strømme foundation microfinance as annual report 2006

S T R Ø M M E M I C R O F I N A N C E D E P A R T M E N T

ANNUAL REPORT 2006

http://www.strommestiftelsen.no


STRØMME MICROFINANCE DEPARTMENT \\ ANNUAL REPORT 20062 STRØMME MICROFINANCE DEPARTMENT \\ ANNUAL REPORT 2006 33

Page Foreword 3 Strømme Microfi nance Department (SMF) in brief 4SMF Governance Structure 5Strømme Microfi nance East Africa Ltd (SMF EA), Kampala, Uganda 6Strømme Microfi nance Asia Guarantee Limited (SMAG) Colombo, Sri Lanka 7 Microenterprise Development Foundation (MDF) Dhaka, Bangladesh 8 SMF, strategic guidelines 9SMF, main activities 9 5.1 Financial Services 105.2 Non-fi nancial services 105.3 Networking 11SMF, highlights and achievements through 2006 13 The SMF Personnel 14The Financial Intermediation 15 8.1 The loan portfolio 158.2 Equity Holdings 168.3 The result from operations 178.4 The currencies 178.5 SMF Dep Funding 17Non Financial Services, report from the regions 18Challenges ahead 19

Appendix I Financial Report 20

Appendix II Acronymns 22

2006 - The year of the Nobel Peace Prize2006 has been an exceptional year for the Microfi nance industry in general and for Strømme Foundation Microfi nance in particular.

The Microcredit Summit Campaign Report for 2006 reveals that :

As of December 31, 2005, 3,133 microcredit institutions have reported reaching 113,261,390 clients, 81,949,036 of whom

were among the poorest when they took their fi rst loan. Of these poorest clients, 84.2 percent, or 68,993,027, are women.

Eight hundred forty-seven of these institutions submitted an Institutional Action Plan in 2006. Together these 847 institutions

account for 88 percent of the poorest clients reported. Assuming fi ve persons per family, the 81.9 million poorest clients

reached by the end of 2005 affected some 410 million family members.

This means that the Goals for 2005 have been reached.

On December 10th 2006 the Nobel Peace Prize for 2006 was awarded to Professor Mohammad Yunus and Grameen Bank” for their efforts to create economic and social development from below”. This is probably the highest recognition of Microfi nance by the international Community ever, and caused a great and increasing interest in Microfi nance from all stakeholders.

Finally, in April 2006 Nordic Consulting Group published its latest “INVENTORY of Microfi nance Activities Supported by Norway, which speaks highly about SF:

Quotes:

“The clearly biggest and most active organisation is Strømme Foundation……..The planned increase in the

total (..level of support to microfi nance..) can almost exclusively be attributed to Strømme’s plans for expansion.

The introduction of an APEX level of funding in Strømme is one reason why loans are now the norm in SF.

It is an instrument that in many cases provides better performance incentives than pure grants to an MFI. This is

also more in line with best practice and the recent CGAP guidelines.”

Kristiansand, 2nd May 2007

Alfred Solgaard Johannes Sannesmoen Lars-Ivar Gjørv MF Director Acting MF Director Acting General Secretary

Contents FOREWORD

2006

• T

he

Year of the Nobel Peace Prize


Strømme Microfi nance Department (SMF) is part of Strømme Foundation, Norway. It serves as the top body of microfi nance within the total structure of entities. Therefore this annual report refl ects the global picture of SF microfi nance activities.

Below you will fi nd the overall facts and fi gures as of EOY 2006. (The fi nancial report can be found in Annex I.)

2006 2005 %

Total assets: 99 893 691 82 126 906 21,6

Total equity: 91 676 308 79 304 758 15,6

Gross Loan Portfolio: 85 119 958 74 329 741 14,5

Total operating income: 2 737 367 1 830 101 49,6

Total operating exp.: 1 927 415 2 066 148 -6,7

Countries of activity

Region East Africa: Uganda, Tanzania, Rwanda, Kenya, Sudan

Region West Africa: Mali, Burkina Faso, Mauritania

Region South America: Peru

Region Asia: Bangladesh, India, Myanmar, East Timor, Cambodia, Sri Lanka

Outreach / gross number of clients reached: 1.817.579

Activities• Financial services: Wholesale Lending, Guarantees and Equity investments

• Non fi nancial services: Capacity building, Technical Assistance and Business Development Services.

• Networking: National umbrella organisations, Networking in North and local MFI networks.

The Strømme Microfi nance Department, as part of SF Norway, serves as a coordinator of all microfi nance activities within SF worldwide. Its role is further to be a liaison offi ce between the SF micro-fi nance bodies, the funding partners (like Norad etc) and other stakeholders in North.

The organisation chart below illustrates the microfi nance organisation of Strømme Foundation at present. Note that the expression “Strømme Microfi nance Department” comprises the MF part of Strømme Foundation.

