OpenCharities

This text was generated using OCR and may contain errors. Check the original PDF to see the document submitted to the regulator.

2020-12-31-accounts

© Peter Caton

Registered charity number: 1104287 (England and Wales); SC041941 (Scotland). Company limited by guarantee registered company number: 04828558 (England and Wales)

~~Contents~~

To date over 280,000 women have joined MicroLoan Foundation to start their own small businesses and begin their journey out of poverty. As a result, their children have increased access to food, healthcare and education, taking the total lives impacted to 1.4 million.

Leadership introduction
How we work
Social impact
Operations in Malawi
Operations in Zambia
Operations in Zimbabwe
Fundraising overview
Group Financial Review
Risk Management
Governance
Statement of Trustees’ responsibilities
Independent auditor’s report
Financial statements
MicroLoan Foundation’s companies and advisors		 Leadership introduction
How we work
Social impact
Operations in Malawi
Operations in Zambia
Operations in Zimbabwe
Fundraising overview
Group Financial Review
Risk Management
Governance
Statement of Trustees’ responsibilities
Independent auditor’s report
Financial statements
MicroLoan Foundation’s companies and advisors		 Leadership introduction
How we work
Social impact
Operations in Malawi
Operations in Zambia
Operations in Zimbabwe
Fundraising overview
Group Financial Review
Risk Management
Governance
Statement of Trustees’ responsibilities
Independent auditor’s report
Financial statements
MicroLoan Foundation’s companies and advisors		 Leadership introduction
How we work
Social impact
Operations in Malawi
Operations in Zambia
Operations in Zimbabwe
Fundraising overview
Group Financial Review
Risk Management
Governance
Statement of Trustees’ responsibilities
Independent auditor’s report
Financial statements
MicroLoan Foundation’s companies and advisors

© Peter Caton

3

Annual Report and Financial Statements 2019

It is our pleasure to introduce the 2020 Annual Report for MicroLoan Foundation. Our social microfinance model is specifically developed for poor, rural women with low levels of literacy. This demographic has been severely impacted by the COVID-19 pandemic.

~~Leadership introduction~~

© Peter Caton

Yet, even in the face of these unprecedented challenges, the MicroLoan team have continued to deliver our mission on the ground. We are immensely proud of our team who persevered with adaptability, passion, determination and innovation. MicroLoan provides pro-poor financial services and business support to women in Malawi, Zambia and Zimbabwe. When the pandemic hit, we took swift action to protect our clients and their families. Their lives and livelihoods were threatened by food shortages, economic turmoil and restrictions on movement, preventing them from generating income. MicroLoan offered additional mentoring, health information, top-up credit, rescheduled loans and, for the hardest hit families, loans were written off. Our high-touch approach has been adapted to ensure the health and wellbeing of our staff, clients and wider communities whilst we continue deliver our much-needed livelihoods programme to benefit more women than ever before. Over 85,000 women were able to access pro-poor financial services and training in 2020. This is more individual clients than any previous year and an outstanding achievement.

MicroLoan Malawi continues to strive for Operational Self Sufficiency, with this key milestone within reach in 2021. MicroLoan Zambia recorded strong performance and saw record growth in active client numbers in the year. Due to the macroeconomic climate, MicroLoan Zimbabwe is now one of very few microfinance providers operating in the country and we are well positioned for growth.

To achieve our goal to impact 1 million lives every year, fiveyear strategic plans have been drawn up, incorporating smart technologies and product diversification.

Over the coming years we will see new agricultural products and services for smallholder farmers, higher value loans for the most successful and ambitious entrepreneurs, and improved savings options through digital channels.

To date, over 280,000 women have joined our programme to start their own small businesses and begin their journey out of poverty. As a result, their children have increased access to food, healthcare and education, taking the total lives impacted to 1.4 million. We would not have been able to achieve this without the support from our donors, investors, partner organisations, Board members and the wider MicroLoan community. We are humbled by and truly grateful for your generosity and continued belief in our mission.

Dr Mick Jackson Chairman

Medha Wilson Group Chief Executive Officer

4

5

Annual Report and Financial Statements 2020

MicroLoan Foundation

----- Start of picture text -----
© Peter Caton
----- End of picture text -----

~~How we work~~

MicroLoan gives women living in poverty the opportunity to kickstart their own income generating activities by providing small loans, training, and ongoing business support.

Our Loan & Training Officers travel long distances into rural communities to meet with traditional leaders and introduce our work. The leaders then invite MicroLoan to attend a village meeting where we inform women about the opportunity to join a loan group and start a business. Focusing our operations in rural areas means that we reach women with little access to finance, therefore the most in need of our services.

farms, grocery stores or hairdressing salons. Our Loan & Training Officers continue to visit every two weeks to provide mentoring, and once a month they bring together a cluster of loan groups for advanced business training. These sessions are a great opportunity for women to meet other female entrepreneurs in their area and share their experiences. Due to COVID-19 restrictions on large gatherings, we adjusted our model and delivered the monthly business training to only group leaders who then trained their peers.

Before accessing a loan, the loan group completes seven training modules to develop their financial literacy skills. Delivered through song, dance and role play, our training methodology is specifically designed for rural women with low literacy levels. Each group of five women have a collective responsibility for their loan repayments. Learning together ensures they can support each other both socially and financially.

MicroLoan is different to traditional charities and operates through a model that aims to reach Operational Self Sufficiency where interest income from the loan book covers direct operational costs (excluding loan book growth and capital expenditure). This is to create a sustainable institution that is not reliant on charitable donations for its day to day running costs. With a repayment rate consistently above 96%, the revolving loan book combined with operational interest income enables us to grow and expand our reach, supporting more women year on year. This means every donation to MicroLoan is a gift that keeps on giving.

In Zambia and Zimbabwe, women receive their loans via mobile money. In Malawi, loans are disbursed in cash but we plan to roll out mobile money services during 2021. Once women have received their loans, they put their training into practice by setting up small businesses such as

Women have MicroLoan the option to apply staff meet for further loans communities

Transport

HR IT

MicroLoan staff collect repayments Social and provide mentoring assessments

Women form groups and receive training

Women receive credit to set up their own business $

Our training methodology is designed for women with low literacy levels and is delivered through dance, song, and role play.

6 MicroLoan Foundation

7

Annual Report and Financial Statements 20 2019

~~Social impact~~

MicroLoan’s social mission is to alleviate poverty and we measure our impact carefully. Social Performance Management is a range of processes and activities used to ensure we are achieving our aim of helping the poorest women to transform their lives. Our Social Performance Management model is often cited as an example of best practice and was recognised by TrueLift, a global initiative striving for accountability and learning in pro-poor programmes.

To better understand the impact of COVID-19 and how MicroLoan can help, we conducted client surveys in Malawi and Zambia in June and July 2020.

COVID-19 Impact

In a time of crisis like the COVID-19 pandemic, clients are forced to use coping strategies to survive. Over 55% of clients were able to use positive coping mechanisms such as relying on savings or finding ways to earn additional income. 19% resorted to negative coping mechanisms such as taking on additional debt or selling household assets. 25% used a combination of negative and positive coping strategies.

The COVID-19 pandemic has reversed decades of progress towards reducing poverty and gender inequality worldwide. According to the United Nations, the pandemic will push 47 million more women and girls below the poverty line.

Women make up the majority of the labour force in the informal sector. Many of MicroLoan’s clients are street vendors, smallholder farmers or engage in cross border trade. These women have seen their livelihoods collapse as a result of lockdowns and travel restrictions. As schools closed, pressure mounted as women, who often bear the brunt of caring responsibilities, had to make sacrifices in order to assume their caregiving role. Many families were facing food shortages and female-led households were at particularly high risk.

When asked how MicroLoan can support them during the pandemic, 92% of women in Malawi and 76% of women in Zambia suggested rescheduling loan repayments or providing access to further loans. We listened and responded by rescheduling loans, providing emergency capital, and in some cases we wrote-off loans.

The financial situation of households has been severely impacted. All of the women surveyed in Malawi said they are a lot worse off. In Zambia, 63% said they are a lot worse off, and 28% said they were a little worse off.

100% of women interviewed in Malawi and 57% in Zambia said they were experiencing hunger at a time of the year when they would otherwise not.

The findings from these client surveys are deeply concerning but reinforce the importance of MicroLoan’s savings training and facilities which encourage savings behaviour and build resilience. 97% of clients are able to make savings compared to 11% before joining MicroLoan, giving them a positive coping mechanism to fall back on in times of crisis.

8

9

MicroLoan Foundation

Annual Report and Financial Statements 2019 Annual Report and Financial Statements 2020

are reaching the poorest segment of the population and if their poverty status is improving over time.

340,692 children and vulnerable adults in their care have improved access to healthcare and are able to go to school.

Long-term Impact

Poverty is extremely complex, and it is crucial that we understand and measure poverty from a long-term perspective.

Moving out of poverty takes time and is a long-term goal for our clients. Before reaching this crucial milestone, MicroLoan is able to measure and report on a range of positive changes for women who build their own businesses and increase their household income.

In 2020, MicroLoan perspective. provided financial MicroLoan collects data using the Poverty Probability Index®, literacy, business an innovative measurement training and small tool that determines the affordable loans to likelihood of a household living over 85,173 women in below the poverty line. We 3 have been collecting Poverty Malawi, Zambia and Probability Data since 2012 Zimbabwe. which helps us to assess if we

----- Start of picture text -----
In 2020, 77% of all new
clients were living
77%
LESS THAN
below the global $2.50
$2.50
per day poverty line
and 46% were living in
46%
extreme poverty,
LESS THAN
$1.25 meaning they were
struggling to survive
on less than $1.25 per
day.
----- End of picture text -----

Over 17% of our clients who have been with us for more than one year are moving out of extreme poverty. This is a significant achievement considering many of these families have been living in poverty . for generations. 97% 7% of families have food security of women have one or compared to 85% before more paid employees joining MicroLoan

16% of women have increased asset ownership (such as livestock, a bicycle or land)

Women report a

96% 218%

75%

of women can afford to seek medical treatment compared to only 89% previously

of women can send all of their female children to school compared to 58% previously

average increase in business profits after joining MicroLoan

10 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 11

Evidence shows that a woman prioritises her family’s welfare when spending her income, improving their health, education and living situation. When one woman prospers, a whole community can be positively impacted. As her business grows, often with support from her husband or adult children, the local economy benefits, and employment opportunities are created for others. MicroLoan has witnessed the creation of thriving market centres when women come together to work.

