efse annual report 2009

AnnuAl report 2009

GrowinG responsibly GrowinG responsibility

the european Fund for southeast europe

(eFse) fosters economic development and

prosperity in the region of southeast europe

including the european eastern neighbour

hood region through the sustainable pro

vision of additional development finance. the

Fund offers longterm funding instruments to

qualified local partner lending institutions for

onlending to micro and small enterprises

as well as lowincome private households. in

pursuing its development goal, eFse is

committed to principles of responsible

development finance , combining a focus on

development with market orientation.

eFse also has a Development Facility endowed

with grants to enable technical assistance,

consulting and training measures to strengthen

financial institutions in the region. together

the Fund and its Development Facility

contribute to promote economic development,

regional integration and cooperation.

As the first publicprivate partnership of its

kind in development finance, the Fund brings

together public funding and private in vest

ments. initiated by German Development

bank Kfw entwicklungsbank in 2005, eFse is

a privately managed investment fund with

oppen heim Asset Management services as

the fund manager since the Fund’s inception

and Finance in Motion as exclusive fund

advisor since 2010.

BELARUS

UKRAINE

MOLDDOVADO

ROMANIA

SERBIABIABIA

TE-TE-TE-MMONTMONTOONEGROOGROGRO BULGARIA

ACEDONIAFYR MACAC

VOKOSOVVKKO

ANIAAALBAA

GEORGIA

AZERBAIJANARMENIANNIANIA

ND NBOSNIA ANNVINAVIHERZEGOVIVI

BLACK SEA

CASPIANSEA

MEDITERRANEAN SEA

BALTIC SEA

Key FiGuresContent

3 Greeting from the Chairman 4 investors

ACHieVeMents 6 ClientStory–NagorkaGovedarica,

BosniaandHerzegovina 8 ClientStory–GennadiyLysikov,Ukraine10 ClientStory–TatjanaKolevska,FYRMacedonia12 ClientStory–KaremanDalipi,Albania14 Highlights of 200918 eFse’s regional expansion

GrowinG responsibly – GrowinG responsibility 20 letter from the Fund Manager

and the Fund Advisor22 Growing responsibly – Growing responsibility 22 endborrower level 25 partner lending institution level 26 Financial sector level 28 Fund and investor level

FACts, FiGures AnD FinAnCiAl stAteMents29 performance overview 30 Financial statements34 Development impact36 investments38 partner lending institutions40 Funding41 eFse Development Facility42 organisational structure44 target region

216,514subloans disbursed since inception

eur 1.1 billionAmount disbursed to endborrowers since inception

eur 446.4 millionsubloan portfolio outstanding

115,590number of active endborrowers

58number of partner lending institutions

eur 578.9 millioninvestment portfolio (including loans, equity investments and guarantees)

eur 684.1 million

eur 728.1 million

investments approved since inception

Committed funding from investors

yeAr to DAte As oF 31 DeCeMber 2009

| 3

Dr. Klaus GlaubittChairman of the Board of Directors

It is with great pleasure that I introduce to you the 2009 Annual Report of the European Fund for Southeast

Europe, EFSE. The main theme of this report is “Growing Responsibly-Growing Responsibility” which clearly

reflects how much we care about the issue of responsible finance practices. With EFSE’s solid qualitative

growth during 2009 we have demonstrated in practical terms that responsibility and growth go hand in hand.

The year 2009 underscored EFSE’s institutional strength and crisis-resilience in a challenging market

environment. The Fund’s innovative Public-Private Partnership structure was instrumental in providing

continued access to funding as well as much-needed capital support. Furthermore, the EFSE Development

Facility mobilised substantial technical assistance at short notice, for a considerable group of partner lending

institutions, to help them mitigate the effects of the financial crisis.

The Fund has demonstrated its amazing development impact by crossing the EUR 1 billion threshold of

disbursed subloans to more than 200,000 micro and small enterprises as well as low-income private

households during 2009. With EFSE funds, close to 250,000 jobs were created in the target region since the

Fund’s inception in December 2005.

Given the success of the EFSE model, the target region was extended to include the European Eastern

Neighbourhood countries of Armenia, Azerbaijan, Belarus and Georgia at the end of the year, thereby

increasing the number of partner countries to currently 14. Against this background, we are proud to report

that the Fund welcomed 12 new private investors and increased its capital commitments to EUR 728.1 million,

providing the necessary funding base for continued future growth.

On behalf of the Board, I would like to thank EFSE’s investors, the members of the Advisory Group, the

Fund’s partner lending institutions in the region and last but not least the dedicated staff of the Fund’s service

providers for their commitment and support.

The coming year will once again be challenging. EFSE will contribute to the stabilisation and development of

the financial sector in the region. In its fifth year of operation, EFSE will continue to grow with quality and keep

on promoting responsible finance to and with its partners in the target region.

Enjoy reading the report.

Dr. Klaus Glaubitt

4 | ACHIEVEMENTS

GREETINGS

Strengthening prosperity, stability and security

The European Fund for Southeast Europe (EFSE) has proved to be a robust financial

instrument to help key economic actors – such as small businesses and low income

households with difficult access to finance – throughout the most critical periods of

the global economic and financial crisis in 2009. At the same time, the Fund has

stepped up its efforts to promote responsible financial behaviour among its client

financial institutions, a crucial element to attain sustainable economic growth and

integration into the European economy.

Building on its success in the countries of the enlargement region, the Fund is

widening its geographical scope to the European Eastern Neighbourhood region this

year. This has been made possible by EUR 10 million financed from the EU Neighbourhood

Investment Facility (NIF) thereby increasing the total amount of support of the European Com-

mission to EFSE to more than EUR 100 million in 2010.

The EU's enlargement policy and its neighbourhood policy share the objective of contri-

buting to strengthening the prosperity, stability and security of the countries concerned. Since

its inception in 2005, EFSE has developed into a solid pillar supporting that process in the

enlargement region and I trust that it will be able to bring about similar benefits to the

neighbourhood region.

Stefan Füle

European Commissioner for Enlargement and Neighbour hood Policy

EFSE’S FIRST-CLASS INVESTORSEFSE’s Public-Private Partnership structure combines funding of donor agencies , international financial institutions

and private institutional investors.

DONOR AGENCIES

INTERNATIONAL FINANCIAL INSTITUTIONS

PRIVATE INSTITUTIONAL INVESTORS

AS OF 30 DECEMBER 2009

EuropeanInvestmentfundasTrusteeforEuropeancommission

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ACHIEVEMENTS | 5

EFSE invests in creation of value

This past year has probably been the most turbulent period in financial history since

the Second World War. The financial crisis has left behind deep scars – not only in

the economies of the European Union and other industrialised nations, but also in

the European Union neighbourhood countries, in Southeast Europe and the Cauca-

sus region. In fact, it is exactly those countries that had no hand in the cause of the

crisis that suffer the most. International investment capital has been withdrawn,

investors are holding back and economic development has grinded to a halt.

In this situation we have to invest even more to strengthen the financial sectors of

our partner countries – so that the countries of Southeast Europe and the Caucasus

region can quickly overcome the economic setback they have experienced. Today we can identify

the first signs of a possible return of growth. But this can only be realised if small companies,

which are also the main focus of EFSE and the key driving belt for the economic development

of our partner countries, have the possibility to obtain loans for new investments at reasonable

interest rates.

And exactly that is the central idea behind, and the recipe to the success of EFSE. We believe

in micro credits and the advancement of small and medium-sized enterprises. We don’t only

strengthen the business communities in our partner countries, but our concept also includes the

intellectual capital and know-how of investors from industrialised nations. This absolutely agrees

with the approach that I as development minister have adopted as Leitmotif for the German

development cooperation: Strengthening the economy and developing Public-Private Partner-

ships! We are investing in micro credits and fostering small and medium-sized companies.

To me, EFSE is one of the central players when it comes to the new focus of German and inter-

national development politics. Especially considering the fact that the Fund made it through

the crisis surprisingly strong and healthy. It is quite clear that this crisis was a true litmus test

for all financial institutions. But even in such difficult circumstances, EFSE proved that it is able

to conduct its business sustainably and that it is effectively crisis-proof.

Here the success factors include the specific partner orientation and strict exclusion of consumer

credits. EFSE invests in creation of value – not in the consumption thereof. And it also supports,

wherever possible, financing in local currencies. Another factor for its success is the support EFSE

provides to its partner institutions through the EFSE Development Facility, which was created

solely for this purpose.

