luxembourg microfinance and development fund · the board of directors is pleased to present this...

Audited annual report as at 31 March 2018Rapport annuel révisé au 31 mars 2018

Luxembourg Microfinance and Development Fund

Entrepreneurship in Africa:LMDF takes a closer look at our partner ACEP in Burkina Faso

In collaboration with

LMDF has been granted the LuxFLAG Microfinance Label

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

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

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

The information presented in this report refers only to the necessary information concerning Investing

for Development SICAV and its compartment Luxembourg Microfinance and Development (LMDF), the

compartment Forestry and Climate Change Fund is not included in this report.

ISIN Codes / Codes ISIN

Class C shares: LU0456967404 Class B shares: LU0456966935

http://www.lmdf.lu

Audited annual report as at 31 March 2018 // Rapport annuel révisé au 31 mars 2018 02-03

Content // Sommaire

Page

04 LMDF in figures

LMDF en chiffres

06 Report of the board of directors to the shareholders

Rapport du conseil d’administration aux actionnaires

08 LMDF's Vision and Mission

09 Summary (Français / Deutsch)

10 Management report on activities

Rapport d’activité du gestionnaire

17 LMDF's impact map in Africa

18 Entrepreneurship in Africa

18 // 1 Microfinance Institution in Focus - ACEP, Burkina Faso

23 // 2 Four questions to Ousseni Kirakoya, DPG of ACEP Burkina Faso

24 Statutory information

Organisation

26 Report of the independent auditor Rapport du réviseur d'entreprise agréé

38 Audited annual financial statements

États financiers annuels révisés

28 // 1 Statement of net assets

État des actifs nets

30 // 2 Statement of operations and other changes in net assets

État des opérations et des variations des actifs nets

32 // 3 Statistical information

Informations statistiques

34 // 4 Statement of investments and other net assets

État du portefeuille-titres et autres actifs nets

36 // 5 Breakdown of microfinance investments and evolution of NAV

Répartition des investissements en microfinance et évolution de la VNI

39 // 6 Notes to the audited financial statements

Notes aux états financiers révisés

The pictures in this present report show clients of LMDF's partner MFI ACEP Burkina Faso. Les photos présentées dans ce rapport montrent les clients de l'IMF ACEP Burkina Faso, partenaire du LMDF.

LMDF in figures // en chiffres 31 March 2018// 31 mars 2018

Note: The figures stated in this section of the report relating to information received from microfinance institutions are as at 31st December 2017 and largely based on unaudited information. The calculations follow, wherever applicable, the Microfinance Investment Vehicles Disclosure Guidelines as published by CGAP in 2010.

EUR 26.7 million Investments in microfinance

45Microfinance institutions financed directly

1Regional fund and support structure

22Countries

1 Service provider

52% Latin America

23% Southeast and Central Asia

20% Sub-Saharan and North Africa

5%Developed countries

52% Financing in local currency of MFI country

1.39 millionMicro-entrepreneurs financed by partner MFIs

EUR 582 millionTotal micro-loan portfolio of partner MFIs

EUR 1,148Average disbursed micro-loan

82%Women

9,776Employees of partner MFIs

38,899Micro-entrepreneurs financed by LMDF

653Number of university students financed

52%Micro-loans for services and small trade

29%Agricultural activities

7%Production and crafts

12%Other uses

EUR 585,772Average exposure per MFI

1.5% Twelve month return Class A shares

1.2% Nine month return Class Abis shares

2.2% Twelve month return Class B shares1.9% 1.4%Twelve month return Class C shares


1 USA MFX Solutions Higher Education Finance Fund LP2 El Salvador PADECOMSMCEDITO Óptima Servicios Financieros3 Nicaragua Fundenuse MiCrédito Fundeser4 Honduras Pilarh OPDF AMC Honduras FAMA IDH5 Ecuador FACES INSOTEC6 Peru Crediflorida Fondesurco COOP Arariwa PRISMA Edpyme Alternativa Norandino7 Niger Asusu8 Cambodia Intean Poalroath Rongroeurng SAMIC Chamroeun Microfinance Maxima

9 Azerbaijan FINCA10 Guatemala ADISA FUNDAP REFICOM11 Morocco AMSSF / MC Al Karama12 Haiti ACME13 East Timor KIF14 Benin PEBCO - BETHESDA Comuba15 Indonesia KOMIDA16 Ivory Coast PAMF Côte d'Ivoire17 Burkina Faso PAMF Burkina Faso ACEP Burkina Faso18 Colombia ECLOF19 Kyrgyzstan Salym Bailyk OXUS20 South Africa SEF21 Kenya Letshego22 Argentina FIE Pro Mujer Argentina OMLA

1

2 34

5

6

78

9

10

11

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

12

13

14

15

1617

18

19

20

21

22

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

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

The Board of Directors is pleased to present this report on its eighth year of operations, a year which saw a change in the Fund’s name to Investing for Development SICAV and the creation of a second Sub-Fund, the Forestry and Climate Change Fund (FCCF) to join the existing Sub-Fund Luxembourg Microfinance and Development (LMDF).

LMDF also saw a structural change through the creation of a new class of shares (Class Abis ) which will provide greater flexibility to new shareholders who wish to support the expansion of the Sub-Fund by providing microfinance investment risk cover to the Class C shareholders.

These developments, taken together with growing recognition by investors that the Fund has built a convincing track record over the eight years of its existence, bodes well for continued growth and the successful achievement of the Fund’s combined social and financial targets.

The revised investment strategy of LMDF referred to in last year’s report was implemented during the financial year, and the key goal of reduction of over-liquidity was achieved by the year end.

The net assets of the Fund have increased by 14% over the year, from EUR 27.3 million to EUR 31.2 million thanks mainly to contributions from shareholders, and, most importantly, the investment portfolio grew by EUR 6.8 million (a 33% increase) to EUR 27.5 million. Financial performance for the year has been satisfactory as measured both against the published targets and peer performance. Annual

returns for all shareholders are close to target and compare very favourably to a negative (-0.2%) return of the mainstream microfinance debt index (Symbiotics SMX Euro Index) for the year. The Total Expense Ratio (TER) has been reduced significantly this year and now stands at 2.5%.

Thanks to our second Social Performance Report published in March 2018 covering the year 2017, we are now also able, by benchmarking our social performance using the Universal Standards for Social Performance Management, to report that LMDF is outperforming its peer group across a range of social performance indicators.

Corporate governance

The Board of Directors is responsible, in accordance with the terms of the Articles of Association and the Prospectus, for the overall management and control of the Fund and for implementing the Investment Objectives and Policy of the Fund. The day to day management of the Fund has been delegated to Kaspar Wansleben, Executive Director.

The Board has selected and retained ADA (Appui au Développement Autonome a.s.b.l.) as the investment adviser to LMDF, to provide the services of identification, evaluation and selection of investment and disinvestment opportunities as well as the review, supervision and monitoring of its microfinance investments.

The Board has established the following committees whose role is to support and

Report of the Board of Directors to the shareholders


make recommendations to the Board, or take decisions within certain limits determined by the Board, in their areas of activity.

The Investment Committee, which currently has eight members, is authorised, within the limits of the investment policy and objectives of the Sub-Fund as defined by the Board of Directors, to decide upon the acquisition or disposal of investments on the basis of a proposal by the Investment Adviser, and to take all other decisions relating to the management of the Sub-Fund’s portfolio.

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

The Marketing Committee, which has four members, oversees the Fund’s marketing strategy including the development of the shareholder base. The Employment Committee, which has three members, reviews the objectives, performance and remuneration of management.

The Appointment Committee, which normally has three members (currently one seat is vacant), assists the Board in ensuring that its composition is aligned with the objectives of the Fund.

The Board has resolved that membership of the above Committees may be open to non-directors.

The members of the Board do not receive any remuneration as directors, apart from the reimbursement of expenses incurred for Fund business and approved in advance by the Board.

There are no disclosures required to be made by the Fund in relation to changes in the Prospectus since October 2017.

On a personal note, I take this opportunity to inform you that, after five years as Chairman, I have decided not to present myself as a candidate for re-election to the Board of Directors. I am convinced the time is now right for a change which can bring fresh ideas and impetus to the Fund at a stage when it is poised for further development. It has been a privilege and a pleasure to work with the dedicated and committed management team of the Fund and with the Board and Committee members who give freely of their time and expertise to ensure the success of your Fund. I thank you for your support and wish the Board, Management and the Fund every success in the future.

The Board of DirectorsJune 11, 2018

Kenneth HayChairman

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

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

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

links between investors, microfinance institutions and ultimate beneficiaries.

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

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

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

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

Mission

In order to realise its Vision, LMDF

Vision

Audited annual report as at 31 March 2018 // Rapport annuel révisé au 31 mars 2018

Résumé / Zusammenfassung

Le rapport annuel révisé du LMDF couvre l'exercice 2017/18. Les priorités stratégiques de cette année ont porté leur fruit. La mise en œuvre de la stratégie révisée, commen-cée début 2017, a entrainé une diminution de l'excès de liquidité et le Fonds est désormais proche du niveau d’investissement optimal.

L'actif net total a augmenté de 14% au cours de l'année écoulée en raison de la collecte nette des actionnaires privés et institution-nels. Les entrées totales s'élèvent à 4,6 millions d'EUR. Une nouvelle classe d'actions Abis a été lancée en juin 2017 afin de dével-opper davantage l'offre d'atténuation des risques du Fonds pour les actionnaires privés. La nouvelle classe d’actions offre une protection supplémentaire par rapport aux actions de la Classe A. La VNI par action a augmenté de 1,5% pour la Classe A, de 1,2% pour la Classe Abis, de 1,4% pour la Classe C et de 2,2% pour la Classe B.

