strømme foundation microfinance as annual report 2009

STRØMME MICROFINANCE AS \\ ANNUAL REPORT 2009 1

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

ANNUAL REPORT 2009

2 STRØMME MICROFINANCE AS \\ ANNUAL REPORT 2009

3

Strømme Microfinance AS

Highlights from 2009

Strømme Microfinance AS (from now on called SMF AS) has successfully ended the first year of active existence. The company has been kept dormant since 2007 and the official transfer of assets was done March 31st 2009. Strømme Micro-finance AS is from hereafter responsible for all Microfinance (MF) activities in Stromme Foundation.

The vision of SMF AS is to eradicate poverty. In 2009 274 696 women and 46 034 men, totally 320 731, took part in the MF programs initiated by SMF AS and it’s subsidiaries. 254 256 was reached by the institutio-nal micro finance and the remaining 66 515 by Community Managed Microfinance (CMMF). By the end of the year, in total 91 partners were working with SMF AS in the four regions.

When entering 2009, the financial crisis in 2008 was still a reality and on top of the memories. Cost of capital increased. The awareness towards risk and volatility in the financial markets made both private and public investors risk averse.

The cost of funds increased and some of the opportunities for funding closed. The financial crisis also heavily impacted on the fluctuations between the different currencies.

Since SMF AS has taken the strategic decision of giving loans to its borrowers in their local currencies, the company took on severe currency losses in 2009. When closing the year, fortunately it seems as if things have stabilized again. The shock has calmed and slowly the optimism is growing again, opportunities for funding are shown.

Despite the challenges in the financial market, the companies in East Africa, SMF EA Ltd, Sri Lanka, SMAGL and the activities in Bangladesh grew even more solid and for the first time all of them are operational self-sufficient (OSS). SMF EA Ltd increased the OSS to 119 %. SMAGL ended on 149 % and in Bangladesh, 104%.

STRØMME MICROFINANCE AS \\ ANNUAL REPORT 2009


Countries of activity 2009

PERU

MALI

BURKINA FASO

SUDAN

KENYA

TANZANIA

UGANDA

RWANDA

SRI LANKA CAMBODIA

BANGLADESH

Mali 42 033 12

Burkina Faso 3 778 3

West Africa 45 811 15

Total outreach

No.of partners

Bangladesh 135 693 9

Sri Lanka 46 969 29

Cambodia 40 1

Asia 182 702 39

Total outreach

No.of partners

Uganda 45 091 17

Tanzania 9 384 7

Sudan 4 507 3

Kenya 27 251 5

Rwanda 4 845 2

East Africa 91 079 34

Total outreach

No.of

partners

Peru 1 139 2

South America 1 139 2

Total outreach

No.of partners

Total 320 731 254 216 66 515 90

Institut. MF CMMF

No.of partners

Total outreach


Strømme Microfinance AS is a company limited by shares owned 100 % by Strømme Foundation. The Board of Directors (BoD) is an independent board, but consists of the same members as for Strømme Foundation. The BoD has delegated some of the supervision to the Finance and Credit Committee (FCC). The FCC is authorized by the BoD.

SMF AS has two subsidiaries doing wholesale lending MF. The share-holding company Strømme Microfinance East Africa Ltd (SMF EA Ltd) is located in Kampala, Uganda and covering interventions in Uganda, Rwanda, Kenya, Tanzania and Sudan. SMF AS holds, together with the SF regional office in East Africa, 90 % of the shares. The remaining 10 % is owned by SIDI , Strømme Microfinance Asia Guarantee Ltd is a company limited by guarantee located in Colombo, Sri Lanka covering Sri Lanka only. A wholesale company in the MF sector are usually

Governance Structurecalled an Apex which is also the general terms used in SMF AS.

The two independent institutions have their own boards consisting of representatives from SMF AS, local independent directors and other shareholders in East Africa. The boards are chaired by the respective Regional Director.

The wholesale lending institution in Bangladesh is yet to be approved by the local government and remains for now in the books of SMF AS. In the accounts of SMF AS are also the activities in South America and West Africa. SMF AS is working through the regional offices in the respective regions. SMF AS is considered as the Finance Committee for the activities in the regions without legal wholesale lending institutions.

The organisational chart illustrates SMF AS and the subsidiaries.

SMF AS BOARD

SF COUNCIL

SMF AS

BOARD OF DIRECTORS BOARD OF DIRECTORS

SMAGLSMF EA LTD BANGLADESH (MF) RO (MF) WEST AFRICA RO (MF) SOUTH AMERICA

Finance & Credit committee

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As the MF activities differ in size and complexity in the four southern regions of SF, the microfinance work has been contextualized to meet needs of partners and clients. In general the MF approach of SMF AS can be divided in two main categories of intervention: I) Institutional MF with provision of a) financial and b) non-financial services as well as c) networking with relevant institutions and II) Community Managed MF (CMMF) with the promotion of savings- and lending groups.

I) Financial and non-financial services

Financial Services The main means of financial intervention have so far been: •Loans •Guarantees •Equityholdings As such, SMF AS conducts wholesale lending as one of its main interven-tions. (Promotion of clients’ savings, however, is of essential importance for the funding and security of the MFIs)

The lending activities have increased significantly over the last years. SMF AS aims at offering competitive facilities for our partner MFIs, yet without compromising the local financial markets. SMF AS thus should not subsidize the interest rate, as we believe one of our missions is to promote inclusive, financial markets. Having that said, SMF AS also aims at promoting business between local banks and national MFIs.

Guarantees have become more common over the years. It is of great importance for the MFIs to have access to local capital.

A guarantee is needed when there is too much asymmetry between

thelender(Bank)andtheborrower.ThisisfrequentlythecasewhenMFIs want to access the commercial financial markets. The conventional financing 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 guaran-tee 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 SMF AS wants to do.

