Notes to the special purpose annual accounts

1. Banks

The cash in bank accounts can be freely disposed of.

2. Current accounts

Current accounts relate to amounts receivable from FMO (2021) and payable to FMO (2020).

3. Loans

Loans originated by the Fund include loans to the private sector in developing countries for the account and risk of the Fund.

The following tables summarize the loans segmented by sector and geographical area:

The movements in the gross carrying amounts and ECL allowance for the loan portfolio measured at AC are as follows:

4. Equity investments

The equity investments in developing countries are for the Fund's account and risk. The movements in fair value of the equity investments are summarized in the following table. Equity investments are measured at FVPL.

The following table summarizes the equity investments segmented by sector:

5. Other receivables

6. Accrued liabilities

Accrued liabilities relate to expenses incurred.

7. Provisions

8. Contributed fund capital and reserves

9. Net interest income

10. Net fee and commission income

11. Results from equity investments

12. Results from financial transactions

13. Net interest expenses

14. Operating expenses

The following table presents the operating expenses incurred in 2021 and 2020. Next to direct personnel costs, direct project costs relate mainly to audit and advisory expenses. Furthermore, overhead costs incurred relate to legal fees and costs for support staff.

15. Off-Balance Sheet information

To meet the financial needs of borrowers, the Fund enters into various irrevocable commitments (loan commitments, equity, and grants).

The movement in exposure for the loan commitments is as follows:

16. Analysis of financial assets and liabilities by measurement basis

The significant accounting policies summary describes how the classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognized. The following table gives a breakdown of the carrying amounts of the financial assets and financial liabilities by category as defined in under IFRS and by balance sheet heading.

Fair value hierarchy

All financial instruments for which fair value is recognized or disclosed are categorized within the fair value hierarchy, based on lowest level input that is significant to the fair value measurement as a whole, as follows:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;
Level 3 – Valuation technique for which the lowest level input that is significant to the fair value measurement is unobservable.

Valuation process

For recurring and non-recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the Fund uses the valuation processes to decide its valuation policies and procedures and analyze changes in fair value measurement from period to period.

The fair value methodology and governance over it’s methods includes a number of controls and other procedures to ensure appropriate safeguards are in place to ensure its quality and adequacy. The responsibility of ongoing measurement resides with the relevant departments. Once submitted, fair value estimates are also reviewed and challenged by the IRC. The IRC approves the fair values measured including the valuation techniques and other significant input parameters used.

Valuation technique

When available, the fair value of an instrument is measured by using the quoted price in an active market for that instrument (level 1). A market is regarded as active if transactions of the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, valuation techniques are used that maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

Valuation techniques include:

• Recent broker / price quotations

• Discounted cash flow model

• Option-pricing models

The techniques incorporate current market and contractual prices, time to expiry, yield curves and volatility of the underlying instrument. Inputs used in pricing models are market observable (level 2) or are not market observable (level 3). A substantial part of fair value (level 3) is based on net asset values.

Equity investments are measured at fair value when a quoted market price in an active market is available or when fair value can be estimated reliably by using a valuation technique. The main part of the fair value measurement related to equity investments (level 3) is based on net asset values of investment funds as reported by the fund manager and are based on advanced valuation methods and practices. When available, these fund managers value the underlying investments based on quoted prices, if not available multiples are applied as input for the valuation. For the valuation process of the equity investments we further refer to the accounting policies within these Annual Accounts as well as section 'Equity Risk', part of the Risk Management chapter. The determination of the timing of transfers is embedded in the quarterly valuation process, and is therefore recorded at the end of each reporting period.

The table below presents the carrying value and estimated fair value of non fair value financial assets and liabilities.

The following table gives an overview of the financial instruments measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The following table shows the movements of financial assets measured at fair value based on level 3.

17. Related party information

The Fund defines the Dutch Government as related parties.

Dutch Government:

The Dutch Ministry of Foreign Affairs, in particular Directoraat-Generaal Internationale Samenwerking (DGIS), sets up and administers the investment funds (“State Funds”), including the DFCD Land-use Facility, according to the Dutch Government’s development agenda. DGIS is the main contributor to the DFCD facilities, providing funding upon FMO’s request for a net amount of €35.0 million in 2021 (2020: €7.0 million)

Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (“FMO”)

The Dutch development bank FMO supports sustainable private sector growth in developing and emerging markets by leveraging its expertise in focus areas - agribusiness, food & water, energy, financial institutions, Dutch business - to invest in impactful businesses. FMO is a public-private partnership, with 51% of FMO’s shares held by the Dutch State and 49% held by commercial banks, trade unions and other members of the private sector. FMO has a triple A rating from both Fitch and Standard & Poor’s.

FMO has been entrusted by the Dutch Government to execute the mandates of the State Funds. Currently MASSIF, Building Prospects, Access to Energy – I, FOM, FOM-OS and the Land Use Facility of DFCD are under FMO’s direct management; the execution of Access to Energy – II and the other facilities of DFCD are performed by third parties under FMO’s supervision.

The operating expenses of the Fund represent payments made to FMO to reimburse FMO for the costs incurred on the programme.

18. Subsequent events

On February 24, 2022 the Russian Federation started to invade Ukraine. The move followed shortly after Russian President Putin recognized two Eastern-Ukrainian provinces as independent states and invaded those areas for a “peacekeeping” mission. At reporting date, the fund has no exposure to Ukraine or Belarus, therefore no material impact is expected on the financial statements.

There have been no other significant subsequent events between the balance sheet date and the date of approval of these accounts which should be reported by the Fund.