Efse Annual Report 2009

GrowinG responsibly GrowinG responsibility
AnnuAl report 2009
the european Fund for southeast europe (eFse) fosters economic development and prosperity in the region of southeast europe including the european eastern neighbour hood region through the sustainable pro vision of additional development finance. the Fund offers longterm funding instruments to qualified local partner lending institutions for onlending to micro and small enterprises as well as lowincome private households. in pursuing its development goal, eFse is committed to principles of responsible development finance, combining a focus on development with market orientation. eFse also has a Development Facility endowed with grants to enable technical assistance, consulting and training measures to strengthen financial institutions in the region. together the Fund and its Development Facility contribute to promote economic development, regional integration and cooperation. As the first publicprivate partnership of its kind in development finance, the Fund brings together public funding and private invest ments. initiated by German Development bank Kfw entwicklungsbank in 2005, eFse is a privately managed investment fund with oppenheim Asset Management services as the fund manager since the Funds inception and Finance in Motion as exclusive fund advisor since 2010.
Content
3 Greeting from the Chairman 4 investors
6 8 10 12 14 18
ACHieVeMents C lient Story agorka Govedarica, N Bosnia and Herzegovina Client Story Gennadiy Lysikov, Ukraine Client Story Tatjana Kolevska, FYR Macedonia Client Story Kareman Dalipi, Albania Highlights of 2009 eFses regional expansion
GrowinG responsibly GrowinG responsibility 20 letter from the Fund Manager and the Fund Advisor 22 Growing responsibly Growing responsibility 22 endborrower level 25 partner lending institution level 26 Financial sector level 28 Fund and investor level
29 30 34 36 38 40 41 42 44
FACts, FiGures AnD FinAnCiAl stAteMents performance overview Financial statements Development impact investments partner lending institutions Funding eFse Development Facility organisational structure target region
Key FiGures
subloans disbursed since inception BALTIC SEA
216,514
eur
Amount disbursed to endborrowers since inception
1.1 billion 446.4 million

UKRAINE
BELARUS
subloan portfolio outstanding
eur
number of active endborrowers
115,590
MOLDOVA DO D
number of partner lending institutions
58
eur
ROMANIA
SERBIA BIA BOSNIA AN N ND investment portfolio HERZEGOVI VI VINA (including loans, equity investments and guarantees)
578.9 million 684.1 million 728.1 million
MONT MONT TEBULGARIA V NEGRO KOSOV GRO KO VO O FYR MAC AC ACEDONIA investments approved since inception eur ALBA A ANIA
Committed funding from investors
eur
yeAr to DAte As oF 31 DeCeMber 2009
MEDITERRANEAN SEA
Dr. Klaus Glaubitt
It is with great pleasure that I introduce to you the 2009 Annual Report of the European Fund for Southeast Europe, EFSE. The main theme of this report is Growing Responsibly-Growing Responsibility which clearly reflects how much we care about the issue of responsible finance practices. With EFSEs solid qualitative growth during 2009 we have demonstrated in practical terms that responsibility and growth go hand in hand. The year 2009 underscored EFSEs institutional strength and crisis-resilience in a challenging market environment. The Funds innovative Public-Private Partnership structure was instrumental in providing continued access to funding as well as much-needed capital support. Furthermore, the EFSE Development Facility mobilised substantial technical assistance at short notice, for a considerable group of partner lending institutions, to help them mitigate the effects of the financial crisis. The Fund has demonstrated its amazing development impact by crossing the EUR 1 billion threshold of disbursed subloans to more than 200,000 micro and small enterprises as well as low-income private households during 2009. With EFSE funds, close to 250,000 jobs were created in the target region since the Funds inception in December 2005. Given the success of the EFSE model, the target region was extended to include the European Eastern Neighbourhood countries of Armenia, Azerbaijan, Belarus and Georgia at the end of the year, thereby increasing the number of partner countries to currently 14. Against this background, we are proud to report that the Fund welcomed 12 new private investors and increased its capital commitments to EUR 728.1 million, providing the necessary funding base for continued future growth. On behalf of the Board, I would like to thank EFSEs investors, the members of the Advisory Group, the Funds partner lending institutions in the region and last but not least the dedicated staff of the Funds service providers for their commitment and support. The coming year will once again be challenging. EFSE will contribute to the stabilisation and development of the financial sector in the region. In its fifth year of operation, EFSE will continue to grow with quality and keep on promoting responsible finance to and with its partners in the target region. Enjoy reading the report.
Dr. Klaus Glaubitt

Chairman of the Board of Directors
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GREETINGS
Source: ec.europa.eu
Strengthening prosperity, stability and security

The European Fund for Southeast Europe (EFSE) has proved to be a robust financial instrument to help key economic actors such as small businesses and low income households with difficult access to finance throughout the most critical periods of the global economic and financial crisis in 2009. At the same time, the Fund has stepped up its efforts to promote responsible financial behaviour among its client financial institutions, a crucial element to attain sustainable economic growth and integration into the European economy. Building on its success in the countries of the enlargement region, the Fund is widening its geographical scope to the European Eastern Neighbourhood region this year. This has been made possible by EUR 10 million financed from the EU Neighbourhood Investment Facility (NIF) thereby increasing the total amount of support of the European Commission to EFSE to more than EUR 100 million in 2010. The EU's enlargement policy and its neighbourhood policy share the objective of contributing to strengthening the prosperity, stability and security of the countries concerned. Since its inception in 2005, EFSE has developed into a solid pillar supporting that process in the enlargement region and I trust that it will be able to bring about similar benefits to the neighbourhood region.
Stefan Fle
European Commissioner for Enlargement and Neighbourhood Policy
AS OF 30 DECEMBER 2009
EFSES FIRST-CLASS INVESTORS

EFSEs Public-Private Partnership structure combines funding of donor agencies, international financial institutions and private institutional investors.
DONOR AGENCIES
European Investment fund as Trustee for European commission
INTERNATIONAL FINANCIAL INSTITUTIONS
PRIVATE INSTITUTIONAL INVESTORS
4 | ACHIEVEMENTS
EFSE invests in creation of value

This past year has probably been the most turbulent period in financial history since the Second World War. The financial crisis has left behind deep scars not only in the economies of the European Union and other industrialised nations, but also in the European Union neighbourhood countries, in Southeast Europe and the Caucasus region. In fact, it is exactly those countries that had no hand in the cause of the crisis that suffer the most. International investment capital has been withdrawn, investors are holding back and economic development has grinded to a halt. In this situation we have to invest even more to strengthen the financial sectors of our partner countries so that the countries of Southeast Europe and the Caucasus region can quickly overcome the economic setback they have experienced. Today we can identify the first signs of a possible return of growth. But this can only be realised if small companies, which are also the main focus of EFSE and the key driving belt for the economic development of our partner countries, have the possibility to obtain loans for new investments at reasonable interest rates. And exactly that is the central idea behind, and the recipe to the success of EFSE. We believe in micro credits and the advancement of small and medium-sized enterprises. We dont only strengthen the business communities in our partner countries, but our concept also includes the intellectual capital and know-how of investors from industrialised nations. This absolutely agrees with the approach that I as development minister have adopted as Leitmotif for the German development cooperation: Strengthening the economy and developing Public-Private Partnerships! We are investing in micro credits and fostering small and medium-sized companies. To me, EFSE is one of the central players when it comes to the new focus of German and international development politics. Especially considering the fact that the Fund made it through the crisis surprisingly strong and healthy. It is quite clear that this crisis was a true litmus test for all financial institutions. But even in such difficult circumstances, EFSE proved that it is able to conduct its business sustainably and that it is effectively crisis-proof. Here the success factors include the specific partner orientation and strict exclusion of consumer credits. EFSE invests in creation of value not in the consumption thereof. And it also supports, wherever possible, financing in local currencies. Another factor for its success is the support EFSE provides to its partner institutions through the EFSE Development Facility, which was created solely for this purpose. Only because of these factors, it was possible for EFSE to expand its regional operation despite the limiting factors presented by the crisis. With Armenia, Azerbaijan, Belarus and Georgia, four new EFSE countries were recently added to the portfolio. I am certain that the Fund will be able to continue writing its success story in those countries.
Dirk Niebel
German Federal Minister for Economic Cooperation and Development
ACHIEVEMENTS
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Source: bmz.de
INVESTING IN EDUCATION
Nagorka Govedarica Children day care centre