The United Nations Sustainable Development Goals are the blueprint for achieving a better and more sustainable future for all. Our work contributes directly to the goals No Poverty, Zero Hunger and Gender Equality.

The impact of our work also addresses the goals on Quality Education, Decent Work and Economic Growth, Climate Action, Life on Land and Partnerships for the Goals.

When one woman prospers, a whole community can be positively impacted. MicroLoan has witnessed the creation of thriving market centres when women come together to work.

© Peter Caton

12 MicroLoan Foundation

13

Annual Report and Financial Statements 2020

~~Operations in Malawi~~

2018 2019 2020
Total loans made
47,487
53,985
64,169
Active clients
27,820
28,480
29,454
Loan book (GBP)
1,171,001
1,428,932 1,451,858
Average loan
size(GBP)
62
77
78
PAR30
1.50%
4.50%
12.50%
Repayment rate
99%
97%
95%
Operational Self
Sufciency
85%
95%
93%
Portfolio Yield
105%
101%
94%

Portfolio Yield, Operating Expense Ratio and Operational Self Sufficiency

----- Start of picture text -----
125%
100%
75%
50%
25%
0%
2018 2019 2020
Portfolio Yield Operating Expense Ratio
Operational Self Sufficiency
----- End of picture text -----

----- Start of picture text -----
ZAMBIA
----- End of picture text -----

ZIMBABWE

Repayment rate and PAR30

Total loans made, active clients and outstanding loan book

----- Start of picture text -----
14.00% 100%
12.00% 99%
10.00% 98%
8.00% 97%
6.00% 96%
4.00% 95%
2.00% 94%
0.00% 93%
2018 2019 2020
Repayment rate PAR30
PAR30 %
Repayment rate %
----- End of picture text -----

----- Start of picture text -----
70,000 1,750,000
60,000 1,500,000
50,000 1,250,000
40,000 1,000,000
30,000 750,000
20,000 500,000
10,000 250,000
- -
2018 2019 2020
Total loans Active clients Loan book (GBP)
Loan book (GBP)
Total loans, active clients
----- End of picture text -----

MicroLoan Malawi continues to strive for Operational Self Sufficiency, with this key milestone within reach in 2021.

With the impact of the COVID-19 pandemic, coupled with some of the lag effects of the tropical cyclone Idai and drought from the previous year, Malawi experienced a sluggish Gross Domestic Product (GDP) growth of 0.6% in 2020, compared to the 4.5% growth seen in 2019. Headline inflation was largely kept in check and fell from low double digits a year earlier to 8.6% at the close of 2020. A mid-year presidential election brought some stability to the fragmented political landscape that arose out of the disputed 2019 elections, which had resulted in ongoing country-wide demonstrations that disrupted economic activities.

The COVID-19 pandemic adversely affected MicroLoan Malawi’s operations and the livelihoods of many of our clients. Nevertheless, we were able to record favourable outcomes in several of our key performance indicators. During the financial year 2020, MicroLoan Malawi registered a modest growth in active clients of 3%, largely reflecting the challenges of client retention in the face of the pandemic. We witnessed a 7.5% growth in interest income as a result of initiating a strategy of rationalising unprofitable product lines to complement our efforts in cost containment. Deliberate efforts to closely monitor our cost drivers whilst driving operational efficiency slowed the growth of our operational expenses to only 11.6% for the year. We also yielded an Operational Self Sufficiency rate of 93% on account of the smaller revenue growth.

14 MicroLoan Foundation

15

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019

Portfolio at Risk (PAR) is an indicator of loan portfolio quality and PAR30 indicates the ratio of loan book overdue by more than 30 days. PAR30 closed the year at 12.5%, up from the 4.5% registered in 2019, and the decline in loan portfolio quality closely tracked the evolution of the pandemic. With almost a third of our clients living below the poverty line, it will take time for these vulnerable households to reverse the negative impact of the pandemic. We continue to pay close attention to this metric and have implemented specific measures such as enhanced monitoring and support for loan restructuring (where necessary), to rapidly improve the quality of our portfolio for the 2021 financial year.

On assuming his role in April 2020, the new Chief Executive Officer initiated a comprehensive digital transformation strategy aimed at making the institution more agile and primed for accelerated growth. During the year, we commenced a pilot in a few branches to test the roll out of mobile money to our clients. This is particularly relevant in the current context of the pandemic, where group meetings and travel restrictions severely disrupt our operations and our ability to disburse and collect loans.

The strategies that we have implemented during the course of the year have not only stabilized our operations but have also created a strong platform for growth in 2021 and beyond.

In 2021, we aim to step up our efforts to roll out mobile money across all branches and to integrate the mobile money platform into our core management information system, Musoni.

As part of our expansion strategy, we look to open three new branches and develop additional loan products in the Small and Medium Enterprise (SME) and agricultural space to closely match specific clients’ needs.

16 MicroLoan Foundation

17

Annual Report and Financial Statements 2020

Our high-touch approach has been adapted to ensure the health and wellbeing of our staff, clients and wider communities whilst we continue deliver our much-needed livelihoods programme to benefit more women than ever before.

© Peter Caton

Annual Report and Financial Statements 2019Annual Report and Financial Statements 2020 19

~~Operations in Zambia~~

----- Start of picture text -----
MALAWI
----- End of picture text -----

ZIMBABWE

Total loans made, active clients and outstanding loan book

Repayment rate and PAR30

----- Start of picture text -----
4.00% 100%
3.50%
3.00% 99%
2.50%
2.00% 98%
1.50%
1.00% 97%
0.50%
0.00% 96%
2018 2019 2020
Repayment rate PAR30
PAR30 %
Repayment rate %
----- End of picture text -----

----- Start of picture text -----
45,000 900,000
40,000
750,000
35,000
30,000 600,000
25,000
450,000
20,000
15,000 300,000
10,000
150,000
5,000
- -
2018 2019 2020
Total loans Active clients Loan book (GBP)
Loan book (GBP)
Total loans, active clients
----- End of picture text -----

folio Yield, Operating Expense Ratio
Operational Self Sufciency
2018
2019
2020
Portfolio Yield
Operating Expense Ratio
Operational Self Sufficiency		 2018 2019 2020
Port
and
0%
20%
40%
60%
80%
100%
120%
140%		 folio Yield, Operating Expense Rati
Operational Self Sufciency
2018
2019
2020
Portfolio Yield
Operating Expense Ratio
Operational Self Sufficiency		 Total loans made
17,336
26,144
40,679
Active clients
11,023
16,862
22,900
Loan book (GBP)
593,832
827,106
725,760
Average loan
size(GBP)
83
81
59
PAR30
0.60%
3.40%
2.70%
Repayment rate
98%
99%
97%
Operational Self
Sufciency
92%
103%
90%
Portfolio Yield
104%
115%
93%
Operating
Expense Ratio
115%
112%
92%

Portfolio Yield, Operating Expense Ratio and Operational Self Sufficiency

MicroLoan Zambia recorded strong performance and saw record growth in active client numbers in the year.

The COVID-19 pandemic pushed the Zambian economy further into contraction by 1.2% in 2020, having already witnessed a weakened position in previous years as a result of persistent droughts, falling copper prices and unsustainable fiscal policies. In 2020, the Zambian Kwacha witnessed over a 50% depreciation against the US Dollar and the British Pound, with inflation remaining in double digits and averaging about 15.7% during the year, up from 9.3% in the previous year.

It is notable that despite the pandemic and the macroeconomic instability, our operations in Zambia have remained resilient. MicroLoan Zambia’s active clients grew by 36%, up from 16,845 in 2019 to 22,900 in 2020, as we continued to see growth across our branches in the Eastern, Southern and Northern provinces. The loan book demonstrated an impressive 37% growth in Zambian Kwacha terms between 2019 and 2020, however in British Pound terms the loan book shrunk by 13% because of the significant devaluation of the Zambian Kwacha. MicroLoan Zambia was able to maintain the quality of its loan portfolio, recording a PAR30 of 2.7% at the end of the year.

Operating expenses rose by 24% during the year, largely on account of the inflationary pressure that affected most lines, as well as the strengthening of the Senior Management Team with the key hires of the Chief Financial Officer and the Head of Human Resources.

20

21

MicroLoan Foundation

Annual Report and Financial Statements 2019Annual Report and Financial Statements 2020

MicroLoan Zambia also initiated external borrowings during the year, which saw an increase in finance costs. One of the external loans accessed was denominated in US Dollar and represented an unhedged open currency position at the end of the year. The unprecedented depreciation of the Zambian Kwacha against the US Dollar further drove up the forex costs associated with this loan and impacted the bottom line, with MicroLoan Zambia recording an Operational Self Sufficiency of 90%.

During the last quarter of 2020, MicroLoan Zambia initiated a pilot in the Eastern Province with a leading conservation farming organisation to develop a new agricultural loan product and increase our reach to smallholder farmers.

The results of the pilot are expected in the second quarter of 2021, which if successful, would pave the way for a full roll out across other regions. Furthermore, the advancement of this partnership aligns with our strategic goal to introduce a credit scoring loan evaluation system and microinsurance products in the coming years. These will enable MicroLoan to drive essential growth in the agricultural and food sectors while benefitting low-income households and building their resilience against future shocks.

Aside from the external impact of forex, MicroLoan Zambia has recorded favourable outcomes across most key performance indicators during 2020. In 2021, MicroLoan Zambia will address the exposure to foreign currency risks by engaging with existing and new lenders to eliminate our open currency position, potentially through a replacement of the outstanding US Dollar loan with a loan in local currency. This measure, when implemented, will significantly improve the bottom line, and ensure that MicroLoan Zambia records an operational surplus once again in 2021. We will look to further increase efficiency by rationalising our operating model through increased use of mobile money. We will also reduce fixed costs by turning a number of branches into satellites. It is expected that these efforts and strategies will ensure that MicroLoan Zambia is well poised for significant growth in active clients and loan book in 2021 and beyond.

----- Start of picture text -----
© Peter Caton
----- End of picture text -----

Sovaret Muzunda selling fresh produce at a local market in Zambia.