As a way of supporting the MF sector and build external relationships, SMFAShaschosentomakesomefewdirectinvestments.Theseequityinstruments, when invested in stakeholder companies in the North, open doors of collaboration with international players in the field, give access to information and new networks and let SMF AS become an internatio-nal, 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 financial investment in a strong MFI.

SMFASalsoaimsatexploringvariousquasiequityinstruments,suchas subordinated loans when involved in this sector. Acknowledging theinadequatecapitalstructureofmostNGOs/MFplayers,thelatteris a challenge calling for innovations.

Non-financial services By non-financial services and technical assistance, SMF AS is promoting a number of different services. To SMF AS this is part of the holistic approach and integrated in MF. Capacity building and non-financial ser-vices can be funding of product development, developing manuals and

Microfinance in SMF AS


7

plans for the institutions, institutional capacity building, market develop-mentsupport,appliedresearch,provisionofequipmentfortheMFIetc.

Where applicable and functional, SMF AS offers grants to cover deficits and one-time investments in the MFIs. By building up a strong structure for the MF entities in the regions, concentrating on conducting MF ser-vices to MFIs with good governance, strong management, transparency and accountability. The grants are increasingly directed at the emerging MFIs in the early part of their life cycle. Since all parties should strive to reach at least operational sustainability, the grant element should be limited accordingly and reducing.

NetworkingThe involvement in Networking can be further divided according to two categories:

Networks for capacity buildingSMF AS acknowledges the importance of strong, national networks within MF, be it on MFI level, Apex and wholesale lending level, between different donor agencies or collaboration with governmental bodies, both in the Global South as well as in Norway. These networks varyinquality,functionalityandinsomecountriestheyarenon-existent. Uganda and Association of Microfinance Institutions in Uganda (AMFIU), is an example of 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 field. SMF AS believes, through financial and managerial support, one should support these structures in the chosen countries of intervention.

Networks for funding and co-operationIn line with the increasing professionalism and commercialisation of the MF industry, SMF AS sees an ever growing need to partner up with

other, strong entities involved in our playfield. Reasons for partnering is both co-funding, sharing of recourses and responsibility in a project as well as strategic co-operation and knowledge sharing. Partners are both traditional donor communities, such as Norad as well as other actors like Oikocredit from The Netherlands, SIDI in France etc.

II) Community Managed MicrofinanceCommunity Managed Microfinance (CMMF), savings led microfinance, is microfinance based on groups where the members save together and by their own savings build the loan fund where the members of the group can ask for loans. This way of micro finance is based on savings and meeting in groups. Everyone needs a safe convenient place to save and access to the small loans the group can provide. Every villager needs alumpofcashusuallyaroundtheplantingseason.Thereisnoquestionthat it is better to use your own money than go into debt when meeting a crisis or for putting food on the table. So far, this has been a successful way of mobilizing women and the intervention is globally considered a women’s initiative. However, men are coming in and seeing the value of the small money being saved regularly.

In the partnerships and methods where SMF AS is involved, there is no external capital entering the groups and the loan fund. SMF AS only sup-port partners with capacity building and funds for training new groups and expansion of the model. CMMF is primarily used in Africa. The largest model in terms of outreach is the Saving for Change model developed by Oxfam America, Freedom From Hunger and Strømme Foundation. Saving For Change is used in West Africa.


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Measuring resultsMicrofinance used to be characterized as financial services with a social purpose and goal; to eradicate poverty. After years of rapid growth, ma-turing industry and all of a sudden the short and simple success stories were not enough neither for donors nor practitioners. The search for results and the attempts to measure the social results have led to the vast and extensive focus on Social Performance in the micro finance industry. In the middle of the debate are those who would say that MF never was a silver bullet and that poverty alleviation is too much to ask for. They would claim that financial access and banking the unbanked is enough of a goal. Developing the financial sector should extend people’s access to financial services and thereby reducing the uncer-tainty and vulnerability of the poor. For a social investor, this discussion often ends in the choosing of none of the goals, but the focus on both developing the sector as well as the need for measuring the social results with the end beneficiary, the poor client.

SMF AS is supporting the work done by the Social Performance Task1 force and is taking part in working groups. In addition to securing good financial management for the partners and working towards the goal of a long term sustainable financial sector and supply for the poor, there is need for more knowledge about the change in the lives of the target group – the poor. SMF AS is therefore strengthening the focus on the social indicators.

The standard output indicators, such as outreach, are implemented to bemeasuredonaquarterlybasis.Outreachhasbeenthemostcommonindicator for measuring the social result of the organization. However the work to develop a full monitoring plan continues on the measurement of outcome – the change in the life of the poor. Outcome can be defined as the change measured with the target group, the beneficiaries, after participating in the project.

1 The Social Performance Task Force was established in 2007 and consists most of the leading microfinance networks, financial service providers, rating agencies, donors and social investors.

Outcome means measuring the change the project or program has had on the initial situation. The effect should not be mistaken by the effectiveness and to be effective. A project may be effective in the way it has organized the inputs and activities. However by effect the meaning is the more immediate tangible and observable change, in relation to the initial situation and established objectives. Appropriate indicators will be needed to measure the change in the lives of the target group. Such indicators need to be part of a full monitoring system.

SF has together with SMF AS developed a tool for assessing the cross-cuttingissues;GenderEquality,EnvironmentalSustainabilityandCulturalFreedom. Raising awareness on these key issues are looked upon as important and even conditions for sustainable and long-term change.

Though it is important for SMF AS to show its effects and results of the interventions, the measurement should at all times be motivated by the desire to provide the service desired and to meet the needs of the poor. Measuring results should aim at improving the work and never just to prove the effects.



When consolidating the numbers in SMF, SMF AS including all the regions and daughters, correcting for internal transactions, we may present the following information as per December 31st 2009 . The formation of the group occurred on 31.3.2009, so that the result which appears in the ac-counts only displays the period from 31.03.2009. In order to more easily overview the accounts in their entirety for 2009, the proforma accounts of income and balance, together with the most relevant notes, are presented. These figures show the company and corporation’s operations as they would have appeared if it had been a company for the entire year.

