Hivos-Triodos Fund Foundation

Transcription

1 Hivos-Triodos Fund Foundation Annual Report 2016 TLIM

2 Inclusive finance 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 socio-economic development.

3 Hivos-Triodos Fund Foundation Annual Report 2016 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. Hivos-Triodos Fund Foundation is a joint initiative of Hivos and Triodos Bank. TLB Hivos-Triodos Fund is managed by Triodos Investment Management, which is a wholly-owned subsidiary of Triodos Bank.

4 Key figures amounts in euros Year-end 2016 Year-end 2015 Participations (managed for third parties) 39,462,998 29,547,792 Number of contracts Loans provided 36,411,348 49,764,933 Number of borrowers Subordinated loans provided Number of subordinated borrowers 1 1 Total portfolio before deduction of specific provisions and including receivables from loans and assets managed for third parties 78,825,591 82,216,975 Committed investments 2,156,813 4,404,426 Equity 14,429,887 13,112,868 Result In 2016 In 2015 Income 4,706,535 5,422,326 Expenditure -3,038,635-3,281,779 Operating profit 1,667,900 2,140,547 Addition to (subordinated) loans provision -629,718-1,103,387 Addition to (subordinated) loans interest provision -291,780 Exchange rate result 570, ,864 Result 1,317, ,296 4

5 Contents Page General information 6 Report of the Board 7 Report of the Supervisory Board 18 Annual Accounts 2016 Hivos-Triodos Fund 19 Other information 40 Annex to the annual accounts for 2016 of Hivos-Triodos Fund Foundation not audited by the independent auditor 46 Annex: Hivos-Triodos Fund portfolio 48 Address and publication details 50 5

6 General information Hivos-Triodos Fund Foundation (Hivos-Triodos Fund) was formed on 22 December 1994 by the Hivos Foundation (Hivos) and the Triodos Fund Foundation. The objective of the fund is defined in the articles of association as follows: "The objective of the foundation is to contribute to the sustainable development of countries that are lagging behind in terms of prosperity and well-being, all in the broadest sense of the word". Hivos-Triodos Fund has its registered office in Zeist, the Netherlands. Board of Management The Board of Hivos-Triodos Fund consists of: Pierre Aeby Peter Blom Both are members of the Board of Triodos Bank NV. Fund Manager Triodos Investment Management has appointed a fund manager. Since April 2015, Karel Nierop has been the fund manager of Hivos-Triodos Fund. Supervisory Board The Supervisory Board is appointed by Hivos and consists of: Natasja van den Berg (Chair) Elsbeth Aubel-Bezemer Han de Groot Edwin Huizing Marcel Karman Manager Hivos-Triodos Fund is managed by Triodos Investment Management BV (Triodos Investment Management). Triodos Investment Management is licensed under the Dutch Financial Supervision Act (Wet op het financieel toezicht or Wft). The Board of Triodos Investment Management consists of: Marilou van Golstein Brouwers (Chair) Dick van Ommeren (Director) Laura Pool (Risk & Finance Director) For the practical implementation of the policy, Hivos, Triodos Bank, Triodos Investment Management and Hivos-Triodos Fund have entered into a cooperation agreement. 6

7 Report of the Board Hivos-Triodos Fund was set up with the aim of contributing to sustainable socio-economic development in developing countries. Because access to financial services is an essential aspect of this, Hivos-Triodos Fund finances microfinance institutions that provide financial services to people in the lower income strata of society. People who have access to loans, savings products, payment services and micro-insurance can make a living, utilise their talents and create employment. An accessible and well-functioning financial sector thus forms an important foundation for building a solid local economy. Since 2011, Hivos-Triodos Fund has committed itself to promoting access to renewable energy and contributing to the development of sustainable agricultural chains in developing countries. As such, the fund is building on the knowledge and experience of Hivos and Triodos Bank in these sectors. These investments take place through local financial institutions and funds that focus on small and medium-sized enterprises. In addition, Hivos- Triodos Fund invests directly in companies and organisations active in sustainable agriculture and/ or renewable energy. The formation of the United Nations Sustainable Development Goals and the 2015 Paris climate agreement reflect a growing global awareness that sustainable change is needed. Access to financing, access to renewable energy and sustainability of agricultural chains are recurring themes. In this context, at the end of 2015 the Supervisory Board endorsed the Hivos-Triodos Fund's strategic plan for the period 2016 to This plan details the further repositioning for investments in renewable energy and sustainable agricultural chains. As part of this plan, the financing structure of Hivos-Triodos Fund was changed in 2016, with a portion of the loans from Triodos Bank being repaid and the guarantee of Hivos Foundation for these loans having expired. Instead, the Hivos Foundation provided new loans to Hivos-Triodos Fund in Below is a brief explanation of the impact and activities of the fund in the area of microfinance, sustainable agricultural chains and renewable energy. Impact and activities in 2016 Microfinance Hivos-Triodos Fund prioritises financing innovative financial institutions that are primarily active in reaching hard-to-reach target groups, especially women and people in rural areas where access to microfinance is still limited. In 2016, the number of loan customers reached by Hivos-Triodos Fund through the funded financial institutions was 2.3 Key indicators of microfinance institutions in the portfolio of Hivos-Triodos Fund* Total loan customers reached by financial institutions 2,268,587 2,834,825 Total savings customers reached by financial institutions 2,222,506 1,990,617 Average loan amount EUR 689 EUR 521 Percentage of female loan customers 81% 81% Percentage of rural customers 52% 51% Staff employed by the financial institutions 14,978 18,173 * Customers reached through investments in Aldea Global, Bank Andara, Caspian Impact Investments, EcoEnterprises Fund II, Leapfrog Financial Inclusion Fund, MFX Solutions, M-KOPA Solar, Novastar Ventures and Urmatt are not included in the key indicators. 7

8 million, of which 81% are women and 52% live in rural areas. Care for the environment Hivos-Triodos Fund also identifies which activities the financial institution initiates in order to make care for the environment a priority. Thus, the fund analyses whether the financial institution offers "green" products and services aimed at sustainable agriculture and energy. Examples include loans for the purchase of a solar panel, a biogas system or an energy-efficient cooking device. In 2016, 17% of financial institutions offered one of these green products. Environment (percentage of financial institutions in portfolio with activities having a bearing on the environment) Exclusion list 50% Green office procedures 19% Environmental training for customers 17% Green creditproducts 17% Donations for the environment 8% * list of exclusion criteria used by financial institutions in granting loans to customers Sustainable agricultural chains Many people in developing countries earn their income in the agricultural sector. Access to adequate financial products is very limited especially in this sector. The uncertain cash flows and risks of crop failures and natural disasters cause financial institutions to be reticent. The Hivos-Triodos Fund encourages financial institutions to be particularly active in this extremely important sector. Of the financial institutions financed by Hivos-Triodos Fund, 24% of the collective loan portfolio is in the agricultural sector. Allocation to the sectors (as a percentage of the collective lending portfolios of the financial institutions in portfolio) Trade 33% Agriculture 24% Services 23% Production 7% Other 13% Hivos-Triodos Fund emphasises the importance of sustainable agriculture. In 2016, Hivos-Triodos Fund extended a multi-annual loan to Urmatt, a producer of organic jasmine rice operating in northern Thailand and Laos. The company has become one of the largest producers of organic jasmine rice worldwide. The loan of Hivos-Triodos Fund has allowed Urmatt to further increase its production capacity. Access to sales markets is difficult for many small-scale farmers in developing countries. Partners of Hivos-Triodos Fund, such as Caspian Impact Investments in India and EcoEnterprises Fund in Latin America, increase such access. They do this by investing in companies that through their activities provide agricultural chains, such as storage, processing, transportation, quality control and distribution. An example is Sambazon in Brazil. In close cooperation with local communities in the Amazon, this company processes organic acai berries, which it then exports to sales markets in Asia and the United States. EcoEnterprises Fund has invested venture capital in Sambazon for continued growth. Renewable energy Worldwide, 2.4 billion people have no or very limited access to electricity, and 2.7 billion people use mainly wood, charcoal and biomass as their primary energy source for their households. This impedes entrepreneurship, has a negative impact on health 8

