Gender and Microfinance - Etikaetika.lu/IMG/pdf/160617-lmdf-31-march-2016-annual... ·...

Société d’Investissement à Capital Variable, Luxembourg

Audited annual report as at 31 March 2016Rapport annuel révisé au 31 mars 2016

Gender and MicrofinanceLMDF under the gender lens

In collaboration with

LMDF has been granted the LuxFLAG Microfinance

Label

Subscriptions for shares issued by the Fund may only be accepted on the basis of the current prospectus

accompanied by the latest annual report and the latest semi-annual report, if more recent. Such documents can

be obtained free of charge at the registered office of the Fund or downloaded from the website www.lmdf.lu

ISIN Codes / Codes ISIN

Class C shares: LU0456967404 Class B shares: LU0456966935

http://www.lmdf.lu

Audited annual report as at 31 March 2016 // Rapport annuel révisé au 31 mars 2016 02-03

Content // Sommaire

Page

04 LMDF in figures

LMDF en chiffres

06 Report of the board of directors to the shareholders

Rapport du conseil d’administration aux actionnaires

08 LMDF's Vision and Mission

09 Summary (Français / Deutsch)

10 Management report on activities

Rapport d’activité du gestionnaire

18 Gender and Microfinance

18 // 1 LMDF under a gender lens

22 // 2 Four questions to Suzanne Biegel, founder of Catalyst at Large

25 // 3 Women driven entrepreneurship

28 Statutory information

Organisation

30 Report of the independent auditor Rapport du réviseur d'entreprises agréé

32 Audited annual financial statements

États financiers annuels révisés

32 // 1 Statement of net assets

État des actifs nets

34 // 2 Statement of operations and other changes in net assets

État des opérations et des variations des actifs nets

36 // 3 Statistical information

Informations statistiques

38 // 4 Statement of investments and other net assets

État du portefeuille-titres et autres actifs nets

40 // 5 Breakdown of microfinance investments and evolution of NAV

Répartition des investissements en microfinance et évolution de la VNI

43 // 6 Notes to the audited financial statements

Notes aux états financiers révisés

The pictures in the present report show clients of LMDF's partner MFIs, of our events and also of the Luxembourgish cooperative OUNI. Les photos présentées dans ce rapport montrent les clients des IMF partenaires du LMDF, des photos de nos événements ainsi et de la coopérative luxembourgeoise OUNI.

© Images: LMDF // Pana Pana // Raoul Somers // EIB Institute // Catalyst at Large // AMC El Salvador // Pro Mujer Nicaragua // INMAA

LMDF in figures // en chiffres 31 March 2016 // 31 mars 2016

Note: The figures stated in this section of the report relating to information received from microfinance institutions are as at 31st december 2015 and largely based on unaudited information. The calculations follow, wherever applicable, the Microfinance Investment Vehicles Disclosure Guidelines as published by CGAP in 2010.

EUR 19.6 million Investments in microfinance

39Microfinance institutions financed directly

1Regional fund and support structure

20Countries

1 Service provider

54% Latin America

27% Southeast and Central Asia

16% Sub-Saharan and North Africa

3%Developed countries

41% Financing in local currency of MFI country

698,151Micro-entrepreneurs financed by partner MFIs

EUR 472 millionTotal micro-loan portfolio of partner MFIs

72%Women

EUR 1,297Average disbursed micro-loan

31,011Micro-entrepreneurs financed by LMDF

276Number of university students financed

49%Micro-loans for services and small trade

32%Agricultural activities

7%Production and crafts

12%Other uses

EUR 479,239Average exposure per MFI

2.3% Twelve month return Class A shares

2.8% Twelve month return Class B shares

1.7% Twelve month return Class C shares


1 USA MFX Solutions Higher Education Finance Fund LP2 El Salvador PADECOMSM Crédito AMC ÓPTIMA3 Nicaragua Pro Mujer PANA PANA MiCrédito FUNDESER4 Honduras Pilarh OPDF ODEF AMC Honduras5 Ecuador Fundación Alternativa Coop. Maquita Cushunchic FACES INSOTEC6 Peru CREDIFLORIDA FONDESURCO ARARIWA FONDESURCO COOP7 Niger ASUSU

8 Cambodia Intean Poalroath Rongroeurng SAMIC Chamroeun Microfinance 9 Philippines Gata Daku MPC KPS-SEED10 Azerbaijan FINCA11 Guatemala ASDIR ADISA FUNDAP12 Mali Soro Yiriwaso13 Morocco AMSSF / MC INMAA Al Karama14 Mongolia Khan Bank15 Haiti ACME16 East Timor TRM17 Benin PEBCO - BETHESDA18 Indonesia KOMIDA19 Ivory Coast PAMF20 South Africa Tembeka Social Investment

1

2 34

5

6

78 9

10

1112

13

Learn more about LMDF's portfolio of MFIs: www.lmdf.lu

14

15

16

17

18

19

20

http://www.lmdf.lu/index.php/en/invest-in-lmdf/our-investments

http://www.lmdf.lu/index.php/en/invest-in-lmdf/our-investments

The Board of Directors is pleased to present this report on its sixth year of operations.

The net assets of the Fund have increased by 13.6% in the period, from EUR 19.8 million to EUR 22.5 million, thanks to additional contributions from shareholders of EUR 2.2 million and the positive results of operations. Investments in microfinance have grown correspondingly from EUR 17.5 million at the last year end to EUR 19.6 million. Cash and cash equivalents stand at EUR 2.5 million and represent 11.3% of net assets compared to 10.6% at the previous year end.

As indicated in more detail in the Management report, the global microfinance industry is facing headwinds and the Fund’s financial returns have been impacted in the second half of this financial year by provisions against two loans. In addition, market returns on the cash that the Fund must hold (the minimum required is 10% of net assets) are extremely low and may soon become negative. Returns to investors for the year nevertheless remain positive, standing at 2.3% (Class A), 2.8% (Class B) and 1.7% (Class C).

The steps taken by LMDF to improve both social and financial performance are gaining traction, as the Fund achieves steady growth and continues its efforts to increase operational efficiency and to remain fully invested.

In each annual and semi-annual report, the Fund has sought to emphasise its focus

on social performance by illustrating how its investments have changed the lives of individuals or groups of people. In this report, the focus is on gender issues and in particular how our investments help to stimulate entrepreneurship among women, this still most excluded of groups.

Corporate governance

The Board of Directors is responsible, in accordance with the terms of the Articles of Association and the Prospectus, for the overall management and control of the Fund and for implementing the Investment Objectives and Policy of the Fund. The day to day management of the Fund has been delegated to Kaspar Wansleben, Executive Director. The Board has selected and retained ADA (Appui au Développement Autonome a.s.b.l.) as its investment adviser to provide the services of identification, evaluation and selection of investment and disinvestment opportunities as well as the review, supervision and monitoring of its microfinance investments.

There are no disclosures required to be made by the Fund in relation to changes in the Prospectus since June 2014. The Board intends to amend the Prospectus in July 2016 in order to further clarify its existing hedging and valuation policies and to update the published statutory information.

In the second half of our financial year, the CSSF (Luxembourg’s supervisory authority) approved the appointments of Mr. Max

Report of the Board of Directors to the shareholders


Meyer and Mr. Gilles Franck who were both nominated as directors at the July 2015 AGM. In January 2016, Ms. Hedda Pahlson-Moller stepped down from her positions as Board member and Vice-chair in order to help drive forward the Fund’s marketing strategy on a professional and transparently unconflicted basis.

The Board has established the following committees whose role is to support and make recommendations to the Board in their areas of activity.

The Investment Committee, which currently has seven members, considers recommendations from the investment adviser on investment and disinvestment opportunities.

The Risk Committee, which has four members, provides direction, advice and oversight with regard to LMDF’s risk management and reporting framework, including risk policies, processes and controls.

The Marketing Committee, which has four members, oversees the Fund’s marketing strategy including the development of the shareholder base.

The Employment Committee, which has three members, reviews the objectives, performance and remuneration of management.

The Board has resolved that membership of the above Committees may be open to non-directors on a limited basis, to the extent that the majority of the members of each Committee are directors of the Fund.The members of the Board do not receive any remuneration as directors, apart from the reimbursement of expenses incurred for Fund business and approved in advance by the Board.

The Board wishes to thank the shareholders for their continued support.

The Board of DirectorsJune 9, 2016

Kenneth HayChairman

Female entrepreneurs from SABI PLUS in El Salvador produce care products from natural herbs // Pana Pana

LMDF aims to contribute to the alleviation of poverty by supporting organizations that

empower people and stimulate entrepreneurship, with a particular focus on the most

excluded. The Fund facilitates access to responsible finance by building sustainable

links between investors, microfinance institutions and ultimate beneficiaries.

• Constitutes an attractive investment proposition by balancing stable financial returns to investors with the provision of responsible financial services to the poor.

• Specializes in facilitating the growth of promising emerging microfinance institutions which address the financial needs of marginalized communities and individuals in developing countries.

• Enables the development of micro-entrepreneurs in areas where unmet needs are largest, particularly among women, youth and rural populations.

• Is accessible to public, institutional and retail investors; is accountable for reaching both social and financial objectives; and is transparent in its reporting.

Mission

In order to realize its Vision, LMDF

Vision

Audited annual report as at 31 March 2016 // Rapport annuel révisé au 31 mars 2016

Résumé / ZusammenfassungLe rapport annuel révisé du Luxembourg Microfi-nance and Development Fund (le «fonds») couvre l'exercice d’avril 2015 à mars 2016. Le fonds a effectué des investissements en microfinance à hauteur 6,6 millions d'euros à destination de nouveaux partenaires et de partenaires existants. A la fin de l’année, LMDF est investi à 87% en microfinance, proche de l'objectif des 90%. Les investissements en Afrique et en Asie tendent à augmenter au détriment de l'Amérique latine. Ainsi, à la fin mars, les investissement se répartis-sent à 54% en Amérique latine, 27% en Asie, 16% en Afrique et 3% dans les pays développés.

L'impact social du fonds s'est accru au cours de l'année. Nos investissements en Haïti, au Timor oriental, au Bénin et en Côte-d'Ivoire attestent de notre volonté de soutenir les pays les plus pauvres du monde. La proportion de femmes financées par LMDF reste stable, mais majeure (72% des investissements) ce qui explique que nous ayons mis l'accent, dans ce rapport, sur l’investissement au profit des femmes et de la microfinance. A ce titre, la comparaison entre des micro-entrepreneurs en El Salvador et au Luxembourg est particulièrement intéressant.

Le rendement brut du LMDF reste également stable et le fonds a légèrement pu réduire ses coûts d'exploitation, un premier succès de ses objectifs à moyen terme pour d'avantage d'efficience. Cependant, le résultat financier a été affecté négativement par les provisions afférentes à des positions en Afrique du Sud et en Azer-baïdjan. Le rendement net a été de 2,8% pour les actionnaires de la classe B, de 1,7% pour la classe C et de 2,3% pour la classe A.

Les encours du fonds ont progressé de +14% par rapport à l’exercice précédent, soit 22,5 millions d'euros pour l’année écoulée. Les entrées provi-ennent à peu près autant de nouveaux investis-seurs institutionnels que de privés.

Le fonds prévoit, en cette période de turbu-lences des marchés, de mettre sa stratégie d'investissement à l'épreuve pour gagner d'autres actionnaires et ouvrir une structure de placement de fonds commune aux nouveaux domaines d'investissements. Nous remercions tous les actionnaires de leur confiance !

Der geprüfte Jahresbericht des Luxembourg Microfinance Development Fund, Social Venture Capital Sub-Fund (der „Fonds“) deckt die Aktivitäten während des Geschäftsjahres April 2015 bis März 2016 ab. Der Fonds tätigte Mikrofinanzinvestitionen in Höhe von EUR 6,6 Millionen sowohl in neue Partnerorganisationen als auch an bestehende Partner. Zum Jahresende ist der Fonds zu 87% in Mikrofinanz investiert, nahe der Zielmarke von 90%. Der Fonds ist zu 54% in Lateinamerika, 27% in Asien, 16% in Afrika sowie 3% in entwickelten Ländern investiert. Generell lässt sich eine Tendenz der Verschiebung des Portfolios von Lateinamerika hin nach Asien und Afrika feststellen.