Client of ProCredit Bank Bosnia and Herzegovina KM 2,000, KM 5,000, KM 5,000, KM 8,000 and KM 10,000 (totalling approximately EUR 15,300)
In the mid 1990s, Nagorka Govedarica found herself in a precarious situation: as a single mother in unemploymentstricken Sarajevo, she had no realistic chances of finding a job in her profession as child educator. But instead of giving in to her circumstances, Nagorka chose to do something that would turn around the future facing her family. Her vision was born out of the fact that her neighbourhood Dobrinja, one of the most populous areas in the capital of Bosnia and Herzegovina, was severely lacking adequate childcare centres. I wanted to create a place where local children could not only study, draw, sing and play together,
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ACHIEVEMENTS
GROWTH As she sees children develop and grow, Nagorka Govedarica is reminded every day about the contribution her business is making.
RESPONSIBILITY Investing in an educated youth of today ensures a healthy society of tomorrow.
but where they would also receive a solid basis for their future education, says Nagorka. In 1998, she founded the day care centre Na a radost, s which stands for our joy, on the ground floor of her house. But because she strived to provide the best possible environment for the children, Nagorka saw the need to invest in renovation and furnishing. She approached the EFSE partner lending institution ProCredit Bank, where she quickly found competent support. Over a period of ten years, ProCredit Bank has provided Nagorka with five loans totalling KM 30,000 (EUR 15,300).
With this money, she managed to renovate and fully equip the indoor area with furniture and toys, as well as build a small play park in her garden. Today, five qualified teachers employed fulltime at Na a s radost work with the roughly 30 children that come there every day. It is wonderful to see the centre developing and improving the living standards for everyone involved, says Nagorka. This would not have been possible without the financial support I received when I needed it most.
ACHIEVEMENTS
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REAPING THE BENEFITS OF HARD WORK
Gennadiy Lysikov Agricultural production

Client of Megabank Ukraine UAH 198,000 (approximately EUR 18,000)
Everything seemed set for success in the life of Gennadiy Lysikov. After completing a degree in engineering and nuclear physics in 1993, he started working at a Ukrainian optical glass factory in Izum. But after the factory was closed down, Gennadiy lost his job and for two years struggled to find new employment. Finally, he decided to take charge of his situation and attempted making money as an entrepreneur, trading at the local market with foodstuffs. Gennadiy was a hard worker and by 2003 he already owned two successful stands.
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ACHIEVEMENTS
GROWTH Gennadiy Lysikov realised early in life that dedication and hard work pay off and that it is everyones own responsibility to make something out of life.
RESPONSIBILITY Although Gennadiy Lysikov started with only 6 hectares of land, he saw the possibilities it presented and today can harvest over 220 hectares of land.
Then in 2006, after inheriting a 6 hectare piece of land, he spotted an opportunity. Using the knowledge he acquired during his years of selling foodstuffs, Gennadiy decided to move into producing them, instead. He leased additional pieces of land from local villagers and was soon able to bring in his first harvest: 200 tonnes of sunflower seeds, and 20 tonnes of barley. Although he had little experience in agriculture, his enthusiasm and hard work allowed Gennadiy to reap the rewards. In 1996 he took on his first loan from Megabank which he used to buy a tractor. In 2009, Megabank and
EFSE jointly started a credit programme aimed at small and medium-sized agricultural companies. Gennadiy was one of the first clients to receive a loan. With the UAH 198,000 (EUR 18,000) assigned to him, Gennadiy doubled his agricultural area and considerably expanded his operations. I am so happy that Megabank believed in my dream and gave me the possibility to do what I really wanted to, says Gennadiy who today, in addition to business success, enjoys an excellent reputation among the village people and great respect from his business partners at Megabank.
ACHIEVEMENTS
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A BEAUTIFUL FUTURE
Tatjana Kolevska Beauty shop

Client of Export and Credit Bank (EC Bank) FYR Macedonia EUR 5,000 and EUR 5,000
Being a complete stranger in a country often makes it more difficult for people to find their way. But when Tatjana Kolevska moved from Belarus to Macedonia, she managed to make this fact work for her, instead. Aware of an excellent range of cosmetic products that enjoyed great popularity in her home country, Tatjana decided five years ago that she wanted to introduce these products to her new surroundings. With moral support from her family and financial backing by the EFSE partner lending institution, Export and Credit
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ACHIEVEMENTS
GROWTH Despite being a foreigner, Tatjana Kolevska managed to surpass herself and achieve financial independence.
RESPONSIBILITY Tatjana Kolevska has undergone a number of trainings to truly understand her products and to be able to give her clients the best possible consultations.
Bank (EC Bank), Tatjana set out to found Bondi Interprajt DOOEL. Over the years, she has received two loans totalling EUR 10,000, which provided the working capital she needed to consecutively grow her business. With today six employees and two stores in prime location shopping malls in Skopje, Bondi Interprajt DOOEL is the sole importer for a number of high-end beauty products from Belarus, Israel and Italy as well as a variety of deco items, which are sold both to end-users and retail dealers. Tatjana is extremely passionate and knowledgeable about
her products, and one of the reasons she has been so successful is the high priority she places on professional consultation and service to her clients. Every single person entering her stores receives individual assistance in finding the best products for their needs. Professional service is also a characteristic that Tatjana appreciates with EC Bank, who stood with her from the beginning. Once a foreigner to Skopje, Tatjana now has a buzzing business, loyal business partners, and is firmly rooted in her new environment.
ACHIEVEMENTS
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SHARING IN HIS SUCCESS
Kareman Dalipi Olive oil production