2] Strømme Microfi nance Department (SMF) in Brief: 3] Governance Structure within Strømme Microfi nance

SF has organised its work in the microfi nance sector through a small top body at the head quarter in Norway. The CEO of the SMF Department is called “Director of Microfi nance”. He represents the Secretary General in issues concerning MF.As the total MF activities differ in size and complexity in the four southern regions of SF, the microfi nance work has been contextualized:

In the regions of South America and West Africa, as well as in a few other cases, the MF portfolio is managed in collaboration between the regional director and the MF Department in Nor-way, the latter serving as credit committee for new loans, while the regional offi ce is responsible for identifying, supporting and monitoring MF partners.

SF BOARD OF DIRECTORS

SECRETARY GENERAL

OTHER DEPARTMENTS

SMF EAST AFRICA LTD BY SHARES

(UGANDA)

PARTNERMFI

PARTNERMFI

SMF ASIALTD BY GUARANTEE

(SRI LANKA)

MICROENTERPRISEDEVELOPMENTFOUNDATION

(BANGLADESH)

MF-ACTIVITIESWEST AFRICA

MF-ACTIVITIESSOUTH AMERICA

MF-ACTIVITIESASIA (OUTSIDE BANGLADESH & SRI LANKA

Regional MF-activities

Entity with separate Board

PARTNERMFI

PARTNERMFI

PARTNERMFI

PARTNERMFI

PARTNERMFI

PARTNERMFI

PARTNERMFI

PARTNERMFI

PARTNERMFI

PARTNERMFI

MICROFINANCE DEPARTMENTMF Director


SMF EA is a company limited by shares, incorporated in 2004, holding the activities of MF for the whole East African region. Strømme Foundation holds the majority of shares in the com-pany. The regional director serves as chairperson of the Board. SMF EA is a complete Apex organisation with a local Board of directors, a full set of manuals covering Board policies, Accounting, Human Resources management and Operational & Financial issues. The company has a revolving fi ve years’ Business Plan.

SMF EA LtdBALANCE SHEET: NOK

Total current assets: 30 105 192

Total non-current assets: 2 142 533

TOTAL ASSETS 32 247 724

Total current liabilities: 77 313

Total non-current liabilities: 23 427 729

Total equity: 8 742 683

TOTAL LIABILITIES AND EQUITY 32 247 724

INCOME AND EXPENSES STATEMENT

Total operating income 2 892 649

Total fi nancing expenses -858 611

Provision for loan losses+write-offs -1 965 958

Total operating expenses -1 530 789

Net income from operations -1 462 709

Currency gains and losses 553 395

Total grants received 4 853 638

Net income after grants for the period 3 944 325

Total number of partners: 34

Total number of outstanding loans: 73

Total number of clients of partners: 446 029

Gross portfolio yield: 10,33

Gross Assets yield: 9,42

Operation Income/Operational expenses: 0,66

SMF EA Ltd is part of the (Apex) wholesale lenders organi-sations’ network. They have very actively assisted and funded the Practitioner Network in their following up of the Microfi -nance regulations. SMF EA Ltd are also actively supporting the Association of Microfi nance Institutions in Uganda through participation in meetings, seminars and workshops.

In Asia SF has chosen to set up two different companies:

SMAG is incorporated under the Companies’ Act no 17 at the Registrar of Companies on January 6th 2006 with SF Norway as the Founding Member. SF’s legal consultant in Sri Lanka recommended a company limited by guarantee as the most convenient set up for an MF Apex.

The company has taken over all MF activities from the Re-gional offi ce, it has appointed a professional board with local resource persons and has had two board meetings. The SF regional Director is chairing the board and SF Norway appoints two members. At the time of registration, the SF loan portfolio in Sri Lanka was converted into a subordinated loan from SF to SMAG.

Local legislation hinders SMAG from granting loans to other countries in the region. Loans to partners in Myanmar, Cambo-dia, India, East Timor etc. from 2006 therefore started to report directly to SMF Department, Norway.

SMAG LtdBALANCE SHEET: NOK

Total current assets: 17 377 700Total non-current assets: 29 586TOTAL ASSETS 17 407 286 Total current liabilities: 260 385Total non-current liabilities: 18 065 239Total equity: -918 338TOTAL LIABILITIES AND EQUITY 17 407 286

INCOME AND EXPENSES STATEMENT Total operating income 792 333Total fi nancing expenses -543 258Provision for loan losses+write-offs -1 174 177Total operating expenses -404 958Net income from operations -1 330 060 Currency gains and losses 8 455Total grants received 0 Net income after grants for the period -1 321 605Apex in Asia and Disaster program combined.

Total number of partners: 31 Total number of outstanding loans: 123Total number of clients of partners: 89 690Gross portfolio yield: 5,63Gross Assets yield: 5,40Operation Income/Operational expenses: 0,54

Strømme Microfi nance East Africa Ltd (SMF EA), Kampala, Uganda

Strømme Microfi nance Asia Guarantee Limited (SMAG) Colombo, Sri Lanka


MDF is a joint venture that was planned to be launched during late 2006 or early 2007. The set up will be on a 50 / 50 basis between CARE International and SF.