22 MicroLoan Foundation

23

Annual Report and Financial Statements 2020

~~Operations in~~ MALAWI ~~Zimbabwe~~

----- Start of picture text -----
ZAMBIA
----- End of picture text -----

Total loans made, active clients and outstanding loan book

Repayment rate and loan book

----- Start of picture text -----
100,000 120%
2,500 90,000
100%
80,000 80,000
2,000 70,000
80%
60,000 60,000
1,500
50,000 60%
40,000 40,000
1,000 40%
30,000
500 20,000 20,000 20%
10,000
- - - 0%
2018 2019 2020 2018 2019 2020
Total loans Active clients Loan book (GBP) Repayment rate Loan book (GBP)
Loan book (GBP) Repayment rate %
Loan book (GBP)
Total loans, active clients
----- End of picture text -----

Portfolio Yield, Operating Expense Ratio
and Operational Self Sufciency
0%
100%
200%
300%
400%
500%
600%
700%
800%
2018
2019
2020
Operational Self Sufficiency
Portfolio Yield
Operating Expense Ratio		 Portfolio Yield, Operating Expense Ratio
and Operational Self Sufciency
0%
100%
200%
300%
400%
500%
600%
700%
800%
2018
2019
2020
Operational Self Sufficiency
Portfolio Yield
Operating Expense Ratio		 2018 2019 2020
Total loans made
1,593
2,155
1,051
Active clients
980
1,612
102
0%
100%
200%
300%
400%
500%
600%
700%
800%		 2018
2019
2020
Operational Self Sufficiency
Portfolio Yield
Operating Expense Ratio
Loan book (GBP)
79,646
15,466
3,583
Average loan
size(GBP)
143
19
12
PAR30
0.00%
0.00%
3.00%
Repayment rate
100%
100%
100%
Operational Self
Sufciency
89%
25%
31%
Portfolio Yield
165%
71%
198%
Operating
Expense Ratio
184%
285%
677%

Portfolio Yield, Operating Expense Ratio and Operational Self Sufficiency

Due to the macroeconomic climate, MicroLoan Zimbabwe is now one of very few microfinance providers operating in the country and we are well positioned for growth.

The Zimbabwean economy prior to COVID-19 was already in recession contracting by 6.0% in 2019. With the onset of the pandemic and continued drought, real GDP contracted by 10% in 2020. Inflation continued to soar, with an average annual inflation rate of 622.8% in 2020, up from 226.9% in the previous year. In June 2020, the Reserve Bank of Zimbabwe introduced measures to help stabilise the parallel market exchange rate and parallel market premium. These measures included the floating of the exchange rate and the introduction of a foreign currency auction, which saw some general price stability across the economy and the official exchange rate settling at 81.79 Zimbabwean Dollars to a US Dollar at the end of the year.

For several months during 2020, the government of Zimbabwe imposed very stringent lockdown restrictions that led to a complete closure of economic activity. In its attempt to curb rising inflation and rapid devaluation of the local currency, the Reserve Bank of Zimbabwe also announced restrictions on the use of EcoCash, a mobile-based payment platform widely used by microfinance providers and clients for financial transactions.

24 MicroLoan Foundation

25

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019

By providing ongoing training and support we give women the greatest chance of success.

Both measures have had dire consequences for MicroLoan Zimbabwe’s operations, hampering our ability to conduct group meetings with clients, disburse loans and follow up on repayments. Consequently, the outstanding loan book shrunk to £3,583 and active clients to 102 at the end of the year. PAR30 crept up to 3.0%, with many of our clients facing economic hardships.

As a solution to the restrictions on disbursements via EcoCash, MicroLoan Zimbabwe identified an avenue to facilitate disbursement of loans to our clients through MyCash Financial Services, a payment service provider registered with the Reserve Bank of Zimbabwe. In November 2020, MicroLoan Zimbabwe conducted a pilot to test disbursements to 15 existing MicroLoan groups. Following the successful roll out of the pilot, we aim to continue to use this channel for loan disbursements in 2021 and beyond.

Demand for financial services in poor communities remains high and by the end of 2020, MicroLoan Zimbabwe was one of very few, if not the only, truly social microfinance institutions operating in the country.

Our strategy for 2021 is to work closely with new and existing partners to re-build our portfolio and grow our client base within our existing regions of operations.

© Peter Caton

26

27

Annual Report and Financial Statements 2020

MicroLoan Foundation

~~Fundraising overview~~

In 2020 MicroLoan raised £963,432 in voluntary income (2019: £1,047,584). This includes donated resources and gifts in kind to a total value of £33,631 (2019: £157,044). Our supporters include trusts, foundations and corporate partners, as well as individuals who support us through personal donations or through fundraising events, challenges and community engagements. The fundraising climate was challenging in 2020 and we are deeply grateful for the generous gifts from our many donors. It is thanks to your support that we can continue our lifechanging work, helping more women and their families to move out of poverty.

Our top donors in 2020 include Fundraising income WildHearts Group and 2020 Foundation, Whole Planet Foundation, Ian & Clare Mattioli 3%[3%] Charitable Trust, The Paul Foundation, Halcrow Foundation, Bliss Family Charity, 39% The Oso Foundation, Rita and David Slowe Charitable Trust, Lendwithcare, The 55% MacDaibhidh Charitable Trust, The Language Factory as well as a number of private individuals and organisations that wish to remain anonymous. See to the Individuals and events Trusts and institutions left a breakdown of voluntary income for 2020. MicroLoan Corporates Donated services and facilities has a dedicated fundraising team in London which manages

relationships with donors in the UK and internationally. The UK office liaises with our affiliates in the USA and Australia and the operational teams in subSaharan Africa to ensure that our donors are regularly informed about the impact of their support. We are a member of the Fundraising Regulator and adhere to the UK Code of Fundraising Practice.

Fundraising income 2020

~~Group fnancial review~~

The group’s financial performance for 2020 is set out in the Consolidated and Charity Statement of Financial Activities, the Balance Sheets and the Consolidated Statement of Cashflows on pages 48 to 53. The group result includes that of MicroLoan Foundation and our subsidiaries in Malawi, Zambia and Zimbabwe.

Results in overview

The Board considers the financial performance during 2020 to be satisfactory in the context of the numerous challenges that the year presented. COVID-19 impacted both charitable and voluntary income, with restrictions on movement and gatherings hampering our ability to lend in Malawi, Zambia and Zimbabwe, as well as to run our normal events programme in the UK. Furthermore, the hyperinflationary environment in Zimbabwe continued throughout 2020 with the value of local currency declining by an additional 500% against the British Pound. In Zambia too, we witnessed a 57% drop in the currency value, whilst in Malawi it fell by a more modest 8%. In combination, all these movements contributed to a significant devaluation of our brought forward reserves in British Pound terms.

Group net income in 2020 was £227,362 compared to £252,792 in 2019. In addition to this, there was also a gain of £25,385 (2019: £nil) relating to the revaluation of land and buildings held in Malawi. Nevertheless, significant offsetting exchange losses of £324,624 (2019: £130,313) on retranslation of brought forward reserves resulted in an overall net decrease in group funds of £71,877 (2019: £122,479 increase).

At the year-end, total group funds amounted to £915,424 (2019: £987,301) of which £67,947 (2019: £18,197) were restricted and £847,477 (2019: £969,104) were unrestricted. Of these, £661,076 (2019: £418,281) related to MicroLoan Foundation as the charitable parent, with £67,947 (2019: £18,197) restricted and £593,129 (2019: £400,084) unrestricted.

28

29

MicroLoan Foundation

Annual Report and Financial Statements 2020

----- Start of picture text -----
Income and expenditure Although the British Pound value of the year-
end loan book declined by £90,236 (4%) to
2020 group income totalled £3,045,207 (2019:
£2,181,259, this should be viewed in the context
£3,234,859), representing a 6% decline on the
of exchange rate movements over the course of
previous year. The majority of this comprised 2020. These reduced the British Pound value of
of interest income in respect of our microloan
the brought forward loan book by
portfolio which fell just under 5% to £2,076,929
approximately £408,000 (18%).
(2019: £2,178,680). Voluntary income generated
during the year totalled £963,432 (2019:
The total value of all loans disbursed during 2020
£1,047,584), a reduction of 8% compared to 2019.
declined by 14% to £6,752,019 (2019: £7,842,772)
Investment income, comprising of bank interest
due to the combination of the significant © Peter Caton
----- End of picture text -----

2020 group income totalled £3,045,207 (2019: £3,234,859), representing a 6% decline on the previous year. The majority of this comprised of interest income in respect of our microloan portfolio which fell just under 5% to £2,076,929 (2019: £2,178,680). Voluntary income generated during the year totalled £963,432 (2019: £1,047,584), a reduction of 8% compared to 2019. Investment income, comprising of bank interest received, fell to £4,846 (2019: £8,595).

The total value of all loans disbursed during 2020 declined by 14% to £6,752,019 (2019: £7,842,772) due to the combination of the significant currency depreciation and COVID-19 restrictions. Despite this, a corresponding 15% reduction in our average loan size to £74 allowed the number of clients we supported in 2020 to grow by 3.5% to 85,173.

is able to meet its financial commitments as they fall due, with any excess then available to grow loan book.

Fundraising expenditure

Total expenditure fell 6% to £2,817,845 (2019: £2,982,067). In the UK, investment made in our IT infrastructure in 2019 allowed a seamless switch to a homeworking model when lockdown restrictions were imposed, and we took the opportunity to exit our leased office midway through the year and migrate to a flexible hot desking arrangement. This, alongside other cost reduction measures and savings arising from a switch to an online events programme, reduced the charity’s UK cost base by approximately £50,000 compared to 2019. Across our operations in Africa, expenditure denominated in local currency increased due to the full year impact of 2019 growth and investment made in additional headcount. Currency depreciation offset this however in British Pound terms.

2018 2019 2020
Total
expenditure
£2,775,307
£2,982,067
£2,817,845
Expenditure
on fundraising
£359,057
£348,184
£294,703
Percentage
12.9%
11.7%
10.5%

‘Free reserves’ is defined by the Board as unrestricted and undesignated net current assets. It excludes tangible fixed assets (which are not readily convertible to cash), long term borrowings and any funds that have already been committed or advanced to our projects in Africa through grants, investment or lending. Such advances do not represent an available source of funds to meet UK financial commitments.

Key Financial Performance Indicators

The key financial performance indicators that are monitored by management are principally as set out in the reviews of operations above. In addition, the efficiency of our fundraising function and the proportion of total income that the charity reinvests in fundraising activities are also closely monitored:

Reserves policy and management

As explained in more detail elsewhere in this report, the COVID-19 pandemic has made the charity’s operating environment significantly more challenging. It is the view of the Board that there will be increased volatility in our income levels and that it will become more difficult to access social investment in the short-term to support and scale our activities in Africa. In this context, the reserves policy was reviewed during 2020 and revised slightly to adopt a more prudent approach.

