LMDF Semi annual Report September 2014

Société d’Investissement à Capital Variable, Luxembourg

Unaudited semi-annual report as at 30 September 2014Rapport semestriel non révisé au 30 septembre 2014

Green MicrofinanceLMDF's financing of energy efficient equipment in Peru

In collaboration with

LMDF has been granted the LuxFLAG Microfinance

Label

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ISIN Codes / Codes ISIN

Class C shares: LU0456967404 Class B shares: LU0456966935

http://www.lmdf.lu

Unaudited semi-annual report as at 30 September 2014 // Rapport semestriel non révisé au 30 septembre 2014 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

16 Microfinance institution in focus Présentation d'une institution de microfinance 16 // 1 Fondesurco, Peru

17 // 2 Four questions to Gabriel Meza Vásquez, General Manager of Fondesurco, Peru Quatre questions à Gabriel Meza Vásquez, directeur de Fondesucro, Pérou

22 Statutory information Organisation

24 Unaudited financial statements États financiers non révisés 24 // 1 Statement of net assets

État des actifs nets

26 // 2 Statement of operations and other changes in net assets

État des opérations et des variations des actifs nets

28 // 3 Statistical information

Informations statistiques

30 // 4 Statement of investments and other net assets

État du portefeuille-titres et autres actifs nets

32 // 5 Breakdown of microfinance investment and evolution of NAV

Répartition des investissements en microfinance et évolution de la VNI

35 // 6 Notes to the unaudited financial statements

Notes aux états financiers non révisés

The photos in the present report show clients and staff of the microfinance institution Fondesurco in Peru.Les photos présentées dans ce rapport montrent les clients et les employés de l’institution de microfinance Fondesurco au Pérou.

© Photos: Gonzalo Charaja Ramos - Fondesurco // LMDF

LMDF in figures // en chiffres 30 September 2014 // 30 septembre 2014

Note: The figures stated in this section of the report relating to information received from microfinance institutions are as at 30 June 2014 and largely based on unaudited information. The calculations follow, wherever applicable, the Microfinance Investment Vehicles Disclosure Guidelines as published by CGAP in 2010.

EUR 14.3 million Investments in microfinance

26 Microfinance institutions financed directly

4Regional funds and support structures

18 Countries

1 Service provider

57% Latin America

21% Southeast and Central Asia

20% Sub-Saharan and North Africa

2%Developed countries

25% Financing in local currency

367,102Micro-entrepreneurs financed by partner MFIs

EUR 180.1 millionTotal micro-loan portfolio of partner MFIs

72%Women

EUR 1,025Average disbursed micro-loan

29,460Micro-entrepreneurs financed by LMDF

56Number of university students financed

54%Micro-loans for services and small trade

25%Agricultural activities

8%Production and crafts

13%Other uses

EUR 462,000Average exposure per MFI

1.3% Return Class A shares - April to September 2014

1.8% Return Class B shares - April to September 2014

1.3% Return Class C shares - April to September 2014


1 USA MFX Solutions Higher Education Finance Fund LP2 El Salvador PADECOMSM Crédito AMC OPTIMA3 Nicaragua Pro Mujer, Nicaragua PANA PANA 4 Honduras Pilarh OPDF 5 Ecuador Fundación Alternativa Coop. Maquita Cushunchic FACES6 Peru IDESI Nacional COAC CIDERURAL CREDIFLORIDA FONDESURCO7 Togo CECA

8 Niger ASUSU9 Cambodia Maxima Mikroheranhvatho KREDIT Intean Poalroath Rongroeurng10 Philippines Gata Daku MPC KPS-SEED11 South Africa Tembeka Social Investment 12 Uruguay Microfin13 Argentina Pro Mujer14 Azerbaijan FINCA15 Guatemala ASDIR16 Mali Soro Yiriwaso17 Morocco AMSSF / MC INMAA18 Mongolia Khan Bank

1

2 34

5

6

7

89 10

111213

14

15 16

17

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

18

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 the first half of its fifth year of operations.

The net assets of the Fund have increased by 1.5% in the period from EUR 17 million to EUR 17.3 million. Invest-ments in microfinance have grown by 12% from EUR 12.5 million at the last year end to EUR 14 million. This growth in the portfolio reflects the Fund’s focus on its main priority during this period which has been to reduce its excess liquidity, thereby maximising social impact and improving financial performance. Cash and cash equivalents have been reduced, and now represent 19.7% of net assets compared to 25% at the year end. This trend is expected to continue for the remainder of the year. Returns to investors for the six-month period stand at 1.3% (Class A), 1.8% (Class B) and 1.3% (Class C).

Corporate governance

At the AGM of the Fund held on 3 July 2014, the shareholders approved the appointment of Raoul Stefanetti (BIL) to the Board. The shareholders also approved the appointment of KPMG sàrl as independent auditor, in replacement of BDO Audit S.A. which has held the appointment since the Fund’s inception.

At the Board meeting on 14 July, Marc Elvinger proposed to step down from the position of Vice-Chairman, and the Board approved the appointment of Hedda Pahlson-Möller to that position.

In May 2014, the Fund’s revised Prospectus was approved, and a notice was issued to Shareholders outlining the main changes. There are no disclosures required to be made by the Fund in relation to changes in the Pro-spectus since May 2014.

The Board of Directors is responsible, in accordance with the terms of the Articles of Association and the Pro-spectus 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 its investment adviser 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 make recommendations to the Board in their areas of activity.

The Investment Committee, which has five members, considers recommendations from the investment ad-viser on investment and disinvestment opportunities.

The Risk Committee, which has three 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 two 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 remunera-tion of management.

REPORT OF THE BOARD OF DIRECTORS TO THE SHAREHOLDERS


The Board has resolved that membership of the above Committees may be open to non-directors on a limited basis, to the extent that the majority of the members of each Committee are directors of the Fund.

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

The Alternative Investment Fund Managers Directive

The Alternative Investment Fund Managers Directive (“AIMFD” or “the Directive”) was transposed into Luxem-bourg law on 12 July 2013 and became effective on 22 July 2013. In October 2013, the Fund has registered as a self managed Fund; as the net assets of the Fund remain below the threshold of EUR 100 million, the AIFMD reporting requirements for the Fund are limited.

The Board wishes to thank the shareholders for their continued support.

The Board of DirectorsNovember 2014

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.

• Specializes in facilitating the growth of promising emerging microfinance institutions which address the financial needs of marginalized 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 and is accountable for reaching both social and financial objectives, and transparent in its reporting.

Mission

In order to realize its Vision, LMDF

Vision

Unaudited semi-annual report as at 30 September 2014 // Rapport semestriel non révisé au 30 septembre 2014

RÉSUMÉ / ZUSAMMENFASSUNG

Le rapport semestriel du Luxembourg Microfi-nance and Development Fund se penche sur un thème d'actualité, qui est la microfinance et les défis environnementaux des pays en développe-ment. LMDF a, en 2013, fait le choix de financer Fondesurco au Pérou, une institution de microfi-nance (IMF) offrant des prêts pour des produits écologiques à ses clients. Ce financement du Fonds leur a ainsi permis d'amplifier la commerciali-sation de leur deux premiers produits: les chauffe-eau solaires et les fours énergétiquement efficaces.

Au cours de ces six dernier mois, le Fonds a con-tinué ses activités d'investissement. Trois crédits supplémentaires ont été attribués, dont deux augmentations du financement des partenaires existants et un en faveur d'une nouvelle IMF. La Mongolie se rajoute désormais au portefeuille du LMDF. Ainsi, comparé au début d’année, 81% de la valeur nette du Fonds sont investi en microfinance. Au 30 septembre, LMDF a 57% de ses investissements en Amérique latine, 20% en Afrique, 21% en Asie et 2% dans les pays dévelop-pés.

Dans l'ensemble, la valeur nette du Fonds, qui est à 17,3 millions d'euros, n'a pas évoluée de façon importante pendant les derniers six mois, alors que le volume d'investissement en microfinance du LMDF a augmenté de 12% pour atteindre 14,3 millions d'euros contre 12,5 millions en début d'année.

Le résultat financier des six derniers mois s'est considérablement amélioré comparé à l'année précédente. Les principales raisons sont: les investissements supplémentaires dans les IMF et l'augmentation du dollar par rapport à l'euro. Le rendement semestriel est de 1,3% pour la classe A, 1,8% pour la classe B et 1,3% pour la classe C.

La revue des principaux risques auxquelles le Fonds est exposé n'a pas soulevé de risques particuliers.

Der Halbjahresbericht des Luxembourg Microfi-nance and Development Fund widmet sich einem aktuellen Thema: Schnittstelle zwischen der Mikrofinanz und den ökologischen Herausforder-ungen in Entwicklungsländern. LMDF refinanziert seit 2013 das Kreditportfolio energieeffizienter Produkte der Mikrofinanzinstitution (MFI) Fond-esurco in Peru. LMDF ermöglicht der MFI bis zu 2000 Pionierprodukte zu finanzieren: Solare Was-sererwärmung und energieeffiziente Öfen.

