950 51% 53% AMC El Salvador 10,746 12,086 56% 57% AMK Cambodia 330, ,499 83% 85% AMRET Cambodia ** 285,828 ** 80% Annapurna Microfinance India 278,341 *** 100% *** Arariwa Peru 10,587 13,069 77% 75% ASDIR Guatemala ** 13,535 ** 79% Asociacion Fondo de Desarrollo Nicaragua 61,555 58,160 50% 51% Banco Solidario Ecuador 384, ,027 51% 54% Bereke Kazakhstan 5,523 7,306 90% 89% Bhartiya Samruddhi Finance India * 360,447 ** 67% CACMU Ecuador 3,668 3,076 57% 64% Centenary Bank Uganda 155, ,606 24% 24% COMIXMUL Honduras 16,325 17, % 100% Crédito Amigo Bolivia ** 753 ** 62% EDPYME Alternativa Peru 27,470 *** 47% *** EFC Uganda Uganda 706 *** 40% *** FINCA Malawi Malawi 40,642 44,048 58% 60% FINCA Tanzania Tanzania 77,908 82,288 55% 55% FINCA Zambia Zambia 39,729 45,559 67% 66% Fondesurco Peru 11,040 10,537 42% 41% FUNDACIÓN FACES Ecuador 12,204 10,570 57% 56% Génesis Empresarial Guatemala ** 145,831 ** 63% Hermandad Honduras 18,031 15,782 44% 44% IDEPRO Bolivia 12,795 11,114 37% 38% INSOTEC Ecuador 15,595 14,327 41% 38% IPR Cambodia 4,424 *** 85% *** Kenya Women Finance Trust DTM Kenya ** 256,640 ** 100% Komida Indonesia 190, , % 100% Maquita Ecuador 7,681 7,187 46% 47% Mibanco Peru ** 364,575 ** 55% Mitra Bisnis Keluarga Indonesia 492, , % 100% Moris Rasik East Timor ** 7,383 ** 98% 46

47 Loan portfolio (in thousands of euros) Average loan (in euros) Percentage of clients in rural areas Number of savings clients ,052 21, % 62% * * 13,592 11, % 15% 131,162 * 17,345 14,993 1,571 1,423 84% 89% * * 16,723 11,499 1,370 1,088 42% 42% * * ** 65,207 ** 447 ** 90% ** * 12,866 10, % 78% 31,627 26,961 42,839 33,873 3,348 3,048 52% 49% * * 20,540 15,140 1,317 1,057 79% 73% * * 6,267 *** 1,417 *** 98% *** * *** ** 125,728 ** 490 ** 70% ** 371,512 13,256 8, % 60% 197, ,418 21,682 15,952 2,823 2,220 1% 1% 14,688 14,461 ** 1,177,126 ** 3,229 ** 23% ** 713,843 47,870 25, % 90% * * ** 3,133 ** 424 ** 75% ** 10,386 9,353 5, % 70% * * 34,483 21,420 1,739 1,414 89% 63% * * 21,368 14, % 100% * * 3,736 2, % 80% 3,847 3,313 7,025 5, % 66% 25,500 38,039 ** 17,004 ** 676 ** 56% ** 294,322 14,993 16,592 1,423 1,544 89% 92% * * 11,499 9,769 1, % 39% * * 65,207 71, % 89% * * 10,225 12, % 80% 26,961 24,379 33,873 26,170 3,048 2,697 49% 50% * * 15,140 12,559 1, % 67% * * 125, , % 70% 371, ,970 8,003 *** 56 *** 60% *** 148,418 *** ** 89,365 ** 624 ** 92% ** * 15,952 15,464 2,220 2,174 1% 0% 14,461 14,879 25,925 25, % 90% * * 1,177,126 1,399,076 3,229 2,770 23% 23% 713, ,513 3,133 3, % 70% 10,386 * 47