Fundraising efficiency ratio

In the UK

Reserves are maintained at a level that enables the charity to manage financial risk and ensure the charity can sustain its activities over the long term. As a fundraising charity, we are subject to the effects of short-term volatility in income whereas our cost base is relatively fixed and the demand for funds to support our loan book growth is ongoing.

2018 2019 2020
Donations and
legacies
received
£986,080
£1,047,584
£963,432
Cost of
fundraising
function
£359,057
£348,184
£294,703
Ratio
2.7
3.0
3.3

Use of funds

In total, the UK charity advanced £469,009 to Africa during 2020 to support expansion of our mission and impact. This comprised of £316,229 in the form of equity investment and £143,780 in the form of revenue grants. In addition, our UK fundraising team secured a further £82,991 of grants received directly in Malawi. All of these amounts were supplemented by additional social investment from external lenders.

We use a single reserves measure in respect of our UK operations. This measure mandates that MicroLoan Foundation should hold a minimum level of free reserves to ensure that the charity

30 MicroLoan Foundation

Annual Report and Financial Statements 2019 31 Annual Report and Financial Statements 2020

The Board has agreed that ‘free reserves’ should exceed a minimum of six months but are not expected to exceed nine months forecast cash outflows, calculated on an annualised basis. At 31 December 2020, the free reserves position was £274,529, equivalent to 7.8 months.

In Africa

As regulated microfinance institutions, our subsidiaries in Malawi, Zambia and Zimbabwe must meet stringent capital adequacy rules mandated by the local Reserve Banks. In addition, the environments that they operate in make these entities more susceptible to macroeconomic shocks caused by natural disasters such as floods, famine or changes in government policy. Accordingly, reserves policy is delegated to local Boards which each include Senior Management representation from MicroLoan Foundation in the UK. Generally, a prudent approach is taken to reserves management and gearing within our microfinance subsidiaries, with all of them operating well within the mandated capital requirements set out by local statute.

Investment policy and objectives

The charity’s investment policy is to seek to maximise the number of lives positively impacted whilst managing risk. The Board is very conscious of its responsibility to utilise charitable funds in a highly effective and efficient way and the need to ensure that this same ethos cascades across the wider group and local Boards. All investment decisions are therefore made with these considerations in mind.

Each subsidiary is expected to work towards a position of Operational Self Sufficiency where

it is able to independently generate sufficient income to sustain its core operations and, where necessary, utilise its reserves responsibly to manage unexpected, temporary fluctuations in income and costs.

As the parent charitable organisation, MicroLoan Foundation makes targeted advances of funds to our operations in Malawi, Zambia and Zimbabwe to fund sustainable, responsible growth in the loan books and thereby increase the number of clients served.

The impact of COVID-19 on our operations

The COVID-19 pandemic has resulted in severe economic and societal disruption across all our countries of operation.

In 2020, we responded swiftly, taking several precautionary measures to minimise financial and operational risk and following all government and medical advice to ensure our staff and beneficiaries were . safeguarded

In Africa, restrictions on movement and gatherings have a major impact on our high touch operating model, making it more challenging to disburse and collect loans and slowing our efforts to responsibly grow our loan book. Our in-country management teams have been progressively adapting policies and refining our approach to cope with the changing circumstances and specific local requirements. We have been able to continue

our lending activities in a safe and effective manner, ensuring an ongoing income stream to fund operational costs.

In the UK, our programme of fundraising events and activities has been significantly impacted by the restrictions put in place and the consensus across the third sector is that the fundraising environment will be extremely challenging in the coming years. We are already starting to see individuals and institutions adjust to a ‘new normal’ and re-evaluate the funds they can commit to supporting charitable causes. Nevertheless, as at the date of this report, we have been able to maintain income levels in line with our original budget for 2021 and our donor pipeline remains healthy. The charity in the UK has no external debt commitments to service and has continued to rigorously challenge its cost base to ensure it is operating as leanly as possible. It has also built additional reserves coverage to ensure it will be resilient to the effects of short-term fluctuations in income levels.

After having reviewed forward projections and making appropriate enquiries, the trustees have a reasonable expectation that the charity has adequate resources to continue in operational existence for the foreseeable future. Accordingly, these financial statements have been prepared on a going concern basis.

----- Start of picture text -----
33
Annual Report and Financial Statements 2020
----- End of picture text -----

32 MicroLoan Foundation

~~Risk Management~~

In recent years the charity has sought to diversify income streams and explore strategic partnerships, such as that entered into with WildHearts Foundation at the start of 2019. This blended approach alongside attracting additional mission-aligned social investment is anticipated to be the most effective way to maximise the potential and impact that can be delivered through our microfinance operations in Malawi, Zambia and Zimbabwe. Accordingly, the Board is presently exploring ways that this can be achieved over the medium term.

associated with growth. The group also continues to critically evaluate the cost base and working practices to identify more efficient ways to operate. Examples of this include our ongoing mobile money project in Malawi and our switch to remote working in the UK. The objective is that all three operations in Africa reach Operational Self Sufficiency because achieving this milestone will provide a robust platform from which to expand our reach and enhance the social impact that our microfinance operations deliver.

The trustees have assessed the principal risks across the group:

The measures taken by the charity to mitigate these risks are as follows:

Liquidity and funding risk Gross income streams can be volatile whereas the underlying UK cost base, which is principally staff and associated costs, is relatively stable and recurring.

Sustainability risk This is the risk that the expenses from our charitable activities in respect of microfinance exceed the associated income and therefore reduces our ability to provide services and maintain or grow our impact.

Fundraising risk

This is the risk that the level or mix of unrestricted and restricted income and social investment is insufficient to maintain or expand our social mission. Donor funding presently remains a key part of MicroLoan Foundation’s income stream, however the Board is very conscious of the shifting fundraising landscape and the changing needs of our microfinance operations as they mature and seek to scale.

The Board seeks to maintain a prudent level of free reserve cover to cope with fluctuations in income and thereby ensure running costs can be met and that charitable activities can continue to be delivered without disruption. The partnership between MicroLoan Foundation and

Our strategy is to continue to responsibly increase investment into each country through a combination of donations and social investment so as to reach more beneficiaries whilst at the same time benefitting from the economies of scale

WildHearts Foundation is also a key part of the strategy to manage volatility in income streams since it provides cost synergies as well as complimentary income streams within the wider group.

Credit risk

This is the risk of significant levels of default across our microfinance portfolio.

Although we operate in some of the poorest areas of subSaharan Africa, our credit risk history shows that our methodology works. Loan repayment rates typically average at 96% and our sector-leading Management Information System allows us to identify problems early and work with clients to resolve them.

Operational risk The charitable group has more than 200 staff working across five countries and therefore we have the logistical risks associated with operating over large distances, and in rural areas with poor infrastructure and stretched communication networks. This increases the risk of internal failures of controls or systems, including fraud, as well as external disruption.

The evolving COVID-19

pandemic in 2020 proved a specific and stern test of our operational ability to deal with the challenges of a significant external event. In Africa, restrictions on movement impacted our ability to run loan groups, meet with clients and to arrange disbursement and collection of loans. In the UK, our traditional fundraising events programme was significantly curtailed by lockdown restrictions and these activities had to be completely reimagined for an online world. The trustees are incredibly proud of the determination, resilience and ingenuity displayed by our teams across the Group throughout the year and into 2021. Their incredible efforts alongside past investments made by the Group in developing our infrastructure and operating procedures meant that we were able to maintain our focus on our mission and effectively manage the impact on the charity’s income levels and cost base. At all times, the Group followed government and medical advice to safeguard our staff and beneficiaries.

We will continue to monitor and improve our operational framework, including upskilling our teams and local Boards and investing in strengthening

our internal audit function. We also review and upgrade our IT infrastructure and computer equipment on an ongoing basis.

Reputational risk

This is the risk of an event or allegation adversely impacting the reputation of the charity and consequently jeopardising its ability to fulfil its charitable objectives.

There are a variety of measures imbedded across our group to ensure that the charity operates to the highest professional standards and to safeguard future activities. Examples include a rigorous interview and assessment process prior to all staff appointments, robust HR procedures and whistleblowing hotlines. The group has a zero-tolerance approach to instances of harassment and bullying, fraud, bribery or corruption. Within our microfinance operations, we have strong client protection and safeguarding policies.

34 MicroLoan Foundation

35

Annual Report and Financial Statements 2020

~~Governance~~

charity law and throughout this Executive Officer, the Chief report are collectively referred to Financial Officer and the as the trustees. The appointment, Director of Fundraising. removal, power and duties of the trustees are set out in the The operations in Africa each charity’s Memorandum and have their own locally appointed Articles of Association.

Nature of governing document

The charity is governed by its Memorandum and Articles of Association (last amended 10 December 2018).

The operations in Africa each have their own locally appointed Board of Directors that oversee the activities in their country. These Boards all include at least one member of the UK Senior Management Team who serve as

The Board of Trustees meets at least quarterly and presently consists of four individuals, all of whom act in a non-executive

Organisation structure

The operations in Africa each have their own locally appointed Board of Directors that oversee the activities in their country.

WildHearts Foundation Limited, a registered Scottish charity (SC037072) and a company limited by guarantee (SC290665), is the sole member of MicroLoan Foundation following a strategic alliance entered into in 2018. MicroLoan Foundation therefore operates as a subsidiary of WildHearts Foundation.

capacity. The trustees that served during the year and since the year-end were as follows:

Day to day running of the Foundation in the UK is delegated to a Senior Management Team, which comprises the Group Chief

the link between the UK parent charity and the African microfinance subsidiaries. Together, the UK and Africa Boards implement the group

The directors of the UK charitable company are its trustees for the purpose of

strategy in a way that is appropriate to local conditions.

Each local Board has directors with a variety of local and international experience and include both executive and nonexecutive members.

The organisational structure and Board composition is reviewed on an ongoing basis as part of normal risk management processes.

Recruitment and appointment of trustees

MicroLoan Foundation’s Memorandum and Articles of Association permit any person who is willing to act to be appointed as a trustee by an ordinary resolution. There are no provisions that require or permit any external body to appoint a member to the Board. In practice, trustees are appointed based on their backgrounds, professional networks and passion for the group’s vision.