En mars 2018, le Fonds a publié un deuxième Rapport sur la Performance Sociale pour l'année 2017 après une 1ère édition couvrant les années 2010-2015. Le rapport couvre quatre thèmes importants pour LMDF: (1) un examen de la mission sociale et de l'histoire du Fonds; (2) une publication sur la manière dont les considérations de performance sociale sont intégrées dans les opérations quotidiennes, (3) réalisations en matière de performance sociale et (4) analyse compara-tive des performances de LMDF par rapport aux autres.

Après l'adaptation de la stratégie du Fonds à un nouvel environnement de marché au cours de la dernière année, les mois suivants seront consacrés à garantir que le Fonds demeure pleinement investi et continue de mette en œuvre sa stratégie révisée.

Der geprüfte Jahresbericht des LMDF berichtet über das Geschäftsjahr 2017/18. Das Jahr war geprägt durch die Anpassung der Strategie an ein sich wandelndes Umfeld. Der wesentliche Indikator der Umsetzung der Strategie ist die überschüssige Liquidität des Fonds. Wir freuen uns zu berichten, dass diese zum Geschäftsjahresende vollständig abgebaut ist.

Das Nettovermögen stieg im vergangenen Jahr um 14% aufgrund von Zuflüssen von privaten und institutionellen Aktionären. Im Juni 2017 wurde eine neue A

bis-Aktienklasse aufgelegt, um die weitere Expansion des Risikoschutzes der Privatinvestoren in Klasse C vorzubereiten. Das finanzielle Ergebniss des Jahres ist 1,5% für Klasse A, 1,2% für die Abis-Klasse, 1,4% für Klasse C und 2,2% für Klasse B.

Im März 2018 veröffentlichte der Fonds nach einer ersten Ausgabe für die Jahre 2010-2015 einen zweiten Social Performance Report für das Jahr 2017. Der Bericht behandelt vier wichtige Themen für LMDF: (1) eine Überprüfung der sozialen Mission und Geschichte des Fonds; (2) eine Veröffentlichung darüber, wie soziale Leistungsaspekte in den täglichen Betrieb integriert werden, (3) die Ergebnisse unserer Arbeit und (4) eine Analyse der Position von LMDF im Vergleich zum Sektor. Hier freut es uns insbesondere, dass der Fonds überdurchschnittliche soziale Ergebnisse präsentieren kann.

Nach der Anpassung der Fondsstrategie an ein neues Marktumfeld im vergangenen Jahr werden die nächsten Monate darauf ausgerichtet sein, sicherzustellen, dass der Fonds voll investiert bleibt.

08-09

/ Full reduction of excess liquidity and implementation of strategy

The Luxembourg Microfinance and Devel-opment Fund (LMDF or Fund) ended its financial year in March 2018. The main chal-lenge during the year has been a high level of liquidity caused mainly by a changing micro-finance funding environment and an overall growth of net assets. A strong last quarter of the financial year saw disbursements to microfinance institutions of more than EUR 6 Mn. This allowed the Fund to close the financial year close to optimal investment levels (Graph 2).

The Fund implemented a number of stra-tegic changes throughout the year. The most marked shift in strategy is the inclu-sion of certain less developed Central Asian countries within the investment horizon of LMDF. The Fund made three investments in Kyrgyzstan amounting to 5.4% of NAV at year-end.

The second element of the adoption to a changing market has been a review of LMDF’s terms and conditions. To remain competitive, the Board decided to create a specific financing line of EUR 5 Mn with lower target yield for more mature MFIs. In January 2018, the Board decided to expand the envelope to EUR 10 Mn. This line has a minimum return expectation of 5% in Euro

and is driven by the increasing rate differ-ence between the US-Dollar and the Euro.

During the year, the microfinance portfolio grew by EUR 6.8 Mn from EUR 20.7 Mn to EUR 27.5 Mn (an increase of 33%).

/ Net inflows from retail and institutional shareholders

Total net assets increased by 14% during the past year due to net inflows from private and institutional shareholders. Total inflows amount to EUR 4.6 Mn while EUR 1.2 Mn in shares were redeemed.

Class C shares (for private and not-for-profit investors), which benefit from a risk protec-tion from Class A and Class A

bis shares, now constitute 30% of total net assets (compared to 26% at the last financial year-end).

A new Abis share class has been launched in June 2017 to further develop the Fund’s risk mitigation offering for private shareholders (invested in Class C shares). The new share class offers protection in addition to the existing Class A shares. Contrary to Class A shares, Class Abis shares are redeemable subject to a sufficient risk mitigation remain-ing for Class C shareholders after redemp-tion.

Management report on activities


Low Human Development 11%

Medium Human Development 62%

High Human Development 18%

Others 9%

Niger

Burkina Faso

Ivory Coast

Benin

Haiti

Kenya

Cambodia

Timor-Leste

Honduras

Guatemala

Nicaragua

Morocco

Kyrgyzstan

South Africa

El Salvador

Indonesia

Columbia

Ecuador

Peru

Azerbaijan

Argentina

USA*

ACP**24%

0% 5% 10% 15%

10-11Source: LMDF analysis.

GraPH 1: MICROFINANCE INVESTMENTS By COUNTRy AND HUMAN DEVELOPMENT INDEX (% of microfinance portfolio)

*Includes investment in regional fund investing in Latin American countries.**ACP Countries: African, Caribbean and Pacific Group of StatesSource: LMDF analysis as at 31/03/2017. Human Development Index 2015 by UNDP.

GraPH 2: EXCESS LIqUIDITy(in EUR)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

03/2017 06/2017 09/2017 12/2017 03/2018

Source: LMDF analysis of weighted average data provided by partner MFIs as at 31/12/2017

Source: LMDF analysis of weighted average data provided by partner MFIs as at 31/12/2017

GraPH 3: ECONOMIC PURPOSE OF MICRO- CREDITS FINANCED By LMDF (in %)

GraPH 4: ACTIVE MICRO-ENTREPRENEURS FINANCED By LMDF

The Class A shares of the Fund’s investment adviser, ADA, have been converted into Abis shares to launch the share class.

/ Social Performance: Outperforming the benchmark!

In March 2018, the Fund published a second Social Performance Report for the year 2017 after a first edition covering the years 2010 - 2015. The report covers fours topics essential to LMDF’s DNA: (1) A review of the Fund’s social mission and history, (2) a publication of how social performance considerations are integrated into day-to-day operations, (3) Social performance achieve-ments and (4) benchmarking of LMDF’s performance compared to others.

The last section is a new feature to the report and relies on the Universal Standards for Social Performance Management estab-lished by the microfinance sector to measure the performance of MFIs financed by LMDF compared to a comparable peer group. The results are very encouraging with LMDF’s portfolio outperforming the peer group

across all six dimensions.The Social Performance Report 2017 is available on our website.

/ Returns close to target despite rising hedging costs

Excess liquidity during the year combined with the continuing low interest rate environ-ment negatively impacted the Fund’s income. Gross income from microfinance and liquid assets decreased from 6.1% of average net assets during the previous financial year to 5.6% during the current year. One of the Fund's strategic priorities is the improvement of operational efficiency. The total expense ratio decreased substantially from 3.2% in the previous financial year to 2.5% during this year. This is partly due to the high level of liquidity which leads to a lower remuneration of the investment adviser (paid only on microfinance investments) but also due to the increased size of the Fund and resulting efficiencies.

The rising difference between Euro and US—Dollar interest rates has been challeng-

Services/ trade activities51%

Agriculturalactivities

30%

Production/craft activities

6%

Consumption & others 15%

Women31,897 (82%)

Men7,002 (18%)

Total38,899


03/17 06/17 09/17 12/17 03/180.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Source: LMDF analysis.

GraPH 5: TOTAL EXPENSE raTIO PER qUARTER

Source: US Department of the Treasury and European Central Bank

GraPH 6: DIFFERENCE BETWEEN EUR AND USD INTEREST raTE

03/17 06/17 09/17 12/17 03/180.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

ing for LMDF. Many of the markets in which LMDF operates have strong ties to the US-Dollar. LMDF is a fund managed in Euro and which applies a conservative policy of eliminating foreign exchange risks through systematic hedging. The interest rate differential is paid by the Fund through the cost of hedging Euro / US Dollar risks. At almost 3% (Graph X) the difference very materially impacts LMDF’s returns.

The NAV per Share increased by 1.5% for Class A, 1.2% for Class Abis, 1.4% for Class C and 2.2% for Class B shareholders (Graph X). This compares favourably to a negative -0.2% return of the mainstream microfinance debt index for the same period (Symbiotics SMX Euro Index).

/ Risk review

- Credit risks

Note 6 to the financial statements provides shareholders with a qualitative and quan-

titative view of the credit risks of the Fund. LMDF made a provision of 20% (EUR 48,931) of the outstanding notional of a senior loan to the MFI ASUSUS in Niger in view of a deteriorating loan portfolio and significant political, economic and operational chal-lenges in the country.

The Fund’s risk diversification improved dur-ing the financial period. The average expo-sure to MFIs decreased from 2.0% of total net assets at the end of March 2017 to 1.9% at the end of the year. The Fund’s largest exposure towards a microfinance institution increased from 4.2% to 5.0% of net as-sets. LMDF’s average exposure to MFIs is about EUR 586,000 in line with our focus on emerging microfinance institutions.