Der Fonds setzte im abgelaufenen Halbjahr seine Investitionstätigkeit fort. Es wurden drei Kredite vergeben, zwei zur Aufstockung der Finanzierung von bestehenden MFI Partnern und eine Finan-zierung einer neuen MFI. LMDF investierte dabei zum ersten Mal in Mongolien. Zum Stichtag sind somit 81% des Nettovermögens in Mikrofinanz investiert, eine deutliche Steigerung im Vergleich zum Bilanzstichtag 31. März 2014 (73%). Geog-raphisch verteilt sich das Portfolio auf: 57% in Lateinamerika, 20% in Afrika, 21% in Asien und 2% in entwickelten Ländern.

Insgesamt erhöhten sich die Mikrofinanzinvesti-tionen des Fonds um 12% auf EUR 14,3 Millionen bei gleichzeitiger Stagnation des Nettovermögens (bei EUR 17,3 Millionen).

Das finanzielle Ergebnis der ersten sechs Monate verbesserte sich im Vorjahresvergleich wesentlich. Die Ertragstreiber sind die höhere Investitions-quote des Fonds zusammen mit der Stärkung des US-Dollars gegenüber des Euros. Die Halbjahres-rendite beträgt 1,3% für Klasse A und C Aktionäre und 1,8% für Klasse B.

Das Risikoprofil des Fonds bleibt weitgehend unverändert mit keinen wesentlichen Einzelrisiken.

08-09

MANAGEMENT REPORT ON ACTIVITIES

The focus of this report is on one of the questions at the forefront of today’s discus-sion in microfinance: How can the sector contribute to climate change adaptation and the huge environmental challenges many developing countries face? LMDF presents a closer look at Fondesurco, a microfinance institution (MFI) in Peru offering financing of energy efficient products to its clients. The roll-out, since June 2013, of the first two such products has been backed by a loan from LMDF. We hope you enjoy the photos throughout this report, the description of Fondesurco and the interview with Gabriel Meza Vásquez, its General Manager.

/ Investment activities

“[...] the immediate priority is clear: To undertake the necessary steps so that the Fund is fully invested, maximizing the social impact and improving the financial perfor-mance” was the closing statement in the last annual report. Progress has been made mid-year through our financial year. Of the Fund's net asset value, 81% is invested in microfinance, a substantial improvement over the 73% at the end of the last financial year. This was achieved mainly through additional loans to successful microfinance institutions (“MFI”) and one placement in a microfinance note.

LMDF granted:• A senior loan to the MFI FACES (USD

500,000) to support the growth of the MFI active in the rural areas of southern Ecuador;

• A senior loan to the MFI IPR (also USD 500,000) to re-finance the loan portfolio growth of the MFI, concentrated on the financing of agricultural activities in Cambodia.

LMDF also subscribed USD 650,000 to a note issued by MSME Bonds in Luxem-bourg and backed by a loan to the MFI Khan Bank in Mongolia.

At the end of September, the Fund had 57% of its investments in Latin America, 20% in Africa, 21% in Asia and 2% in developed countries (Graph 1). In total, LMDF finances 29,460 micro-entrepreneurs through 31 MFIs in 18 countries.

/ Social objectives

Earlier this year, LMDF refined and formu-lated its vision and mission. At the heart of our vision is our dedication to contribute to poverty alleviation and address the unmet needs of the most excluded. As an invest-ment fund we achieve our vision through investments in promising microfinance insti-tutions with positive social impact.

Starting from the Fund’s vision and mission, LMDF is currently undertaking a social per-formance review of the last five years. We expect to publish the results in a separate report at the beginning of next year. Some insights from the analysis conducted so far are:

• 71% of the countries in which LMDF is invested belong to the bottom half of the Human Development Index, including countries like Niger, Mali and Togo, who belong to the group of the very least developed countries;

• The average loan sizes clearly situate LMDF in the microfinance segment dedicated to the bottom of the pyramid (Graph 2);

• 25% of micro-loans are destined to smallholder farmers, one of the most excluded groups globally (Graph 3);

• 72% of ultimate clients are women (Graph 4); and

• 20% of investments go to Africa.

LMDF also publishes the average interest rate charged by the MFIs to their clients (Graph 5). The average rate of 30% has not changed significantly over the last years. More than 20% of the total rate is used to meet the operating expenses of the MFIs.


Source: LMDF analysis of data submitted by MFIs as at 30 June 2014, excluding certain indirect investment in microfinance; International Monetary Fund estimated GDP per capita at purchasing-power-parity end of 2013, converted into EUR with current exchange rates.

GRAPH 1: MICROFINANCE INVESTMENTS BY REGION AND COUNTRY (in % of microfinance portfolio)

Source: LMDF analysis as at 30/09/2014

GRAPH 2: AVERAGE OUTSTANDING MICRO-LOANS BY COUNTRY (in EUR and % of GDP per capita PPP)

Ecuador

Peru

El Salvador

Nicaragua

Uruguay

Guatemala

Honduras

Argentina

Cambodia

Philippines

Niger

Mali

South Africa

Togo

Morocco

Mongolia

Azerbaijan

USA

Latin America 57%

Southeast Asia 14%

Sub-Saharan Africa 14%

Developed countries 2%0 5 10 15 20

North Africa 6%

Central Asia 7%

Average outstanding by country (EUR) Average outstanding loan in % of GDP per capita (PPP, EUR)

Average micro-loan amount LMDF

0

500

1,000

1,500

2,500

Mon

golia

Togo

Ecua

dor

Peru

El S

alva

dor

Cam

bodi

a

Aze

rbai

jan

Hon

dura

s

Uru

guay

Gua

tem

ala

Mor

occo

Nic

arag

ua

Arg

entin

a

Nig

er

Phili

ppin

es

Mal

i

42%

160%

14%

36%7%

3%

8%6%

12%

17%

2,000

5% 1% 26%3%

17%

8%

Source: LMDF analysis of weighted average data provided by partner MFIs as at 30/06/2014


GRAPH 3: ECONOMIC PURPOSE OF MICRO- CREDITS FINANCED BY LMDF (in %)

GRAPH 4: ACTIVE MICRO-ENTREPRENEURS FINANCED BY LMDF

The forthcoming social performance report will shed light on many of these areas and provide insights into how LMDF incorpo-rates social criteria in its decision-making processes.

/ Financial performance

The Fund’s net asset value did not change materially since the beginning of the year whereas the investment portfolio grew by 12% (Graph 6). At the same time, the US-Dollar appreciated significantly in relation to the Euro. Both trends benefitted the Fund’s income and returns.

Net income on microfinance and liquid assets exceeds half a million euro and constitutes 6.4% (annualized) of average net assets during the period (before foreign exchange, impairment and operating costs), an increase from 6.0% during the last financial year. Euro yields on microfinance loans have remained close to 8%.

LMDF’s cost structure has improves slightly with a total expense ratio amounting to 3.2% (annualized) compared to 3.6% during the previous financial year.

Return during the first six months of the year is 1.3% for Classes A and C and 1.8% for Class B shareholders.

/ Risk review

As at 30 September, LMDF had no particular risk events to highlight. However, the Fund continues to closely monitor the situation of a number of MFIs and some countries through its risk management approach.

- Credit risksAverage exposure to microfinance institutions has remained stable at 2.6% of total net as-sets with a maximum exposure of 5.8% to the MFI ASUSU in Niger. The average exposure is EUR 462,000 per MFI, which represents an increase of 8% compared to the year end at 31 March 2014. This is mainly explained by the additional senior loans to existing partner MFIs.

In the last financial year the Fund made a provision on a loan granted to the MFI Credi-florida in Peru. Increased risks of default were caused by the impact of the coffee rust on many of the MFI’s clients, mostly smallholder coffee farmers.

Consumption & others

Production & craft activities

Agricultural activities

Services & trading activities

Services/ trade activities54%

Agriculturalactivities

25%

Production/crafts activities

8%

Consumption & others 13% Women

21,211 (72%)Men8,249 (28%)

Total29,460


GRAPH 5: COMPONENTS OF MFIs' INTERESTRATES CHARGED TO CLIENTS


As at 30 September 2014 Crediflorida's situ-ation has stabilized but has not improved significantly. The provision of 10% of the prin-cipal amount outstanding remains unchanged pending further developments.

- Currency riskThe Fund was significantly impacted by the 8% appreciation of the US dollar in relation to the euro during the reporting period. US dol-lar denominated investments constitute 69% of the Fund’s total investments and a number of other currencies moved in close relation to the US dollar, including the Philippine peso, Peruvian nuevo sol and Nicaraguan córdo-bas.

LMDF continued its conservative approach to currency risks. Despite our systematic hedging, the broad currency appreciation benefited LMDF financially because of some hedging imperfections (for example, the use of forward instruments which cover only the loan principal).

- Country risksDuring the reporting period, the Fund invested for the first time in Mongolia. Ecuador and Peru are the most important countries in LMDF’s portfolio, accounting for 11.4% and 11.0% of total net assets.

The average country exposure increased

slightly from 4.4% of total net assets at the end of March to 4.6% at the end of Sep-tember. The five most important countries concentrate 46.6% of total net assets, a significant increase over 42.8% of total net assets at the end of March.