Board members are provided with a detailed management information pack on appointment and in advance of each scheduled meeting to ensure that their knowledge of the charity's activities and regulatory environment remains current.

Induction and

training of trustees

It is expected that all trustees and other senior personnel, both in the UK and in Africa, undertake appropriate personal and professional development activities relevant to their position. Opportunities for formal training, including seminars and conferences, are offered periodically. The charity is also fortunate to have attracted several experienced professionals from a variety of backgrounds who provide ongoing support, advice and mentoring. This network enables the charity and the trustees to harness the best and most

creative minds in their respective disciplines to support our social mission.

Arrangements for setting remuneration of key management personnel

Our microfinance operations are large, complex and highly regulated financial institutions operating in countries with very challenging and often unstable economic and political environments. The Board therefore believes that it is imperative that remuneration

levels are set at rates that are competitive and allow the group to attract senior personnel of the right calibre to ensure all areas of activity remain compliant and are delivered in the most efficient and effective way possible. Remuneration levels of key management personnel are benchmarked annually against market rates or if a change in circumstances warrants review (for example, a revision to roles and responsibilities). Key Performance Indicators are closely monitored to assess the value added and progress against operational and strategic priorities. These form part of the performance evaluations which feed into pay reviews.

None of the trustees were remunerated by the charity during 2020.

36 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 37

Photo credit - Peter Caton

~~Statement of Trustees’ responsibilities~~

Public benefit

. Select suitable accounting policies and apply them consistently.

The trustees are responsible for confirming that the activities of the UK charity are consistent with its charitable objectives as set out in this annual report and financial statement.

. Observe the methods and principles in the Charities SORP (FRS 102).

Financial statements

The trustees (who are also Directors of MicroLoan Foundation for the purposes of company law) are responsible for preparing the trustees’ annual report including the strategic report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

. Prepare financial statements on a going concern basis unless it is inappropriate to assume that the charitable company and the group will continue in operation.

The trustees are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the charitable company and enable them to ensure that the financial statements comply with the Companies Act 2006, the Charities and Trustee Investment (Scotland) Act 2005 and the Charities Accounts (Scotland) Regulations 2006 (as amended).

Company law requires the trustees to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the charitable company and group, and of the incoming resources and application of resources, including income and expenditure, of the charitable company or group for that period. In preparing these financial statements, the trustees are required to:

They are also responsible for safeguarding the assets of the charitable company and group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The trustees confirm that so far as they are aware:

There is no relevant audit information of which the charitable company’s auditors are unaware.

.

They have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

.

In the interests of transparency and accountability to our donors and supporters we publish the annual report on our website. The trustees are responsible for the maintenance and integrity of the corporate and financial information included on the charitable company’s website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The annual report was approved by the Board on 14 July 2021.

Dr Mick Jackson Chairman

38 MicroLoan Foundation

39

Annual Report and Financial Statements 2020

~~Independent auditor’s report~~

In our opinion, the financial statements:

Opinion

We have audited the financial statements of Microloan Foundation (the ‘parent charitable company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2020 which comprise the consolidated statement of financial activities, the group and parent charitable company balance sheets, the consolidated statement of cash flows and the notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

Give a true and fair view of the state of the group’s and of the parent charitable company’s affairs as at 31 December 2020 and of the group’s incoming resources and application of resources, including its income and expenditure, for the year then ended.

.

. Have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice.

. Have been prepared in accordance with the requirements of the Companies Act 2006, the Charities and Trustee Investment (Scotland) Act 2005 and regulations 6 and 8 of the Charities Accounts (Scotland) Regulation 2006 (as amended).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the trustees' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on Microloan Foundation's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the trustees with respect to going concern are described in the relevant sections of this report.

Other information

The other information comprises the information included in the trustees’ annual report, other than the financial statements and our auditor’s report thereon. The trustees are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other

information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact..

We have nothing to report in this regard.

40 MicroLoan Foundation

41

Annual Report and Financial Statements 2020

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

. The information given in the trustees’ annual report, for the financial year for which the financial statements are prepared is consistent with the financial statements.

. The trustees’ annual report, including the strategic report, has been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent charitable company and its environment obtained in the course of the audit, we have not identified material misstatements in the trustees’ annual report:

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 and Charities Accounts (Scotland) Regulations 2006 (as amended) requires us to report to you if, in our opinion:

.

We have not received all the information and explanations we require for our audit; or

.

The directors were not entitled to prepare the financial statements in accordance with the small companies regime and take advantage of the small companies’ exemptions in preparing the trustees’ annual report and from the requirement to prepare a strategic report.

.

Responsibilities of trustees

As explained more fully in the statement of trustees’ responsibilities set out in the trustees’ annual report, the trustees (who are also the directors of the parent charitable company for the purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the trustees determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the trustees are responsible for assessing the group’s and the parent charitable company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the trustees either intend to liquidate the group or the parent charitable company or to cease operations, or have no realistic alternative but to do so.

----- Start of picture text -----
43
Annual Report and Financial Statements 2020
----- End of picture text -----

42 MicroLoan Foundation

Auditor’s responsibilities for the audit of the financial statements

We have been appointed as auditor under section 44(1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 and under the Companies Act 2006 and report in accordance with regulations made under those Acts.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be

expected to influence the economic decisions of users taken on the basis of these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud are set out below.

Capability of the audit in detecting irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following:

We communicated applicable laws and regulations throughout the audit team and remained alert to any indications of noncompliance throughout the audit.

.

We reviewed any reports made to regulators.

.

.

.

relationships that may indicate risks of material misstatement due to fraud.

In addressing the risk of fraud through management override of controls, we tested the appropriateness of journal entries and other adjustments, assessed whether the judgements made in making accounting estimates are indicative of a potential bias and tested significant transactions that are unusual or those outside the normal course of business.

.

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.

A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report.

44 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 45

In countries where women and girls are often marginalised, we help them to have agency, autonomy and independence.

Use of our report

This report is made solely to the charitable company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and section 44(1)(c) of the Charities and Trustee Investment (Scotland) Act 2005. Our audit work has been undertaken so that we might state to the charitable company's members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the charitable company and the charitable company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Jonathan Orchard

Senior Statutory Auditor 21 July 2021

For and on behalf of:

Sayer Vincent LLP, Statutory Auditor Invicta House, 108-114 Golden Lane, London, EC1Y 0TL

Sayer Vincent LLP is eligible to act as auditor in terms of section 1212 of the Companies Act 2006

© Peter Caton

47

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019

~~Financial~~

~~statements~~

MicroLoan Foundation (MLF)

Consolidated Statement of Financial Activities

(including Consolidated Income and Expenditure Account) for the year ended 31 December 2020

The Statement of Financial Activities includes all recognised gains and losses in both the current and prior year. All amounts related to continuing operations.

The notes on pages 54 to 80 form part of these financial statements.

----- Start of picture text -----
© Peter Caton
48 MicroLoan Foundation
----- End of picture text -----

Unrestricted
Restricted
Unrestricted
Restricted
Note
Income from:
Donations
and legacies
2
Charitable activities
• MLF Malawi
• MLF Zambia
• MLF Zimbabwe
Investment income
3
Total income
Expenditure on:
Raising funds
4
Charitable activities
• MLF Malawi
4
• MLF Zambia
4
• MLF Zimbabwe
4
Total expenditure
Net income
Other recognised
gains / (losses):
Gain on revalued
fxed assets
Exchange losses
Net movement
in funds
Reconciliation
of funds:
Total funds
brought forward
18
Total funds
carried forward
18		 funds
2020
£
funds
2020
£
Total
2020
£
funds
2019
£
(As
restated)
funds
2019
£
Total
2019
£
456,944
506,488
963,432
574,569
473,015
1,047,584
1,350,010
-
1,350,010
1,316,816
-
1,316,816
708,481
-
708,481
828,215
-
828,215
18,438
-
18,438
33,649
-
33,649
4,846
-
4,846
8,595
-
8,595
2,538,719
506,488
3,045,207
2,761,844
473,015
3,234,859
(281,098)
(13,605)
(294,703)
(301,849)
(46,335)
(348,184)
(1,333,491)
(233,974)
(1,567,465)
(1,268,336)
(202,513)
(1,470,849)
(739,665)
(146,204)
(885,869)
(662,231)
(280,633)
(942,864)
(6,853)
(62,955)
(69,808)
(119,373)
(100,797)
(220,170)
(2,361,107)
(456,738)
(2,817,845)
(2,351,789)
(630,278)
(2,982,067)
177,612
49,750
227,362
410,055
(157,263)
252,792
25,385
-
25,385
-
-
-
(324,624)
-
(324,624)
(130,313)
-
(130,313)
(121,627)
49,750
(71,877)
279,742
(157,263)
122,479
969,104
18,197
987,301
689,362
175,460
864,822
847,477
67,947
915,424
969,104
18,197
987,301

49

Annual Report and Financial Statements 2020

Charity Statement of Financial Activities (including Income and Expenditure Account) for the year ended 31 December 2020

Unrestricted
Restricted
Unrestricted
Restricted
Note
Income from:
Donations
and legacies
Investment income
Total income
Expenditure on:
Raising funds
Charitable activities
Total expenditure
Net income
Transfers
between funds
Net movement
in funds
Reconciliation
of funds:
Total funds
brought forward
Total funds
carried forward		 funds
2020
£
funds
2020
£
Total
2020
£
funds
2019
£
funds
2019
£
Total
2019
£
456,944
423,497
880,441
574,569
434,809
1,009,378
-
-
-
-
-
-
456,944
423,497
880,441
574,569
434,809
1,009,378
(281,098)
(13,605)
(294,703)
(301,849)
(46,335)
(348,184)
(202,916)
(140,027)
(342,943)
(318,111)
(129,255)
(447,366)
(484,014)
(153,632)
(637,646)
(619,960)
(175,590)
(795,550)
(27,070)
269,865
242,795
(45,391)
259,219
213,828
220,115
(220,115)
-
365,383
(365,383)
-
193,045
49,750
242,795
319,992
(106,164)
213,828
400,084
18,197
418,281
80,092
124,361
204,453
593,129
67,947
661,076
400,084
18,197
418,281

The Statement of Financial Activities includes all recognised gains and losses in both the current and prior year. All amounts related to continuing operations.

The notes on pages 54 to 80 form part of these financial statements.