NOKASIA 751 Bangladesh 499 East Africa 2 268

MFI CMMF Total East Africa 23 11 34 West Africa 6 9 15 Asia 40 0 40 South America 2 0 2 71 20 91

58 085 259

52 501 573

943 556

2 106 195

East AfricaWest AfricaAsiaSouth America

East Africa

West Africa

Asia

South America

0 25 50 75 100

FemaleMale

Clients outreach by SMF partners

Outstanding balance Institutional MF Average loan

Clients outreach by SMF funding

Numbers of partners

Female Total East Africa 237 097 533 877 44 % West Africa 14 673 20 903 70 % Asia 1 613 936 1 748 114 92 % South America 10 633 11 783 90 % 1 865 706 2 302 894 81 %

MFICMMF

East Africa

West Africa

Asia

South America

10 3004020

1 The numbers for institutional MF are calculated on the basis of outstanding portfolio with the partner as of 31.12.2009. The numbers are to be seen as an estimate where SF takes part in a larger context with other funders. 2Operationalincome/operationalcostandloanlossprovision

Global statistics

% female clients

East Africa 69 197 21 882 91 079 West Africa 1 178 44 633 45 811 Asia 182 702 - 182 702 South America 1 139 - 1 139 254 216 66 515 320 731

TotalCMMFMFI

MFICMMF

East Africa

West Africa

Asia

South America

0 50 000 100 000 150 000 200 000


Innvestment income 515 389 1 696 950 Other income from interest 4 800 693 10 269 995 Other income from interestOther investment income 12 273 173 373 299 Sum interest and similar income 17 589 255 12 340 244

Financial expenses -45 822 -397 550 Other interest costs -246 379 -449 353 Sum interest and similar costs -292 201 -846 904

Sum interest and similar costs 17 297 054 11 493 340

Contributions from SF and others 1 150 747 4 486 209 Contributions to loans 4 564 423 4 564 423 Sum contributions 5 715 170 9 050 632

Sum contribution and interest income 23 012 224 20 543 972

Foreign exchange loss -24 698 358 -25 311 948

Labour costs -2 360 035 -3 222 522 Other personnel costs - -240 884 sum cost of labour -2 360 035 -3 463 406

Other operating cost -598 372 -5 816 408 Depreciation cost - -129 192 Provision for losses on account reveivable -1 000 000 -1 000 001 Sum Labour costs -1 598 372 -6 945 601Sum operating costs -28 656 766 -35 720 955

Operating result -5 644 542 -15 176 983

Result of ordinary activities -5 644 542 -15 176 983 Tax expenses -71 260 -443 805

Annual result -5 715 801 15 620 788 Minority share 46 497 ToOtherEquity -5 715 801 -15 667 285 -5 715 801 -15 620 788

Proforma Financial Statements 2009Parent company

2009Group

2009The formation of the group occurred on 31.3.2009, so that the result which appears in the accounts only displays the period from 31.03.2009 to 31.12.2009. In order to more easily overview the accounts in their entirety for 2009, the proforma accounts of income and balance, together with the most relevant notes, are presented. These figures show the company´s and corporation’s operations as they would have appeared if it had been a company for the entire year.

All numbers are in NOK.

Income & expense statement


ASSETSFixed assetsFixed assets 2 948 702 2 917 987 3 118 742 3 156 753 Financial assets (shares) 24 693 727 19 343 603 3 579 967 4 251 715 Loan Portfolio 41 075 031 59 439 406 - Sum fixed assets 68 717 460 81 700 996 6 698 709 7 408 468 Short term assets Accounts receivable 1 268 585 1 145 332 1 219 945 1 676 342 Otherliquidassets 1 240 922 947 081 5 697 922 7 064 995Loan portfolio 46 372 083 31 432 220 116 642 389 106 429 142 Bank deposits, cash and similar 15 761 622 11 057 542 28 571 484 15 682 482 Sumliquidassets 64 643 213 44 582 175 152 131 740 130 852 961 TOTAL ASSESTS 133 360 673 126 283 171 158 830 449 138 261 428 EQUITY AND LIABILITIES Equity Company capital 500 000 10 500 000 10 500 000 10 500 000 Share premium - 40 000 000 40 000 000 40 000 000 Other paid-in capital 92 784 264 2 297 886 22 403 073 19 398 198Otherequity 2 488 680 1 708 368 3 096 581 77 902Annual result 29 217 467 -5 715 801 -15 620 788 Total equity 124 990 411 48 790 452 75 999 655 54 355 312

LiabilitiesLong-term debtLiabilities to credit institutions 4 466 603 3 353 771 7 600 256 7 569 221 Other long-term debt 3 000 000 73 441 944 73 052 665 73 052 665 Current liabilitiesOther current liabilities 903 660 697 004 2 177 874 3 284 231 Total liabilities 8 370 262 77 492 718 82 830 794 83 906 116

TOTAL EQUITY AND LIABILITIES 133 360 673 126 283 171 158 830 449 138 261 428

Of this, minority share 1 676 074 1 398 091

Balanse SheetParent

company31-12-08 31-12-09

Group 31-12-0831-12-09


Parent company Group 2009 2009Geographical distributionBangladesh 2 899 046 2 848 269 Sri Lanka 1 582 547 2 682 889 Uganda 12 560 093 3 088 552 Kenya 141 588 1 496 418 Tanzania - 1 617 888 Rwanda - 135 056 Norge 107 663 18 604 Peru 81 440 154 695 Mali 126 562 163 934 Burkina Faso 35 697 57 872 Cambodia 24 261 41 780 Burma 30 359 34 288 Total 17 589 255 12 340 244t

Parent company Group 2009 2009Labour expensesPayroll 2 017 357 3 120 728 Social Tax 81 493 81 493 Pension Costs 18 513 18 513 Other benefits 242 672 242 672 Sum 2 360 035 3 463 406

Expensed fee to the auditor distributed as follows: Parent company Group 2009 2009Statutory audit (including technical assistance with the financial statements) 35 014 124 386 Other attestation services 25 505 25 505 Legal aid 15 925 15 925 Sum 76 444 165 816

Amounts given are without VAT.