Only because of these factors, it was possible for EFSE to expand its regional operation despite

the limiting factors presented by the crisis. With Armenia, Azerbaijan, Belarus and Georgia, four

new EFSE countries were recently added to the portfolio. I am certain that the Fund will be able

to continue writing its success story in those countries.

Dirk Niebel

German Federal Minister for Economic Cooperation and Development

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In the mid 1990s, Nagorka Govedarica found herself in a precarious situation: as a single mother in unemployment-stricken Sarajevo, she had no realistic chances of finding a job in her profession as child educator. But instead of giving in to her circumstances, Nagorka chose to do some-thing that would turn around the future facing her family. Her vision was born out of the fact that her neighbourhood Dobrinja, one of the most populous areas in the capital of Bosnia and Herzegovina, was severely lacking adequate childcare centres. “I wanted to create a place where local children could not only study, draw, sing and play together,

INVESTING IN EDUCATION

6 | ACHIEVEMENTS

Nagorka Govedarica Children day care centre

Client of ProCredit BankBosnia and Herzegovina KM 2,000, KM 5,000, KM 5,000, KM 8,000 and KM 10,000 (totalling approximately EUR 15,300)

GROWTHAs she sees children develop and grow, Nagorka Govedarica is reminded every day about the contribution her business is making.

RESPONSIBILITYInvesting in an educated youth of today ensures a healthy society of tomorrow.

but where they would also receive a solid basis for their future education,” says Nagorka.In 1998, she founded the day care centre Nasa radost, which stands for “our joy”, on the ground floor of her house. But because she strived to provide the best possible environment for the children, Nagorka saw the need to invest in renovation and furnishing. She approached the EFSE partner lending institution ProCredit Bank, where she quickly found competent support. Over a period of ten years, ProCredit Bank has provided Nagorka with five loans totalling KM 30,000 (EUR 15,300).

With this money, she managed to renovate and fully equip the indoor area with furniture and toys, as well as build a small play park in her garden.Today, five qualified teachers employed fulltime at Nasa radost work with the roughly 30 children that come there every day.

“It is wonderful to see the centre developing and im-proving the living standards for everyone involved,” says Nagorka. “This would not have been possible without the financial support I received when I needed it most.”

ACHIEVEMENTS | 7

Everything seemed set for success in the life of Gennadiy Lysikov. After completing a degree in engineering and nuclear physics in 1993, he started working at a Ukrainian optical glass factory in Izum. But after the factory was closed down, Gennadiy lost his job and for two years struggled to find new employment.Finally, he decided to take charge of his situation and attempted making money as an entrepreneur, trading at the local market with foodstuffs. Gennadiy was a hard worker and by 2003 he already owned two successful stands.

REAPING THE BENEFITS OF HARD WORK

8 | ACHIEVEMENTS

Gennadiy Lysikov Agricultural production

Client of MegabankUkraine UAH 198,000 (approximately EUR 18,000)

GROWTHGennadiy Lysikov realised early in life that dedication and hard work pay off and that it is everyone’s own responsibility to make something out of life.

RESPONSIBILITYAlthough Gennadiy Lysikov started with only 6 hectares of land, he saw the possibilities it presented and today can harvest over 220 hectares of land.

Then in 2006, after inheriting a 6 hectare piece of land, he spotted an opportunity. Using the knowledge he acquired during his years of selling foodstuffs, Gennadiy decided to move into producing them, instead. He leased additional pieces of land from local villagers and was soon able to bring in his first harvest: 200 tonnes of sunflower seeds, and 20 tonnes of barley.Although he had little experience in agriculture, his enthusiasm and hard work allowed Gennadiy to reap the rewards. In 1996 he took on his first loan from Megabank which he used to buy a tractor. In 2009, Megabank and

EFSE jointly started a credit programme aimed at small and medium-sized agricultural companies. Gennadiy was one of the first clients to receive a loan. With the UAH 198,000 (EUR 18,000) assigned to him, Gennadiy doubled his agri-cultural area and considerably expanded his operations .

“I am so happy that Megabank believed in my dream and gave me the possibility to do what I really wanted to,” says Gennadiy who today, in addition to business success, enjoys an excellent reputation among the village people and great respect from his business partners at Megabank.

ACHIEVEMENTS | 9

Being a complete stranger in a country often makes it more difficult for people to find their way. But when Tatjana Kolevska moved from Belarus to Macedonia, she managed to make this fact work for her, instead. Aware of an excellent range of cosmetic products that enjoyed great popularity in her home country, Tatjana decided five years ago that she wanted to introduce these products to her new surroundings. With moral support from her family and financial backing by the EFSE partner lending institution, Export and Credit

A BEAUTIFUL FUTURE

10 | ACHIEVEMENTS

Tatjana Kolevska Beauty shop

Client of Export and Credit Bank (EC Bank) FYR Macedonia EUR 5,000 and EUR 5,000

GROWTHDespite being a foreigner, Tatjana Kolevska managed to surpass herself and achieve financial independence.

RESPONSIBILITYTatjana Kolevska has undergone a number of trainings to truly understand her products and to be able to give her clients the best possible consultations.

Bank (EC Bank), Tatjana set out to found Bondi Interprajt DOOEL. Over the years, she has received two loans totalling EUR 10,000, which provided the working capital she needed to consecutively grow her business.With today six employees and two stores in prime location shopping malls in Skopje, Bondi Interprajt DOOEL is the sole importer for a number of high-end beauty products from Belarus, Israel and Italy as well as a variety of deco items, which are sold both to end-users and retail dealers. Tatjana is extremely passionate and knowledgeable about

her products, and one of the reasons she has been so successful is the high priority she places on professional consultation and service to her clients. Every single person entering her stores receives individual assistance in finding the best products for their needs.Professional service is also a characteristic that Tatjana appreciates with EC Bank, who stood with her from the beginning. Once a foreigner to Skopje, Tatjana now has a buzzing business, loyal business partners, and is firmly rooted in her new environment.

ACHIEVEMENTS | 11

It doesn’t have to be the first idea that leads to success. But it is important to stay committed and keep on trying – just like Kareman Dalipi from Dushk in Albania. With his first real savings, he ventured into entrepreneurship and opened up a fast-food store in Tirana. “But this didn’t turn out the way I had hoped and I was soon forced to give up the business and return to my place of birth,” remembers Kareman. Yet rather than being discouraged by his situation, he found new inspiration in his immediate environment.Most of the local villagers were olive farmers who had to travel far away to have their olives processed into olive oil.

SHARING IN HIS SUCCESS

12 | ACHIEVEMENTS

Kareman Dalipi Olive oil production

Client of Opportunity Albania Albania ALL 400,000 and ALL 500,000(totalling approximately EUR 7,300)

GROWTHKareman Dalipi has learnt that the secret to success lies in sharing it as much as possible with others and promoting mutual growth.

RESPONSIBILITYAn honest and transparent work ethic is fundamental if you want people to trust in your business .

Kareman plotted out the idea of establishing his own olive production line right in his village. Convinced that this was a good idea, Kareman ordered his first olive processor from Italy in 2007. But this wasn’t enough to get him started. “I urgently needed a spinner and an oil filter bed before I could start producing the oil, but I didn’t have enough money for this,” explains Kareman. He headed off to Opportunity Albania, an EFSE partner lending institution dedicated to financing micro entrepreneurs, and quickly knew he had come to the right place. Kareman left with his first credit loan of ALL 400,000 (EUR 3,200).

His plans were working out. Because they could save hours of travel time, the local villagers turned to Kareman to process their olives. In addition, Kareman’s principle of selling olive oil on commission, thereby allowing the farmers to participate in his success, soon cemented his reputation as an honest and deeply committed business partner. Last year, Kareman received a second loan of ALL 500,000 (EUR 4,100) from Opportunity Albania, which he used to buy an olive washing machine. His business is running so well, that an increasing number of farmers from the surrounding area are turning to him to have their olives processed.

ACHIEVEMENTS | 13

HIGHLIGHTS OF 2009

• THEfIRSTcRISISRESPONSEPackaGE

addressing Credit Risk and Delinquency Management was started by the EFSE Development Facility.

• THEEfSEDEvELOPmENTfacILITYORGaNISEDTWODOWNScaLINGPROjEcTS

at Moldova Agroindbank and FinComBank in Moldova on the development of microlending strategies ,

products and procedures.