9 and contributes to deforestation and climate change. Hivos-Triodos Fund aims to contribute to a transition to a sustainable and accessible energy infrastructure. Therefore, Hivos-Triodos Fund has extended a loan to M-KOPA Solar, an innovative company that has already sold small-scale solar energy systems to 400,000 households in rural Kenya, Uganda and Tanzania. Households pay back these solar energy systems through mobile telephony. Novastar Ventures, a partner of Hivos- Triodos Fund in East Africa, has invested venture capital in SolarNow in Uganda, which sells, among other things, larger solar energy systems to SMEs, and provides farmers with water pumps that run on solar power. Market developments Economic developments 2016 was a challenging year, with specific challenges in some developing countries and a number of unexpected events that led to social and political instability around the world. In particular, Brexit in June and the unexpected outcome of the US presidential elections in November led to much unrest and uncertainty worldwide. Where the US dollar relatively weakened until November, it became significantly stronger after the elections. This was because the election promises of the new US president were expected to lead to higher inflation and higher interest rates. The commodity market showed sharp increases in oil and metal prices, however from an initially low level. Prices of agricultural products remained low. All these factors influenced the economic growth of the countries in which Hivos-Triodos Fund invests. Even though growth in emerging markets rose slightly in 2016, compared with 2015 to 4.1%, the underlying picture is diverse. China grew faster than expected, while growth in some Latin American countries was disappointing and even negative. Growth in emerging Asia slowed down, as it did in Europe and Africa. The Central Asian countries did not show any economic growth but no strong decline either, like in In India unexpected demonetisation took place as part of which the 500 and 1,000 rupee notes were taken out of circulation from one day to the next in November. Combined, these notes made up 85% of the money in circulation. The measure aims to counteract counterfeit money and corruption and generate more economic activity in the formal economy. This may have a positive effect in the long term, but in the short term it led to a shortage of cash and economic malaise. In particular, those who do not have access to funding and depend on cash in the informal economy have been disadvantaged by this measure. Currency developments In general, most currencies of developing countries rose in value relative to the euro in This was mainly due to the strong appreciation of the US dollar, with many currencies from developing countries moving in parallel. However, the Nigerian naira was an exception. In June, the Nigerian authorities decided to abandon the naira peg with the US dollar, resulting in a sharp decline in value. In 2016, the naira lost much of its value to the euro. The option to exchange naira into US dollars or euros is limited by a shortage of these hard currencies. For Nigerian institutions and companies, it remains very difficult to make international transfers in hard currency, thus impeding international trade. 41.1% percentage of the portfolio invested in Africa and the Middle East 9

10 10

11 URMATT IN THAILAND AND LAOS The farmers in northern Thailand and Laos often earn a low and very irregular income. Through their cooperation with Urmatt, farmers obtain certainty about their payment. Indeed, Urmatt buys the harvest before production. By now, 1,200 organic rice farmers have joined Urmatt. They earn 20% more thanks to the organic and fair trade certification. In addition, every year there are new farmers who make the transition to organic farming, coached by Urmatt trainers. Hivos-Triodos Fund finances a processing plant, which enables Urmatt to process and store 20% more rice. 11

12 Access to financial services In recent years, major progress has been made to provide a growing number of people with access to financial products and services. The number of adults who do not have access to financial services decreased from 2.5 to 2 billion from 2011 to Despite this 20% drop, there is still a long way to go before everyone can be offered access to financial services and products. Innovative developments Digitisation stimulates low-threshold access to financial services and products. Especially the rapid introduction of internet and mobile telephony are key drivers for the growth of digital financing. In South-East Asia and Africa, ownership of a mobile phone has become commonplace. Indeed, more people have access to mobile communications than to electricity or sanitary facilities. Digital financing offers many benefits, not only for financial institutions and their customers but also for the public sector. It stimulates tax revenues, makes businesses more transparent and reduces the uncontrolled informal economy. Therefore, in many developing countries and emerging economies there are amendments in the regulations that promote digital financing and thus an inclusive financial sector. strategy, Hivos-Triodos Fund aims to finance in particular these companies, especially in the renewable energy and sustainable agricultural chain sectors. Portfolio development The total portfolio held by Hivos-Triodos Fund including assets managed for third parties fell by 4.1% to EUR 78.8 million. Since 1 January 2016 the invested assets have been calculated with inclusion of overdue and accrued interest. The main reason for the decline was that Hivos-Triodos Fund deliberately called in a number of loans from microfinance institutions. This had a dual purpose. Firstly, to partially repay a loan that Hivos Foundation had extended to Hivos-Triodos Fund and, secondly, to release money to finance more renewable energy and sustainable agricultural chains. Loan repayment took place in close consultation with the microfinance institutions and forms part of the Life Cycle Model used by Hivos- Triodos Fund. In 2016, Hivos-Triodos Fund provided finance facilities to a total of 37 clients (2015: 41). These have been included in the annex, starting at page 42. A brief description of each client is also available at under Know where your money goes. SME Globally, more than half of small and medium-sized enterprises (SMEs) in developing countries have no or limited access to loans. There is a strong correlation between a healthy SME sector, economic growth and poverty reduction. From a structural perspective, and despite the expected slowdown in some developing countries, the need for both microfinance and SME funding remains large. Also, slightly larger SMEs with a funding requirement of between EUR 50,000 and EUR 1 million are having difficulty to obtain loans; especially when these companies are active in relatively new sectors such as the renewable energy sector, or if they have an innovative business model. As part of the new Five largest holdings* 2016 Centenary Bank, Uganda 29.8% Caspian Impact Investments, India 9.8% Bank Andara, Indonesia 5.1% IDEPRO, Bolivia 4.9% IntelleGrow, India 3.5% * as a percentage of the outstanding portfolio based on market value 12