12-13

-5

0

5

10

15

20

25

30

35

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Margin on micro-loan operationsOperating expensesCost of �nancingRisk costs & provisions

Total 29.6%

The use of the solar water heaters allow clients to save from 8 to 10 soles per week (EUR 2-6) // Fondesurco

GRAPH 7: DEVELOPMENT OF NAV PER SHARE OF CLASS B AND CLASS C SHARES DURING THE LAST 12 MONTHS (in EUR)

GRAPH 6: LIQUID ASSETS AND MICROFINANCE INVESTMENTS (in EUR)

Source: LMDF analysis

Source: LMDF analysis

30/0

9/20

14

30/0

9/20

13

31/1

2/20

13

31/0

3/20

14

30/0

6/20

14

Micro�nance investmentsLiquid assets

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

16,000,000

12,000,000

14,000,000

18,000,000

Class CClass B

100

101

102

103

30/06/201431/03/201431/12/201330/09/2013 30/09/2014

104


/ OutlookOur immediate priorities remain unchanged: To get LMDF fully invested and prepare the ground for future growth. Halfway through our financial year, we see positive effects from this strategy on our financial returns, social mission and interim results, which bode well for this year.

Yours sincerely,

Kaspar WanslebenExecutive Director([email protected])

Note: The figures stated in this report are historical and partly based on unaudited information received from microfinance institutions. Such figures are not indicative of future performance. The calculations follow, wherever applicable, the Microfinance Investment Vehicles Disclosure Guidelines as published by CGAP in 2010.

The success of the products depends on the importance local communities attach to environmental protection // Fondesurco

The first credit operations were conducted under the group lending methodology. At the beginning of 2000, the MFI adopted individual lending. In Peru, Fondesurco is recognized as a pioneer organisation of microfinance in rural areas.

Fondesurco operates in some of the poorest areas of Peru. Clients are low-income people who develop economic activities in trade and agriculture in small communities.

The services are mainly provided in places where there are no other financial services, through agencies, mini-agencies, agents and services points. Fondesurco counts 20 agencies in the departments of Arequipa, Moquegua, Puno and Ayacucho.

Fondesurco offers a range of credit products to its clients, such as loans for working capital, acquisition of fixed assets, loans for the agricultural cycle and credit destined at young microentrepreneurs. Clients have the possibility to subscribe a micro-insurance.

Fondesurco's department for development and innovation is working to develop new products with a high social value like the “green credits”.

The pilot project FondeEnergía, developed in collaboration with ADA and MicroEnergy International, was created in order to finance solar water heaters and energy efficient ovens.

Both products combine environmental benefits such as reduced emission of greenhouse gases with economic advantages for clients. Solar water heaters for example allow small hostels to increase room rates while reducing energy costs.

From July 2013 to January 2014, LMDF granted two loans to Fondesurco of Peruvian soles 900.000 each (EUR 246,286) in order to expand the commercialisation of FondeEnergía.

Microfinance institution in focus

FONDESURCO, Peru

Fondesurco is a microfinance institution created in 1994 to address the financial needs of rural communities in southern Peru with a strong focus on financing of agricultural activities.

Source: Data provided by Fondesurco

42% of clients are women

45% of the loans finance agriculture

12,682 credits disbursed in 2014

20 agencies in 4 departments

USD 20,120,500 loan portfolio

633 green loans granted

1


Four questions to Gabriel Meza Vásquez,General Manager of FONDESURCO

Mr. Gabriel Meza, can you briefly describe Fondesurco, and your motivations to launch the project SER-FondeEnergía?

Fondesurco is a private development institu-tion constituted in January 1994. Since its inception, we have specialized in provid-ing micro-credits to clients active in rural areas of the southern regions of the country. Currently we have 20 offices located in the departments of Arequipa, Moquegua, Puno and Ayacucho. Fondesurco's mission is to provide access to financial services for low-income people in rural areas to contribute to improve living standards.

Fondesurco is active in remote rural areas with limited access to financial services and populations with higher incidences of pov-erty according to the “national poverty line.”

As at September 2014, Fondesurco granted 12,682 credits, of which 42% have been disbursed to women; in line with our market orientation and our social mission, 86% of the clients are living in rural areas. Our loan portfolio has reached USD 20,1 million.

To align its institutional priorities to the mi-crofinance market, Fondesurco has defined four strategic pillars:

1. Rural: Fondesurco focuses its inter-ventions in rural areas because that is where poverty and the need of access to financing is highest.

2. Social Performance: Fondesurco aligns its objectives and activities to its social mission: every decision we make is

aimed at achieving a balance between financial and social results.

3. Innovation: Fondesurco classifies in-novation from three perspectives: First, to create or develop markets; second, to create products according to the rural economic cycle and to the needs of the clients; and third, to facilitate access to credit.

4. Green credits: Fondesurco acts respon-sibly within the communities we serve. This is why we develop loan products with the goal to preserve and conserve the environment. Rural areas are areas most vulnerable to the effects of climate change.

Within this strategic framework, Fondesurco develops credit products that respect the environment by creating appropriate credit policies for our employees and respond to the needs of our clients. The initiatives of Fond-esurco are a combination of microfinance and clean and renewable energy.

We promote the use of energy efficient and renewable energy equipment and create sustainable environmental benefits. By com-bining a focus on extreme poverty with the environmental benefits, we foster social and environmental sustainability.

2

FondeEnergía is a pilot project launched in 2011, which pro-vides financing for the purchase of solar water heaters and en-ergy efficient ovens. Who can benefit from it and under what conditions? What feedback do you receive from clients?

In the case of solar heaters, two sectors ben-efited from it: Families or individuals and the microenterprise sector, which means mainly hotels, hostels, guest houses and room rent-als requiring hot water.

Clients have expressed their satisfaction with the solar water heater product and have a clear perception that they are sav-ing money. Cost reductions are achieved through reduced consumption of wood, gas and electricity used to heat water. In the case of the solar heaters, the clients stated they would save between PEN 8 and PEN 20 per week (EUR 2 – 6).

Guests who are renting a room also state that they are happier and not looking for another place. Feedback also suggests that clients save on medical expenses because children do not easily get sick from respira-tory infections caused by cold water. The products also generally improve hygienic conditions and the health of the entire family.

In the case of hostels, room charges increase substantially if warm water is provided.

The energy efficient ovens benefit two key clienteles: 1) Families and individuals and 2) the microenterprise sector involved in hospi-tality, such as small restaurants.

For families, the main benefits include increased safety, namely because fewer ac-cidents happen and there is a better extrac-tion of smoke through the chimney, leading to less toxic gas in the house. Families also save on firewood because the energy ef-ficient oven consumes less and heats much faster compared to traditional ovens.

Apart from increased convenience, some clients have also reported that their status within the community has improved.

Restaurants use the oven to prepare new dishes like roasted pork, cakes and pastries. Housewives have often found a source of additional income by preparing dishes to be sold in the neighbourhood or during special events.

What are the key success factors and lessons learned regarding the development and commer-cialization of the environmen-tally friendly credit products?We are facing diverse challenges in the development of these products. Key to the success of the products is the development of a “green culture” within the organization. Employees need to identify themselves with our activities and a green image of Fondesurco and commit to the protection of the environment.

"The key to the success of the products is the

development of a ‘green culture’ within the

organisation."


A related challenge is to train the sales staff on the non-financial aspects of the products. We need our staff to understand the technology behind the products. We also need to implement an incentive system that motivates employees in the different branches to sell green products.

We would like to conduct market studies to better assess the needs of the population and the potential demand for products which require a credit for the purchase of environmentally friendly equipment. This study will allow us to select the additional technologies, to define the market to target, and the targeting of advocacy and marketing campaigns. As a result, we would like to increase the range of energy efficient products according to the needs of the rural population and ultimately increase our loan portfolio.

In this context, it is essential to sensitize the population to the importance of the protection of the environment and the need to adapt to climate change. The success of our products critically depends on the importance local communities attach to environmental protection.

Ultimately, we would like to implement functional loan products that unite all the actors involved in environmentally friendly products. The challenges are the validation of technologies, the selection of suppliers or ensuring efficient aftersales service, and the incorporation of all these elements into the regular business line of credit products we offer.

Increasing demand and achieving significant numbers of products, especially since the amounts of the loans associated are low,

will diversify our portfolio and ultimately contribute to improved financial profitability.

When the project started, the goal was to provide more than 2,000 green loans to your cus-tomers by 2015. Where does Fondesurco stand in relation to this goal, what are the challeng-es and to what extent has the financing from LMDF helped?

The financing of LMDF has contributed a great deal to the funding needed to finance the loan portfolio of clients purchasing energy efficient products under the SER program. The main focus of the program is to finance product acquisition by low income people and microenterprises in rural areas. The loans we grant facilitate access to clean, renewable and efficient products which would not be acquired under normal circum-stances. The main reasons are that suppliers of these products do not sell on credit and often have no presence in rural areas.

Since the end of 2013, the FondeEnergía product has been proposed systematically in all of Fondesurco's branches. As at Septem-ber 2014, we have granted 633 loans, which is equivalent to 652 technologies, of which 375 are energy efficient ovens and 277 solar water heaters. This translates into 1,615 ben-eficiaries, taking into account all members of the family.

18-19

"It is essential to sensitize the population

to the importance of the protection of the

environment and the need to adapt to climate

change."

Energy efficient ovens consume less wood and heat faster// Fondesurco

Energy efficient ovens

It is evident that we have not reached the goals in terms of number of products initially targeted. The project started in 2011 with three pilot agencies, and was only extended to all the other agencies at the end of 2013, which implies that the results obtained until now have been achieved in fewer than two years.