• RESPONSIBLEfINaNcEcONfERENcEINkOSOvO

The Central Bank of Kosovo, supported by the EFSE Development Facility and KfW, organised a Responsible

Finance Panel Discussion event in Prishtina, Kosovo in March 2009. The event attracted over 60 participants

from the financial sector and government agencies and was opened by the Governor of the Central Bank of

Kosovo, Hashim Rexhepi. The importance of responsible finance, especially in times of crisis, was addressed,

highlighting both transparency and literacy as significant factors for financial institutions to take into

consideration in their relationships with clients.

• EfSEINTRODucEDaSOcIaLPERfORmaNcEaSSESSmENTcONcEPT

which was implemented throughout the year.

QI

14 | ACHIEVEMENTS

HIGHLIGHTS OF 2009

QII• THEREPuBLIcOfaLBaNIaBEcamETHEfIRSTSHaREHOLDERfROmEfSE’STaRGETREGION.

The highly appreciated contribution facilitated two new Albanian financial institutions , namely

ProCredit Bank Albania and Credins Bank.

• EfSEaNNuaLmEETINGINNOvISaD,SERBIa

The 3rd EFSE Annual Meeting took place in Novi Sad, Serbia, and hosted over 200 guests of the Fund’s

stakeholders, including donors, public and private investors, international financial institutions, partner

lending institutions, as well as policymakers, academics and other experts in related fields. The 2009 event

covered the effects of the international financial crisis on Southeast Europe and an outlook for the future of

the financial sector in this region under the headline “Financial Crisis and Southeast Europe: Off the Cliff or

Out of the Woods?” – addressing the topic from three different perspectives: investors, commercial banks

and microfinance institutions.

• THESTuDYONTHEaccESSOfLOW-INcOmEHOuSEHOLDSTOfINaNcIaLSERvIcES

and the risk of over-indebtedness of microcredit clients which was conducted by the EFSE Development

Facility was presented at the Roundtable of the Association of Microfinance Institutions in Bosnia and

Herzegovina (AMFI). Thereupon financial crisis workshops for microfinance institutions in Bosnia and

Herzegovina were offered.

• THELuxfLaGmIcROfINaNcELaBELfOREfSEWaSRENEWED

for the fourth consecutive time.

ACHIEVEMENTS | 15

HIGHLIGHTS OF 2009

QIII

16 | ACHIEVEMENTS

• aSIGNIfIcaNTNumBEROfPRIvaTEINSTITuTIONaLINvESTORS

jOINEDTHEfIRST-cLaSSINvESTORBaSEOfEfSE,

among them family businesses, financial institutions , religious organisations and foundations.

• THETHIRDEfSEDEvELOPmENTImPacTSTuDY2009WaSSTaRTED.

It analyses the topic of agricultural finance activities in three EFSE markets: Albania, Kosovo and Moldova.

• RuRaLfINaNcEGaPaNaLYSISINaLBaNIa

The EFSE Development Facility conducted an analysis of the supply and demand gap of financial services

available to farm households and entrepreneurs in rural regions of Albania. The survey revealed a rather low

utilisation of financial services and identified the fact that access to financial services is perceived as difficult.

Although a strong savings culture among the rural population was identified, the analysis confirmed a low

level of financial literacy and awareness of financial products among the rural population, as well as a lack of

delivery channels of financial services to rural enterprises.

Source: Elizabeth Holmes / Katia Görtz, FSFM

HIGHLIGHTS OF 2009

QIV

ACHIEVEMENTS | 17

• aNEWmILESTONEWaSREacHED:

EUR 1 billion were disbursed to about 200,000 sub-borrowers since the Fund’s inception in December 2005.

• fIRSTINvESTmENTINukRaINE

With the signing of a subordinated

loan agreement between EFSE and the

Ukrainian Megabank the Fund under-

took its first investment in the Ukrainian

market.

• INkOSOvOaWORkSHOPONTHETRaNSfORmaTIONOfmIcROfINaNcEINSTITuTIONS

with an NGO status into for-profit companies was arranged with support of the EFSE Development Facility.

• THETHIRDRESPONSIBLEfINaNcEcONfERENcETOOkPLacE

in Sarajevo, Bosnia and Herzegovina jointly organised by the Central Bank of Bosnia and Herzegovina,

KfW Entwicklungsbank and EFSE.

• REGIONaLExPaNSIONOfEfSETOTHEEuROPEaNEaSTERNNEIGHBOuRHOODREGION

A festive event marking the EFSE regional expansion to Armenia, Azerbaijan, Belarus and Georgia was held in

Brussels. In line with the European Neighbourhood Policy the new European Neighbourhood window under

EFSE will encompass these four new countries as well as Moldova and Ukraine.

18 | Growing responsibly – Growing responsibilty

EFSE’S REGIONAL ExPANSION

In 2005, EFSE started out with four target countries

in what is largely referred to as the Western Balkans

region. Only four years later, the Fund was already

operating in ten countries in Southeast Europe,

having served more than 200,000 end-borrowers

in the region. Against the backdrop of this strong

performance, EFSE further broadened its geographic

scope by expanding to four new countries: Armenia,

Azerbaijan, Belarus and Georgia. Together with

Moldova and Ukraine, these four countries form the

European Eastern Neighbourhood region.

Given the importance of this new region in terms

of population and relevance of the micro, small and

medium enterprise sector, the Fund has opened a

dedicated Euro pean Neighbourhood Fund window

within the EFSE structure. Going forward, the Fund will

report separately on the portfolio development and

impact in the original Western Balkan Facility window,

including the European Union countries Bulgaria and

Romania and the European Neighbourhood Small

Business Growth Facility (ENBF) window.

The geographic expansion was made possible

through the contribution of additional first-loss

capital by the European Commission, the German

Government represented by the Federal Ministry for

Economic Cooperation and Development (BMZ)

and the Development Bank of Austria (OeEB) for the

European Eastern Neighbourhood region.

EFSE’s development objective is to enhance the

economic development and prosperity of the region.

Due to the strong ties between the European Eastern

Neighbourhood region and Southeast Europe, as

reflected by important trade and energy links as well

as migration flows, the development of Southeast

Europe intimately correlates with the development

of its neighbouring region. Furthermore, EFSE’s

traditional target countries in Southeast Europe

have similar developmental needs to the European

Eastern Neighbourhood countries. A topical issue

for most of these countries is achieving post-conflict

stability, amongst others also through economic

development, regional cooperation and integration,

all of which EFSE wishes to contribute to.

CONSIDERING LOCAL NEEDS

Notwithstanding these similarities, the European

Eastern Neighbourhood region nevertheless

aRmENIa

CAPITAL YereVAn

PoPuLATIon 3,261 mILLIon

AreA 28,200 sQ km

GDP/CAPITA eur 1,790

m2/GDP 14.74 %

aZERBaIjaN

CAPITAL BAku


AreA 86,600 sQ km


m2/GDP 16.87 %

18 | ACHIEVEMENTS

GDP = gross domestic product

M2 = broad money supply

exhibits certain specific characteristics and

requirements that EFSE will need to consider.

The new partner countries were previously

an integrated part of the former Soviet Union

and therefore applied the state economic

model. With the declaration of independence,

a fundamental overhaul of both the political

systems as well as the economic structures

occurred, albeit with differing speed and depth

across the region.

In terms of the overall economic structure, small-

and medium-sized enterprises play a critical role

in the European Eastern Neighbourhood region,

enhancing EFSE’s business financing approach

to not only address microenterprise financing but

also to promote small enterprise financing

solutions. Generally speaking, local currency plays

a much stronger role in the European Eastern

Neighbourhood countries. The banking sectors

display a predominance of local capital and a

considerably smaller presence of international

banking groups. Particularly in Armenia, Azerbaijan

and Georgia, a significant number of micro-

finance institutions are engaged in micro enter prise

financing.

BENEFITING FROM ExPERIENCE

The expansion was part of the natural development

of EFSE and benefits from an experienced fund

management structure and process. Besides tapping

the large investment potential in the European Eastern

Neighbourhood region, the expansion will enable

significant synergies for the benefit of all of the

Fund’s stakeholders, partner lending institutions

and investors. Not only because of the expected

scale of operations, but also because of broader risk

diversification across countries and a greater diversity

of financial institutions.

By using the existing structures, procedures,

experiences and skills, EFSE is able to immediately

start its operations in the European Eastern

Neighbourhood region. This swift start will benefit

the region as investment volumes are placed,

technical assistance made available and as

responsible finance practices are promoted. The

geographic expansion will contribute to deepening

financial intermediation in the new target region. It

will also bring much-needed long-term funding for

micro, small and medium-sized enterprises as well

as for home improvement to these countries.