Bangladesh used to be SFs Asian head quarter, thus the port-folio in the region is signifi cant in both amount and outreach.

The development of partnerships and portfolio has been sound and vital and today Bangladesh is the country where the SF portfolio reaches out to most poor people. This also has to do with the concentration on hard core poor, the tribal groups and the slum dwellers, many of whom being fl ood victims. Among these clients, the average loan size is small; thus the funds for MF reach out to a large number of clients.

The launch of the new company will probably be postponed for some time. It turns out that the new MF legislation in Bangla-desh together with the political situation does not favour any new company creations in the fi eld of MF. We have therefore been recommended to postpone the establishment.

In the meantime the Apex in Bangladesh (in fact a department within the Regional Offi ce) will continue as before, along the same healthy track.

In the last minute, as this reports goes to the press, we are informed that CARE has changed their opinion. They are going to continue their old microfi nance programme without us. This means that we have to start from scratch again.

BangladeshBALANCE SHEET: NOK

Total current assets: 31 940 878Total non-current assets: 0TOTAL ASSETS 31 940 878 Total current liabilities: 260 758Total non-current liabilities: 31 702 610Total equity: -22 490TOTAL LIABILITIES AND EQUITY 31 940 878 INCOME AND EXPENSES STATEMENT

Total operating income 1 736 757Total fi nancing expenses -721 900Provision for loan losses+write-offs -971 225Total operating expenses -415 233Net income from operations -371 601

Total grants received 62 355 Net income after grants for the period -309 246

The SF Board of Directors discussed and approved the adjus-ted MF strategy in the beginning of 2007.

Strømme Foundation has decided to promote the following basic guidelines and principles for its MF involvement:

PRINCIPLES • Promote building of inclusive fi nancial systems, based on Best Practice Microfi nance, re CGAPs 11 principles of microfi nance.• To emphasize demand-led and pro-poor fi nancial systems, re Norad’s position paper on MF.• To work as Apex institutions through partner microfi nance Institutions (MFIs).• To support established and promising partner MFIs through loans and grants for technical assistance. • To aim for the total fi eld structure of entities within Strømme Microfi nance to reach operational sustainability by EOY 2008.

SPECIFIC POLICIES AND PRACTICES • Create and support a structure of strong regional wholesale lenders / Apex companies in which Strømme Foundation plays the role of majority stakeholder. • Promote a ”holistic approach” implying close, long term responsible relationship with the partners. • Encourage and support strong partnerships and networks, both vertical and horizontal. • Keep a clear poverty orientation, focusing on underserved, rural and other vulnerable groups. • Aim to stimulate innovations, fi nd special niches and promote new methods and tools – i.e. provide ”cutting edge” microfi nance.

Aiming for long term partnerships, the SF relationship to partners may vary from grants to loans to guarantees to equity holdings to networking with other partners. The contents of these partnerships may again vary from time to time.

SMF’s work can be divided in to three major categories:

5.1 Financial services: Financial support and involvement in partner organisations / microfi nance institutions (MFIs).

5.2 Non fi nancial services / Technical Assistance (TA): Facilitate and promote training-sessions, equipment, work-shops and courses aimed at partner MFIs in issues such as good governance, management information systems (MIS) and best practice MF.

5.3 Networking

5.3.1 Support to strengthen local and national MF networks, umbrella-organisations and information strategies towards the authorities.

5.3.2 Building strategic partnerships with like-minded entities for the purpose of co-funding, MF cooperation, mutual strengthening both on regional and headquarter levels.

5.3.3 Networks for capacity building, such as common efforts for training and education within the fi eld of MF.

Microenterprise Development Foundation (MDF) Dhaka, Bangladesh

4] Strømme Foundation MF strategic guidelines.

5] Strømme Foundation MFMain activities.

Total number of partners: 10 Total number of outstanding loans: 109Total number of clients of partners: 1 069 298Gross portfolio yield: 7,31Gross Assets yield: 6,16Operation Income/Operational expenses: 0,82


5.1 Financial Services:

SF supports microfi nance mainly by working through partner organisations.

SF’s means of intervention are:

• Loans to microfi nance institutions (MFIs)• Guarantees• Equity holdings As such, SF conducts wholesale lending as one of its main interventions. (Promotion of clients savings, however, is of essential importance for the funding and security of the MFIs.)

The lending activities have increased signifi cantly over the last years. SF aims at offering competitive facilities for our partner MFIs, yet without compromising the local fi nancial markets. SF thus should not subsidize the interest rate, as we believe one of our missions is to promote inclusive, fi nancial markets. Having said, that SF must aim at promoting business between the local banks and the national MFIs to take place. Achieving this is a milestone as SF sees it. In certain cases, there is need for extra support to MFIs, for capacity building. A loan on market based terms may, in such situations, be accompanied by a time- and amount limited grant from SF. This arrangement avoids a situation of subsidized interest rate.