Client of Opportunity Albania Albania ALL 400,000 and ALL 500,000 (totalling approximately EUR 7,300)
It doesnt have to be the first idea that leads to success. But it is important to stay committed and keep on trying just like Kareman Dalipi from Dushk in Albania. With his first real savings, he ventured into entrepreneurship and opened up a fast-food store in Tirana. But this didnt turn out the way I had hoped and I was soon forced to give up the business and return to my place of birth, remembers Kareman. Yet rather than being discouraged by his situation, he found new inspiration in his immediate environment. Most of the local villagers were olive farmers who had to travel far away to have their olives processed into olive oil.
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ACHIEVEMENTS
GROWTH Kareman Dalipi has learnt that the secret to success lies in sharing it as much as possible with others and promoting mutual growth.
RESPONSIBILITY An honest and transparent work ethic is fundamental if you want people to trust in your business.
Kareman plotted out the idea of establishing his own olive production line right in his village. Convinced that this was a good idea, Kareman ordered his first olive processor from Italy in 2007. But this wasnt enough to get him started. I urgently needed a spinner and an oil filter bed before I could start producing the oil, but I didnt have enough money for this, explains Kareman. He headed off to Opportunity Albania, an EFSE partner lending institution dedicated to financing micro entrepreneurs, and quickly knew he had come to the right place. Kareman left with his first credit loan of ALL 400,000 (EUR 3,200).
His plans were working out. Because they could save hours of travel time, the local villagers turned to Kareman to process their olives. In addition, Karemans principle of selling olive oil on commission, thereby allowing the farmers to participate in his success, soon cemented his reputation as an honest and deeply committed business partner. Last year, Kareman received a second loan of ALL 500,000 (EUR 4,100) from Opportunity Albania, which he used to buy an olive washing machine. His business is running so well, that an increasing number of farmers from the surrounding area are turning to him to have their olives processed.
ACHIEVEMENTS
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QI
HIGHLIGHTS OF 2009
HE fIRST cRISIS RESPONSE PackaGE T addressing Credit Risk and Delinquency Management was started by the EFSE Development Facility.
HE EfSE DEvELOPmENT facILITY ORGaNISED TWO DOWNScaLING PROjEcTS T at Moldova Agroindbank and FinComBank in Moldova on the development of microlending strategies, products and procedures.
RESPONSIBLE fINaNcE cONfERENcE IN kOSOvO The Central Bank of Kosovo, supported by the EFSE Development Facility and KfW, organised a Responsible Finance Panel Discussion event in Prishtina, Kosovo in March 2009. The event attracted over 60 participants from the financial sector and government agencies and was opened by the Governor of the Central Bank of Kosovo, Hashim Rexhepi. The importance of responsible finance, especially in times of crisis, was addressed, highlighting both transparency and literacy as significant factors for financial institutions to take into consideration in their relationships with clients.
fSE INTRODucED a SOcIaL PERfORmaNcE aSSESSmENT cONcEPT E which was implemented throughout the year.
14 | ACHIEVEMENTS
HIGHLIGHTS OF 2009
QII
HE REPuBLIc Of aLBaNIa BEcamE THE fIRST SHaREHOLDER fROm EfSES TaRGET EGION. T R he highly appreciated contribution facilitated two new Albanian financial institutions, namely T ProCredit Bank Albania and Credins Bank.
fSE aNNuaL mEETING IN NOvI SaD, SERBIa E
The 3rd EFSE Annual Meeting took place in Novi Sad, Serbia, and hosted over 200 guests of the Funds stakeholders, including donors, public and private investors, international financial institutions, partner lending institutions, as well as policymakers, academics and other experts in related fields. The 2009 event covered the effects of the international financial crisis on Southeast Europe and an outlook for the future of the financial sector in this region under the headline Financial Crisis and Southeast Europe: Off the Cliff or Out of the Woods? addressing the topic from three different perspectives: investors, commercial banks and microfinance institutions.
HE STuDY ON THE accESS Of LOW-INcOmE HOuSEHOLDS TO fINaNcIaL SERvIcES T and the risk of over-indebtedness of microcredit clients which was conducted by the EFSE Development Facility was presented at the Roundtable of the Association of Microfinance Institutions in Bosnia and Herzegovina (AMFI). Thereupon financial crisis workshops for microfinance institutions in Bosnia and Herzegovina were offered.
HE LuxfLaG mIcROfINaNcE LaBEL fOR EfSE WaS RENEWED T for the fourth consecutive time.
ACHIEVEMENTS
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QIII
HIGHLIGHTS OF 2009
SIGNIfIcaNT NumBER Of PRIvaTE INSTITuTIONaL INvESTORS a jOINED THE fIRST-cLaSS INvESTOR BaSE Of EfSE, among them family businesses, financial institutions, religious organisations and foundations.
HE THIRD EfSE DEvELOPmENT ImPacT STuDY 2009 WaS STaRTED. T It analyses the topic of agricultural finance activities in three EFSE markets: Albania, Kosovo and Moldova.
RuRaL fINaNcE GaP aNaLYSIS IN aLBaNIa The EFSE Development Facility conducted an analysis of the supply and demand gap of financial services available to farm households and entrepreneurs in rural regions of Albania. The survey revealed a rather low utilisation of financial services and identified the fact that access to financial services is perceived as difficult. Although a strong savings culture among the rural population was identified, the analysis confirmed a low level of financial literacy and awareness of financial products among the rural population, as well as a lack of delivery channels of financial services to rural enterprises.
Source: Elizabeth Holmes / Katia Grtz, FSFM
16 | ACHIEVEMENTS
HIGHLIGHTS OF 2009
QIV
NEW mILESTONE WaS REacHED: a EUR 1 billion were disbursed to about 200,000 sub-borrowers since the Funds inception in December 2005.
IRST INvESTmENT IN ukRaINE f With the signing of a subordinated loan agreement between EFSE and the Ukrainian Megabank the Fund undertook its first investment in the Ukrainian market.
N kOSOvO a WORkSHOP ON THE TRaNSfORmaTION Of mIcROfINaNcE INSTITuTIONS I with an NGO status into for-profit companies was arranged with support of the EFSE Development Facility.
HE THIRD RESPONSIBLE fINaNcE cONfERENcE TOOk PLacE T in Sarajevo, Bosnia and Herzegovina jointly organised by the Central Bank of Bosnia and Herzegovina, KfW Entwicklungsbank and EFSE.
EGIONaL ExPaNSION Of EfSE TO THE EuROPEaN EaSTERN NEIGHBOuRHOOD REGION R
A festive event marking the EFSE regional expansion to Armenia, Azerbaijan, Belarus and Georgia was held in Brussels. In line with the European Neighbourhood Policy the new European Neighbourhood window under EFSE will encompass these four new countries as well as Moldova and Ukraine.
ACHIEVEMENTS
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EFSES REGIONAL ExPANSION
In 2005, EFSE started out with four target countries in what is largely referred to as the Western Balkans region. Only four years later, the Fund was already operating in ten countries in Southeast Europe, having served more than 200,000 end-borrowers in the region. Against the backdrop of this strong performance, EFSE further broadened its geographic scope by expanding to four new countries: Armenia, Azerbaijan, Belarus and Georgia. Together with Moldova and Ukraine, these four countries form the European Eastern Neighbourhood region. Given the importance of this new region in terms of population and relevance of the micro, small and medium enterprise sector, the Fund has opened a dedicated European Neighbourhood Fund window within the EFSE structure. Going forward, the Fund will report separately on the portfolio development and impact in the original Western Balkan Facility window, including the European Union countries Bulgaria and Romania and the European Neighbourhood Small Business Growth Facility (ENBF) window.
Government represented by the Federal Ministry for Economic Cooperation and Development (BMZ) and the Development Bank of Austria (OeEB) for the European Eastern Neighbourhood region. EFSEs development objective is to enhance the economic development and prosperity of the region. Due to the strong ties between the European Eastern Neighbourhood region and Southeast Europe, as reflected by important trade and energy links as well as migration flows, the development of Southeast Europe intimately correlates with the development of its neighbouring region. Furthermore, EFSEs traditional target countries in Southeast Europe have similar developmental needs to the European Eastern Neighbourhood countries. A topical issue for most of these countries is achieving post-conflict stability, amongst others also through economic development, regional cooperation and integration, all of which EFSE wishes to contribute to.
CONSIDERING LOCAL NEEDS The geographic expansion was made possible through the contribution of additional first-loss capital by the European Commission, the German Notwithstanding these similarities, the European Eastern Neighbourhood region nevertheless
aRmENIa
aZERBaIjaN
CAPITAL PoPuLATIon AreA GDP/CAPITA m2/GDP

GDP = gross domestic product M2 = broad money supply
YereVAn 3,261 mILLIon 28,200 sQ km eur 1,790 14.74 %
BAku 8,779 mILLIon 86,600 sQ km eur 4,091 16.87 %
1818Growing responsibly Growing responsibilty | | ACHIEVEMENTS
exhibits
certain
specific
characteristics
and
BENEFITING FROM ExPERIENCE The expansion was part of the natural development of EFSE and benefits from an experienced fund management structure and process. Besides tapping the large investment potential in the European Eastern Neighbourhood region, the expansion will enable significant synergies for the benefit of all of the Funds stakeholders, partner lending institutions and investors. Not only because of the expected scale of operations, but also because of broader risk diversification across countries and a greater diversity of financial institutions. By using the existing structures, procedures, experiences and skills, EFSE is able to immediately start its operations in the European Eastern Neighbourhood region. This swift start will benefit the region as investment volumes are placed, technical assistance made available and as responsible finance practices are promoted. The geographic expansion will contribute to deepening financial intermediation in the new target region. It will also bring much-needed long-term funding for micro, small and medium-sized enterprises as well as for home improvement to these countries.
requirements that EFSE will need to consider. The new partner countries were previously an integrated part of the former Soviet Union and therefore applied the state economic model. With the declaration of independence, a fundamental overhaul of both the political systems as well as the economic structures occurred, albeit with differing speed and depth across the region. In terms of the overall economic structure, smalland medium-sized enterprises play a critical role in the European Eastern Neighbourhood region, enhancing EFSEs business financing approach to not only address microenterprise financing but also to promote small enterprise financing solutions. Generally speaking, local currency plays a much stronger role in the European Eastern Neighbourhood countries. The banking sectors display a predominance of local capital and a considerably smaller presence of international banking groups. Particularly in Armenia, Azerbaijan and Georgia, a significant number of microfinance institutions are engaged in microenterprise financing.
BELaRuS
GEORGIa
mInsk 9,612 mILLIon 207,600 sQ km eur 3,937 26.24 %
TBILIsI 4,387 mILLIon 69,700 sQ km eur 1,771 23.77 %
Sources: Central banks 2009, International Monetary Fund 2010, World Development Indicators 2007
ACHIEVEMENTS
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LETTER FROM THE FUND MANAGER AND THE FUND ADVISOR
Detlef Krger
Johann Will
Elvira Lefting
Sylvia Wisniwski
Florian Meister
During 2009, EFSE maintained its position as one of the worlds largest microfinance investment funds. Although the stellar growth from the first three years of operation slowed down due to the impact of the global financial crisis, we continued to manage the Fund with confidence, placing great emphasis on the quality of the portfolio and on responsible growth. Responsible growth put in numbers means an increased investment portfolio reaching EUR 578.9 million that was invested in 58 partner lending institutions in 10 countries. 2009 saw 17 investments being made, to the total value of over EUR 100 million. With 13 new investors forming EFSEs first-class investor base, the committed funding hiked to EUR 728.1 million. The majority of these new investors are private institutional investors which underlines the functionality and the success of the exceptional Public-Private Partnership model of the Fund. But our results are not just about investment volume or financial returns. They are, more importantly, about their development impact. Every day in 2009, EFSE refinanced 48 additional micro and small businesses or low-income private households recording more than 115,000 active end-borrowers at year-end. EFSEs subloan portfolio rose to EUR 446.4 million. In September, the amount disbursed by EFSE's partner lending institutions since the Funds inception in 2005 hit EUR 1 billion! Another milestone in the Funds history was the regional expansion of EFSE to four additional countries from the European Eastern Neighbourhood region. The Fund starts operations in Armenia, Azerbaijan, Belarus and Georgia in 2010. This expansion will also have an impact on EFSE providing balanced support both to micro as well as small enterprises and low-income private households.
20 | GROWING RESPONSIBLY
Growth is always accompanied by more responsibility. The team of the Fund's service providers is aware of this challenge but is confident to meet it with the support of the EFSE stakeholders and the EFSE Development Facility. The success of EFSE and the subsequent improvement of the living conditions of people in the target region are only possible with the people who make this Fund work. The commitment of the Board of Directors, the Investment and Development Facility Committees, the Advisory Group as well as that of the staff of all service providers is crucial. Furthermore, the Fund benefits strongly from the excellent relationships with its partner lending institutions and its investors. Thank you very much to all of them.
Johann Will
Vice President Oppenheim Asset Management Services
Detlef Krger
Senior Associate Oppenheim Asset Management Services
Sylvia Wisniwski
Chief Operating Officer Finance in Motion
Elvira Lefting
Chief Investment Officer Finance in Motion
Florian Meister
Executive Manager Capital Markets Finance in Motion
GROWING RESPONSIBILITY
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GROWING RESPONSIBLY GROWING RESPONSIBILITY