BELaRuS

CAPITAL mInsk


AreA 207,600 sQ km


m2/GDP 26.24 %

GEORGIa

CAPITAL TBILIsI


AreA 69,700 sQ km


m2/GDP 23.77 %

ACHIEVEMENTS | 19

Sources: Central banks 2009, International Monetary Fund 2010, World Development Indicators 2007

LETTER FROM THE FUND MANAGER AND THE FUND ADVISOR

During 2009, EFSE maintained its position as one of the world’s largest micro-

finance investment funds. Although the stellar growth from the first three years of

operation slowed down due to the impact of the global financial crisis, we continued

to manage the Fund with confidence, placing great emphasis on the quality of the

portfolio and on responsible growth.

Responsible growth put in numbers means an increased investment portfolio

reaching EUR 578.9 million that was invested in 58 partner lending institutions in

10 countries. 2009 saw 17 investments being made, to the total value of over EUR

100 million. With 13 new investors forming EFSE’s first-class investor base, the

committed funding hiked to EUR 728.1 million. The majority of these new inves-

tors are private institutional investors which underlines the functionality and the

success of the exceptional Public-Private Partnership model of the Fund.

But our results are not just about investment volume or financial returns. They

are, more importantly, about their development impact. Every day in 2009, EFSE

refinanced 48 additional micro and small businesses or low-income private house-

holds recording more than 115,000 active end-borrowers at year-end. EFSE’s subloan

portfolio rose to EUR 446.4 million. In September, the amount disbursed by EFSE's

partner lending institutions since the Fund’s inception in 2005 hit EUR 1 billion!

Another milestone in the Fund’s history was the regional expansion of EFSE to

four additional countries from the European Eastern Neighbourhood region. The

Fund starts operations in Armenia, Azerbaijan, Belarus and Georgia in 2010. This

expansion will also have an impact on EFSE providing balanced support both to

micro as well as small enterprises and low-income private households.

Detlef Kröger Johann Will Elvira Lefting Sylvia Wisniwski Florian Meister

20 | GROWING RESPONSIBLY

Growth is always accompanied by more responsibility. The team of the Fund's

service providers is aware of this challenge but is confident to meet it with

the support of the EFSE stakeholders and the EFSE Development Facility.

The success of EFSE and the subsequent improvement of the living conditions of

people in the target region are only possible with the people who make this Fund

work. The commitment of the Board of Directors, the Investment and Development

Facility Committees, the Advisory Group as well as that of the staff of all service

providers is crucial. Furthermore, the Fund benefits strongly from the excellent

relation ships with its partner lending institutions and its investors. Thank you very

much to all of them.

Johann WillVice President Oppenheim Asset Management Services

Detlef KrögerSenior Associate Oppenheim Asset Management Services

Sylvia WisniwskiChief Operating Officer Finance in Motion

Elvira LeftingChief Investment Officer Finance in Motion

Florian MeisterExecutive Manager Capital Markets Finance in Motion

GROWING RESPONSIBILITY | 21

The concept of responsible finance stands for a fair balance of the interests of all stakeholders that are part

of the financial markets: users of financial services, financial service providers and investors. EFSE is committed

to promoting responsible financing practices in a very practical and hands-on manner. This commitment

stems first and foremost from the Fund’s social mission to improve the access of less privileged population

groups to finance. Furthermore, stable and integer financial markets are the foundation to the EFSE business

model and are particularly crucial for the long-term investment horizon of the Fund. Only with responsible

finance practices can sustainable growth be achieved.


GROWING RESPONSIBLY – GROWING RESPONSIBILITY

END-BORROWER LEVEL

We consider it essential that all technical assistance financed by OeEB funds creates a sustainable impact both at the end-client as well as the partner institutions’ level. With the client educational booklet developed with support from the EFSE Development Facility, both goals were achieved at best.Michael Wancata, Member of the Executive Board, Oesterreichische Entwicklungsbank AG (OeEB)

PROMOTING FINANCIAL LITERACY

EFSE aims to enhance the level of understanding

of financial terms and concepts among the end-

clients. The objective is to help clients make

educated decisions regarding the financial services

they need and ensure they are well-informed before

entering into any relationships with financial service

providers.

PREVENTING OVER-INDEBTEDNESS

The financial crisis has shown that especially ill-

informed clients tend to accept higher loan amounts

than they can afford. These clients encounter

difficulties in servicing their debt once personal and

macroeconomic conditions become challenging.

The Fund aims to raise awareness among its final

target group through public campaigns, working on

industry codes of conduct to limit the debt burden to

single client households and by supporting the set-

up of debt advice centers.

Sou

rce:

OeE

B/C

. Häu

sler

Educating clients and promoting financial literacy

In 2009, the EFSE Development Facility (DF), together with the Fund’s partner lending

institutions, continued to organise a variety of client education initiatives. Projects addressing the

end-borrowers included the development of educational television spots and booklets.

With the help from consultants provided by the EFSE DF, Cacanska banka in Serbia finalised the

production of 15 short educational television spots. The project aimed at promoting transparency

for end-borrowers among the banking sector and financial literacy in Serbia. The spots use easily-

understood language to explain basic banking terms and processes to the broader public. In each

of them, the viewers accompany two young students through the “world of banking” as they visit

the bank to clarify their questions on a particular topic, such as effective interest rates or how to

open a current account. The television spots are broadcasted on more than 15 local and regional

TV stations across Serbia during the first half of 2010.

The EFSE DF furthermore supported the development and promotion of client educational

booklets that were distributed throughout Kosovo and Bosnia and Herzegovina. The booklets

aimed at raising awareness and teaching current and potential users of financial services how to

responsibly use the services offered by banks and microfinance institutions. In Kosovo, the EFSE

DF, in cooperation with the Microfinance Association of Kosovo (AMIK), developed a booklet on

the principles of microfinance that was distributed through 3 daily newspapers and the branch

networks of AMIK’s members. In Bosnia and Herzegovina, ProCredit Bank received financial

support for the promotion of a booklet teaching people how to calculate and keep track of their

household budget. The booklet also included information about the relevance of savings and was

distributed as an insert to newspapers on World Savings Day.


Supporting partners in rough times

Against the backdrop of the financial crisis, partner lending institutions (PLIs) were faced with

new challenges relating to both credit and financial risk. A key challenge was for them to adapt

institutional structures to a new environment while maintaining their micro and small business

focus and managing profitability. As a result, asset quality became a major focus for many PLIs.

In this situation, the EFSE Development Facility (DF) played a decisive role, especially for

microfinance institutions (MFIs). A number of MFIs received technical assistance to build up

capacity in credit risk and delinquency management. The years leading up to the financial crisis

had been marked by accelerated growth and excellent repayment rates; consequently, practical

experience in bad loan management was limited. Thus there was an evident need to support

PLIs in developing policies and procedures for loan restructuring or collection. Hands-on, tailor-

made technical assistance implemented during intermittent visits from consultants organised by

EFSE, helped PLIs to improve internal structures and processes. The consultants helped introduce

delinquency task forces and arrears committees, trained staff, or provided coaching to middle and

top management.

In one particular case, the EFSE DF supported a PLI in reviewing its overall risk management

approach and systems, including operational risk, credit risk and market risk.

A sector-wide workshop – organised for all MFIs in Bosnia and Herzegovina in early 2009 –

provided a platform to discuss the challenges that came with the financial crisis and how to

address them. Research projects exploring the consequences of the financial crisis and the risk

of over-indebtedness among the EFSE final target group provided valuable input for discussions

about the way forward.



SOCIAL PERFORMANCE ASSESSMENT

OF PARTNER LENDING INSTITUTIONS

In addition to assessing the financial strength of

every partner lending institution, EFSE also assesses

the scope and quality of corporate values and

business practices employed by its partners. The

Social Performance Assessment covers the following

areas: mission, Client Protection Principles, the

outreach of microfinance institutions and, with

banks, their responsibility towards staff, community

and environmental issues. The Social Performance

Assessment is implemented for every new partner

lending institution as part of the due diligence

process.

PROMOTING SOUND SOCIAL AND

ENVIRONMENTAL MANAGEMENT SYSTEMS

The Fund promotes the implementation of sound

social and environmental policies and management

systems in partner lending institutions. As a

minimum standard, EFSE requires each partner

lending institution to refrain from financing activities

listed in a social and environmental exclusion list.