13 Regional spread Hivos-Triodos Fund has a highly diversified portfolio, distinguishing it from other investors in the sector by its relatively large share in Africa, namely 41.1%. Risk classification Hivos-Triodos Fund operates a risk classification system in which credit risks are ranked systematically. The entire portfolio is classified into risk classes 1 (low risk) to 5 (high risk). In so doing, various factors such as country risk, the degree of maturity of the financial sector and the level of supervision by the regulatory authority are assessed. Clients classified in risk class 5 are those for whom a provision has been made or whose continuity is at risk. Participations The portfolio of Hivos-Triodos Fund managed for third parties increased by 33.6% to EUR 39.5 million, mainly due to the positive value development of three participations. Centenary Bank in Uganda continues to grow strongly, even in a difficult year in which local elections caused the necessary turmoil. Caspian Impact Investments in India secured the commitment of a new local investor in September. As a consequence, the valuation of the participation of Hivos-Triodos Fund increased in accordance with that transaction. The same situation occurred in Indonesia, where Bank Andara's equity was strengthened by a Korean investor. In respect of all participations, Hivos-Triodos Fund actively supervises, among other things, maintaining the institution's social mission. Loans In 2016, Hivos-Triodos Fund's loan portfolio decreased by 26.8% to EUR 36.4 million. Hivos- Triodos Fund extended new loans to fourteen financial institutions and companies. One of them is new in the portfolio: Urmatt. Eight financial institutions completely repaid their loans to Hivos- Triodos Fund in Three of these financial institutions continued the relationship with Triodos Fair Share Fund and/or Triodos Microfinance Fund. Bad debt provisions In 2016, Hivos-Triodos Fund maintained a provision for a financial institution in Latin America; this increased by EUR 1.1 million to EUR 1.8 million. Hivos-Triodos Fund closely monitors the situation, keeping close contact with the institution, co-financiers and the local regulator. Portfolio by region (including participations managed for third parties) (amounts in thousands of euros) Number of clients 31/12/ /12/2015 % of portfolio Number of clients % of portfolio Africa and the Middle East % % East Asia and the Pacific % % Eastern Europe and Central Asia 0 0% 0 0% Latin America % % South Asia % % Other 2 3.1% 2 2.6% Total % % 13

14 Result Financial result The result of the Hivos-Triodos Fund consists of an operating profit of EUR 1,667,900 (2015: EUR 2,140,547) less an addition to the (subordinated) loans provision of EUR 629,718 (2015: 1,103,387), an addition to the interest due on loans provision of EUR 291,780 (2015: nil) and an exchange rate result of EUR 570,617 (2015: EUR -511,864). The result for 2016 thus amounted to EUR 1,317,019. 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 level of institutional independence. To this end, Hivos- Triodos Fund and Hivos together have developed a Life Cycle Model, based on organisations needs in the various stages of their development. In its first life cycle phase, an organisation particularly needs donations for construction. There is still insufficient income. In the subsequent growth phase, Hivos-Triodos Fund can finance the organisation, allowing it to further develop. In this phase, financing the organisation involves a high risk. With further professionalisation and growth, the organisation will be increasingly able to attract loans from the capital market. Triodos Fair Share Fund and Triodos Microfinance Fund, which are also managed by Triodos Investment Management, are available for this purpose. As a result, funds regularly become available for Hivos-Triodos Fund, which it can use to finance innovative initiatives. Hivos-Triodos Fund sees continued growth of clients as an important objective. In 2016, three financial institutions from the fund's portfolio progressed to Triodos Fair Share Fund and Triodos Microfinance Fund or to other investors. Costs Stichting Hivos-Triodos Fund pays a management fee to Triodos Investment Management. After interest expenses, this management fee is the largest cost item and it is mainly used for personnel expenses. In addition, the management fee is also used to pay for all efforts pertaining to the administration and meeting the reporting requirements. In 2016, the total costs amounted to EUR 3,038,635 million (2015: EUR 3,281,779). North-South Plan Through the North-South Plan of Triodos Bank and Hivos, interested parties can be involved in financing projects in developing countries. They can do this in two ways: By opening a North-South Savings Account at Triodos Bank. The money in these accounts is used as a source of funding for the loans Triodos Bank provides to Hivos-Triodos Fund. By issuing a guarantee to cover the facility Triodos Bank provides to the fund. The volume of North-South savings rose in 2016 to EUR 116 million (2015: EUR 112 million). The number of savers fell to 9,316 customers (2015: 11,270 customers). The volume of North-South guarantees fell to EUR 617 thousand. North-South savers may decide to contribute all or part of their interest to Hivos. This allows Hivos to cover the additional costs associated with the North-South Plan. Due to a change in the financing structure in 2016, the role of North-South guarantees will be evaluated in

15 Outlook For 2017, a modest acceleration of the global economy is expected, with the US as one of the main engines. However, US policy is also considered one of the biggest uncertainties. If the protectionist campaign promises are fulfilled, it may have negative consequences for countries that are heavily dependent on the remittances of migrants or migrant workers in the United States, such as Nicaragua and Guatemala. It may also affect countries that are major exporters to the United States or have many debts in US dollars. On the other hand, emerging economies possibly benefit from slightly higher commodity prices and a slightly stronger growth in the world economy this year. Zeist, 20 April 2017 Fund Manager Hivos-Triodos Fund Karel Nierop Board of Management of Hivos-Triodos Fund Pierre Aeby Peter Blom Board of Triodos Investment Management Marilou van Golstein Brouwers (chair) Dick van Ommeren Laura Pool The global microfinance sector (including SME financing) is expected to grow between 10% and 15% in That is a similar growth as in 2016, but is expected to vary greatly among countries and regions. Hivos-Triodos Fund will remain active in 2017 in providing funding to financial institutions. However, the emphasis will be increasingly on renewable energy and sustainable agricultural chains. Hivos- Triodos Fund foresees a key role for SMEs in that respect and will work more closely with local partners in the coming years to expand funding in this sector, especially in sub-saharan Africa and South Asia. The starting point is to strengthen the expertise and knowledge of Triodos Investment Management through a local presence of networks and partners. Hivos-Triodos Fund will not make a forecast on the exchange rate result of financing in local currencies. The cost structure of Hivos-Triodos Fund will not change in 2017 in comparison with

16 Portfolio Hivos-Triodos Fund 31 December 2016 GLOBAL Leapfrog Financial Inclusion Fund MFX Solutions LATIN-AMERICA EcoEnterprises Fund II EAST-AFRICA Novastar Ventures M-KOPA Solar EL SALVADOR l Optima Financial Services HONDURAS l COMIXMUL NICARAGUA l Fundeser Aldea Global MALI l Microcred Mali UGANDA l Centenary Bank ZAMBIA l FINCA Zambia ECUADOR l Banco Solidario CACMU Fundación FACES Maquita PERU l EDPYME Alternativa Fondesurco Norandino BOLIVIA l IDEPRO Sembrar Sartawi SOUTH AFRICA l Small Enterprise Foundation AfriCap 16

17 THAILAND l Urmatt INDIA l Annapurna Microfinance Caspian Impact Investments IntelleGrow CAMBODIA l IPR TANZANIA l Akiba Commercial Bank FINCA Tanzania EAST-TIMOR l Kaebank Investments no Finansa MALAWI l FINCA Malawi INDONESIA l KOMIDA Bina Artha Ventura Bank Andara 17

18 Report of the Supervisory Board The Supervisory Board convened twice in In these meetings, the Supervisory Board reviewed the developments within Hivos-Triodos Fund. The budget for 2017 was also adopted. During the meeting of 18 April 2016 the annual accounts were discussed and adopted. During both meetings, the strategy of Hivos-Triodos Fund after 2016 was also discussed at great length. In respect of this strategy, the Supervisory Board was informed of the progress of the discussions between Hivos, Triodos Bank and Triodos Investment Management. In its meeting of 13 April 2017, the Supervisory Board discussed the annual report and annual accounts for 2016 of Hivos-Triodos Fund. The result for 2016 was EUR 1,317,019 (2015: EUR 525,296). This amount comprises an operating profit of EUR 1,667,900 (2015: EUR 2,140,547) less an addition to the (subordinated) loans provision of EUR 629,718 (2015: EUR 1,103,387) less an addition to the (subordinated) interest provision of EUR 291,780 (2015: EUR 0) and an exchange rate profit of EUR 570,617 (2015: EUR 511,864 loss). The exchange rate profit was added to the Exchange Equalisation Reserve. After deduction of the result, the equity in 2016 amounted to EUR 14,429,887. This is well above the agreed minimum of EUR 2,500,000. As a result, the fund did not have to enforce a claim against the guarantors in Zeist, 20 April 2017 Natasja van den Berg (Chair) Elsbeth Aubel-Bezemer Han de Groot Edwin Huizing Marcel Karman 18