- Currency risk

The Fund maintained its conservative approach to currency risks in volatile markets. 41% of the Fund’s total net assets are invested in instruments denominated in USD, a significant decrease from 58% at the

GraPH 8: DEVELOPMENT OF NAV PER SHARE OF CLASS B AND CLASS C SHARES DURING THE LAST 12 MONTHS (in EUR)

GraPH 7: NET ASSET VALUE By SHARE CLASS (in EUR)

Source: LMDF analysis

0

6,000,000

12,000,000

18,000,000

24,000,000

30,000,000

36,000,000

Class B Shares (institutional)

Class A Shares (public)

Class C Shares (retail)

31/12/2017 31/03/2018

11%

56%

30%

30/09/2017

3%

Class Abis Shares (philantropic)

Class CClass B

+ 1.4%

+ 2.2%

110

31/12/201730/09/201730/06/201731/03/2017 31/03/2018

112

113

109

108

SMX Benchmark

- 0.2%

146

31/12/201730/09/201730/06/201731/03/2017 31/03/2018

148

149

147

150

Source: LMDF analysis

Source: Syminvest

qUARTERLy PERFORMANCE OF THE SyMBIOTICS MICROFINANCE DEBT INDEX - EUROS (SMX EUR) DURING THE LAST 12 MONTHS


The MFI finances mainly small businesses, such as this sewing workshop // ACEP Burkina Faso

end of March 2017. The Fund significantly expanded the share of the portfolio financed in local currency. These positions are hedged on a line-by-line basis through cross-currency interest rate swaps and forwards.

At year end and in a context of a strong appreciation of the Euro, LMDF had realized and unrealized gains on the derivative contracts to hedge its currency risks of EUR 2.2 Mn.

- Country risks

At the end of the year LMDF is invested in 22 countries. The biggest exposures are towards Peru (11.1% of net assets), Cambo-dia (8.0%), Honduras (8.0%) and Nicaragua (7.0%). Five countries concentrate 40% of investments, a concentration similar to the end of March 2017.

/ Outlook

After the adaptation of the Fund’s strategy to a new market environment in the past year, the next months will be dedicated to ensur-ing that the Fund remains fully invested and implements its revised strategy.

As always, we very much welcome your comments or questions,

Kaspar Wansleben

Executive Director([email protected])

The MFI operates exclusively in urban areas // ACEP Burkina Faso


LMDF's impact map in Africa

LMDF has prepared this chart for the Social Performance Report 2017 based on its portfolio data, from the Fund’s launch through to the 31st March 2018. To calculate an estimate of the number of loans disbursed to micro-entrepreneurs, LMDF has taken data on the average loan size provided by each institution and has estimated an average time for which loans to micro-entrepreneurs are outstanding. The amount which LMDF lent to the institution and the duration of the loan are then divided by the previous figure.

Benin: 2,866 micro-entrepreneurs financed, Low HDI

Kenya: 2,207 micro-entrepreneurs financed, Medium HDI

Mali: 3,946 micro-entrepreneurs financed, Low HDI

Morocco: 6,570 micro-entrepreneurs financed, Medium HDI

Niger: 9,184 micro-entrepreneurs financed, Low HDI

South Africa: 2,877 micro-entrepreneurs financed, Medium HDI

Togo: 3,201 micro-entrepreneurs financed, Low HDI

Burkina Faso: 1,572 micro-entrepreneurs financed, Low HDI

Ivory Coast: 1,585 micro-entrepreneurs financed, Low HDI

Low HDI Medium HDI High HDI Very high HDI

Colour Codes:

16-17

Microfinance Institution in focus ACEP Burkina Faso

2

The ACEP system (Agence de Crédit pour l'Entreprise Privée) was developed in the 90's on the initiative of ACEP International, with the aim of creating a network of microfinance institutions dedicated to the financing of micro-enterprises and small businesses.

The first microfinance institution was created in Senegal in 1989, then in Madagascar in 1995, in Cameroon at the end of 1999, in Burkina Faso in 2010 and in Niger since May.2012.

ACEP International provides technical assistance to the MFIs created and works in collaboration with different partners (AFD, I&P, social investors and local shareholders) to constitute the round table of MFIs and provide funding for the activity and technical assistance during startup phase.

ACEP's shareholding consists of international social investment funds and a local bank. It's model relies on strong experience in microfinance, a deep knowledge of the local context and a strong social vision.

ACEP Burkina is one of the lastest MFIs created by the ACEP group and therefore benefits from a model that has proven its efficiency in various African countries.

ACEP Burkina only finances micro-enterprises and very small enterprises through two products that differ only for the purpose (working capital or investment). The conditions are nevertheless adapted to the needs of the customers. A new small enterprise credit will be launched shortly.

The maximum amount of credits depends on the maturity level of the branch. It is capped at EUR 5,000 for the first year of the new branch.

Nearly 90% of their loans finance trade, 7% services, 2% production and 1% processing.

LMDF is working with ACEP Burkina Faso since January 2018 and has invested CFA 500,000,000 (EUR 760,000) into the microfinance institution.

23% of clients are women

9,986 clients 6 branches EUR 3,388 average loan disbursed

100% of the clients live in urban areas

90 people are employed by the MFI


Could you introduce ACEP Burkina Faso and explain how your MFI has become the organisation we see today? ACEP Burkina SA is an MFI in the form of SA (with a capital of 1,150 million FCFA), classified in the category of large microfinance institutions according to the UEMOA regulations, and specialised in the direct granting of credit, without prior savings. It launched its activities in Burkina Faso in October 2012, and to date has 6 agencies, opened in 4 of the largest cities of the country, namely Ouaga, Bobo, Koudougou and Kaya.

Our mission is "to provide financial and non-financial products and services accessible to Very Small Enterprises (VSEs) and Small and Medium Enterprises (SMEs) in urban and peri-urban areas with the aim of supporting them in their economic and social growth”.

Over the past five years, ACEP has injected more than 46 billion CFA francs into Burkina Faso's economy, in the form of working capital and investment financing, in various fields of activity, having reached more than 10,000 customers.

At 31/12/17, the outstanding credit stands at more than 12 billion FCFA, which allows us to position ourselves (in terms of outstanding loans) as the second largest MFI in Burkina Faso, after the RCPB.

The investors are: ACEP-International, Société Générale of Burkina Faso (SGBF), Investors & Partners Africa Entrepreneurs (IPAE), Crédit Coopératif, the company INCOFIN and AFD (French Development Agency) which subsidised the implementation place of the structure, through technical assistance.

ACEP Burkina knows an exceptional growth, thanks to its strategic choices based on the speed of the decision of granting, the simplicity and the clarity of the conditions of the credit (credits without previous saving, transparency of the pricing) and the quality of the analysis of the project to finance. Additionally, ACEP has a better occupation of the land in settlement areas, and a very dynamic, dedicated and motivated team. This approach gives the opportunity to so many people to realise their project, to create value and to generate income, without the traditional requirement of guarantees of the classic banking system which excludes them de facto.

Your microfinance model focuses almost exclusively on the development of very small businesses in urban areas. What are the reasons and how do you reflect this orientation in your organisation?

Four questions to Ousseni Kirakoya, DPG of ACEP Burkina Faso

3

The choice of the location of ACEP Burkina’s agencies is a strategic choice. This has a very important influence on the operations of the structure and its profitability. ACEP Burkina operates mainly in urban areas.

The determining factors of urban settlement are:

1- The importance of geographic space / potential customers The geographical space surrounding a point of service, where potential customers pass, live, or work is very important. It is guided by the attractiveness which is one of the determinants of the choice of the place of implantation which can be measured by emphasising the close existence of shops, the draining places of the public and the dynamism of the area.

2- The economic potentialThe determination of the economic potential that rests on three elements are:

• demographic analysis;• analysis by resources;• analysis by expenditure;

3- Economic activityACEP Burkina favours groupings of economic activities which, according to their real or supposed specificity, are commonly called industrial zones, artisanal zones, commercial zones, tertiary zones, activity parks, technological parks etc.

4- AccessibilityThe clients of ACEP Burkina seek, a priori, to travel as less as possible to make their transactions. The degree of congestion of the access road to the agency, the possibility for the motorist to easily find a parking

space, or the offer of public transport to reach the agency, will promote or slow down the agency's attendance, expand or reduce its coverage area.

Reflection of the intervention in urban environment

1- Location of agenciesThe agencies are only located in the regions of Burkina with a breakdown of loan officers by zone.

2- At the level of the organisation chartEach region is headed by a regional manager who oversees the Administrative Assistants and Customers (AAC). These AACs respond directly to the smooth operation of the agencies. They work in collaboration with operational lawyers and credit supervisors.

3- Interconnected agenciesAll agencies of ACEP Burkina are interconnected. This allows customers to perform their operations in real time.

Despite strong competition in urban areas, you have positioned yourself in the market by targeting a specific clientele. Could you describe your clientele and what kind of activities ACEP Burkina Faso finances?


The target clientele of ACEP-Burkina is for the moment the Very Small Companies in urban environment whatever their sector of activity is. Essentially outcome of the informal sector, ACEP’s customers are composed of individual men and women (retailers, wholesalers of a certain level) leading profitable economic activities, with average monthly turnovers between CFA 500,000 and CFA 10 million.

Activities funded by ACEP are diverse. The most common are: general trade, catering, processing, transportation, crafts and sewing.

Currently, the coverage of ACEP Burkina Faso is limited to urban centres.

Mobile banking would enable the MFI to reach layers of the population even without local counters. Does ACEP plan to implement this system in the future?