Der Fonds stärkte während des Jahres sein soziales Profil. Investitionen in Haiti, Ost-Timor, Benin und der Elfenbeinküste unterstreichen unseren Fokus auf die ärmsten Länder der Welt. Gleichbleibend hoch ist der Anteil von Frauen an den Endkunden. Wir haben dies zum Anlass genommen das Themenfeld Investitionen, Frauen und Mikrofinanz auf den folgenden Seiten etwas genauer zu beleuchten. Besonders spannend ist dabei der Vergleich von Kleinstunternehmerinnen in El Salvador und Luxemburg.

Die Bruttorendite des Fonds blieb weitgehend stabil und der Fonds konnte als ersten Erfolg innerhalb seines mittelfristigen Ziels zur Effi-ziensgewinnung die operativen Kosten leicht sen-ken. Jedoch wurde das finanzielle Ergebnis durch Risikorückstellungen auf Positionen in Südafrika und Aserbaijan negativ beeinflusst. Die Nettoren-dite betrug 2,8% für Klasse B Aktionäre, 1,7% für Klasse C und 2,3% für Klasse A.

Der Fonds verzeichnete einen Nettomittelzufluss von +14% und wuchs im Berichtszeitraum auf EUR 22,5 Millionen. Die Zuflüsse stammen etwa zu gleichen Teilen von neuen institutionellen und privaten Anlegern.

Für die Zukunft sieht der Fonds in Zeiten von turbulenten Märkten die Notwendigkeit seine An-lagestrategie auf den Prüfstand zu stellen, weitere Aktionäre zu gewinnen sowie, als Investment-fondsstruktur neue Investitionsfelder zu erschlies-sen. Wir bedanken uns bei allen Aktionären für Ihr Vertrauen!

08-09

The Luxembourg Microfinance and Develop-ment Fund and its sole sub-fund, the Social Venture Capital Sub-Fund (LMDF or Fund) closed the financial year 2015/16 at the end of March. Last year, LMDF had set itself three objectives to increase social and financial performance: (1) to ensure that the Fund is fully invested, (2) to increase shareholder inflows and (3) to increase operational efficiency. This management report evaluates progress made on each of these objectives.

The focus area of this report raises an important question in microfinance: How do we incorpo-rate a gender dimension in an industry where two thirds of clients are women? In its mission statement LMDF states that it “enables the development of micro-entrepreneurs in areas where unmet needs are largest, particularly among women, youth and rural populations”. In this report LMDF has looked at its own portfo-lio and investment process with a gender lens and interviewed a leading figure on the subject. We also compared two women driven micro-enterprises in El Salvador and Luxembourg and found surprising overlaps in the challenges faced.

This report is published at a time when the microfinance industry and microfinance investment funds are facing head winds. Many commodity exporting countries are in economic difficulty and the expansion of credit supply and net investment inflows into emerging markets has halted. LMDF has so far been largely spared from the main effects since most of the frontier markets we invest in are less integrated into global capital markets. LMDF has, however, had to make provisions against two loans to mi-crofinance institutions in Azerbaijan and South Africa which has impacted financial returns.

/ Investment activities leading to a fully invested Fund

The Fund finalised seventeen transactions with microfinance institutions (“MFIs”) during the financial year, disbursing EUR 6.6 million. LMDF invested in twelve new MFIs while five transac-tions were made with MFIs in which LMDF had previously invested before. Some highlights were:

• A first loan to the microfinance institution ACME in Haiti, active since 1997, including the period after the devastating earthquake of 2010. ACME finances the active popula-tion in the capital Port-au-Prince and in secondary cities throughout the country;

• The Fund's first transaction in East Timor through Tubai Rai Metin (TRM). TRM is one of the leading microfinance institutions in a country emerging from its struggle for independence and with large development challenges;

• An expansion of the Fund’s activities in Africa through first investments in the MFIs PEBCO in Benin and PAMF in the Ivory Coast. In both cases LMDF is among the first investors in the institutions to facilitate growth;

• A first loan to the MFI Chamroeun in Cam-bodia. Chamroeun has an inspiring social business model oriented to the needs of households below the mainstream of the microfinance market in Cambodia;

• The Fund’s first transaction in Indonesia, in-vesting in the cooperative KOMIDA, an MFI focused on women micro-entrepreneurs.

Management report on activities


Source: LMDF analysis of data submitted by MFIs as at 31 December 2015, excluding certain indirect investments in microfinance.

GRAPH 1: MICROFINANCE INVESTMENTS BY COUNTRY AND HUMAN DEVELOPMENT(in % of microfinance portfolio)

*Includes investment in regional fund investing in Latin American countries.Source: LMDF analysis as at 31/03/2016. Human Development Index 2015 by UNDP.

GRAPH 2: MARKET FOCUSAVERAGE LOAN DISBURSED BY COUNTRY (in EUR)

Niger

Mali

Ivory Coast

Benin

Haiti

Cambodia

East Timor

Honduras

Guatemala

Morocco

Nicaragua

El Salvador

Philippines

Indonesia

Mongolia

Ecuador

Peru

Azerbaijan

USA*

Low Human Development 11%

0 5 10 20

Medium Human Development 60%

High Human Development 26%

Very High Human Development 3%

0

500

1,000

1,500

2,000

2,500

3,000

Peru

Mon

gol

ia

El S

alva

dor

Ecua

dor

Hon

dur

as

Nic

arag

ua

Cam

bod

ia

Gua

tem

ala

Aze

rbai

jan

Uru

gua

y

Hai

ti

Mor

occo

Phili

pp

ines

Nig

er

Mal

i

Source: LMDF analysis of weighted average data provided by partner MFIs as at 31/12/2015


GRAPH 3: ECONOMIC PURPOSE OF MICRO- CREDITS FINANCED BY LMDF (in %)

GRAPH 4: ACTIVE MICRO-ENTREPRENEURS FINANCED BY LMDF

Investment activities were balanced by cash inflows from MFIs with the portfolio of micro-finance investments increasing from EUR 17.9 million end of March 2015 to EUR 19.6 million end of March 2016, an increase of 9.5%. 87.3% of the Fund's assets where invested in microfi-nance at the year-end.

The geographic composition of LMDF’s portfolio has shifted in favour of Asia with Latin America and the Caribbean remaining the main region, comprising 54% of all investments (62% at the year-end 2015), and Asia accounting for 27% (23% at the year-end 2015). Importantly, from an impact stand-point, the share of invest-ments in Africa (which remains the region with the largest unserved population) increased as well, from 13% to 16% of all investments.

/ Social performance

Graph 1 shows all investments classified ac-cording to the human development status of the country. 11% of all investments are made in the least developed countries, 60% in medium developed countries and 26% in highly devel-oped countries. 3% of the Fund is invested in countries with very high human development levels, although this includes investments in vehicles ultimately channeled to less developed countries.

LMDF’s investments in Haiti, East-Timor, Benin and Ivory Coast illustrate that social perfor-mance considerations continue to be integral to our decisions. Although the measurement of social performance across the portfolio remains methodologically challenging, we continue to report proxy indicators developed in our Social Performance Report: “Driving Social Impact Through Microfinance: Social Performance Report 2010 – 2015”, available for download on our website.

72% of final clients are women, a fact which is further analysed in the gender lens section of this report. Financing for smallholder agriculture constitutes a third of the total portfolio. The investment in the Higher Education Finance Fund is gaining momentum with almost 3000 students from low-income households reached, 10% of whom are financed by LMDF.

LMDF continues to monitor whether microfi-nance services are delivered in a fair and re-sponsible manner. Graph 5 shows the average interest rate charged to clients, on average 28% in different currencies across the portfolio. This is a 2% improvement over the previous years and provides some evidence that MFIs are increasing efficiency.

Consumption & others

Production & craft activities

Agricultural activities

Services & trading activities

Services/ trade activities49%

Agriculturalactivities

32%

Production/crafts activities

7%

Consumption & others 12% Women

22,328 (72%)Men8,683 (28%)

Total31,011


/ Stable financial performance but impacted by provisions

The Fund maintained stable income; gross income from microfinance and liquid assets decreased very slightly to 7.1% of average net assets during the year (from 7.2% during the previous year).

One of the priorities of last year was an increase in the operational efficiency of the Fund. To that effect, LMDF and ADA agreed on a revised advisory fee structure which lowered costs for the Fund from 1st October 2015 onwards by 0.25% and a further 0.10% once the assets managed by the advisor reach EUR 25 million. As a consequence, the total expense ratio started to decrease from 3.5% in the previous year to 3.4% during this financial year.

LMDF provided for credit risk which significantly impacted the financial result. LMDF’s provisions on two loans during the first quarter of 2016 accounted for 0.7% of average net assets.

The provisions led to net returns close to, but below, the target returns for investors. Net returns of the NAV/Share during the last twelve months were 2.3% for Classes A, 1.7% for Class C and 2.8% for Class B shareholders (Graph 7). This compares to 1.5% benchmark returns for the industry during the same period (Symbiotics SMX Euro Index).

/ Increased interest from institutional and retail shareholders

Increasing the size of the Fund in view of operational efficiency and stability is one of the strategic priorities. During the financial year, net assets grew by 14% both through investments in the institutional (Class B) and retail (Class C) share classes of LMDF (Graph 6 shows the details). Interest in LMDF was facilitated by an increasingly clear communication on our social purpose, for example through the Social Performance Report published in 2015 and investors' search for alternatives in a low interest rate environment.

/ Risk review

The fall in commodity prices and end of a long period of credit expansion strongly influenced the economic situation in many developing and frontier markets and impacted credit, country and currency risks during the financial year.

- Credit risks

LMDF resolved two credit risks during the year, IDESI Nacional in Peru and Microfin in Uruguay. Both MFIs paid back their loans in full.

LMDF maintained the provision on a loan granted to the MFI CrediFlorida in Peru which was originally made in March 2014. Increased risks of default were caused by the impact of the coffee rust on many of the MFI’s clients, mostly smallholder coffee farmers. As at 31st March 2016 the situation is stable with risks mainly arising from the MFI’s funding structure. The Board decided to maintain the provision.

12-13

0%

5%

10%

15%

20%

25%

30%

Margin on micro-loan operationsOperating expensesCost of �nancingRisk costs & provisions

Total 27.7%

GRAPH 5: COMPONENTS OF MFI'S INTEREST RATES CHARGED TO CLIENTS


GRAPH 7: DEVELOPMENT OF NAV PER SHARE OF CLASS B AND CLASS C SHARES DURING THE LAST 12 MONTHS (in EUR)

GRAPH 6: NET ASSET VALUE BY SHARE CLASS (in EUR)

Source: LMDF analysis

Source: LMDF analysis

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

Class B Shares (institutional)Class A Shares (public)

Class C Shares (retail)

31/03/2015 30/09/2015 31/03/2016

14%

67%

19%

Class CClass B

100

101

102

103

104

105

106

107 + 1.7%

+ 2.8%

108

31/12/201530/09/201530/06/201531/03/2015 31/03/2016

109


Two new credit risks emerged during the year. In March 2014, the Fund subscribed to a note expos-ing it to the Tier 1 microfinance institution FINCA Azerbaijan, part of the FINCA network. FINCA Azerbaijan is facing very substantial credit risks and pressure on its solvency in a very challenging economic and political environment.

The Fund also decided in December 2015 to make a provision on the loan granted to Tembeka Social Investment Company, South Africa. Tembeka defaulted on the principal and interest payment due end of January 2016. The Fund is currently negotiating a restructuring with Tembeka and its shareholders.

The Fund’s risk diversification improved during the financial year. The average exposure to MFIs decreased from 2.8% of total net assets end of March 2015 to 2.1% at the end of March 2016. In line with the overall growth in net assets, the Fund’s largest exposures decreased from more than 5% of net assets to 4.4%. LMDF’s average exposure to MFIs is EUR 480,000, in line with our focus on emerging microfinance institutions.

- Currency risk

The Fund maintained its conservative approach to currency risks in volatile markets. 66% of the

Fund’s total net assets are invested in instruments denominated in USD. The USD-EUR market risk is a significant risk for the Fund and continues to be hedged through short term forward foreign exchange instruments. LMDF decided in Novem-ber 2015 to amend its hedging strategy to include one year of future interest income denominated in USD on the forward instruments to protect future income from fluctuations of the Euro against the US Dollar.