19 Annual Accounts 2016 Hivos-Triodos Fund Page Balance sheet as at 31 December Profit and loss account for Notes to the balance sheet and profit and loss account 22 19

20 Balance sheet as at 31 December 2016 before profit appropriation (amounts in euros) Note* 31/12/ /12/2015 Assets Fixed assets Loans provided 1 36,411,348 49,764,933 Subordinated loans provided 1 Currency hedging instruments 2-1,550,124-2,029,030 34,861,224 47,735,903 Current assets Receivables, prepayments and accrued income 3 1,381,331 2,421,134 Liquid assets 4 15,258,473 1,998,104 16,639,804 4,419,238 Total assets 51,501,028 52,155,141 Liabilities Equity General reserve 6 11,725,212 10,688,052 Exchange Equalisation Reserve 6 1,387,656 1,899,520 Result for financial year 1,317, ,296 14,429,887 13,112,868 Long-term liabilities Loans 7 7,400,000 24,584,022 Subordinated loans 8 11,196,773 10,012,751 Current liabilities Current liabilities, accruals and deferred income 9 18,474,368 4,445,500 Liabilities to credit institutions 5 Total liabilities 51,501,028 52,155,141 Off-balance sheet liabilities, assets and rulings 10 Committed investments Participations (relating to assets managed for third parties) 2,156,813 3,741,891 Loans provided 662,535 Assets managed for third parties Participations Hivos 38,280,714 29,075,632 Participations Cordaid 1,182, ,160 * See notes to the balance sheet 20

21 Profit and loss account for 2016 (amounts in euros) Note Income Income from loans and subordinated loans provided 11 4,700,537 5,419,372 Interest on liquid assets ,410 Donations received 13 1, Other income 14 4,523 Expenses 4,706,535 5,422,326 Management fee 15 1,270,129 1,615,565 Auditor s fee and consultancy fees 16 56,502 20,162 Interest expenses 17 1,295,859 1,244,646 Transaction results of currency forward contracts , ,764 Other expenses 19 33,141 32,642 3,038,635 3,281,779 Operating profit 1,667,900 2,140,547 Addition to extended loans provision -629, ,838 Addition to subordinated loans provision -424,549 Addition to interest loans provision -134,716 Addition to interest subordinated loans provision -157,064 Exchange rate result , ,864 Deficit in the Exchange Equalisation Reserve made up by Hivos Result 1,317, ,296 * See notes to the balance sheet and profit and loss account. 21

22 Notes to the balance sheet and profit and loss account (amounts in euros) General The Foundation was formed on 22 December These annual accounts represent its twenty-second financial year, which ended on 31 December The annual report for 2015 has been drawn up in line with the Guideline for Annual Reporting (Richtlijn voor Jaarverslaggeving (RJ)) 640 for not-for-profit organisations. The annual report for 2016 has been drawn up in accordance with Directive C1 of the Guidelines for Annual Reporting for small not-for-profit organisations as this guideline is more in line with the size of the Foundation. This change has not affected the Foundation s results or assets. The foundation has its registered office in Zeist and is listed in the commercial register under number The participations are financed by third parties. They are presented, together with the funding received from third parties, under "off-balance sheet liabilities, assets and rulings" and the relevant notes. The Foundation has no staff. Change in presentation To make the categorisation of operating expenses clearer, the transaction result of currency forward contracts of EUR 142,123 was in 2015 retroactively classified in the operating result. The change in presentation also meant that the Exchange Equalisation Reserve at year-end 2015 was adjusted by EUR 142,123. The change has not affected the size of the equity, only its composition. Loans provided and subordinated loans provided Loans and subordinated loans provided are, taking into account exchange rates as at the balance sheet date, carried at the amortized cost price net of specific provisions for doubtful debts. The valuation method is also an approximation of the fair value. Projects financed with loans are by nature high-risk. Consequently, losses on the original investment must be taken into account. A specific provision is made for anticipated loan losses and the associated interest payable in case a project has to be discontinued. Making provisions are based on estimates by the Manager. The Manager will use multidisciplinary credit and valuation committees acting independently from the operational matters to make the estimates in the most objective 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. This means that all receivables and liabilities arising from these instruments are carried at the exchange rates on the balance sheet date. Movements in respect of these items are recognized in the profit and loss account under unrealised value changes. The result at the time these contracts are entered into will be amortised throughout the term of the contract. The fund has generic hedging and other documentation available for the application of cost-price hedge accounting. The effectiveness of hedging is assessed throughout the reporting period. 22

23 Valuation of liquid assets Liquid assets (funds) consist of cash, bank balances and deposits with a maturity of less than one year. Current account liabilities at banks are recognised under debts to credit institutions, under current liabilities. Liquid assets are valued at nominal value. Other assets and liabilities Other assets are carried at income expected, taking account of a possible a bad debt provision in respect of receivables. Other liabilities are carried at payments expected. A specific provision is made for expected claims on guarantees. Carry-over losses 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 cumulative preference shares, loans and guarantees portfolio. 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. Insofar as the Exchange Equalisation Reserve is insufficient and its deficit cannot be made up from the operating profit, the loss arising from exchange rate results will be charged to Hivos on the basis of the Cooperation Agreement between the parties involved. Foreign currency Assets and liabilities in foreign currency are converted using the year-end exchange rate. Changes in balance sheet items and in income and expenditure are converted into 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 2, to hedge foreign exchange differences on loans. Principles 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. 23

24 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 rate (currency risk) II. interest rate (interest rate risk) III. market price (market risk) In respect of I: At year-end 2016, most of the loans of Hivos-Triodos Fund is extended in local currency. The biggest portion of this is not hedged by currency hedging instruments. The loans in US dollars are almost completely hedged with those instruments. Below the composition of the loan portfolio per currency, and the currency hedging is presented. In respect of II: The Hivos-Triodos Fund result partly depends on developments on the capital market. Depending on the composition of the portfolio, a change in the capital market interest rate may have either a positive or a negative effect on the results of Hivos-Triodos Fund. In respect of 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 affect the value of investments. Value adjustments of the participations managed for third parties are borne by these third parties. 24

25 Loan portfolio currency spread (amounts in euros) Volume investments Hedged (or no exposure) Not hedged Percentage of the loan portfolio Bolivia, Bolivian Bolivianos (BOB) 5,064,003 5,064, % Indonesia, Indonesian Rupiah (IDR) 3,777,894 3,777, % India, Indian Rupee (INR) 7,180,825 4,864,880 2,315, % Mali, West African Franc (XOF) 1,980,153 1,980, % Malawi, Malawi Kwacha (MWK) 261, , % Peru, Peruvian Sol (PEN) 2,580,578 2,580, % Tanzania, Tanzanian Shilling (TZS) 1,281,524 1,281, % South Africa, South African Rand (ZAR) 951, , % Zambia, Zambian Kwacha (ZMW) 845, , % Total in local currency 23,923,154 4,864,880 19,058, % Total investments in US dollars 12,488,194 9,984,215 2,503, % Subtotal portfolio exclusive of the value of currency hedging instruments 36,411, % Currency hedging instruments -1,550, % Total value of loan portfolio at year-end ,861, % 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. 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 stop this. The fund may also negotiate early repayment. In 2016, the Manager has had neither the wish nor the need to exercise the option of selling loans. Moreover, Hivos-Triodos Fund has a hold strategy for its investments. The fund s investment policy 25