The concept of responsible finance stands for a fair balance of the interests of all stakeholders that are part of the financial markets: users of financial services, financial service providers and investors. EFSE is committed to promoting responsible financing practices in a very practical and hands-on manner. This commitment stems first and foremost from the Funds social mission to improve the access of less privileged population groups to finance. Furthermore, stable and integer financial markets are the foundation to the EFSE business model and are particularly crucial for the long-term investment horizon of the Fund. Only with responsible finance practices can sustainable growth be achieved.
END-BORROWER LEVEL
PROMOTING FINANCIAL LITERACY EFSE aims to enhance the level of understanding of financial terms and concepts among the endclients. The objective is to help clients make educated decisions regarding the financial services they need and ensure they are well-informed before entering into any relationships with financial service providers. PREVENTING OVER-INDEBTEDNESS The financial crisis has shown that especially illinformed clients tend to accept higher loan amounts than they can afford. These clients encounter difficulties in servicing their debt once personal and macroeconomic conditions become challenging. The Fund aims to raise awareness among its final target group through public campaigns, working on industry codes of conduct to limit the debt burden to single client households and by supporting the setup of debt advice centers.
Source: OeEB/C. Husler
We consider it essential that all technical assistance financed by OeEB funds creates a sustainable impact both at the end-client as well as the partner institutions level. With the client educational booklet developed with support from the EFSE Development Facility, both goals were achieved at best.
Michael Wancata, Member of the Executive Board, Oesterreichische Entwicklungsbank AG (OeEB)
Educating clients and promoting financial literacy

In 2009, the EFSE Development Facility (DF), together with the Funds partner lending institutions, continued to organise a variety of client education initiatives. Projects addressing the end-borrowers included the development of educational television spots and booklets. With the help from consultants provided by the EFSE DF, Cacanska banka in Serbia finalised the production of 15 short educational television spots. The project aimed at promoting transparency for end-borrowers among the banking sector and financial literacy in Serbia. The spots use easilyunderstood language to explain basic banking terms and processes to the broader public. In each of them, the viewers accompany two young students through the world of banking as they visit the bank to clarify their questions on a particular topic, such as effective interest rates or how to open a current account. The television spots are broadcasted on more than 15 local and regional TV stations across Serbia during the first half of 2010. The EFSE DF furthermore supported the development and promotion of client educational booklets that were distributed throughout Kosovo and Bosnia and Herzegovina. The booklets aimed at raising awareness and teaching current and potential users of financial services how to responsibly use the services offered by banks and microfinance institutions. In Kosovo, the EFSE DF, in cooperation with the Microfinance Association of Kosovo (AMIK), developed a booklet on the principles of microfinance that was distributed through 3 daily newspapers and the branch networks of AMIKs members. In Bosnia and Herzegovina, ProCredit Bank received financial support for the promotion of a booklet teaching people how to calculate and keep track of their household budget. The booklet also included information about the relevance of savings and was distributed as an insert to newspapers on World Savings Day.
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Supporting partners in rough times

Against the backdrop of the financial crisis, partner lending institutions (PLIs) were faced with new challenges relating to both credit and financial risk. A key challenge was for them to adapt institutional structures to a new environment while maintaining their micro and small business focus and managing profitability. As a result, asset quality became a major focus for many PLIs. In this situation, the EFSE Development Facility (DF) played a decisive role, especially for microfinance institutions (MFIs). A number of MFIs received technical assistance to build up capacity in credit risk and delinquency management. The years leading up to the financial crisis had been marked by accelerated growth and excellent repayment rates; consequently, practical experience in bad loan management was limited. Thus there was an evident need to support PLIs in developing policies and procedures for loan restructuring or collection. Hands-on, tailormade technical assistance implemented during intermittent visits from consultants organised by EFSE, helped PLIs to improve internal structures and processes. The consultants helped introduce delinquency task forces and arrears committees, trained staff, or provided coaching to middle and top management. In one particular case, the EFSE DF supported a PLI in reviewing its overall risk management approach and systems, including operational risk, credit risk and market risk. A sector-wide workshop organised for all MFIs in Bosnia and Herzegovina in early 2009 provided a platform to discuss the challenges that came with the financial crisis and how to address them. Research projects exploring the consequences of the financial crisis and the risk of over-indebtedness among the EFSE final target group provided valuable input for discussions about the way forward.
PARTNER LENDING INSTITUTION LEVEL

SOCIAL PERFORMANCE ASSESSMENT OF PARTNER LENDING INSTITUTIONS In addition to assessing the financial strength of every partner lending institution, EFSE also assesses the scope and quality of corporate values and business practices employed by its partners. The Social Performance Assessment covers the following areas: mission, Client Protection Principles, the outreach of microfinance institutions and, with banks, their responsibility towards staff, community and environmental issues. The Social Performance Assessment is implemented for every new partner lending institution as part of the due diligence process. PROMOTING SOUND SOCIAL AND ENVIRONMENTAL MANAGEMENT SYSTEMS The Fund promotes the implementation of sound social and environmental policies and management systems in partner lending institutions. As a minimum standard, EFSE requires each partner lending institution to refrain from financing activities listed in a social and environmental exclusion list. Furthermore, the Fund proactively offers training in this area. It prepares an annual monitoring report on the status quo and progress made at the partner lending institution level.
IFC recognises the importance of responsible lending in building sound and sustainable financial systems and institutions that truly meet the needs of their clients. We work with partner institutions to promote responsible finance practices throughout Southern Europe.
Rashad-Rudolf Kaldany, Vice President, Asia, Eastern Europe, Middle East & North Africa, IFC
FMO has always been at the forefront of integrating sustainability in business strategies. One way to ensure sustainable development impact is to incorporate social and environmental principles into the management systems of the partner lending institutions. EFSE promotes this approach, through its continuous dialogue with PLIs and through technical assistance.
Nanno Kleiterp, Chief Executive Officer, FMO (the Netherlands Development Finance Company)
| 25
FINANCIAL SECTOR LEVEL

OFFERING RESPONSIBLE FINANCIAL INSTRUMENTS EFSE wishes to support the development of local financial markets and therefore promotes local currency financing wherever possible. Markets under strain, as was evident during the financial crisis, also require a flexible approach from investors. Under these circumstances, the Fund adjusted flexibly its terms and conditions and provided leeway to financial institutions to better cope with the effects of the financial, and subsequently also economic crisis, while always maintaining high risk standards. RAISING AWARENESS OF RESPONSIBLE FINANCE The Fund is committed to promoting responsible finance practices by organising joint seminars and conferences with local central banks and KfW Entwicklungsbank. Additionally, EFSE commissions research in the area of responsible finance to provide empirical evidence on the subject.
The key of the successful partnership between EBRD and EFSE lies in both sharing the same business goals: Promoting local currency instruments as part of responsible financing practices is one such important joint goal.
Henry Russell, Director Small Business Finance and Financial Institutions, EBRD
The EFSE Development Facility strongly promotes responsible finance practices. Several seminars and conferences in the region have been organised, increasing overall awareness and setting standards for responsible finance. These events were made possible through the cooperation of central banks, ministries, banks and microcredit organisations as well as other local stakeholders and development finance institutions in particular KfW. In addition, an exemplary study on the access of low-income households to financial services, with over 900 participants, was conducted in Bosnia and Herzegovina.
Monika Beck, Member of the EFSE Board of Directors and Investment Committee, Chairperson of the EFSE Development Facility and Head of Financial and Private Sector Development, KfW Entwicklungsbank
ACCESS OF LOW-INCOME HOUSEHOLDS TO FINANCIAL SERVICES IN BOSNIA & HERZEGOVINA
APRIL
2009
Addressing the sectoral level