The company is obliged to provide an occupational pension scheme under the Act for mandatory pensions. The company has entered into an agreement concerning the pension scheme which meets the requirementsofthemandatorypensionscheme. Parent company Group 2009 2009Recorded pension cost 20116 20116

The company is not liable for tax in Norway, but there are tax costs in the foreign companies.

Company tax cost: Parent company Group 2009 2009Income tax 203 539 Tax on interest 71 260 240 265 71 260 443 804

Parent company Group 2009 2009CurrencyKenyan shilling -1 347 089 -1 347 089 CFA Franc BCEAO -1 585 320 -1 585 320 American dollar -17 504 -631 094 Danish kroner 636 449 636 449 Uganda Shilling -6 535 831 -6 535 831 EURO -113 518 -113 518 Sri Lanka Rupee -5 942 848 -5 942 848 Swedish kroner -40 920 -40 920 Bangladeshi Taka -9 900 907 -9 900 907 adjustment/transfers 149 129 149 129 -24 698 358 -25 311 948

Proforma interest and similar income

Proforma compensation of employees, number of employees, remuneration, loans to employees etc

Proforma remuneration to the auditor

Proforma pensions

Proforma tax

Proforma foreign exchange loss by currency type


Interventions by geographical involvement

SMF AS The MF involvement in West Africa, South America, Bangladesh, Cambo-dia and Kenya are part of the accounts and balance sheet of SMF AS. The Regional Director in the relevant region is responsible for the management and supervision of these interventions. The regional office is doing the due diligence and all assessments whereas the SMF AS serves as credit commit-tee and whole-sale lender.

The intervention in West Africa is both institutional MF and CMMF. In the other countries only institutional MF is used for now.

In the Asian region, SMF AS has set up two different legal entities, SMAGL and Bangladesh. The enitity in Bangladesh is yet to be approved legally. The accounts are therefore still part of SMF AS. The key performance indi-cators for Bangladesh will be presented after SMF AS since the institution is ready and is expected to become a legal entity soon.

Due to different historical and practical reasons, some partners and coun-tries are handled directily from SMF AS and not part of the Apex institutions. Loans to partners in Kenya and Cambodia are therefore included in SMF AS in Norway.

SMFAShasforvariousreasonsdecidedtoacquireownershippartsinexter-nalcompaniesabroad.Theloansandequityholdings,includingtheonesinthe Apexes will appear in the balance of SMF AS.

I now give my children three meals a day


BangladeshThe Apex in Bangladesh is still to be legally approved as a separate legal entity. The virtual Apex is at the time functioning as an Apex governed as a division within the Regional Office in Sri Lanka. The Apex in Bangla-desh is involved in institutional MF.

BALANCE SHEET (all numbers in NOK): 31-12-09 31-12-08 Total current assets: 37 724 665 47 589 783 Total non-current assets: TOTAL ASSETS 37 724 665 47 589 783

Total current liabilities: 92 134 142 574 Total non-current liabilities: 38 048 365 47 949 272 Totalequity: -415 834 -502 063 TOTAL LIABILITIES AND EQUITY 37 724 665 47 589 783

INCOME AND EXPENSES STATEMENT 2 009 2 008 Total operating income 2 854 223 3 010 818 Total financing expenses 1 277 785 1 281 258 Provision for loan losses+write-offs 1 074 652 1 107 643 Total operating expenses 498 738 767 102 Net income from operations 3 048 -145 185 Income tax - - Currencyloss/gain - -Total grants received - - Net income after grants for the period 3 048 -145 185

I now have a future


Sri Lanka - Strømme Microfinance Asia Guarantee Limited (SMAGL) SMAGL is incorporated under the Companies’ Act no 17 at the Registrar of Companies on January 6th 2006 with SF as the Founding Member. The company has taken over all MF activities in Sri Lanka and has its seat in Colombo. A professional board with local resource persons in addition to two members form SMF is governing the processes. The SF Regional Director is chairing the board. SMAGL is involved in institutional MF.

BALANCE SHEET (all numbers in NOK): 31-12-09 31-12-08 Total current assets: 25 730 247 29 023 872 Total non-current assets: 137 252 47 211 TOTAL ASSETS 25 867 498 29 071 083 Total current liabilities: 31 577 569 541 Total non-current liabilities: 15 638 145 28 311 015 Totalequity: 10 197 776 190 527 TOTAL LIABILITIES AND EQUITY 25 867 498 29 071 083 INCOME AND EXPENSES STATEMENT 2 009 2 008 Total operating income 2 650 204 2 063 516 Total financing expenses 289 936 268 076 Provision for loan losses+write-offs 855 494 1 503 216 Total operating expenses 1 113 541 1 263 777 Net income from operations 391 233 -971 553 Income tax 372 545 202 982 Currencyloss/gain - -Total grants received 6 501 - Net income after grants for the period 25 188 -1 174 535

I now believe in myself


East Africa - Strømme Microfinance East Africa Ltd (SMF EA Ltd)

SMF EA Ltd is a company limited by shares, incorporated in 2004. The company is located in Kampala, Uganda and including the activities of MF for the East African region (Uganda, Kenya, Tanzania, Rwanda and Sudan). SMF EA is a complete Apex organisation with a local Board of directors, a full set of manuals covering including a Business Plan, and policies for the Board, Accounting, Human Resources management and Operational & Financial issues. SMF AS holds the majority of shares in the company and the regional director serves as chairperson of the Board.

SMF EA Ltd has interventions in both Institutional MF and CMMF.