26 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 through future interest income. Fixed assets 1. Loans and subordinated loans provided Movement in loans As at 1 January 50,058,133 44,204,056 Advance 10,401,244 17,544,189 Repayment -23,757,709-13,026,639 Foreign exchange differences 1,040,549 1,336,527 As at 31 December 37,742,217 50,058,133 Loans provision As at 1 January 293,200 Additions 640, ,838 Release -10,518 Foreign exchange differences 19,075 3,238 Transfer loan provision to debtor card 388, ,876 As at 31 December 1,330, ,200 26

27 Subordinated loans As at 1 January 426, ,533 Advance Repayment Foreign exchange differences -7,110 19,041 As at 31 December 419, ,574 Subordinated loans provision As at 1 January 426,574 Additions 424,549 Foreign exchange differences -7,110 2,025 As at 31 December 419, ,574 Remaining term of the loans (including subordinated loans), overdue (payable on demand) 31/12/ /12/ < 1 year 18,131,146 20,185,238 -> 1 year and < 2 years 10,764,754 21,291,678 -> 2 years and < 3 years 4,012,011 4,840,189 -> 3 years and < 4 years 3,503,437 -> 4 years and < 5 years 3,447,829 36,411,348 49,764, Currency hedging instruments Movements in currency hedging instruments As at 1 January -2,029,030-1,104,963 Movements relating to valuation of contracts 771, ,932 Movement in forward points (transaction result) -292, ,135 As at 31 December -1,550,124-2,029,030 27

28 The terms are divided as follows: Less than one year -1,503,846-1,275,818 One to five years -46, ,212-1,550,124-2,029,030 The fund used currency hedging instruments to the value of EUR -1,550,124 at year-end 2016 (2015: EUR -2,029,030) in the form of forward currency contracts 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. At year-end 2016, sales contracts worth USD 9,250,000 had been concluded (year-end 2015: USD 9,374,999). Current assets 3. Receivables, prepayments and accrued income Specification of receivables, prepayments and accrued income 31/12/ /12/2015 Interest due on loans 1,361,481 1,855,379 Claims on loans 18, ,460 VAT due 1,189 3,295 1,381,331 2,421, Liquid assets 31/12/ /12/2015 Triodos Bank, EUR current accounts 4,825, ,140 Rabobank, EUR current accounts 9,568, ,499 Rabobank, USD current accounts 154, ,715 Rabobank, ZAR current account Kotak Mahindra Bank, INR current account 710,461 1,012,730 Rabobank, EUR deposit account 15,258,473 1,998,104 The liquid assets are at the free disposal of Hivos-Triodos Fund. The balance of the Rabobank USD current accounts at year-end 2016 was USD 162,543 (2015: USD 358,265). In 2016, the average interest rate on the Rabobank EUR current account was nil (2015: nil). The interest rate on the ZAR current account at Rabobank 28

29 is 4.66 % on average (2015: 4.34%). No interest is paid on the balances in the Rabobank USD current accounts and in the Kotak Mahindra Bank INR current account. Liabilities 5. Liabilities to credit institutions This concerns the negative balance of liquid assets at Triodos Bank. At year-end 2016, this amounted to nil (year-end 2015: EUR nil). In 2016 the debit interest on this account was 3.00% on average (2015: 4.00%). 6. General reserve In accordance with the Foundation s articles of association, the general reserve is freely disposable for its objectives As at 1 January 10,688,052 9,190,448 Movements in exchange rate differences Addition of result from last financial year 1,037,160 1,497,604 As at 31 December 11,725,212 10,688,052 Exchange Equalisation Reserve As at 1 January 1,899,520 Addition of result from last financial year -511,864 1,899,520 As at 31 December 1,387,656 1,899,520 29

30 Long-term liabilities 7. Loans Interest rate Interest rate fixed until 31/12/ /12/2015 Triodos Bank, loan I, early repayment 23 December % 1 December ,084,022 Triodos Bank, loan II, matures 1 January % 1 January ,500,000 5,500,000 Triodos Bank, loan IV, early repayment 23 December % 4,000,000 Triodos Bank, loan V, early repayment 23 December % 1 July ,000,000 Triodos Bank, loan VI, early repayment 23 December % 1 January ,000,000 Triodos Bank, loan VII, early repayment 23 December % 1 August ,000,000 Triodos Bank, loan VIII, matures 1 January % 1 January ,900,000 7,400,000 24,584,022 As from 23 December 2016 Hivos no longer issues guarantees for the loans from Triodos Bank to Hivos- Triodos Fund. However, private individuals and institutions have issued guarantees for the loans provided by Triodos Bank. As at 31 December 2016, these amounted to EUR 617,393. The role of these North-South guarantees will be evaluated in

31 8. Subordinated loans Interest rate Interest rate fixed until 31/12/ /12/2015 Hivos Foundation matures at end cooperation 3.00% 1 October ,012,751 10,012,751 Hivos Foundation matures at end cooperation Interest-free 4,500,000 Hivos Foundation matures at end cooperation Interest-free 12,684,022 27,196,773 10,012,751 Less: repayment obligations already expired -8,000,000 Less: repayments obligations due within one year -8,000,000 11,196,773 10,012,751 On 1 October 2014 Hivos extended a subordinated loan of EUR 10,012,751 (Hivos subordinated loan) to Hivos- Triodos Fund for microfinance institutions and similar entities. In addition, on 23 December 2016 Hivos extended two subordinated loans amounting to a total of EUR 17,184,022 to Hivos-Triodos Fund for microfinance institutions and similar entities. The amounts lent under these subordinated loans are EUR 4,500,000 and EUR 12,684,022. These subordinated loans are both interest-free and have a maturity equal to the duration of the cooperation between Hivos and Hivos-Triodos Fund. 31