To promote responsible finance practices and financial literacy at the sectoral level, the EFSE Development Facility (DF), together with the respective regulators, continued to organise panel discussions on responsible finance. The EFSE DF also commissioned research and development activities to tackle the topic. In 2009, two responsible finance conferences were organised in Kosovo and Bosnia and Herzegovina, together with the respective central banks and the German Development Bank KfW. These events provided an important opportunity to discuss addressing the consequences of the crisis in the target region and what role responsible finance practices would play in this regard. Both conferences brought these themes closer to financial sector experts and stakeholders while raising awareness among the public through broad local media coverage. The EFSE DF furthermore published a study on access to finance of low-income households in Bosnia and Herzegovina, analysing the availability of financial services for low-income households and the risk of over-indebtedness for this client group. Given the importance of the topic, the DF launched a follow-up research initiative to examine the question of over-indebtedness in more depth. The findings and resulting recommendations addressed all levels of the financial sector and helped to facilitate the dialogue about potential counteractive measures.
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FUND AND INVESTOR LEVEL

TRANSPARENCY OF INFORMATION EFSE aims for a maximum transparency of its operations. In addition to the official reports submitted to the Luxembourg Financial Sector Supervisory Authority (CSSF), the Fund publishes a wide range of publicly available information on a quarterly basis. Such information is published both on EFSEs own website (www.efse.lu) as well as on microfinance information platforms. REGULAR SOCIAL PERFORMANCE MONITORING On a quarterly basis, EFSE monitors the proper use of the funds by its partner lending institutions to the end-borrowers. It does so through the collection and analysis of a comprehensive set of subloan data. In addition, the Fund commissions an Annual Development Impact Study to external consultants in order to obtain an independent opinion on its effectiveness in reaching its social mission.
ACTIVE SUPPORT OF THE SMART CAMPAIGN AND OTHER INDUSTRY INITIATIVES The Fund was among the first signatories of the SMART Campaign, a joint initiative of CGAP and ACCION International to promote consumer protection in the microfinance industry. Furthermore, EFSE participates in a wide range of industry initiatives, e.g. the CGAP Social Performance Working Group.
As the movement for responsible finance has gained momentum, it's a given that organisations working in microfinance need to make an explicit commitment to the fair treatment of poor clients. But if you take yourself back a year or two it was by no means obvious: it needed leadership. EFSE stepped up to the plate as one of the first signatories to the Client Protection Principles and is now taking an active role integrating them into their day-to-day practices.
Alexia Latortue, Deputy Chief Executive Officer, CGAP
28 | GROWING RESPONSIBLY GROWING RESPONSIBILITY
PERFORMANCE OVERVIEW
HIGH PORTFOLIO QUALITY The turbulences that have hit the international financial markets have not left the countries of Southeast Europe unscathed. In response to the negative financial and economic climate, EFSE implemented multiple measures to protect the high quality of its investment portfolio and credibility towards its partner lending institutions (PLIs). In this context, asset quality has been the prominent theme of 2009, not only in EFSEs portfolio management but also for technical assistance measures. COMPREHENSIVE RISK MANAGEMENT CHALLENGE FOR EFSE'S PLIS The Funds management emphasised once again The last year has been challenging for EFSEs PLIs. After the liquidity crisis bottomed out toward the end of 2008, the year of 2009 was marked by loan book contraction and rapidly deteriorating asset quality in financial sectors. This came as a reflection of the severe economic downturn experienced throughout the entire EFSE target region. As a result, profitability has suffered due to substantially higher loan provisions and an increase in non-yielding liquid assets compared to previous years. This fuelled capital pressures. Notwithstanding these challenges, the Funds PLIs have to-date generally managed to weather the crisis rather well, particularly due to a combination of high capital levels prior to the crisis and prudent risk management. Furthermore, EFSE was providing technical assistance support sound risk management techniques. As a cornerstone of the Funds comprehensive risk management, we want to highlight the continuous and close monitoring of the target markets and individual PLIs. The Funds comprehensive monitoring system comprises quarterly ratings, monthly or even weekly reporting on critical cases as well as a continuous trend analysis of key performance criteria as part of an early warning system. Another strength of the Fund is its speed and flexibility, for example with the adjustment of terms and conditions or investment planning and disbursements. Despite the uncertainty and volatility that prevailed in the financial markets throughout the EFSE target region in 2009, the Fund is proud to have successfully managed the risk profile of EFSEs investments and ensured a financial return for its investors to the same level of previous years. to help its partner lending institutions cope with the effects of the crisis, particularly in the area of credit management. The Fund is proud to report that all PLIs fulfilled their payment obligations on time during the year. As a preventative measure, the Fund has booked its first impairment provisions since the Funds inception, which represented less than 0.1 % of total assets at the end of 2009.
FACTS, FIGURES & FINANCIAL STATEMENTS
| 29
FINANCIAL STATEMENTS
balance sheet
as of 31 December (in EUR) 2009 2008
a s s e ts
Gross loans to partner lending institutions Un-amortised discount Impairment allowance Loans to partner lending institutions Interest accruals on loans Cash at bank Equity investments Other receivables TOTAL ASSETS 573,735,608 -10,789,389 -394,941 562,551,278 6,985,510 59,049,751 4,350,584 141,016 633,078,139 522,511,966 -8,346,243 514,165,723 9,046,278 39,417,596 3,932,325 1,414,862 567,976,784
liabilities
Notes Payables resulting from interest on notes Accrued expenses Dividends payable Withholding tax payable Other payables TOTAL LIABILITIES 169,039,711 277,817 2,311,671 7,173,133 1,687,585 749,119 181,239,036 166,387,971 822,250 2,329,747 4,656,825 1,710,180 874,005 176,780,978
NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE ORDINARY SHARES
451,839,103
391,195,806
TOTAL LIABILITIES AND SHAREHOLDER VALUE
633,078,139
567,976,784
30 | FACTS, FIGURES & FINANCIAL STATEMENTS
breakdown of equity
as of 31 December (in EUR) 2009 2008
t o ta l s hare capital
A-Shares B-Shares C-Shares
423,765,538 152,711,174 88,645,135 182,409,229
368,853,583 126,037,721 86,295,128 156,520,734
total share premium

12,796,420 6,674,387 5,217,624 904,409
13,359,387 5,531,271 7,110,826 717,290
available-for-sale reserve total retained earnings

598,671
180,412
14,678,474 -6,674,387 -5,217,624 26,570,485
8,802,424 -5,531,271 -7,110,826 21,444,521
total equity
451,839,103 152,711,174 88,645,135 210,482,794
391,195,806 126,037,721 86,295,128 178,862,957
| 31
income statement
for the period from 1 January to 31 December (in EUR) 2009 2008
re v e nu e
Interest income on loans Interest income on deposits Net change in discount amortisation Realised and unrealised gain on derivatives Realised and unrealised gain on exchanges Other income TOTAL INVESTMENT INCOME 33,694,887 437,792 4,133,881 1,497,594 1,377,428 2,303,232 43,444,814 33,835,129 1,356,277 4,790,170 1,375,604 352,485 3,264,673 44,974,338
expenses
Interest expense on notes Fund management fees Direct operating expenses Development Facility Realised and unrealised loss on derivatives Realised and unrealised loss on exchanges Credit loss expenses Other expenses TOTAL OPERATING ExPENSES oPerATInG ProfIT Before TAx Withholding tax on interest income INCREASE/DECREASE IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE ORDINARY SHARES FROM OPERATIONS 6,642,010 7,999,900 2,329,635 1,113,431 1,670,947 2,990,518 394,941 620,625 23,762,007 19,682,807 2,664,832 9,116,907 7,198,774 1,974,176 544,026 265,998 1,538,156 399,099 21,037,136 23,937,202 4,092,148
17,017,975
19,845,054
other comprehensive income