Mobile banking is one of the main strategic areas of development of ACEP Burkina for the years to come. We plan to put in place a mechanism allowing customers to deposit money in their accounts via the mobile phone in the very short term (from the second half of 2018), with the support of the ACEP group.

Translated from French to English by LMDF

Preparation of the local beer, commonly called Dolo, made from millet// ACEP Burkina Faso

Visit of a clothing store funded by the institution // ACEP Burkina Faso

Employees are treated fairly and can grow within the MFI through effective HR management, internal promotions and satisfaction surveys. // ACEP Burkina Faso


43% of women employed by the MFI hold leadership positions // ACEP Burkina Faso

The dolo is an ancestral beer very widespread in Sahelian Africa // ACEP Burkina Faso

Statutory information Organisation

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

Chair - Président

Kenneth Hay Independent

Members - Membres

Gilles Franck (until 11/07/2017) ADA - Appui au Développement Autonome

Michel Haas Ministry of Finance

Patrick Losch (from 11/07/2017) Independent

Max Meyer ADA - Appui au Développement Autonome

Patricia Pommerell (from 11/07/2017 until 01/03/2018) Development Cooperation Department,

Ministry of Foreign and European Affairs (MAEE)

Raoul Stefanetti Banque Internationale à Luxembourg (BIL)

Dzemal Tomic Banque et Caisse d'épargne de l'état (BCEE)

Manuel Tonnar (until 11/07/2017) Development Cooperation Department,

Ministry of Foreign and European Affairs (MAEE)

Kaspar Wansleben Executive Director

Investment Committee LMDF* Risk Committee

Comité d'investissement LMDF Comité de risque

Raoul Stefanetti - BIL, Committee Chair Dzemal Tomic - BCEE, Committee Chair

Marc Elvinger - Independent Kenneth Hay - Independent

Gilles Franck - ADA Max Meyer - ADA

Michel Haas - Minstry of Finance Raoul Stefanetti - BIL

Thomas Lammar - Minstry of Finance (from 03/07/2017)

Philippe Mores - MAEE (until 03/07/2017)

Mélanie Mortier - BGL BNP Paribas (from 12/03/2018)

Kaspar Wansleben - Executive Director

*A separate investment committee has been constituted for FCCF

Marketing Committee

Comité de marketing

Viviane Clauss - BdL

Hedda Pahlson-Moller - Independent

Didier Richter - BIL

Patrick Bilbault - Independent

Registered Office // Domicile

2, place de Metz

L-1930 Luxembourg

Trade Register Number // Registre de commerce

et des sociétés

R.C.S. Luxembourg B 148.826

Appointment Committee

Comité de nomination

Patricia Pommerell - MAEE, Committee Chair (from 11/07/2017 until 01/03/2018)

Michel Haas - Ministry of Finance

Kenneth Hay - Independent

Manuel Tonnar - MAEE (until 11/07/2017)

Employment Committee // Comité d'emploi

Michel Haas - Ministry of Finance, Committee Chair


Dzemal Tomic - BCEE


Custodian and Paying Agent Administrative Agent, Registrar and Transfer Agent

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

Banque et Caisse d’épargne de l’état European Fund Administration S.A.

1, place de Metz 2, rue d’Alsace

L-2954 Luxembourg L-1017 Luxembourg

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

KPMG Luxembourg, Société coopérative Elvinger Hoss Prussen

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

L-1855 Luxembourg L-1340 Luxembourg

Distributors // Distributeurs

24-25

Banque de Luxembourg S.A.

14, boulevard Royal

L-2449 Luxembourg

Banque et Caisse d’épargne de l’état

1, place de Metz

L-2954 Luxembourg

Banque Raiffeisen s.c.

4, rue Léon Laval

L-3372 Luxembourg

BGL BNP Paribas S.A.

50, avenue J.F. Kennedy

L-2951 Luxembourg

Fortuna Banque s.c.

130, boulevard de la Pétrusse

L-2330 Luxembourg

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

MFX Solutions, Inc.

1050 17th St. NW, Suite 550

Washington DC, 20036

United States of America

Banque et Caisse d’épargne

de l’état

1, place de Metz

L-2954 Luxembourg

Identity numbers // Code d’identité

Class B shares Class C shares

ISIN: LU0456966935 ISIN: LU0456967404

Bloomberg: LMDSVCB:LX Bloomberg: LMDSVCC:LX

Telekurs: 10633787 Telekurs: 10633788

Microfinance expertise // Expertise en microfinance

Arranger and Servicer to Micro, Small &

Medium Enterprises Bonds S.A.

Symbiotics SA

Rue de la Synagogue 31

CH-1204 Geneva

General Partner of the Higher Education

Finance Fund LP

OMTRIX Inc.

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

Zona Industrial de Pavas,

San José, Costa Rica

Investment adviser // Conseiller en investissement

ADA - Appui au Développement Autonome asbl

39, rue Glesener

L-1631 Luxembourg

Patricia Pommerell - MAEE, Committee Chair (from 11/07/2017 until 01/03/2018)

Michel Haas - Ministry of Finance


Manuel Tonnar - MAEE (until 11/07/2017)

To the Shareholders of Investing for Development SICAVLuxembourg Microfinance and Development Fund2, Place de MetzL-1930 Luxembourg

Report on the audit of the financial statements

OpinionWe have audited the accompanying financial statements of Luxembourg Microfinance and Development Fund (the “Sub-Fund”), a Sub-Fund of Investing for Development SICAV (the “Fund”), which comprise the statement of net assets and the statement of investments and other net assets as at 31 March 2018 and the statement of operations and the statement of changes in net assets for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of Luxembourg Microfinance and Development Fund as at 31 March 2018, and of the results of their operations and changes in its their net assets for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements.

Basis for opinionWe conducted our audit in accordance with the Law of 23 July 2016 on the audit profession (“Law of 23 July 2016”) and with International Standards on Auditing (“ISAs”) as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier (“CSSF”). Our responsibilities under the Law of 23 July 2016 and ISAs are further described in the « Responsibilities of “Réviseur d’Entreprises agréé” for the Audit of the Financial Statements » section of our report. We are also independent of the Fund in accordance with the

International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the financial statements, and have fulfilled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other informationThe Board of Directors of the Fund is responsible for the other information. The other information comprises the information stated in the annual report but does not include the financial statements and our report of “Réviseur d’Entreprises agréé” thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard.

Emphasis of matterWithout qualifying our opinion, we draw your attention to the fact that the Sub-Fund does not constitute a separate legal entity.

Responsibilities of Board of Directors of the Fund for the financial statementsThe Board of Directors of the Fund is responsible for the preparation and fair presentation of these financial

Report of the réviseur d'entreprises agréeRapport du réviseur d'entreprises agréé


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

In preparing the financial statements, the Board of Directors of the Fund is responsible for assessing the Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors of the Fund either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so.

Responsibilities of the “Réviseur d’Entreprises agréé” for the audit of the financial statementsThe objectives of our audit are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of “Réviseur d’Entreprises agréé” that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors of the Fund.

• Conclude on the appropriateness of the Board of Directors of the Fund’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report of the “Réviseur d’Entreprises agréé” to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report of the “Réviseur d’Entreprises agréé”. However, future events or conditions may cause the Fund to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Luxembourg, June 14, 2018

KPMG LuxembourgSociété coopérative

Cabinet de révision agréé39, Avenue J.F. Kennedy

L-1855 Luxembourg

Pia Schanz

26-27

Assets – Actif Notes EUR Shares (and equity-type securities) in regional microfinance 1,113,861investment vehicles Actions (et instruments similaires) dans des structures régionales d'investissements en microfinance Shares (and equity-type securities) in microfinance institutions 254,170and service providers Actions (et instruments similaires) dans des institutions de microfinance et structures de support Loan agreements with microfinance institutions 6, 10 25,305,697Contrats de prêt avec des institutions de microfinance

Notes backed by loans to microfinance institutions 7 16,095Notes financées par des prêts aux institutions de microfinance

Cash at banks 236,498Avoir en banques Savings account 3,400,080Compte d’épargne

Unrealised appreciation on swap contracts 5 450,372Plus-value non réalisée sur contrat de swap Unrealised appreciation on forward foreign exchange contract 5 77,922Plus-value non réalisée sur contrat de change à terme Income receivable on portfolio 632,218A recevoir sur le portefeuille

Interest receivable on bank accounts and term deposits 3,414Intérêts à recevoir sur avoirs en banque et dépôts à terme

Other receivables and assets 8 90,814Autres créances et à recevoir

Total assets 31,581,141Somme d'actifs

The accompanying notes form an integral part of this report.