32 Current liabilities 9. Current liabilities, accruals and deferred income 31/12/ /12/2015 Repayments obligations Hivos 16,000,000 Finance facilities received in advance from Hivos 786,796 2,910,833 Interest payable on loans Hivos 607, ,334 Management fee 497, ,740 Prepaid interest on loans 471, ,237 Interest payable on Triodos Bank loans 63, ,115 Miscellaneous 20,593 14,195 Debts to guarantors 18,745 18,745 Auditor s fee and consultancy fees 9,100 7,650 Accounts payable ,651 18,474,368 4,445,500 At year-end 2016, the interest rate on the Triodos Bank current account credit facility was 3.00% (2015: 4.00%). The total current account credit facility provided by Triodos Bank amounts to EUR 7,000,000 (2015: EUR 7,000,000). The credit facilities provided by Triodos Bank, recognised under long-term and current liabilities are hedged by third-party guarantees. Specific provisions are made for losses within Hivos-Triodos Fund as a result of irrecoverable loans in the portfolio. If the additions to the provisions exceed the operating result, the General Reserve of Hivos-Triodos Fund will be called upon, to a minimum of EUR 2,500,000. If the specific provision results in a decrease in the General Reserve to a level lower than EUR 2,500,000, the Guarantee issued by Hivos to Triodos Bank will be called upon for the amount required to maintain the General Reserve of Hivos- Triodos Fund at EUR 2,500,000. If the guarantee of Hivos is not sufficient, the private guarantors will be called upon. 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, making up the deficit of the General Reserve with this waived amount. At year-end 2016, debts owed to guarantors comprised amounts not yet waived by the guarantors in respect of carry-over losses for the period between 1995 and year-end Liabilities to private guarantors As of 2004, the explicit waiver is no longer necessary under the new guarantee agreement and Hivos-Triodos Fund assumes that the guarantors will waive right to payment of the amount regarding the settlement of losses. Legally, private guarantors with a guarantee agreement dating from prior to 2004 can still reclaim any waived amounts in the future. At year-end 2016, this possible liability was nil, given that private guarantors had not been relied on in the period between 2004 and

33 10. Off-balance sheet liabilities, assets and rulings Participations managed for 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 in the financial year 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 considered relevant in relation to the purpose for which the investment is maintained. 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 for participations. Direct arrangements regarding this have been made between Hivos and Triodos Investment Management. Movements in participations As at 1 January 29,075,632 25,229,744 Acquisitions 1,175, ,900 Sales -469,808-90,978 Foreign exchange differences 401, ,414 Revaluation 8,097,801 4,308,380 As at 31 December 38,280,715 29,075,632 Subordinated loan Hivos has provided Hivos-Triodos Fund with a subordinated loan to finance 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 that relates to the participation with 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 of the participation. 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. Movements in subordinated loans As at 1 January 14,092,716 12,504,051 Movements relating to advances 1,588,665 Movements relating to repayments* -469,808 As at 31 December 13,622,908 14,092,716 * Movement due to repayment relates to the movement in connection with the sale of the participation in Bhartiya Samruddhi Finance in India. 33

34 Dividends Dividends received by Hivos-Triodos Fund will be at the disposal of Hivos and until then shall form part of Current liabilities, accruals and deferred income on the balance sheet. Movements in dividends As at 1 January 862,934 Dividends received 1,184, ,934 Dividends passed on -2,045,763 As at 31 December 1, ,934 Currency hedging instruments for participations These currency hedging instruments relate to investments in participations. These contracts are concluded only to hedge the currency risk on the participations managed for Hivos. Movements in currency hedging instruments As at 1 January -229, ,213 Movements relating to valuation of contracts -65,792-35,217 Movement in forward points (transaction result) 3,260 1,792 As at 31 December -292, ,638 The terms are divided as follows: Less than one year -292, ,638 One to five years -292, ,638 34

35 Amounts to be settled Amounts to be settled relate to foreign exchange differences and positive and negative revaluations of participations. Movements in amounts to be settled As at 1 January 17,893,750 14,107,522 Movements relating to revaluation of participations 7,707,666 5,172,947 Movements relating to foreign exchange difference on participations -66, ,825 Movements relating to currency forward contracts -90, ,894 As at 31 December 25,444,602 17,893,750 The movements relating to revaluations of participations concern both the unrealised revaluations and the effect of the settlement with Hivos resulting from selling several participations. The difference between the balance of the subordinated loan, the amounts to be settled, and the value of the participations concern funding paid as an advance by Hivos for participations. 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 of a participation for the account of Cordaid Foundation (Cordaid). To finance this participation, Cordaid has extended a subordinated loan to Hivos-Triodos Fund. This subordinated loan is interest-free and matures in When the participation is sold, Hivos-Triodos Fund will use the proceeds of the sale to repay that part of the subordinated loan that relates to the participation. If the proceeds from the sale are insufficient to repay the subordinated loan, Cordaid will waive the difference. Proceeds that exceed the value of the subordinated loan will be paid to Cordaid. The subordinated loan was concluded with Cordaid in 2015 and represents a value of IDR 18,403,200,000. Movements in other participations As at 1 January 472, ,507 Funds received to buy and manage a participation Movements relating to revaluation of participations 673, ,599 Movements relating to foreign exchange difference on participations 36,568-1,748 As at 31 December 1,182, ,160 Committed investments Committed investments concern loans and participations approved and/or committed by Hivos-Triodos Fund, but not yet (fully) drawn by the organisation in which it has invested. After payment, the committed participations are also managed for Hivos. 35

36 Committed loans provided 31/12/ /12/2015 Fundeser, Nicaragua 215,396 Bina Artha Ventura, Indonesia Intean Poalroath Rongroeurng, Cambodia 447,139 EFC Uganda, Uganda 662,535 Committed participations 31/12/ /12/2015 Novastar Ventures, East Africa 1,834,342 2,497,664 EcoEnterprises Fund II, Latin America 1,193,846 Leapfrog Financial Inclusion Fund, Worldwide 322,471 50,381 2,156,813 3,741,891 Other In 2014 Hivos Triodos Fund held talks with the Dutch Tax Authorities regarding the fund s possible income tax liability. The outcome of this is that until 2017 Hivos-Triodos Fund is not a body liable to corporate income tax. In 2017, the Tax Authorities will reassess the situation for the period after Income 11. Income from loans provided 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. 12. Interest on liquid assets Interest received on liquid assets is recognised here. 13. 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. 14. Other income The interest donated to Hivos-Triodos Fund by clients of Triodos Bank, as well as donations received from third parties are recognised here. Expenses 15. Management fee Until 31 December 2015 the management fee paid to Triodos Investment Management BV comprised the following two elements: 36

37 a fee of 3.25% (2015: 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% (2015: 2.5%) of the highest outstanding principal sum during the year for short-term trade finance with a maximum term of 12 months. From 1 January 2016 the management fee paid to Triodos Investment Management BV comprises the following three elements: a fee of 3.00% of the outstanding loans to microfinance institutions, plus exchange differences on currency forward contracts, guarantees and claims on loans at the end of the quarter; a fee of 3.00% of the outstanding indirect loans to entities other than microfinance institutions, plus exchange differences on currency forward contracts, guarantees and claims on loans at the end of the quarter; a fee of 3.75% of the outstanding direct loans to entities (through an investment vehicle in collaboration with a local partner in which Triodos has an active role, or otherwise) other than microfinance institutions, plus exchange differences on currency forward contracts, guarantees and claims on loans at the end of the quarter; 16. Auditor s fee and consultancy fees Auditor s fee 14,300 15,000 Consultancy fees 42,202 5,162 56,502 20,162 The consultancy fees include fees for legal services, tax consultancy fees and project costs. 17. Interest expenses Interest and penalty interest charges on loans from Triodos Bank and Hivos entered under long-term and current liabilities are recognised here. 18. Transaction results currency forward contracts The amortised transaction results from currency forward contracts relating to the reporting period are recognised here. 37