Guarantees have become more common over the years. It is of great importance for the MFIs to have access to local capital. This is all the more possible since commercial banks in most of the SF countries of intervention are over liquid. On the other side the commercial banks normally have very little experience in fi nancing the MFI sector; it is thus necessary to inform the banks and negotiate in order to obtain favourable conditions for the MFIs. A guarantee is needed when there is too much asymmetry between the lender (Bank) and the borrower. This is frequently the case when MFIs want to access the commercial fi nancial markets. The conventional fi nancing institutions have very limited knowledge of the MF sector. Hence a guarantee from an accepted institution can help the MFI access commercial

capital. In this process it is essential that the guarantee should decrease over time (or the loan amount increase) so that the guarantee amount may be leveraged. Thus a certain amount in guarantee will leverage a higher amount in loans. An Apex institution could play a key role in this context. That is what SF wants to do.

As a way of supporting the MF sector and build external rela-tionships, SF has chosen to make direct investments. These equity instruments, when invested in stakeholder companies in the North, open doors of collaboration with international play-ers in the fi eld, give access to information and new networks and let SF become an international, recognised MF player. When investing in partner MFIs in the South, the rationale could be a need for closer monitoring by having a seat on the Board, a symbolic support to an interesting, growing partner or a fi nancial investment in a strong MFI.

SF also aims at exploring various quasi equity instruments, such as subordinated loans when involved in this sector. Acknowledging the inadequate capital structure of most NGOs / MF players, the latter is a most interesting challenge calling for innovations.

5.2 Non fi nancial services / Technical Assistance (TA):

By non fi nancial services SF understands f.i. institutional ca-pacity building, market development support, applied research, provision of equipment for the MFI etc. SF has chosen a focus on a good balance of well established, well run MFIs and promising, emerging MFIs with a potential for development.

Where applicable, SF offers grants to cover defi cits and one-time investments in the MFIs. By building up a strong struc-ture of Strømme MF entities in the regions, concentrating on conducting MF services to MFIs with good governance, strong management, transparency and accountability, SF fi nds the grants increasingly directed at the emerging MFIs in the early part of their life cycle.

Since all parties should strive to reach operational sustaina-bility, the grant element should be limited accordingly and reducing.

Even if we have a focus on emerging MFIs we also support programs aiming a mobilisation of local savings and empower-ment of poor people, particularly in rural areas. In some cases such village groups may develop into more organised forms of Microfi nance.

5.3 Networking

5.3.1 Support to strengthen local

and national MF networks.

SF acknowledges the importance of strong, national networks within MF, be it on MFI level, Apex level, between different donor agencies or collaboration with governmental bodies. SF also believes in supporting the MF group in the Norwegian Development Network. In the SF countries of intervention, one sees both excellent and less developed models of this. In some countries they are non existent.

The example of Uganda shows how the structure of networks can be built and what an important role such networks play in securing a sound, vital development of the MF fi eld. SF believes, through fi nancial and managerial support, one should support these structures in the chosen countries of interven-tion. The main objectives of the said networks are:

• Improve the capacity of member MFIs to increase their outreach with a commitment to quality services and performance• Provide counselling services, research, information and other fi nance support and services to member MFIs• Contribute to building of alternative microfi nance institutions that are committed to sustainable human development• Establish and maintain effective networking relationships among appropriate regional, national and international organisations that pursue the promotion and development

of microfi nance programmes targeted at low income / disadvantaged individuals, groups/ communities in the society• Contribute to the promotion of professionalism, transparency and accountability among member MFIs and other main players in the microfi nance industry.

5.3.2 Building strategic partnerships

In line with the increasing professionalism and commerciali-sation of the MF industry, SF sees an ever growing need to partner up with other, strong entities involved in our playfi eld.

Funding:

On the one hand, SF seeks strong funding partners in the traditional donor communities, such as ICCO, Norad, SIDA etc.

On the other hand, as a parallel and a result of the growing awareness and public interest for MF, SF takes every possible opportunity of attracting more business minded players, like Terrafi na = ICCO, Oicocredit, Rabo Bank Foundation, SIDI, Oikos etc.

As such, SF has been discussing and exchanged ideas with leading fi nancial institutions. These contacts range from aiming to create a fund for social responsible investors to discussing borrowing through already established, international funds set up to reach out to well performing MFIs in the poor countries.

SF believes that, as the MF industry matures and reaches a level of greater professionalism, this part of the work will be increasingly important as it is expected to give valuable contri-bution, both in terms of experience and funding in the years to come.


Synergies through partnership with like-minded partners:

Without necessarily having extended funding as a goal, SF sees the importance of partnership with strong operators in our regions. Strengthening the ties to fellow players in the MF fi eld, gives access to their networks both locally and in their country of origin with the ensuing opportunities.

5.3.3 Networks for capacity building

SF strongly promotes capacity building within the MF industry. The institutional context differs largely from country to country. In countries where there are institutions providing capacity building services, SF supports them and promotes interaction between the ordinary MFIs and these. Otherwise, SF pro-motes, often by using grants, setting up such institutions in countries where these do not exist.