Furthermore, the Fund proactively offers training in

this area. It prepares an annual monitoring report

on the status quo and progress made at the partner

lending institution level.

FMO has always been at the forefront of integrating sustainability in business strategies. One way to ensure sustainable development impact is to incorporate social and environmental principles into the management systems of the partner lending institutions. EFSE promotes this approach, through its continuous dialogue with PLIs and through technical assistance.Nanno Kleiterp, Chief Executive Officer, FMO (the Netherlands Development Finance Company)

PARTNER LENDING INSTITUTION LEVEL

IFC recognises the importance of responsible lending in building sound and sustainable financial systems and institutions that

truly meet the needs of their clients. We work with partner institutions to promote responsible finance practices throughout

Southern Europe.Rashad-Rudolf Kaldany, Vice President,

Asia, Eastern Europe, Middle East & North Africa, IFC


OFFERING RESPONSIBLE FINANCIAL

INSTRUMENTS

EFSE wishes to support the development of local

financial markets and therefore promotes local

currency financing wherever possible. Markets under

strain, as was evident during the financial crisis, also

require a flexible approach from investors. Under

these circumstances, the Fund adjusted flexibly

its terms and conditions and provided leeway to

financial institutions to better cope with the effects

of the financial, and subsequently also economic

crisis, while always maintaining high risk standards.

RAISING AWARENESS OF RESPONSIBLE

FINANCE

The Fund is committed to promoting responsible

finance practices by organising joint seminars

and conferences with local central banks and KfW

Entwicklungsbank. Additionally, EFSE commissions

research in the area of responsible finance to provide

empirical evidence on the subject.

FINANCIAL SECTOR LEVEL

The EFSE Development Facility strongly promotes responsible finance practices. Several seminars and conferences in the region have been organised, increasing overall awareness and setting standards

for responsible finance. These events were made possible through the cooperation of central banks, ministries, banks and microcredit organisations as well as other local stakeholders and development

finance institutions – in particular KfW. In addition, an exemplary study on the access of low-income households to financial services, with over 900 participants, was conducted in Bosnia and Herzegovina.

Monika Beck, Member of the EFSE Board of Directors and Investment Committee, Chairperson of the EFSE Development Facility and Head of Financial and Private Sector Development, KfW Entwicklungsbank

The key of the successful partnership between EBRD and EFSE lies in both sharing the same business goals: Promoting local currency instruments as part of responsible financing practices is one such important joint goal.Henry Russell, Director Small Business Finance and Financial Institutions, EBRD

ACCESS OF LOW-INCOME HOUSEHOLDS TO FINANCIAL SERVICES IN BOSNIA & HERZEGOVINA

APRIL2009


Addressing the sectoral level

To promote responsible finance practices and financial literacy at the sectoral level, the EFSE

Development Facility (DF), together with the respective regulators, continued to organise panel

discussions on responsible finance. The EFSE DF also commissioned research and development

activities to tackle the topic.

In 2009, two responsible finance conferences were organised in Kosovo and Bosnia and

Herzegovina, together with the respective central banks and the German Development Bank

KfW. These events provided an important opportunity to discuss addressing the consequences of

the crisis in the target region and what role responsible finance practices would play in this regard.

Both conferences brought these themes closer to financial sector experts and stakeholders while

raising awareness among the public through broad local media coverage.

The EFSE DF furthermore published a study on access to finance of low-income households in

Bosnia and Herzegovina, analysing the availability of financial services for low-income households

and the risk of over-indebtedness for this client group. Given the importance of the topic, the DF

launched a follow-up research initiative to examine the question of over-indebtedness in more

depth. The findings and resulting recommendations addressed all levels of the financial sector and

helped to facilitate the dialogue about potential counteractive measures.

TRANSPARENCY

OF INFORMATION

EFSE aims for a maximum transparency of its

operations. In addition to the official reports

submitted to the Luxembourg Financial Sector

Supervisory Authority (CSSF), the Fund publishes

a wide range of publicly available information on a

quarterly basis. Such information is published both

on EFSE’s own website (www.efse.lu) as well as on

microfinance information platforms.

ACTIVE SUPPORT OF THE SMART CAMPAIGN

AND OTHER INDUSTRY INITIATIVES

The Fund was among the first signatories of

the SMART Campaign, a joint initiative of CGAP

and ACCION International to promote consumer

protection in the microfinance industry. Furthermore,

EFSE participates in a wide range of industry

initiatives, e.g. the CGAP Social Performance

Working Group.

REGULAR SOCIAL PERFORMANCE

MONITORING

On a quarterly basis, EFSE monitors the proper use

of the funds by its partner lending institutions to

the end-borrowers. It does so through the collection

and analysis of a comprehensive set of subloan

data. In addition, the Fund commissions an Annual

Development Impact Study to external consultants

in order to obtain an independent opinion on its

effectiveness in reaching its social mission.

FUND AND INVESTOR LEVEL

28 | GROWING RESPONSIBLY – GROWING RESPONSIBILITY

As the movement for responsible finance has gained momentum, it's a given that organisations working in microfinance need to make an explicit commitment to the fair treatment of poor clients. But if you take yourself back a year or two it was by no means obvious: it needed leadership. EFSE stepped up to the plate as one of the first signatories to the Client Protection Principles and is now taking an active role integrating them into their day-to-day practices.Alexia Latortue,Deputy Chief Executive Officer, CGAP

HIGH PORTFOLIO

QUALITY

The turbulences that have hit the international

financial markets have not left the countries of

Southeast Europe unscathed. In response to the

negative financial and economic climate, EFSE

implemented multiple measures to protect the high

quality of its investment portfolio and credibility

towards its partner lending institutions (PLIs). In this

context, asset quality has been the prominent theme

of 2009, not only in EFSE’s portfolio management

but also for technical assistance measures.

CHALLENGE FOR EFSE'S PLIS

The last year has been challenging for EFSE’s

PLIs. After the liquidity crisis bottomed out toward

the end of 2008, the year of 2009 was marked by

loan book contraction and rapidly deteriorating

asset quality in financial sectors. This came as

a reflection of the severe economic downturn

experienced throughout the entire EFSE target

region. As a result, profitability has suffered

due to substantially higher loan provisions

and an increase in non-yielding liquid assets

compared to previous years. This fuelled capital

pressures. Notwithstanding these challenges, the

Fund’s PLIs have to-date generally managed to

weather the crisis rather well, particularly due to

a combination of high capital levels prior to the

crisis and prudent risk management. Furthermore,

EFSE was providing technical assistance support

to help its partner lending institutions cope with the

effects of the crisis, particularly in the area of credit

management. The Fund is proud to report that all

PLIs fulfilled their payment obligations on time

during the year. As a preventative measure, the Fund

has booked its first impairment provisions since the

Fund’s inception, which represented less than 0.1 %

of total assets at the end of 2009.

COMPREHENSIVE

RISK MANAGEMENT

The Fund’s management emphasised once again

sound risk management techniques. As a corner-

stone of the Fund’s comprehensive risk management,

we want to highlight the continuous and close

monitoring of the target markets and individual

PLIs. The Fund’s comprehensive monitoring system

comprises quarterly ratings, monthly or even weekly

reporting on critical cases as well as a continuous

trend analysis of key performance criteria as part

of an early warning system. Another strength of the

Fund is its speed and flexibility, for example with the

adjustment of terms and conditions or investment

planning and disbursements. Despite the uncertainty

and volatility that prevailed in the financial markets

throughout the EFSE target region in 2009, the Fund

is proud to have successfully managed the risk profile

of EFSE’s investments and ensured a financial return

for its investors to the same level of previous years.