Net gain/ loss on available-for-sale financial assets TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAx 418,259 17,436,234 180.412 20.025.466
cash-flow statement
for the period from 1 January to 31 December (in EUR) 2009
OPERATING PROFIT BEFORE TAx Adjustment for: Un-amortised discount Impairment allowances OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES Loan agreements Purchase of shares Net increase/decrease in other accrued income and prepaid expenses Net increase/decrease in other receivables Net increase/decrease in accounts payable and accrued expenses Net increase/decrease in other payables Withholding tax on interest income Distributions paid to holders of redeemable ordinary shares CASH-FLOW USED IN OPERATING ACTIVITIES 2,443,146 394,941 22,520,894 -51,223,642 2,060,768 1,273,846 243,619 486,566 -977,247 -11,892,011 -37,507,207 -6,915,973 17,021,229 -147,116,187 -3,751,913 -3,398,634 -1,060,433 528,350 63,827 -4,092,148 -12,642,097 -154,448,006 19,682,807
2008
23,937,202
Cash provided by financing activities Cash received on notes issued Cash received on shares issued Cash paid out on shares redeemed CASH-FLOW PROVIDED BY FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS OPENING CASH AND CASH EQUIVALENTS CLOSING CASH AND CASH EQUIVALENTS 2,651,740 55,099,074 57,750,814 20,243,607 38,806,144 59,049,751 45,708,549 114,971,458 160,680,007 6,232,001 32,574,143 38,806,144
| 33
DEVELOPMENT IMPACT
Since EFSEs inception, a total of EUR 1.1 billion have been disbursed by partner lending institutions benefiting more than 216,000 micro and small businesses as well as low-income private households. The average subloan outstanding is around EUR 3,900.
500 450 400 350 300 250 200 150 100 50 0 As a consequence of the financial crisis, the growth of the subloan portfolio slowed down in 2009. Dec 05
SUBLOAN PORTFOLIO DEVELOPMENT Year to date as of 31 December 2009

Amount (EUR million) Number of loans (thsd.)
446.4
115.6
Jun 06
Dec 06
Jun 07
Dec 07
Jun 08
Dec 08
Jun 09
Dec 09
SUBLOAN DISBURSEMENTS BY PRODUCT DURING 2009 Year to date as of 31 December 2009 (based on volume)
MSE rural 10 %
Housing 6 %
MSE urban 84 % The subloans disbursed to MSEs rural and urban represent the largest share. This trend has been ongoing for the last years.
MSE = micro and small enterprises
SUBLOAN DISBURSEMENTS BY LOAN SIZE DURING 2009 MSE AND HOUSING Year to date as of 31 December 2009 2% 6%
29 % 28 %
92 %
Small enterprises 50,001 100,000 EUR Small enterprises 10,001 50,000 EUR Micro enterprises less than 10,000 EUR MSE = micro and small enterprises
43 %
The by far largest share of subloans is concentrated in the microcredit segment of up to EUR 10,000.
Number of loans
Loan amount
target group
Year to date as of 31 December 2009
2009 (EUR million)

446 350 96 115,590 104,061 11,529
2008
442 320 122 98,087 84,831 13,256 4,506 326 278 48 64,397
subloan portfolio to end-borrowers

MSE urban/rural (EUR million) Housing including energy efficiency (EUR million)
number of active end-borrowers

MSE urban/rural Housing including energy efficiency
average subloan amount outstanding total subloan volume disbursed

MSE urban/rural (EUR million) Housing including energy efficiency (EUR million)
(EUR)
3,862 352 330 22 68,477
(EUR million)
total number of subloans disbursed

SUBLOAN DISBURSEMENTS BY ECONOMIC SECTOR DURING 2009 MSE Year to date as of 31 December 2009
18 % 39 % 26 % 12 %
Agriculture Industry Trade Services MSE = micro and small enterprises
26 % 23 % Number of loans
36 % 20 % Loan amount
Subloans disbursed for agriculture have a smaller average size in comparison to those of other economic sectors.
SUBLOAN DISBURSEMENTS BY LOAN PURPOSE DURING 2009 MSE AND HOUSING Year to date as of 31 December 2009
29 % 49 %
54 %
Fixed assets Working capital Mixed MSE = micro and small enterprises Home improvement Construction Purchase
12 % 39 % The share of working capital increased significantly in comparison to the previous year. This is a reflection of the reluctance to obtain financing for long-term investments given current economic uncertainties.
17 % Loan amount
Loan amount
| 35
INVESTMENTS
At the end of 2009, EFSE operated in 10 countries with an investment portfolio of EUR 578.9 million. This portfolio consists of loans of EUR 573.7 million, equity investments of EUR 4.4 million and guarantees of EUR 0.8 million. The total amount of approved investments since inception sums up to EUR 684.1 million.
country
mSEs urban / rural

10.0 19.0 8.0 5.0 18.0 7.0 7.0 20.0 6.9 100.9 98 %
Housing including energy efficiency

2.0 2.0 2 %
NEW INVESTMENTS APPROVED IN 2009 Year to date as of 31 December 2009 (EUR million)
Total
12.0 19.0 8.0 5.0 18.0 7.0 7.0 20.0 6.9 102.9 100 %
Share
12 % 18 % 8% 5% 17 % 7% 7% 19 % 7% 100 %
Albania Bosnia and Herzegovina FYR Macedonia Kosovo Moldova Montenegro Romania Serbia Ukraine TOTAL FUND SHARE
INVESTMENT PORTFOLIO DEVELOPMENT Year to date as of 31 December 2009 (EUR million) 600 500 400 300 200 The investment portfolio growth of EFSE reflects the overall slow-down of lending activities of its partner lending institutions. 100 578.9
12/05
06/06 12/06
06/07
12/07
06/08 12/08 06/09 12/09
CURRENCY ALLOCATION IN % Year to date as of 31 December 2009
Euro (EUR) 91.7 %
US Dollar (USD) 6.5 % Romanian Lei (RON) 1.7 % Albanian Lek (ALL) 0.1 %
Local currency lending has started to gain in importance.
INVESTMENT PORTFOLIO BY COUNTRY IN % Year to date as of 31 December 2009 Bosnia and Herzegovina Serbia Romania Montenegro Moldova Kosovo FYR Macedonia Albania Supra-Regional Bulgaria Ukraine 27 16 12 11 9 8 7 4 3 2 1 Bosnia and Herzegovina still has the largest share of the investment portfolio for historic reasons. However the overall trend is towards a more balanced portfolio in geographic terms.
INVESTMENT PORTFOLIO BY PRODUCT Year to date as of 31 December 2009
MSE rural 8 %
Housing 20 % Housing energy efficiency 1 %
MSE urban 71 % The share of MSE investment portfolio rural and urban further increased.
INVESTMENT PORTFOLIO BY INSTRUMENT Year to date as of 31 December 2009
Subordinated loans 20 % Hybrid capital 3 % Guarantee 0.2 % Equity 0.8 % EFSE predominantly remains a debt fund, albeit with an increasing share of subdebt investments.
Senior loans 76 %
| 37
PARTNER LENDING INSTITUTIONS
EFSE continued the long-term partnerships with its qualified partner lending institutions (PLIs) and welcomed three new institutions in 2009, holding 58 PLIs in its portfolio.
Year to date as of 31 December 2009 (in EUR million)
Outstanding balance
albania
Commercial banks: Credins Bank sh.a. Microfinance banks: ProCredit Bank Albania sh.a. Microcredit organisations: Opportunity Albania
23.8
bosnia and herzegovina