SF does not conduct the capacity building and business development services themselves, but we try to bring together the demand and supply for these services. These activities also strengthen the relationship between partner MFIs.

Below is a list of some of the networks where we are members:

Internationally:

Microcredit Summit and CGAP, Opportunity International

European level:

The European Microfi nance Platform in LuxembourgICCO, Oicocredit, Terrafi na, SIDI, Oikos, Equity Foundation

Nationally:

Norway: Bistandstorget (Norwegian Development Network)Uganda: Uganda Association of Microfi nance InstitutionsKenya: Association of Microfi nance InstitutionsTanzania: Tanzania Association of Microfi nance InstitutionsMali: Association des Praticiens et institutions de la Microfi nance Sri Lanka: Donor MF Coordination Network, Microfi nance Practitioners’ Network in SrilankaBangladesh: INAFI Bangladesh

In the report for 2005 SF focussed on the following

main challenges for 2006:

6.1. Having not yet reached the fi nal, adjusted agreement

with Norad on revolving MF funds through the SF various

bodies of interventions, SF considers this a major chal-

lenge also for the year 2006. The effects of not having

such agreement in place, hinders part of the work within

networks and in exploring new models and sources of

funding. From an SF point of view, this will be prioritized

highly also for this year.

Achievements:Despite multiple attempts we failed to obtain an agreement. There was some progress however, since Norad has given clear signals that they approve of our way of implementing microfi nance. They also have signalled that there is no going back on the previous realisations. We may continue as we have started, but a fi nal statement should be made in the New Framework Agreement to be implemented from 2008 .

6.2. The formalisation of the Apex organisation in

Colombo was done through 1st quarter 2006. Now the

challenge is to get the Board of Directors and the Mana-

gement of the company to work well together, forming

good governance structures and documents, pointing out

a prosperous direction for the activities in the company.

We have managed to assemble a BoD with very resourceful persons. In addition we have found as the new CEO a highly experienced MF expert called Upul Bogoda, who has many years of experience, in particular from Bangladesh. He has immediately started to improve the management procedures and there is every reason to believe that within the fi rst se-mester of 2007 all these tools will be ready and functional.

6.3. The establishment of a new Apex, together with

CARE in Bangladesh will certainly be a big challenge

to the SF organisation throughout 2006.

6] SMF highlights of achievements in 2006

This project has had its ups and downs during the year. First DFID in London refused to approve the transfer of the balance of the CARE project Capital (appr. 5 mill USD), although re-commended by DFID Bangladesh. We then decided we would follow the recommendations made by the international experts, but do it alone. Soon after that, however, DFIF in London changed their opinion to the effect that they were willing to go for the original solution. Therefore, by the end of 2006 we are back to Zero again and shall work from there. There will, however, be a certain halt because new legislation and the political situation in the country are not in favour of new company establishments.

6.4 The search for good models for MF work in the SF

West Africa together with like minded partners is

challenging also seen together with the upcoming

change in leadership in that region as of July 1st 2006.

MF interventions in West Africa started again with the new Regional Director Zakaryia Abdou. In the mean time the Department had been working to establish close contacts with SIDI-France and Terrafi na with the intention to entertain a close cooperation with their representatives in Mali. We are now about to sign an Agreement of Cooperation with Oikocre-dit in Mali (the local outlet of Terrafi na) pertaining to mutual assistance in the fi eld of partner and loan assessments and monitoring. With SIDI we are trying to fi nd out how we can, in the future, support the Banque Malienne de Solidarité as well as rural involvement with one of our common partners, JEMENI.

6.5. A new challenge this year will be to develop new

ways of obtaining external funding, including from more

commercial sources, for SMF work.

In this respect the Nobel Peace Prize given to Mohammad Yu-nus and Grameen Bank this year had an amazing effect on Mi-crofi nance in the public eye. Many new doors seemed to open up and we are now working on funding opportunities, from two large Financial Institutions in Norway. We have also participa-


ted in the creation of two investment funds based in Sweden. In addition to this there seems to be renewed activity in the MF section in Norad. We are therefore optimistic concerning the future funding opportunities, both for grants and for loans.

6.6. Making our contributions more performance

based is a great challenge, at all levels. This means

we must strive to improve measuring impact on

poverty of our interventions.

In this fi eld we still have a long ways to go. We have achieved very little this year, if anything at all. Some of our partners do measure it, and we all see it with our eyes that MF works. It is mainly anecdotal evidence though, and we know that this must change.

6.7. Obtaining new and well adapted fi nancing instru-

ments for MF is also a great challenge, the main problem

being that most MFIs are not shareholding companies.

This is a fi eld where we are in permanent discussions with our partners. The idea is to develop subordinated loans into somet-hing better adapted to the NGO world. We still are working on it. No one seems to have found the magic bullet.

6.8. Further, as the company structure of MF entities now

is about to be established within SF, one must focus to

establish a smoothly working administrative relationship

between the regional Apexes and SMF Dept.