FACTS, FIGURES & FINANCIAL STATEMENTS | 29

PERFORMANCE OVERVIEW

FINANCIAL STATEMENTS

balance sheetas of 31 December (in EUR)

2009 2008

assetsGross loans to partner lending institutions 573,735,608 522,511,966

Un-amortised discount -10,789,389 -8,346,243

Impairment allowance -394,941 –

Loans to partner lending institutions 562,551,278 514,165,723

Interest accruals on loans 6,985,510 9,046,278

Cash at bank 59,049,751 39,417,596

Equity investments 4,350,584 3,932,325

Other receivables 141,016 1,414,862

TOTAL ASSETS 633,078,139 567,976,784

liabilitiesNotes 169,039,711 166,387,971

Payables resulting from interest on notes 277,817 822,250

Accrued expenses 2,311,671 2,329,747

Dividends payable 7,173,133 4,656,825

Withholding tax payable 1,687,585 1,710,180

Other payables 749,119 874,005

TOTAL LIABILITIES 181,239,036 176,780,978

NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE ORDINARY SHARES 451,839,103 391,195,806

TOTAL LIABILITIES AND SHAREHOLDER VALUE 633,078,139 567,976,784

30 | FACTS, FIGURES & FINANCIAL STATEMENTS

breakdown of equityas of 31 December (in EUR)

2009 2008

total share capital 423,765,538 368,853,583

A-Shares 152,711,174 126,037,721

B-Shares 88,645,135 86,295,128

C-Shares 182,409,229 156,520,734

total share premium 12,796,420 13,359,387

A-Shares 6,674,387 5,531,271

B-Shares 5,217,624 7,110,826

C-Shares 904,409 717,290

available-for-sale reserve 598,671 180,412

total retained earnings 14,678,474 8,802,424

A-Shares -6,674,387 -5,531,271

B-Shares -5,217,624 -7,110,826

C-Shares 26,570,485 21,444,521

total equity 451,839,103 391,195,806

A-Shares 152,711,174 126,037,721

B-Shares 88,645,135 86,295,128

C-Shares 210,482,794 178,862,957



income statementfor the period from 1 January to 31 December (in EUR)

2009 2008

revenueInterest income on loans 33,694,887 33,835,129

Interest income on deposits 437,792 1,356,277

Net change in discount amortisation 4,133,881 4,790,170

Realised and unrealised gain on derivatives 1,497,594 1,375,604

Realised and unrealised gain on exchanges 1,377,428 352,485

Other income 2,303,232 3,264,673

TOTAL INVESTMENT INCOME 43,444,814 44,974,338

expensesInterest expense on notes 6,642,010 9,116,907

Fund management fees 7,999,900 7,198,774

Direct operating expenses 2,329,635 1,974,176

Development Facility 1,113,431 544,026

Realised and unrealised loss on derivatives 1,670,947 265,998

Realised and unrealised loss on exchanges 2,990,518 1,538,156

Credit loss expenses 394,941 –

Other expenses 620,625 399,099

TOTAL OPERATING ExPENSES 23,762,007 21,037,136

oPerATInG ProfIT Before TAx 19,682,807 23,937,202

Withholding tax on interest income 2,664,832 4,092,148

INCREASE/DECREASE IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE ORDINARY SHARES FROM OPERATIONS 17,017,975 19,845,054

other comprehensive incomeNet gain/ loss on available-for-sale financial assets 418,259 180.412

TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAx 17,436,234 20.025.466

cash-flow statementfor the period from 1 January to 31 December (in EUR)

2009 2008

OPERATING PROFIT BEFORE TAx 19,682,807 23,937,202

Adjustment for:

Un-amortised discount 2,443,146 -6,915,973

Impairment allowances 394,941 –

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 22,520,894 17,021,229

Loan agreements -51,223,642 -147,116,187

Purchase of shares – -3,751,913

Net increase/decrease in other accrued income and prepaid expenses 2,060,768 -3,398,634

Net increase/decrease in other receivables 1,273,846 -1,060,433

Net increase/decrease in accounts payable and accrued expenses 243,619 528,350

Net increase/decrease in other payables 486,566 63,827

Withholding tax on interest income -977,247 -4,092,148

Distributions paid to holders of redeemable ordinary shares -11,892,011 -12,642,097

CASH-FLOW USED IN OPERATING ACTIVITIES -37,507,207 -154,448,006

Cash provided by financing activities

Cash received on notes issued 2,651,740 45,708,549

Cash received on shares issued 55,099,074 114,971,458

Cash paid out on shares redeemed – –

CASH-FLOW PROVIDED BY FINANCING ACTIVITIES 57,750,814 160,680,007

NET INCREASE IN CASH AND CASH EQUIVALENTS 20,243,607 6,232,001

OPENING CASH AND CASH EQUIVALENTS 38,806,144 32,574,143

CLOSING CASH AND CASH EQUIVALENTS 59,049,751 38,806,144


DEVELOPMENT IMPACT


50100150200250300350400450500

Dec05

Jun 06

Dec06

Jun07

Dec07

Jun08

Jun09

Dec08

Dec09

0

Amount (EUR million) Number of loans (thsd.)

Small enterprises 50,001 – 100,000 EUR Small enterprises 10,001 – 50,000 EUR Micro enterprises less than 10,000 EUR

MSE = micro and small enterprises

Number of loans Loan amount

2 %

29 %6 %

28 %92 %

43 %

The subloans disbursed to MSEs – rural and urban – represent the largest share. This trend has been ongoing for the last years.

The by far largest share of subloans is concentrated in the microcredit segment of up to EUR 10,000.

As a consequence of the financial crisis, the growth of the subloan portfolio slowed down in 2009.

SUBLOAN DISBURSEMENTS BY PRODUCT DURING 2009 Year to date as of 31 December 2009

(based on volume)

SUBLOAN DISBURSEMENTS BY LOAN SIZE DURING 2009 – MSE AND HOUSING

Year to date as of 31 December 2009

MSE urban 84 %

MSE rural 10 % Housing 6 %

SUBLOAN PORTFOLIO DEVELOPMENT


Since EFSE’s inception, a total of EUR 1.1 billion have been disbursed by partner lending institutions benefiting

more than 216,000 micro and small businesses as well as low-income private households. The average subloan

outstanding is around EUR 3,900.

446.4

115.6



Agriculture Industry Trade Services


Fixed assets Working capital Mixed


Loan amount

17 %

54 %

29 %

Home improvement Construction Purchase

Loan amount

39 %

12 %

49 %

Number of loans Loan amount

26 % 36 %

20 %

12 %

23 %

26 %39 %

18 %

SUBLOAN DISBURSEMENTS BY ECONOMIC SECTOR DURING 2009 – MSE


SUBLOAN DISBURSEMENTS BY LOAN PURPOSE DURING 2009 – MSE AND HOUSING


Subloans disbursed for agriculture have a smaller average size in comparison to those of other economic sectors.

The share of working capital increased significantly in comparison to the previous year. This is a reflection of the reluctance to obtain financing for long-term investments given current economic uncertainties.

target groupYear to date as of 31 December 2009 2009 2008

subloan portfolio to end-borrowers (EUR million) 446 442

MSE – urban/rural (EUR million) 350 320

Housing including energy efficiency (EUR million) 96 122

number of active end-borrowers 115,590 98,087

MSE – urban/rural 104,061 84,831

Housing including energy efficiency 11,529 13,256

average subloan amount outstanding (EUR) 3,862 4,506

total subloan volume disbursed (EUR million) 352 326

MSE – urban/rural (EUR million) 330 278

Housing including energy efficiency (EUR million) 22 48

total number of subloans disbursed 68,477 64,397MSE = micro and small enterprises

INVESTMENTS

country

mSEsurban/rural

Housing

includingenergyefficiency Total Share

Albania 10.0 2.0 12.0 12 %Bosnia and Herzegovina 19.0 – 19.0 18 %FYR Macedonia 8.0 – 8.0 8 %Kosovo 5.0 – 5.0 5 %Moldova 18.0 – 18.0 17 %Montenegro 7.0 – 7.0 7 %Romania 7.0 – 7.0 7 %Serbia 20.0 – 20.0 19 %Ukraine 6.9 – 6.9 7 %TOTAL FUND 100.9 2.0 102.9 100%SHARE 98% 2% 100%

At the end of 2009, EFSE operated in 10 countries with an investment portfolio of EUR 578.9 million. This

portfolio consists of loans of EUR 573.7 million, equity investments of EUR 4.4 million and guarantees of EUR

0.8 million. The total amount of approved investments since inception sums up to EUR 684.1 million.

Local currency lending has started to gain in importance.

The investment portfolio growth of EFSE reflects the overall slow-down of lending activities of its partner lending institutions .

CURRENCY ALLOCATION IN % Year to date as of 31 December 2009

Euro (EUR) 91.7 %

US Dollar (USD) 6.5 %Romanian Lei (RON) 1.7 %Albanian Lek (ALL) 0.1 %

INVESTMENT PORTFOLIO DEVELOPMENT Year to date as of 31 December 2009 (EUR million)

NEW INVESTMENTS APPROVED IN 2009 Year to date as of 31 December 2009

(EUR million)

100

200

300

400

500

600

12/05 12/06 12/07 12/08 12/0906/06 06/07 06/08 06/09

578.9



Bosnia and Herzegovina

Serbia

Romania

Montenegro

Moldova

Kosovo

FYR Macedonia

Albania

Supra-Regional

Bulgaria

Ukraine

27

16

12

11

9

8

7

4

3

2

1

INVESTMENT PORTFOLIO BY PRODUCT Year to date as of 31 December 2009

INVESTMENT PORTFOLIO BY COUNTRY IN % Year to date as of 31 December 2009

INVESTMENT PORTFOLIO BY INSTRUMENT Year to date as of 31 December 2009

The share of MSE investment portfolio – rural and urban – further increased.

