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    The Luxembourg Microfinance and Development Fund Social ... The Luxembourg Microfinance and Development Fund Social ... Document Transcript

    • English The Luxembourg Microfinance and Development Fund Social Venture Capital Sub Fund
    • Summary 05 Short profile of the Fund 07 Microfinance, a helping hand /// Microfinance and micro-loans 08 How does LMDF invest in microfinance? /// Which type of MFI does LMDF invest in? 11 Key challenges /// The typical investor 13 Reportage: Client stories submitted by Maxima Mikroheranhvatho 14 Risks and return /// Investment horizon and reporting 15 LMDF’s basic factsheet /// Important Information /// Imprint The Luxembourg Microfinance and Development Fund - Social Venture Capital Sub Fund 02 - 03
    • Short profile of the Fund
    • "An investment with return for the poor" Microfinance consists of credits, savings and insurance to help poor households overcome their precariousness. Through the commitment of the government, non-governmental organizations and the financial place, Luxembourg has become an important force in the global micro- finance movement. Investment policy Investment in debt, equity, guarantees and related financial instruments issued by microfinance institutions in developing countries (Africa, Asia and Latin America). The typical investor Has an interest in microfinance as a development tool and supports the dual objectives of the Fund, social impact and financial return. The typical investor is willing to invest for the long term and accepts a possibly lower return than available from purely return-oriented investments. Expected return The Fund aims at a financial return of at least inflation in order to preserve the capital of the investor in real terms. Main risks Investors in Class C shares are covered from credit or counterparty risks first by the capital of Class A shares (Luxembourg government and ADA). Investors are exposed to country, currency, liquidity, valuati- on and operational risks. Key features · Type: SICAV Part II · Dividend policy: Capitalization · Inception date: 7th October 2009 · NAV frequency: Quarterly · ISIN (Class C): LU0456967404 · Subscription: Quarterly with 5 business · Currency: EUR days’ notice · Initial subscription price per Class C share: · Redemption: Quarterly with 45 days’ notice EUR 100 per share · Target size: EUR 25 million The Luxembourg Microfinance and Development Fund - Social Venture Capital Sub Fund 04 - 05
    • In the interest of microfinance
    • Microfinance, a helping hand Microfinance and micro-loans The 2009 report on the progress to achieving Microfinance consists of providing reliable, fair and the millennium development goals notes that the adapted financial services to those excluded from economic crisis and food price inflation have stalled the traditional financial system. Financial services some of the progress made in eradicating extreme offered by microfinance institutions (“MFIs”) include poverty and hunger. The UN considers that the micro-loans, savings and insurance products. number of people living with less than $1.25 per day has increased by 55 to 90 million in 2009 to Micro-loans are based on the principle of providing roughly one quarter of all humans. the means to a poor but entrepreneurial person to help him- or herself to complete a project. Income Since the United Nations declared 2005 the generating opportunities in the informal economy “International Year of Microcredit”, it is public and small scale agriculture are plentiful and micro- knowledge that microfinance plays a role in helping loans are often used to finance working capital poor households to overcome their precarious- needs or small capital investments in machinery ness. The Microcredit Summit Campaign measured and equipment. Median micro-loans amounted to the number of poorest households with access to $360 in Africa, $310 in Asia and $675 in Latin Amer- microfinance at 100 million in 2007. 