The Fund hedges other foreign currency expo-sures through cross-currency interest rate swaps and forwards, including its exposures to the West African Franc CFA, the Indonesian Rupiah, the Philippine Peso and the loan denominated in Thai Baht to an MFI in Cambodia.

- Country risks

At the end of the year LMDF is invested in 20 countries. The biggest exposures are towards Ecuador (10.7% of net assets), Cambodia (9.7%) and Nicaragua (9.4%). Five countries concentrate 45% of investments, a significant improvement from 56% at the end of March 2015.

Hedda Pahlson-Moller from OMSINT interviewed Vincent Hieff from the Ministry of the Economy // LMDF

LMDF is monitoring closely the situation in Ecua-dor, a country highly dependent on the export of gas and oil. Ecuador has been further impacted by earthquakes after the end of LMDF’s financial year.

/ Outlook

In April 2016 ADA appointed Laura Foschi, Deputy Director of ADA, to lead ADA's investment advi-sory services. Approaching EUR 25 million in assets, LMDF de-cided to strengthen its investment management team and has hired Apricot Wilson as assistant investment manager. Apricot previously worked at Aberdeen Asset Management.

The strategic priorities for the next financial year are:

1. In close collaboration with the Investment Advisor, to put in place an investment strategy covering the next three years as well as finding the right responses to the longer term industry trends;

2. To develop an efficient fundraising model

targeted at Luxembourg institutional and retail investors in close collaboration with our banking partners;

3. To diversify the impact investing activities of LMDF – in line with the D for development in our name - through the creation of additional sub-funds which should benefit all shareholders through increased efficiencies.

As always, we very much welcome your com-ments or questions,

Kaspar Wansleben

Executive Director([email protected])

Note: The figures stated in this report are historical and partly based on unaudited information received from microfinance institutions. Such figures are not necessarily indicative of future performance. The calculations follow, wherever applicable, the Microfinance Investment Vehicles Disclosure Guidelines as published by CGAP in 2010.

LMDF organized a conference: InvestDifferently, The Women Effect - Investing with a gender lens on the 9th of May 2016 // LMDF

mailto:kaspar%40lmdf.lu?subject=


"Women have another way to approach, and to analyse and to manage risk than men and I think financial institutions are starting

to understand that"// Aude Lemogne - Link Management

"How do we manage to move from a numerical approach, an approach of mere presence, to much more of a qualitative approach, where you

have women actually being part of the decision process all the way up" // Sarah Khabirpour - BIL

"When women decide to do what they dream of and what they intend to do, they do it with passion" // Claudine Lorang - Fondation Fuse

"Women make up 50% of the world’s population and yet there is still a long way to go before they receive 50% of the world’s

funding"// Kaspar Wansleben - LMDF

Our vision is to “contribute to the alleviation of poverty by supporting organisations that empower people and stimulate entrepreneurship, with a particular focus on the most excluded.” The question is: where are people most excluded and where are the unmet needs highest? Although exclusion and poverty are rife in many areas, research shows that women are disproportionately marginalised. Boys have a 50% higher chance of finishing their studies than girls and UNDESA has calculated that there are 4 million excess female deaths per year as women’s health is not prioritised. In terms of financial inclusion, women also remain comparatively excluded. Globally only 58% of women have a bank account, and in developing countries over 70% of female-owned SMEs are underserved by the finance system. Yet a recent McKinsey study found that the ripple effects of increased gender parity could add USD 12 trillion to global growth. These ripple effects can also have an

impact on many other facets of society, from education, to healthcare, and even to peace.

This brings us back to the original question. By focusing on women, LMDF is able to target some of the world’s most excluded people and also to work in areas where the unmet need is highest. By doing so, the Fund can bring about ripple effects within a wider community. For this reason a high proportion of LMDF’s loans are given to women. Ensuring that the fund has an appropriate gender focus requires a multi-dimensional approach which goes further than purely monitoring the recipients of the Fund’s loans.

The statistic which LMDF normally reports is the proportion of end beneficiaries who are female. At the moment this stands at 72%. This is comparatively high. According to the 2014 Symbiotics report, the Fund’s peer group provide an average of 66.5% of their funding to women. This statistic suggests that the fund, and for that matter, the industry as a whole,

Gender and Microfinance LMDF under the gender lens

1

Source: LMDF analysis based on data provided by partner MFIs

0

10

20

30

40

50

60

70

80

90

100

Women

Men

East

Tim

or

Mal

i

Cam

bod

ia

Phili

pp

ines

Hai

ti

Gua

tem

ala

Nic

arag

ua

Nig

er

Ben

in

Mor

occo

El S

alva

dor

Ecua

dor

Hon

dur

as

Peru

GRAPH 8: PROPORTION OF MALE AND FEMALE CLIENTS IN SELECTED COUNTRIES (in %)


“Gender inequalities in the Nicaraguan Caribbean are evident at the level of unemployment of women, the area in which they are occupied or the level of underemployment that they have and their access to land.”

Lucila Law Blanco - General Manager of Pana Pana

is making good strides in reaching the most financially excluded. However, a single statistic is far from the full story.

Graph 9 shows that the countries in which LMDF invests have very different contexts in terms of gender parity. The Social Institutions and Gender Index produced by the OECD considers five key areas which impact on women’s lives, including “discriminatory family code, restricted physical integrity, son bias, restricted resources and assets, and restricted civil liberties.” The graph highlights that the countries in which LMDF operates have a range of social contexts.

Some, despite their relatively low levels in the Human Development Index, show low levels of gender inequality. Others are among the most challenging countries in the world in which to

be a woman. Mali, for instance, has shown a regression in women’s rights since the new Family Code was implemented in 2011. This Code enshrined men’s rights over women’s in the law stating that “a woman must obey her husband“ and that men are considered “head of the family.” In this patriarchal and agrarian society, where women bear the brunt of the heavy labour, these steps mean that women are becoming even more marginalised.

The proportion of men and women that LMDF invests in varies from country to country. Graph 8 (below) highlights that over 50% of LMDF’s loans go to women in all except for two countries: Honduras and Peru. It is interesting to note that the 5 countries with the lowest proportion of female clients are also 5 out of the 6 countries in which LMDF invests which are classified as having a low level of gender inequity by the OECD. This might suggest that MFIs have less of a need to focus on promoting women’s rights in these areas and hence have a more balanced range of clients or it might reflect the fact that demand for loans is more balanced between men and women in the rural communities which form the bulk of our investments in these countries.

Source: OECD 2014

0

0.1

0.2

0.3

0.4

0.5

0.6

Ecua

dor

Cam

bod

ia

El S

alva

dor

Peru

Mor

occo

Hon

dur

as

Gua

tem

ala

Hai

ti

Nic

arag

ua

Phili

pp

ines

East

Tim

or

Ben

in

Nig

er

Mal

i

MediumLow High

Very High

GRAPH 9: GENDER DISCRIMINATION IN PORTFOLIO COUNTRIES(OECD Social Institutions and Gender Index)

18-19

To understand the gender dynamics, it is important not only to consider the underlying clients, but also diversity within the institution in which LMDF invests. For this reason, LMDF and its advisor, ADA, collect data on the breakdown of staff by gender in each institution and also the breakdown of management by gender.

Graph 10 shows the staff and management in two of LMDF's investments in institutions whose end-clients are over 90% women. In one of the institutions, the Management team shows a good gender balance which may indicate that the Board is well able to understand its clients’ needs. The other institution shows a concerning dominance of men both at the employee and director level.

Given that the institution operates in a country where women still remain highly marginalised, this gender breakdown is perhaps less surprising. However it is still a concern that an institution with such a focus on female clients remains so male dominated at all levels.

Not all MFIs show such marked gender segregation in the management as the second MFI example here. In fact, across all our MFIs, just over a quarter of our principal financial contacts are female. This is not yet enough to consider there to be an appropriate gender balance, particularly given the female dominated client base. Nonetheless, it compares favourably to the situation back in Europe, where only eight out of the twenty-eight member states (France, Latvia, Finland, Sweden, UK, Denmark, Italy and Germany) have women representing at least 25% of board members (of quoted companies).

Truly adopting a gender lens also entails looking at our own practices through a gender lens. On a staffing level, the fund and its investment research team shows a valuable balance both of genders, nationalities and backgrounds. We find that this is crucial for bringing about the debate that is much needed as part of the investment process. However at the Board level, like many companies in Luxembourg, we also fall down and do not reach the levels of diversity to which we aspire. A first step to rectifying this is to have an open debate and recognise this issue and to discuss its importance. We hope that other companies will follow suit and take a similar gender lens to their processes, staffing and procedures.

Source: LMDF analysis based on data provided by partner MFIs and ADA

80%

% female management

% male staff% female staff

% male management

100%

65%

20%

81%100%

4%

100%96%

2012 2013 2014

MFI A

MFI B

19% 17%

92%

8%

83%

65%56%

35%44%

70%56%

31%

56%69%

30% 30%

56%

44%

70%

44% 44%

2015

GRAPH 10: STAFF BY GENDER: ANALYSIS OF TWO MFIS FROM LMDF'S PORTFOLIO

“Pro Mujer’s health care program in Nicaragua has saved the lives of thousands of women. In the past 13 years, through the training and health care, the deaths of more than 3,000 women have been prevented by diagnosing cancer promptly in an initial stage. That's one of the greatest achievements and illustrates Pro Mujer's interest in the welfare of our clients.”

Gloria Amelia Ruiz Gutiérrez, CEO of Pro Mujer Nicaragua


Claudine Lorang, Kaspar Wansleben, Sarah Khabirpour and Aude Lemogne were the panelists at the Women Effect Event // #InvestDifferently Conference

Gloria Amelia Ruiz, General Manager // Pro Mujer NicaraguaLucila Law Blanco, General Manager // Pana Pana

20-21

Four questions to Suzanne Biegel, Founder of Catalyst at Large

2

Suzanne Biegel, Founder of Catalyst at Large, gave the keynote address at the Luxembourg Microfinance and Development Fund’s first Invest Differently event, The Women Effect. After the event, we took the time to catch up with her, to gain some practical insights into what taking a gender lens means for fund managers and in particular for the LMDF.

How can a gender lens be implemented within a fund?

This really depends on the fund. Some funds may be inherently gendered and lead with a female focus, others might have a different aim, for instance, climate change or agriculture, but find that it is important to consider where gender fits in as part of their work. Depending on the fund’s remit, gender can be examined at many stages in the investment process. In fact, at any point where you begin to notice gender, you can start to take it into account, be it by looking at women in the supply chain, female customers or beneficiaries, or women leaders, entrepreneurs or co-founders.

This is not purely a question of looking at numbers. Consider, for instance, factories, which might have high levels of female workers, but all employed at the lowest levels, with little opportunity to have their voices heard. To resolve the imbalance you need to understand policies and how people are valued. Adopting such an approach means that you need to consider your whole investment process, how deals are sourced, screened, evaluated, collected and, of course, how data capture is handled.

Moreover, as a fund, you should not forget that you can put pressure onto companies to encourage them to change their practices, be it by withholding capital until such a time as a company starts to provide crucial data on the gender balance among its staff, or by structuring a loan to encourage improvements in corporate governance.

It is not only the underlying investment which needs to be considered. It is also the governance of the fund itself. Who is on the board? The management team? The Investment Committee? Who is making the decision about how capital is being deployed?

What impact do you hope to have by viewing investment through a gender lens?

First and foremost I want to increase access to capital for women entrepreneurs and fund managers. There is currently a capital gap and women-led SMEs are disproportionately excluded, with over 10 million female-owned SMEs seeking financing. This situation is more challenging in the developing world, where land ownership rights, the listing of companies in male names, the requirement for a husband’s approval or cultural issues make it extremely challenging for women to obtain loans. There are, of course, exceptions, such as the female entrepreneurs who are driving the Philippines forward, but, by and large, women do face more difficulty. Even in the high-tech, high-capital world of Silicon Valley, the successful female entrepreneurs, who say that they


found the process of obtaining funding to be gender blind, are certainly exceptions.