Bosnia and Herzegovina still has the largest share of the investment portfolio for historic reasons. However the overall trend is towards a more balanced portfolio in geographic terms.

EFSE predominantly remains a debt fund, albeit with an increasing share of subdebt investments.

MSE urban 71 %

MSE rural 8 %

Senior loans 76 %

Housing 20 %

Housing energy efficiency 1 %

Hybrid capital 3 %

Subordinated loans 20 %

Equity 0.8 %Guarantee 0.2 %



PARTNER LENDING INSTITUTIONS

Outstandingbalance

albania 23.8

Commercial banks: Credins Bank sh.a.Microfinance banks: ProCredit Bank Albania sh.a.Microcredit organisations: Opportunity Albania

bosnia and herzegovina 156.3

Commercial banks: Fima Banka d d Sarajevo, Intesa Sanpaolo Banka d.d. Bosna i Hercegovina, NLB Tuzlanska banka d.d. Tuzla, Nova Banka AD Banja Luka, Raiffeisen Bank d d Bosna i Hercegovina, UniCredit Bank d.d., Volksbank BH d.d. Microfinance banks: ProCredit Bank d.d., SarajevoMicrocredit organisations: MCC Mikrofin, MCC Sinergija Plus d.o.o. Banja Luka, MCF EKI, MCF MI-BOSPO, MCF Mikra, MCF Mikro Aldi, MCF Prizma, MCF Sunrise, Partner MCF

bulgaria 10.0

Microfinance banks: ProCredit Bank, Bulgaria

fyr macedonia 38.4

Commercial banks: Export and Credit Bank Inc. Skopje (IK Banka), NLB Tutunska banka AD Skopje, TTK Banka s.c. SkopjeMicrofinance banks: ProCredit Bank Macedonia

kosovo 46.1

Commercial banks: NLB Prishtina sh.a., Raiffeisen Bank Kosovo J.S.C.Microfinance banks: ProCredit Bank, KosovëMicrocredit organisations: FINCA Kosovo, KEP Trust, Kreditimi Rural i Kosoves LLC (KRK)

moldova 53.8

Commercial banks: Banca de Finant‚e s,i Comert‚ S.A. (FinComBank), BC Banca Sociala, BC Mobiasbanca – Groupe Société Générale S.A., BC Moldova Agroindbank S.A.Microcredit organisations: Corporat‚ia de Finant‚are Rurala S.A., JV MFO Microinvest LLC

montenegro 64.0

Commercial banks: Crnogorska Komercijalna Banka AD Podgorica – member of OTB Group, Erste Bank AD Podgorica, NLB Montenegrobanka AD PodgoricaMicrocredit organisations: Alter Modus DOO Podgorica, MFI AgroInvest VFI DOO Podgorica

EFSE continued the long-term partnerships with its qualified partner lending institutions (PLIs) and welcomed

three new institutions in 2009, holding 58 PLIs in its portfolio.


Year to date as of 31 December 2009 (in EUR million)

romania 67.0

Commercial banks: Banca Comerciala Carpatica, Banca TransilvaniaMicrofinance banks: ProCredit BankMicrocredit organisations: Patria Credit, Opportunity Microcredit Romania (OMRO)Non-bank financial institutions: BT Leasing Transilvania IFN SA

serbia 93.9

Commercial banks: Cacanska banka a.d. Cacak, Komercijalna banka a.d. Beograd, NLB banka a.d. Beograd, Privredna Banka Beograd a.d. BeogradMicrofinance banks: Opportunity banka a.d. Novi Sad, ProCredit Bank a.d. BeogradNon-bank financial institutions: ProCredit Leasing d.o.o. Beograd

ukraine 7.0

Commercial banks: Megabank, PJSC

supra-regional 18.5

Microfinance banks: ProCredit HoldingNon-bank financial institutions: TCX

INVESTMENT PORTFOLIO BY PLI TYPE AND LOAN AMOUNT Year to date as of 31 December 2009 (% based on loan amount)

Regarding the number of PLIs, the investment portfolio is equally split between commercial banks and microfinance institutions.

19 Commercial banks (small and medium) 29 %

8 Commercial banks (large) 30 %

19 Microcredit organisations 17 %

8 Microfinance banks 19 %

4 Non-bank financial institutions 5 %


100

200

300

400

500

600

700

800

12/05 12/06 12/07 12/08 12/0906/06 06/07 06/08 06/09

FUNDING

C-Shares

Total fundSubscribed

B-Shares

A-Shares

Notes

249.2

728.1621.0

95.4

263.5

120.0

EUR million

34 %

100 %

13 %

36 %

17 %

Share

NotesSal. Oppenheim, Deutsche Bank, Omidyar-Tufts Microfinance Fund, ESPA VINIS Microfinance, other private investors

A-Shares – Senior TrancheKfW, IFC, OeEB (Development Bank of Austria), FMO (Netherlands Development Finance Company), European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), NORD/LB Horizont, BN & P Good Growth Fund, other private investors

B-Shares – Mezzarine TrancheKfW, IFC, FMO (Netherlands Development Finance Company), European Bank for Reconstruction and Development (EBRD), OeEB (Development Bank of Austria), European Investment Bank (EIB), Finance in Motion, BN & P Good Growth Fund

C-Shares – Junior TrancheEuropean Investment Fund (EIF) as Trustee for European Commission, German Government/Federal Ministry for Economic Cooperation and Development (BMZ), KfW, Republic of Albania, Swiss Government/Swiss Agency for Development and Cooperation (SCD), OeEB (Development Bank of Austria), Austrian Government/Austrian Development Agency (ADA), Danish Government/Danish International Development Agency (DANIDA)

EFSE expanded its investor base significantly by adding 13 new private institutional investors.

The solid growth of the commitments shows the strong interest and trust from the investors' side.

COMMITMENTS FROM INVESTORS Year to date as of 31 December 2009

DEVELOPMENT OF COMMITTED FUNDS Year to date as of 31 December 2009

(EUR million)

Investors are attracted to EFSE because of its stable return with low volatility and its significant

first-loss piece providing an important risk cushion for the more senior risk tranches.

728.1


TOTAL SCOPE OF ACTIVITIES since inception (based on total project volume)

Institution building 20 %

Product development and downscaling 19 %

Risk management, internal controls and audit 16 %

Research activities and studies 14 %

Responsible finance 12 %

Training courses and roundtables 7 %

Management and cost accounting 6 %

Transformation 3 %

Others 3 %

TOTAL 100%

EFSE DEVELOPMENT FACILITY

COUNTRY ALLOCATION since inception (based on number of projects)

DONOR CONTRIBUTION since inception (based on project volume)

Moldova 15 %

FMO 13 %

Montenegro 5 %

DANIDA 13 %

Romania 8 %

VR-Leasing 4 %

Serbia 9 %

OeEB 4 %SDC 8 %

Various 14 %

BMZ 10 %

Albania 5 %

EFSE Waterfall 48 %

Bosnia and Herzegovina 27 %

Kosovo 17 %

During 2009, the EFSE Development Facility (DF) continued to provide support to the Fund’s partner lending

institutions in managing the effects of the financial crisis and to further advance the topic of responsible finance.

Since inception, the EFSE DF has carried out technical assistance projects with 35 different PLIs, together with 4 prospective PLIs, in 7 partner countries.

The EFSE DF offers focused technical assistance, including capacity building measures and research and development activities. Projects have focused on institution building, product development and risk management.

Drawing on various donor contributions and the contribution from the Fund’s income waterfall, 113 technical assistance projects with a total project volume of EUR 4.4 million have been implemented since the EFSE DF's inception in mid 2006.