Audited annual financial statements Etats financiers révisés

as at 31 March 2018 // au 31 mars 2018

// 1 Statement of net assets État des actifs nets


Liabilities – Passif Notes EUR

Accrued expenses 8 355,581Provision pour frais à payer

Total liabilities 355,581Somme des passifs

Net assets at the end of the year 31,225,560Actifs nets à la fin de l'année

A Class shares outstanding 131,347.257Nombre d’actions en circulation de la Classe A

Net asset value per A Class share 26.29Valeur nette d’inventaire par action de la Classe A

Abis Class shares outstanding 38,322.661Nombre d’actions en circulation de la Classe Abis

Net asset value per Abis Class share 25.29Valeur nette d’inventaire par action de la Classe Abis

B Class shares outstanding 155,498.605Nombre d’actions en circulation de la Classe B

Net asset value per B Class share 112.27Valeur nette d’inventaire par action de la Classe B

C Class shares outstanding 85,052.334Nombre d’actions en circulation de la Classe C

Net asset value per C Class share 109.88Valeur nette d’inventaire par action de la Classe C

28-29

Branch office of ACEP // ACEP Burkina Faso

Income – Revenus Notes EUR

Interest on microfinance loan agreements 1,978,863Intérêts sur contrats de prêt en microfinance

Net interest paid on swap contracts (363,954)Intérêts nets payés sur contrat swaps

Net interest on microfinance loan agreements 1,614,909Intérêts nets sur contrats de prêts en microfinance

Commissions on microfinance loan agreements 148,765Commissions sur contrats de prêts microfinance

Interest on bank accounts and term deposits 6,896Intérêts bancaires et dépôts à termes

Other income 3,253Autres produits

Total income 1,773,823Somme des revenus

Expenses – Frais

Advisory fees 3 334,178Frais du conseiller en investissement

Salary and wages of the fund management 3, 13 167,486 Charges salariales de gestion du fonds

Custodian fees 24,807Commission de la banque dépositaire

Central administration costs 83,194Frais de l’administration centrale

Bank charges and other fees 6,990Frais bancaires et charges liées

Transaction fees 25,550Frais de transaction

Audit fees 23,868Frais de révision

Other administrative costs 8 79,198Autres charges administratives

Total expenses 745,271Total des frais

Net investment income 1,028,552Résultat net d’investissement


from 1 April 2017 to 31 March 2018du 1er avril 2017 au 31 mars 2018

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


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

On forward foreign exchange contracts 1,771,302Sur contrats de change à terme

On foreign currency transactions 23,098Sur transactions en devises

Realised result 1,794,400Bénéfice/(perte) net(te) réalisé(e)

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

On investment portfolio / Sur portefeuille d'investissements

Variation of impairment on microfinance loans (32,493)Variation de provisions sur prêts microfinance

Variation of valuation of equity investments 44,867Variation de la valorisation des investissements en capital

Variation due to changes in the foreign exchange rate (2,710,471)Variation due à l'évolution du taux de change

Total variation on investment portfolio (2,698,097)Variation totale sur portefeuille d'investissements On forward foreign exchange contracts (30,236)Sur contrats de change à terme

On cross-currency swap contracts 457,839Sur contrats de swap de taux et change à terme

On foreign exchange transactions (26)Sur transactions en devises

Unrealised result (2,270,520)Bénéfice/(perte) net(te) non réalisé(e)

Result of operations 552,432Résultat net des opérations

Subscriptions 4,557,226Souscriptions

Redemptions (1,167,364)Rachats

Total changes in net assets 3,942,294Variation globale de la valeur nette d’inventaire

Total net assets at the beginning of the year 27,283,266Valeur nette d’inventaire au début de l'année

Total net assets at the end of the year 31,225,560Valeur nette d’inventaire à la fin de l'année

Total net assets – Actifs nets EUR

As at 31/03/2018 31,225,560Au 31/03/2018

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

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

Issued during the year -Émises durant l'année

Redeemed during the year 36,891.280Rachetées durant l'année

Outstanding at the end of the year 131,347.257À la fin de l'année

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

As at 31/03/2018 26.29Au 31/03/2018

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

Outstanding at the beginning of the year -Au début de l'année

Issued during the year 38,322.661Émises durant l'année

Redeemed during the year -Rachetées durant l'année


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

As at 31/03/2018 25.29Au 31/03/2018



// 3 Statistical information Informations statistiques


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

Outstanding at the beginning of the year 144,346.521Au début de l'année


Redeemed during the year -Rachetées durant l'année


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

As at 31/03/2018 112.27Au 31/03/2018 Number of C Class shares – Nombre d’actions de la Classe C en circulation

Number of C Class shares – Nombre d’actions de la Classe C en circulation Outstanding at the beginning of the year 65,171.788Au début de l'année


Redeemed during the year (1,917.262)Rachetées durant l'année


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

As at 31/03/2018 109.88Au 31/03/2018


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


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

Total value (in EUR)

% of NAV

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

Investments in regional microfinance funds or similar entities

Higher Education Finance Fund LP USA N/A USD 1,500,000 1,113,861 3.6%

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

MFX Solutions LLC USA N/A USD 187,090 254,170 0.8%

Loan agreements with microfinance institutions

The Small Entreprise Foundation NPC (SEF) SOUTH AFRICA 10/10/2019 ZAR 22,000,000 1,598,983 5.0%

EDPYME Alternativa S.A. PERU 10/04/2020 PEN 5,900,000 1,484,345 4.8%

LETSHEGO Kenya LTD KENYA 10/04/2020 KES 180,000,000 1,463,049 4.7%

Asociación Familia y Medioambiente OPDF - FAMA OPDF HONDURAS 10/10/2019 HNL 30,000,000 1,101,203 3.5%

Koperasi Mitra Dhuafa - KOMIDA INDONESIA 10/04/2019 IDR 15,000,000,000 953,811 3.1%

Cooperativa de Ahorro y Crédito Norandino LTDA PERU 10/01/2022 PEN 3,300,000 845,848 2.7%

Cooperativa Integral de Ahorro y Crédito "Red de Fondos Comunitarios" GUATEMALA 10/04/2021 GTQ 7,400,000 860,315 2.8%

Maxima Microfinance Plc CAMBODIA 10/04/2020 USD 1,000,000 813,788 2.6%

Action pour la coopération avec la microentreprise S.A. ACME HAITI 10/04/2022 HTG 64,000,000 808,090 2.6%

Microfinance Company Salym Finance KIRGYZSTAN 10/10/2019 USD 900,000 770,492 2.5%

Instituto para el Desarrollo Hondureño HONDURAS 10/10/2020 HNL 20,000,000 735,944 2.4%

SAMIC Plc CAMBODIA 31/10/2018 USD 750,000 631,645 2.0%

Óptima Servicios Financieros , S.A. EL SALVADOR 10/01/2020 USD 750,000 619,150 2.0%

Financiera Fundeser S.A. NICARAGUA 12/12/2018 USD 750,000 624,332 2.0%

Koperasi Mitra Dhuafa - KOMIDA INDONESIA 10/04/2021 IDR 10,000,000,000 592,847 1.9%

La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV EL SALVADOR 10/01/2022 USD 720,000 594,709 1.9%

Proyectos y Iniciativas Locales para el Autodesarrollo Regional de Honduras OPDF

HONDURAS 10/07/2020 USD 700,000 577,873 1.9%

ACEP-Burkina SA BURKINA FASO 10/01/2021 XOF 300,000,000 460,185 1.5%

Cooperativa de Ahorro y Crédito la Florida PERU 10/04/2019 USD 525,000 438,956 1.4%

Fundenuse, S.A. NICARAGUA 10/10/2021 USD 500,000 424,174 1.4%

Intean Poalroath Rongroeurng Co. Ltd. CAMBODIA 31/08/2018 USD 500,000 408,574 1.3%

Fundación de Apoyo Comunitario y Social del Ecuador ECUADOR 13/07/2018 USD 500,000 413,274 1.3%

Fundenuse, S.A. NICARAGUA 10/04/2021 USD 500,000 421,288 1.4%

Empresa para el apoyo y desarrollo de la micro y pequeña empresa urbana y rural (MICREDITO) S.A.

NICARAGUA 10/04/2021 USD 500,000 421,288 1.4%

Microcredit Company Bailyk Finance KYRGYZSTAN 10/01/2021 KGS 34,000,000 412,908 1.3%

Chamroeun Microfinance LTD CAMBODIA 30/04/2018 USD 487,500 409,635 1.3%

Fie Gran Poder S.A. ARGENTINA 10/07/2020 ARS 9,700,000 414,920 1.3%

L'Association Marocaine de Solidarité sans Frontières/Micro-Crédit MOROCCO 31/12/2018 EUR 375,000 381,563 1.2%

OXUS Micro-Credit Company KYRGYZSTAN 10/07/2019 USD 430,000 355,367 1.1%

Fundación para el desarrollo integral de programas socio-económicos FUNDAP

GUATEMALA 10/10/2019 USD 400,000 337,418 1.1%

Empresa para el apoyo y desarrollo de la micro y pequeña empresa urbana y rural (MICREDITO) S.A.

NICARAGUA 15/01/2019 USD 375,000 310,040 1.0%

Cooperative des Membres Unis Bethel Actions (COMUBA) BENIN 10/04/2020 XOF 200,000,000 319,600 1.0%

ACEP-Burkina SA BURKINA FASO 31/01/2023 XOF 200,000,000 308,616 1.0%

Première agence de microfinance Burkina Faso BURKINA FASO 10/07/2018 XOF 200,000,000 308,208 1.0%

El Instituto de Investigaciones Socio-económicas y Tecnológicas INSOTEC

ECUADOR 10/07/2019 USD 333,329 275,625 0.9%


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

Total value (in EUR)

% of NAV

El Instituto de Investigaciones Socio-económicas y Tecnológicas INSOTEC

ECUADOR 10/07/2019 USD 333,329 275,625 0.9%

Maxima Microfinance Plc CAMBODIA 10/01/2019 USD 300,000 248,270 0.8%

Action pour la coopération avec la microentreprise S.A. ACME HAITI 10/04/2019 USD 300,000 252,598 0.8%

Fundación Pro Mujer Argentina ARGENTINA 10/04/2021 ARS 6,000,000 246,248 0.8%

Asociación para el Desarrollo Integral de San Antonio Ilonte-nango

GUATEMALA 16/03/2019 USD 285,000 232,065 0.7%

Asociación Arariwa para la Promoción Tecnico Cultural Andina PERU 10/04/2019 USD 266,667 226,755 0.7%