The other reason why I am so interested in investing with a gender lens is because of the opportunities I identify. The lack of women on investment committees and in investment roles within funds means that there may be a gender bias in the allocation of capital. Single-sex teams may overlook certain opportunities because they are not in tune with everyone’s needs or because they do not understand the target market. Aligned to this, I also believe that investing with a gender lens can help to counter risk. If a company’s gender policy is not carefully constructed, a company can face significant challenges with its labour force or supply chain, be it from a class action law suit, a public scandal or a mass exodus of high quality women. Those who take this into account can make significant strides into de-risking their business.

Of course, having a more gender equal world is the right thing to do. It is just and fair that people have equal access to capital. Finance can be a powerful tool for social change. Hopefully by shining the light on female success stories, more women will be encouraged and have the confidence to go forward in their career. Additionally, given the factors I mentioned above, investing in women also seems to be the smart thing to do.

You have already mentioned some of the challenges which entrepreneurs in the

developing world face when seeking finance. Are there any other challenges that you perceive that make the emerging market context difficult?

There are a lot of other factors which make life more complicated for women in the developing world. Firstly, cultural norms may place lower expectations upon women, with people doubting they will be able to set up, and grow businesses or obtain financing. This can really hold women back and have a profound impact on their confidence. The effect is compounded by the fact that women may not have had the same levels of education as men which can make certain aspects of running a business very challenging. When change does start to happen and women do have more access to capital and start taking financial decisions, there can often be a backlash. We may see a rise in gender-based violence which takes a long time to diminish. However, things are changing and there are some fantastic examples of female-led businesses in emerging economies.

Financial barriers are a second problem. I have already highlighted some of the issues women may have in trying to obtain loans, and these can contrive to make women anxious about turning to external financing and even lead to them being suspicious of it. To counteract this, women need more coaching, mentoring, support and role

"It is just and fair that people have equal access to capital. Finance can be a powerful tool for social change."

models to encourage them to grow their businesses. Yet, when the role models of business people seen in local media are overwhelmingly male, it is difficult to build up momentum for change.

However, the challenges may also present opportunities. At the moment angel investing is not understood in emerging economies. Although it has become a critical source of capital in the developed world, its potential has not yet been discovered in emerging markets: providing an infrastructure and a better understanding of this source of funding presents an exciting possibility. Remittances is another area which also has considerable potential. Traditionally these have been used to support a family’s education or healthcare, but people working abroad are increasingly looking to do more with the money they send back home and platforms such as Homestrings are catering to this need. Any new means of providing capital can give local entrepreneurs confidence which can help to seed further opportunities.

How do you see gender lens investing developing in the future?

Over the past 5 years, people have really begun to shine a light on this area. At every level, from the World Bank to the large financial institutions, people are starting to realise that this is an important area that must not be ignored because of its significance in social and economic terms. Yet, despite this realisation, gender lens investing is still a drop in the ocean in the scheme of the billions of dollars currently under management and it is still much smaller than it needs to be. To get it to grow to its full potential, various players, from the large institutions to programmatic funding and grant money, need to sponsor initiatives. We are currently seeing a wave of new products from Credit Suisse, Morgan Stanley, Barclays, UBS and Bloomberg.

This is promising, as products are needed to start the investment cycle, however the concern is that they will not receive sufficient support from investors. A lot of money seems to have been placed behind product launches, but less attention has been paid to the marketing and sales process which needs to follow to ensure this is not a flash in the pan, but a trend which gets the attention it deserves.

"Just having a woman on the board or just having a woman in management actually does not mean that there is a shift…"// Suzanne Biegel


Women driven entrepreneurshipThe case of SABI PLUS in El Salvador and OUNI in Luxembourg

3

As part of its vision, the Luxembourg Microfinance and Development Fund aims to stimulate entrepreneurship, with a particular focus on the most excluded. LMDF is by no means the only institution with such an aim. Across the globe, we are seeing a real interest in entrepreneurship and startups, be it the wish to encourage the Fintech industry in Luxembourg or the campaigns that many nations are running to attract entrepreneurial talent to their shores.

At LMDF, we are particularly interested in social entrepreneurs, those who not only aim to start a successful business, but hope also to contribute to social development through doing so. To explore the issues surrounding social entrepreneurship, LMDF has spoken to two groups of female entrepreneurs, SABI PLUS in El Salvador, who work with AMC, an MFI supported by LMDF, and OUNI in Luxembourg. Although the two businesses come from very different contexts, the groups of social entrepreneurs face similar challenges.

Female Social Entrepreneurs

Following a course on producing personal care products from natural herbs, twelve women from Morazán in El Salvador became interested in starting a business. They therefore decided to launch SABI PLUS, also known as ‘Women in harmony with nature’, in 2013. However, it soon became clear that the women needed to know much more than the basics of creating products. They had to have a sales

strategy, a business plan and resolutions to all sorts of logistical problems, from finding a suitable location to sourcing bottles, labels and machinery. The organisation they had initially worked with was not able to help them. Faced with these challenges, only 5 of the women decided to go ahead with the project.

On the other side of the world, in Luxembourg City, a cooperative called OUNI (Organic Unpackaged Natural Ingredients) started to take shape in 2015. The founders had met via a social network. One of the founders, Patricia, had posted “I am fed up of all this plastic; Who wants to open a packaging-free shop?” Six women picked up on this frustration and the initial simple message was translated into OUNI, a company aiming to open the first packaging-free supermarket in the country, offering organic and regional products.

Financing issues

Back in Central America, the dedicated group of women had a hard first year in business. Initially they had no support and could not find an organisation that would provide a loan. This meant that each member had to use part of their family income to purchase material and equipment, but family incomes were minimal and it was a real challenge to meet the expenses and stay solvent. The women realised that they could not continue like this.

Fortunately, AMC - a microfinance institution (MFI) with which LMDF works, paid them a visit, and seeing the business’ potential and the women’s

passion, suggested that they participate in a programme designed for female entrepreneurs.

The women at OUNI are showing similar determination when it comes to collecting funding. Following positive feedback from the Luxembourg community, OUNI has taken an unconventional route to financing. Instead of seeking credit, they are selling shares to be member of the cooperative that they have founded. In just three months, they have raised EUR 160,000 from over 400 shareholders and they are still seeking a further EUR 20,000 which will enable them to hire a location and buy all the necessary equipment.

Skills, skills, skills

Both groups started out with a lack of business skills, but have now received training. In El Salvador, this came from AMC which provided courses in topics from business innovation through to product costs and customer services. The women have also participated in further workshops to learn how to create natural cleaning products to diversify the product line.

In Luxembourg, the women from OUNI were part of the start-up program 1, 2, 3, Go Social which provided accountancy training and support in writing business plans. They also received help from a coach, the Luxembourg Chamber of Commerce and even from other packaging-free shops. All in all, the team found that setting up a business in Luxembourg was a relatively smooth process. One of the founders had previously lived in Guatemala and really felt for the entrepreneurs in El Salvador- in her experience working there was “like looking for information in a jungle”.

Remaining challenges SABI PLUS has now been legally constituted on the other side of the world, but challenges still remain. One of the main ones is accounting and billing, something the women are not used to doing. Nonetheless they are confident that, with the support of AMC, they will be able to resolve these issues and they even hope in future to expand beyond the territories of Morazán. Interestingly the OUNI team also states that accounting will be one of the challenges when opening their shop. Coordination of work shifts and the hunt for the right location and equipment are also top of their to-do-list. There are other common difficulties for the two nascent businesses. Time management and scheduling around a family is never easy, but both teams note that a perk of having an all-women group is the ease of distributing tasks without neglecting each other’s family duties.

Both groups managed to set up their business with the help of people who were convinced that their business could succeed and who supported them with their business development. The process of setting up a social business in any corner of the world, of caring about the environment and spreading social awareness, is similar, as shown by the shared challenges the entrepreneurs face. The two groups are positive about the experience- Anne one of OUNI’s founders encourages others to try it out too: “Believe in your idea and go for it”.

A special thank you to Vanessa Merker, intern with LMDF for her interest in gender issues and the research for this article.


The women's group SABI PLUS created in 2013 is also know as "women in harmony with nature" // AMC El Salvador

The Luxembourgish cooperative OUNI, Organic Unpackaged Natural Ingredients // OUNI

26-27

Board of Directors and Committees // Conseil d’administration et comités

Chair - Président

Kenneth Hay Independent

Vice Chair - Vice-présidente

Hedda Pahlson-Moller (until 26/01/2016) Independent

Members - Membres

Viviane Clauss Banque de Luxembourg (BdL)

Marc Elvinger (until 2/07/2015) Independent

Gilles Franck (from 21/12/2015) ADA - Appui au Développement Autonome

Michel Haas (from 28/05/2015) Ministry of Finance

Max Meyer (from 13/01/2016) ADA - Appui au Développement Autonome

Raoul Stefanetti Banque Internationale à Luxembourg (BIL)

Richard Philippart (until 17/04/2015) Development Cooperation Department,

Ministry of Foreign and European Affairs (MAEE)

Manuel Tonnar (from 28/05/2015) Development Cooperation Department,

Ministry of Foreign and European Affairs (MAEE)

Paolo Vinciarelli Banque et Caisse d'Épargne de l'État (BCEE)

Kaspar Wansleben Executive Director

Investment Committee Risk Committee

Comité d'investissement Comité de risque

Marc Elvinger - Independent Kenneth Hay - Independent

Gilles Franck - ADA Max Meyer - ADA

David Goebbels - MAEE Raoul Stefanetti - BIL

Michel Haas - Minstry of Finance Paolo Vinciarelli - BCEE

Olivier Selis - BGL BNP Paribas

Raoul Stefanetti - BIL

Richard Philippart - MAEE (until 17/04/2015)

Kaspar Wansleben - Executive Director

Marketing Committee Employment Committee

Comité de marketing Comité d'emploi

Viviane Clauss - BdL Marc Elvinger - Independent

Hedda Pahlson-Moller - Independent Kenneth Hay - Independent

Didier Richter - BIL Manuel Tonnar - MAEE

Patrick Bilbault - Independent Richard Philippart - MAEE(until 17/04/2015)

Registered Office // Domicile

2, place de Metz

L-1930 Luxembourg

Trade Register Number // Registre de commerce

et des sociétés

R.C.S. Luxembourg B 148.826

Statutory information Organisation


Custodian and Paying Agent Administrative Agent, Registrar and Transfer Agent

Banque dépositaire et agent de paiement Administration centrale et agent de transfert

Banque et Caisse d’Épargne de l’État European Fund Administration S.A.

1, place de Metz 2, rue d’Alsace

L-2954 Luxembourg L-1017 Luxembourg

Auditors // Réviseur d’entreprises agréé Legal Advisors // Conseiller légal

KPMG Luxembourg, Société coopérative Elvinger, Hoss & Prussen

39, Avenue John F. Kennedy 2, place Winston Churchill

L-1855 Luxembourg L-1340 Luxembourg

Distributors // Distributeurs

28-29

Banque de Luxembourg S.A.

14, boulevard Royal

L-2449 Luxembourg

Banque et Caisse d’Épargne de l’État

1, place de Metz

L-2954 Luxembourg

BGL BNP Paribas S.A.

50, avenue J.F. Kennedy

L-2951 Luxembourg

Fortuna Banque s.c.

130, boulevard de la Pétrusse

L-2330 Luxembourg

Foreign Currency Settlement Agent // Agent de compensation en devise

INTL FCStone Ltd,

Moor House, 1st Floor, 120 London Wall

London EC2Y 5ET

United Kingdom

Foreign Currency Hedging Provider // Contrepartie de couverture de risque de change

MFX Solutions, Inc.

1050 17th St. NW, Suite 550

Washington DC, 20036

United States of America

Banque et Caisse d’Épargne

de l’État

1, place de Metz

L-2954 Luxembourg

Identity numbers // Code d’identité

Class B shares Class C shares

ISIN: LU0456966935 ISIN: LU0456967404

Bloomberg: LMDSVCB:LX Bloomberg: LMDSVCC:LX

Telekurs: 10633787 Telekurs: 10633788

Microfinance expertise // Expertise en microfinance

Arranger and Servicer to Micro, Small &

Medium Enterprises Bonds S.A.