Since our focus is to work in rural areas, the promotion of FondeEnergía is challeng-ing because of the difficulty of gathering large numbers of potential clients. Often the promotion and the sale of the FondeEnergía products are made personally (one-to-one).

We have also faced difficulties in exhibiting the SER products: Rural geography cre-ates challenges in displaying the products. The client is motivated to buy when he has the opportunity to see the product and its functionality.

Finally, the challenge to adapt the product to the internal processes of Fondesurco and the

requirements of the clients. Since its imple-mentation, the SER product has undergone a number of changes that made it more ac-cessible to customers and to those who are responsible for selling it in the market.

Despite these challenges, our institution will continue to promote the products to strive towards reaching the set goal. We believe that the benefits for the families that have purchased the products justify our continua-tion of this activity.

It is important to say that in our desire to encourage more people to use environmen-tally friendly alternatives and to diversify our product range, we are planning to add to our range of products energy efficient kitchens, photovoltaic powered low-energy lamps, solar dryers and other products which will surely help to increase our loan portfolio.

Translated from Spanish into English by LMDF.


Housewives have found a source of additional income by selling dishes in the neighbourhood or during special events // Fondesurco

Energy efficient ovens Solar water heaters

Children get less sick from respiratory infections due to cold water and for the entire family the hygienic and health conditions improve // Fondesurco

STATUTORY INFORMATIONORGANISATION

Board of Directors // Conseil d’administration

Chairman - PrésidentKenneth Hay Independent

Vice chairman - Vice présidentHedda Pahlson-Möller IndependentRobert Wagener ADA - Appui au Développement Autonome asbl

Members - MembresNima Ahmadzadeh Ministry of FinanceViviane Clauss Banque de LuxembourgMarc Elvinger IndependentRichard Philippart Development Cooperation Department, Ministry of Foreign AffairsRaoul Stefanetti (1) Banque Internationale à LuxembourgLuc Vandeweerd ADA - Appui au Développement Autonome asblPaolo Vinciarelli Banque et Caisse d'Épargne de l'ÉtatKaspar Wansleben Executive Director

Investment Committee Risk Committee Comité d'investissement Comité de risqueNima Ahmadzadeh Kenneth HayMarc Elvinger Raoul StefanettiHedda Pahlson-Möller Paolo VinciarelliRichard Philippart Luc Vandeweerd

Marketing Committee Employment CommitteeComité de marketing Comité d'emploiViviane Clauss Nima AhmadzadehHedda Pahlson-Möller Kenneth Hay Richard Philippart

(1) From 3 July 2014

Investment advisor // Conseiller en investissementADA - Appui au Développement Autonome asbl39, rue GlesenerL-1631 Luxembourg

Registered Office // Domicile2, place de MetzL-1930 Luxembourg

Trade Register Number // Registre de commerce et des sociétésR.C.S. Luxembourg B 148.826


Custodian and Paying Agent // Banque dépositaire et agent de paiementBanque et Caisse d’Épargne de l’État1, place de MetzL-2954 Luxembourg

Administrative Agent, Registrar and Transfer AgentAdministration centrale et agent de transfertEuropean Fund Administration S.A.2, rue d’AlsaceL-1017 Luxembourg

Auditors // Réviseur d’entreprises agréé Legal Advisors // Conseiller légalKPMG Luxembourg S.à.r.l. Elvinger, Hoss & Prussen9, Allée Scheffer 2, place Winston ChurchillL-2520 Luxembourg L-2014 Luxembourg

Distributors // Distributeurs

22-23

Banque de Luxembourg S.A.14, boulevard RoyalL-2449 Luxembourg

Banque et Caisse d’Épargne de l’État 1, place de MetzL-2954 Luxembourg

BGL BNP Paribas S.A.50, avenue J.F. KennedyL-2951 Luxembourg

Fortuna Banque s.c.130, boulevard de la PétrusseL-2330 Luxembourg

Foreign Currency Settlement Agent // Agent de compensation en deviseINTL FCStone LTD, Moor House, 1st Floor, 120, London WallLondon EC2Y 5ETUnited Kingdom

Foreign Currency Hedging Provider // Contrepartie de couverture de risque de changeMFX Solutions, Inc. 1050 17th St. NW, Suite 550Washington DC, 20036United States of America

Banque et Caisse d’Épargne de l’État1, place de MetzL-2954 Luxembourg

Identity numbers // Code d’identitéClass B shares Class C sharesISIN: LU0456966935 ISIN: LU0456967404Bloomberg: LMDSVCB:LX Bloomberg: LMDSVCC:LXTelekurs: 10633787 Telekurs: 10633788

Microfinance expertise // Expertise en microfinanceArranger and Servicer to Micro, Small &Medium Enterprises Bonds S.A.Symbiotics SA75, rue de LyonCH-1203 Geneva

General Partner of the Higher EducationFinance Fund LPOMTRIX Inc.Oficentro La Virgen No.2, Edificio 1, Piso 1Zona Industrial de Pavas,San José, Costa Rica

UNAUDITED FINANCIAL STATEMENTSÉTATS FINANCIERS NON RÉVISÉS

// 1 Statement of net assets État des actifs nets

as at 30 September 2014 // au 30 septembre 2014

Assets – Actif Notes EUR Shares (and equity-type securities) in regional microfinance 172,756investment vehicles Actions (et instruments similaires) dans des structures régionales d'investissements en microfinance Shares (and equity-type securities) in microfinance institutions 168,494and service providers Actions (et instruments similaires) dans des institutions de microfinance et structures de support Loan agreements with microfinance institutions 12,659,526Contrats de prêt avec des institutions de microfinance

Notes backed by loans to microfinance institutions 7 1,029,173Notes financées par des prêts aux institutions de microfinance

Unrealised appreciation on swap contracts 5 66,779Plus-value non-réalisée sur contrats de swap

Cash at banks 1,716,351Avoirs en banque Savings account 1,700,117Compte d’épargne Income receivable on portfolio 311,642À recevoir sur le portefeuille Interest receivable on bank accounts and term deposits 8,377Intérêts à recevoir sur avoirs en banque et dépôts à terme

Total assets 17,833,215Somme des actifs

The accompanying notes form an integral part of this report.


Liabilities – Passif Notes EUR

Accrued expenses 8 179,130Provision pour frais à payer

Unrealised depreciation on forward foreign 5 333,679exchange contractsMoins-value non réalisée sur contrats de change à terme

Total liabilities 512,809Somme des passifs

Net assets at the end of the period 17,320,406Actifs nets à la fin de la période

A Class shares outstanding 148,286.423Nombre d’actions en circulation de la Classe A

Net asset value per A Class share 24.80Valeur nette d’inventaire par action de la Classe A

B Class shares outstanding 114,738.110Nombre d’actions en circulation de la Classe B

Net asset value per B Class share 103.58Valeur nette d’inventaire par action de la Classe B

C Class shares outstanding 16,855.402Nombre d’actions en circulation de la Classe C

Net asset value per C Class share 104.28Valeur nette d’inventaire par action de la Classe C

24-25

Trader and client of the microfinance institution // Fondesurco

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

from 1 April 2014 to 30 September 2014 //du 1er avril 2014 au 30 septembre 2014

Income – Revenus Notes EUR

Interest on microfinance loan agreements 583,091Intérêts sur contrats de prêt en microfinance

Net interest paid on swap contracts (39,096)Intérêt net payé sur contrat swap

Net interest on microfinance loan agreements 543,994Intérêts nets sur contrats de prêts en microfinance

Commission on microfinance loan agreements 3,733Commission sur contrats de prêts en microfinance

Interest on bank accounts and term deposits 6,691Intérêts bancaires et dépôts à terme

Total income 554,418Somme des revenus

Expenses – Frais

Advisory fees 3 117,902Frais du conseiller en investissement

Salary and wages of the fund management 3, 11 70,748 Charges salariales de gestion du fonds

Custodian fees 7,500Commission de la banque dépositaire

Central administration costs 38,508Frais de l’administration centrale

Banking charges and other fees 394Frais bancaires et charges liées

Transaction fees 4,750Frais de transaction

Audit fees 8,338Frais de révision

Other administrative costs 32,295Autres charges administratives

Subscription duty 4 0Taxe d'abonnement

Total expenses 280,433Total des frais

Net investment income 273,985Résultat net d’investissement



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

On investments (19)Sur investissements

On forward foreign exchange contracts (576,045)Sur contrat de change à terme

On foreign currency transactions (67,470)Sur change

Realised result (643,534)Bénéfice/(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 6 (4,624)Variation de provisions sur prêts microfinance

Variation of valuation of equity investments (13,865)Variation de la valorisation des investissements en capital

Variation due to changes in the foreign exchange rate 1,017,682Variation due à l'évolution du taux de change

Total variation on investment portfolio 999,193Variation totale sur portefeuille d'investissements On forward foreign exchange contracts (296,912)Sur contrats de change à terme

On cross-currency swap contracts (76,760)Sur contrats de swap de taux et change à terme

On foreign exchange 23,158Sur change

Unrealised result 648,679Bénéfice/(perte) net(te) non réalisé(e)