Commercial banks: Fima Banka d d Sarajevo, Intesa Sanpaolo Banka d.d. Bosna i Hercegovina, NLB Tuzlanska banka d.d. Tuzla, Nova Banka AD Banja Luka, Raiffeisen Bank d d Bosna i Hercegovina, UniCredit Bank d.d., Volksbank BH d.d. Microfinance banks: ProCredit Bank d.d., Sarajevo Microcredit organisations: MCC Mikrofin, MCC Sinergija Plus d.o.o. Banja Luka, MCF EKI, MCF MI-BOSPO, MCF Mikra, MCF Mikro Aldi, MCF Prizma, MCF Sunrise, Partner MCF
156.3
bulgaria
Microfinance banks: ProCredit Bank, Bulgaria
10.0
f y r m a c e don ia
Commercial banks: Export and Credit Bank Inc. Skopje (IK Banka), NLB Tutunska banka AD Skopje, TTK Banka s.c. Skopje Microfinance banks: ProCredit Bank Macedonia
38.4
kosovo
Commercial banks: NLB Prishtina sh.a., Raiffeisen Bank Kosovo J.S.C. Microfinance banks: ProCredit Bank, Kosov Microcredit organisations: FINCA Kosovo, KEP Trust, Kreditimi Rural i Kosoves LLC (KRK)
46.1
mo l d o v a
Commercial banks: Banca de Finante si Comert S.A. (FinComBank), BC Banca Sociala, , BC Mobiasbanca Groupe Socit Gnrale S.A., BC Moldova Agroindbank S.A. Microcredit organisations: Corporatia de Finantare Rurala S.A., JV MFO Microinvest LLC
53.8
mo n te n e gro
Commercial banks: Crnogorska Komercijalna Banka AD Podgorica member of OTB Group, Erste Bank AD Podgorica, NLB Montenegrobanka AD Podgorica Microcredit organisations: Alter Modus DOO Podgorica, MFI AgroInvest VFI DOO Podgorica
64.0
ro m a nia
Commercial banks: Banca Comerciala Carpatica, Banca Transilvania Microfinance banks: ProCredit Bank Microcredit organisations: Patria Credit, Opportunity Microcredit Romania (OMRO) Non-bank financial institutions: BT Leasing Transilvania IFN SA
67.0
s e rb i a
c c Commercial banks: Ca anska banka a.d. Ca ak, Komercijalna banka a.d. Beograd, NLB banka a.d. Beograd, Privredna Banka Beograd a.d. Beograd Microfinance banks: Opportunity banka a.d. Novi Sad, ProCredit Bank a.d. Beograd Non-bank financial institutions: ProCredit Leasing d.o.o. Beograd
93.9
u k ra i ne
Commercial banks: Megabank, PJSC
7.0
s u p ra - r e gion al
Microfinance banks: ProCredit Holding Non-bank financial institutions: TCX
18.5
INVESTMENT PORTFOLIO BY PLI TYPE AND LOAN AMOUNT Year to date as of 31 December 2009 (% based on loan amount)
19 Commercial banks (small and medium) 29 %
8 Microfinance banks 19 % 19 Microcredit organisations 17 %
8 Commercial banks (large) 30 %
4 Non-bank financial institutions 5 %
Regarding the number of PLIs, the investment portfolio is equally split between commercial banks and microfinance institutions.
| 39
FUNDING
Investors are attracted to EFSE because of its stable return with low volatility and its significant first-loss piece providing an important risk cushion for the more senior risk tranches.
DEVELOPMENT OF COMMITTED FUNDS Year to date as of 31 December 2009 (EUR million) 800 700 600 500 400 300 200 100 The solid growth of the commitments shows the strong interest and trust from the investors' side. 12/05 06/06 12/06 06/07 12/07 06/08 12/08 06/09 12/09
728.1
COMMITMENTS FROM INVESTORS Year to date as of 31 December 2009 EUR million Notes A-Shares B-Shares C-Shares 120.0 263.5 95.4 249.2 Share 17 % 36 % 13 % 34 %
EFSE expanded its investor base significantly by adding 13 new private institutional investors.
Total fund Subscribed
728.1 621.0
100 %
Notes Sal. Oppenheim, Deutsche Bank, Omidyar-Tufts Microfinance Fund, ESPA VINIS Microfinance, other private investors A-Shares Senior Tranche KfW, IFC, OeEB (Development Bank of Austria), FMO (Netherlands Development Finance Company), European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), NORD/LB Horizont, BN &P Good Growth Fund, other private investors B-Shares Mezzarine Tranche KfW, IFC, FMO (Netherlands Development Finance Company), European Bank for Reconstruction and Development (EBRD), OeEB (Development Bank of Austria), European Investment Bank (EIB), Finance in Motion, BN &P Good Growth Fund C-Shares Junior Tranche European Investment Fund (EIF) as Trustee for European Commission, German Government/Federal Ministry for Economic Cooperation and Development (BMZ), KfW, Republic of Albania, Swiss Government/Swiss Agency for Development and Cooperation (SCD), OeEB (Development Bank of Austria), Austrian Government/Austrian Development Agency (ADA), Danish Government/Danish International Development Agency (DANIDA)
EFSE DEVELOPMENT FACILITY
During 2009, the EFSE Development Facility (DF) continued to provide support to the Funds partner lending institutions in managing the effects of the financial crisis and to further advance the topic of responsible finance.
TOTAL SCOPE OF ACTIVITIES since inception (based on total project volume) Institution building Product development and downscaling Risk management, internal controls and audit Research activities and studies Responsible finance Training courses and roundtables Management and cost accounting Transformation Others TOTAL 20 % 19 % 16 % 14 % 12 % 7% 6% 3% 3% 100 % The EFSE DF offers focused technical assistance, including capacity building measures and research and development activities. Projects have focused on institution building, product development and risk management.
COUNTRY ALLOCATION since inception (based on number of projects)
Various 14 % Serbia 9 % Romania 8 % Montenegro 5 % Moldova 15 %
Albania 5 %
Bosnia and Herzegovina 27 % Since inception, the EFSE DF has carried out technical assistance projects with 35 different PLIs, together with 4 prospective PLIs, in 7 partner countries.
Kosovo 17 %
DONOR CONTRIBUTION since inception (based on project volume)
VR-Leasing 4 % OeEB 4 % SDC 8 % BMZ 10 % DANIDA 13 % FMO 13 % EFSE Waterfall 48 % Drawing on various donor contributions and the contribution from the Funds income waterfall, 113 technical assistance projects with a total project volume of EUR 4.4 million have been implemented since the EFSE DF's inception in mid 2006.
| 41
ORGANISATIONAL STRUCTURE
advisory group
The Advisory Group to the Board of Directors comprises representatives from central banks in the target region. The group provides the Fund with better linkages to local realities, concerns and needs, shares local experiences and makes recommendations to the Fund Management and Board of Directors in terms of Fund policies and operations. This regional cooperation has become even more important in developing a joint approach to mitigate the risks of the financial crisis.
Dorin Dr guanu a t National Bank of Moldova Ardian Fullani National Bank of Albania Petar Goshev National Bank of the Republic of Macedonia Mugur Isarescu National Bank of Romania Arthur Javadyan Central Bank of the Republic of Armenia Radovan Jela i sc National Bank of Serbia Giorgi Kadagidze National Bank of Georgia Kemal Kozari c Central Bank of Bosnia and Herzegovina Ljubisa Krgovi c Central Bank of Montenegro Petr. P. Prokopovich National Bank of the Republic of Belarus Hashim Rexhepi Central Bank of the Republic of Kosovo Dr. Elman Siraj oglu Rustamov Central Bank of the Republic of Azerbaijan Volodymyr Stelmakh National Bank of Ukraine
board of directors
Dr. Klaus Glaubitt Chairman of the Board
Dr. Christoph Achini
Syed Aftab Ahmed
Monika Beck
Klaas Bleeker
Franz-Josef Flosbach
Michael Neumayr
Marc Schublin
Dominik Ziller
Initiator and Lead Investor:
GENERaL SHaREHOLDER aSSEmBLY
BOaRD Of DIREcTORS
aDvISORY GROuP
INvESTmENT cOmmITTEE
DEvELOPmENT facILITY cOmmITTEE
custody and fund administration
fund management and management of the EfSE Development facility

*
Regional Offices
Investment & Technical assistance/Training
QuaLIfIED PaRTNER LENDING INSTITuTIONS Commercial banks Microfinance institutions Others
mIcRO aND SmaLL ENTERPRISES
PRIvaTE HOuSEHOLDS
*) The Fund Advisor mandate was accomplished by Frankfurt School of Finance and Management until 31 December 2009. Since 2 September 2009 Finance in Motion was additionally appointed to support the Fund Advisor, becoming the exclusive Fund Advisor as of 1 January 2010.
investment committee
Syed aftab ahmed monika Beck michael Neumayr karlo de Waal
efse development facility committee

monika Beck Hans Ramm marit vet
Transaction management
| 43
TARGET REGION
BALTIC SEA
BELaRuS
Minsk
BELARUS
ukRaINE
Kiev Number of PLIs: 1 Number of end-borrowers: 4
UKRAINE
SERBIa
Belgrade Number of PLIs: 7 Number of end-borrowers: 30,393
MOLDOVA DO D
ROMANIA
BOSNIa aND HERZEGOvINa