Symbiotics SA

75, rue de Lyon

CH-1203 Geneva

General Partner of the Higher Education

Finance Fund LP

OMTRIX Inc.

Oficentro La Virgen No.2, Edificio 1, Piso 1

Zona Industrial de Pavas,

San José, Costa Rica

Investment advisor // Conseiller en investissement

ADA - Appui au Développement Autonome asbl

39, rue Glesener

L-1631 Luxembourg

To the Shareholders ofLuxembourg Microfinance and Development Fund SICAV2, Place de MetzL-1930 Luxembourg

REPORT OF THE REVISEUR D’ENTREPRISES AGREE

Following our appointment by the annual general meeting of the Shareholders dated July 02, 2015, we have audited the accompanying annual accounts of Luxembourg Microfinance and Development Fund SICAV and its sub-fund, which comprise the statement of net assets and the statement of investments and other net assets as at March 31, 2016 and the statement of operations and other changes in net assets for the year then ended, and a summary of significant accounting policies and other explanato-ry information.

Responsibility of the Board of Directors for the financial statements

The Board of Directors of the SICAV is responsible for the preparation and fair presentation of these financial statements in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the financial statements, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Responsibility of the Réviseur d’Entreprises agréé

Our responsibility is to express an opinion on these financial statements based on our audit. We con-ducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require 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.

Report of the independent auditorRapport du réviseur d'entreprises agréé


An audit involves performing procedures to obtain audit evidence about the amounts and disclo-sures in the financial statements. The procedures selected depend on the judgement of the Ré-viseur d’Entreprises agréé, 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 Réviseur d’Entreprises agréé 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 circum-stances, 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 rea-sonableness of accounting estimates made by the Board of Directors, 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 give a true and fair view of the financial position of Luxembourg Microfinance and Development Fund SICAV and its sub-fund as at March 31, 2016, and of the results of its operations and other changes in net assets for the year then ended in accordance with Luxem-bourg legal and regulatory requirements relating to the preparation of the financial statements.

Other matters

Supplementary information included in the annual report has been reviewed in the context of our man-date but has not been subject to specific audit procedures carried out in accordance with the stan-dards described above. Consequently, we express no opinion on such information. However, we have no observation to make concerning such information in the context of the financial statements taken as a whole.

Luxembourg, June 9, 2016 KPMG LuxembourgSociété coopérative

Cabinet de révision agréé

Assets – Actif Notes EUR Shares (and equity-type securities) in regional microfinance 400,248investment vehicles Actions (et instruments similaires) dans des structures régionales d'investissements en microfinance Shares (and equity-type securities) in microfinance institutions 174,510and service providers Actions (et instruments similaires) dans des institutions de microfinance et structures de support Loan agreements with microfinance institutions 6 17,645,037Contrats de prêt avec des institutions de microfinance

Notes backed by loans to microfinance institutions 6, 7 997,982Notes financées par des prêts aux institutions de microfinance

Matured investments undergoing restructuring 6 71,589Investissements arrivés à échéance dans un processus de restructuration

Cash at banks 2,351,219Avoir en banques Savings account 205,446Compte d’épargne Unrealised appreciation on forward foreign exchange contracts 5 532,712Plus-value non réalisée sur contrats de change à terme Income receivable on portfolio 383,341A recevoir sur le portefeuille Other receivables and assets 8 45,195Autres créances et à recevoir

Total assets 22,807,279Somme d'actifs

The accompanying notes form an integral part of this report.

Audited financial statements Etats financiers révisés

as at 31 March 2016 // au 31 mars 2016

// 1 Statement of net assets État des actifs nets


Liabilities – Passif Notes EUR

Accrued expenses 8 223,500Provision pour frais à payer

Unrealised depreciation on swap contracts 5 35,816Moins-value non réalisée sur contrat de swap

Total liabilities 259,316Somme des passifs

Net assets at the end of the year 22,547,963Actifs nets à la fin de l'année

A Class shares outstanding 168,238.537Nombre d’actions en circulation de la Classe A

Net asset value per A Class share 25.82Valeur nette d’inventaire par action de la Classe A

B Class shares outstanding 138,502.062Nombre d’actions en circulation de la Classe B

Net asset value per B Class share 108.93Valeur nette d’inventaire par action de la Classe B

C Class shares outstanding 28,894.500Nombre d’actions en circulation de la Classe C

Net asset value per C Class share 107.85Valeur nette d’inventaire par action de la Classe C

32-33

Over 70% of LMDF’s underlying loans go to women // INMAA

Income – Revenus Notes EUR

Interest on microfinance loan agreements 1,487,987Intérêts sur contrats de prêt en microfinance

Net interest paid on swap contracts (41,926)Intérêts nets payés sur contrat swap

Net interest on microfinance loan agreements 1,446,061Intérêts nets sur contrats de prêts en microfinance

Commissions on microfinance loan agreements 79,914Commissions sur contrats de prêts microfinance

Interest on bank accounts and term deposits 2,485Intérêts bancaires et dépôts à termes

Other income 3,100Autres produits

Total income 1,531,560Somme des revenus

Expenses – Frais

Advisory fees 3 294,107Frais du conseiller en investissement

Salary and wages of the fund management 3, 12 182,105 Charges salariales de gestion du fonds

Custodian fees 18,789Commission de la banque dépositaire

Central administration costs 76,490Frais de l’administration centrale

Bank charges and other fees 3,029Frais bancaires et charges liées

Transaction fees 21,500Frais de transaction

Audit fees 28,370Frais de révision

Other administrative costs 8 104,147Autres charges administratives

Subscription duty 4 0Taxe d'abonnement

Total expenses 728,537Total des frais

Net investment income 803,023Résultat net d’investissement


from 1 April 2015 to 31 March 2016du 1er avril 2015 au 31 mars 2016

// 2 Statement of operations and other changes in net assets État des opérations et des variations des actifs nets


Net realised gain/(loss)Bénéfice/(perte) net(te) Notes EUR

On investments 0Sur investissements

On forward foreign exchange contracts 345,983Sur contrats de change à terme

On foreign currency transactions 145,139Sur transactions en devises

Realised result 491,122Bénéfice/(perte) net(te) réalisé(e)

Net variation of the unrealised gain/(loss) Variation de la plus-value/(moins-value) nette non réalisée

On investment portfolio / Sur portefeuille d'investissements

Variation of impairment on microfinance loans 6 (159,626)Variation de provisions sur prêts microfinance

Variation of valuation of equity investments 80,147Variation de la valorisation des investissements en capital

Variation due to changes in the foreign exchange rate (1,281,167)Variation due à l'évolution du taux de change

Total variation on investment portfolio (1,360,646)Variation totale sur portefeuille d'investissements On forward foreign exchange contracts 592,411Sur contrats de change à terme

On cross-currency swap contracts 16,032Sur contrats de swap de taux et change à terme

On foreign exchange transactions (1,685)Sur transactions en devises

Unrealised result (753,888)Bénéfice/(perte) net(te) non réalisé(e)

Result of operations 540,257Résultat net des opérations

Subscriptions 2,183,276Souscriptions

Redemptions (1,073)Rachats

Total changes in net assets 2,722,460Variation globale de la valeur nette d’inventaire

Total net assets at the beginning of the year 19,825,503Valeur nette d’inventaire au début de l'année

Total net assets at the end of the year 22,547,963Valeur nette d’inventaire à la fin de l'année

Total net assets – Actifs nets EUR

As at 31/03/2016 22,547,963Au 31/03/2016

Number of A Class shares – Nombre d’actions de la Classe A en circulation

Outstanding at the beginning of the year 168,238.537Au début de l'année

Issued during the year 0.000Émises durant l'année

Redeemed during the year 0.000Rachetées durant l'année

Outstanding at the end of the year 168,238.537À la fin de l'année

Net asset value per A Class share Valeur nette d'inventaire par action de la Classe A

As at 31/03/2016 25.82Au 31/03/2016

Number of B Class shares – Nombre d’actions de la Classe B en circulation Outstanding at the beginning of the year 129,279.922Au début de l'année

Issued during the year 9,222.140Émises durant l'année

Redeemed during the year 0.000Rachetées durant l'année


Net asset value per B Class share Valeur nette d'inventaire par action de la Classe B

As at 31/03/2016 108.93Au 31/03/2016



// 3 Statistical information Informations statistiques


Number of C Class shares – Nombre d’actions de la Classe C en circulation Outstanding at the beginning of the year 17,715.880Au début de l'année

Issued during the year 11,188.620Émises durant l'année

Redeemed during the year (10.000)Rachetées durant l'année


Net asset value per C Class share Valeur nette d'inventaire par action de la Classe C

As at 31/03/2016 107.85Au 31/03/2016

Female entrepreneur financed by the MFI Pana Pana, partner of LMDF since 2013 // LMDF


// 4 Statement of investments and other net assets État du portefeuille-titres et autres actifs nets


Instrument // Microfinance institution Note Country Maturity Currency Quantity // Nominal value

Total value (in EUR)

% of NAV

Financial instruments not admitted to an official stock-exchange listing nor dealt in on another regulated market

Investments in regional microfinance funds or similar entities

Higher Education Finance Fund LP USA N/A USD 480,405 400,248 1.8%

Shares (and equity-type securities) in microfinance institutions and service providers

MFX Solutions LLC USA N/A USD 187,090 174,510 0.8%

Subordinated loan agreements with microfinance institutions

Fundación Alternativa para el Desarrollo ECUADOR 28/02/2018 USD 200,000 177,131 0.8%

Fundación Alternativa para el Desarrollo ECUADOR 30/06/2016 USD 150,000 135,221 0.6%

Loan agreements with microfinance institutions

Koperasi Mitra Dhuafa - KOMIDA INDONESIA 10/04/2019 IDR 15,000,000,000 992,932 4.4%

SAMIC Plc CAMBODIA 31/10/2018 USD 1,000,000 910,686 4.0%

Financiera Fundeser S.A. NICARAGUA 12/12/2018 USD 1,000,000 900,134 4.0%

Sociedad Cooperativa de Ahorro y Crédito AMC de RL de CV EL SALVADOR 25/07/2017 USD 1,000,000 888,849 3.9%

Asusu SA NIGER 18/10/2018 XOF 487,500,000 771,996 3.4%

Pro Mujer Inc, sucursal de Nicaragua NICARAGUA 22/10/2017 USD 650,000 590,298 2.6%

Chamroeun Microfinance LTD CAMBODIA 31/03/2018 USD 650,000 570,275 2.5%

Cooperativa de Ahorro y Crédito la Florida 6 PERU 30/11/2017 USD 700,000 552,729 2.5%

L'Association Marocaine de Solidarité sans Frontières/Micro-Crédit

MOROCCO 31/12/2018 EUR 500,000 508,750 2.3%

L'association pour la promotion de l'épargne crédit à base communautaire - BETHESDA

BENIN 10/01/2019 XOF 300,000,000 471,114 2.1%

Fondation al Karama pour la micro finance MOROCCO 10/10/2018 EUR 450,000 463,125 2.1%

Action pour la coopération avec la microentreprise S.A. ACME HAITI 10/04/2019 USD 500,000 455,222 2.0%

El instituto de investigaciones socio-economicas y tecnologicas INSOTEC

ECUADOR 10/07/2019 USD 500,000 447,063 2.0%

El instituto de investigaciones socio-economicas y tecnologi-cas INSOTEC

ECUADOR 10/07/2019 USD 500,000 447,063 2.0%

Empresa para el apoyo y desarrollo de la micro y pequena empresa urbana y rural - MICREDITO S.A.

