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Review fourth quarter 2016

During the fourth quarter 2016, Triodos Microfinance Fund’s total assets increased from EUR 341.0 million to EUR 357.1 million. The fund’s outstanding portfolio totaled EUR 297.4 million, an increase of 15.7% compared to the previous quarter. During the fourth quarter of 2016, Triodos Microfinance Fund achieved a return of 2.3% (Z-cap)*, bringing the return for the year to 4.1%.

Global economic growth picked up somewhat in the final quarter of 2016 from a quite dismal third quarter, driven by a rebound in the US, the ongoing accommodative monetary stance in Europe, and the partial recovery in energy and commodity prices. The surprising outcome of the US presidential elections in November strengthened the US dollar substantially in the fourth quarter, the currency appreciating 6.8% against the euro. Developments in commodity prices were mixed. The price of Brent oil increased 11% over the fourth quarter, following OPECs November agreement to restrict oil production. The agreement and subsequent oil price rise are good news for the oil exporters in the portfolio, such as Nigeria, Azerbaijan, and Kazakhstan, and to a lesser extent Bolivia and Colombia. Metals and minerals prices increased substantially (+10% in the fourth quarter, partly due to the promise of massive infrastructure spending by the incoming Trump administration). Agricultural commodities, however, barely moved during the quarter. Currency markets were very volatile in the fourth quarter, particularly after Trump’s victory. Many EM currencies move in tandem with the dollar, and thus more EM currencies strengthened than weakened against the euro. The Cambodian riel appreciated 8%, while the Peruvian sol, the Kazakh tenge and the Tanzanian shilling gained 7.5%, 7.4%, and 6.9%, respectively. The South African rand, the Jordanian dinar, the Bolivian boliviano, the Guatemalan quetzal, the Tajik som, and the Dominican peso matched the dollar and gained around 6-7%. The Nigerian naira also appreciated, by 9.3% in the fourth quarter, albeit after a large depreciations earlier in the year. Currencies depreciating against the euro were the Georgian lari (-6.1%), the Azerbaijani manat (-3.3%), the Mongolian tughrik (-2.0%), and the Ghanaian cedi (-0.7%).
Returns on both the equity and debt portfolio showed an upward trend. The net foreign exchange impact (value changes on the total portfolio minus the results on hedging contracts) amounted to EUR 0.8 million, or 0.22% of the fund’s net assets in the fourth quarter. The fund furthermore reversed provisions on loans outstanding in Azerbaijan. The fund continues to receive more repayments on the amounts in arrear than anticipated earlier.

The fund’s liquidity position decreased significantly, from 24.4% in the previous quarter to 16.7% of the net assets as a result of a higher pace of investments. Unhedged exposures increased from 19.5% to 22.6% as a result of an increase in equity investments. The unhedged position in the loan portfolio remained stable at 13.0%, compared to 13.1% in the previous quarter.  


Triodos Microfinance Fund’s portfolio developed well during the quarter: the fund added four new investees to the portfolio and placed EUR 32.5 million in debt and equity investments with a total of 12 financial institutions.    

New investments

Capital Bank, Panama (debt)
Focusing on local SMEs, Capital Bank is a niche player in the Panama banking industry. The company not only lends to underserved entrepreneurs, but also provides them with business training and capacity building. This non-financial offer is delivered by the bank’s subsidiary, Capital Entrepreneurial, which was established to provide training and coaching to entrepreneurs on topics such as accountancy, tax, negotiation skills, innovation, and corporate governance. Serving over 10,000 clients through 5 branches, Capital Bank is active in a range of productive sectors such as agriculture, construction, industrial, services, and trade.

Kashf Foundation, Pakistan (debt)
Kashf Foundation is a women led microfinance service provider that focuses on providing microfinance services to low-income women in (sub) urban areas in Pakistan. It operates out of 188 branches across all 4 provinces in the country, serving 250,000 borrowers. The MFI has also started offering saving accounts through 22 branches, reaching around 10,000 clients.
In addition to being a microcredit provider, Kashf is also one of the largest providers of health and life insurance with 1.7 million clients and a regular provider of training programs in financial literacy, business development, and gender/role justice.

Accion Frontier Inclusion Fund (AFIF) (equity)
Accion Frontier Inclusion Fund (AFIF) is a global impact venture capital fund, investing in early- and growth-stage Fintech companies. The fund aims to catalyse new approaches to financial inclusion for the unbanked and underbanked. 

Aavishkaar Venture Management Services Group, India (AVMS) (equity)
Aavishkaar Venture Management Services Group (AVMS) is one of the pioneers in the impact investing space in India, channelling capital towards sustainable and scalable solutions that could enhance the livelihoods of the low-income market segment. With over 10 years of experience, the company has supported social businesses across multiple sectors, such as financial inclusion, technology, agriculture, health, and education and expanded its investment operation into neighbouring countries that face similar social challenges, such as Indonesia, Sri Lanka, Bangladesh, and Pakistan. 


The global economy is expected to modestly rebound this year, one of the drivers likely being the US. At the same time, both the US economy and US policy are a source of uncertainty. Should the new president follow through on his campaign talk of closing the borders and introducing tariffs, countries that are highly dependent on remittances from workers in the US, such as Guatemala and Nicaragua, could be hit sharply. Given Trump’s campaign proposal to impose hefty tariffs on China, this country also appears at risk. Other emerging markets in our portfolio that export substantial amounts to the US, such as Ecuador, Dominican Republic, Costa Rica, Guatemala, Cambodia, Colombia and Sri Lanka, may also be negatively affected.

The Fed is expected to raise its federal funds rate a few times this year, to stay ahead of inflationary pressures. In combination with the strength of the dollar, this could be detrimental to emerging economies that are highly dependent on capital flows from abroad and/or have particularly high dollar debt. The rally in oil and metals prices in the fourth quarter may not continue in 2017, given the expected relatively low compliance with the agreed output cuts in oil production, and, in the case of metals, the fact that Trumps ambitious infrastructure plans may turn out to be too ambitious. Yet, oil and metals exporters will still receive a higher price for their exports than they got in 2016, while emerging markets generally could benefit from a somewhat higher global growth.

In the microfinance and SME finance sector, the outlook differs across markets, with some expected to see sluggish growth and others to remain robust. Overall, despite the unanticipated outcome of several political and economic events in 2016, the sector is still expected to grow 10-15% in 2017, driven mainly by Asia-Pacific, the Middle East and North Africa, where demand for funding continues to grow. Recent developments in countries such as India and Bangladesh in particular, provide the market with a positive outlook. Then again, should the US decide to impose higher trade tariffs or stricter trade policies, despite the ongoing need for financial inclusion, countries with considerable trade deals with the US, such as Cambodia and China, may have to endure a slowing down of their economy. While the situation remains challenging, a gradual recovery of Russian economy is expected to slowly improve the flow of remittances and export revenues of the neighbouring countries. SME financing is expected to continue to attract funding, as many mature MFIs are looking to diversify their product offering.     

* All returns stated were calculated based on net asset value, including reinvestment of dividends where applicable. Past performance is not a reliable indicator of future performance.    

Other updates

9 September 2016 - Prospectus amendments

The Board of Directors of Triodos SICAV II has made a number of amendments to the prospectus of Triodos SICAV II. More details can be found in the informative notice. This document can be downloaded here . As part of the procedure to amend the prospectus, shares of Triodos Microfinance Fund can be redeemed free of charge during the month notice period until 10 October 2016.

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Triodos Microfinance Fund

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