Sarajevo Number of PLIs: 17 Number of end-borrowers: 41,634
BOSNIA AN N ND HERZEGOVI VI VINA
SERBIA BIA
mOLDOva
Chisinau Number of PLIs: 6 Number of end-borrowers: 4,357
MONT MONT TEBULGARIA V NEGRO KOSOV GRO KO VO O FYR MAC AC ACEDONIA ALBA A ANIA
fYR macEDONIa
Skopje Number of PLIs: 4 Number of end-borrowers: 1,772
ROmaNIa
Bucharest Number of PLIs: 6 Number of end-borrowers: 9,056
mONTENEGRO
Podgorica Number of PLIs: 5 Number of end-borrowers: 8,802
BuLGaRIa
Sofia Number of PLIs: 1 Number of end-borrowers: 706
aLBaNIa
Tirana Number of PLIs: 3 Number of end-borrowers: 5,542
kOSOvO
Prishtina Number of PLIs: 6 Number of end-borrowers: 13,324
MEDITERRANEAN SEA
yeAr to DAte As oF 31 DeCeMber 2009
CASPIAN SEA
GEORGIA
tbilisi
BLACK SEA
GEORGIA AZERBAIJAN
AZERBAIJAN
baku
ARMENIA NIA NIA
ARMENIA
yerevan
PLI = partner lending institution
www.efse.lu
reGionAl ContACt points

Fund Advisor Finance in Motion GmbH Representative Of ces Albania, Bosnia and Herzegovina Kralja tvrtka 12/2 71000 sarajevo bosnia and Herzegovina phone: +387 33 561 190 Fax: +387 33 561 191 albania@nanceinmotion.com bosnia_and_herzegovina@nanceinmotion.com Armenia, Azerbaijan, Belarus, Georgia, Ukraine eschersheimer landstr. 6 60322 Frankfurt am Main Germany phone: +49 69 9778 7650 0 Fax: +49 69 9778 7650 10 armenia@nanceinmotion.com azerbaijan@nanceinmotion.com belarus@nanceinmotion.com georgia@nanceinmotion.com ukraine@nanceinmotion.com Bulgaria, Romania 20 povernei st, 3rd Floor, Ap. 7 010644 bucharest romania phone: +40 21 312 26 53 Fax: +40 21 312 26 54 bulgaria@nanceinmotion.com romania@nanceinmotion.com FYR Macedonia Maksim Gorki 20/3 1000 skopje Fyr Macedonia phone: +389 2 3132 628 Fax: +389 2 3132 627 fyr_macedonia@nanceinmotion.com Kosovo Zija shemsiu nr. 6 10000 prishtina Kosovo phone: +381 38 544 108 Fax: +381 38 544 109 kosovo@nanceinmotion.com Moldova 67, bucuresti str., ofce 105 2012 Chisinau republic of Moldova phone/Fax: +373 22 544 626 moldova@nanceinmotion.com Montenegro bulevar svetog petra Cetinjskog 114 81000 podgorica Montenegro phone: +382 20 228 341 Fax: +382 20 228 340 montenegro@nanceinmotion.com Serbia Dragoslava Jovanovi a 3 c 11000 belgrade serbia phone: +381 11 3232 329 Fax: +381 11 3342 257 serbia@nanceinmotion.com As on date of publication
initiator and lead investor

KfW Ms. Monika Beck palmengartenstr. 5 9 60325 Frankfurt am Main Germany phone: +49 69 7431 4069 Fax: +49 69 7431 3490 monika.beck@kfw.de www.kfw.de
fund manager
Oppenheim Asset Management Services S. r.l. Mr. Johann Will 4, rue Jean Monnet 2180 luxembourg luxembourg phone: +352 22 1522 423 Fax: +352 22 1522 500 johann.will@oppenheim.lu www.oppenheim.lu
fund advisor
Finance in Motion GmbH Ms. Sylvia Wisniwski eschersheimer landstr. 6 60322 Frankfurt am Main Germany phone: +49 69 9778 7650 50 Fax: +49 69 9778 7650 10 s.wisniwski@nanceinmotion.com www.nanceinmotion.com www.efse.lu
As on date of publication
imprint
Published by european Fund for southeast europe (eFse) The publication can be downloaded or ordered at www.efse.lu Layout by Marte sach, www.sachdesign.de Lithography and production by Alsterwerk Medienservice GmbH www.alsterwerk.com Photography by peter Grolaub, www.trendshots.com
EFSE Disclaimer All rights reserved. this fund is reserved for eligible investors within the meaning of article 2 of the law of 13 February 2007 on specialized investment funds, as amended or supplemented from time to time. units in this investment fund may not be offered, sold or transferred, directly or indirectly, in the usA or its territories or possessions or areas subject to its jurisdiction, or to citizens or residents thereof (us persons) other than in accordance with the laws of the united states. the information given in this document does not constitute an offer nor a product recommendation, it is provided for individual information purposes only. no guarantee is given or intended as to the completeness, timeliness or adequacy of the information provided herein. past performance is no guarantee for future results. the value of the fund and its share classes is calculated without taking into account any placement or redemption fees and assuming constant reinvestments of dividends. this is not a fund prospectus as specied by law. the current fund prospectus is obtainable free of charge upon request from oppenheim Asset Management services s. r.l., 4 rue Jean Monnet, l2180 luxembourg. Copyright this work is copyright protected. the resulting rights, particularly with respect to translation, reproduction, communication, copying of images and tables, broadcasting, microlming or reproduction by other means, as well as storage on data process ing equipment, remain reserved, even where such use only applies to excerpts. the reproduction of this work or parts of this work is only permissible within the boundaries of the statutory provisions, even in individual cases. May 2010

Efse Annual Report 2009

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GrowinG responsibly GrowinG responsibility

AnnuAl report 2009

3 Greeting from the Chairman 4 investors

subloans disbursed since inception BALTIC SEA

Amount disbursed to endborrowers since inception

1.1 billion 446.4 million

subloan portfolio outstanding

number of active endborrowers

number of partner lending institutions

578.9 million 684.1 million 728.1 million

Committed funding from investors

yeAr to DAte As oF 31 DeCeMber 2009

Dr. Klaus Glaubitt

Dr. Klaus Glaubitt

Strengthening prosperity, stability and security

EFSES FIRST-CLASS INVESTORS

INTERNATIONAL FINANCIAL INSTITUTIONS

PRIVATE INSTITUTIONAL INVESTORS

EFSE invests in creation of value

Nagorka Govedarica Children day care centre

RESPONSIBILITY Investing in an educated youth of today ensures a healthy society of tomorrow.

REAPING THE BENEFITS OF HARD WORK

Gennadiy Lysikov Agricultural production

Tatjana Kolevska Beauty shop

SHARING IN HIS SUCCESS

Kareman Dalipi Olive oil production

fSE aNNuaL mEETING IN NOvI SaD, SERBIa E

Source: Elizabeth Holmes / Katia Grtz, FSFM

EGIONaL ExPaNSION Of EfSE TO THE EuROPEaN EaSTERN NEIGHBOuRHOOD REGION R

EFSES REGIONAL ExPANSION

CAPITAL PoPuLATIon AreA GDP/CAPITA m2/GDP

YereVAn 3,261 mILLIon 28,200 sQ km eur 1,790 14.74 %

CAPITAL PoPuLATIon AreA GDP/CAPITA m2/GDP

BAku 8,779 mILLIon 86,600 sQ km eur 4,091 16.87 %

1818Growing responsibly Growing responsibilty | | ACHIEVEMENTS

CAPITAL PoPuLATIon AreA GDP/CAPITA m2/GDP

mInsk 9,612 mILLIon 207,600 sQ km eur 3,937 26.24 %

CAPITAL PoPuLATIon AreA GDP/CAPITA m2/GDP

TBILIsI 4,387 mILLIon 69,700 sQ km eur 1,771 23.77 %

LETTER FROM THE FUND MANAGER AND THE FUND ADVISOR

GROWING RESPONSIBLY GROWING RESPONSIBILITY

Source: OeEB/C. Husler

Educating clients and promoting financial literacy

Supporting partners in rough times

PARTNER LENDING INSTITUTION LEVEL

FINANCIAL SECTOR LEVEL

ACCESS OF LOW-INCOME HOUSEHOLDS TO FINANCIAL SERVICES IN BOSNIA & HERZEGOVINA

Addressing the sectoral level

FUND AND INVESTOR LEVEL

28 | GROWING RESPONSIBLY GROWING RESPONSIBILITY

FACTS, FIGURES & FINANCIAL STATEMENTS

NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE ORDINARY SHARES

TOTAL LIABILITIES AND SHAREHOLDER VALUE

30 | FACTS, FIGURES & FINANCIAL STATEMENTS

423,765,538 152,711,174 88,645,135 182,409,229

368,853,583 126,037,721 86,295,128 156,520,734

total share premium

12,796,420 6,674,387 5,217,624 904,409

13,359,387 5,531,271 7,110,826 717,290

available-for-sale reserve total retained earnings

14,678,474 -6,674,387 -5,217,624 26,570,485

8,802,424 -5,531,271 -7,110,826 21,444,521

451,839,103 152,711,174 88,645,135 210,482,794