ECLOF Colombia SAS COLOMBIA 10/04/2020 COP 730,000,000 226,814 0.7%

Oportunidad Microfinanciera Latinoamericana OMLA, S.A. ARGENTINA 10/07/2020 ARS 5,200,000 222,664 0.7%

Fundación Pro Mujer Argentina ARGENTINA 10/10/2020 ARS 4,600,000 209,458 0.7%

ASUSU SA 6, 9 NIGER 18/10/2018 XOF 162,500,000 206,313 0.7%

Cooperativa de Ahorro y Crédito Fondesurco PERU 10/04/2019 USD 200,000 168,321 0.5%

Kaebuak Investimentu no Finansa TIMOR LESTE 10/10/2018 USD 187,500 157,620 0.5%



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

BENIN 10/01/2019 XOF 100,000,000 154,338 0.5%

Fondation al Karama pour la micro finance MOROCCO 10/10/2018 EUR 150,000 154,958 0.5%

OXUS Micro-Credit Company KYRGYZSTAN 10/01/2020 USD 170,000 140,020 0.5%

Fie Gran Poder S.A. ARGENTINA 10/10/2020 ARS 3,300,000 148,373 0.5%

Première agence de microfinance Côte d'Ivoire S.A. IVORY COAST 10/01/2019 XOF 86,668,000 133,559 0.4%

ECLOF Colombia SAS COLOMBIA 10/10/2020 COP 435,000,000 135,564 0.4%

Cooperativa de Ahorro y Crédito Microfinanzas Prisma PERU 10/01/2020 USD 133,333 110,311 0.4%

Cooperativa de Ahorro y Crédito Microfinanzas Prisma PERU 10/07/2020 USD 130,000 107,554 0.3%

Cooperativa de Ahorro y Crédito la Florida PERU 10/01/2019 USD 116,667 96,576 0.3%

Adel Microcreditos S.A. de C.V. HONDURAS 10/07/2018 USD 100,000 82,779 0.3%

Notes backed by loans to microfinance institutions

Micro, Small & Medium Enterprises Bonds SA - FINCA Azerbaijan

6, 7 AZERBAIJAN 10/03/2017 USD 198,319 16,095 0.1%

Sub-total 27,531,295 88.1%

Net accrued interest on swap contract (195,250) (0.6)%

Sub-total 27,336,045 87.5%

Cash at banks, term deposits and savings accounts 3,636,578 11.7%

Other net assets / liabilities 252,937 0.8%

Total net assets 31,225,560 100.0%

Storage shed of different types of rice // ACEP Burkina Faso


/ Total exposure per counterparty as at 31 March 2018 / Exposition agrégée par contrepartie au 31 mars 2018

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

Aggregated exposure to Notes Amount (EUR) % of total net assets

The Small Entreprise Foundation NPC (SEF) 1,598,983 5.0%

Koperasi Mitra Dhuafa - KOMIDA 1,546,658 5.0%

EDPYME Alternativa S.A. 1,484,345 4.8%

LETSHEGO Kenya LTD 1,463,049 4.7%

Higher Education Finance Fund LP 1,113,861 3.6%

Asociacion Familia y Medioambiente OPDF - FAMA OPDF 1,101,203 3.5%

Maxima Microfinance Plc 1,062,058 3.4%

Action pour la coopération avec la microentreprise S.A. ACME 1,060,688 3.4%

Cooperativa Integral de Ahorro y Crédito "Red de Fondos Comunitarios" 860,315 2.8%

Cooperativa de Ahorro y Credito Norandino LTDA 845,848 2.7%

Fundenuse, S.A. 845,462 2.7%

Microfinance Company Salym Finance 770,492 2.5%

ACEP-Burkina SA 768,801 2.5%

Instituto para el Desarrollo Hondureño 735,944 2.4%

Empresa para el apoyo y desarrollo de la micro y pequeña empresa urbana y rural (MICREDITO) S.A. 731,328 2.3%

SAMIC Plc 631,645 2.0%

Financiera Fundeser S.A. 624,332 2.0%

Óptima Servicios Financieros , S.A. 619,150 2.0%

La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV 594,709 1.9%

Proyectos y Iniciativas Locales para el Autodesarrollo Regional de Honduras OPDF 577,873 1.9%

Fie Gran Poder S.A. 563,293 1.8%

El Instituto de Investigaciones Socio-económicas y Tecnológicas INSOTEC 551,250 1.8%

Cooperativa de Ahorro y Crédito la Florida 535,532 1.7%

OXUS Micro-Credit Company 495,387 1.6%

Kaebuak Investimentu no Finansa 469,943 1.5%

Fundación Pro Mujer Argentina 455,706 1.5%

Fundación de Apoyo Comunitario y Social del Ecuador 413,274 1.3%

Microcredit Company Bailyk Finance 412,908 1.3%

Chamroeun Microfinance LTD 409,635 1.3%

Intean Poalroath Rongroeurng Co. Ltd. 408,574 1.3%

L'Association Marocaine de Solidarité sans Frontières/Micro-Crédit 381,563 1.2%

ECLOF Colombia SAS 362,378 1.2%

Fundación para el desarrollo integral de programas socio-económicos FUNDAP 337,418 1.1%

Cooperative des Membres Unis Bethel Actions (COMUBA) 319,600 1.0%

Première agence de microfinance Burkina Faso 308,208 1.0%

MFX Solutions LLC 254,170 0.8%

Asociación para el Desarrollo Integral de San Antonio Ilontenango 232,065 0.7%

Asociación Arariwa para la Promoción Técnico Cultural Andina 226,755 0.7%

Oportunidad Microfinanciera Latinoamericana OMLA, S.A. 222,664 0.7%

Cooperativa de Ahorro y Crédito Microfinanzas Prisma 217,865 0.7%

Asusu SA 6, 9 206,313 0.7%

Cooperativa de Ahorro y Crédito Fondesurco 168,321 0.5%


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

36-37

as at 31 March 2018 / au 31 mars 2018

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

PERU 3,478,666 11.1%

CAMBODIA 2,511,912 8.0%

HONDURAS 2,497,799 8.0%

NICARAGUA 2,201,122 7.0%

KYRGYZSTAN 1,678,787 5.4%

SOUTH AFRICA 1,598,983 5.1%

INDONESIA 1,546,658 5.0%

KENYA 1,463,049 4.7%

GUATEMALA 1,429,798 4.6%

USA 1,368,031 4.4%

ARGENTINA 1,241,663 4.0%

EL SALVADOR 1,213,859 3.9%

BURKINA FASO 1,077,009 3.4%

HAITI 1,060,688 3.4%

ECUADOR 964,524 3.1%

MOROCCO 536,521 1.7%

BENIN 473,938 1.5%

TIMOR LESTE 469,943 1.5%

COLOMBIA 362,378 1.2%

NIGER 9 206,313 0.7%

IVORY COAST 133,559 0.4%

AZERBAIJAN 16,095 0.1%

Total Portfolio 27,531,295 88.2%

Average exposure by country 1,251,423 4.0%

Aggregated exposure to Notes Amount (EUR) % of total net assets

Fondation al Karama pour la micro finance 154,958 0.5%

L'association pour la promotion de l'épargne crédit à base communautaire - BETHESDA 154,338 0.5%

Première agence de microfinance Côte d'Ivoire S.A. 133,559 0.4%

Adel Microcreditos S.A. de C.V. 82,779 0.3%

Micro, Small & Medium Enterprises Bonds SA - FINCA Azerbaijan 6, 7 16,095 0.1%

Total Portfolio 27,531,295 88.2%

Average exposure by microfinance institution 585,772 1.9%

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

in EUR NAV/share NAV/share NAV/share Initial as at 31/03/2018 as at 31/03/2017 as at 31/03/2016 subscription priceen EUR VNI/action VNI/action VNI/action Prix de au 31/03/2018 au 31/03/2017 au 31/03/2016 souscription initial

Class A shares 26.29 25.90 25.82 25.00 Actions de la Classe A

Class Abis shares* 25.29 N/A N/A 25.00Actions de la Classe Abis*

Class B shares 112.27 109.88 108.93 100.00Actions de la Classe B

Class C shares 109.88 108.39 107.85 100.00 Actions de la Classe C

Performance financial Performance financial Performance financial Performance since year 2017 - 18 year 2016 - 17 year 2015 - 16 inception Rendement Rendement Rendement Rendement année 2017 - 18 de l'année 2016 - 17 de l'année 2015 - 16 depuis lancement

Class A shares 1.5% 0.3% 2.3% 5.2%Actions de la Classe A

Class Abis shares* 1.2% N/A N/A 1.2%Actions de la Classe Abis*

Class B shares 2.2% 0.9% 2.8% 12.3% Actions de la Classe B

Class C shares 1.4% 0.5% 1.7% 9.9% Actions de la Classe C

Total net assets (EUR) 31,225,559 27,283,265 22,547,963Actifs netsGrowth in total net assets 14.4% 21.0% 13.7% Croissance des actifs nets

/Breakdown of microfinance investments by currency as at 31 March 2018 Répartition des investissements en microfinance par devise au 31 mars 2018

Currency Amount (EUR) % of total net assetsUnited States Dollar 12,642,571 40.5%Peruvian Sol 2,330,193 7.5%West African CFA Franc 1,890,819 6.1%Honduran Lempira 1,837,147 5.9%South African Rand 1,598,983 5.1%Indonesian Rupiah 1,546,658 5.0%Kenya Shilling 1,463,049 4.7%Argentine Peso 1,241,663 4.0%Guatemala Quetzal 860,315 2.8%Haiti Gourde 808,090 2.6%Euro 536,521 1.7%Kyrgyzstan Som 412,908 1.3%Colombian Peso 362,378 1.2%Total Portfolio 27,531,295 88.2%Average exposure per currency 2,117,792 6.8%

*Class Abis shares have been issued for the first time on 30 June 2017.