ORGANISATIONAL STRUCTURE

Dr. Klaus GlaubittChairman of the Board

Dr. Christoph Achini

Franz-Josef Flosbach

Syed Aftab Ahmed

Michael Neumayr

Monika Beck

Marc SchublinKlaas Bleeker Dominik Ziller

board of directors

Dorin Dragu‚tanuNational Bank of Moldova

Ardian FullaniNational Bank of Albania

Petar GoshevNational Bank of the Republic of Macedonia

Mugur Isarescu National Bank of Romania

advisory group

The Advisory Group to the Board of Directors comprises representatives from central banks in the

target region. The group provides the Fund with better linkages to local realities, concerns and needs,

shares local experiences and makes recommendations to the Fund Management and Board of Directors

in terms of Fund policies and operations. This regional cooperation has become even more important

in developing a joint approach to mitigate the risks of the financial crisis.

Arthur JavadyanCentral Bank of the Republic of Armenia

Radovan JelasicNational Bank of Serbia

Giorgi KadagidzeNational Bank of Georgia

Kemal KozaricCentral Bank of Bosnia and Herzegovina

Ljubisa KrgovicCentral Bank of Montenegro

Petr. P. ProkopovichNational Bank of the Republic of Belarus

Hashim RexhepiCentral Bank of the Republic of Kosovo

Dr. Elman Siraj oglu RustamovCentral Bank of the Republic of Azerbaijan

Volodymyr StelmakhNational Bank of Ukraine



investment committee

Syedaftabahmed

monikaBeck

michaelNeumayr

karlodeWaal

efse development facility committee

monikaBeck

HansRamm

maritvet

mIcROaNDSmaLLENTERPRISES PRIvaTEHOuSEHOLDS

Initiator and Lead Investor:

GENERaLSHaREHOLDERaSSEmBLY

BOaRDOfDIREcTORS aDvISORYGROuP

INvESTmENTcOmmITTEE

QuaLIfIEDPaRTNERLENDINGINSTITuTIONS

Commercial banks Microfinance institutions Others

fundmanagementandmanagementoftheEfSEDevelopmentfacility

RegionalOffices

custodyandfundadministration

DEvELOPmENTfacILITYcOmmITTEE

Tran

sactionm

anag

emen

t

Investment&Technicalassistance/Training

*) The Fund Advisor mandate was accomplished by Frankfurt School of Finance and Management until 31 December 2009. Since 2 September 2009 Finance in Motion was additionally appointed to support the Fund Advisor, becoming the exclusive Fund Advisor as of 1 January 2010.

*

BELARUS

UKRAINE

MOLDDOVADO

ROMANIA

SERBIABIABIA


ACEDONIAFYR MACAC

VOKOSOVVKKO

ANIAAALBAA

GEORGIA



BLACK SEA

CASPIANSEA

MEDITERRANEAN SEA

BALTIC SEA

TARGET REGION

aLBaNIaTiranaNumber of PLIs: 3Number of end-borrowers: 5,542

BuLGaRIaSofiaNumber of PLIs: 1Number of end-borrowers: 706

ukRaINEKievNumber of PLIs: 1Number of end-borrowers: 4

BELaRuSMinsk

SERBIaBelgradeNumber of PLIs: 7Number of end-borrowers: 30,393

BOSNIaaNDHERZEGOvINaSarajevoNumber of PLIs: 17Number of end-borrowers: 41,634

mONTENEGROPodgoricaNumber of PLIs: 5Number of end-borrowers: 8,802

kOSOvOPrishtinaNumber of PLIs: 6Number of end-borrowers: 13,324

fYRmacEDONIaSkopjeNumber of PLIs: 4Number of end-borrowers: 1,772

mOLDOvaChisinauNumber of PLIs: 6Number of end-borrowers: 4,357

ROmaNIaBucharestNumber of PLIs: 6Number of end-borrowers: 9,056

BELARUS

UKRAINE

MOLDDOVADO

ROMANIA

SERBIABIABIA


ACEDONIAFYR MACAC

VOKOSOVVKKO

ANIAAALBAA

GEORGIA



BLACK SEA

CASPIANSEA

MEDITERRANEAN SEA

BALTIC SEA

AZERBAIJANbaku

GEORGIAtbilisi

ARMENIAyerevan

yeAr to DAte As oF 31 DeCeMber 2009

PLI = partner lending institution www.efse.lu

FundAdvisor

FinanceinMotionGmbH

RepresentativeOffices

Albania,BosniaandHerzegovinaKralja tvrtka 12/271000 sarajevo · bosnia and Herzegovinaphone: +387 33 561 190 · Fax: +387 33 561 191albania@fi nanceinmotion.combosnia_and_herzegovina@fi nanceinmotion.com

Armenia,Azerbaijan,Belarus,Georgia,Ukraineeschersheimer landstr. 660322 Frankfurt am Main · Germanyphone: +49 69 9778 7650 0 · Fax: +49 69 9778 7650 10armenia@fi nanceinmotion.comazerbaijan@fi nanceinmotion.combelarus@fi nanceinmotion.comgeorgia@fi nanceinmotion.comukraine@fi nanceinmotion.com

Bulgaria,Romania20 povernei st, 3rd Floor, Ap. 7010644 bucharest · romaniaphone: +40 21 312 26 53 · Fax: +40 21 312 26 54bulgaria@fi nanceinmotion.comromania@fi nanceinmotion.com

FYRMacedoniaMaksim Gorki 20/31000 skopje · Fyr Macedoniaphone: +389 2 3132 628 · Fax: +389 2 3132 627fyr_macedonia@fi nanceinmotion.com

KosovoZija shemsiu nr. 6 10000 prishtina · Kosovophone: +381 38 544 108 · Fax: +381 38 544 109kosovo@fi nanceinmotion.com

Moldova67, bucuresti str., offi ce 1052012 Chisinau · republic of Moldovaphone/Fax: +373 22 544 626moldova@fi nanceinmotion.com

Montenegrobulevar svetog petra Cetinjskog 11481000 podgorica · Montenegrophone: +382 20 228 341 · Fax: +382 20 228 340montenegro@fi nanceinmotion.com

SerbiaDragoslava Jovanovica 311000 belgrade · serbiaphone: +381 11 3232 329 · Fax: +381 11 3342 257serbia@fi nanceinmotion.com

As on date of publication

reGionAl ContACt points

EFSEDisclaimerAll rights reserved. this fund is reserved for eligible investors within the meaning of article 2 of the law of 13 February 2007 on specialized investment funds, as amended or supplemented from time to time. units in this investment fund may not be offered, sold or transferred, directly or indirectly, in the usA or its territories or possessions or areas subject to its jurisdiction, or to citizens or residents thereof (‘us persons’) other than in accordance with the laws of the united states. the information given in this document does not constitute an offer nor a product recommendation, it is provided for individual information purposes only. no guarantee is given or intended as to the completeness, timeliness or adequacy of the information provided herein. past performance is no guarantee for future results. the value of the fund and its share classes is calculated without taking into account any placement or redemption fees and assuming constant reinvestments of dividends. this is not a fund prospectus as specifi ed by law. the current fund prospectus is obtainable free of charge upon request from oppenheim Asset Management services s.à r.l., 4 rue Jean Monnet, l2180 luxembourg.

© Copyright this work is copyright protected. the resulting rights, particularly with respect to translation, reproduction, communication, copying of images and tables, broadcasting, microfi lming or reproduction by other means, as well as storage on data processing equipment, remain reserved, even where such use only applies to excerpts. the reproduction of this work or parts of this work is only permissible within the boundaries of the statutory provisions, even in individual cases. May 2010

initiator and lead investor

KfW

Ms. Monika Beck

palmengartenstr. 5 – 9

60325 Frankfurt am Main · Germany

phone: +49 69 7431 4069

Fax: +49 69 7431 3490

[email protected]

www.kfw.de

fund managerOppenheimAssetManagement

ServicesS.àr.l.

Mr. Johann Will

4, rue Jean Monnet

2180 luxembourg · luxembourg

phone: +352 22 1522 423

Fax: +352 22 1522 500

[email protected]

www.oppenheim.lu

fund advisorFinanceinMotionGmbH

Ms. Sylvia Wisniwski

eschersheimer landstr. 6

60322 Frankfurt am Main · Germany

phone: +49 69 9778 7650 50

Fax: +49 69 9778 7650 10

s.wisniwski@fi nanceinmotion.com

www.fi nanceinmotion.com

www.efse.lu

As on date of publication

imprint

Published by

european Fund for southeast europe (eFse)

The publication can be downloaded or ordered at

www.efse.lu

Layout by

Marte sach, www.sachdesign.de

Lithography and production by

Alsterwerk Medienservice GmbHwww.alsterwerk.com

Photography by

peter Großlaub, www.trendshots.com

efse annual report 2009

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