BALANCE SHEET (all numbers in NOK): 31-12-09 31-12-08Total current assets: 58 866 695 55 022 390 Total non-current assets: 481 380 152 118 TOTAL ASSETS 59 348 075 55 174 508 Total current liabilities: 2 899 059 1 098 358 Total non-current liabilities: 38 297 570 32 026 060 Totalequity: 18 151 446 22 050 090TOTAL LIABILITIES AND EQUITY 59 348 075 55 174 508 INCOME AND EXPENSES STATEMENT 2 009 2 008 Total operating income 6 081 469 5 566 643 Total financing expenses 1 835 627 1 335 835 Provision for loan losses+write-offs 1 024 106 1 510 671 Total operating expenses 5 535 001 2 194 052 Net income from operations -2 313 265 526 085 Income tax - - Currencyloss/gain -613 589 -287 737Total grants received 3 328 961 - Net income after grants for the period 402 106 238 348

I now send my grand daughter to school


Eradicating poverty Strømme Foundation’s fully owned company Strømme MicroFinance AS (SMF AS) is a central Norwegian actor in microfinance. The com-pany undertakes lending operations, training and capacity building of personnel within the microfinance sector. SMF AS’s leadership and headquartersisbasedinNorway,whileactivitiesarecarriedoutinPeru,Mali, Burkina Faso, Bangladesh, Sri Lanka, Cambodia, Myanmar, Tanzania, Kenya, Rwanda and Uganda.

Fiscal year 2009In its first year of operation, the company took over and furthered the lending operations previously directly owned by Strømme Foundation. The company’s activities were impacted both by the necessary estab-lishment phase and the financial crisis. On the 31st of March all of Strømme Foundation’s microfinance activi-ties were transferred to SMF AS. In so doing, SMF AS became the parent company, with subsidiaries Strømme MicroFinance East Africa Ltd (SMF EA Ltd) and Strømme MicroFinance Asia Guarantee Limited (SMAGL),

based in Kampala, Uganda and Colombo, Sri Lanka respectively. In addition, the company has an office in Dhaka, Bangladesh. As a natural part of the establishment phase, the company necessarily used time to establish a well-functioning internal infrastructure with reporting and budget procedures, accounting structures, financial procedures, and instructions for daily governance and management. 2009 was the first year of Strømme Foundation’s five year Master Plan. As the company is a part of SF’s operations, it too is included in the plan. Therefore, the company’s 2009 activities also consisted of estab-lishing plans of action and a methodology to support the overarching directions given in the Master Plan.

The global financial crisis led to currency fluctuations throughout the year. As the company gives loans to its partners in developing coun-tries in local currencies, the financial statements show large currency losses. This is largely because the Norwegian Kroner has become much stronger in relation to the currencies in developing countries, such as, for example, the Ugandan Shilling.

Report from the Strømme MicroFinance AS Board 2009


Results from activitiesThe company’s primary goal is to provide appropriate microfinance products to as many poor persons as possible. During the year the company and its subsidiaries further-developed loan offers to the poor in developing countries. At the same time, oversight was also strengthened. As such, the company’s non-financial results for 2009 are as anticipated and in line with the company’s plan of action and to the Board’s expectations. As a natural part of the company’s primary goal, the company operates under a clear investment philosophy that expenses tied to currency loss shall be borne by the company. This prevents our poor loan customers from being exposed to currency losses. This has given the company deficit in 2009. Operating profits, before adjusting for currency losses, are nonetheless positive and in accordance with the budget. The com-pany reached an expected level of activities and reflects a cost-effective organisation. During the year the company’s activities were strengthened by Strømme Foundation transferring all property belonging to its micro-

finance activities to SMF AS. This transfer was financed by transferring SF’s capital and through a responsible loan from Strømme Foundation. The company’s portfolio is deemed to be solid. The Board considers the conditions necessary for continued operations to be in place.

Work environment and personnelThe company has a very low level of sick leave. There were no injuries or accidents at work in 2009. The work environment is viewed as good. Thecompanyhasasagoaltoachievefullequalitybetweenmenandwomen. SMF AS works with new guidelines and methods to ensure equalityinallareasoftheorganisation.In2009,fourofthesevenBoardmembers were women. 27% of employees in the parent company and its subsidiaries are women. Operations strive to minimise polluting the environment. SMS AS also works continuously with guidelines and methods for follow-up to en-sure that the company’s microfinance activities in developing countries have the smallest possible negative impact on the environment.

Kristiansand, 12.05. 2010

Geir Magnus NyborgChairman of the BoardInge Lønning

Liv Næss

Olaf Gundersen

Svein Ove Faksvåg

Anna Minj

Trond RandøyØyvind Aadland

Secretary General


Strømme MicroFinance ASIncome expense statementInvestment income 334 546 1 363 313 Other interest income 3 658 163 7 909 488 1 407 Other investment income 6 626 348 005 Sum interest and similar income 3 999 335 9 620 806 1 1 407

Financial expenses -39 600 -480 162 Other interest costs -203 931 -353 899 -178 995Sum interest and similar costs -243 532 -834 061 -178 995

Net interest and similar income 3 755 803 8 786 745

Contribution from the Strømme Foundation and others 596 996 3 932 458Contributions for loan portfolio 3 879 622 3 879 622 Sum contributions 4 476 618 7 812 080

Sum contributions and interest income 8 232 421 16 598 825 -177 588

Foreign exchange loss -9 671 993 -10 285 582 2

Labour costs -1 484 675 -2 347 330 Other personnel costs - -202 493 Sum labour costs -1 804 060 -2 549 823 3

Other operating costs -784 675 -5 385 182 -56 664 Depreciation costs -30 715 -111 432 -30 715 Provision for losses on accounts receivable -751 000 -751 000 Sum other operating costs -1 247 117 -6 247 615 4,5 -87 379