NICARAGUA 15/01/2019 USD 500,000 447,008 2.0%

Fundación de Apoyo Comunitario y Social del Ecuador ECUADOR 13/07/2018 USD 500,000 446,883 2.0%

Intean Poalroath Rongroeurng Co. Ltd. CAMBODIA 31/08/2018 USD 500,000 441,695 2.0%

Organización de desarrollo empresarial femenino financiera S.A. ODEF

HONDURAS 31/03/2017 USD 500,000 438,673 1.9%

Première agence de microfinance Côte d'Ivoire S.A. IVORY COAST 10/01/2019 XOF 260,000,000 409,422 1.8%

La Cooperativa de Ahorro y Crédito Maquita Cushunchic Ltda. ECUADOR 14/11/2017 USD 450,000 406,157 1.8%

Fundación para el desarrollo integral de programas socioeco-nomicos FUNDAP

GUATEMALA 10/10/2019 USD 400,000 365,656 1.6%

Óptima Servicios Financieros , S.A EL SALVADOR 31/10/2017 USD 400,000 362,645 1.6%

Asociación Arariwa para la promoción tecnico cultural andina PERU 10/04/2019 USD 400,000 351,231 1.6%

Óptima Servicios Financieros , S.A EL SALVADOR 31/10/2016 USD 375,000 339,979 1.5%

Asociación para el Desarrollo Integral de San Antonio Ilontenango

GUATEMALA 16/03/2019 USD 380,000 334 503 1.5%

Fundación de Apoyo Comunitario y Social del Ecuador ECUADOR 31/08/2016 USD 375,000 331,637 1.5%

L'Institution Marocaine d'appui à la Micro-Entreprise MOROCCO 31/01/2019 EUR 300,000 303,500 1.3%

La Asociación de Desarrollo Integral Rural ASDIR GUATEMALA 29/11/2018 USD 300,000 270,398 1.2%


Instrument // Microfinance institution Note Country Maturity Currency Quantity // Nominal value

Total value (in EUR)

% of NAV

Intean Poalroath Rongroeurng Co. Ltd. CAMBODIA 28/02/2018 THB 10,666,667 269,107 1.2%

Adel Microcréditos S.A. de C.V. HONDURAS 10/07/2018 USD 300,000 268,534 1.2%

La Asociación de Desarrollo Integral Rural ASDIR GUATEMALA 28/02/2019 USD 300,000 265,017 1.2%

Cooperativa de Ahorro y Crédito Fondesurco PERU 10/04/2019 USD 300,000 263,374 1.2%

Proyectos y Iniciativas Locales para el Autodesarrollo Regional de Honduras OPDF

HONDURAS 30/06/2016 USD 293,881 262,993 1.2%

Asociación Fondo De Desarrollo Regional - FONDESURCO PERU 10/06/2017 USD 285,451 256,617 1.1%

Gata Daku Multi-Purpose Cooperative PHILIPPINES 29/04/2016 PHP 12,000,000 240,107 1.1%

Asociación Fondo De Desarrollo Regional - FONDESURCO PERU 26/01/2018 USD 259,740 231,123 1.0%

Tuba Rai Metin TIMOR LESTE 10/10/2018 USD 250,000 227,699 1.0%



KPS-Small Enterprise and Economic Development Inc PHILIPPINES 31/01/2017 PHP 11,000,000 214,324 0.9%

La Asociación para el Desarrollo de la costa Atlántica NICARAGUA 15/02/2018 USD 200,000 177,443 0.8%

La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV EL SALVADOR 28/02/2018 USD 200,000 176,662 0.8%

Soro Yiriwaso MALI 14/03/2017 XOF 110,000,000 167,714 0.7%

Notes backed by loans to microfinance institutions

Micro, Small & Medium Enterprises Bonds SA - Khan Bank Mongolia

7 MONGOLIA 10/03/2017 USD 650,000 572,225 2.5%

Micro, Small & Medium Enterprises Bonds SA - FINCA Azerbaijan

6, 7 AZERBAIJAN 10/03/2017 USD 650,000 427,707 1.9%

Matured loan agreements with microfinance institutions undergoing restructuring

Tembeka Social Investment Company 6 SOUTH AFRICA

ZAR 2,400,000 71,589 0.3%

Sub-total 19,648,791 87.3%

Net accrued interest on swap contract (16,095) (0.1)%

Sub-total 19,632,696 87.2%

Cash at banks, term deposits and savings accounts 2,556,665 11.3%

Other net assets / liabilities 358,602 1.6%

Total net assets 22,547,963 100.0%


/ Total exposure per counterparty Exposition agrégée par contrepartie

Aggregated exposure to Notes Amount % of total (EUR) net assetsKoperasi Mitra Dhuafa - KOMIDA 992,932 4.4%SAMIC Plc 910,686 4.0%Financiera Fundeser S.A. 900,134 4.0%El instituto de investigaciones socio-economicas y tecnologicas INSOTEC 894,126 4.0%Sociedad Cooperativa de Ahorro y Crédito AMC de RL de CV 888,849 3.9%Fundación de Apoyo Comunitario y Social del Ecuador 778,520 3.4%Asusu SA 771,996 3.4%Intean Poalroath Rongroeurng Co. Ltd. 710,802 3.2%Óptima Servicios Financieros , S.A 702,624 3.1%Tuba Rai Metin 677,522 3.0%Pro Mujer Inc, sucursal de Nicaragua 590,298 2.6%Micro, Small & Medium Enterprises Bonds SA - Khan Bank Mongolia 7 572,225 2.5%Chamroeun Microfinance LTD 570,275 2.5%Cooperativa de Ahorro y Crédito la Florida 6 552,729 2.5%La Asociación de Desarrollo Integral Rural ASDIR 535,415 2.4%L'Association Marocaine de Solidarité sans Frontières/Micro-Crédit 508,750 2.3%Asociación Fondo De Desarrollo Regional - FONDESURCO 487,740 2.2%L'association pour la promotion de l'épargne crédit à base communautaire - BETHESDA 471,114 2.1%Fondation al Karama pour la micro finance 463,125 2.1%Action pour la coopération avec la microentreprise S.A. ACME 455,222 2.0%Empresa para el apoyo y desarrollo de la micro y pequena empresa urbana y rural - MICREDITO S.A. 447,008 2.0%Organización de desarrollo empresarial femenino financiera S.A. ODEF 438,673 1.9%Micro, Small & Medium Enterprises Bonds SA - FINCA Azerbaijan 6, 7 427,707 1.9%Première agence de microfinance Côte d'Ivoire S.A. 409,422 1.8%La Cooperativa de Ahorro y Crédito Maquita Cushunchic Ltda. 406,157 1.8%Higher Education Finance Fund LP 400,248 1.8%Fundación para el desarrollo integral de programas socioeconomicos FUNDAP 365,656 1.6%Asociación Arariwa para la promoción tecnico cultural andina 351,231 1.6%Asociación para el Desarrollo Integral de San Antonio Ilontenango 334,503 1.5%Fundación Alternativa para el Desarrollo 312,352 1.4%L'Institution Marocaine d'appui à la Micro-Entreprise 303,500 1.2%Adel Microcréditos S.A. de C.V. 268,534 1.2%Cooperativa de Ahorro y Crédito Fondesurco 263,374 1.2%Proyectos y Iniciativas Locales para el Autodesarrollo Regional de Honduras OPDF 262,993 1.2%Gata Daku Multi-Purpose Cooperative 240,107 1.1%KPS-Small Enterprise and Economic Development Inc 214,324 1.0%La Asociación para el Desarrollo de la costa Atlantica 177,443 0.8%La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV 176,662 0.8%MFX Solutions LLC 174,510 0.8%Soro Yiriwaso 167,714 0.7%Tembeka Social Investment Company 6 71,589 0.3%Total Portfolio 19,648,791 87.2% Average exposure per microfinance institution 479,239 2.1%


// 5 Breakdown of microfinance investments and evolution of NAV Répartition des investissements en microfinance et évolution de la VNI


/Geographical breakdown of microfinance investments Répartition géographique des investissements en microfinance

/Breakdown of microfinance investments by currency Répartition des investissements en microfinance par devise

Currency Amount (EUR) % of total net assetsUnited States Dollar 14,765,111 65.6%West African CFA Franc 1,820,246 8.0%Euro 1,275,375 5.7%Indonesian Rupiah 992,932 4.4%Philippine Peso 454,431 2.0%Thai Baht 269,107 1.2%South African Rand 71,589 0.3%Total Portfolio 19,648,791 87.3%Average exposure per currency 2,806,970 12.5%

40-41



Geographical classification Note Amount (EUR) % of total net assets

ECUADOR 2,391,155 10.7%

CAMBODIA 2,191,763 9.7%

NICARAGUA 2,114,883 9.4%

EL SALVADOR 1,768,135 7.8%

PERU 1,655,074 7.4%

MOROCCO 1,275,375 5.7%

GUATEMALA 1,235,574 5.5%

INDONESIA 992,932 4.4%

HONDURAS 970,200 4.3%

NIGER 9 771,996 3.4%

EAST-TIMOR 677,522 3.0%

USA 574,758 2.6%

MONGOLIA 572,225 2.5%

BENIN 471,114 2.1%

HAITI 455,222 2.0%

PHILIPPINES 454,431 2.0%

AZERBAIJAN 427,707 1.9%

IVORY COAST 409,422 1.8%

MALI 9 167,714 0.7%

SOUTH AFRICA 71,589 0.3%

Total Portfolio 19,648,791 87.3%

Average exposure per country 982,440 4.4%

/Evolution of the net asset value per share Évolution de la valeur nette d’inventaire par action

in EUR NAV/share NAV/share NAV/share Initial as at 31/03/2016 as at 31/03/2015 as at 31/03/2014 subscription priceen EUR VNI/action VNI/action VNI/action Prix de au 31/03/2016 au 31/03/2015 au 31/03/2014 souscription initial

Class A shares 25.82 25.25 24.49 25.00 Actions de la Classe A

Class B shares 108.93 105.95 101.76 100.00 Actions de la Classe B

Class C shares 107.85 106.08 102.95 100.00 Actions de la Classe C

Total net assets 22,547,963 19,825,503 17,070,429Actifs nets

Performance financial Performance financial Performance financial Performance since year 2015 - 16 year 2014 - 15 year 2013 - 14 inception Rendement Rendement Rendement Rendement de l'année 2015 - 16 de l'année 2014 - 15 de l'année 2013 - 14 depuis lancement

Class A shares 2.3% 3.1% 0.4% 3.3%Actions de la Classe A

Class B shares 2.8% 4.1% 1.1% 8.9% Actions de la Classe B

Class C shares 1.7% 3.0% 0.4% 7.9% Actions de la Classe C

Female entrepreneur at the market in Krukira, Nicaragua // PANA PANA


GENERAL INFORMATION/ A Structure of the FundLuxembourg Microfinance and Development Fund, SICAV (the “Fund” or the “SICAV”) is an investment company organised as a public limited company (société anonyme) under the laws of the Grand Duchy of Luxembourg and qualified as a “société d’investissement à capital variable” (SICAV). The Fund is authorised as an undertaking for collective invest-ment (“UCI”) under Part II of the law of 17 December 2010 relating to undertakings for collective investment (the “Law”). The Fund is internally managed and has been registered on 31 January 2014 by the CSSF as an Alternative Investment Fund Manager (“AIFM”) falling under the de-minimus rule of Article 3 of the Luxembourg law of 12 July 2013 (“AIFM Law”).

The Fund was incorporated in Luxembourg on 7 October 2009 with an initial capital of EUR 31,000 divided into 1,240 fully paid up shares with no par val-ue. The capital of the Fund is equal at all times to the net assets of the Fund. The Articles were published in the Mémorial on 2 November 2009 and the Fund is registered under trade register number R.C.S. Lux-embourg B 148826. The Fund is incorporated for an unlimited period.

The Fund is an open-ended fund. Accordingly, the Fund is authorised to issue an unlimited number ofshares, all of which are without par value.

The Fund is an umbrella fund and as such may oper-ate separate Sub-Funds, each of which is represented by one or more classes of shares (each, a “Class”). The Sub-Funds are distinguished by their specific investment policy or any other specific features. At the date of this report, the Fund had created one Sub-Fund, the Luxembourg Microfinance and Develop-ment Fund – Social Venture Capital Sub-Fund.

The Fund may issue three classes of shares, namely Class A shares, Class B shares and Class C shares,each targeting different types of investors, evidencing a different level of risk, offering a target return and evi-dencing a different level of involvement in the Fund’s governance. The initial subscription period forClass A and Class B shares ended on 18 Decem-ber 2009. The initial subscription period for Class C shares ended on 31 March 2010.

The base currency of the Fund is the Euro and the financial statements of the Fund are presented in Euro. The financial year of the Fund ends on 31 March in each year.

