PERSPECTIVES 2012 Annual Report Responsability

PERSPECTIVES 2012 Annual Report

Cover: Sandro Aquino, managing director and member of the Peruvian coffee and cocoa cooperative Oro Verde, is optimistic about the future

Contents

Editorial3 Review of 2012 4 Financial Sector  10 Agricultural Sector 14 Healthcare Sector 22 Energy Sector 24 Education Sector 26 Our Investments Our Investment Concept Our Expertise Our Research Our Team Our History

28 30 32 34 36 38

responsAbility Annual Report 2012

1

Christian Speckhardt Member of the Management Board

2

responsAbility Annual Report 2012

Kaspar Müller Chairman of the Board of Directors

Klaus Tischhauser Chief Executive Officer

Rochus Mommartz Member of the Management Board

Dear Reader

The way you see the future depends extensively on your standpoint. The moment you change your standpoint, new perspectives open up, and new opportunities appear. In this anniversary year – in 2013 responsAbility is celebrating ‘10 years of investing in new perspectives’ – you are presented with the first edition of ‘Perspectives’, responsAbility’s new reporting publication. ‘Perspectives’ is an annual report with a difference. While we will continue with the tradition of providing annual accounts of our investments, ‘Perspectives’ has more to offer and is targeted at a wide range of stakeholder groups: investors, the companies which responsAbility finances, existing and potential employees, shareholders, business partners and interested parties in general. These groups are all vital to the success of our company, and they are all interested in the new perspectives responsAbility opens up for them – for their investments, their career or their company in search for financing – and for society in general. We aim to offer them this transparency through facts and figures, but also background reports and portraits of people and companies. ‘Perspectives’ supplements the existing provision of more specific reporting – at product level or for shareholders, for example – with a comprehensive approach. With integrated reporting instead of the previous separate coverage on the impact of our investments, we are now able to offer a formal expression of one of our most central convictions: opening up new perspectives and development opportunities for the clients of the companies which we finance is not just a positive added benefit that stands in contradiction to the success of the respective company, and thereby also of the investment – it is also a central requirement for precisely this success. Companies that offer more favorable financial services, higher income from agricultural activities or more affordable health care services to millions of low-income individuals in developing countries can be successful because of – and not in spite of – this benefit to development. The value drivers are the new perspectives they open up for their clients. This publication shows you what this means in specific terms – in this first edition with a special focus on the agricultural sector.

However, we provide more than an insight into investment issues as evidence of the success of our corporate and investment philosophy. The successful corporate development of responsAbility over the last ten years is a further indication of this. The constantly increasing number of clients, the steady rise in total assets under management, the stable returns, our presence on four continents and not least the consistent dedication of some 100 employees speak for themselves.

“Investment is about shaping the future. The way in which we invest shows the standpoint we represent and the future we would like to see.”

For us, therefore, ‘Investing in new perspectives’ is more than just a slogan. It is our conviction that is shared and supported by increasing numbers of people. Investment is about shaping the future. The way in which we invest shows the standpoint we represent and the future we would like to see. Particularly in our anniversary year, we are delighted that you, the reader, are continuing down this path with us. We would like to take this opportunity to thank all those who have accompanied us over the last ten years. And now we hope you enjoy reading ‘Perspectives.’

Kaspar Müller Chairman of the Board of Directors

Klaus Tischhauser Chief Executive Officer

responsAbility Annual Report 2012

3

Review of 2012

A successful year dominated by growth and diversification Growth of the assets under management, the investments, the financed companies and in terms of geographical diversification: 2012 will go down in the corporate history of responsAbility as a very successful year. In our tenth year, we reached 405 companies through our investments in developing countries and emerging markets. From 5 locations, 100 motivated employees are actively working to create new perspectives for investors, financed companies in developing countries and emerging markets as well as for society in general.

2012 was a successful year for respons­ Ability in every way: our investment volume rose by approximately 40% to USD 1.4 billion (2011: USD 1.0 billion). These significantly increasing cash flows are extremely pleasing, particularly in light of what is, on the whole, a challenging situation on the Swiss financial market, which is the largest market for respons­ Ability in terms of sources of funds. The main part of the growth of the assets under management is traditionally made up of the fixed-interest microfinance products. Together these led to new subscriptions amounting to approximately USD 270 million, which were set against withdrawals of approximately USD 90 million. Half of this was down to the planned exit of the initial investor of an investment vehicle, which additionally highlights the positive trend. Development of Assets under Management (USD million, in each case as per 31.12.) 1,391

1,007

1 billion 899

908

705

442 211

4

4

8

43

2003

2004

2005

2006

2007

2008

responsAbility Annual Report 2012

2009

2010

2011

2012

In addition to responsAbility’s own investment products in the area of microfinance, our advisory mandates have also developed positively and saw an increase in volume from USD 26 million to USD 69 million.

Agriculture As an Independent Investment Sector One investment product launched shortly before the end of 2011, which is dedicated exclusively to the agricultural sector, is of particular importance. Even though the theme of sustainable agriculture has accompanied responsAbility from the outset, launching a pure fair trade product brings with it new challenges both in terms of investment and distribution. For this reason we are even happier to be able to look back on a successful first year. After a targeted marketing and sales initiative at the start of the year, the constant inflow of new money has now leveled off at approximately USD 2 million per month. With inflows of over USD 26 million and in combination with the fair trade volume share in two other investment vehicles, which are mainly based on microfinance products, responsAbility has meanwhile established itself as one of the world’s largest private providers of financing in the area of sustainable agriculture.

Highlights in 2012 Investment assets increase by 40% to USD 1.4 billion Number of financed companies increases by 18% to 405 Expansion into ten new markets (total: 81) With an exclusive fund dedicated to sustainable agriculture, responsAbility has established itself as one of the world’s largest private financing companies in this field Foundation of a stock corporation under Swiss law that provides equity to financial institutions in developing countries Issuing of an additional tranche of a certificate for investment in independent media Further expansion of the product portfolio to approximately 20 products for various target groups, investment categories, themes and currencies Companies directly financed by responsAbility generated USD 8.4 billion in turnover and USD 363 million in taxes with 146,000 employees Further expansion of the respons­ Ability specialist team to approxi­ mately 100 employees at 5 locations

New Investment Company for Private Equity In the case of investment vehicles that provide equity to investment companies, we have also succeeded in raising USD 19 million in new funds. The portfolio companies originate from an increasing number of sectors, all of which correspond to the investment themes of responsAbility.

The second quarter of 2012 saw the founding of a stock corporation under Swiss law with a starting volume of approximately CHF 20 million, which offers qualified investors the possibility of making mediumand long-term private equity investments in nonlisted financial institutions in developing countries and emerging markets. As a result of launching this company, the area of equity financing in the financial sector now has, similar to fair trade in debt financing, its own vehicle, since previously the corresponding investments were made through three mixed funds. The volume increased continuously and reached USD 138 million by the end of 2012.

Shortly before the end of the year we issued an additional tranche of a certificate for investment in independent media.

Diverse investment products By launching the new investment company, we were able to further diversify the investment options on offer for various groups of investors. We now offer private clients as well as institutional investors suitable products in various investment categories (private debt and private equity), investment themes (microfinance, fair trade) and currencies (USD, CHF, EUR). Nine different

investment product options are now availabe: five that are mainly fixed-interest and four that are mainly based on private equity. We are continuously expanding this range of products by, among other things, creating new tranches that are specifically targeted at institutional investors or currencies not yet covered. If we were to count all of these product types, the range includes 19 different investment options. The interest of institutional investors, in particular, is growing disproportionately as a result of our ten-year successful track record.

In the regions and countries relevant for our investments, the economic outline conditions also developed positively in 2012 – for instance, there is a spirit of opitimism in Lima’s textile center Gamarra, Peru responsAbility Annual Report 2012

5

Investments in Seven Regions In the regions and countries relevant for our investments, the economic outline conditions also developed positively in 2012 – particularly in comparison to the western industrial nations, which are still stagnating. According to the International Monetary Fund (IMF), the gross domestic product of the industrial nations grew by an average of 1.3% in 2012, while the developing countries and emerging markets saw an economic growth of 5.1%. For 2013, the IMF is expecting this discrepancy to be further accentuated with growth rates of 1.4% and 5.5%.

Textile production in Lima’s Gamarra district: the owner of this sewing plant, Juan Olivo, started out in 1998 with manual buttonholes. Thanks to loans from Mibanco he now employs up to 50 people.

Returns on target As in previous years, our investment products in 2012 also developed in line with our long-term target returns. Debt investments in the field of microfinance saw an average return in USD of 3.9% for the investor in 2012, whereby the total return of a single year is only of limited informational value. More important is the fact that the result lies within our long-term target corridor of 3 to 5% despite very low interest rates worldwide. Investments in agricultural producers’ and trade organizations yielded an average return of 4.0% in USD for our investors in 2012, which is also well within our target range of 3 to 5% per year over a period of five years.

6

responsAbility Annual Report 2012

In the financial sector, equity investments made a profit of 5.1% in USD, which is a marked increase compared to the last two years. Based on the dynamic investment calculation method, we are working on the basis of an annual return of up to 15% over a five- to eight-year investment term. However, in the area of private equity individual annual results can vary greatly, and it is not unusual for the majority of the total returns to only materialize shortly before the end or at the end of the investment. In the case of equity investments outside the financial sector, we are still in the investment phase, and we are planning to keep the various investments in the portfolio for five to eight years. The capital allocation and the performance of the financed companies are going to plan. However, it is as yet too early to make definite statements about returns.

At the end of 2012 responsAbility had invested in a total of 81 countries, which can be divided into seven regions: Central America, South America, sub-Saharan Africa, Middle East and North Africa, Eastern Europe, Central Asia as well as South and East Asia. Ten new investment countries have been added since 2011. In the region of South and East Asia we have been able to gain new investees in China, Laos and Vietnam. Geographically, the investment volume grew in all regions with the exception of Central America, where the volume decreased slightly (–1%). Central Asia, which makes up 29.4% of the total investment volume, remains the most important investment region in the portfolio of responsAbility, followed by South America (21.3%) and South and East Asia (19.1%). The investments increased most significantly in Central Asia (USD +133.1 million), South America (USD +128.9 million) and South and East Asia (USD +100.2 million) (see also page 28–29).

