Notes to the annual accounts

1. Banks

The cash on bank accounts can be freely disposed of.

2. Current accounts (assets)

Current account assets relate to amounts receivable from FMO and can be freely disposed of.

3. Short-term deposits

Short-term deposits are liquid accounts and are subject to an insignificant risk of changes in fair value. The Fund has on demand full access to the carrying amounts.

Short term deposits consist of MMF, which are measured at FVPL. Short term deposits generally have a maturity of less than three months.

4. Loans portfolio

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

The contractual amount of assets that were written off during the period are still subject to enforcement activity. Recoveries from written off loans amount to €0.1 mln (2018: €0.0 mln).

The following table summarizes the loans segmented by sector:

For definition and more details on non-performing loans, we refer to section 'Credit Risk' within the Risk Management paragraph.

The movements in the gross carrying amounts and ECL allowances for the loans at AC are as follows:

The impairments related to guarantees are included in provisions (see Note 11).

The table below show the values of the IMF GDP forecasts used in each of the economic scenarios for the ECL calculations for 2019 and 2020. The upside and downside scenario calculations are derived from the base case scenario, adjusted based on an indicator of public debt to GDP in emerging markets.

The following tables outline the impact of multiple scenarios on the ECL allowance as at December 31, 2018 and December 31, 2019:

In order to demonstrate the sensitivity, the tables below present the distribution of stage 2 impairments by the criteria that triggered the migration to stage 2 versus stage 2 impairments triggered by the 30 day past due backstop.

5. 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:

6. Investments in associates

The movements in net book value of the associates are summarized in the following table:

Investments in associates are valued based on the equity accounting method.

The following table summarizes the associates segmented by sector.

The following table summarizes the share in the total assets, liabilities, total income and total net profit/loss of the associates

7. Other receivables

Debtors primarily relate to sales proceeds from the private equity portfolio.

8. Current accounts (liabilities)

Current account liabilities relate to amounts owing to FMO.

9. Other liabilities

10. Accrued liabilities

Accrued liabilities relate to capacity development costs that are contracted but not yet disbursed.

11. Provisions

The amounts recognized in the balance sheet are as follow:

12. Contributed fund capital and reserves

The fund capital is revolvable (100% revolvability) when the current value of assets is equivalent or above the sum of the capital put into the fund by shareholders.

13. Net interest income

14. Net fee and commission income

15. Dividend income

16. Results from equity investments

17. Results from financial transactions

18. Expenses

Remuneration FMO relates to management fees paid to FMO.

Capacity development expenses relate to grants or contributions paid to beneficiaries in terms of the fund's objectives.
Evaluation costs relate to expenses made during frequent investigations and controls of existing investments and costs related to due diligence of new projects.

As per 2019, presentation of CD expenses and evaluation expenses has changed from 'Fund Capital' to 'Comprehensive income'. Comparatives for 2018 have been adjusted accordingly.

19. Off-Balance Sheet information

To meet the financial needs of borrowers, the Fund enters into various irrevocable commitments (loan commitments, equity commitments and guarantee commitments) and contingent liabilities. These contingent liabilities consist of financial guarantees, which commit the Fund to make payments on behalf of the borrowers in case the borrower fails to fulfill payment obligations. Though these obligations are not recognized on the balance sheet, they do obtain Credit Risk similar to loans to private sector. Therefore, provisions are calculated for financial guarantees and loan commitments according to IFRS 9 ECL measurement methodology.

The outstanding amount for financial guarantees issued by the Fund and amount of guarantees received by the Fund are as follows:

As agreed with the Dutch Ministry of Foreign Affairs, the fund shall maintain 1 euro for each euro of guarantee issued. The total amount of cash as per 31 December 2019 is adequately covering the total guarantees issued and hence meets the requirement set out by the Dutch Ministry of Foreign Affairs.

Nominal amounts for irrevocable facilities are as follows:

The movement in exposure for the financial guarantees issued (including contractual commitments) and ECL allowance is as follows:

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

20. 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 9 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 has a valuation process in place to decide its valuation policies and procedures and analyze changes in fair value measurement from period to period.

The Fund’s fair value methodology and governance over its 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 Investment Review Committee (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, 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 therefore recorded at the end of each reporting period.

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

The carrying values in the financial asset and liability categories are measured at AC except for the funding in connection with hedge accounting. The underlying changes to the fair value of these assets and liabilities are therefore not recognized in the balance sheet.

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.

21. Related party information

Dutch Government:

The Dutch Ministry of Foreign Affairs, Directoraat-generaal internationale Samenwerking sets up and administers the investments funds (“State Funds”), including MASSIF, according to the Dutch Government’s development agenda. Directoraat-generaal internationale Samenwerking is the main contributor to MASSIF, providing funding upon FMO’s request (2019 € 0; 2018 € 15 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 agribusiness, food & water, energy, financial institutions, Dutch business focus areas 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, Dutch Fund for Climate and Development Land Use Facility are under FMO’s direct management; the execution of Access to Energy – II and the other facilities of the Dutch Fund for Climate and Development are performed by third parties under FMO’s supervision.

FMO charges a management fee to the Dutch Ministry of Foreign Affairs and it is reimbursed accordingly from MASSIF’s subsidy amount (2019: € 11 million; 2018: € 11 million). FMO is also a minor contributor to the fund with a total contribution of € 8 million in 2019 (2018: € 8 million)

22. Subsequent events

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

The current COVID-19 outbreak will likely impact the global economy and the Fund's financial performance. The impact is expected to be greatest on investments in debt and equity. Given the uncertainties, ongoing developments and measures taken by governments around the globe, the Fund cannot estimate the quantitative impact in an accurate and reliable way at this point in time.