Sum operating costs -12 723 170 -19 083 020 -87 379

OPERATING RESULT -4 490 749 -2 484 195 -264 967

Result of ordinary activities -4 490 749 -2 484 195 -264 967Tax expenses -18 083 -244 712 6

ANNUAL RESULT -4 508 832 -2 728 907 -264 967

Parent Company 2009

Group 2009

Parent Company 2008Note

Of this minority share - 33 951 Tootherequity -4 508 832 -2 762 858 -4 508 832 -2 728 907


Parent Group Assets 31-12-08 31-12-09 31-12-08 31-12-09Fixed assets Fixed assets 2 948 702 2 917 987 7 2 948 702 3 156 753Financial assets (shares) 20 400 32 481 748 8 20 400 3 342 207 Loan Portfolio 43 801 261 - 0 Total fixed assets 2 969 102 81 700 996 2 969 102 6 498 960

Short term assetsAccounts receivable 0 1 145 332 - 1 676 342 Otherliquidassets 0 947 081 - 7 974 503Loan Portfolio 0 33 932 220 9 - 105 871 584 Bank deposits, cash and similar 25 006 11 057 542 10 25 006 15 682 482 Total short term assets 25 006 44 582 175 25 006 131 204 910

SUM ASSETS 2 994 108 126 283 171 2 994 108 137 703 870

Equity and liabiliteisEquityShare capital 500 000 10 500 000 500 000 10 500 000 Share premium account - 40 000 000 - 40 000 000 Acquiredequity - 2 297 886 - 19 398 197 Otherequity -833 605 501 400 -833 605 -13 371 537Annual result -4 508 833 - -2 728 907 Totalequity -333 605 48 790 452 11,-15 -333 605 53 797 753

Of this minority share 1 398 091 Liabilities Other long-term liabilities Liabilities to credit institutions - 3 353 771 - 7 569 221 Other long-term debt 3 000 000 73 441 944 3 000 000 73 052 665 Current liabilities - Other current liabilities 327 713 697 004 327 713 3 284 232 Sum liabilities 3 327 713 77 492 718 16,17 3 327 713 83 906 117

TOTAL EQUITY AND LIABILITIES 2 994 108 126 283 171 2 994 108 137 703 87

Balance Sheet


The annual accounts are established in accordance with the Norwegian Accounting Act and generally accepted accounting principles.Accounting principles for subsidiary and associated companies, and consolidation basis.

The consolidated accounts comprise: Owner shareParent company/subsidiariesStrømme Micro Finance AS (parent company) incl. Strømme Micro Finance BangladeshStromme Micro Finance East Africa 90,2 %Stromme Microfinance Asia Guaratee Limited 100 %

TheGroupwasestablishedon31/3/2009.Withthis,StrømmeMicroFinance AS undertakes the responsibility and ownership of the sub-sidiaries Stromme Microfinance Asia Guaratee Limited and Stromme Micro Finance East Africa. Strømme Micro Finance in Bangladesh is part of SMF AS. Turnover which results therefore applies to the period from 31/3/2009to31/12/2009.

Accounting principles for shares in subsidiaries and associated companiesShares in subsidiaries and stakes in associated companies are assessed in accordance with the cost method in the company accounts.

Consolidation PrinciplesSubsidiaries will be consolidated from the point at which the majority ownershipobtainedbythecompany(dateofacquisition).

Acquisition of subsidiaryAccountingforacquiredsubsidiaryisundertakeninthecorporationaccounting,basedupontheparentcompany’sacquisitioncost.Theacquisitioncostisassignedtheactualvalueofidentifiableassetsanddebt in the subsidiary, which is entered into the accounts according to theactualvalueoftheacquisitiondate.

Elimination of internal account itemsIn the group accounts, the item “shares in the subsidiary” is replaced by

Accounting Principles


or improvements are added to the asset cost price and depreciated along with the asset.

Thedistinctionbetweenmaintenanceandrenewal/improvementsiscalculated in relation to the asset’s condition at the time of purchase.

Accounts receivable Accounts receivable are recorded in the balance after deduction of loan loss provisions. The provision has been made on the basis of an indivi-dual assessment of accounts receivable and an additional provision to cover other foreseeable loss risk. Other accounts receivable, both short term assets and fixed assets, are stated at the lowest end of nominal value and market value. The provision is assessed in the same way as it is for accounts receivable.

DebtDebt is recognised in the balance sheets as a nominal debt sum.

Foreign CurrencyAccounts receiveable and debt in foreign currency are assessed according to the exchange rate at the end of the fiscal year.

Tax The company is not liable to pay taxes in Norway. In respect of foreign legislation, a tax cost in relation to income tax and tax on interest will nevertheless occur.

Cash Flow StatementThe cash flow statement is prepared using the indirect method. Cash andcashequivalentsincludecash,bankdepositsandothershort-termassets can be immediately and at insignificant exchange risk converted to known cash amounts and with a due date less than three months fromthedateofacquisition.

the subsidiary’s assets and debts. The corporation accounts are drawn up as if the corporation were a single economic entity. Transactions, unrealised profits and claims between companies in the corporation are to be eliminated.

Conversion of foreign subsidiaries The subsidiaries’ functional currency is the country’s local currency. Conversion of the accounts is undertaken by using the current rate of exchange in such a way that the balance is converted into the end balance-day rate of exchange, and the profit and loss accounting is converted into the average rate of exchange. All conversion differences areaccountedfordirectlyagainsttheequity.

IncomeThe company’s income is mainly connected to interest income and contribution.

Classification of balance sheet itemsAssets intended for permanent possession or use are classified as fixed assets. Assets which are connected to the value chain are classified as short term assets. Accounts receivable are classified as short term assets if they are to be repaid in the course of one year. For debt, analogue criteria will be used. The first years’ repayments on long-term debt and claims are nevertheless not classified as a short term asset and short-term debt.

Acquisition CostIn the case of purchase in foreign currency, the asset is recognised in the balance sheets according to the rate of exchange at the time of the transaction.