83% of clients ica in 2008 (Microbanking Bulletin Dec. 2009). were women and the Campaign hopes to reach 175 million families by 2015. At the same time about Lending small amounts to borrowers with no or 2.5 billion adults, just over half of the entire adult very limited collateral and credit history requires population, do not have access to formal financial innovative approaches. One of these innovations services to save or borrow (Financial Access Initia- was the realization that lenders organized in groups tive 2009). and which are collectively responsible for the repayment of each individual group member lead to Particularly in difficult times, access to a small loan, very low default rates. An alternative to the group a place to store your savings safely or insurance lending methodology are individual credits, which makes a difference to a poor family faced with are usually secured against some asset such as significant uncertainty. Microfinance consists of land, machinery or equipment. The latter type of credits, savings and insurance to help poor house- microfinance normally involves higher loan amounts holds. Through the commitment of the government, than the group lending methodology. non-governmental organizations and the financial place, Luxembourg has become an important force Strong developmental leverage results from the in the global microfinance movement. offering of microcredit together with savings and insurance products. The Luxembourg Microfinance and Development Fund (“LMDF”) is a SICAV whose aim is to support the providers of adapted financial products and contribute to the alleviation of poverty in developing "Half of humanity does not countries (Africa, Asia and Latin America) while giv- have access to the formal ing its shareholders a financial return which com- pensates at least for inflation to preserve invested banking system" capital in real terms. The Luxembourg Microfinance and Development Fund - Social Venture Capital Sub Fund 06 - 07
    • Graph 1: How to invest in microfinance? Graph 2: Different microfinance institutions Shareholder 70% 2% of all MFIs Strong operational and financial track record. Have access to international and often local financing. LMDF LMDF target’s 8% of all MFIs institutions Smaller and younger MFIs at or near profitability with Guarantee Issuer strong development perspective. Most have or are developing access to international and local refinancing. Loan Equity Guarantee 20% of all MFIs 35% Institutional shortcomings due to young age. Lack of access to capital. Foreign Bank 70% of all MFIs May-be start-ups, weak or stagnating institution or NGOs MFI MFI MFI where microfinance is not a focus. Some will progress up. Need and subsidies to develop. 0% Micro-entrepreneurs Source: Adapted from J. Meehan (2004) Tier 1 Tier 2 Tier 3 Tier 4 "LMDF supports smaller microfinance institutions in Africa, Asia and Latin America" How does LMDF invest in Which type of MFI does microfinance? LMDF invest in? LMDF does not directly engage in the provision Commercially-oriented microfinance investment of micro-loans or other microfinance products to vehicles (MIVs) have grown significantly during the the poor. LMDF works with microfinance institu- last years. Those MIVs invest mainly in large and tions based in developing countries and who in mature MFIs (so called Tier 1 institutions). LMDF, turn provide adapted financial products to poor as a social venture capital fund aims to support households. mainly those MFIs which have only limited or no access to international financing. These so-called LMDF provides loans to re-finance the growth of Tier 2 and Tier 3 institutions usually grow very the loan portfolio of these MFIs, invests in equity quickly and we expect our partner MFIs to be instruments issued by MFIs and may arrange strongly committed to improving their governance, guarantees. Guarantees consist of a bank in a products and processes. (Graph 2) developing country lending to an MFI, normally in local currency, and LMDF providing a guarantee Geographically, LMDF may invest in Latin America, to such bank. (Graph 1) Africa and Asia. Our investment approach implies that LMDF engages in countries which may be less LMDF has appointed Appui au Développement prominent on the global microfinance map. Autonome (ADA) as investment advisor. ADA has Last but not least, whereas microfinance is com- a proven track record of successfully managing monly associated with the provision of micro-loans, microfinance investments and is a highly reputed LMDF sees a large potential in financing alternative player within the global microfinance movement. products such as micro-insurance or micro-leasing.