----- Start of picture text -----
© Peter Caton
----- End of picture text -----

50 MicroLoan Foundation

51

Annual Report and Financial Statements 2019 Annual Report and Financial Statements 2020

Company registration number: 04828558

Consolidated Statement of Cash Flows as at 31 December 2020

Balance sheets as at 31 December 2020

The group
The charity
Note
Fixed assets
Tangible assets
8
Investments
9
Current assets
Stock
10
Debtors
11
Cash at bank and in hand
Creditors: Amounts falling
due within one year
12
Net current assets /
(liabilities)
Total assets less
current liabilities
Creditors: Amounts
falling due after one year
13
Provisions for liabilities
14
Total net assets
Funds of the charity:
Unrestricted funds
18
Designated funds
18
Restricted funds
18
Total funds		 2020
£
2019
£
2020
£
2019
£
387,955
455,862
-
31,179
-
-
1,401,241
1,085,012
387,955
455,862
1,401,241
1,116,191
12,458
13,299
-
-
2,468,438
2,544,504
74,690
220,454
523,541
505,029
355,341
255,089
3,004,437
3,062,832
430,031
475,543
(908,320)
(996,051)
(20,196)
(23,453)
2,096,117
2,066,781
409,835
452,090
2,484,072
2,522,643
1,811,076
1,568,281
(1,554,326)
(1,529,026)
(1,150,000)
(1,150,000)
(14,322)
(6,316)
-
-
915,424
987,301
661,076
418,281
274,529
969,104
274,529
400,084
572,948
-
318,600
-
67,947
18,197
67,947
18,197
915,424
987,301
661,076
418,281

The financial statements were approved by the Board and authorised for issue on 14 July 2021 and signed on their behalf by:

The group
Cash fows from operating activities
Net income per Statement
of Financial Activities
Depreciation charges
Investment income receivable
Interest on borrowings
Gain on disposal of tangible fxed assets
(Increase) / decrease in stock
Increase in debtors
(Decrease) / increase in creditors
Increase in deferred tax provision
Net cash fows from operating activities
Cash fows from investing activities
Interest receivable and similar income
Purchase of tangible fxed assets
Proceeds from sale of tangible fxed assets		 2020
£
227,362
123,921
(4,846)
96,200
(1,338)
(188)
(177,678)
(158,168)
8,066		 2020
£
113,331
(81,973)
37,341		 2019
£
252,793
126,615
(8,595)
63,764
-
3,069
(610,547)
309,046
1,469		 2019
£
137,614
(97,577)
257,594
4,846
(88,371)
1,552		 8,595
(106,172)
-
Net cash fows from investing activities
Cash fows from fnancing activities
New loans obtained during the period
Loans repaid during the period
Interest paid on borrowings
Net cash fows from fnancing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January 2020
Exchange loss on cash and cash equivalents
Cash and cash equivalents at 31 December 2020		 891,517
(757,976)
(96,200)		 1,571,583
(1,250,225)
(63,764)
68,699
505,029
(50,187)		 (297,631)
229,237
(21,839)
523,541 505,029

All of the cash flows are derived from continuing operations during the current and prior year.

Mick Jackson

The notes on pages 54 to 80 form part of these financial statements.

Trustee

The notes on pages 54 to 80 form part of these financial statements.

52 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 53

Notes to the Financial Statements for the year ended 31 December 2020

1 Accounting policies

Summary of significant accounting policies and key accounting estimates

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to all the years presented, unless otherwise stated.

Basis of preparation and statement of compliance

MicroLoan Foundation is a private company limited by guarantee (incorporated in England under the Companies Act) and a charity registered with the Charity Commission for England & Wales and the Office of the Scottish Charity Regulator. The charitable company's registered office address is 1-2 Paris Garden, London, SE1 8ND.

The financial statements have been prepared in accordance with Accounting and Reporting by Charities: Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) (effective 1 January 2015) - (Charities SORP FRS 102), the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) and the Companies Act 2006.

MicroLoan Foundation meets the definition of a public benefit entity under FRS 102. Assets and liabilities are initially recognised at historical cost or transaction value unless otherwise stated in the relevant accounting policy notes.

These financial statements consolidate the results of the charitable company and its wholly-owned subsidiaries on a line by line basis. The subsidiaries are MicroLoan Foundation Malawi (Registration Number 12509), MicroLoan Foundation Zambia (Registration Number 70587), and, in Zimbabwe, MicroLoan Trust Zimbabwe (Registration Number MA0000738/2016) and MicroLoan Foundation (Private) Limited (Registration Number 851/2016). All are incorporated locally in their respective country of operation.

Transactions and balances between the charitable company and its subsidiaries have been eliminated from the consolidated financial statements. Balances between the companies are disclosed in the notes to the charitable company's balance sheet.

The presentational currency used in these financial statements is Pound Sterling. Amounts have been rounded to the nearest Pound.

Going concern

The financial statements have been prepared on a going concern basis.

As part of their assessment as to whether the use of the going concern basis is appropriate, the trustees assess whether there are any material uncertainties related to events or conditions that may cast significant doubt on the ability of the Charity to continue as a going concern. The trustees make this asseement in respect of a period of at least one year from the date of approval of the financial statements..

Key sources of estimation uncertainty

Estimation uncertainty exists in respect of the recoverable amount of the charity's microfinance loan portfolio. In determining whether impairment is required, the trustees consider factors such as the contractual terms of the underlying loan agreements, historic rates of loan default in the territory and applicable local macroeconomic factors that could impact the ability to recover amounts advanced. The carrying value of the loan portfolio at the year-end was £2,181,259 (2019: £2,271,495).

Notes to the Financial Statements for the year ended 31 December 2020

Summary of disclosure exemptions

The charity has taken advantage of the exemption conferred by Section 33.1A of FRS 102 not to separately disclose transactions between members of the charitable group headed by WildHearts Foundation.

Income

Income is recognised when the charity has entitlement to the income, it is probable that the income will be received and the amount can be measured with sufficient reliability.

Donations and legacies

Income from donations and legacies is recognised on an accruals basis at the point at which the requirements of entitlement, probability and reliability of measurement are fully satisfied.

Where the donor specifies that the donation must be used in future accounting periods or imposes other conditions which must be fulfilled before the charity becomes entitiled to use such income, the income is deferred and not recognised until the pre-conditions have been met.

Grants receivable

Grant income is also recognised on an accruals basis at the point at which the requirements of entitlement, probability and reliability of measurement are fully satisfied.

Where the grant agreement contains performance or other pre-conditions which must be met before the charity becomes entitled to the funding, the grant income is deferred and released to income in the reporting period in which the conditions limiting recognition are met.

Donated resources and services

The activities of MicroLoan Foundation are supported by resources and services provided on a pro bono or discounted basis. In accordance with the Charities SORP (FRS 102), an amount is recognised within the Statement of Financial Activities as income when received, with a corresponding expense, where the benefit of these services is reasonably quantifiable and measurable.

Each year, the trustees undertake a comprehensive exercise in order to calculate on a consistent and systematic basis the value of in kind support received in the form of donated services and facilities. This value is determined by calculating the gross open market cost of undertaking each activity and then deducting amounts directly incurred by the charity. For the purposes of this calculation, no allowance has been made for irrecoverable VAT that could potentially have been incurred in respect of donated amounts in the open market. The trustees do not consider it practical to accurately determine the latter figure due to uncertainty over when VAT would or would not be applied.

Income from charitable activities

Income from charitable activities comprises of interest charged in respect of the microloans that we provide to our beneficiaries in order to make our lending activities sustainable. It is recognised on an accruals basis net of provision for bad debt.

Other trading activities

Income generated from fundraising events is recognised at the point of receipt.

.

54 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 55

Notes to the Financial Statements for the year ended 31 December 2020

Investment income

Investment income is included on an accruals basis and is stated gross of any taxation recoverable.

Expenditure

All expenditure is recognised once there is a legal or constructive obligation to that expenditure, it is probable that settlement is required and the amount can be measured reliably. All costs are allocated to the applicable expenditure heading that aggregate similar costs to that category. Where costs cannot be directly attributed to particular headings, they have been allocated on a basis consistent with the use of the resources.

Raising funds

Costs of raising funds represent amounts incurred in undertaking fundraising events and in attracting other voluntary income.

Charitable activities

Charitable expenditure comprises those costs incurred by the charity in the delivery of its activities and services for its beneficiaries. It includes both costs that can be allocated directly to such activities and those costs of an indirect nature that are necessary to support them.

Grant expenditure

Grants and donations made are included in the Statement of Financial Activities at the point there is sufficient evidence that a contractual or constructive obligation exists. In practice, this is usually a legal agreement or formal written offer issued by the charity to the recipient. In circumstances where the charity makes a grant award that contains performance conditions, expenditure is recognised in the period in which each performance milestone is met. Where there are other conditions associated with the grant, expenditure is recognised to the extent that the future payment is probable.

Support costs

Support costs include central functions and have been allocated to activity cost categories on a basis consistent with the use of resources, as shown in Note 4.

Governance costs

Governance costs are those costs which are directly attributable to the governance arrangements of the charity and its strategic management.

Irrecoverable VAT

Irrecoverable VAT is charged against the category of resources expended for which it was incurred.

Taxation

The charity is considered to pass the tests set out in Paragraph 1 Schedule 6 of the Finance Act 2010 and therefore it meets the definition of a charitable company for UK corporation tax purposes. Accordingly, the charity is potentially exempt from taxation in respect of income or capital gains received within categories covered by Chapter 3 Part 11 of the Corporation Tax Act 2010 or Section 256 of the Taxation of Chargeable Gains Act 1992, to the extent that such income or gains are applied exclusively to charitable purposes. Trading subsidiaries are subject to corporation tax in the countries that they operate in. Tax is recognised in the Statement of Financial Activities.

Notes to the Financial Statements for the year ended 31 December 2020

Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date, except that:

Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Tangible fixed assets

Tangible fixed assets are initially capitalised at cost. Depreciation costs are allocated to activities on the basis of the use of the related assets in those activities. Assets are reviewed for impairment if circumstances indicate their carrying value may exceed their net realisable value and value in use.

Where fixed assets have been revalued, any excess between the revalued amount and the historic cost of the asset will be included as a revaluation reserve within charitable funds.