GENERAL INFORMATION/ A Structure of the SICAVThe Luxembourg Microfinance and Development Fund (the “LMDF” or “Fund”) is a compartment of the Investing for Development SICAV (the “SICAV”).

The SICAV is an investment company organised as a public limited company (société anonyme) under the laws of the Grand Duchy of Luxembourg and qualified as a “société d’investissement à capital variable” (SICAV). The SICAV is internally managed and has been registered on 31 January 2014 by the CSSF as an Alternative Investment Fund Manager (“AIFM”) falling under the de minimis rule of Article 3 of the Luxembourg law of 12 July 2013 (“AIFM Law”).

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

The SICAV is an umbrella fund and as such may oper-ate separate Sub-Funds, each of which is represented by one or more classes of shares (each, a “Class”). The Sub-Funds are distinguished by their specific investment policy or any other specific features. As at 31 March 2018, the SICAV had two Sub-Funds, the Forestry and Climate Change Fund and the Luxem-bourg Microfinance and Development Fund.

On 16 May 2017, the SICAV held an extraordinary general meeting of shareholders (“EGM”). The EGM adopted a number of amendments to the Articles of Incorporation, among them to change the name of the SICAV from Luxembourg Microfinance and Develop-ment Fund SICAV to Investing for Development SICAV and the name of the Sub-Fund from Social Venture Capital Sub-Fund to Luxembourg Microfinance and Development Fund.

/ B Structure of the LMDFThe Fund is authorised as an undertaking for collec-tive investment (“UCI”) under Part II of the law of 17 December 2010 relating to undertakings for collective investment (the “Law”). The Fund is an open-ended fund. Accordingly, the Fund is authorised to issue an unlimited number of shares, all of which are without par value.

The Fund may issue four classes of shares, namely Class A shares, Class A

bis shares, Class B shares

and Class C shares, each targeting different types of investors, evidencing a different level of risk, of-fering a target return and evidencing a different level of involvement in the Fund’s governance. The initial subscription period for Class A and Class B shares ended on 18 December 2009. The initial subscription period for Class C shares ended on 31 March 2010. The initial subscription period for Class Abis shares ended on 30 June 2017.

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

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

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

/ C Investment ObjectiveThe Fund aims at contributing to the alleviation of poverty in developing countries through the provi-sion of permanent and adapted financial services to marginalised communities and individuals. The Fund invests in promising microfinance institutions ("MFIs") that have a positive social impact so that these institutions reach financial autonomy. In pursu-ance of its objectives, the Fund may invest in MFIs, in networks or associations of MFIs, in regional funds, in microfinance investment vehicles ("MIVs") and in other microfinance-related products.

The Fund has two principal objectives, social and financial: (1) help socially-oriented MFIs to become long-term viable enterprises that reach more poor people and offer better services, and (2) generate sufficient income to sustain its own operations and give its shareholders a financial return that at least compensates for inflation.

The Fund invests primarily in various credit products such as senior loans, term deposits, promissory notes, bonds or other interest-bearing instruments. The Fund may invest up to 10% of its net assets in equity instruments.

The Fund invests in developing countries in Africa, Asia and Latin America.

38-39


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

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES / A Presentation of Financial StatementsThe Fund invests a significant part of its assets in finan-cial instruments denominated in currencies other than the Euro. Often, the Fund contracts cross-currency inter-est rate swaps or forward foreign exchange contracts to limit the exposure of the Fund to the movements of the foreign currency in relation to the Euro. In the case of debt instruments, the cost of hedging such exposure strongly influences the interest rate the Fund charges to microfinance institutions.

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

/ B Valuation of Financial InstrumentsDebt instruments not listed or dealt in on any stock ex-change or any other regulated market that operates regu-larly, is recognised and open to the public, will be valued at the nominal value. Accrued interest from microfinance loan agreements is presented separately. Such value will be adjusted, if appropriate, to reflect, for instance, major fluctuations in interest rates in the relevant markets or the appraisal by the Board of Directors of the credit worthi-ness of the relevant debt instrument. Capital participations not listed or dealt in on any stock exchange or any other regulated market that operates regularly, is recognised and open to the public, will be valued at their reasonably foreseeable sales price, determined prudently and in good faith, pursuant to procedures established by the Board of Directors. Such procedures include, in order of preference:

- Up to the first year following the Sub-Fund’s acquisition, the capital participations will be valued at cost;- After the first year of holding, the value of the capital participation will be estimated with reference to prices of equity transactions or issues of new shares involving the same MFI within a reasonable period of the valuation date. Such a period is determined by an assessment of the Board of Directors of whether material changes within the MFI or in its operating environment have oc-curred since the date such transactions took place;- If such transactions are not available or deemed not representative of fair value, the value of the capital participation should be estimated with reference to the price-to-book ratio at which the Sub-Fund acquired the capital participation; - If the Sub-Fund has entered negotiations to sell a cap-ital participation to a third party, the capital participation may be valued at its expected sales price if the disclo-sure is judged appropriate by the Board of Directors in view of the ongoing negotiations.

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

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

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

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

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

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

/ C Allocation of Net Asset Value Among Share Classes The preferential return to Class B shares is allocated if and only if the Sub-Fund’s result of operations since the last valuation day, both with and without impairment risk on microfinance, shows a profit.

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

- The remuneration reaches the total net profit since last valuation;- The equivalent of 1% p.a. interest on Class B shares’ NAV.


The release of excess impairment provisions is not included in net profits allocated to Class B shares on a preferential basis.

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

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

The Fund reserves the right to suspend subscriptions in Class C shares within the Fund, if the NAV allocated to Class A shares plus Class Abis shares is less than 20% of the combined NAV of Class C, Class A and Class Abis shares.

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

NOTE 2SHARES

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

Class Abis shares:Class Abis shares are open for subscription by philan-thropic or other investors seeking a financial leverage on an investment with developmental impact. Class Abis shares are junior and cover risks for Class C shares, yet senior to Class A shares. Class Abis shares are redeem-

able subject to an 18 month notice period and the condition that after such redemption, the combined Net Asset Value of Class A and Class Abis shares amounts to at least 25% of the sum of the Net Asset Values of Class A, Abis and C Shares.

- Risk profile: Junior- Target return: Above inflation rate targeted by the ECB over the medium term Class B shares:No restrictions for investors in Class B shares exist.Class B shares entitle their holders to earn a 1 percent p.a. higher return than Class A shares, Class Abis shares and Class C shares to the extent possible.

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

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

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

NOTE 3ADVISORY FEES AND MANAGEMENT/ TEAM REMUNERATION

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

Per the agreement the investment adviser is entitled to receive, out of the assets of the Fund, a yearly fee of:

- 1.5% p.a. of the Sub-Fund's average microfinance assets under advice plus 0.25% p.a. remuneration linked to the performance of the microfinance assets of the Fund until the assets managed by the adviser reach EUR 25 million and;- 1.35% of the Sub-Fund's average microfinance assets under advice plus 0.25% p.a. remuneration linked to the performance of the microfinance assets of the Fund when the assets managed by the adviser exceed EUR 25 million.

Total investment advisory and portfolio related fees amount, for the year ended on 31 March 2018, to EUR 334,178 or 1.1% (annualised) of the average net asset

40-41

NOTE 5FORWARD FOREIGN EXCHANGE AND SWAP CONTRACTS

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

value of the SICAV. Of the total investment advisory fees, EUR 48,256 are linked to the performance of the microfinance assets.

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

From 1 April 2017 until 31 March 2018, the remuneration of the Management and Support Team amounted to 0.5% (annualised). Total remuneration paid to the investment adviser(s), and the Management and Support Team amounted to 1.6% of the average net asset value of the SICAV.

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

SWAP contracts

In relation to loan agreement with

Notional Paying currency

Receiving currency

Paying Leg Receiving Leg Maturity Date

Counter-party

Unrealised appreciation / (depreciation),

(in EUR)

Cooperativa integral de Ahorro y credito "Red de Fundos Comunitarios"

7,400,000 GTQ EUR 12.50% p.a., semi-annual payment

6.01% p.a., semi-annual payment"

10/04/2021 MFX Solutions Inc.

133,433

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

100,000,000 XOF EUR 11.3% p.a., semi-annual payment

7.45% p.a., semi-annual payment


1,440

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

86,666,666 XOF EUR 10.60% p.a., semi-annual payment



1,637

ACEP-Burkina SA 300,000,000 XOF EUR 11.40% p.a., semi-annual payment



5,675

Action pour la coopération avec la microentreprise S.A. ACME

64,000,000 HTG EUR 18.90% p.a., semi-annual payment



(3,774)

Koperasi Mitra Dhuafa - KOMIDA

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



10,985

Koperasi Mitra Dhuafa - KOMIDA

10,000,000,000 IDR EUR 14.00% p.a., semi-annual payment



(77)

Instituto para el Desarrollo Hon-dureño

20,000,000 HNL EUR 14.00% p.a., semi-annual payment



27,545

Asociacion Fami-lia y Medioam-biente OPDF - FAMA OPDF

30,000,000 HNL EUR 13.50% p.a., semi-annual payment"



41,317


/ B Forward foreign exchange contracts

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

to EUR. The counterparties for trades in relation to such hedges are the Banque et Caisse d’épargne de l’état and MFX Solutions Inc.