Investments per Investment Class

Development of the Number of Financed Companies 2010–2012

(as per 31.12.2012) Number of investment partners

Equity 7.8%

100

2010 2011

90

2012 80 70 60 50 40 Debt 92.2%

30 20 10

Investments per Sector

0

(as per 31.12.2012) Agricultural sector 4.2%

South America

Central Asia

Central America

Sub-Saharan Africa

Eastern Europe

Middle East and North Africa

Others

Other sectors 1.8%

Financial sector 94%

Investments per Region (as per 31.12.2012)

South and East Asia 19.1%

South and East Asia

Others 1.5%

Central America 8.3%

South America 21.3%

Sub-Saharan Africa 6.5% Central Asia 29.4% Eastern Europe 11.5%

Middle East and North Africa 2.4%

Growth at financed companies

Development thanks to investments

Not only did we succeed in increasing the investment volume, but also the number of financed companies. From 343 at the end of 2011, this number rose to 405 by the end of 2012. We were able to reach 270 of these companies directly with our financing; the remaining 135 indirectly through other funds. With 83 investees, the majority of these companies are located in South and East Asia, followed by South America (75 companies) and Central Asia (60 companies). The geographical distribution of investees therefore remains relatively balanced.

When companies provide sustainable access to affordable services and products that are tailored to the needs of low-income households this opens up choices and perspectives for millions of disadvantaged people. Efficient companies and markets are key to achieving this objective.

In terms of sectors, the financial sector still plays a major role with 94% of the total investment assets. responsAbility is now the world’s largest private investor in the field of microfinance and very well established on the market. Furthermore, the investments in the agricultural sector have also developed positively. The analysis of the market environment and specific companies shows that we are in a strong position in the other sectors; however, the investments, in terms of volume, are still comparatively low.

responsAbility’s investments are focused on companies in developing countries that offer services and products designed to meet basic needs. The potential for impact in areas such as the health care, energy, agricultural, education or financial sectors is clear: solid companies with innovative business models do not only widen the scope for action of low-income households; they create the basis for economic growth and social development and therefore contribute toward reducing poverty. This is the impact we intend to achieve.

responsAbility Annual Report 2012

7

Indicators of relevance to development

Key figures of the companies directly financed by responsAbility (as per 31.12.)

Even though each economic sector has its own specific characteristics and relevance to development must be measured on the basis of different criteria in each case, on the superordinate macro level, a simple set of business indicators already demonstrates the effects of our investment approach. In 2012, our direct and – through other fund managers – indirect investments reached 405 companies across all investment sectors representing an 18% increase from 2011. The number of companies reached through our direct investments in 2012 increased by 10% to 207. The investees are formal companies that contribute to the vibrant growth of the emerging markets and markets in developing countries by generating turnover, creating jobs and paying taxes.

Turnover (USD million)

Change

246

10%

8,397

5,712

47%

363

328

11%

Profit (USD million)

974

876

11%

Employees (thousands)

146

133

10%

44%

44%

0%

Female employees

146,000 jobs The creation of jobs is an important contribution to the growth of emerging markets; especially since micro, small and medium enterprises are the backbones of many economies. The companies financed by responsAbility employed over 146,000 people across many sectors, and almost half of these positions were filled by women.

In the financial sector, the traditional pioneer of our investment themes, in 2012, we extended our investment spectrum to larger banks that offer financial solutions for small and medium enterprises. The total revenue

2011

270

Taxes (USD million)

of USD 8.4 billion generated by the 270 companies financed by responsAbility through direct investments was therefore also significantly higher than in 2011. These growing companies simultaneously generated USD 974 million in profits and paid more then USD 363 million in taxes.

Investments in larger banks

2012 Companies

Further development, also internally at responsAbility In 2012 responsAbility continued to concentrate on efficiency and optimization of its processes. The result is a marked improvement of the investment analysis and decisionmaking processes as well as increased integration in the area of IT where the former client database software has been replaced. We also continued to invest in the field of research in 2012. Our team of economists assist our investment specialists by constantly monitoring the various country risks. Diverse background studies on the development of our market in general secure for respons­ Ability a thought-leadership role in the field of development-relevant investments.

Sector

Financial

Agricultural

Healthcare

Energy

Education

Investments

Microfinance institutions and SME banks

Fair trade producers’ and trade organizations

Private health care providers

Private energy producers

Private education providers including media

Effect

Access to affordable loans for broad sections of the population and SME, increased productivity and income

Better product quality, a better negotiating position for sale and higher income

Efficient health care at lower costs for low-income households

Reliable energy provision in previously undersupplied regions at lower costs

Access to affordable information and education for broad sections of the population

Economic growth, social development and thus perspectives for companies, low-income households, etc.

8

responsAbility Annual Report 2012

Clearer positioning responsAbility is active in the field of investments relevant for development – a market that did not previously have a clearly-defined or known size. Especially its distinction from philanthropy, i.e. donations, leads to confusion. The collocation ‘social investments’, which is still part of our official company name as this publication goes to press, is now also

Indicators of the relevance of investments to development Companies Companies with innovative business models that expand their ranges of products and services for low-income households are the key to economic and social development. Turnover Indirectly shows how extensive and attractive the company’s services and products are. Profit Shows whether the company has achieved the necessary efficiency and therefore financial sustainability. Tax levies Taxes paid by companies contribute toward expanding the tax base, which strengthens state institutions and increases their accountabilty to the taxpayer. Employment Well-functioning companies create jobs. A stable employment level in the formal economy is a key factor especially in developing countries.

used by numerous actors from areas that have little to nothing to do with investment. This has moved us to dissociate ourselves from this term as a designation of our activity and to make our position clearer, particularly to investors. We are now placing concrete statements about our investment themes (financial, agricultural, health care, energy and education sectors) with reference to their economic and social benefits at the forefront of our argument.

An efficient and motivated team In 2012, responsAbility welcomed its 100th employee. The number of full-time positions has not yet reached this mark; at the end of 2012, there were 89 full-time positions, which is an increase of 12 positions compared with 2011. In particular, the regional agencies now have a broader base and can handle increased volumes in various topic fields and more and more countries.

Outlook 2013 In spring 2013, the company is celebrating its ten-year anniversary. Thanks to the increasing demand for investment solutions relevant to development on the one hand and financing for emerging non-listed companies in developing countries on the other hand, the future is looking bright for responsAbility’s continued successful development. In this, our anniversary year, we will adjust our corporate image further in line with our more focused investment activity. One of the ways in which we will do this will be to launch a new website. We are also planning further improvements of the IT infrastructure. With a 100-strong team of motivated, well-qualified employees, responsAbility is in a good position, also in the second decade of the company’s history, to create new perspectives for all our stakeholder groups.

Last year, we succeeded in increasing the number of employees with many years of relevant professional experience – an important step in what is still a young industry. Internal postings for the purpose of professional and personal development have also increased. In 2012, for the first time in the company’s history, we commissioned an external company to carry out a structured global employee survey. The aim was to make it possible for the managers to critically consider and improve their own leadership skills. Since the informational value of the results arises from comparisons with previous years, the survey will be repeated in 2013.

Equality of women Suitable jobs for women contribute towards strengthening the role of women in society – a prerequisite for social development. responsAbility Annual Report 2012

9

Investment theme

Financial sector

Financial sector development in emerging markets and developing countries is an important basis for economic growth and social development. Its success requires regulated local financial service providers to offer a comprehensive range of essential products and services for low-income clients. responsAbility offers these financial institutions both debt and equity financing.

6,2%

20%

USD 6 billion

estimated growth of the 15 most important microfinance markets for 2013 (2012: +4.7%).

growth of the global microfinance sector in the year 2012.

Volume of microfinance investments worldwide (approximately 100 different funds).

Number 1

20 millionen

96%

responsAbility is the world’s largest microfinance investment manager and has been investing in microfinance institutions for ten years.

borrowers and 23 million clients with savings benefit from the investments made by responsAbility.

Repayment rate of the outstanding microfinance loans in 2012.

Microfinance opens up access to financial services tailored to the needs of small enterprises and households: here at Mibanco in Lima, Peru 10 responsAbility Annual Report 2012

Financial sector investment theme

Hattha Kaksekar Limited: Financial services for low-income households in Cambodia

Cambodia is one of the most vibrant economies in South East Asia – over the last ten years, the economy has grown by 5.4% per year on average. In 2012, the growth rate reached 7.3%; however, this is still based on a very low per capita income of USD 1,080 per annum. In the growing financial sector, commercial banks concentrate almost exclusively on wealthier clients and large enterprises in the towns. For a long time, the financial services provided for micro, small and medium enterprises as well as low-income households – particularly in rural areas – were inadequate.

A strong microfinance sector To close this gap, a strong microfinance sector has developed in Cambodia over the course of the last ten years. Today, approximately 1.3 of 14 million citizens have access to microfinance services – so far mainly in the form of small loans that open up new chances for economic growth and social development. One of these microfinance banks is Hattha Kaksekar Limited (HKL). With a credit portfolio of more than USD 100 million and 75,000 clients, HKL is the fourth largest financial service provider of this kind in Cambodia. The microfinance bank employs over 1,300 employees and has a network of 122 branches throughout the country. Over many years, various funds of respons­ Ability have promoted the growth of HKL.

Introduction of savings products At the end of 2011, responsAbility also purchased a stake in the equity of the company through one of its funds. Since then, Michael Fiebig, Head of Financial Institutions Equity at responsAbility, has been working, as a member of the board

of directors of HKL, closely with the mana­gement on the further development of the business. For instance, in 2012, a special focus was put on introducing new savings products and the risk management infrastructure this required. As a result, the number of savings clients has increased from 75,000 to 108,000 and the sum of savings deposits managed has increased from USD 16 to 44 million. The possibility of being able to keep their savings safely, accessibly and also profitably is an extremely valuable financial service for many people in emerging markets and developing countries. In the case of HKL, savings deposits also act as a local and cost-efficient source of refinancing for the bank’s growing credit portfolio. Through sustained financial sector development that is tailored to broad sections of the population in emerging markets, value can be added at two levels simultaneously: at the level of economic development and at the level of social development.

Step in the direction of a commercial bank In 2012 – as in previous years – HKL achieved good results. The company is planning to transform itself from a microfinance bank into a licensed commercial bank in the coming years in order to be able to provide its clients with an even broader range of services, including national bank transfers. With mobile telephones increasingly being used country-wide, it also intends to make it possible to carry out basic banking services via this channel – a service that has already proved successful in Africa south of the Sahara and has opened up new perspectives for the low-income households and micro-enterprises there.

Savings securely and profitably deposited – a valuable financial service

With 122 branches nationwide, HKL serves clients throughout Cambodia

HKL turnover (as per 31.12.)