    • The Luxembourg Microfinance and Development Fund - Social Venture Capital Sub Fund 08 - 09
    • "An innovative microfinance fund which meets micro-entrepreneurs’ needs" Key challenges Connected to the objective of facilitating the Therefore LMDF intends to provide loans in local cur- development of Tier 2 and Tier 3 MFIs, LMDF has rency whenever we are in a position to manage the identified a number of key challenges. associated risks through diversification or hedging. Smaller MFIs require a clear perspective and reli- To sustain growth and protect clients, MFIs, like any able partners. LMDF considers that financing for other financial institution, need to be appropriately terms of less than 3 years often does not give the capitalized. Raising equity from external investors MFIs enough room to focus on the vital areas such is often a key challenge for smaller MFIs but vital as product innovation, social impact considera- to attract loans and eventually reach the capitali- tions or staff development. LMDF therefore aims to zation necessary to convert into a deposit-taking provide financing for longer terms up to 7 years. institution. LMDF intends to invest a large part of its portfolio in the equity of Tier 2 or Tier 3 institutions. When providing funds to an MFI in the form of loans, three actors can take on the currency risk: The typical investor · LMDF if we lend in the local currency of the MFI · The MFI if it borrows in € or $ and lends to a Has an interest in microfinance as a development micro-entrepreneur in local currency tool and supports the dual objectives of the fund, · The micro-entrepreneur him- or herself if he or she social impact and financial return. The typical inves- borrows in € or $ to invest in an activity-generating tor is willing to invest for the long term and accepts local currency income a possibly lower return than available from purely return-oriented investments. Of these three actors, the micro-entrepreneur is certainly in the worst position to manage currency risk. The MFIs we target have normally not yet developed sophisticated asset-liability risk manage- ment strategies in order to manage currency risks. The Luxembourg Microfinance and Development Fund - Social Venture Capital Sub Fund 10 - 11
    • Reportage
    • 01 02 Following client stories have been submitted by Maxima Mikroheranhvatho, a microfinance institution in Cambodia supported by LMDF. 01 02 Torn Phaly and Bou Bin have 4 children, 2 sons and But By is married to Chorn Savang and they have 2 daughters. Torn started her wedding planning 2 children, 1 son and 1 daughter. Their daughter is and decoration business more than 20 years ago studying at high school in the Koh Dach commune in Koh Oknha Tey. She learnt this business from and their son is studying civil engineering at uni- her neighbour. In addition, Torn is also weaving silk versity in Phnom Penh. But By is in the business of at home, which she also learnt from her neighbour making and selling white foam of melted soy bean and has started making silk in 1990. Her eldest and is raising pigs. His wife is helping him with his daughter is married and lives with her husband in a business at home and looks after their family. different village. One of her children is a construc- tion worker and travels from one village to another But By has borrowed from Maxima for 2 cycles and for his work. The other two children are studying at is applying for a third loan. The first and second the primary school in the village. Her husband, Bou loans were used to expand the business of making Bin is assisting her in the wedding planning and and selling white foam of melted soy bean. His decoration. They both did not benefit from higher business is growing well. Now he is asking for a studies. Therefore, they send all their children to the loan for $2,000. He will use this loan to buy 40 local school and of course they encourage them to baby pigs. He is capable of handling the loan and pursue a higher education. could repay it without any problem. Torn Phaly has borrowed seven times from Maxima already and the current loan amount is US$ 2,000 and the loan term will be 20 months. Of this loan amount, she will use US$ 1,700 to purchase wed- ding decoration materials and US$ 300 will be used to buy silk material and sewing thread, as well as for fees for selecting and preparing thread on the loom for continuing to expand her silk production. The Luxembourg Microfinance and Development Fund - Social Venture Capital Sub Fund 12 - 13
    • Risks and return Investment horizon and reporting An investment in LMDF is not comparable to an Any investment in LMDF should be regarded as investment in equity or bond funds investing in long-term to allow LMDF to achieve its objectives. instruments traded on the stock exchange or other LMDF reports at least semi-annually, as at 31st liquid markets. Even though LMDF always intends March and 30th September on its financial and to minimize risks through diligent selection of social performance. investments and diversification, investors may be exposed significantly to currency and country risks, We invite you to visit our website at www.lmdf.lu to credit or counterparty risk, liquidity and valuation obtain updated information and to consult this bro- risks as well as operational risks. Please refer to chure, the prospectus and annual or semi-annual LMDF’s prospectus for a detailed description of reports. these risks and the instruments we intend to use in order to manage such risks. How can I invest? LMDF is distributed through most major banks in LMDF seeks a dual return: social and financial. Luxembourg or directly via LMDF’s administrative These two objectives may sometimes conflict and agent. Subscription can be made quarterly on 31st investors in LMDF should expect a lower financial March, 30th June, 30th September and 31st December return than available from comparable commercial with a notification period of 5 business days. structures. Social return for LMDF’s investors is less easy to quantify but we will report regularly on the Redemptions are subject to a 45 days’ notification MFIs and, if feasible, the impact they make through period by the investor before the abovementioned the provision of financial services to marginalized quarterly dates. populations. Investors in Class C shares are protected from counterparty risks (the risk that the MFI does not "A public-private partnership to honour its obligation) through a loss compensation create a social investment fund" from Class A share capital (subscribed for by the Luxembourg government and ADA). Class C shares may only be subscribed by private individuals or not for profit entities. It is important to note that the counterparty risk cover does not include country, currency, liquidity or valuation risks and should not be understood as a guarantee that the net asset value per share of Class C shares may never decrease.