Copies of the Articles, the latest financial reports and the latest annual report may be obtained without cost on request from the Fund.

Copies of the material agreements mentioned in the Prospectus may be reviewed during normal business hours on any business day at the registered office of the Fund.

/ B Investment ObjectiveLuxembourg Microfinance and Development Fund aims at contributing to the alleviation of poverty in de-veloping countries through the provision of permanent and adapted financial services to marginalised com-munities and individuals. The Fund invests in promis-ing microfinance institutions ("MFIs") that have a positive social impact so that these institutions reach financial autonomy. In pursuance of its objectives, the Fund may invest in MFIs, in networks or associations of MFIs, in regional funds, in microfinance investment vehicles ("MIVs") and in other microfinance-related products.

The Fund has two principal objectives, social and financial: help socially-oriented MFIs to become long-term viable enterprises that reach more poor people and offer better services, and generate sufficient income to sustain its own operations and give its shareholders a financial return that at least compen-sates for inflation.

The Fund invests primarily but not exclusively in the following financial instruments:

- Various credit products such as senior loans, term deposits, promissory notes, bonds or other interest bearing instruments; - Equity and quasi-equity instruments; - Issuance of guarantees and letters of credit;- Participating interests in loans or guarantees to regional and other microfinance investment vehicles.

The Sub-Fund invests in the developing countries of Africa, Asia and Latin America.

42-43


// 6 Notes to the audited financial statements Notes aux états financiers révisés

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

/ A Presentation of Financial StatementsThe Fund invests a significant part of its assets in financial instruments denominated in curren-cies other than the Euro. Often, the Fund contracts cross-currency interest rate swaps or forward foreign exchange contracts to limit the exposure of the Fund to the movements of the foreign currency in relation to the Euro. In the case of debt instruments, the cost of hedging such exposure strongly influences the interest rate the Fund charges to microfinance institutions.

The interest income on microfinance loan agreements in the statement of operations and other changes in net assets includes the interest charges to micro-finance institutions to cover the hedging costs of the respective currency. The impact of the valuation of the hedging instruments is presented in the net realised gain/loss and the variation of the unrealised gain/loss.

/ B Valuation of Financial InstrumentsDebt instruments not listed or dealt in on any stock exchange or any other regulated market that operates regularly, is recognised and open to the public will be valued at the nominal value. Accrued interest from microfinance loan agreements is presented separ-ately. Such value will be adjusted, if appropriate, to reflect e.g. major fluctuations in interest rates in the relevant markets or the appraisal by the Board of Directors of the credit worthiness of the relevant debt instrument.

Capital participations not listed or dealt in on any stock exchange or any other regulated market that operates regularly, is recognised and open to the public, will be valued at their reasonably foreseeable sales price, determined prudently and in good faith pursuant to procedures established by the Board of Directors. Such procedures include, in order of prefer-ence:

- Up to the first year following the Sub-Fund’s acqui-sition, the capital participations will be valued at cost;- After the first year of holding, the value of the capital participation will be estimated with reference to prices of equity transactions or issues of new shares involv-ing the same MFI within a reasonable time period of the valuation date. Such a time period is determined by an assessment of the Board of Directors whether material changes within the MFI or in its operating environment have occurred since the date such trans-action took place;- If such transactions are not available or deemed not representative of fair value, the value of the capital participation should be estimated with reference to the price-to-book ratio at which the Sub-Fund acquired the capital participation;

- In case the Sub-Fund has entered into negotia-tions to sell a capital participation to a third party, the capital participation may be valued at its expected sales price if the disclosure is judged appropriate by the Board of Directors in view of the ongoing negotia-tions.

The value of any cash on hand or on deposit, bills and demand notes and accounts receivable, prepaid expenses, cash dividends and interest declared or accrued and not yet received is deemed to be the full amount thereof, unless the same is unlikely to be paid or received in full, in which case the value thereof is arrived at after making such discount as may be considered appropriate in such case to reflect the true value thereof.

The value of securities that are listed on any stock exchange or dealt in on any regulated, recognised, open to the public and regularly functioning market is based on the last available price.

The value of units or shares in UCIs is based on their last-stated net asset value. Other valuation methods may be used to adjust the price of these units or shares if, in the opinion of the Fund, there have been changes in the value since the net asset value had been calculated or the valuation method used by the UCIs is not appropriate to reflect the fair value thereof.

Cross-currency swaps or foreign forward exchange contracts that are materially linked to any underlying loan instrument are valued using the spot exchange rate for the notional. The difference between the spot and forward rates is amortised until the maturity of the instrument. Such valuation approach is changed if a credit risk materialises in the form of an impairment. The part of the SWAP or forward foreign exchange contract notional then exceeding the valuation of the underlying loan is valued using a mark to market ap-proach, if the position cannot be closed.

The value of all assets and liabilities not denominated in the reference currency of a Sub-Fund will be trans-lated into the reference currency of such Sub-Fund at the rate of exchange ruling in Luxembourg as at the relevant Valuation Day. If such quotations are not available, the rate of exchange will be determined in good faith by or under procedures established by the Board of Directors.

The Board of Directors, at its discretion, may permit some other methods of valuation to be used, if it con-siders that such valuation better reflects the fair value of any asset of the Fund.

/ C Changes in Accounting PoliciesDuring the financial year, the Board of Directors re-solved to change the valuation method for the Fund’s participation in the Higher Education Finance Fund


L.P. (“HEFF”), a US-domiciled investment vehicle financing higher education loans of microfinance insti-tutions in Latin America. Before LMDF’s Valuation Day June 2015, HEFF was valued based on an amended net asset value calculation. HEFF has since then established legal agreements with 11 microfinance institutions who have committed to draw-down USD 29 million in loans. These agreements allow HEFF to establish cash-flow forecasts with a relatively high degree of certainty.

LMDF’s Board of Directors considered that in these specific circumstances, a net asset value derived valuation method leading to a substantial discount on par value is not representative of the fair value of LMDF’s participation. The Board of Directors has therefore decided to base the valuation of the par-ticipation in HEFF on a discounted cash-flow model using a discount rate derived from LMDF’s cost of capital. / D Allocation of Net Asset Value Among Share Classes

Preferred Return on Class B shares The preferential return to Class B shares is allocated if and only if the Sub-Fund’s result of operations since the last valuation, both with and without impairment risk on microfinance, shows a profit.

In such a case, the net profit generated by the Sub-Fund since the last valuation day is first allocated to Class B shares until the first of the following is attained:

- The remuneration reaches the total net profit since last valuation;- The equivalent of 1% p.a. interest on Class B shares’ NAV;- If an impairment provision booked before or on the last valuation day is reduced, the profit since the last valuation day without the income from reducing such provision.

The remaining profit, if any, is allocated among the three share Classes according to their respective proportions in the Sub-Fund’s total NAV.

Microfinance Impairment RiskClass A shares shall cover the net loss allocated to Class C shares since the last valuation day, if such loss arises from the impairment of microfinance related investments, until Class A share capital is nil. Only a reduction in the Sub-Fund’s microfinance investments resulting from the deterioration of the financial condi-tions of the counterparty is considered as a microfi-nance impairment.

The Fund reserves the right to suspend subscriptions in Class C shares within the Sub-Fund, if the NAV

allocated to Class A shares is less than 20% of the combined NAV of Class C and Class A shares.

/ E DividendsThe primary investment objective of the Fund is to achieve long-term growth. The Fund’s operating plan in general does not contemplate payment of dividends to shareholders.

NOTE 2SHARES

The Board is authorised, without limitation, to issue an unlimited number of fully paid up shares at any time without reserving a preferential right to subscribe for the shares to be issued to the existing shareholders. The following share Classes are available for subscription, each targeting different types of investors evidencing a different level of risk, offering a different target return and involvement in the Fund’s governance. Class A shares:Class A shares are reserved for subscription by the Luxembourg Government, ADA and such other investors as may be approved by the existing Class A shareholders. Class A shares entitle their holders to propose a common list of proposed directors for appointment to the Board by the General Meeting of shareholders. Class A shares are not redeemable.

- Risk profile: Junior- Target return: Above inflation rate targeted by the ECB over the medium term

Class B shares:No restrictions for investors in Class B shares exist.Class B shares entitle their holders to earn a 1 percent p.a. higher return than Class A shares and Class C shares to the extent possible.

- Risk profile: Mezzanine- Target return: Above inflation rate targeted by the ECB over the medium term plus 1 percentage point p.a.

Class C shares:Class C shares are reserved for subscription for private individuals and private non-profit organiza-tions which are subject to the consent of the Board of Directors. Class C shares entitle their holders to avoid under certain conditions risks emanating from impairment of the microfinance investments of the Sub-Fund which will be covered by Class A shares.

- Risk profile: Senior - Target return: Above inflation rate targeted by the - ECB over the medium term

44-45

NOTE 3ADVISORY FEES AND MANAGEMENT/ TEAM REMUNARATION

/ A Advisory feesOn 15 December 2009, the SICAV concluded an investment advisory agreement with ADA - Appui au Développement Autonome a.s.b.l., amended on 1 October 2015.

Per the original agreement and up to 30 September 2015, the investment advisor was entitled to re-ceive, out of the assets of the Fund, a yearly fee of a maximum of 2% of the Sub-Fund's average net asset value, 0.25% of which is linked to the performance of the microfinance assets of the SICAV.

Per the revised agreement effective from 1 October 2015 onwards, the investment advisor is entitled to receive, out of the assets of the Fund, a yearly fee of:

- 1.5% p.a. of the Sub-Fund's average net asset value plus 0.25% p.a. remuneration linked to the performance of the microfinance assets of the SICAV until the assets managed by the advisor reach EUR 25 million and;

- 1.35% of the Sub-Fund's average net asset value plus 0.25% p.a. remuneration linked to the perfor-mance of the microfinance assets of the SICAV when the assets managed by the advisor exceed EUR 25 million.

The revised fee agreement is contingent on LMDF reaching total net assets plus net subscriptions amounting to at least EUR 26 million by October 2016.

Total investment advisory and portfolio related fees amount for the year to EUR 294,107 or 1.4% of the

average net asset value of the SICAV. Of the total investment advisory fees, EUR 32,409 are linked to the performance of the microfinance assets.

/ B Management/team remunerationIn consideration of the services rendered to the Fund, the Management and Support Team are entitled to receive remuneration that, together with the fee paid to the investment advisor(s), is at maximum 3% of the Sub-Fund’s average net asset value per year.

From 1 April 2015 until 31 March 2016, the remuneration of the Management and Support Team amount to 0.8%. Total remuneration paid to investment advisor(s), Management and Support Team amount to 2.2% (annualized) of the average net asset value of the SICAV.

NOTE 4SUBSCRIPTION DUTY / “TAXE D’ABONNEMENT” The SICAV is governed by Luxembourg tax law.Article 20 of the law of 18 December 2009 on the 2010 budget of the Luxembourg State and a Grand Ducal decree of 14 July 2010 abolished the “Taxe d’Abonnement” for funds investing in microfinance with effect on 1 January 2010. On 15 October 2010, the Commission de Surveillance du Secteur Financier (“CSSF”) informed the Fund of their decision to include the SICAV in the list of investment funds in compliance with such decree.

32% of LMDF's portfolio is dedicated to agriculture // Pana Pana


NOTE 5FORWARD FOREIGN EXCHANGE AND SWAP CONTRACTS/ A Swap contractsThe SICAV aims to provide, whenever feasible, loans to microfinance institutions in local currency. During the reporting year, the SICAV hedged loan instruments using cross-currency swaps, which allow the SICAV to significantly reduce the foreign currency risk associated with assets held in foreign currencies. On some occasions and depending on pricing and liquidity of swap instruments, the Fund has hedged the foreign currency against USD. Such exposure to the USD is then hedged using forward foreign exchange contracts.

/ B Forward foreign exchange contracts

The Fund has also contracted foreign currency forwards to hedge currency exposures of the movements of the respective currencies

in relation to EUR. The counterparty for trades in relation to such hedges is the Banque et Caisse d’Épargne de l’État (USD, ZAR) and

MFX Solutions Inc.