Number of employees Number of branches Credit portfolio (USD million) Number of borrowers

1,300 122 100 75,000

Number of savings deposits managed (USD million) Number of savings clients

44 108,000

Financed by responsAbility since

2006

responsAbility as a shareholder since

2011

Further reading on the microfinance market in general can be found at www.responsAbility.com/………… responsAbility Annual Report 2012

11

Financial sector investment theme

Financial and development-relevant results

In the last ten years, a steadily growing number of investors have invested in microfinance. The global volume of these investments is approximately USD 6 billion and is managed by 100 different funds. These funds refinance native microfinance institutions (MFIs) in emerging markets and developing countries that facilitate access for small enterprises and households to basic financial services tailored to their needs, such as loans. Since capital is extremely tight in low-income households, micro-entrepreneurs can generate high returns by way of such loans. These guarantee them more financial independence and therefore better economic and social perspectives. Microloans vary in terms of their amount depending on the level of prosperity: in India, they are between USD 50 and 200, whilst in the Balkans, loans of USD 1,000 to 5,000 are commonplace.

Microfinance in 62 countries responsAbility is the world’s largest private microfinance investment manager and has been investing in MFIs for ten years. As of the end of 2012, responsAbility had invested a volume of USD 1.1 billion in 238 MFIs in 62 different countries. As of the end of 2011, the corresponding figure was still USD 794 million. This period therefore saw an increase of 41%. This volume was invested in a series of new countries – for example, in Guatemala, Ivory Coast, Poland, Ukraine and China. In total, 23 new MFIs joined the companies financed by responsAbility.

to the previous year, this corresponds to an increase of 40%. The volume was divided between 498 transactions with 125 MFIs. In the previous year, USD 420 million divided between 351 transactions had been paid out to 133 MFIs. The average refinancing term was 29.3 months, compared with 29.2 months in the previous year. The investments were made in a mixture of currencies very much comparable with the previous year. The number of loans that were not in US dollar or euro increased slightly to 22%.

95.9% of all loans paid back on time A core portfolio of companies that has remained constant over time makes it possible to see trends over time. The core portfolio of responsAbility includes 96 MFIs that responsAbility has been financing for at least ten consecutive quarters. Within this core portfolio, the investment volume increased by 19% and therefore continued the clear growth trend. Looking at the entire assets of the MFIs, the increase was 17%. The number of loan clients of the portfolio MFIs had grown by 15% by the end of the year. Despite two-figure growth rates, the risks remained manageable: as in the previous year, an average of 98.6% of the loans to 96 MFIs were paid back – 95.9% on time – or refinanced. The loans written off over the entire year 2012 only added up to 1.4%.

20 million borrowers Whilst responsAbility diversified its portfolio over the course of 2012 with investments in new MFIs or countries, the underlying portfolio companies also grew and matured. The MFIs represented in responsAbility’s investment portfolio have outstanding financing of USD 33.9 billion. It is from this amount that 20 million clients receive their loans. With a share of 76%, a large proportion of these go to individuals. The advantage of providing these types of loan means that they can be individually tailored to the client. However, loans to small and larger groups also continue to account for a substantial part, making up 14% and 10% of the total sum, respectively.

Regional differences The loans differ greatly from region to region. Whilst in Central America and in South and East Asia almost half of all loans are granted to groups, the portfolio of Eastern European MFIs consists almost entirely of individual loans. Trade represents the most important economic sector for microfinance clients by far, followed by agriculture and services. In order to contribute towards broad and sustained development of the financial sector, it is absolutely imperative for microfinance to be distributed outside of towns or larger hot spots. Our portfolio does this. Persons from rural areas make up 52% of all borrowers. Furthermore, 75% of the people granted a loan are women.

Development of the financed companies in the financial sector (as per 31.12.)

In 2012, the new investments made by responsAbility in the field of microfinance totaled USD 590 million. In comparison

Investment volume (in USD million) Number of MFIs Number of countries New investments (in USD million)

12 responsAbility Annual Report 2012

2012

2011

1,120

794

Change 41%

238

215

11%

62

57

9%

590

420

40%

Number of transactions

498

351

42%

Average transaction term (months)

29.3

29.2

0.3%

Percentage of loans in local currencies (apart from USD and EUR)

22%

18%

+4%-points

Important Savings Deposits

Indicators relevant to development for the MFIs’ core portfolio (as per 31.12.)

Extending the product range of an MFI is important for sustained development of the financial market. This includes introducing savings deposit options. In order to be able to offer savings deposits at all, an MFI must have reached a certain degree of maturity and be subject to the regulation by the central bank. More than two thirds of the MFIs in responsAbility’s portfolio satisfy this requirement and almost 40% have a license to accept savings deposits. This means that the MFIs refinanced by responsAbility open up the option of saving to 22 million people, almost five million saving clients more than in the year 2011.

Returns on target As in previous years, our investment products in 2012 also developed in line with our long-term target returns. Debt investments in the field of microfinance saw an average return in US dollar of 3.9% in 2012, whereby the performance of a single year is only of limited informational value. More important is the fact that the result lies within our long-term target corridor of 3 to 5% despite very low interest rates worldwide. Equity investments made a profit in US dollar of 5.1%, which is a marked increase compared to the last two years. Based on the dynamic investment calculation method, we are working on the basis of an annual return of up to 15% over a five- to eightyear investment term. However, in the area of private equity individual annual results can vary greatly, and it is not unusual for the majority of the total returns to only materialize shortly before the end or at the end of the investment.

2012

2011

Change

Number of borrowers (millions)

20.0

16.8

19%

Number of clients with savings accounts (millions)

22.4

17.6

27%

Outstanding credit portfolio of MFIs (USD million)

33,853

23,520

44%

Client savings deposits managed by MFIs (USD million)

26,627

17,850

49%

Average loan (USD)

1,693

1,400

21%

Average savings (USD)

1,189

1,014

17%

137,647

118,476

16%

Number of rural-dwelling microfinance clients

Number of employees of MFIs

52%

50%

+2%-points

Number of female microfinance clients

75%

73%

+2%-points

Measuring the relevance to development

Microfinance clients according to profile Larger groups 10%

Many of the characteristics of our portfolio MFIs are qualitatively recorded and illustrated in terms of the responsAbility Development Effectiveness Rating (rADER). rADER evaluates companies on the basis of the factors scope, empowerment, poverty in the area of activity, access to financial services and efficiency. The evaluation of the portfolio MFIs resulted in an average value of 2.97, where a value of 1 equals ‘little relevance to development’ and a value of 5 equals ‘high relevance to development.’ As in the previous year, with a value of 2.08, the criterion ‘access to financial services’ scored lowest . We expect this level to increase steadily over the course of the next few years as a result of the increasing formalization and increased proportion of savings deposits at MFIs (see page 31).

smaller groups 14%

Individuals 76%

Our most important investment countries in the financial sector (in USD million, as per 31.12.2012)

Peru Azerbaijan Cambodia Georgia Armenia India Ecuador Mongolia Russia Kyrgyzstan Kenya Bosnia-Herzegovina 0

20

40

60

80

100

responsAbility Annual Report 2012

120

13

Investment theme

Agricultural sector

The agricultural sector is of central economic importance, especially in developing countries. Investments in producers’ and trade organizations along the entire value chain facilitate the growth of economically and ecologically sustainable agriculture. responsAbility offers fair trade companies both short-term pre-export financing to bridge seasonal liquidity shortfalls and to generate higher turnover as well as long-term financing for expansion projects to increase product quality and revenue.

14 responsAbility Annual Report 2012

1.3 billion people work in agriculture worldwide, 1.2 million of them in fair trade.

75% of the population in East Africa lives off agriculture.

60 times lower than in the industrial countries: the productivity of the agricultural sector in East Africa.

48% is agriculture’s contribution towards the GDP in Ethiopia; in Switzerland, it is 1%.

Manuel Jesús Díaz Estela wears plastic slippers. He expertly climbs the steep mountain path to his coffee field. The ground is muddy and slippery – it has rained a lot recently. This does not bother Manuel. He completes his daily journey to work in about an hour. Once he reaches the top, he inspects his coffee plants. The fruits are ripening. He picks the red berries and leaves the green ones. He collects what he harvests under a corrugated sheet roof. Here is where he starts the washing: a newly developed water pipe brings fresh spring water into a kind of oversized wash basin. The berries are washed and then the pulp is removed.

A machine operated by hand removes the skins and the pulp, the parchment and the pectin remain on the coffee beans. The next processing step also takes place up here: the fermentation process during which the pectin is liquefied. After 12 to 36 hours, the beans are then washed again and spread out to dry. Manuel empties this product into large sacks, loads them onto his mule and commences his way home down into the valley.

Equality under the statutes But not only coffee, also cocoa has displaced coca crops from the large plantation areas. For example, in Bucacaca, where on the first Monday of every month around twenty Socios, members of Acopagro, a large cooperative in the Juanjuí region, sit and discuss in front of their local processing center.

Modest prosperity thanks to coffee Manuel has been growing coffee for around 15 years. His 3.5 hectares of land make it possible for him, his wife and his four children to survive and even enjoy modest prosperity. In the living area, a television set is on, in the garage, there is a brand-new red pickup truck in American design, and the children no longer have to walk for an hour to get to school but can take a motocar, a motorbike taxi, arranged on a daily basis.

Bucacaca, March 2013: the members of the Acopagro cooperative gather for a meeting

Manuel is one of one thousand small coffee producers in the Lamas region at the edge of the Peruvian Andes who have joined together to form the Oro Verde cooperative. Oro Verde was founded in 1999, at a time when the illegal coca crops had a firm hold on the Peruvian Amazonian region.

David Contreras Monjaráz assists the farmers with quality assurance

Coffee farmer for 15 years with a modest prosperity: Manuel Jesús Díaz Estela, member of the Oro Verde cooperative in Peru

These cocoa producer meetings are formal. The speakers stand up and greet the entire group before saying their piece. This is one of the rules that the cooperative members have created, explains David Contreras Monjaráz, food engineer and head of quality control at Acopagro. Join in. Be on time. And show respect. Equality between men and women is also regulated by the community. “We women never used to get to our responsAbility Annual Report 2012

15

The right tree-cutting technique is the subject of today’s lesson in the ‘field school’

say,” explaines one of the members of the cooperative. “Now, we have the same voting right in the cooperative as our husbands, and that has also had a positive effect at home.”

Gonzalo Ríos, director of Acopagro: “When I started here, the people were starving.”