48 Number of loan clients Percentage of women Institution Country PT Bina Artha Ventura Indonesia 123,662 80, % 100% Sembrar Sartawi Bolivia 19,834 15,145 50% 45% Small Enterprise Foundation South Africa 129, , % 100% Tuba Rai Metin East Timor 6,797 6,215 99% 99% Ugafode Uganda 11,490 10,281 31% 33% Uganda Finance Trust Uganda ** 25,151 ** 71% Total 2,537,340 3,383,141 * Not applicable ** Loan repaid in 2014 *** Not financed in 2013 Besides directly financing MFIs, Hivos-Triodos Fund holds shares in Caspian Impact Investments, an investment fund that extends loans to producer organisations in the agricultural sector, MFIs, financial institutions that focus on small and medium-sized businesses and on affordable housing for the poor. Through its investments, Caspian Impact Investments currently reaches 2,537,231 loan clients (almost exclusively women), 65% of whom live in rural areas. Through its investments in the agricultural sector, Caspian Impact Investments reaches some 34,000 farmers. Hivos-Triodos Fund also has shares in Leapfrog Financial Inclusion Fund, which invests in insurance companies that focus on serving low-income groups; in MFX Solutions, which specialises in currency hedging instruments for the microfinance sector; in EcoEnterprises Fund II, which invests in sustainable SMEs, including those in the agricultural sector, in Latin America; and in Bank Andara, which extends loans to MFIs in Indonesia. In addition, Hivos-Triodos Fund has extended a loan to Aldea Global, a coffee growers cooperative. 48

49 Loan portfolio (in thousands of euros) Average loan (in euros) Percentage of clients in rural areas Number of savings clients ** 39,476 ** 353 ** 22% ** * 5,199 *** 64 *** 70% *** * *** 21,420 15,304 1,414 1,289 63% 63% * * 14,720 16, % 100% * * 2,685 2, % 78% 3,313 4,462 5,037 3, % 55% 38,039 14,016 1,401,982 2,661,963 1,960,011 3,136,318 49

50 Sustainability reporting Hivos-Triodos Fund is managed by Triodos Investment Management BV, a wholly-owned subsidiary of Triodos Bank NV. All investment funds report separately on their results in an annual report. The staff of Triodos Investment Management BV who are involved in managing the funds are employed by Triodos Bank. All aspects of social policy, including the remuneration policy are reported on in the Triodos Bank Annual Report The Triodos Bank Annual Report is a comprehensive sustainability report. Triodos Bank has made use of the guidelines of the Global Reporting Initiative (GRI) since The GRI was set up by the United Nations and the Coalition for Environmentally Responsible Economies. The intention of the GRI is to structure sustainability reporting consistently in order to objectify performance and promote comparability. Triodos Bank is one of the GRI s organisational stakeholders In 2013, the GRI launched new guidelines to make reporting more relevant to the institution s sustainability impact and more meaningful for its stakeholders. This is done mainly by focusing attention on the issues Triodos Bank and our stakeholders consider to be the most important or the most essential to our work. This approach, applied for the first time in the report on 2013, has continued to be developed. The G4 guidelines have been comprehensively followed in this report. More information on this can be found at Reporting is based on internal and external data. This year, the report was drawn up partly on the basis of consultations, including a specially organised brainstorming session with a number of external parties. Climate-neutral operations The principle underlying Triodos Bank s environmental policy is the Trias Energetica concept: a three-step approach in which firstly, energy consumption is limited as far as possible; secondly, where possible, renewable energy or sustainable sources are used; and thirdly, the effects on the climate caused by generating power are compensated for. By so doing, the bank minimises and compensates for its environmental impact. Triodos Bank is a climate-neutral, CO 2 -neutral organisation. More information about the social and environmental performance of Triodos Bank and its investment funds can be found in the Triodos Bank annual report. Triodos Investment Management BV became affiliated to the Stichting Klachteninstituut Financiële Dienstverlening (Dutch Financial Services Complaints Tribunal) in

51 Visiting address Hivos-Triodos Fund Nieuweroordweg 1 PO Box AB Zeist, the Netherlands Telephone (customer contact) Telephone (general) Publication Details Hivos-Triodos Fund Foundation Annual Report 2014 Circulation 75 copies Published April 2015 Text Triodos Investment Management, Zeist, the Netherlands Photography The photos have been provided by the microfinance institution Graphic design Michael Nash Associates, London, United Kingdom Layout Via Bertha, Utrecht, the Netherlands Printing Drukkerij Pascal, Utrecht, the Netherlands If you have any comments or questions about this report, please contact Triodos Bank. This report can also be read or downloaded from:

52 Stichting Hivos-Triodos Fonds is een gezamenlijk initiatief van Hivos en Triodos Bank.