SWAP contracts

In relation to loan agreement with

Notional Paying currency

Receiving currency

Paying Leg Receiving Leg

Maturity Date

Counter-party

Unrealized appreciation / (deprecia-

tion), (in EUR)

Intean Poalroath Ron-groeurng Co. Ltd.

10,666,667 THB USD 11.35% p.a., semi-annual payment

8.00% p.a., semi-annual payment

28/2/2018 MFX Solutions Inc.

20,818

Gata Daku Multi-Purpose Cooperative

12,000,000 PHP EUR 10.90% p.a.,semi-an-nual payment



(3,371)

KPS-Small Enterprise and Economic Deve-lopment Inc

11,000,000 PHP EUR 11.70% p.a., semi-annual payment



(30,995)

L'association pour la promotion de l'épargne crédit à base communautaire - BETHESDA

300,000,000 XOF EUR 11.30% p.a., semi-annual payment



739

Première agence de microfinance Côte d'Ivoire S.A.

260,000,000 XOF EUR 10.60% p.a., semi-annual payment



1,808

Koperasi Mitra Dhuafa - KOMIDA

15,000,000 000 IDR USD 16.50% p.a., semi-annual payment



(24,815)

Total (35,816)

Forward foreign exchange contracts

In relation to loan with MFI

Currency purchased

Amount pur-chased

Currency sold

Amount sold Maturity date Unrealized appreciation / (deprecia-tion), (in EUR)

Remaining amortization of notional until maturity (in EUR)

Loans in USD EUR 16,419,468 USD 18,100,000 11/4/2016 543,090 N/A

Loans in USD EUR 1,337,494 USD 1,500,000 11/4/2016 21,767 N/A

ASUSU S.A. EUR 239,404 XOF 162,500,000 18/4/2016 (7,191) 369

Soro Yiriwaso EUR 150,838 XOF 110,000,000 14/3/2017 (16,088) 5,309

ASUSU S.A. EUR 231,251 XOF 162,500,000 18/4/2017 (15,344) 8,203

ASUSU S.A. EUR 222,603 XOF 162,500,000 18/4/2018 (23,993) 16,590

Sub-total 502,241 30,470

Total 532,712

NOTE 7SUBSCRIBED NOTES ISSUED BY MICRO, SMALL & MEDIUM ENTERPRISES BONDS S.A., LUXEMBOURG

The Board of Directors of the Fund resolved in their meeting on 19 March 2014 to authorize the subscription to Notes backed by loans to microfinance institutions issued by the Luxembourg company Micro, Small & Medium Enterprise Bonds S.A. (“MSME Bonds”) in several issues up to EUR 1,000,000. The Notes are listed on the official list of the Luxembourg Stock Exchange Euro MTF market. Arranger and Servicer to MSME Bonds is Symbiotics S.A., a Swiss-based, specialised microfinance advisor and asset manager. Subsequent to the decision of the Board of Directors, the Fund subscribed:

USD 650,000 in Notes 11-L. The issue totals USD 8,650,000 (ISIN XS1051929831) and is backed by a loan granted by MSME Bonds to the microfinance institution FINCA Azerbaijan. USD 650,000 in Notes 12-L. The issue totals USD 8,900,000 (ISIN XS1055195322) and is backed by aloan granted by MSME Bonds to the microfinance institution Khan Bank LLC in Mongolia.

NOTE 6IMPAIRMENT OF MICROFINANCE LOANS

During previous financial periods the Board of Directors of the Fund decided to establish provisions for the outstanding

principal of the loans to the microfinance institutions Cooperativa de Ahorro y Crédito la Florida (“Crediflorida”) in Peru (USD

700,000 loan) and La Asociación Nacional de Institutos de Desarrollo del Sector Informal IDESI Nacional (“IDESI Nacional”).

IDESI Nacional paid LMDF back in full during the financial year. Crediflorida’s activities are concentrated on the financing of

coffee farmers who have been significantly impacted by unusual climatic conditions and coffee rust in the past. As at the

reporting date, Crediflorida had paid all interest and principal due and the situation is stable.

During the financial year the Board of Directors reviewed, based on the Fund’s asset valuation guidelines, the loan granted to

the microfinance institution Microfinanzas del Uruguay (“Microfin”) (USD 500,000 loan) and decided to establish a provision

of 10% of the outstanding principal and to account for interest income on a cash basis only. Microfin has paid all principal

and interest due to the Fund and is no longer part of the investment portfolio at year-end.

The Board of Directors also reviewed the loan of ZAR 2.4 million (EUR 143,181) granted to the microfinance institutions

Tembeka Social Investment Company (“Tembeka”), South Africa which matured at the end of January 2016. For the NAV

calculation in December 2015, the Board resolved to establish a provision of 10% of the outstanding principal and to

account for interest income on a cash basis only. Subsequently Tembeka defaulted on the payment of interest and principal

due and the Board decided to increase the provision to 50% of the outstanding principal and interest for the NAV calculation

at the end of March 2016.

The Board of Directors reviewed USD 650,000 (EUR 570,175) of notes issued by MSME Bonds (please refer to Note 7 for

details) which expose the Fund to the microfinance institution FINCA Azerbaijan Non-Bank Credit Organization (“FINCA

AZ”). FINCA AZ is facing significant uncertainties in its micro-credit led business model in a difficult economic and political

environment. On 18 March 2016, FINCA AZ declared a unilateral standstill for principal and interest payments to all creditors.

Given the significant uncertainties over the prospects of FINCA AZ, LMDF’s Board of Directors decided to provide for 25%

of the outstanding principal and to account for interest income on a cash basis only for the March 2016 NAV calculation.

Fluctuations in foreign exchange rates further impact the amount of impairment provisions at each Valuation Day.

Variation of impairment on microfinance loans

Microfinance institution 31/03/2015 31/03/2016

Cooperativa de Ahorro y Crédito la Florida (65,210) (61,414)

La Asociacion Nacional de Institutos de Desarrollo del Sector Informal IDESI Nacional

(48,908) -

Tembeka Social Investment Company - (69,761)

Micro, Small & Medium Enterprises Bonds SA - FINCA Azerbaijan - (142,569)

Total (114,118) (273,744)

Net variation of impairments (159,626)


NOTE 8DETAILS OF EXPENSES, ACCRUED CHARGES AND OTHER ASSETS

As at the reporting date, accrued and payable expenses consisted of the following (in EUR):Investment advisory fees 61,177Investment related fees to the investment advisor 61,131Office rent and charges 24,320Audit fees 22,814Administration fees 15,303Transaction related fees due to the custodian 7,500VAT services fees 6,143Marketing fees 6,049Transaction related fees due to the administrator 5,500Custodian fees 4,229Domiciliation fees 3,125Transfer agency fees 2,996Wages and salaries 2,546Information technology expenses 667

Total 223,500

For the reporting period ended, other administrative costs consisted of the following (in EUR):Communication fees 21,159VAT services 16,133Insurances 13,035Information technology 11,183Board of directors and committee expenses 8,931Post and telecommunication 7,352Marketing and public relation fees 6,049CSSF annual fee 6,000Travel expenses 5,936Membership fees 5,839Others fees 1,141Representation expenses 926Legal fees 463

Total 104,147

As at the reporting date, other receivables and assests consisted of the following (in EUR):VAT receivable 21,317Receivable on incorporation new sub-fund* 13,569D&O insurance paid in advance 5,207CSSF annual fee paid in advance 4,500Interest receivable on bank accounts and term deposits 602

Total 45,195

*The Board has nominated a committee to consider the establishment of a second Sub-Fund. The direct expenses incurred by the Fund in relation thereto are recorded as "Receivable on incorporation of new sub-fund", as they will be capitalised as incorporation expenses of the new sub-fund on its establishment. These costs are reimbursed should the establishment of the new sub-fund not take place.

NOTE 9COUNTRY RISK INSURANCE

In view of reducing the exposure to risks inherent in certain countries, the Fund contracted two “Assurances des Investissements” insurance policies from the Luxembourg Office du Ducroire covering the risks of war and “effet du prince” of the outstanding loans in Mali and Niger.

NOTE 12FOREIGN EXCHANGE RATES

The principal exchange rates rounded to four decimals applied at the reporting date are as follows:

1 EUR = 15,113.7042 IDR (Indonesian Rupiah) 1 EUR = 52.3294 PHP (Philippine Peso)1 EUR = 40.0298 THB (Thai Baht)1 EUR = 1.1398 USD (United States Dollar)1 EUR = 658.9753 XOF (West African CFA Franc)1 EUR = 16.7621 ZAR (South African Rand )

NOTE 13STAFF

During the reporting year ended on 31 March 2016, the SICAV employed one full-time staff recruited on 1 Octo-ber 2009 and one part-time staff recruited on 5 November 2012. The SICAV also employed several interns. The employment contracts do not include any variable remuneration linked to the performance of the Fund.

NOTE 14COMMITMENTS

/ A Commitments of shareholders to subscribe shares

As at the reporting date, all commitments of shareholders have been fully called.

/ B Commitments of the Fund to invest

The Fund has concluded a number of agreements to invest in financial instruments in the future. As at the year-end, the Fund is committed:

To invest USD 1.5 million in the Higher Education Finance Fund L.P. (“HEFF”), of which USD 1.0 million have not yet been called upon. The commitment period of HEFF ends on 14 December 2016.

NOTE 11TOTAL EXPENSE RATIO

Average net asset value during the year (in EUR) 21,659,091Total expenses for the year 1 April 2016 until 31 March 2016 (in EUR) 728,537

Total expense ratio 3.4%

NOTE 10ASSET – LIABILITY RISK MITIGATION

The Fund grants loans to microfinance institutions with maturities from 2 – 5 years. On 19 February 2016 the Fund has contracted a EUR 500,000 stand-by credit line with the Banque et Caisse d’Epargne de l’Etat to manage the asset-liability mismatch between assets and potential quarterly liquidity requirements for share redemptions. The Board of Directors decided that the sole purpose of the credit line is to honour redemption requests which may exceed the minimum 10% liquid asset threshold the Fund’s Prospectus foresees. The credit line may not be used to finance investments in microfinance institutions. The Fund's investment portfolio is pledged as a guarantee for this credit line.


NOTE 15RELATED PARTY TRANSACTIONS

The SICAV considers each shareholder controlling 20% or more of total voting rights or any entity forming part of the key management of the Fund, including its directors, as a related party. During the reporting year, the SICAV conducted the following material transactions with related parties, excluding subscription of shares and commit-ments for subscribe shares in the future:

The SICAV has concluded an investment advisory agreement with ADA with the remuneration structure disclosed in Note 3.

The SICAV also sub-leases an office and certain services in the “Maison de la Microfinance”, a building leased by ADA at 39, rue Glesener, Luxembourg Ville. The Board of Directors of the SICAV estimate the rent to correspond to a rent agreed in an arm’s length transaction with an unrelated party.

The Executive Director of the Fund has been appointed as a board member of the microfinance currency risk management company MFX Solutions Inc. In its relations with all clients, MFX Solutions Inc. applies a standar-dized pricing model approved by a Pricing Committee. The Executive Director does not form part of such Pricing Committee.

NOTE 16SHARE TRANSACTIONS OF DIRECTORS

Two directors of the SICAV have subscribed to 1,491 Class C shares executed with the September and December NAV/Share calculations.

NOTE 17SUBSEQUENT EVENTS TO 9 JUNE 2016

The Board of Directors approved on 9 June 2016 a number of changes to the Fund’s Prospectus, including a description of the Fund’s status under FATCA as a restricted fund and a clarification of LMDF’s hedging strategy which may include hedging of future assets (for example of future interest income). The changes to the Prospec-tus are being submitted to the CSSF for approval.

There have been no other significant changes to the Fund’s activities between the year-end on 31 March and the 9 June 2016.

50-51

Imprint

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© Images: LMDF // Pana Pana // Raoul Somers // EIB Institute // Catalyst at Large // AMC El Salvador // Pro Mujer Nicaragua // INMAA

© The Luxembourg Microfinance and Development Fund − Social Venture Capital Sub-Fund, 2016All rights reserved

Société d’Investissement à Capital Variable /// 2, place de Metz /// L-1930 LuxembourgT.: +352 27 47 35 /// F.: +352 27 47 35 72 /// [email protected] /// www.lmdf.lu

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