16 responsAbility Annual Report 2012

Once a month is ‘field school’ Today, there is another ‘field school’ lesson, a monthly training event for all members of the cooperative. Miguel Ángel Trujillo Valderrama, agricultural engineer and financed by Acopagro, accompanies the group of Socios to one of the cocoa plantations. The journey takes them by canoe along rivers and through the forest where cocoa trees grow in bright chaos next to banana trees, orange trees or coconut palms. The areas cultivated by the Acopagro farmers used to look like this, too, explains David. However, the cooperation continuously invests in training for its members in order to technically improve the pure biological cultivation methods and to increase the revenues. The ‘field school’ has been running since the beginning of the year, Miguel is here for the third time and receives a warm welcome from the Socios. They value the chance to learn more. “The ratio between light and shade is of central importance,” explains the agricultural engineer. “Shade is important. However, too much shade takes away the productivity of the cocoa plants. We aim to have 36 shady trees per hectare –

this number has proven to be ideal in tests we have been carrying out for four years.” The fertilizer – guano, minerals – also has to be used properly and at the right time. If it is brought out at the wrong time, the valuable fertilizer will simply be washed away in the frequent floods. The aim is productivity that should secure economic survival for the small farmers. Since 1997, the revenue per hectare has more than doubled – Acopagro wants to triple it by 2015.

Training instead of food aid “A lot has already been achieved in this area,” explains Gonzalo Ríos, who has been director of Acopagro since the cooperative was founded in 1997. At that time, he was appointed by the United Nations to assist the farmers to move away from coca cultivation and towards cocoa cultivation. Acopagro started out with 26 members and a turnover of USD 50,000. In 2013, there are 2,000 members and the turnover has reached USD 10 million. The 300 hectares that the UNO originally planted with cocoa have become 30,000 – Gonzalo Ríos considers this fact alone to be proof of success.

“The cocoa has allowed the farmers to escape their extreme poverty,” explains Gonzalo Ríos. “When I started here in Juanjuí , the people were starving and could not provide for their families. They had no access to education. In the initial years, Acopagro assisted its members, first and foremost, by providing animals or food. Today, that is no longer necessary. Now, we focus mainly on training in terms of cultivation methods, environmental protection methods such as reforestation, higher revenue and better quality.”

Keeping up with the global market Acopagro has set itself ambitious goals in this area. Gonzalo Ríos: “Today, we are the largest exporter of organic cocoa in Peru and cannot even satisfy the entire demand for our products. However, this does not mean that we can rest on our laurels. We are always working on new improvements, both in terms of cultivation and processing.”

and here, we have the chance to make a contribution now. Our aim is to supply top quality coffee and cocoa and, at the same time, to improve the economic and social situation here in the region.” Sandro Aquino, founding member and director of Oro Verde for the past three years, is also concerned with the issue of quality. “Our philosophy is: We sell good coffee – internationally, but also in Peru. For around seven years, we have no longer been supplying our products only to traders and producers but also sell directly to consumers – like here, in our café. We would like to duplicate the café concept – tropical, Peruvian, indigenous – in other places in Peru, perhaps also internationally, and to acquaint, primarily the Peruvian population, who are not traditionally big coffee drinkers and chocolate eaters, with our products.”

“We sell good coffee – that pays for itself.”

For this purpose, Acopagro is not only investing in the know-how of the cocoa farmers but also in quality improvement and control in the processing stage. “This makes sure that we can create qualified jobs for the next generation and prevent the well-educated children of the members of our cooperative from turning their backs on agriculture,” emphasizes Gonzalo Ríos.

What are the reasons for this success? You have to invest in quality. We hold training sessions every morning and pay attention to nuances during every tasting. That bears fruits.

Coffee and chocolate for Peru Oro Verde, where many young employees are hard at work, has similar objectives. Neiser Quispe Cubas, a food technician fresh out of university, is himself the child of coffee farmers from the Amazon region. “I love the aroma of coffee, from the flower to the end product,” he explains. “And I am happy to be able to work here at Oro Verde. We are a very young team,

After the harvest, the cocoa fruit is opened and the cocoa beans inside the fruit are removed

Sandro Aquino has been a member of the cooperative since it was founded in 1999. Since becoming director of Oro Verde three years ago, he has been working towards making the company more comwmercial. responsAbility: Oro Verde has been around for 14 years. What are you proud of? Sandro Aquino: We produce excellent coffee – the coffee sold here in our café scores 85 of 100 points and more. Quality is a basic requirement for success, and we have achieved a lot.

How can Oro Verde grow further? In all areas. With ‘Industria Oro Verde’, we produce coffee and chocolate for the home market and sell our products in a small shop in Lamas. We want to expand this activity further. However, our café concept and our activities for the ecosystem are also paying for themselves. We have planted 500,000 trees in the framework of controlled reforestation and are now endeavoring to obtain certifications, for instance from the Forest Stewardship Council (FSC).

responsAbility Annual Report 2012

17

Cocoa cultivation as a tourist attraction Trained in the area of coffee and cocoa tasting, Sandro Aquino concentrates on continuous quality optimization. The cooperative organizes training sessions every morning. Like at Acopagro, it is concerned both with proper cultivation methods such as the best type of tree cut and with processing issues like cocoa fermentation. “We now work with special cocoa varieties. Every batch tastes unique here and we process it in our own chocolate plant.” However, Sandro Aquino’s plans do not stop there: in addition to marketing Oro Verde products to consumers, he also

wants to make coffee and cocoa cultivation into a tourist attraction. “We already offer guided tours of the plantations and of our factory. There is a lot of interest,” he explains. Overall, Oro Verde’s diversification strategy is working. “Ten years ago, we had a lot of trouble obtaining financing. Nobody believed in us,” explains Sandro Aquino. “Today, we can choose whom we want to work with. We value responsAbility for its flexibility, speed, interest rates, but in the meantime, we are no longer only discussing preharvest financing but longer-term investments that should help us reach the next growth level.”

Further reading on the topic of fair trade can be found at www.responsAbility.com/…………

Quality assurance also after the harvest: coffee beans are dried in the sun and stored safely away from any rain showers 18 responsAbility Annual Report 2012

Investment theme agricultural sector

Oro Verde and Acopagro: Two Drivers of Fair Trade in Peru

Acopagro has also been producing organic desiccated coconut, as almost all its members also own coconut palms.

Oro Verde Based in Lamas, the Oro Verde cooperative produces, processes and sells organic coffee and cocoa in accordance with fair trade principles. Sales markets for the products include North America, Central Europe and Korea. The cooperative offers its members technical support to grow and process their products as well as microcredits to purchase fertilizer or set up coffee washing plants on their property. Oro Verde also pays all its members’ state health insurance premiums.

Oro Verde tests the quality of every coffee consignment in the laboratory

The Acopagro and Oro Verde cooperatives are committed to organic and fair trade certification in their cocoa and coffee production, helping their members meet the strict conditions imposed by the labeling organizations. Producers receive special premiums for such products, over and above the global market price for coffee and cocoa. The fair trade minimum price also guarantees that farmers can continue to sell their products for a fixed minimum amount even if prices on the global market slump. If they sold their products to profit-oriented intermediaries, their income would be considerably lower, as such intermediaries generally pay only a portion of the global market price, retaining the rest as a margin.

was to market the organic cocoa produced, increasing the members’ income and improving their living conditions. Today, the Acopagro cooperative has around 2,000 members, and has established some 6,000 new cocoa-growing areas in the region in recent years. Exports have risen sharply too, from 86 tonnes a year in 1997 to over 3,500 tonnes in 2012. Acopagro is now the largest exporter of organic cocoa in Peru. In addition to fair prices, extra premiums and dividend payments, the cooperative offers its members technical advice and loans to prefinance harvests. Since 2011, Comparison of cocoa prices

Acopagro Based in Juanjuí, Acopagro traces its origins back to 1992, when the United Nations began promoting cocoa cultivation to provide the local population with an alternative to growing coca. They provided technical advice, loans and marketing services to farmers, and helped them set up cooperative structures. Acopagro itself was established in 1997 with 27 members. Its aim

Established in 1999 with 56 members, today Oro Verde consists of 1,080 small farms with an average crop area of 2.5 hectares. 700 of them grow coffee, 300 cocoa. In 2012 Oro Verde sold over 1,000 tonnes of coffee and 220 tonnes of cocoa; in 2013, it expects to increase sales by a total of 10%. The cooperative has recently invested in a new, modern coffee processing facility. The industrial company Oro Verde SAC processes, packs and sells products including roast and ground coffee and chocolate for Peru’s domestic market. responsAbility has been investing in Acopagro and Oro Verde since 2008, and mainly offers pre-export financing. Comparison of coffee prices

4,000

3.0

3,500

2.5

3,000 2.0

2,500 2,000

1.5

1,500

1.0

1,000 0.5

500 0

2010

2011

Cocoa (USD per tonne): global market

2012 Acopagro

0

2010

2011

Coffee (USD per pound): global market

2012 Oro Verde

responsAbility Annual Report 2012

19

Investment theme agricultural sector

Financial and development-related results

responsAbility finances producers’ and trade organizations along the entire agricultural value chain. The financing we provide enables cooperatives and trading firms to pay producers a fair price for sustainably produced agricultural commodities and sell them on the global market. Although responsAbility has been investing in sustainable agriculture for years, the launch of a special fair trade fund in 2011 hugely accelerated the expansion of our investment activities in this sector.

Commodity Prices under Pressure This expansion took place against the backdrop of a tough situation for commodities in general. In 2012, the CRB Index (a widely used benchmark for overall performance in the commodities sector) fell by 5%, while the price of Arabica coffee dropped from USD 2.26 per pound in January 2012 to USD 1.44 per pound at the end of the year – a decline of 36%. The fall was triggered by a combination of high delivery volumes, global macroeconomic uncertainty and the appreciation of the US dollar against the Brazilian real. The prices of sugar, nuts and many other products also fell in the course of the year. The only exception was cocoa, which gained around 4%. These movements demonstrate once again the importance of a minimum price for fair trade products. Our Most Important Investment Countries in the Agricultural Sector (in USD million as per 31.12.2012)

Costa Rica Peru Paraguay Honduras Malaysia Sri Lanka Ecuador Ivory Coast Turkey Rwanda Ghana Brazil 0

5

10

20 responsAbility Annual Report 2012

15

20

Development of companies financed in the agricultural sector (as per 31.12.)

2012

2011

Change

Agricultural investments (USD million)

80.6

50.7

59%

Outstanding amount as at 31.12. (USD million)

55.3

33.1

61%

Directly financed companies

66

46

43%

Countries with directly financed companies

25

13

92%

Countries with indirectly financed companies

27

20

35%

Average term of financing (months)

9.5

6.1

54%

Despite this challenging market situation, we increased our agricultural investments by 59% in 2012, to USD 80.6 million. The amount outstanding at the end of the year stood at USD 53.3 million, 61% more than in December 2011. The number of directly financed companies rose by 43% to 66, while the number of countries in which direct investments were made increased from 13 to 25; these included first-time fair trade investments in Ivory Coast, Ghana, Indonesia, Kenya, Sri Lanka, East Timor and Tunisia.