This is a real challenge to all of us, in particular since Alfred Solgaard has resigned from his post as Microfi nance Director at the end of 2006, and we have had to look for a replacement (Johannes Sannesmoen will replace him until a new candi-date has been found). SF has had a major reshuffl e since the Secretary General resigned earlier in 2006. The Board has therefore started procedures to fi nd a new and smoother admi-nistrative system. This will be a major challenge for 2007.

6.9. To promote local MF networks in the

countries of intervention.

See par. 5.3.3

The executive staff involved in Microfi nance in 2006 are composed of the four Regional Directors as well as a number of Microfi nance specialists:

Nimal Martinus (RD Asia) Priscilla Mirembe Serukka (RD East Africa) John Brett (RD West Africa) whose contract ended July 1st 2006 Zakariya Abdou (RD West Africa) Susana Tapia (RD South America)

Zahirul Islam, Microfi nance specialist in Bangladesh Grantham Fernando, MF specialist in Asia with residence in Burma (Returned to Norway end of 2006) Dinesh Kanagaratnam, MF specialist in Asia, resident in Colombo (Resigned in 2006) Upul Batagoda, CEO of SMAG, Srilanka Priyantha Saman Bankara, Operations Coordinator, SMAG Mohamed Naseer, fi eld coordinator, responsible for training in Srilanka Savarimuththu Gnanapragasam, Administration and Finance Offi cer, SMAG in Srilanka

Paul Mayanja, Microfi nance director, Kampala, Uganda Daniel Sentumbwe, microfi nance specialist, Uganda Robert Baliddawa Muloki, mfi accountant, Uganda (Contract ended in 2006) Denis Okaba, Finance Offi cer, SMF EA Ltd Elizabeth Naiga, MF Sepcialist, SMF EA Ltd Alfred Solgaard, Head of Microfi nance Department (Resigned end of 2006) Johannes Sannesmoen (former Head of Microfi nance) - working as a consultant for Strømme Microfi nance Heidi Prestbakmo Holtskog, Accountant in the SMF Dept from April 2006 (1/5 position)

SMF is basing its work on networking with local service providers and resource persons in order to strengthen local capacity both among partners and among the service providers.

All the fi nancial intermediation taking place in the regions is now under the three Apex institutions, the only exceptions being loans to Jamii Bora (Kenya) which are given directly from Norway (SMF Department) and the regions where there is no Apex (West Africa and South America).

8] The Financial Intermediation7] The SMF personnel

The fi nancial intermediation reported here will therefore be the fi nancial relationships between SMF Department and the Apex institutions and the individual partners in the other regions. All portfolio information in the Apex areas will be reported in their annual reports.

8.1. The Loan portfolio. (In 1000 NOK)

COUNTRY LOANS # OUTST. BALANCESMF EA LTD Uganda, Kenya, Tanzania 4 22 595SMF Asia LTD Sri Lanka incl. Tsunami grant 2 18 065SMF BDESH LTD Bangladesh 1 31 703Jamii Bora Kenya 3 6 658URC BAM, Microstart Burkina Faso 2 634Jemeni, Jigiaso Ba Adenord, Piyeli, Sinsinso Mali 8 2 326Asidme, Mide Peru 2 248ASIA (outside of Bdesh and Srilanka) Cambodia, India, Myanmar 7 2 033

Total number of clients in our partner MFIs 1 817 580Total number of clients reached by SMF funds 174 550


8.2 Equity holdings

SMF Department has for various reasons decided to purchase ownership parts in various companies abroad. Below, please fi nd an overview of the investments:

a) OIKOS 110 000 NOK is a Danish Co-operative bank with a clear purposeof collecting deposits to be relent to MFIs in developing countries.SF has purchased 100.000DKK worth of shares (and taken several loans from them).

b) OIKOCREDIT 83 954 NOK Oikocredit is a Church based fi nance trust incorporated in the Netherlands. They are one of the most reputed Wholesale lending MFIs in the world. SF has purchased 10.00€ worth of shares.

c) UNOPHONE 39 000 NOK Unophone is a (Grameenphone-like) company combining the services of MF and Mobile telephones. They operate in Uganda. SF has bought shares worth of 64.000 NOK in order to help them get started. For various reasons the value has now been reduced to half.

d) SIDI 356 142 NOK Societe d’Investissements dans le Developpement International, is a French Apex institution very much like ourselves. Only they are older, more experienced and fi nancially very solid. Both SIDI and SF wanted to enter into partnership with a view to establishing cooperation wherever judged advantageous. SF has bought

45.600€ worth of shares in SIDI (and they have given a 300.000USD loan to SMFEA Ltd with an option to convert it into equity at a later stage).

e) STRØMME MICROFINANCE EAST AFRICA LTD 1 731 500 NOK SMF EA Ltd is the fi rst of the SF Apexes to be incorporated. SF is capitalizing this Apex with 500.000.000UGS in shares.

f) JAMII BORA SCANDINAVIA AB 360 720 NOK Jamii Bora Schandinavia is an investment fund incorporated in Sweden. It is owned by SF, Svenska Kyrkans lands fond, og Jamii Bora trust. The company has As its sole objecte to channel foreign funds to the Jamii Bora Group. Total equity is 1.200.000 SEK. SF has paid 1/3 of the total capital (400.000 SEK)

g) JAMII BORA KENYA LTD 2 300 865 NOK Jamii Bora Kenya Ltd is the Micro- fi nance part of the JB Group that has been organised as a shareholding company to comply with new legislation. Some old loans (given on the condition they should be transformed into Equity) have now been transformed into shares. SF has 8% of the total share Capital.