Depreciation is provided at rates calculated to write down the cost of each asset to its estimated residual value on a straight line basis over its expected useful life. The depreciation rates in use are as follows:

Buildings 2-8%
Ofce equipment 10-25%
Computer equipment 20-25%
Motor Vehicles 20%
Website costs 33%

Investments

Programme related investments, which includes investments in the Charity's subsidiaries, are made in furtherance of the Charity's objectives and any investment return is secondary to the charitable purpose supported by the investment. Such investments are included at their cost less provision for impairment except for listed investments which are included at fair value (bid price). Any loss or impairment arising from such investments is charged as part of charitable activities within the Statement of Financial Activities.

Stocks

Stocks are stated at the lower of cost and net realisable value. In general, cost is determined on a first in first out basis and includes transport and handling costs. Net realisable value is the price at which stocks can be sold in the normal course of business after allowing for the costs of realisation. Provision is made where necessary for obsolete, slow moving and defective stocks. Donated items of stock, held for distribution or resale, are recognised at fair value which is the amount the charity would have been willing to pay for the items on the open market.

Trade and other debtors

Trade and other debtors are recognised at the settlement amount due after any trade discount offered. Prepayments are valued at the amount prepaid net of any trade discounts due.

56 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 57

Notes to the Financial Statements for the year ended 31 December 2020

Trade creditors

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade creditors are classified as current liabilities if the charity does not have an unconditional right, at the end of the reporting period, to defer settlement of the creditor for at least twelve months after the reporting date. If there is an unconditional right to defer settlement for at least twelve months after the reporting date, they are presented as non-current liabilities.

Trade creditors are recognised initially at the transaction price and subsequently measured at amortised cost using the effective interest method.

Borrowings

Borrowings that are interest free or at a rate below prevailing market rates are treated as concessionary loans. Such loans are initially recorded at the amount received, with the carrying value subsequently adjusted to reflect repayments and any accrued interest.

Interest-bearing borrowings are initially recorded at fair value, net of transaction costs. Such borrowings are subsequently carried at amortised cost, with the difference between the proceeds (net of transaction costs) and the amount due on redemption being recognised as a charge to the Statement of Financial Activities over the period of the relevant borrowing. The interest expense is recognised on the basis of the effective interest method

Borrowings are classified as current liabilities unless the Charity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

Holiday pay accrual

A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the balance sheet date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.

Pension and other post retirement obligations

Contributions to defined contribution pension schemes are charged to the Statement of Financial Activities in the period in which they become payable.

Foreign exchange

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date unless there is a matching forward currency contract in place. In such circumstances, the contracted rate of exchange is used.

Exchange differences are recognised in the Statement of Financial Activities in the period in which they arise.

The Charity's overseas subsidiaries have different functional currencies from that of their parent. On consolidation, assets and liabilities of these subsidiaries are translated using the applicable exchange rate as at the balance sheet date. Transactions included within the Statement of Financial Activities are translated using the average exchange rate across the period. Foreign currency gains or losses arising in respect of the translation of overseas subsidiaries are reflected in the Statement of Financial Activities as other operating gains or losses.

© Peter Caton

58 MicroLoan Foundation

59

Annual Report and Financial Statements 2019 Annual Report and Financial Statements 2020

Notes to the Financial Statements for the year ended 31 December 2020

Fund accounting

Reserves which can be used at the discretion of the trustees are classified as unrestricted funds. Designated funds, which are also unrestricted, represent amounts ringfenced or committed by the charity for specific charitable activities.

Restricted funds are to be used for specific purposes as laid down, either implicitly or explicitly, by the donor. Expenditure which meets the criteria is allocated to the appropriate fund, together with a fair allocation of overhead support cost.

Financial instruments

Classification

Financial assets and financial liabilities are recognised when the charity becomes a party to the contractual provisions of the instrument.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Charity after deducting all of its liabilities.

Recognition and measurement

All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as at fair value through the Statement of Financial Activities. These are initially measured at fair value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing transaction. If an arrangement constitutes a financing transaction, the financial asset or financial liability is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.

Financial assets and liabilities are only offset in the statement of financial position when, and only when, there exists a legally enforceable right to set off the recognised amounts and the Charity intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Financial assets are derecognised when, and only when:

(a) the contractual rights to the cash flows from the financial asset expire or are settled

(b) the Charity transfers to another party substantially all the risks and rewards of ownership of the financial asset, or

(c) the Charity, despite having retained some, but not all, significant risks and rewards of ownership, has transferred control of the asset to another party.

Notes to the Financial Statements for the year ended 31 December 2020

Debt instruments

Debt instruments which meet the following conditions are subsequently measured at amortised cost using the effective interest method:

Debt instruments that are classified as payable or receivable within one year on initial recognition and which meet the above conditions are measured at the undiscounted amount of the cash or other consideration expected to be paid or received, net of impairment.

With the exception of concessionary loans and some hedging instruments, other debt instruments not meeting these conditions are measured at fair value through the Statement of Financial Activities.

Commitments to make and receive loans which meet the conditions mentioned above are measured at cost (which may be nil) less impairment.

Financial liabilities are derecognised only when the contractual obligation is discharged, cancelled or expires.

60 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 61

Notes to the Financial Statements for the year ended 31 December 2020

Notes to the Financial Statements for the year ended 31 December 2020

Derivative financial instruments

From time to time, the charity uses derivative financial instruments to reduce exposure to foreign exchange risk. The charity does not hold or issue derivative financial instruments for speculative purposes.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in the Statement of Financial Activities immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the Statement of Financial Activities depends on the nature of the hedge relationship.

Fair value measurement

The best evidence of fair value is a quoted price for an identical asset in an active market. When quoted prices are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place. If the market is not active and recent transactions of an identical asset on their own are not a good estimate of fair value, the fair value is estimated by using a valuation technique.

Hedge accounting

The Charity designates certain derivatives as hedging instruments in fair value hedges.

At the inception of the hedge relationship, the entity documents the economic relationship between the hedging instrument and the hedged item, along with its risk management objectives and clear identification of the risk in the hedged item that is being hedged by the hedging instrument. Furthermore, at the inception of the hedge the charity determines and documents causes for hedge ineffectiveness.

Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the Statement of Financial Activities immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line related to the hedged item.

2 Income from donations and legacies

Unrestricted
Restricted
Unrestricted
Restricted
3 Investment income
funds
2020
£
funds
2020
£
Total
2020
£
funds
2019
£
funds
2019
£
Total
2019
£
Individuals and events
298,427
73,962
372,389
273,805
97,627
371,432
Trusts and institutions
105,442
422,426
527,868
115,556
373,448
489,004
Corporates
19,444
10,100
29,544
28,164
1,940
30,104
Donated services
and facilities
33,631
-
33,631
157,044
-
157,044
456,944
506,488
963,432
574,569
473,015
1,047,584
Unrestricted
Restricted
Unrestricted
Restricted		 funds
2020
£
funds
2020
£
Total
2020
£
funds
2019
£
funds
2019
£
Total
2019
£
298,427
73,962
372,389
273,805
97,627
371,432
105,442
422,426
527,868
115,556
373,448
489,004
19,444
10,100
29,544
28,164
1,940
30,104
33,631
-
33,631
157,044
-
157,044
456,944
506,488
963,432
574,569
473,015
1,047,584
Interest receivable funds
2020
£
funds
2020
£
Total
2020
£
funds
2019
£
funds
2019
£
Total
2019
£
4,846
-
4,846
8,595
-
8,595

Hedge accounting is discontinued when the charity revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to the Statement of Financial activities from that date.

62 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 63

Notes to the Financial Statements for the year ended 31 December 2020

4 Expenditure analysis Charitable activities
MLF
Malawi
2020
£
MLF
Zambia
2020
£
MLF
Zimbabwe
2020
£
Subtotal
2020
£
Cost of raising
funds
2020
£
Governance
costs
2020
£
Support
costs
2020
£
Total
2020
£
Total
2019
£
748,503
415,048
26,917
1,190,468
203,717
-
12,324
1,406,509
1,288,192
111,783
72,487
12,967
197,237
131
99
50
197,517
244,682
84,683
33,654
3,045
121,382
27,294
-
-
148,676
164,074
29,445
58,136
8,029
95,610
-
11,400
876
107,886
184,385
55,987
40,213
-
96,200
-
-
-
96,200
77,085
81,791
41,647
483
123,921
-
-
-
123,921
126,615
31,555
96,935
2,948
131,438
-
-
933
132,371
144,763
169,225
28,282
485
197,992
-
-
-
197,992
80,224
40,462
10,281
10,914
61,657
7,215
-
(3)
68,869
69,107
204,671
81,909
3,965
290,545
13,035
-
693
304,273
445,896
1,558,105
878,592
69,753
2,506,450
251,392
11,499
14,873
2,784,214
2,825,023
498
387
3
888
7,802
6,061
18,880
33,631
157,044
-
-
-
-
33,753
-
(33,753)
-
-
8,862
6,890
52
15,804
1,756
(17,560)
-
-
-
1,567,465
885,869
69,808
2,523,142
294,703
-
-
2,817,845
2,982,067
1,470,849
942,864
220,170
2,633,883
348,184
-
-
-
2,982,067
Staf costs
Travel and subsistence
Premises costs
Legal and professional fees
Interest costs
Depreciation
Exchange (gains) / losses
Loan provisions and write-of
IT and telecommunications
Other costs
In kind support
Support costs
Governance costs
Total expenditure
2019 expenditure analysis

----- Start of picture text -----
© Peter Caton
----- End of picture text -----

64 MicroLoan Foundation

----- Start of picture text -----
Notes to the Financial Statements for the year ended 31 December 2020
4 Expenditure analysis (continued)
Charitable activities
MLF MLF MLF Subtotal Cost of raising Governance Support Total
Malawi Zambia Zimbabwe funds costs costs
2019 2019 2019 2019 2019 2019 2020 2019
£ £ £ £ £ £ £ £
Staff costs 645,044 385,753 46,079 1,076,876 195,148 - 16,168 1,288,192
Travel and subsistence 156,383 68,076 18,321 242,780 1,386 173 343 244,682
Premises costs 86,721 40,753 3,162 130,636 32,844 - 594 164,074
-
Legal and professional fees 27,350 87,935 53,841 169,126 11,400 3,859 184,385
Interest costs 61,877 13,321 - 75,198 - - 1,887 77,085
Depreciation 81,110 44,053 1,452 126,615 - - - 126,615
Exchange (gains) / losses 3,836 60,898 76,135 140,869 - - 3,894 144,763
Loan provisions and write-off 36,004 44,019 201 80,224 - - - 80,224
IT and telecommunications 37,655 12,535 9,880 60,070 8,122 49 866 69,107
Other costs 269,723 146,950 7,412 424,085 19,331 1,145 1,335 445,896
1,405,703 904,293 216,483 2,526,479 256,831 12,767 28,946 2,825,023
In kind support 54,950 32,534 3,110 90,594 42,112 5,911 18,427 157,044
Support costs - - - - 47,373 - (47,373) -
Governance costs 10,196 6,037 577 16,810 1,868 (18,678) - -
Total expenditure 1,470,849 942,864 220,170 2,633,883 348,184 - - 2,982,067
The above prior year cost analysis has been restated to disaggregate certain cost categories that were previously included under 'other' so as to enhance
understanding of the cost base and also to correct a misallocation of prior year costs between MLF Malawi and MLF Zambia. The impact of this restate-
ment is that prior year costs allocated to Malawi have been reduced by £95,603 and prior year costs allocated to Zambia have increased by £95,603. There
has been no change to total prior year costs allocated to charitable activities or prior year total costs.
© Peter Caton
66 MicroLoan Foundation 67
Annual Report and Financial Statements 2020
----- End of picture text -----