Proportion of investments per agricultural commodity

Diversifying in commodities

Longer-term investments

Further diversification was achieved in relation to the various commodities in which responsAbility invests. Coffee and cocoa continue to account for the lion’s share of our agricultural business, but in 2012 we added further areas such as nuts (macadamia, cashew), fruits (sultanas, apricots, figs, orange juice, dates), herbs and spices (verbena, pepper, coconut palm sugar) and other agricultural commodities (tea, soybeans) and cereals to our investment portfolio. This diversification reduces the seasonality of investment flows and gives cooperatives that produce less important products access to funding and international markets.

At the end of 2012 responsAbility began making longer-term investments in sustainable agriculture. Pre-export financing for producers still accounts for a large proportion of the investments, but in recent months longer-term financing has also been provided to producers and traders who enable qualitative and quantitative improvements and thus higher incomes and higher levels of employment. Accordingly, the weighted average term of fair trade investments stood at 9.5 months in 2012, an increase of 54% compared to 2011.

(as per 31.12.2012) Dried fruits 3.5% Tea 3.8% Pepper 3.8%

Others 2.4%

Sugar 5.4% Orange juice 8.4%

Coffee 53.1%

Sesame 8.8%

Cocoa 10.8%

Development-related results – more financing for women The number of smallholder farmers or employees that, like the companies we finance, benefit from our investments doubled from 107,534 to a total of 216,321. In 2012, financing from responsAbility directly benefited 31,666 producers, compared to 15,157 in 2011. As regards financing for women, the rise was even sharper, from 18,280 to 48,203. In absolute terms, the level of involvement of female smallholder farmers or employees increased by 164%; in relative terms it rose from 17% to 22%. The number of people permanently employed by the financed companies rose by 170% to 4,240, while the proportion of women increased from 25% to 28%. This is partially due to greater diversification in the companies financed: organizations such as processing plants and traders tend to have a higher proportion of permanently employed staff than cooperatives or small farms. They also employ a larger number of women. The increasing number of people whose jobs depend on companies financedby us also shows, however, that our invest-

ments help increase employment in some of the most impoverished and underdeveloped areas in the world.

Higher sales with fair trade products Sales by companies financed by responsAbility of products certified by Fairtrade International (FLO) rose by 11.6% to USD 32.2 million. Despite this increase in absolute figures, FLO-certified and organic products fell from 54% to 40% and 37% to 28% respectively as a proportion of total investment volume, while the proportion of products with other forms of certification rose from 5% to 13%. The reason for this shift is the continuing diversification of responsAbility’s portfolio: many commodities that are not covered by FLO certification may be certified in other ways. The degree of regional coverage by FLO also varies considerably, and is traditionally very high in Latin America. By contrast, many small farming cooperatives in Africa and Asia are not FLO-certified but nevertheless have a tangibly positive impact on the local economy and improved access to funding and international markets.

Development-related indicators for the cooperatives directly financed by responsAbility (as per 31.12.)

2012 Number of smallholder farmers or employees

216,321

2011 Change 2012 107,534

101%

Number of female smallholder farmers or employees

48,203

18,280

164%

Number of smallholders reached

31,666

15,157

109%

Number of employees at directly financed cooperatives

4,240

1,568

170%

Number of female employees at directly financed cooperatives

1,168

390

199% –9%-points

Organic production as a percentage of overall volume

28%

37%

Fair trade production as a percentage of overall volume

40%

54% –16%-points

Alternatively certified production as a percentage of overall volume

13%

5%

+8%-points

USD 18.9 million of social premiums Among the FLO-certified companies financed by responsibility, the social premiums – a fixed price for fair trade products that is directly reimbursed to the cooperatives for community projects, additional payments to members or other investments in the cooperatives’ activities – rose from USD 12.2 million to a total of USD 18.9 million. Use of premiums by the cooperatives in 2012 (Total: USD 18.9 million)

Health 3% Education/training 4%

Direct payments to farmers 38%

Other social projects 4%

Technical assistance, quality enhancement, certification 15%

Infrastructure, capital or cooperative 36%

As to the way this sum is used, 2012 saw direct payments to producers fall from 50% to 38% of the total, while the proportion going toward infrastructure and governance rose from 23% to 36%. This demonstrates that more money was spent not only on community projects but also on strengthening the cooperatives and improving their governance and sustainability. This development may in part be due to the decline in commodity prices in 2012. The decision to keep more of the funds within the cooperative may represent a strategic decision for many cooperatives, looking to keep a reserve in case of further volatility in the commodities markets.

responsAbility Annual Report 2012

21

Investment theme

Healthcare sector

Good health promotes productive work and encourages successful learning: two key factors for economic growth and social development. Sickness, by contrast, is both a cause for and a result of poverty. Demand for healthcare services in developing countries is rocketing, thanks to population growth and increased purchasing power. In view of the general weakness of the sector, private providers are increasingly contributing to sustainable development on the supply side.

5 - 6% of GDP is spent on health care in developing economies, compared to around 11% in industrialized nations.

10 hospital beds are available on average for every 10,000 people in developing economies. In Europe the figure is around 60.

USD 25 - 30 billion is needed for new investments in health care in sub-Saharan Africa between 2007 and 2016.

More than 50% of health spending in developing economies is privately financed – a major financial burden for patients.

Changing lifestyles and ageing populations are boosting demand for private health services: a patient at ‘Mi Doctorcito’ in Lima, Peru 22 responsAbility Annual Report 2012

While the need for medical care is growing in emerging economies, they tend to have weak health systems. This weakness is largely due to traditionally low levels of funding: while industrialized nations spend around 11% of their gross domestic product on public and private health care, in emerging economies the figure is around 5 to 6%. The majority of this spending is privately financed – a substantial financial burden for patients. In Mexico, for example, almost 50% of total health spending is paid for by people out of their own pockets.

Ageing population In addition to rising incomes in emerging economies – which usually go hand-in-hand with increased household spending on health care – there are other factors driving the greater demand for health services, including ageing populations and changing lifestyles. According to the United Nations, by 2050 two billion people will be more than 60 years old, 50% of them in Asia alone. Furthermore, the urbanization resulting from economic growth is leading to a shift from active lifestyles to sedentary activities, as well as to increased consumption of meat and processed foods. Today, developing economies already account for around 80% of all deaths from chronic ailments such as diabetes or heart disease worldwide. According to the International Diabetes Federation more than 371 million people had diabetes in 2012; the majority of them living in countries with low or medium incomes. This situation is giving rise to pressure for better access to affordable, high-quality health services. Although governments are expected to boost their healthcare spending, the private sector is assuming an increasingly important role, as it provides additional capital and market solutions. There are attractive growth opportunities in all subsectors of the healthcare industry, from medical technology and medicines to

The most important subsectors of the health industry Service providers

Medical technology

Medicines and biotechnology

Other

Hospitals, clinics, retirement homes, etc.

Medical facilities and equipment, IT, etc.

Drug research and development, manufacture and marketing, etc.

Funding bodies, educational organizations, etc.

health services themselves. There are more and more scalable, innovative business models that are improving the health care services on offer. A growing number of clinic groups are also contributing to the provision of uniform basic care or special services in dentistry and ophthalmology. To ensure that the business is scalable and services are affordable for patients, the focus is on efficient processes that are generally supported by stable IT platforms and staff training. With their orientation toward deprived sections of the population, however, many of these new business models face major challenges: their target clients have often not had access to high-quality health services before, or did not have sufficient financial resources to use them. Often, such clients still have to be convinced of the value of new services.

Comparison of access to health services 60

50

40

30

20

10

0

India

Mexico

Peru

Hospital beds (per 10,000)

Uganda

Industrialized nations

Doctors (per 10,000)

Financing innovative approaches To speed up implementation, it is important to clarify the issue of sustainable financing. Another challenge for emerging economies lies in recruiting qualified personnel. In remote areas especially, the number of doctors available is limited. However, technological progress is increasingly helping to overcome many of these challenges. In India, for example, companies are developing low-cost equipment for remote medical care. Telemedicine uses the Internet to link patients out in the countryside with doctors in the towns. Such technologies improve the quality and availability of health services and ensure that they remain affordable.

To read more about the health care sector in India, visit www.responsAbility.com/…………

responsAbility Annual Report 2012

23

Investment theme

Energy sector

Energy is one of the main foundations of economic growth. According to the World Business Council for Sustainable Development, in the modern era there has not been a single country that has achieved substantial reductions in poverty without an increase in energy consumption or a move toward more efficient sources of energy. Lack of access to energy for billions of people worldwide is a key challenge – especially in developing economies such as sub-Saharan Africa, as we show here.

Micro-, mini- and small systems for energy production will play an important role in the efficient use of local energy sources 24 responsAbility Annual Report 2012

40% of the population in sub-Saharan Africa have no access to electricity.

USD 41 billion a year is needed to fund development of the energy sector in sub-Saharan Africa.

3,000 MW is the potential for small hydroelectric power projects in Kenya. Some 30 MW have been developed to date.

600 million out of 800 million people in sub-Saharan Africa could be supplied with electricity if the potential of photovoltaic systems were exploited.

In sub-Saharan Africa almost 40% of the population have no access to electricity. Most of these 600 million-or-so people live in rural areas. This means it is very difficult and expensive to reach them via the national power grid. Over the coming years, the region expects average GDP growth in excess of 6%. This will increase the need for energy, as will the growing middle class making more frequent use of technologies that require up-to-date energy sources. The energy supply gap, inefficiencies in the sector that lead to extremely high energy costs, and the generally restricted access to energy are limiting the capacity for economic development and the well-being of the population.

Impetus from innovative technologies With their immense renewable energy resources, East African countries are particularly well placed to meet a large part of their energy needs from renewable sources. Further impetus is coming from innovative technical solutions geared toward the needs of people in rural areas not reached by the power grid, and from the favorable environment for small power plants. The national targets published by the governments of Kenya, Uganda, Tanzania and Rwanda for projects of this kind, spurred by economically profitable feed-in remuneration and standardized power purchase agreements, are designed to further speed up implementation by private investors and companies.

Very high energy costs in Africa In most developing economies, energy prices are between USD 0.04 and USD 0.08 per kWh. In sub-Saharan Africa, by contrast, the average tariff is USD 0.13 per kWh. In countries that are dependent on diesel-operated systems, prices are even higher. Owing to inefficient production facilities, the average production costs in many African countries are higher still, at USD 0.18 per kWh. As a result, consumption is to some extent being subsidized.