Fixed AssetsProperty is not depreciated. Other assets are depreciated on a linear ba-sis to the remaining value of the fixed asset’s expected available lifetime if they have a cost which is in excess of 15,000NOK. The fixed assets’ useful lifetime, together with their residual values, are evaluated each accounting day and amended should this be necessary. Maintenance of assets is recorded continuously under operating expenses. Renewals


Notes Strømme MicroFinance AS

Note 1 Interest and similar income

Parent company GroupGeographical distribution 2009 2009 Bangladesh 2 171 383 2 171 122 Sri Lanka 1 204 824 2 005 115 Uganda 217 019 2 891 990 Kenya 141 588 1 131 582 Tanzania 0 1 043 924 Rwanda 0 66 980 Norge 110 270 155 843 Peru 73 256 73 256 Mali 37 372 37 372 Burkina Faso 22 175 22 175 Cambodia 17 519 17 519 Burma 3 929 3 929 Totalt 3 999 335 9 620 806

Note 2 Foreign exchange losses distributed by currency

Currency type Parent company Group 2009 2009

Kenyan shilling -702 793 -702 793CFA Franc BCEAO -720 378 -720 378American dollar 54 357 -420 309Danish kroner 210 655 210 655Ugandan Shilling 818 343 818 343EURO -40 895 -40 895Sri Lankan Rupee -2 650 174 -2 650 174Swedish kroner -7 488 -7 488Bangladeshi Taka -6 563 575 -6 563 575Other -70 046 -70 046 -9 671 993 -10 146 659


Payment to leaders General Manager Administration Salary 280 920 0Pension expenses 5 580 0Other remuneration 140 0 The Manager has not received a salary from the company. The operational manager was employed in the compahy for 6 months in 2009. No loans or collateral for loans granted to senior employees were given.

Note 4 Payment to the auditor Expensed payment to the auditor distributed as follows: Parent company Group Parent company 2009 2009 2008Statutory audit (inc. technical assistance with financial statements) 35 014 104 733 8000Other authorisation services 25 505 25 505 Legal aid 15 925 15 925 Sum 76 444 146 163 8 000Amounts are given without VAT.

Parent company Group Parent company Labour costs 2009 2009 2008 Payroll 1 384 669 2 247 324 0 Social tax 81 493 81 493 0 Pension costs 18 513 18 513 0 Other payments 0 202 493 0 Sum 1 484 675 2 549 823 0 Employed full-time positions in the financial year was 4 (4.5 from October 2009) to parent company and 16 (16.5 from October 2009) in the group.

Note 3 Labour costs, total employees, remuneration, loans to employees etc

Note 5 PensionsThe company is obliged to provide an occupational pension scheme under the Act for mandatory pensions. The company has entered into an agreement concerning the pension scheme which meets the requirementsofthemandatorypensionscheme. Parent company Group 2009 2009Recorded pension cost 20 116 20 116

Note 6 Tax Company tax: Parent company Group 2009 2009Income tax 0 57 623 Tax on interest 18 083 187 089 18 083 244 712

Note 7 Fixed assets Parent company Fixed assets Vehicles Fixtures Acquisitioncost01.01. 3 076 690 0 0 3 076 690Aquisition2009 0 0 0 0Sales 2009 0 0 0 0 Acquisitioncost31.12. 3 076 690 0 0 3 076 690Accumulated depreciation 31.12.-158 703 0 0 -158 703 Book value 31.12. 2 917 987 0 0 2 917 987 Annual depreciation 30 715 0 0 30 715 Depreciation % 1 % Group Fixed assets Cars FixturesAcquisitioncost01.01. 3 076 690 0 0 3 076 690Aquisition2009 0 290 674 262 449 553 123Sales 2009 0 0 0 0 Acquisitioncost31.12. 3 076 690 290 674 262 449 3 629 813Accumulated depreciation 31.12. -158 703 -163 689 -150 668 -473 060 Book value 31.12. 2 917 987 126 985 111 781 3 156 753 Annual depreciation 30 715 42 906 37 811 111 432

Buildings and land/plots

Buildings and land/plots

Sum fixed assets

Sum fixed assets


Note 8 Financial assetsParent company 31-12-08 31-12-09Shares in Kolibri Kapital 20 400 20 400 Shares Stromme Microfinance Ltd 16 360 699 Shares Stromme Microfinance Guarantee Ltd 15 658 708 Shares Jami Bora 1 869 150 Shares Jami Bora Scandinavia 323 080 Shares SIDI France 547 813 Shares Oikocredit 90 078 Owner share OIKOS 111 820 20 400 34 981 748

Group 31-12-08 31-12-09 Shares Mbinga bank 0 22 124 Shares in Alterfin, Belgia 0 2 026 Shares in Tujijenge Africa 0 355 716 Shares in Kolibri Kapital 20 400 20 400 Shares Jami Bora 0 1 869 150Shares Jami Bora Scandinavia 0 323 080 Shares SIDI France 0 547 813 Shares Oikocredit 0 90 078 Owner share OIKOS 0 111 820 20 400 3 342 207

Note 9 Loan Portfolio Accounts Receivable/Outstanding Portfolio Total portfolio 39 197 222 113 636 584 Provision for losses on receivables 5 265 000 7 765 000 Net loan portfolio 33 932 222 105 871 584

Note 10 Restricted bank deposits, overdrafts Restricted bank deposits Restriced Cash 88 645Overdraft facilityUnused overdraft 633 772

Note 11 EquityAnnual changes in equity

Parent company 31-12-08 31-12-09Share capital 500 000 10 500 000 Share premium account - 40 000 000 Other paid in capital (SIDI) - 0Othercapital(donatedequity) 2 297 885Accumulated profit -833 605 501 400 Annual result -4 508 833 Equity01.01.09 -333 605 48 790 452 Group 31-12-08 31-12-09Share capital 500 000 10 500 000Share premium account - 40 000 000Other paid in capital (SIDI) - 442 440Othercapital(donatedequity) - 18 955 758Accumulated profit -833 605 -13 302 485Annual result - -2 737 747Calculation differences - -60 213Equity01.01.09 -333 605 53 797 753

Note 12 Share capital and shareholder information Summary of the largest shareholders as of 31.12.2009 Owner share Strømme Foundation 100 %

Parent Company 2009

Parent Company 2009

Corporation 2009


Note 13 Long-term debt

Nordea NOK 4 366 228 6,25 % OIKOS DKK 3 000 000 3-5% Strømme Foundation NOK 3 000 000 1,8 % 3 000 000 1,8% Strømme Foundation (subordinated loan) NOK 70 052 665 0 % Strømme Foundation (subordinated loan) of NOK 70,052,665 is due later than in 5 years.