Forward foreign exchange contracts

In relation to loan with MFI Cur-rency pur-chased

Amount purchased

Cur-rency sold

Amount sold Maturity date

Unrealised appreciation / (depreciation),

(in EUR)

Remaining amortisation

of notional until maturity

(in EUR)

Loans in USD EUR 15,362,625 USD 18,500,000 10/04/2018 353,120 N/A

Loans in USD USD 1,500,000 EUR 1,210,002 10/04/2018 6,994 N/A

The Small Entreprise Founda-tion NPC (SEF)

EUR 1,165,223 ZAR 22,000,000 10/10/2019 (344,854) 130,582

The Small Entreprise Foun-dation NPC (SEF) - Interests 10/04/18

EUR 82,364 ZAR 1,377,750 10/04/2018 (12,132) N/A

The Small Entreprise Foundation NPC (SEF) - Interests 10/10/18

EUR 86,740 ZAR 1,509,750 10/10/2018 (13,404) N/A


EUR 82,853 ZAR 1,501,500 10/04/2019 (13,508) N/A


EUR 79,963 ZAR 1,509,750 10/10/2019 (14,007) N/A

ECLOF Colombia SAS EUR 199,563 COP 730,000,000 10/04/2019 (12,556) 18,366

ASUSU S.A. EUR 222,603 XOF 162,500,000 18/04/2018 (22,053) 399

COMUBA EUR 251,572 XOF 200,000,000 10/04/2020 (49,542) 35,146

ECLOF Colombia SAS EUR 103,346 COP 435,000,000 13/10/2020 (23,054) 18,661

Fundación Pro Mujer Argentina EUR 138,481 ARS 4,600,000 13/10/2020 (46,953) 71,830

Fie Gran Poder S.A. EUR 91,197 ARS 3,300,000 13/10/2020 (41,832) 59,355

ACEP-Burkina SA EUR 275,862 XOF 200,000,000 10/01/2020 (25,253) 23,724

Fundacion Pro Mujer Argentina EUR 138,118 ARS 6,000,000 09/04/2021 (103,753) 97,062

PAMF BF EUR 283,994 XOF 200,000,000 10/07/2018 (17,121) 2,703

Sub-total (379,908) 457,829

Total 77,922

SWAP contracts

Cooperativa de Ahorro y Credito Norandino LTDA

3,300,000 PEN EUR 10.40% p.a., semi-annual payment



9,054

EDPYME Alterna-tiva S.A.

5,900,000 PEN EUR 9.55% p.a., semi-annual payment



(1,556)

Microcredit Company Bailyk Finance

34,000,000 KGS EUR 17.50% p.a., semi-annual payment



(1,669)

LETSHEGO Kenya LTD

180,000,000 KES EUR 18.10% p.a., semi-annual payment



(2,168)

Fie Gran Poder S.A.

9,700,000 ARS EUR 27.10% p.a., semi-annual payment



148,773

Oportunidad Microfinanciera Latinoamericana OMLA, S.A.

5,200,000 ARS EUR 27.80% p.a., semi-annual payment



79,755

Total 450,372

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

The Board of Directors of the Fund resolved in their meeting on 19 March 2014 to authorise the subscription to Notes backed by loans to microfinance institutions issued by the Luxembourg company Micro, Small & Medium Enterprise Bonds S.A. (“MSME Bonds”). Such Notes are listed on the official list of the Luxembourg Stock Exchange Euro MTF market. Arranger and Servicer to MSME Bonds is Symbiotics S.A., a Swiss-based, specialised microfinance adviser and asset manager. As at the reporting date, the Fund is exposed to a remaining unpaid principal and interest on a USD 650,000 Note 11-L. The total note issue is USD 8,650,000 (ISIN XS1051929831) and is backed by a loan granted by MSME Bonds to the microfinance institution FINCA Azerbaijan. Please refer to Note 6 for more details.

Variation of impairments on microfinance loans Unrealised gain/loss

Microfinance institution 31/03/2017 31/03/2018

Micro, Small & Medium Enterprises Bonds SA - FINCA Azerbaijan (161.290) (144.852)

Asusu SA - (48,931)

Total (161,290) (193,783)

Net variation of impairments (32,493)

NOTE 6IMPAIRMENTS AND WRITE-OFFS OF MICROFINANCE LOANS

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

Note 7 for details) which expose the Fund to the microfinance institution FINCA Azerbaijan Non-Bank Credit

Organization (“FINCA AZ”). FINCA AZ is facing significant uncertainties in its microcredit led business model in

a difficult economic and political environment. As at the reporting date, the Fund had received USD 451,681 or

69% of principal in several repayments. The Fund expects to receive a further 10% of the remaining

outstanding to be repaid. The Fund does not expect to recover interest accrued on the note.

During the reporting period, LMDF’s Board of Directors decided to establish a provision of 20% against the

remaining outstanding of a senior, unsecured loan of XOF 162,500,000 (EUR 247,730) granted to the MFI

ASUSU S.A. in Niger (“ASUSU”). ASUSU has been facing an adverse political and economic environment

leading to substantive outflows of deposits.

Management has promoted the establishment of an "ACEP DAY" every month. It's a moment of exchange and sharing. // ACEP Burkina Faso


NOTE 8DETAILS OF EXPENSES, ACCRUED CHARGES AND OTHER ASSETS

As at the reporting date, accrued and payable expenses consisted of the following (in EUR):Investment advisory fees 151,825Investment related fees to the investment advisor 102,184Administration fees 29,563Audit fees 22,815Transaction related fees due to the custodian 15,500Transaction related fees due to the administrator 8,250Custodian fees 6,475Transfer agency fees 6,299Domiciliation fees 3,125Information technology expenses 2,665VAT services fees 2,359Legal fees 2,019Wages and salaries 1,528Representation fees 974

Total 355,581

For the reporting period, other administrative costs consisted of the following (in EUR):Information technology 15,677Legal fees 11,824Travel expenses 9,672Representation expenses 6,980Insurances 6,915Board of directors and committee expenses 6,754Post and telecommunication 5,873CSSF annual fee 5,700Membership fees 5,104Other fees 5,080Marketing and public relation fees 468VAT services (852)

Total 79,198

As at the reporting date, other receivables and assets consisted of the following (in EUR):Receivable on incorporation new sub-fund 79,370VAT receivable 7,844CSSF prepayment of fees 3,600

Total 90,814

NOTE 9COUNTRY RISK INSURANCE

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

NOTE 12FOREIGN EXCHANGE RATES

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

1 EUR = 24.81 ARS (Argentina Peso)1 EUR = 3,441.47 COP (Colombian Peso)1 EUR = 9.12 GTQ (Guatemala Quetzal)1 EUR = 29.18 HNL (Honduras Lempira)1 EUR = 16,966.14 IDR (Indonesian Rupiah)1 EUR = 1.23 USD (United States Dollar)1 EUR = 664.20 XOF (West African CFA Franc)1 EUR = 79.66 HTG (Haiti Gourde)1 EUR = 124.14 KES (Kenya Shilling)1 EUR = 84.34 KGS (Kyrgyzstan Som)1 EUR = 3.98 PEN (Peruvian Sol) 1 EUR = 14.57 ZAR (South Africa Rand)

NOTE 13STAFF

During the reporting period ended on 31 March 2018, the SICAV employed three full-time staff. The Fund’s Board of Directors adopted a Remuneration Policy for the fixed and variable remuneration of the Fund’s staff and which is available for public consultation on the website www.lmdf.lu or at the registered office of the Fund.

During the reporting period, the Board of Directors decided on a target time allocation of 60% of the working time of staff to the Luxembourg Microfinance and Development Fund.

NOTE 11TOTAL EXPENSE RATIO

Average net asset value during the year (in EUR) 30,372,653Total expenses for the year 1 April 2017 until 31 March 2018 (in EUR) 745,271

Total expense ratio (annualised) 2.5%

NOTE 10ASSET – LIABILITY RISK MITIGATION

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


NOTE 14COMMITMENTS

/ A Commitments of shareholders to subscribe sharesAs at the reporting date, the Fund has outstanding commitments with investors to subscribe Class B shares for a total amount of EUR 4,166,667. EUR 4,000,000 of the commitments is callable to finance LMDF’s micro-finance investments in the Asian, African and Pacific States who are parties to the Cotonou Agreement. The remaining commitment is callable in two equal tranches during the calendar year 2018.

/ B Commitments of the Fund to investAs at the reporting date, the Fund has no outstanding commitments to invest in financial instruments.

NOTE 15RELATED PARTY TRANSACTIONS The Fund considers each shareholder controlling 20% or more of total voting rights or any entity forming part of the key management of the Fund, including its directors, as a related party. During the reporting year, the Fund conducted the following material transactions with related parties, excluding subscription of shares and commitments to subscribe for shares in the future:The Fund has concluded an investment advisory agreement with ADA with the remuneration structure disclo-sed in Note 3.

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

The Executive Director of the Fund has been appointed as a board member of the microfinance currency risk management company MFX Solutions Inc.. In its relations with all clients, MFX Solutions Inc. applies a standardised pricing model approved by a Pricing Committee. The Executive Director is not a member of the Pricing Committee. The Executive Director’s mandate ended in June 2017.

NOTE 16SHARE TRANSACTIONS OF DIRECTORS

The directors of the Fund have not undertaken share transactions during the reporting year.

NOTE 17SUBSEQUENT EVENTS BETWEEN THE YEAR END UNTIL 11 JUNE 2018

No material event occurred impacting the annual audited report of the Luxembourg Microfinance and Develop-ment Fund during the period between the reporting date and 11 June 2018.

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