Electrification Rates across East Africa State

Total

Urban

Rural

Kenya

29%

51%

4%

Uganda

12%

40%

4%

Tanzania

14%

34%

3%

Rwanda

11%

25%

1%

Private investments driving development Effective long-term investments According to the United Nations Environment Programme, an estimated USD 41 billion a year is needed to improve access to affordable, clean energy. Private investments are vital to funding development of the energy sector in sub-Saharan Africa. This is a new approach: traditionally, infrastructure funding has mainly been a matter for governments. However, funding is not the only issue. Given that it will likely be some years before much of the population in most African countries is linked to the grid, there is a need for decentralized solutions as well as substantially broader access to the power grid. Micro-, mini- and small systems for energy production will play an especially important role in securing the efficient use of local energy sources. They also help to prevent the often negative impact of megaprojects on the environment, and enable energy supply to be increased within a shorter timespan.

Since the structuring of remuneration allows for an appropriate risk/return profile, and future cash flows will be generated in US dollars, there is an attractive long-term investment perspective that offers high impact potential. This is especially true of hydroelectric power in sub-Saharan Africa: here, almost 30% of the population live in areas where small hydroelectric power

plants are the most affordable form of energy supply. In Kenya, for example, the potential is estimated at around 3,000 MW, 45% of which relates to the water catchment area of Lake Victoria. Only around 30 MW of this has been realized so far. Following the introduction of feed-in remuneration in 2008, it is expected that small plants supplying villages, small businesses, farms and the power grid will demonstrate the greatest potential.

Business models for renewable energy production Minisystems

Small power plants 1

Small power plants 2

Use

Households, small and medium-sized enterprises that are not connected to the power grid

Local mininetworks for small villages

Connected to the power grid

Key requirements

Creation of appropriate and affordable systems

Technical solutions that enable effective distribution and payment

Achievable feed-in remuneration and standardized power purchase agreement

Key challenges

Appropriate financing plans and product distribution models

Financing, expertise, effective payment collection processes

Financing, appropriate regulatory environment, operational and management skills

responsAbility Annual Report 2012

25

Investment theme

Education sector

Hundreds of millions of adults and children around the globe have no access to education. This results in lower incomes, poorer health and much reduced economic and social prospects for those affected. In low-income households in developing economies especially, the need for appropriate, affordable education far exceeds what is available, as the example of India shows. Investments can play a key role in getting this growth sector moving.

775 million adults

USD 10–30 billion

52%

worldwide have no elementary reading and writing skills – 64% of them are women.

is needed to provide elementary schooling in developing economies by 2015.

of the world’s illiterate population live in South and West Asia.

USD 70 billion

10% of GDP

15% per year

is the minimum potential of India’s education sector.

is spent on India’s education sector.

is the growth rate of India’s education sector.

In many developing economies there are increasing numbers of nonstate educational institutions offering alternative education systems for people with low incomes

26 responsAbility Annual Report 2012

The Millennium Development Goals drawn up by the United Nations in 2001 include a target of full primary schooling for all by 2015. With two years to go before this deadline expires, securing general elementary education remains an important task. Further challenges also lie ahead: a low enrollment rate coupled with a lack of quality in the education available in many developing and emerging economies means that when they leave education, the majority of schoolchildren have few of the skills they need for the world of work and their everyday lives. Complementary offerings from private providers in areas such as professional training, tutoring and coaching, teaching materials and preschool education can help make up for this, and are an interesting growth market.

Better education for people with low incomes It will be impossible, both administratively and financially, to meet the enormous need for education services solely via the conventional education offering in the form of state-run schools and universities. The funding gap is substantial. On the other hand, innovative private offerings are coming into existence in parallel to the state system. Their aim is to improve the operation of education systems for low-income segments of the population. In addition to optimizing existing approaches, they involve fundamentally new methods that can break the mold and perhaps even transform the way education is delivered. They can complement the efforts being made under the Millennium Development Goals and contribute to improving general access to education by eliminating the inequalities that have until now prevented the children from attending school. In India, for example, 10% of the gross domestic product is spent on the education sector, with private household spending totaling some USD 50 billion and govern-

International comparison of key education indicators India

US

United Kingdom

Literacy rate among young people

81%

~100%

Gross enrollment rate at secondary level

63%

96%

Ratio of pupils to teachers at primary school level

40**

14

Brazil

China

~100%

98%

99%

105%

106%*

81%

18

22

17

Source: World Bank Education Statistics (except literacy rate for young people in India: UNICEF Statistics). * 2005 data. ** 2004 data.

ment spending contributing over USD 30 billion. In all, 230 million children are currently attending education levels from kindergarten through to the 12th year of schooling (K–12) and higher levels of education.

Supply falling short of demand The education sector is one of the fastestexpanding areas of the economy in India and around the globe. The annual growth rate is estimated at around 15%. Despite this impressive figure, there is still a huge gap between supply and demand in India’s education sector. This is primarily due to the large size of the population and a policy that has until now limited the effective involvement of the private sector. This is why the main indicators of access to education in India are low in comparison not just with the industrialized nations but also with countries at similar stages of development, such as Brazil and China.

corporate cash flows and provides suitable debt capital products. Given the enormous need for financing and the increasing activities in the private education sector, more and more investors will focus on this area in the long term. They can, for instance, supply debt capital for private companies or consider a start-up or early-stage participation. Larger investments at a later stage also offer potential to drive economic growth and social progress. Here, the main emphasis is on professional education, tutoring and coaching, teaching materials and preschool education.

Investment opportunities in the informal sphere Owing to the restrictive approach adopted by the government, the main investment opportunities in the Indian education sector are in informal schooling. Equity financing can currently be deployed anywhere outside the formal school sector (K–12 education and institutes of higher education). In certain segments, debt capital is much in demand – for expansion and as working capital. Such models can be supported by a vertical financing facility, which recognizes the dynamism of the education sector and responsAbility Annual Report 2012

27

Our Investments

New Perspectives for Emerging Markets

Eastern Europe Companies financed 2012: 47 Investments 2012: USD 146.2 million Investments 2011: USD 111.0 million Client potential: 28.3 million

2.4% 8.3%

Middle East and North Africa Companies financed 2012: 27 Investments 2012: USD 29.9 million Investments 2011: USD 19.7 million Client potential: 17.2 million

Central America Companies financed 2012: 54 Investments 2012: USD 105.7 million Investments 2011: USD 106.8 million Client potential: 6.2 million

21.3%

South America Companies financed 2012: 75 Investments 2012: USD 270.4 million Investments 2011: USD 207.4 million Client potential: 52.0 million

Investment Volume per Region

Number of Companies Financed per Region

Investment Volume per Country

Client Potentiall



Increase 2012 Decrease 2012 Increase 2011 until 2010 Angaben per Ende Jahr

more than 3% 1 - 3% less than 1% Angaben per Ende 2012

Number of wage earners in low-income households (living on USD 1.25 to USD 5 per day, adjusted for purchasing power)

in percent of total USD 1.4 billion

Angaben per Ende 2012

28 responsAbility Annual Report 2012

11.5%

29.4 %

Central Asia Companies financed 2012: 60 Investments 2012: USD 373.2 million Investments 2011: USD 240.1 million Client potential: 6.2 million

19.1 % 6.5 %

South and East Asia Companies financed 2012: 83 Investments 2012: USD 241.8 million Investments 2011: USD 141.6 million Client potential: 114 million

Sub-Saharan Africa Companies financed 2012: 47 Investments 2012: USD 82.8 million Investments 2011: USD 43.5 million Client potential: 62.5 million

Investment Volume (in USD Million) 400

Number of Companies Financed Worldwide

55.5%

400

350 300

30.4%

250

300

70.3%

200 31.7%

150

200

-1%

100

51.8%

50 0

90.3% Increase 2012

Increase 2012 Decrease 2012

100

Central Asia

South America

South and East Asia

Eastern Europe

Central America

Sub- Middle East Saharan and Africa North Africa

Decrease 2011 until 2010

Investment volume 2011

0

responsAbility Annual Report 2012

29

Our Investment Concept

Economic and Social Progress Is the Key to Success Developing economies and emerging markets are becoming progressively more important as growth markets. However, their sustainable development hinges on increasing prosperity for broad sections of the population. responsAbility makes targeted investments in the local economy, giving companies access to markets and households a range of products and services suited to their needs. Development effects and financial returns are mutually dependent and create new perspectives: for investors, financed companies and their end clients. Developing economies and emerging markets are important growth markets. While industrialized nations will likely stagnate in 2013 for the third year in succession, the International Monetary Fund is, for example, pre-dicting real growth of 6.2% in the gross domestic product of the 15 key microfinance markets this year.

access to an affordable range of products and services that meets their needs. These choices bring about the development we are aiming to achieve.

Sustainable development in these countries hinges on growing prosperity for broad sections of the population. Some 2.6 billion people in developing and emerging economies live in low-income households. They have a daily income and also expenditure, but are unable to meet their basic needs adequately.

responsAbility’s activities center on market development, and we select our investments accordingly. The investment themes we have defined consist of five sectors that cover basic needs and that, owing to their relevance to broad sections of the population, make a particularly strong impact on a country’s development: the financial sector, agriculture, health care, energy and education.

Selection by Relevance to Development and Profitability

Market Development to Create Choice In our investment countries we mostly encounter inefficient markets characterized by traditional business models with little innovative strength – to the detriment of their end clients. Lack of supply and inadequate infrastructure force households in developing economies to pay more for basic goods and services than households in developed nations. The additional costs that low-income households have to bear in order to satisfy their basic needs are referred to as a poverty premium. Our investments target market development and, therefore, the creation of choices for low-income households. Our financing opens up markets for small and medium-sized companies and gives low-income households 30 responsAbility Annual Report 2012

Within those sectors, we make targeted investments in companies that, thanks to their business models, have a high developmental impact. They offer broad sections of the population affordable and sensible products or services that are tailored to their specific needs. If both of these basic conditions are met, we then scrutinize the companies carefully on the basis of economic criteria. Here, the emphasis is on factors such as economic success, growth prospects and scalability of the product or service, all of which ensure the company will rapidly become profitable and be able to supply even larger population groups as it grows. At the same time, we apply stringent requirements with regard to transparency (corporate governance) and professionalism.

Large Economic Potential In addition to their positive impact on development, investments in our chosen sectors offer financial potential for investors. The products and services that these companies offer satisfy the basic needs of broad sections of the population, so they are active in what is very much a growth market. Access to financing – be it in the form of debt or equity – enables them to operate more efficiently and therefore more profitably, and to grow. This in turn translates into financial returns for investors which go hand-in-hand with development effects. responsAbility thus combines the aspects of growth and development potential into a forward-looking investment concept. Selection of Companies Financed, by Economic and Development-Related Criteria

Sectors Must be investable and development-related For example financial, agricultural, health, education and energy sectors

Business Model Creates access to affordable products and services appropriate to needs For example microfinance, basic medical care, electricity

Company Has potential for growth and economic success For example microfinance bank, fair trade cooperative, pharmacy

Monitoring Investments Closely After each investment decision is taken, the company’s financial progress and developmental impact are measured and monitored regularly (see box). Where substantial amounts of equity are provided, we mostly work closely with the company receiving the funding, for example taking a seat on its board of directors. In some cases, a technical assistance facility can be offered. This enables the company to improve its operational structures and processes, modernize its accounting system or optimize its corporate management and controlling. Over the medium to longer term, we therefore aim to achieve an increase in the value of our participation.