38 19. Other expenses Publicity expenses 10,000 10,000 Office costs 33,141 22,642 43,141 32,642 Office costs include the cost of foreign and domestic payment transactions, the cost of courier services, levies and contributions. Hivos-Triodos Fund pays no remuneration to former or current directors and/or supervisory directors. Furthermore, Hivos-Triodos Fund has not provided loans, advances or guarantees to former or current directors and/or supervisory directors. 20. Exchange rate result Unrealised value adjustment loans 1,033,440 1,355,785 Exchange rate differences on currency forward contracts -277,045-1,803,827 Exchange rate differences on liquid assets and others accounts receivable -185,778-63, , ,864 Comparison of operating result with budget The Supervisory Board approved the budget for 2016 at the end of 2015, which showed a budgeted operating profit of EUR 2,120,000. The actual operating profit is EUR 1,667,900. Thanks to a clearer categorisation of operating expenses, the transaction result of currency forward contracts of EUR 383,004 is recognised in the 2016 operating profit. However, in the budget the transaction result of currency forward contracts is recognised in the amount of the negative exchange rate result. If the transaction result of currency forward contracts of EUR 383,004 were reported according to the classification of the budget, the actual operating profit for 2016 would amount to EUR 2,050,904. The result which is lower than the budget is due to higher expenses; compared to the budget; the expenses for the management fee were lower in 2016 but the interest charges were higher. Events after balance sheet date After the balance sheet date, no events occurred which affected the understanding and interpretation of the 2016 annual accounts. 38

39 Profit appropriation The articles of association of Hivos-Triodos Fund give no indication of the profit appropriation. The result for 2016 was EUR 1,317,019 (2015: EUR 525,296). This amount comprises an operating profit of EUR 2,050,904 (2015: EUR 2,509,311) less an addition to the loans provision of EUR 629,718 (2015: 1,103,387), an addition to the interest due on loans provision of EUR -291,780 and an exchange rate result of EUR 570,617 (2015: EUR -511,864). The operating profit less additions to the provisions is added to the General Reserve and the exchange rate result is added to the Exchange Equalisation Reserve. Affiliated parties Hivos-Triodos Fund has relationships with the following legal entities: 1 Triodos Investment Management BV manages Hivos-Triodos Fund for which it receives a competitive management fee. Furthermore, Triodos Investment Management BV, if the conditions above are met, is entitled to carried interest fee on sales of participations. 2 Triodos Bank NV is the sole shareholder of Triodos Investment Management BV. 3 Triodos Bank N.V. - Triodos Bank NV has made overdraft facilities available at competitive rates. - Triodos Bank NV has made two loans available at competitive rates. - Hivos-Triodos Fund concludes currency forward contracts with Triodos Bank NV at competitive rates. 4 Hivos-Triodos Fund, together with Triodos Sustainable Finance Foundation (previously: Triodos-Doen), Triodos Fair Share Fund and Triodos SICAV II - Triodos Microfinance Fund provides financing (syndicated loans) and participations which are managed by Triodos Investment Management BV. 5 Hivos provides guarantees for the finance facilities provided by Triodos Bank NV to Hivos-Triodos Fund and subordinated loans to finance participations. 6 Hivos-Triodos Fund is shareholder in MFX Solutions. In addition, Hivos-Triodos Fund concludes currency forward contracts with MFX Solutions. Zeist, 20 April 2017 Board of Management of Hivos-Triodos Fund Foundation Pierre Aeby Peter Blom 39

40 Other information Profit appropriation The articles of association of Hivos-Triodos Fund give no indication of the profit appropriation. ANBI status Hivos-Triodos Fund is designated by the Tax Authorities as a Public Benefit Organisation (ANBI). The RSIN of Hivos-Triodos Fund is

41 Independent auditor s report To: the board of management and the supervisory board of Hivos-Triodos Fund Foundation Report on the 2016 annual accounts Our opinion In our opinion the accompanying annual accounts give a true and fair view of the financial position of Hivos-Triodos Fund Foundation as at 31 December 2016 and of its result for the year then ended in accordance with the Guideline for annual reporting C1 Small not-for-profit organisations of the Dutch Accounting Standards Board. What we have audited We have audited the accompanying annual accounts 2016 of Hivos-Triodos Fund Foundation, Zeist ( the foundation ). The annual accounts comprise: the balance sheet as at 31 December 2016; the profit and loss account for the year then ended; the notes, comprising a summary of the accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the annual accounts is the Guideline for annual reporting C1 Small not-for-profit organisations of the Dutch Accounting Standards Board. The basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the section Our responsibilities for the audit of the annual accounts of our report. Independence We are independent of Hivos-Triodos Fund Foundation in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten (ViO) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 41

42 Report on the other information included in the annual report In addition to the annual accounts and our auditor s report thereon, the annual report contains other information that consists of: general information; report of the board; report of the supervisory board; other information; annex: Hivos-Triodos Fund portfolio; and address and publication details Based on the procedures performed as set out below, we conclude that the other information: is consistent with the annual accounts and does not contain material misstatements; contains all information that is required by the Guideline for annual reporting C1 Small not-for-profit organisations of the Dutch Accounting Standards Board. We have read the other information. Based on our knowledge and understanding obtained in our audit of the annual accounts or otherwise, we have considered whether the other information contains material misstatements. By performing our procedures, we comply with the requirements of the Dutch Standard 720. The scope of such procedures was substantially less than the scope of those performed in our audit of the annual accounts. The board of management is responsible for the preparation of the other information, including the report of the board pursuant to the Guideline for annual reporting C1 Small not-for-profit organisations of the Dutch Accounting Standards Board. Responsibilities for the annual accounts and the audit Responsibilities of the board of management and the supervisory board for the annual accounts The board of management is responsible for: the preparation and fair presentation of the annual accounts in accordance with the Guideline for annual reporting C1 Small not-for-profit organisations of the Dutch Accounting Standards Board; and for such internal control as the board of management determines is necessary to enable the preparation of the annual accounts that are free from material misstatement, whether due to fraud or error. As part of the preparation of the annual accounts, the board of management is responsible for assessing the foundation s ability to continue as a going concern. Based on the financial reporting framework mentioned, the board of management should prepare the annual accounts using the going-concern basis of accounting unless the board of management either intends to liquidate the foundation or to cease operations, or has no realistic alternative but to do so. The board of management should disclose events and circumstances that may cast significant doubt on the foundation s ability to continue as a going concern in the annual accounts. The supervisory board is responsible for overseeing the foundation s financial reporting process. 42

43 Our responsibilities for the audit of the annual accounts Our responsibility is to plan and perform an audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence to provide a basis for our opinion. Our audit opinion aims to provide reasonable assurance about whether the annual accounts are free from material misstatement. Reasonable assurance is a high but not absolute level of assurance which makes it possible that we may not detect all misstatements. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the annual accounts. Materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion. A more detailed description of our responsibilities is set out in the appendix to our report. Rotterdam, 20 April 2017 PricewaterhouseCoopers Accountants N.V. Appendix to our auditor s report on the annual accounts 2016 of Hivos-Triodos Fund Foundation In addition to what is included in our auditor s report we have further set out in this appendix our responsibilities for the audit of the annual accounts and explained what an audit involves. The auditor s responsibilities for the audit of the annual accounts We have exercised professional judgement and have maintained professional scepticism throughout the audit in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our objectives are to obtain reasonable assurance about whether the annual accounts as a whole are free from material misstatement, whether due to fraud or error. Our audit consisted, among other things, of the following: Identifying and assessing the risks of material misstatement of the annual accounts, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the intentional override of internal control. Obtaining an understanding of internal control relevant to the audit 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 foundation s internal control. Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the board of management. Concluding on the appropriateness of the board of management s use of the going-concern basis of accounting, and based on the audit evidence obtained, concluding whether a material uncertainty exists related to events and/or conditions that may cast significant doubt on the foundation s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in 43