Result of operations 279,130Résultat net des opérations

Subscriptions 5,000Souscriptions

Redemptions (34,154)Rachats

Total changes in net assets 249,976Variation globale de la valeur nette d’inventaire

Total net assets at the beginning of the period 17,070,429Valeur nette d’inventaire au début de la période

Total net assets at the end of the period 17,320,406Valeur nette d’inventaire à la fin de la période

// 3 Statistical information Informations statistiques


Total net assets – Actifs nets EUR

As at 30.9.2014 17,320,406Au 30.9.2014

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

Outstanding at the beginning of the period 148,286.423Au début de la période

Issued 0.000Émises

Redeemed 0.000Rachetées

Outstanding at the end of the period 148,286.423À la fin de la période

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

As at 30.9.2014 24.80Au 30.9.2014

Number of B Class shares – Nombre d’actions de la Classe B en circulation Outstanding at the beginning of the period 114,690.975Au début de la période

Issued 49.135Émises

Redeemed 0.000Rachetées


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

As at 30.9.2014 103.58Au 30.9.2014



Number of C Class shares – Nombre d’actions de la Classe C en circulation Outstanding at the beginning of the period 17,185.402Au début de la période

Issued 0.000Émises

Redeemed (330.000)Rachetées


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

As at 30.9.2014 104.28Au 30.9.2014

45% of the loans granted by Fondesurco finance agricultural activities // Fondesurco

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



Instrument // Microfinance institution Notes Country Maturity Currency Interest rate // Quantity // Valuation Value in EUR Accrued interest Total value % of NAV commission Nominal value in EUR in EUR

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 - 315,570 0.6915 172,756 - 172,756 1.0%Shares (and equity-type securities) in microfinance institutions and service providers MFX Solutions LLC USA N/A USD - 200,000 1.1376 168,494 - 168,494 1.0%Subordinated loan agreements with microfinance institutions Fundación Alternativa para el Desarrollo ECUADOR 30/6/16 USD 11.0% 200,000 100% 158,334 4,354 162,689 0.9%Fundación Alternativa para el Desarrollo ECUADOR 28/2/18 USD 11.0% 200,000 100% 158,334 1,451 159,786 0.9%Loan agreements with microfinance institutions with an option to convert the loan into share capital Maxima Mikroheranhvatho Co Ltd CAMBODIA 28/2/15 USD 8.0% 225,000 100% 178,126 1,188 179,314 1.0%Loan agreements with microfinance institutions ASUSU SA NIGER 18/10/18 XOF 9.5% 650,000,000 100% 989,546 43,086 1,032,632 6.0%Sociedad Cooperativa de Ahorro y Crédito AMC de RL de CV EL SALVADOR 25/7/17 USD 7.2% 1,000,000 100% 791,672 10,536 802,207 4.6%La Asociación Nacional de Institutos de Desarrollo del Sector Informal IDESI Nacional PERU 31/10/15 USD 7.0% 700,000 100% 554,170 16,163 570,333 3.3%Pro Mujer Inc, sucursal de Nicaragua NICARAGUA 22/10/17 USD 8.0% 650,000 100% 514,587 18,068 532,654 3.1%Cooperativa de Ahorro y Crédito la Florida 6 PERU 30/11/17 USD 9.0% 700,000 90% 498,753 16,902 515,655 3.0%L'Association Marocaine de Solidarité sans Frontières/Micro-Crédit MOROCCO 31/12/18 EUR 7.0% 500,000 100% 500,000 8,750 508,750 2.9%Soro Yiriwaso MALI 14/3/17 XOF 10.0% 325,000,000 100% 494,773 2,199 496,972 2.9%La Cooperativa de Ahorro y Crédito Maquita Cushunchic Ltda. ECUADOR 13/5/15 USD 7.5% 600,000 100% 475,003 9,104 484,107 2.8%Microfinanzas del Uruguay SA URUGUAY 29/12/14 USD 8.0% 550,000 100% 435,419 8,708 444,128 2.6%Optima Servicios Financieros , S.A EL SALVADOR 31/10/16 USD 7.9% 500,000 100% 395,836 13,290 409,126 2.4%Fundación de Apoyo Comunitario y Social del Ecuador ECUADOR 13/7/18 USD 8.8% 500,000 100% 395,836 7,504 403,340 2.3%Fundación de Apoyo Comunitario y Social del Ecuador ECUADOR 31/8/16 USD 9.0% 500,000 100% 395,836 3,167 399,002 2.3%Intean Poalroath Rongroeurng Co. Ltd. CAMBODIA 31/8/18 USD 8.0% 500,000 100% 395,836 2,814 398,651 2.3%Intean Poalroath Rongroeurng Co. Ltd. CAMBODIA 28/2/15 USD 8.0% 500,000 100% 395,836 2,639 398,475 2.3%Microfinanzas del Uruguay SA URUGUAY 29/12/14 USD 8.0% 450,000 100% 356,252 7,283 363,536 2.1%Proyectos y Iniciativas Locales para el Autodesarrollo Regional de Honduras OPDF HONDURAS 30/6/16 USD 8.0% 391,842 100% 310,210 6,204 316,414 1.8%Cooperativa de Ahorro y Crédito para la Integración y Desarrollo Rural PERU 15/12/14 PEN 10.5% 1,100,000 100% 301,016 9,219 310,234 1.8%L'Institution Marocaine d'appui à la Micro-Entreprise MOROCCO 31/1/19 EUR 7.0% 300,000 100% 300,000 3,500 303,500 1.8%La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV EL SALVADOR 28/2/18 USD 8.0% 350,000 100% 277,085 1,822 278,907 1.6%KREDIT Microfinance Institution Plc CAMBODIA 30/9/16 USD 8.0% 350,000 100% 277,085 0 277,085 1.6%Asociación Fondo De Desarrollo Regional - FONDESURCO PERU 10/6/17 PEN 11.2% 900,000 100% 246,286 8,505 254,791 1.5%Asociación Fondo De Desarrollo Regional - FONDESURCO PERU 26/1/18 PEN 13.0% 900,000 100% 246,286 5,781 252,067 1.5%La Cooperativa de Ahorro y Crédito Maquita Cushunchic Ltda. ECUADOR 13/5/15 USD 8.0% 300,000 100% 237,501 7,231 244,732 1.4%La Asociación de Desarrollo Integral Rural ASDIR GUATEMALA 29/11/18 USD 8.0% 300,000 100% 237,501 6,544 244,046 1.4%Maxima Mikroheranhvatho Co Ltd CAMBODIA 15/8/15 USD 8.0% 300,000 100% 237,501 2,428 239,929 1.4%La Asociación de Desarrollo Integral Rural ASDIR GUATEMALA 28/2/19 USD 8.0% 300,000 100% 237,501 1,583 239,085 1.4%Tembeka Social Investment Company SOUTH AFRICA 31/1/16 ZAR 13.5% 3,200,000 100% 224,190 5,044 229,234 1.3%Pro Mujer Inc, sucursal de Nicaragua NICARAGUA 30/9/15 NIO 14.8% 7,500,000 100% 226,840 0 226,840 1.3%Gata Daku Multi-Purpose Cooperative PHILIPPINES 29/4/16 PHP 11.0% 12,000,000 100% 211,394 9,947 221,342 1.3%KPS- Small Enterprise and Economic Development Inc PHILIPPINES 31/1/17 PHP 11.7% 11,000,000 100% 193,778 3,858 197,636 1.1%La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV EL SALVADOR 30/4/15 USD 8.0% 225,000 100% 178,126 5,938 184,064 1.1%Fundación Pro Mujer Argentina ARGENTINA 15/4/15 ARS 53.0% 1,500,000 100% 140,061 34,023 174,084 1.0%La Asociación para el Desarrollo de la Costa Atlantica NICARAGUA 15/2/18 USD 9.0% 200,000 100% 158,334 1,821 160,155 0.9%Gata Daku Multi-Purpose Cooperative PHILIPPINES 29/4/15 PHP 10.0% 8,000,000 100% 140,930 5,872 146,802 0.8%Fundación Alternativa para el Desarrollo ECUADOR 15/3/15 USD 8.0% 150,000 100% 118,751 396 119,147 0.7%Coopérative d'Epargne & Crédit des Artisans TOGO 30/11/14 EUR 8.5% 75,000 100% 75,000 2,107 77,107 0.4%Notes Micro, Small & Medium Enterprises Bonds SA - Khan Bank 7 MONGOLIA 7/3/17 USD 5.2% 650,000 100% 514,587 1,686 516,273 3.0%Micro, Small & Medium Enterprises Bonds SA - FINCA 7 AZERBAIJAN 7/3/17 USD 5.7% 650,000 100% 514,587 1,593 516,180 3.0%

Sub total 14,029,949 302,311 14,332,261 82.7%Net accrued interest on swap contract (32,630) (32,630) -0.2%Sub-total 269,681 14,299,631 82.5%Cash at banks, term deposits and savings accounts 3,424,844 19.8%Other net assets / liabilities (404,069) -2.3%

Total net assets 17,320,406 100.0%


Instrument // Microfinance institution Notes Country Maturity Currency Interest rate // Quantity // Valuation Value in EUR Accrued interest Total value % of NAV commission Nominal value in EUR in EUR