TOTAL WORTH OF OWNERSHIP PARTS 4 982 180 NOK

Strømme Microfi nance AS has also invested in 20 shares (20 400NOK) in Kolibri Kapital since SMF AS is holder of a special account for fi nancial investments (Verdipapirkonto).

8.3. The result of the year’s operations is the following *:

All fi gures in 1000 NOK 2006 2005

Total operational income 2 737 1 830Interest expense 221 133

GROSS FINANCIAL MARGIN 2 516 1 697 Provision for Loan losses and Write-offs 1 365 1 073 NET FINANCIAL MARGIN 1 151 624 Operating expenses 1 931 2 066 (LOSS)/GAIN FROM OPERATIONS (780) (1 442) Non-operational income and expenses: Currency gains/(losses) (6 797) (3 257) Non-operational income 303 388Non-operational expenses (25)NET RESULT FOR 2006/5 (7 299) (4 311) With total grants from SF of 18 779 848 NOK the fi nal result is an surplus of 11 480 599 NOK.

8.4 The currencies

The main currencies in which we are trading depreciated in the following manner (to the NOK) in 2006 according to www.oanda.com.

Currency %

US Dollar (USD) 7,98Uganda Shillings (UGS) 3,95Kenya Shillings (KES) 3,71 CFA Franc BCEAO (XOF) 2,53Bdesh Taka (BDT) 8,69 Srilanka Rupees (LKR) 12,53

8.5. Principles of evaluation of assets and liabilities

Current assets and short-term liabilities contain items due for payment within one year after purchase. Other items are clas-sifi ed as fi xed/fi nancial assets or long-term liabilities.

Current assets are valued at the lowest of procurement cost and actual value. Other accounts receivable are included in the balance sheet at face value after deduction of provision for expected loss. Items in foreign currency are valued at year end exchange rates. Short-term liabilities are recorded at the nominal amount at the time of accrual.

Fixed/fi nancial assets are valued at procurement cost, but are depreciated to actual value if the fall in value is not expected to be temporary. Long-term debt is entered at the nominal amount at the time of establishment.

* See complete fi nancial report in Appendix 1


SMF-Dep. is promoting a number of different activities related to Microfi nance, and which are necessary for our partners to provide or facilitate a supply of services that really corresponds to the needs of their clients. These are the following

Talent Finance/Business Development Services (BDS)/Entrepreneurship

Impact Assessment

Product development

Technical Assistance. Business Plans

Technical Assistance. Management Information Systems

Action Research

Trainings in MFI management

Below a summary of non-fi nancial interventions in the regions:

SF foresees the following main challenges in the coming year:

Find a long term solution for the virtual Apex in Bangladesh.Establish, sign and development cooperation Agreement with peers in West Africa.Follow up and contribute to the development of the Norwegian Microfi nance Initiative that was initiated by the Minister of Development Cooperation, Erik Solheim as a follow up of the Nobel Peace Prize 2006.Search for simple affordable mechanisms that can help us make impact assessments among MFI clients.Search for funding mechanisms that are adapted to the needs and limitations of MFIs that are not organised as Shareholding companies (Sub-ordinated loans etc.).Promote Ratings as a tool to improve the performance of our partner MFIs.

There has been a major reshuffl e of SF Leadership from 2006 to 2007 with the replacement both of the General Secretary and the Microfi nance Director. Fortunately we have found valid replacements but some time will be needed for the new MF leaders to be familiar with the job and the organisation. Creating a fl exible and effi cient transition will be a major challenge for 2007.

In preparation for a new Framework Agreement that will come into effect fro 2009 it is important for us to fi nd both an organisational set-up and funding sources that will help us develop our MF interventions further. We hope to meet with Norad’s understanding when we will work for the introduction of our Apex organisations as new entities in the Framework budget applications.

We are continuously searching for affordable and functional software for portfolio tracking in particular but also for savings and accounting.