    • LMDF’s basic factsheet Type: SICAV, part II of the 2002 law // Inception date: 7th October 2009 // ISIN of Class C: LU0456967404 // LMDF’s currency: EUR // Type of shares: Capitalization // NAV: Quarterly, 31st March, 30th June, 30th September and 31st December // Subscription: Quarterly, 5 business days’ notice period // Subscription commission: Up to 2% in favour of the distributor // Redemption: Quarterly, 45 days’ notice period // Redemption commission: Up to 2% in favour of the Fund // Management fees: Maximum 1.75% of the average net asset value, except during the first year when such fee may be higher // Investment advisory fees: Maximum of 2% of the average net asset value // Members of the board of directors: Axel de Ville, Chairman (ADA), Marc Elvinger, Vice-chairman (Independent), Anouk Agnes (Ministry of Finance), Marc Bichler (Ministry of Foreign Affairs, Directorate for Development Cooperation and Hu- manitarian Action), Mark Cunningham (ADA), Paolo Vinciarelli (Banque et Caisse d’Epargne de l’Etat), Patrick Wallerand (Independent), Kaspar Wansleben (Managing director) // Promoters: Luxembourg state and ADA // Investment advisor: Appui au Développement Autonome (ADA) // Custodian bank: Banque et Caisse d’Epargne de l’Etat // Administrative agent: European Fund Administration // Auditor: BDO Audit // Legal advisor: Elvinger, Hoss & Prussen Important Information This material comprises information relating to Luxembourg Microfinance and Development Fund – Social Venture Capital Sub-Fund ("LMDF"). It is not LMDF’s sales prospectus. An investment in LMDF may only be made on the basis of the current prospectus and the latest available annual and semi-annual reports. Such documents are available free of charge at the registered office of LMDF at 2, place de Metz, L-1930 Luxembourg and on the Internet site www.lmdf.lu. If you are in any doubt about the contents of the present material, annual or semi-annual reports or the prospectus you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser. The typical investor in LMDF is an individual or institution who has an interest in microfinance as an instrument for the advancement of marginalized popula- tions in developing countries. The typical investor is aware that LMDF seeks dual objectives, social impact and financial return. The typical investor is willing to invest for the long term and accepts a possibly lower return on investment than available from purely return-oriented investment vehicles. There can be no guarantee that the objective of LMDF will be achieved. LMDF has been authorised to distribute its shares to the people of the Grand Duchy of Luxembourg. Every potential shares applicant living in a territory other than the Grand Duchy of Luxembourg cannot consider these documents as an invitation to buy or apply for these shares, unless in that territory such an invitation can be carried out within full compliance of the law, without any registration or other modalities, or unless this person is to comply with the legislation in effect in the concerned territory, to obtain all governmental or other required authorisations and to subject him- or herself to all applicable requirements. None of LMDF’s shares have been registered under the United States Securities Act of 1933 or registered or qualified under applicable state statutes and LMDF has not been registered under the United States Investment Company Act of 1940. None of the shares may be offered or sold, directly or indirectly, in the United States of America or in any of its territories or possessions (the "United States"), or to any US Person or on their behalf, except as part of an exemption to the transferable securities laws in effect in the United States or as part of a transaction not subject to these laws. Imprint Conception and Layout binsfeld corporate © Photos ADA, Luxembourg (p. 06, 09) ADA / Guy Wolff (p. 14, 15) Intean Poalroath Rongroeurnd Ltd, Cambodia (p. 10, 11) Maxima Mikroheranhvatho Co. Ltd, Cambodia (p. 13) © The Luxembourg Microfinance and Development Fund − Social Venture Capital Sub Fund, 2010 All rights reserved The Luxembourg Microfinance and Development Fund - Social Venture Capital Sub Fund 14 - 15
    • Société d’Investissement à Capital Variable /// 2, place de Metz /// L-1930 Luxembourg T.: +352 27 47 35 /// F.: +352 27 47 35 72 /// info@lmdf.lu /// www.lmdf.lu