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 - 315,570 0.6915 172,756 - 172,756 1.0%Shares (and equity-type securities) in microfinance institutions and service providers MFX Solutions LLC USA N/A USD - 200,000 1.1376 168,494 - 168,494 1.0%Subordinated loan agreements with microfinance institutions Fundación Alternativa para el Desarrollo ECUADOR 30/6/16 USD 11.0% 200,000 100% 158,334 4,354 162,689 0.9%Fundación Alternativa para el Desarrollo ECUADOR 28/2/18 USD 11.0% 200,000 100% 158,334 1,451 159,786 0.9%Loan agreements with microfinance institutions with an option to convert the loan into share capital Maxima Mikroheranhvatho Co Ltd CAMBODIA 28/2/15 USD 8.0% 225,000 100% 178,126 1,188 179,314 1.0%Loan agreements with microfinance institutions ASUSU SA NIGER 18/10/18 XOF 9.5% 650,000,000 100% 989,546 43,086 1,032,632 6.0%Sociedad Cooperativa de Ahorro y Crédito AMC de RL de CV EL SALVADOR 25/7/17 USD 7.2% 1,000,000 100% 791,672 10,536 802,207 4.6%La Asociación Nacional de Institutos de Desarrollo del Sector Informal IDESI Nacional PERU 31/10/15 USD 7.0% 700,000 100% 554,170 16,163 570,333 3.3%Pro Mujer Inc, sucursal de Nicaragua NICARAGUA 22/10/17 USD 8.0% 650,000 100% 514,587 18,068 532,654 3.1%Cooperativa de Ahorro y Crédito la Florida 6 PERU 30/11/17 USD 9.0% 700,000 90% 498,753 16,902 515,655 3.0%L'Association Marocaine de Solidarité sans Frontières/Micro-Crédit MOROCCO 31/12/18 EUR 7.0% 500,000 100% 500,000 8,750 508,750 2.9%Soro Yiriwaso MALI 14/3/17 XOF 10.0% 325,000,000 100% 494,773 2,199 496,972 2.9%La Cooperativa de Ahorro y Crédito Maquita Cushunchic Ltda. ECUADOR 13/5/15 USD 7.5% 600,000 100% 475,003 9,104 484,107 2.8%Microfinanzas del Uruguay SA URUGUAY 29/12/14 USD 8.0% 550,000 100% 435,419 8,708 444,128 2.6%Optima Servicios Financieros , S.A EL SALVADOR 31/10/16 USD 7.9% 500,000 100% 395,836 13,290 409,126 2.4%Fundación de Apoyo Comunitario y Social del Ecuador ECUADOR 13/7/18 USD 8.8% 500,000 100% 395,836 7,504 403,340 2.3%Fundación de Apoyo Comunitario y Social del Ecuador ECUADOR 31/8/16 USD 9.0% 500,000 100% 395,836 3,167 399,002 2.3%Intean Poalroath Rongroeurng Co. Ltd. CAMBODIA 31/8/18 USD 8.0% 500,000 100% 395,836 2,814 398,651 2.3%Intean Poalroath Rongroeurng Co. Ltd. CAMBODIA 28/2/15 USD 8.0% 500,000 100% 395,836 2,639 398,475 2.3%Microfinanzas del Uruguay SA URUGUAY 29/12/14 USD 8.0% 450,000 100% 356,252 7,283 363,536 2.1%Proyectos y Iniciativas Locales para el Autodesarrollo Regional de Honduras OPDF HONDURAS 30/6/16 USD 8.0% 391,842 100% 310,210 6,204 316,414 1.8%Cooperativa de Ahorro y Crédito para la Integración y Desarrollo Rural PERU 15/12/14 PEN 10.5% 1,100,000 100% 301,016 9,219 310,234 1.8%L'Institution Marocaine d'appui à la Micro-Entreprise MOROCCO 31/1/19 EUR 7.0% 300,000 100% 300,000 3,500 303,500 1.8%La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV EL SALVADOR 28/2/18 USD 8.0% 350,000 100% 277,085 1,822 278,907 1.6%KREDIT Microfinance Institution Plc CAMBODIA 30/9/16 USD 8.0% 350,000 100% 277,085 0 277,085 1.6%Asociación Fondo De Desarrollo Regional - FONDESURCO PERU 10/6/17 PEN 11.2% 900,000 100% 246,286 8,505 254,791 1.5%Asociación Fondo De Desarrollo Regional - FONDESURCO PERU 26/1/18 PEN 13.0% 900,000 100% 246,286 5,781 252,067 1.5%La Cooperativa de Ahorro y Crédito Maquita Cushunchic Ltda. ECUADOR 13/5/15 USD 8.0% 300,000 100% 237,501 7,231 244,732 1.4%La Asociación de Desarrollo Integral Rural ASDIR GUATEMALA 29/11/18 USD 8.0% 300,000 100% 237,501 6,544 244,046 1.4%Maxima Mikroheranhvatho Co Ltd CAMBODIA 15/8/15 USD 8.0% 300,000 100% 237,501 2,428 239,929 1.4%La Asociación de Desarrollo Integral Rural ASDIR GUATEMALA 28/2/19 USD 8.0% 300,000 100% 237,501 1,583 239,085 1.4%Tembeka Social Investment Company SOUTH AFRICA 31/1/16 ZAR 13.5% 3,200,000 100% 224,190 5,044 229,234 1.3%Pro Mujer Inc, sucursal de Nicaragua NICARAGUA 30/9/15 NIO 14.8% 7,500,000 100% 226,840 0 226,840 1.3%Gata Daku Multi-Purpose Cooperative PHILIPPINES 29/4/16 PHP 11.0% 12,000,000 100% 211,394 9,947 221,342 1.3%KPS- Small Enterprise and Economic Development Inc PHILIPPINES 31/1/17 PHP 11.7% 11,000,000 100% 193,778 3,858 197,636 1.1%La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV EL SALVADOR 30/4/15 USD 8.0% 225,000 100% 178,126 5,938 184,064 1.1%Fundación Pro Mujer Argentina ARGENTINA 15/4/15 ARS 53.0% 1,500,000 100% 140,061 34,023 174,084 1.0%La Asociación para el Desarrollo de la Costa Atlantica NICARAGUA 15/2/18 USD 9.0% 200,000 100% 158,334 1,821 160,155 0.9%Gata Daku Multi-Purpose Cooperative PHILIPPINES 29/4/15 PHP 10.0% 8,000,000 100% 140,930 5,872 146,802 0.8%Fundación Alternativa para el Desarrollo ECUADOR 15/3/15 USD 8.0% 150,000 100% 118,751 396 119,147 0.7%Coopérative d'Epargne & Crédit des Artisans TOGO 30/11/14 EUR 8.5% 75,000 100% 75,000 2,107 77,107 0.4%Notes Micro, Small & Medium Enterprises Bonds SA - Khan Bank 7 MONGOLIA 7/3/17 USD 5.2% 650,000 100% 514,587 1,686 516,273 3.0%Micro, Small & Medium Enterprises Bonds SA - FINCA 7 AZERBAIJAN 7/3/17 USD 5.7% 650,000 100% 514,587 1,593 516,180 3.0%

Sub total 14,029,949 302,311 14,332,261 82.7%Net accrued interest on swap contract (32,630) (32,630) -0.2%Sub-total 269,681 14,299,631 82.5%Cash at banks, term deposits and savings accounts 3,424,844 19.8%Other net assets / liabilities (404,069) -2.3%

Total net assets 17,320,406 100.0%

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


/ Total exposure per counterparty Exposition agrégée par contre-partie as at 30 September 2014 // au 30 september 2014

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

ASUSU SA 1,032,632 6.0%

Microfinanzas del Uruguay SA 807,663 4.7%

Fundación de Apoyo Comunitario y Social del Ecuador 802,343 4.6%

Sociedad Cooperativa de Ahorro y Credito AMC de RL de CV 802,207 4.6%

Intean Poalroath Rongroeurng Co. Ltd. 797,125 4.6%

Pro Mujer Inc, sucursal de Nicaragua 759,494 4.4%

La Cooperativa de Ahorro y Crédito Maquita Cushunchic Ltda. 728,839 4.2%

La Asociación Nacional de Institutos de Desarrollo del Sector Informal IDESI Nacional 570,333 3.3%

MSME Bonds SA - Khan Bank Mongolia 516,273 3.0%

MSME Bonds SA - FINCA Azerbaijan 516,180 3.0%

Cooperativa de Ahorro y Crédito la Florida 515,655 3.0%

L'Association Marocaine de Solidarité sans Frontières/Micro-Crédit 508,750 2.9%

Asociación Fondo De Desarrollo Regional - FONDESURCO 506,857 2.9%

Soro Yiriwaso 496,972 2.9%

La Asociación de Desarrollo Integral Rural ASDIR 483,131 2.8%

La Sociedad Cooperativa PADECOMSMCREDITO de RL de CV 462,971 2.7%

Fundación Alternativa para el Desarrollo 441,621 2.5%

Maxima Mikroheranhvatho Co Ltd 419,243 2.4%

Optima Servicios Financieros, S.A 409,126 2.4%

Gata Daku Multi-Purpose Cooperative 368,143 2.1%

Proyectos y Iniciativas Locales para el Autodesarrollo Regional de Honduras OPDF 316,414 1.8%

