Notes to the financial statements

1. Current account with FMO (asset)

The amount relates to balance of the bank account maintained by FMO on behalf of the Fund. This balance was previously recognized and presented as ‘Cash balances with banks’, however, it has been reclassified to ‘Current account with FMO’ in the current year to ensure fair presentation. The current account can freely be disposed of.

2. Loans to the private sector

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:

3. Current account with FMO (Liability)

The current account which can freely be disposed of.

4. Borrowed funds

Borrowed funds refer to the funds received from FMO to LUF. Under the 2021 EFSD+ Program of the European Commission, the DFCD Aya initiative was established in 2024 as an expansion of the existing DFCD structure. As part of this program, LUF receives a loan facility of €240 million from FMO‑A, of which €105 million is covered by an EC financial guarantee. The loan has a final maturity of 30 September 2037 and is expected to be drawn over the first five years. The FMO loan ranks senior to the existing LUF capital provided by the Dutch Government, which continues to serve as the equity buffer for the program.

5. Contributed fund capital and reserves

6. Net interest income

Interest income

Interest expense

7. Net fee and commission income

8. Results from financial transactions

9. Operating expenses

The following table presents the operating expenses incurred in 2025 and 2024. Operating expenses comprise of management fees paid to FMO, while the overhead costs incurred relate to legal fees. 

10. Impairment charges on financial assets and loan commitments

11. 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:

12. 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 by the headings in the statement of financial position. 

Fair value of financial assets and liabilities

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, FMO 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 FRC. The FRC approves the fair values measured including the valuation techniques and other significant input parameters used.

Valuation techniques

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.  These valuation techniques applied by FMO to determine the fair value of its financial instruments are described below:

Derivatives

FMO uses internal valuation models to value derivative financial instruments. Valuation inputs include valuation curves provided by specialized price-makers for emerging markets currencies. Consequently, derivatives involving emerging market currencies are classified as level 2.

Equity Investments

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 and related notes within these financial statements.  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.

Firm offer

When a credible firm offer exists, the fair value should be based on the firm offer price minus all transaction costs. This method reflects the most concrete and observable market-based exit price available at the valuation date

Multiples (Book, Earnings, Market/Industry, Anchored)

Multiples apply when comparable financial or market data can be used to estimate value. Book multiples are applied to reflect equity performance. Earnings multiples (EV/EBITDA, EV/EBIT, P/E) are applied for companies with maintainable earnings. Market/industry multiples rely on peer benchmarks. Anchored multiples use the post‑money valuation at investment entry, performance is subsequently assessed.

Net Asset Value (NAV)

Net asset value involves the application of the reported NAV. This is directly applied as the valuation input for fund investment. And it could also be applied to direct investments of which the value is indirectly derived from a Fund’s NAV.

Other Methods

When none of the standard methodologies are applicable, other valuation methods may be used, but only with clear, enhanced justification explaining why all typical alternatives are unsuitable.

Financial instruments not measured at fair value

The table below presents the carrying value and estimated fair value of the financial assets and liabilities that are not measured at fair value. 

The carrying values of the financial asset and liability categories in the table below are measured at AC. The underlying changes to the fair value of these assets and liabilities are therefore not recognized in the balance sheet.

The valuation technique we use for the fair value determination of these financial instruments is the discounted cash-flow method. The discount rate we apply is a spread curve based on the average spread of the portfolio. The fair value calculation is mainly based on level 3 inputs.

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.

13. Related party information

The programme defines the Dutch Government, FMO and its Management Board and Supervisory Board 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 €14.8 million in 2025 (2024: €8.9 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 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.

In 2024 the DFCD Aya program was launched which resulted in a loan commitment of €240 million from FMO towards LUF, €105 million of which is guaranteed by the European Commission. As at the date of this report, € 47.6 million has been disbursed to LUF under this program. Interest of € 2.0 million is recognized as an expense in the current financial year.

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

14. Subsequent events

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