Responsible Investments Integrating environmental and governance criteria as well as social aspects into our investment processes and reporting is central to our philosophy. To underscore our commitment to this fundamental approach, we have signed up to the UN Principles for Responsible Investment. We are also, for example, involved in the international dialog on effective and efficient approaches to financing. In all our investment products, we adopt a professional and structured investment process, of which transparent and regular reporting is an indispensable part.

Measuring the Relevance to Development of Investments The goal of our investment activities is to develop markets for the benefit of low-income households in developing economies and emerging markets. To ensure that potential investments accord with this approach, we have integrated an analysis and monitoring tool into our selection process. The responsAbility Development Effectiveness Rating (rADER) assesses our portfolio of microfinance institutions (MFIs) on the basis of scope, empowerment, poverty level, access to financial services and efficiency. For 2012 this analysis gives an average score of 2.97, where 1 equals low relevance to development and 5 equals high relevance to development. In 2010, the first year in which the measurement was carried out, the average rADER score was 2.82. In the last two years, MFIs have made improvements in efficiency, poverty level and access to financial services. Those that operate more efficiently incur lower costs, which allows them to reduce the interest rate for their end clients. The higher value in the poverty level category reflects the diversification of responsAbility’s investment portfolio into countries where a large proportion of the population have low incomes. As the formalization of the microfinance sector progresses, more and more institutions are offering not just credit products but also other financial services such as savings accounts. This development is improving access to financial services. Despite the positive trend of the last two years, the score for ‘access to financial

Relevance to Development of Our Portfolio MFIs (rADER evaluation as at end-2012) Scope

Empowerment Efficiency

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Access to financial services

2012

Poverty level

2010

services’ is still the lowest of the five categories measured. However, we expect the level to improve steadily as the MFIs continue to develop. While there is no major change in the score for ‘empowerment’, the ‘scope’ category has fallen slightly compared with 2010. The average size of the loans granted is a key factor here. The smaller the loan, the further the MFI penetrates into the poor income segments. Over the last two years, the average size of loans granted by MFIs has increased, and this is reflected in a lower score for ‘scope’. It should be borne in mind, however, that a larger average loan size can also be interpreted as a sign that the microfinance market is developing and maturing, and so is not a purely negative factor.

responsAbility Annual Report 2012

31

Our Expertise

Diversity – the Basis for Shared Success As a private asset manager involved in development-related investments, responsAbility is active in a multifaceted, specialized area. That is an important reason for the exceptional diversity of our team. Now numbering a hundred people in five locations, it helps to ensure that responsAbility can continually develop new perspectives for investors and investees, but also employees and partners.

risks. Departments that deal directly with clients include Relationship Management – the most important personal contact for our investors – as well as Debt Investments and Equity Investments, which manage and develop relationships to entrepreneurs in those two financing areas.

Support behind the Scenes For us as a global undertaking, a diverse and talented team of specialists from a wide variety of specialist areas is a key competitive advantage. It helps us understand the needs of our stakeholder groups and develop solutions tailored to their needs.

implement employee management and development tools, optimize IT usage across the company with an eye to the future, and prepare financial information about responsAbility.

responsAbility’s headquarters are in Zurich, close to the centrally located main station – easily accessible for both business partners and employees, the vast majority of whom travel to work by public transpor­tation. In particular, this is where our specialists in company-wide functions are to be found.

Central Service Areas in Zurich

The Corporate Center brings together functions including human resources, IT and finance. This is where we create and

Legal & Compliance and Marketing & Communications are other Zurich-based service areas that form part of the solid foundations on which our further business development is built. So too is our Research department, which draws up comprehensive analyses and assessments of sectors and business models, and monitors country

Our Product Management specialists are responsible for product development and reporting. The Credit Risk Management and Fund Management departments assess risks, as well as planning, implementing and controlling the allocation in our funds. In addition to its headquarters, responsAbility has a strategic partner in Paris as well as local offices in Lima, Mumbai and Nairobi. Both Investment Officers and Relationship Managers spend much of their time in direct contact with representatives of investees (see Portrait), thereby ensuring that responsAbility stays close to the market at all times.

On the Ground, around the Globe: 100 Employees in 5 Locations Work to Create New Perspectives Diversity: Specialists from 22 Nations Employees Nationalities

Zurich, Switzerland

100

Headquarters Since April 2003

22

Women

49%

Paris, France

Men

51%

PlaNIS, strategic partner Since September 2011

Apprentices Ages Percentage of full-time hours worked

4

Mumbai, India Local office for South Asia Since September 2011

16 - 55 20 - 100%

Nairobi, Kenya Lima, Peru Local office for Latin America Since January 2011

32 responsAbility Annual Report 2012

Local office for Africa Since April 2011

Our Expertise

Constantly on the Move in Africa’s Agricultural Market

responsAbility has been actively involved in Africa’s agricultural sector since 2011. To help it gain access to this investment area, the company looked for a local specialist – and found Daniel Ndegwa. Born and brought up in Nairobi, Daniel graduated in Business Administration before spending four years in charge of agricultural investments for the International Finance Organisation (IFO) in Africa “At respons­Ability, where smaller companies are also potential investees, the investment opportunities are many and varied. It’s the ideal situation for me, as an Investment Officer, to make a contribution where the commitment makes the greatest possible impact,” he explains. How does Daniel go about his job each day? “We identify investment opportunities – such as agricultural cooperatives – via labeling organizations, including Fair Trade Africa, but also at conferences or through nongovernmental organizations working in sustainable agriculture,” he says. “To operate successfully in this part of the world, it is vital to gain the trust of your business partners, and managing relationships takes a lot of time, especially at the beginning.” Once Daniel has identified a potential client for an investment, the process of analyzing the business numbers begins – another of an Investment Officer’s main tasks. “We start by looking at general information about the company concerned, but also its business plan and financial reporting. Then we draw up the contractual conditions on the basis of a detailed analysis,” Daniel continues. This task takes up a large amount of his working time. “It’s not until we’re there on the ground that we really get to know our potential business partners,” he explains. “They have to give us information about things such as procurement processes, relationships with small farmers and clients, infrastructure and management processes.”

The Kenyan Daniel Ndegwa joined the responsAbility team in Nairobi as Senior Investment Officer in October 2012

Asked what the greatest challenge of his work is, Daniel points to the fact that the various commodities necessitate continual adjustments to responsAbility’s product range. “Originally, we concentrated on coffee producers and their harvesting cycles,” he says. “Now we invest in producers of a wide range of exportable

The encounter that has most impressed him on his travels through Africa? Daniel answers without hesitation: “Ethiopia! I was visiting a juice producer in the middle of nowhere and while I was there I witnessed the worst poverty I had ever seen. Many international firms operating in Ethiopia do nothing to enable the local population to

“I’m delighted that my work can make things happen” agricultural commodities. They have very individual business models and financing needs.” It’s Daniel’s job to feed the expectations of business partners into the design of new financing products. “Before we propose new investment solutions, we have to acquire the necessary know-how and understand exactly what risks are involved,” he stresses.

share in the success of their work. This producer offers small farmers in the surrounding area the opportunity to earn USD 200 a month – a sum they could never hope to achieve otherwise. Involving local farmers creates an entirely new motivation and entrepreneurial spirit that lays the foundations for long-term growth.”

responsAbility Annual Report 2012

33

Our Research

Sector Know-How and Innovative Approaches for Sustainable Investments responsAbility’s investment strategy aims to maximize the growth and development potential of emerging economies. responsAbility Research is crucial to the company’s success: it informs and supports the investment ideas that guide our activities and plays an active role in assessing new financing opportunities. responsAbility Research is made up of five experts from various areas of specialization. The team compiles analyses of the investment sectors defined by responsAbility as well as drawing up constantly updated country and commodity reports that ensure careful monitoring of all operational risks. The work of responsAbility Research can therefore be viewed as a knowledge and innovation interface.

Supporting Investment Decisions responsAbility Research has developed a sophisticated country, commodity and currency research system. A range of factors that are of central importance for the company’s systematic risk management are evaluated and taken into account in every investment decision. The research analysts also incorporate their findings into comprehensive studies that currently encompass 75 countries, 40 commodities and 20 local currencies, with new analysis requirements constantly joining them.

Assessing Country Risks In a country risk assessment, responsAbility Research gives an overview of the political, social and economic environment in the country concerned, the factors that represent the greatest danger to private investments and the country risk rating. This rating takes account of various potential risk factors such as macroeconomic stability, the health of the national currency, the legitimacy and trustworthiness of its political leadership

34 responsAbility Annual Report 2012

and the likelihood of violent conflict. In a commodity risk assessment, the Research Team provides a detailed description of the production and management of the commodity concerned, the market in relation to supply and demand and their elasticity, the historical volatility of the market price, as well as all other information that is required for an assessment of the overall risk. After this, an IT system generates a rating that reflects the typical characteristics of the commodity or the market in which the investment is being made, as well as their contribution to the potential risk of the investment. The most important external resources used for these analyses are the Economist Intelligence Unit (EIU), the International Crisis Group, the International Monetary Fund (IMF), publications by the Public Ledger and the World Bank and other major

Objective: To Be a Thought Leader responsAbility Research is also responsible for compiling publications designed to inform internal and external stakeholders, promote wide interest in the sector and focus attention on developments in this area. Our annual Microfinance Market Outlook, for instance, is based on broad surveys of leading microfinance experts from all the major markets worldwide. The title of the current issue is: ‘High Debt? Low Growth? Not here!’

Analysis of Central Issues Our ‘Research Insight’ publications offer a careful analysis of key issues using primary and secondary research. The following titles were published in 2012: ‘Fair Trade Coffee from Costa Rica: A Smallholder Success Story’, ‘Health Care in India: An Investment That Works’, and ‘Peru – Model Market for Microfinance.’ The Discussion Papers address issues that require an exchange of ideas. In 2012 we looked at child labor, and microfinance and its development after phases of conflict.

responsAbility Research: Main Areas

For Investors

Sectors and Markets

For Investment Activities

Research reports

Think tank

Discussion Papers

Contributions to dialog within the sector

Country, commodity and currency research

Articles on products

sector and country-specific publications. With its precise, standardized evaluations, the team helps to simplify responsAbility’s decision-making process and improve its assessment of investment risks.