Cooperativa de Ahorro y Crédito para la Integración y Desarrollo Rural 310,234 1.8%

L'Institution Marocaine d'appui à la Micro-Entreprise 303,500 1.8%

KREDIT Microfinance Institution Plc 277,085 1.6%

Tembeka Social Investment Company 229,234 1.3%

KPS-Small Enterprise and Economic Development Inc 197,636 1.1%

Fundación Pro Mujer Argentina 174,084 1.0%

Higher Education Finance Fund LP 172,756 1.0%

MFX Solutions LLC 168,494 1.0%

La Asociación para el Desarrollo de la Costa Atlantica 160,155 0.9%

Coopérative d'Epargne & Crédit des Artisans 77,107 0.4%

Total Portfolio 14,332,260 82.7%


/ Geographical breakdown of microfinance investments Répartition géographique des investissements en microfinance as at 30 September 2014 // au 30 september 2014

Geographical classification Amount (EUR) % of total net assets

ECUADOR 1,972,803 11,4%

PERU 1,903,080 11,0%

EL SALVADOR 1,674,304 9,7%

CAMBODIA 1,493,453 8,6%

NIGER 1,032,632 6,0%

NICARAGUA 919,649 5,3%

MOROCCO 812,250 4,7%

URUGUAY 807,663 4,7%

PHILIPPINES 565,779 3,3%

MONGOLIA 516,273 3,0%

AZERBAIJAN 516,180 3,0%

MALI 496,972 2,9%

GUATEMALA 483,131 2,8%

USA 341,250 2,0%

HONDURAS 316,414 1,8%

SOUTH AFRICA 229,234 1,3%

ARGENTINA 174,084 1,0%

TOGO 77,107 0,4%


/Breakdown of microfinance investments by currency Répartition des investissements en microfinance par devise as at 30 September 2014 // au 30 september 2014

Currency Amount (EUR) % of total net assets

United States Dollar 9,900,269 57,2%

West African CFA Franc 1,529,604 8,8%

Euro 889,357 5,1%

Peruvian Nuevo Sol 817,092 4,7%

Philippine Peso 565,779 3,3%

South African Rand 229,234 1,3%

Nicaraguan Córdoba 226,840 1,3%

Argentine Peso 174,084 1,0%


32-33

/ 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 30.9.2014 as at 31.3.2014 as at 31.3.2013 subscription priceen EUR VNI/action VNI/action VNI/action Prix de au 30.9.2014 au 31.3.2014 au 31.3.2013 souscription initial

Class A shares 24.80 24.49 24.39 25.00 Actions de la Classe A

Class B shares 103.58 101.76 100.64 100.00 Actions de la Classe B

Class C shares 104.28 102.95 102.54 100.00 Actions de la Classe C

Total net assets 17,320,406 17,070,429 14,327,282Actifs nets

Performance financial Performance financial Performance financial Performance since period 03 - 09 2014 year 2013 - 14 year 2012 - 13 inception Rendement Rendement Rendement Rendement de la période 03 - 09 2014 de l'année 2013 - 14 de l'année 2012 - 13 depuis lancement

Class A shares 1.3% 0.4% 1.2% (0.8%)Actions de la Classe A

Class B shares 1.8% 1.1% 2.2% 3.6% Actions de la Classe B

Class C shares 1.3% 0.4% 1.1% 4.3% Actions de la Classe C

Microentrepreneur at her fruit selling stand // Fondesurco


GENERAL INFORMATION/ A Structure of the FundLuxembourg Microfinance and Development Fund, SICAV (the “Fund” or 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 Fund is authorised as an undertaking for collective invest-ment (“UCI”) under Part II of the law of 17 December 2010 relating to undertakings for collective investment (the “Law”).

The Fund 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 Fund is equal at all times to the net assets of the Fund. The Articles were published in the Mémorial on 2 November 2009 and the Fund is registered under trade register number R.C.S. Luxembourg B 148826. The Fund is incorporated for an unlimited period.

The Fund is an open-ended fund. Accordingly, the Fund is authorised to issue an unlimited number ofshares, all of which are without par value.

The Fund is an umbrella fund and as such may operate 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 invest-ment policy or any other specific features. At the date of this report, the Fund had created one Sub-Fund, the Luxembourg Microfinance and Development Fund – Social Venture Capital Sub-Fund.

The Fund may issue three classes of shares, namely Class A shares, Class B shares and Class C shares,each targeting different types of investors, evidencing a different level of risk, offering a target return and evidencing a different level of involvement in the Fund’s governance. The initial subscription period forClass A and Class B shares ended on 18 December 2009. The initial subscription period for Class C shares ended on 31 March 2010.

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

/ B Investment ObjectiveLuxembourg Microfinance and Development Fund aims at contributing to the alleviation of poverty in de-veloping countries through the provision of permanent and adapted financial services to marginalized com-munities and individuals. The Fund invests in promis-ing microfinance institutions ("MFIs") that have a positive social impact so that these institutions reach financial autonomy. In pursuance 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: help socially-oriented MFIs to become long-term viable enterprises that reach more poor people and offer better services, and generate sufficient income to sustain its own operations and give its shareholders a financial return that at least compen-sates for inflation.

The Fund strives to provide tailor-made and innovative solutions to needy MFIs, coupling its own financial assistance with technical support from external consultants. It deliberately focuses on niche activities, activities where potential needs of MFIs are large, but current supply is scarce.

The Sub-Fund does not directly engage with the end clients of the MFIs (micro-entrepreneurs, small savers and insurance policy holders). This activity requires local presence and local knowledge and is best done by locally implanted MFIs.

The Fund invests primarily but not exclusively in the following financial instruments:

- Various credit products such as senior loans, term deposits, promissory notes and bonds; - Equity and quasi-equity instruments; - Issuance of guarantees and letters of credit;- Participating interests in loans or guarantees to regional and other microfinance investment vehicles.

The Sub-Fund invests in the developing countries of Africa, Asia and Latin America.

34-35

// 6 Notes to the unaudited financial statements

Notes aux états financier non révisés


NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

/ A Presentation of Financial StatementsThe Fund invests a significant part of its assets in financial instruments denominated in currencies other than the euro. Often, the Fund contracts a cross-cur-rency interest rate swap or forward foreign exchange contract to limit the exposure of the Fund to the movements of the 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 operation and other changes in net assets includes the interest charges to microfinance institutions to cover the hedging costs of the respect-ive currency. The impact of the valuation of the hedg-ing instruments is presented in the net realized gain/loss and the variation of the unrealized gain/loss.

/ B Valuation of Financial InstrumentsDebt instruments not listed or dealt in on any stock exchange or any other regulated market that operates regularly, is recognized and open to the public will be valued at the nominal value plus accrued interest. Such value will be adjusted, if appropriate, to reflect e.g. major fluctuations in interest rates in the relevant markets or the appraisal by the Board of Directors on the credit worthiness 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 recognized and open to the pub-lic 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 time period of the valuation date. Such a time period is determined by an assessment of the Board of Directors whether material changes within the MFI or in its operating environment have occurred since the date such transaction 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;

- In case the Sub-Fund has entered into negotiations to sell a capital participation to a third party, the capital participation may be valued at its expected sales price if the disclosure 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 expenses, cash dividends and interest declared or accrued and not yet received is deemed to be the full amount thereof, unless in case the same is unlikely to be paid or received in full, in which case the value thereof is arrived at after making such discount as may be considered appropriate in such case to reflect the true value thereof.

The value of securities that are listed on any stock exchange or dealt in on any regulated, recognized, 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 that are materially linked in notional, spot exchange rates, interest rates, maturities and other terms to any underlying loan instrument are valued using the spot exchange rate for the notional and accrued interest. Such valuation approach is changed if a credit risk materializes in the form of an impairment. The part of the SWAP notional then exceeding the valuation of the underlying loan is valued using a marked to market approach. Any material difference between the spot rate at which the SWAP was contracted and the spot rate at which the loan was disbursed is amortized over the period until expiration of the SWAP and recognized as interest income or expense.

The value of all assets and liabilities not expressed in the reference currency of a Sub-Fund will be con-verted 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, in its discretion, may permit some other methods of valuation to be used, if it con-siders that such valuation better reflects the fair value of any asset of the Fund.


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

In such 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;- If an impairment provision booked before or on the last valuation day is reduced, the profit since the last valuation day without the income from reducing such provision.

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 shall cover the net loss allocated to Class C shares since the last valuation day, if such loss arises from the impairment of microfinance related investments until Class A share capital is nil. Only a reduction in the Sub-Fund’s microfinance investments resulting from the deterioration of the financialconditions of the counterparty is considered as a microfinance impairment.

The Fund reserves the right to suspend subscriptions in Class C shares within the Sub-Fund, if the NAVallocated to Class A shares is less than 20% of the combined NAV of Class C and Class A 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 without reserving a preferential right to subscribe for the shares to be issued for 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, ADA 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.

- 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 per-centage point p.a. higher return than Class A 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 pri-vate individuals and private non-profit organizations which are subject to the Board of Director’s consent.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.

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

NOTE 3ADVISORY AND MANAGEMENT FEES

/ A Advisory feesOn 15 December 2009, the SICAV concluded an investment advisory agreement with ADA - Appui au Développement Autonome a.s.b.l.