44 our auditor s report to the related disclosures in the annual accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report and are made in the context of our opinion on the annual accounts as a whole. However, future events or conditions may cause the foundation to cease to continue as a going concern. Evaluating the overall presentation, structure and content of the annual accounts, including the disclosures, and evaluating whether the annual accounts represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 44

45

46 Annex to the 2016 annual accounts of Hivos-Triodos Fund Foundation not audited by the independent auditor Introduction At the request of the Supervisory Board, detailed information on the budget figures of Hivos-Triodos Fund Foundation has been annexed to the 2016 annual accounts. In this annex the operating result is compared with the budget for 2016 and it provides further insights from the budget on the expenses associated with consulting assignments, audit of the annual accounts by the independent auditor and other expenses. Also, it provides insight into the budget for financial year This annex is not audited by the independent auditor. Comparison of operating result with budget The Supervisory Board approved the budget for 2016 at the end of 2015, which showed a budgeted operating profit of EUR 2,120,000. The actual operating profit is EUR 1,667,900. Thanks to a clearer categorisation of operating expenses, the transaction result of currency forward contracts of EUR 383,004 was recognised in the 2016 operating profit. However, in the budget the transaction result of currency forward contracts is recognised in the amount of the negative exchange rate result. If the transaction result of currency forward contracts of EUR 383,004 were reported according to the classification of the budget, the actual operating result for 2016 would amount to EUR 2,050,904. The fact that the result is lower than the budget is due to higher expenses. Compared to the budget, the expenses for the management fee were lower in 2016 but the interest charges were higher. Auditor s fee and consultant s fee 2016 buget Auditor s fee 15,000 14,300 15,000 Consultancy fees 40,000 42,202 5,162 55,000 56,502 20,162 The consultancy fees include fees for legal services, tax consultancy fees and project costs. Other expenses 2016 budget Publicity expenses 15,000 10,000 10,000 Office costs 25,000 33,141 22,642 Other costs 26,000 66,000 43,141 32,642 46

47 Office costs include the cost of foreign and domestic payment transactions, the cost of courier services, levies and contributions. Hivos-Triodos Fund Foundation pays no remuneration to former or current directors and/or supervisory directors. Furthermore, Hivos-Triodos Fund Foundation has not provided loans, advances or guarantees to former or current directors and/or supervisory directors. Budget 2017 The Supervisory Board approved the budget for 2017 at the end of 2016, which showed a budgeted operating profit, excluding transaction results currency forward contracts, of EUR 2,136,000 according to the following table: (amounts in euros) Budget 2017 Income Total income 4,343,000 Expenditure Management fee 1,524,000 Auditor s fee and consultancy fees 55,000 Interest expenses 565,000 Transaction results currency forward contracts p,m, Other expenses 63,000 2,207,000 Operating result* 2,136,000 Additions to provisions Exchange rate result t.b.c. t.b.c. * The operating result excludes transaction results currency forward contracts, for which Hivos-Triodos Fund Foundation does not issue a forecast 47

48 Annex: Hivos-Triodos Fund Portfolio microfinance institutions financed by Hivos-Triodos Fund as at 31 December 2016 Percentage Number of loan customers of female loan customers Instelling Country Akiba Commercial Bank Tanzania 31,750 30,449 60% 51% Aldea Global Nicaragua 3,677 * 34% * Alternativa Peru 35,830 30,583 44% 46% Annapurna Microfinance India 804, , % 100% Banco Solidario Ecuador 279, ,407 54% 52% Bina Artha Ventura Indonesia 198, ,746 99% 100% CACMU Ecuador 4,421 4,072 57% 57% Centenary Bank Uganda 182, ,646 25% 24% COMIXMUL Honduras 10,414 12, % 100% FACES Ecuador 14,807 14,243 58% 57% FINCA Malawi Malawi 46,919 45,020 61% 57% FINCA Tanzania Tanzania 57,522 71,747 54% 55% FINCA Zambia Zambia 21,983 34,888 83% 66% Fondesurco Peru 11,138 10,879 43% 42% Financiera Fundeser Nicaragua 25,799 * 45% * IDEPRO Bolivia 13,517 12,650 36% 36% IPR Cambodia 5,245 4,671 90% 92% Kaebauk Investmentu no Finansa East Timor 10,850 8,441 83% 94% Komida Indonesia 298, , % 100% Maquita Ecuador 7,533 7,787 44% 45% Microcred Mali Mali 9,085 * 42% * Norandino Peru 6,051 5,178 21% 18% Optima El Salvador 10,506 * 66% * Sembrar Sartawi Bolivia 31,535 20,313 59% 51% Small Enterprise Foundation South Africa 146, , % 100% Total 2,268,587 1,967,875 81% 78% * Not applicable Excluding AfriCap Microfinance Investment Company, Aldea Global, Bank Andara, Caspian Impact Investments, EcoEnterprises Fund II, IntelleGrow, Leapfrog Financial Inclusion Fund, MFX Solutions, M-KOPA Solar, Novastar Ventures and Urmatt. 48

49 Loan portfolio (in thousands of euros) Average loan (in euros) Percentage of customers in rural areas Number of savings customers ,247 38,599 1,331 1,268 0% 0% 175, ,543 4,348 * 1,182 * 99% * * 29,091 25, % 64% 150,796 71, % 82% 503, ,094 1,803 1,496 3% 3% 216,748 99,331 21,659 12, % 83% 16,683 14,783 3,773 3,630 84% 83% 22,762 19, , ,650 1,796 1,545 34% 29% 1,261,774 1,097,833 31,992 40,988 3,072 3,214 39% 40% 28,929 30,044 23,655 21,992 1,598 1,544 44% 42% 10,048 10, % 43% 29,902 26, % 41% 83,801 13,399 9, % 15% 87,852 86,614 16,553 17,381 1,486 1,598 81% 66% 10, ,488 * 1,686 * 70% * * 51,700 46,828 3,825 3,702 55% 51% 10,974 8,182 2,092 1,752 98% 98% 11,602 7,394 1, % 83% 7,505 6,564 28,365 19, % 94% 307, ,853 24,481 24,750 3,250 3,178 2% 2% 14,565 15,130 31,208 * 3,435 * 0% * * 9,552 7,703 1,579 1,488 82% 92% 5,937 5,466 24,676 * 2,349 * 51% * * 54,135 38,977 1,717 1,919 41% 92% 21,001 20, % 100% 1,563,140 1,278, % 60% 2,222,506 1,795,718 49

50 Address Hivos-Triodos Fund Foundation Nieuweroordweg 1 Postbus AB Zeist Telephone +31(0) (customer contact) Telephone +31(0) (general) Publication Details Hivos-Triodos Fund Foundation Annual Report 2016 Circulation 75 copies Published April 2017 Graphic design Michael Nash Associates, London Layout Via Bertha, Utrecht, the Netherlands Photography Urmatt, Thailand Printing Drukkerij LibertasPascal, Utrecht, Netherlands If you have any comments or questions about this report, please contact Triodos Bank. This report can also be viewed at or downloaded from: Hivos-Triodos Fund Foundation is a joint initiative of Hivos and Triodos Bank. 50

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52 TLB Hivos-Triodos Fund Foundation is a joint initiative of Hivos and Triodos Bank.