SIDI UGS 850 150 000 8 % Alterfin USD 300 000 5 % Nordea NOK 4 366 228 6,25 % OIKOS DKK 3 000 000 3-5% Strømme Foundation NOK 3 000 000 1,8 % 3 000 000 1,8 % Strømme Foundation (subordinated loan) NOK 70 052 665 0 % Strømme Foundation (subordinated loan) of NOK 70,052,665 is due later than in 5 years.

Parent Company 2009

Group 2009

Group 2008

Parent Company 2008

Interest rate

Interest rate

Interest rate

Interest rate

Note 14 Inter Company loans Group 2009Loan to Stromme Microfinance East Africa Ltd 34 638 722 Loan Stromme Microfinance Asia Guarantee Limited 9 895 226 Sum 44 533 948 Of this, long-term receivables due >5 years 38 517 346 All inter group loans are issued in local currencies

Note 15 Balance with the Strømme Foundation Parent company 2009 2008 Other current liabilities - -327 713 Short-term receivables 648 742 - 648 742 -327 713 Long-term debt -3 000 000 -3 000 000 Long-term subordinated loans -70 052 665 -73 052 665 -3 000 000 The group accounts are consolidated with the Strømme Founda-tion, and the consolidated accounts may be disclosed by contacting Strømmestiftelsen, Postboks 414, 4664 Kristiansand, Norway.


Note 17 Loans to employees There are no loans to leading employees. 2009Total employee loan 125 081 The issued loans are for 2 employees in Bangladesh. The loans are charged at 5% interest and shall be repaid over 4-5 years.

Note 18 Single transactionsOn March 31, 2009 AS SMF took over total responsibility and ownership of the Strømme Foundation’s microfinance activities, including owner shares of the subsidiaries Stromme Microfinance Asia Guarantee Ltd (SMAGL) and Stromme Microfinance East Africa Ltd (SMFEA). The following recorded owner shares were thus transferred to SMF AS: NOKBank deposits 11 992 733 Loan Portfolio 36 759 744 Other short term assets 4 486 184 Financial assets 71 200 455 Debt -4 386 450 Total transferred net assets 120 052 665 The transfer took place through a contribution in kind of 50,000,000 NOK and the issue of a subordinated loan of 70,052,665 NOK from the Strømme Foundation.

Note 16 Subsidiaries, associate companies and joint ventures

Subsidiaries

Stromme Microfinance East Africa Ltd Kampala, Uganda 90,2 % 18 413 893 416 312 16 360 699 Stromme Microfinance Asia Guarantee Limited Colombo, Sri Lanka 100 % 10 197 776 1 016 757 13 158 708 Book value 31.12. 28 611 669 1 433 069 29 519 407 Stromme Microfinance East Africa Ltd is owned 9,8% by the French development organisation SIDI.

Registered office

Owner share

Equity last year (100 %)

Result last year (100 %)

Book value


Strømme Micro Finance AS

Cash-flow from operational activities Annual result -4 508 833 -2 728 907 -264 927Ordinaty depreciation 30 715 111 432 30 715Change in accounts receivable 2 199 713 2 396 920 Change in accounts payable -302 867 2 139 525 Changes in other accruals 1 309 108 -4 009 178 235 619Net cash-flow from operational activities -1 272 163 -2 090 207 1 407 Cash-flow from investment activities Purchase of other investments -379 282 Net cash-flow from investment activities 0 -379 282 0

Cash-flow from financing activities Payments from the issuance of new, short-term debts 311 831Net cash-flow from financing activities 311 831 0 0 Net change in cash and cash equivalents -960 332 -2 469 490 1 407 Cashandcashequivalentsatthebeginningoftheperiod 12 017 874 18 151 972 23 599Cashandcashequivalentsattheendoftheperiod 11 057 542 15 682 482 25 006 Breakdown of cash at the end of the period Cashandcashequivalents 11 057 542 15 682 482 25 006 The company also has the following overdraft facilities Unused overdraft 633 772 633 772 0

Cash flow

Parent company 2009

Corporation 2009

Parent company 2008


APPENDIX ABBREVIATIONS:

BOD: Board of Directors

CGAP: Consultative Group to Assist the Poorest

CMMF: Community Managed Microfinance

MF: Microfinance

MIS : Management Information Systems

MFI : Microfinance Institutions

NGO: Non Governmental Organisation

RD: Regional Director (in SF)

RO : Regional Office (in SF)

SF: Strømme Foundation

SIDI : Solidarité Internationale pour le Développement et l’Investissement

SMAGL : Strømme Microfinance Asia Guarantee Ltd

SMF AS.: Strømme Microfinance AS

SMF EA Ltd : Strømme Microfinance East Africa Ltd

TA: Technical Assistance


Strømme Microfinance AS Strømme Foundation, June 2010

Lay-out and graphic design: Strømme Foundation All photos: Strømme Foundation

The Strømme Foundation is member of

The Norwegian Control Comittee for Fundraising

Skippergaten3•Box414•N-4664KristiansandNorwayTel+4738127500•Fax+4738025710•Org.no952002139

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

strømme foundation microfinance as annual report 2009

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