Kristiansand, 2nd May 2007

Lars-Ivar Gjørv Johannes Sannesmoen Alfred Solgaard Acting Secretary General Acting MF Director Past MF Director

9] Non-fi nancial Services

Region Activity Participants Costs in NOK

West Africa Trainings 46 500 2 060 252 South America Staff training 18 49 321 Clients’ training 5 100 46 824 Equipmenet etc. 143 593Bangladesh Staff trainings Myanmar Staff training 31 216Sri Lanka 9 Trainings of staff 69 106 759 20 Trainings for partners 410 107 695 2 partners rec. equipment 212 268 9 partners rec. subsidies 276 261East Africa Training staff head qter 6 2 747 Training of partners 42 131 107 Subsidies for equipment etc. 93 648

Totals Trainings 2 535 921 Other 725 770 Grand total 3 261 691

In all we have spent 3.261.691 NOK on various kinds of capacity building and strengthening of our partners in our MF network in 2006.

10] Challenges ahead

JohaActin


Appendix 1] FINANCIAL REPORT

SMF – Financial Report as per December 31st 2006 2006 2005

Assets Bank deposits: Banco Latino in Peru 1 030 887 522 728BIM-Mali 1 868 809 258 280Nordea 6 343 162 3 179 417Stanbic Bank, Nairobi 510 597 751 183Deposit SF, Kr.sand 1 143 886 850 009Bago YMCA, Myanmar 108 386 Subtotal for bank deposits 11 005 727 5 561 617

Gros Regional Fund Loans 84 263 909 74 329 741

Less Loan Loss Provision -1 287 303 -284 001Net Regional Fund Loans 82 976 606 74 045 740

End of year transactions (accruals) 1 029 177 28 706Ownership parts 4 982 180 2 490 843 Total Assets 99 993 690 82 126 906

Liabilities Current liabilities 103 376 0Non-current liabilities 8 214 008 2 822 148 Equity as per 31.12.2005 79 304 758 62 222 142Currency exchange as per 1.1.2006 890 949 Result in 2005: 11 480 599 17 082 616Equity as per 31.12.2006 91 676 306 79 304 758

Total Liabilities and Equity 99 993 690 82 126 906

Profi t and loss statement 2006 2005 Income Interest from banks 145 059 78 499Interest from RF loans 881 082 537 071Interest from APEX and FWA loans 1 711 225 1 212 862Dividend from Equity holdings 1 669Recovered write-offs Total operating income 2 737 366 1 830 101 Expenses: Interest on loans 221 567 132 627Total fi nancing expenses 221 567 132 627 Gross fi nancial margin: 2 515 799 1 697 474Provision for loan losses and write-offs * 1 365 231 1 072 968Net fi nancial margin 1 150 568 624 506 Operating expenses: Personnel expenditures 987 535 1 224 450Travel expenditures 398 937 401 180Other adm. Expenses 508 974 383 153 Bank charges 3 624 2 734Government taxes 31 968 54 630 Total operating expenses 1 931 038 2 066 147 Profi t and loss from operations -780 470 -1 441 641 Income and expenses from non-fi nancial services

Currency loss -6 796 747 -3 256 891Currency gain 302 968 Other non-operating expenses -25 000 Other non-operating income 387 773Extra Credit Components in Srilanka in 2004 (omitted in 2004) 158 559Grants toward loan capital 17 053 423 19 138 450Grants towards running expenses 1 726 425 2 096 367 TOTAL PROFIT (LOSS) FOR 2006/2005 11 480 599 17 082 617* This amount is composed of LLPr 1.000.000 and write-offs 365.231

STRØMME MICROFINANCE DEPARTMENT \\ ANNUAL REPORT 200622 STRØMME MICROFINANCE DEPARTMENT \\ ANNUAL REPORT 2006

AMFI : Association of Microfi nance Institutions (Kenya)

AMFIU: Association of Microfi nance Institutions in Uganda

AR: Action Research

BDS: Business Development Services

BOD: Board of Directors

CEO: Chief Executive Offi cer

CBO: Community Based Organisations

CGAP: Consultative Group to Assist the Poor

EOY: End of Year

HH: Household

FWA: Framework Agreement IA: Impact Assessment

ICCO: Inter Church. (Netherlands)

ID: Institutional Development

MF: Microfi nance

MIS : Management Information Systems

MFI : Microfi nance Institutions

NGO: Non Governmental Organisation

Oikos: Danish Savings Bank

Oikocredit: Dutch, Church related MF Apex Institution

RD: Regional Director (in SF)

SBP: Stromme Business Partner

SEEP: Small Enterprise Education Program

SF: Strømme Foundation

SIDA : Swedish International Development Agency

SIDI : Societe d’Investissements. dans le Dev. Int’l (France)

SMF: Strømme Microfi nance Department

TA: Technical Assistance

APPENDIX 2] ACRONYMS:

Microfi nance Department Strømme Foundation, June 2007 Lay-out and graphic design: Strømme Foundation All photos: Strømme Foundation

The Strømme Foundation is member of The Norwegian Control Comittee for Fundraising


2006

• T

he

Year of the Nobel Peace Prize

Skippergaten 3 • Box 414 • N-4664 Kristiansand Norway Tel +47 38 12 75 00 • Fax +47 38 02 57 10 • Org. no 952 002 139

E-mail: [email protected] • www.stromme.org



strømme foundation microfinance as annual report 2006

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