Analyses of sectors and business models for new products

Microfinance Market Outlook High Debt? Low Growth? Not Here! In 2012, the global microfinance sector grew again by almost 20%. There are strong indications that this pace will be maintained in 2013. Based on interviews with 26 regional microfinance experts and taking account of any side effects of the euro crisis, responsAbility’s analysts are forecasting real growth of 15 to 20% for the sector in 2013. After South and East Asia, it is the microfinance markets

in Africa that are showing the strongest growth momentum. One of the main drivers is technological progress related to branchless banking and mobile money. On every continent, the biggest danger for microfinance is becoming the tool of politicians. Professional monitoring of country risks and broad diversification offer effective protection for investors.

Research Insight Health Care in India: An Investment That Works The growth of India’s health care sector is based on numerous factors. There is a need for affordable health services throughout the Indian population, especially at the bottom end of the income pyramid. In view of the continuing poor state of health care provision in rural areas and the lack of commitment from the government, these services can have a massive social impact. As the country’s population continues to grow fast and its purchasing power increases, so too does demand for health services. At the same time, more and more companies are offering promising solutions for improved access to

medical services aimed primarily at the deprived population in rural and semi-urban areas. Innovative, less cost-intensive business models are making health care more affordable. This opens up attractive opportunities for investors to participate in the potential of all the segments in this sector. The continuing demand overhang, India’s dynamic demographic and economic development and the fact that entrepreneurial activities are still at an early stage in most market segments are all combining to drive lasting growth.

Discussion Paper Microfinance and Development in the Post-conflict Phase Increased financial intermediation is a key tool for rebuilding an economy and helps countries that are in a post-conflict phase to accelerate their economic redevelopment. In low-income countries, however, the level of financial integration remains extremely limited – especially in those that have until recently been at war. Microfinance offers a way to reduce this gap. In many cases, microfinance institutions (MFIs) have demonstrated exceptional resilience in an extremely testing security environment. They can

also gear products and processes to a society to an extent that would be impossible within the business models of most commercial banks. Additionally, they can offer assistance with certain aspects of repairing destruction in a post-conflict phase, either with short-term help and restructuring projects or with longer-term technical support. Microfinance is thus able to provide effective support to a society both in the post-conflict phase and in its long-term redevelopment.

responsAbility Annual Report 2012

35

Our Team

Dedicated to a Common Vision

responsAbility has set itself the goal of investing in new perspectives – and this also applies to our own employees. We strive to ensure that all members of the responsAbility team find meaning in their work and can keep on developing through their professional activities. This generates positive future prospects for each and every individual, both on a professional and a personal level. A great deal has happened at responsAbility since it was formed in 2002: it has evolved from an initial partnership of two employees into a powerful team of a hundred specialists who drive the development of the company from five different locations and have also been training apprentices since 2009. Despite the sometimes meteoric growth of recent years, responsAbility has succeeded in maintaining the essence of the dynamic

corporate culture of the early days: flat hierarchies and open doors at all levels, leading to efficient decision-making. Teamwork is a big priority, and collaboration between team members is guided by principles, not rigid rules.

general also play an important role, which is reflected in the large proportion of part-time employees. Another feature that contributes to the attractiveness of responsAbility as an employer is the opportunity to spend shorter or longer periods abroad, either in one of our regional offices or at a completely different location. Low staff turnover, and the fact that many return to the company following training or maternity leave, highlight the level of attachment felt by employees to the company.

The team members particularly appreciate the dynamic working environment and the opportunity they have to contribute and also implement their own ideas. Combining work and family and a work-life balance in

Still New and Exciting – Even after Ten Years

Patrik Huber from Zurich graduated in Economics and Environmental Management and gained a year’s experience at a major bank before becoming aware of responsAbility in 2003. The company was just two weeks old, and Patrik joined co-founder Klaus Tischhauser as the second member of the team. Today, he runs the respons­ Ability office in Nairobi, and enjoys being entrusted with new projects all the time.

36 responsAbility Annual Report 2012

“I was fascinated by responsAbility’s orientation toward achieving a double return. In the beginning there was just this investment idea – no fund, no structure, not even enough office furniture. I did a range of things: designed the first website, programmed a database, set up processes ...

In mid-2010 I then took time out myself, spending six months driving through East and South Africa in my car. At the end of 2010, my wife relocated to Nairobi with her work. responsAbility was in the process of building up regional agencies, and I had the opportunity to launch the Africa office.

As the company grew, additional employees came on board, and I built up several departments: Fund Operations, Investment Management, Equity Investments. I ultimately became a member of the Management Board.

“I have new projects all the time!”

Between 2008 and 2009, our CEO Klaus Tischhauser spent a year traveling the world, and I took over the reins of the company during his absence. Despite the financial crisis, which was in full swing right at this time, responsAbility experienced a spurt in its growth.

Today, we employ seven individuals in Nairobi and, in addition to our day-to-day business, are constantly developing new investment opportunities. And this is precisely what has motivated me over the last ten years at responsAbility: I have new projects all the time! And I hope it stays that way.”

“For me, responsAbility is a first-choice employer, ...

… because the company practices what it preaches and I have complete faith in everything I sell.”

Jürg Kohler – Senior Relationship Manager, Zurich, since 2005

... because responsAbility offers us young people really exciting work and development opportunities while we are still in training.” Joisy Silva de Oliveira – apprentice, Zurich, since 2011

... because I value the open corporate culture and the international working environment – and the fact that I can spend six months working in Lima.” Vassilios Ketsentzis – Legal Counsel, Zurich, since 2010

... because I can realize my potential while also making a difference.”

Pius Fischer – Head Credit Risk Management, Zurich, since 2006

... because I’ve met such professional and multicultural teams in a range of functions, first in Paris and now in Zurich.” Huiwen Wu – Credit Risk Manager, Zurich, since 2011

... because, together with a fantastic team, I can make a difference with my expertise and commitment.”

Suhasini Singh – seit 2012 Investment Officer India, Mumbai

... because responsAbility offers me an ideal combination of fascinating content and a good working environment.”

Cécile Koller – Regional Manager Latin America, Lima, since 2005

... because after taking maternity leave twice I can take up a part-time managerial role at responsAbility.”

Michèle Chevin – Head Office Management, Zurich, since 2006

... because the financial sector in emerging markets brings new challenges on a daily basis.”

Paul Hailey – Senior Research Analyst, Paris, since 2011

responsAbility Annual Report 2012

37

Our History

Ten Years of Investing in New Perspectives In April 2013 responsAbility celebrates its tenth anniversary. It is the perfect opportunity to look back at what has been achieved. When we started working in sustainable investment back in 2003, we were pioneers in our field. Today, responsAbility is the largest private asset manager in development-related investments. Both our geographical presence and our portfolio of sectors have grown dynamically. With a team of 100 dedicated specialists, we never tire of developing new perspectives.

December 2007

Launch of the first pure private equity fund May 2006 Launch of a product to finance the independent media in countries where press freedom is threatened

April 2003 responsAbility AG founded with just two employees

December 2004

December 2006

responsAbility manages assets of USD 8 million

USD 211 million in assets under management, invested in 110 companies in 36 countries July 2005

November 2003

Kaspar Müller becomes Chairman of the Board of Directors

Launch of Switzerland’s first microfinance fund licensed for public distribution

2003

2004

2005

2006

2007 August 2007

January 2005

July 2003 January 2004 After sales of 21.5 million, production of the VW Beetle ceases.

38 responsAbility Annual Report 2012

The concept of Web 2.0 takes off. Together with cell phones and other similar technology, it lays the foundations for better access to information – including for people in emerging economies.

2005 is the international year of microloans, paying tribute to the effectiveness of microfinance in combating poverty and building capacity.

The financial crisis begins, triggering a major economic crisis in the industrialized nations.

January 2006 In Liberia, Ellen Johnson-Sirleaf is sworn in as the first elected female head of state in Africa’s history.

Assets under management

1,400 million

January 2012

Launch of the world’s first fair trade fund

December 2010

USD 908 million in assets under management, invested in 273 companies in 62 countries

December 2008

1,200 million December 2012

USD 1.4 billion in assets under management, invested in over 400 companies in some 80 countries

USD 705 million in assets under management, invested in 216 companies in 48 countries September 2010

800 million

responsAbility is regulated by FINMA November 2011

Opening of the branch in Mumbai, India

April 2010

Opening of the first branch in Lima, Peru

October 2012

February 2011

responsAbility takes on its 100th employee

Strategic participation in PlaNIS, Paris

June 2009

600 million

400 million .

October 2011

First investment in the health care sector

responsAbility recruits its first apprentice

April 2011

200 million

Opening of the branch in Nairobi, Kenya

2008

2009

2010

November 2008

2011

2013

2012

October 2011 December 2012 December 2010

Barack Obama is elected 44th President of the US, the first Afro-American to hold the post.

October 2009 The sovereign debt crisis in the Eurozone begins. Greece appeals to the IMF and EU for help.

South Africa becomes the fifth emerging economy to join the BRIC states, which make up 40% of the world’s population and, with growth rates of around 10% per year, are increasingly rivaling the industrialized nations.

The global population reaches 7 billion. In the years ahead, the largest growth is expected to come from the fertile regions of sub-Saharan Africa.

After 394 years the 13th cycle of the Mayan calendar comes to an end, closing a period of some 5,000 years. Despite all the prophecies of doom, the number sequences of the new cycle extend 7,000 years into the future.

responsAbility Annual Report 2012

39

Publishing Information Editing:

responsAbility – Ulli Janett (editor in chief), Anita Bain

Copy:

responsAbility – Christian Etzensperger, Michael Fiebig, Henry González, Paul Hailey,



Carola Hug, Ulli Janett, Vivian Kotun, Rochus Mommartz, Klaus Tischhauser

Concept, design:

B,H Kommunikation, Zurich

Images:

Markus Bühler. Exceptions: page 11, Hattha Kaksekar; page 33 and 36, Jerry Riley;

Image archives: Printing:

page 37, bottom centre, Rajini Vaidyanathan

page 24, Keystone; page 26, Getty Images A. Schöb Buchdruck–Offsetdruck, Zurich

This document was produced by responsAbility Social Investments AG (hereinafter ‘responsAbility’). The information contained in this document (hereinafter ‘information’) is based on sources considered to be reliable, but its accuracy and completeness is not guaranteed. The information is subject to change at any time and without obligation to notify the recipient. Unless otherwise indicated, all figures are unaudited and are not guaranteed. Any action derived from this information is always at the recipient’s own risk. This document is for information purposes only. The information does not release the recipient from making his/her own assessment. This document may be cited if the source is indicated. © 2013 responsAbility Social Investments AG. All rights reserved.

40 responsAbility Annual Report 2012