Per such agreement, the investment advisor is entitled to receive, out of the assets of the Fund, a yearly fee of a maximum of 2% of the Sub-Fund average net asset value, 0.25% of which is linked to the performance of the microfinance assets of the SICAV.

Total investment advisory and portfolio related fees amount, for the period ended, to EUR 117,902 or 1.4% (annualized) of the average net asset value of the SICAV. Of the total investment advisory fees, EUR 12,578 are linked to the performance of the microfi-nance assets.

36-37

SWAP contracts

In relation to loan Notional Currency Paying Receiving Maturity Counter- Unrealizedagreement with Leg Leg Date party appreciation/ (depreciation), (in EUR)

Fundación 1,500,000 ARS 53.1% 7.00% 15/4/15 MFX Solutions Inc. 82,016Pro Mujer p.a., p.a.,Argentina semi- semi- annual annual payment payment

Gata Daku 8,000,000 PHP 10.0% 8.1% 29/4/15 MFX Solutions Inc. (15,222)Multi-Purpose p.a., p.a.,Cooperative semi- semi- annual annual payment payment

Gata Daku 12,000,000 PHP 10.9% 8.0% 29/4/16 MFX Solutions Inc. 14,552Multi-Purpose p.a., p.a.,Cooperative semi- semi- annual annual payment payment

KPS-Small 11,000,000 PHP 11.7% 8.0% 31/1/17 MFX Solutions Inc. (14,567)Enterprise and p.a., p.a.,Economic semi- semi-Development, annual annualInc. payment payment

Total 66,779

NOTE 5FORWARD FOREIGN EXCHANGE AND SWAP CONTRACTS/ A Swap contracts

The SICAV aims to provide, whenever feasible, loans to microfinance institutions in local currency. During the reporting period, the SICAV

hedged loan instruments using cross-currency swaps, which allow the SICAV to significantly reduce the foreign currency risk associated

with assets held in foreign currencies.

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

From 1 April 2014 until 30 September 2014, Management and Support Team fees amount to 0.8% (annualized). Total fees to investment advisor(s), Management and Support Team amount to 2.2% (annualized) of the average net asset value of the SICAV.

NOTE 4SUBSCRIPTION DUTY / “TAXE D’ABONNEMENT” The SICAV 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 abolishes 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 SICAV in the list of investment funds in compliance with such decree.


Forward foreign exchange contracts

Currency Amount Currency Amount Maturity Unrealized purchased purchased sold sold date appreciation / (depreciation), (in EUR)

EUR 227,577 PEN 900,000 10/6/15 (18,708)

EUR 9,262,118 USD 12,000,000 16/12/14 (233,045)

EUR 137,466 PEN 550,000 15/12/14 (13,042)

EUR 222,910 PEN 900,000 27/1/15 (23,375)

EUR 195,604 ZAR 3,200,000 30/1/15 (28,586)

EUR 159,095 XOF 107,500,000 16/3/15 (4,560)

EUR 947,234 XOF 650,000,000 20/4/15 (42,312)

EUR 154,080 XOF 107,500,000 14/3/16 (9,576)

EUR 150,838 XOF 110,000,000 14/3/17 (16,624)

Sub-total (389,830)

Capitalized hedging costs, to be amortized until maturity of hedging instrument 56,151

Total (333,679)

/ 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 counterparty for trades in relation to such hedges is the Banque et Caisse d’Épargne de l’État (USD, ZAR) and MFX

Solutions Inc.

NOTE 6IMPAIRMENTS ON MICROFINANCE LOANS

During the last financial year the Board of Directors of the Fund decided to provision 10% of the outstanding principal of the loan

to the microfinance institution Crediflorida in Peru (USD 700,000 loan). Crediflorida’s activities are concentrated on the financing

of coffee farmers which have been significantly impacted by unusual climatic conditions and coffee rust.

During the first six months of the financial year the situation of Crediflorida has stabilized. The Board of Directors has decided to

maintain the provision until the situation of the MFI improves substantially. The variation during the review period of impairment

on microfinance loans results solely from fluctuations in foreign exchange rates.

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 authorize the subscription to Notes backed by loans to microfinance institutions issued by the Luxembourg company Micro, Small & Medium Enterprise Bonds S.A. (“MSME Bonds”) in several issues up to EUR 1,000,000. The 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 advisor and asset manager. Subsequent to the decision of the Board of Directors, the Fund subscribed:

USD 650,000 in Notes 11-L. The issue totals USD 8,650,000 (ISIN XS1051929831) and is backed by a loan granted by MSME Bonds to the microfinance institution FINCA Azerbaijan. USD 650,000 in Notes 12-L. The issue totals USD 8,900,000 (ISIN XS1055195322) and is backed by aloan granted by MSME Bonds to the microfinance institution Khan Bank LLC in Mongolia.

NOTE 8DETAIL OF ACCRUED AND OTHER EXPENSES

As at the reporting date, accrued and payable expenses consisted of the following (in EUR):Investment advisory fees 53,643Investment advisory fees linked to the performance of the microfinance assets 53,145Custodian fees 18,100Domiciliation fees 12,500Transaction related fees due to the custodian 9,750Audit fees 8,338Office rent and charges 7,276Administration fees 6,708VAT services fees 4,150Legal fees 2,633Transfer agency fees 1,375Representation fees 1,345Transaction related fees due to the administrator 1,000Information technology expenses 667

Total 180,630

For the reporting period, other administration costs consisted of the following (in EUR):Travel expenses 7,542Information technology 5,318Miscellaneous expenses 4,385Rating and labelling fees 4,139CSSF annual fee 3,000Post and telecommunication 1,799Marketing and public relations fees 1,779Membership fees 1,614Legal fees 878 Board of directors and committee expenses 854Other fees 676 Representation expenses 309

Total 32,295


NOTE 9TOTAL EXPENSE RATIO

Average net asset value during the period (in EUR) 17,261,218Total expenses for the period 1 April 2014 until 30 September 2014 (in EUR) 280,433

Total expense ratio (annualized) 3.2%

NOTE 10FOREIGN EXCHANGE RATES

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

1 EUR = 26.5893 HNL (Honduran Lempira) 1 EUR = 112.8625 KES (Kenyan Shilling) 1 EUR = 33.0630 NIO (Nicaraguan Córdoba) 1 EUR = 3.6543 PEN (Peruvian Nuevo Sol) 1 EUR = 56.7660 PHP (Philippine Peso) 1 EUR = 1.2632 USD (United States Dollar) 1 EUR = 656.8670 XOF (West African CFA Franc) 1 EUR = 14.2736 ZAR (South African Rand) 1 EUR = 40.9640 THB (Thai Baht) 1 EUR = 10.7096 ARS (Argentine Peso)

NOTE 11STAFF

During the reporting period, the SICAV employed one full-time staff recruited on 1 October 2009 and one part-time staff recruited on 5 November 2012. The SICAV also employed two interns from 1 September 2014 for six months. The employment contracts do not include any variable remuneration linked to the performance of the Fund.

20 offices located in 4 departments in Peru // Fondesurco

NOTE 12COMMITMENTS

The Fund has concluded a number of subscription agreements with shareholders and other parties. According to the terms of such agreements, these shareholders and parties have committed to subscribe certain amounts in Class A and Class B shares. As at the reporting date, the following commitments have not yet been called upon:

in EUR 1/1/2014 - 31/12/2014

Class A shares 500,000

Class B shares 1,525,000

Total 2,025,000

A number of commitments are contingent on the Fund reaching certain diversification thresholds in the share-holder structure. Subscription agreements concluded between the Fund and various shareholders indicate that such diversification covenants will be respected.

NOTE 13RELATED PARTY TRANSACTIONS

The SICAV 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 period, the SICAV has conducted the following material transactions with related parties, excluding subscription of shares and com-mitments to subscribe shares in the future:

The SICAV has concluded an investment advisory agreement with ADA with the remuneration structure disclosed in Note 3.

The SICAV also sub-leases an office in the “Maison de la Microfinance”, a building leased by ADA at 39, rue Gle-sener, Luxembourg Ville. The Board of Directors of the SICAV 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 standar-dized pricing model approved by a Pricing Committee. The Executive Director does not form part of such Pricing Committee.

NOTE 14SHARE TRANSACTIONS OF DIRECTORS

The directors of the SICAV have not undertaken share transactions during the reporting period. One close family member of a director has subscribed 390 Class C shares with the NAV 30 September 2014.


NOTE 15SUBSEQUENT EVENTS TO 26 NOVEMBER 2014

The Fund continued its investment activties and disbursed three loans to MFIs for a total of USD 1.85 million between the end of the reporting period and the issuance of this report.

42-43

Imprint

Conception and Layoutbinsfeld.lu / LMDF - Jennifer Urbain

© PhotosGonzalo Charaja Ramos - Fondesurco / LMDF

© The Luxembourg Microfinance and Development Fund − Social Venture Capital Sub-Fund, 2014All rights reserved

86% of the clients live in rural areas with limited access to financial services and are exposed to a higher incidence of poverty // Fondesurco

Société d’Investissement à Capital Variable /// 2, place de Metz /// L-1930 LuxembourgT.: +352 27 47 35 /// F.: +352 27 47 35 72 /// [email protected] /// www.lmdf.lu

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LMDF Semi annual Report September 2014

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