Notes to the Financial Statements for the year ended 31 December 2020

Notes to the Financial Statements for the year ended 31 December 2020

5 Staff costs

The aggregate payroll costs were as follows:
Wages and salaries
Social security costs
Pension costs		 2020
£
2019
£
1,235,212
1,116,957
32,126
29,165
77,453
70,674
1,344,791
1,216,796

The number of employees receiving emoluments of more than £60,000 was as follows:

£80,000 - £89,999
£70,000 - £79,999
£60,000 - £69,999		 2020
£.
2019
£.
2
1
1
1
-
-
3
2

6 Trustee remuneration and expenses

No trustees, nor any persons connected with them, received any remuneration from the charity during the current or prior year. No expenses were reimbursed to trustees during the current or prior year.

7 Net income/ (expenditure) for the year

2020 2019
£ £
This is stated after charging:
Depreciation 123,921 126,615
Auditor's remuneration – audit 11,400 11,400
Operating lease expenses – property 88,973 99,547

Pension contributions made on behalf of these employees totalled £6,068 (2019: £5,350).

The trustees consider key management personnel during 2020 to comprise the Board of Trustees, the Group's Chief Executive Officer, the Chief Executive Officers of the African subsidiaries and the UK Chief Financial Officer. Emoluments totalling £322,743 (2019: £289,760) were paid to these individuals inclusive of Employer's National Insurance and pension contributions. None of the trustees were remunerated in the current year.

The average number of persons employed by the charity during the year was as follows:

Malawi
Zambia
Zimbabwe
Raising funds
Governance and administration		 2020
No.
2019
No.
110
99
82
71
15
15
6
6
3
3
216
194

68 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 69

Notes to the Financial Statements for the year ended 31 December 2020

Notes to the Financial Statements for the year ended 31 December 2020

8 Tangible Fixed Assets

The group
Cost
At 1 January 2020
Forex adjustment
Additions
Disposals
Revaluations
At 31 December 2020
Depreciation
At 1 January 2020
Forex adjustment
Charge for the year
On disposals
Revaluations
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019		 Buildings
£
Ofce
equipment
£
Computer
equipment
£
Motor
vehicles
£
Website
costs
£
Total
£
99,726
166,315
229,367
442,127
22,645
960,180
(7,663)
(32,705)
(8,552)
(75,910)
-
(124,830)
-
16,422
11,024
60,925
-
88,371
-
(667)
(520)
(4,531)
-
(5,718)
36,264
-
-
-
-
36,264
128,327
149,365
231,319
422,611
22,645
954,267
(14,307)
(67,996)
(149,772)
(249,598)
(22,645)
(504,318)
1,100
11,927
4,832
38,564
-
56,423
(1,783)
(18,109)
(47,431)
(56,598)
-
(123,921)
-
667
520
4,317
-
5,504
-
-
-
-
-
-
(14,990)
(73,511)
(191,851)
(263,315)
(22,645)
(566,312)
113,337
75,854
39,468
159,296
-
387,955
85,419
98,319
79,595
192,529
-
455,862
The charity
Cost
At 1 January 2020
Additions
Disposals
At 31 December 2020
Depreciation
At 1 January 2020
Charge for the year
On disposals
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019		 Computer
equipment
£
Website
costs
£
Total
£
118,066
22,645
140,711
-
-
-
-
-
-
118,066
22,645
140,711
(86,887)
(22,645)
(109,532)
(31,179)
-
(31,179)
-
-
-
(118,066)
(22,645)
(140,711)
-
-
-
31,179
-
31,179

70 MicroLoan Foundation

Annual Report and FinaAnnual Report and Fi n ancial Statements cial Statements 20 20 19 71

Notes to the Financial Statements for the year ended 31 December 2020

Notes to the Financial Statements for the year ended 31 December 2020

9 Investments

9 Investments
Notes to the Financial Statements for the year ended 31 December 2020
The charity
Cost
At 1 January 2020
Additions
At 31 December 2020
Provision
At 1 January 2020
Charge for the year
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019		 Investments in
subsidiaries
£
1,142,372
316,229
1,458,601
(57,360)
-
(57,360)
1,401,241
1,085,012

Additions to investments represent new capital injected into the three wholly owned subsidiaries through a combination of cash advances and conversion of intercompany debt. This was done as part of the strategy to fund their expansion.

A summary of the results and the aggregate of share capital and reserves of the subsidiaries, converted into British Pound, is shown below.

MLF Malawi
MLF Zambia
MLF Zimbabwe		 Income
£
Expenditure
£
Result for
the year
£
Aggregate of
share capital
and reserves
£
1,505,775
(1,490,398)
15,377
1,180,399
720,196
(794,530)
(74,334)
459,393
62,762
(64,293)
(1,531)
1,206
2,288,733
(2,349,221)
(60,488)
1,640,998

The activities of the above have been consolidated and therefore are included in the Group result. A description of their activities is included in the annual report.

10 Stock

The group
The charity
Consumables held 2020
£
2019
£
2020
£
2019
£
12,458
13,299
-
-

11 Debtors

11 Debtors
The group
The charity
Amounts due from group undertakings
Microcredit loans
Other debtors and prepayments		 2020
£
2019
£
2020
£
2019
£
-
-
67,359
206,725
2,181,259
2,271,495
-
-
287,179
273,009
7,331
13,729
2,468,438
2,544,504
74,690
220,454

12 Creditors: amounts falling due within one year

The group
The charity
Trade creditors
Taxation and social security
Other creditors and accruals
Loans		 2020
£
2019
£
2020
£
2019
£
8,074
22,200
1,107
5,167
27,960
36,584
4,096
3,897
102,663
275,885
14,993
14,389
769,623
661,382
-
-
908,320
996,051
20,196
23,453

Further information in respect of loans outstanding is provided at note 13.

72 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 73

Notes to the Financial Statements for the year ended 31 December 2020

Notes to the Financial Statements for the year ended 31 December 2020

13 Creditors: amounts falling due after one year

The group
The charity
Loan repayments due:
In 1 - 2 years
In 2 - 5 years		 2020
£
2019
£
2020
£
2019
£
262,897
379,026
-
-
1,291,429
1,150,000
1,150,000
1,150,000
1,554,326
1,529,026
1,150,000
1,150,000

Loans represent amounts borrowed by various MLF entities to fund activities. Details of the loan providers, the entity the loan is with, the currency in which the loan is denominated and the applicable interest rate are set out below:

Loan provider
WildHearts Foundation
KIVA Microfunds
Grameen Credit Agricole Microfnance
Foundation
Grameen Credit Agricole Microfnance
Foundation
Grameen Credit Agricole Microfnance
Foundation
FDH
Lendwithcare
Lendwithcare
Paul Foundation		 Outstanding £
Borrower
Currency
Interest rate
1,150,000
UK
GBP
Nil
182,345
Malawi
USD
Nil
41,825
Malawi
MWK
20.0%
237,643
Malawi
MWK
18.0%
211,559
Zambia
ZMW
32.2%
112,122
Malawi
MWK
18.0%
126,163
Malawi
USD
Nil
70,050
Zambia
ZMW
Nil
192,242
Zambia
USD
3.0%
2,323,949

14 Provisions for liabilities

The group
The charity
15 Pension and other schemes
The charity makes contributions to various defned contribution pension schemes. The pension cost charge
for the year represents contributions payable by the charity to the schemes and amounted to £79,085 (2019:
£70,674).
16 Operating lease commitments
The total of future minimum lease payments under non-cancellable operating leases is as follows:
At 31 December 2020, the group also had unrecognised deferred tax assets of £Nil (2019: £31,474) in respect of
Malawi, £16,077 (2019: £nil) in respect of Zambia, and £43 (2019: £21,485) in respect of Zimbabwe.
2020
£
2019
£
2020
£
2019
£
Deferred Tax
Amounts payable to the
Malawi Revenue Authorities
14,322
-
-
-
Amounts payable to the
Zambian Revenue Authorities
-
6,316
-
-
14,322
6,316
-
-
The group
The charity		 2020
£
2019
£
2020
£
2019
£
14,322
-
-
-
-
6,316
-
-
14,322
6,316
-
-
The group
The charity
In less than one year
In one to fve years
More than fve years		 2020
£
2019
£
2020
£
2019
£
22,190
20,726
-
20,726
8,826
-
-
-
-
-
-
-
31,016
20,726
-
20,726

74 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 75

Notes to the Financial Statements for the year ended 31 December 2020

Notes to the Financial Statements for the year ended 31 December 2020

17 Analysis of group net assets between funds

Unrestricted
Restricted
Unrestricted
Restricted
Tangible fxed assets
Net current assets
Long term liabilities
Deferred tax liability		 2020
£
2020
£
Total
2020
£
2019
£
2019
£
Total
2019
£
387,955
-
387,955
455,862
-
455,862
2,028,170
67,947
2,096,117
2,048,584
18,197
2,066,781
(1,554,326)
-
(1,554,326)
(1,529,026)
-
(1,529,026)
(14,322)
-
(14,322)
(6,316)
-
(6,316)
847,477
67,947
915,424
969,104
18,197
987,301

18 Funds

Unrestricted funds
General fund
Designated funds::
Africa Investment
Restricted funds
Malawi
Zambia
Zimbabwe
Africa general
UK infrastructure
Total funds		 Balance at
1 January
2020
Income
Expenditure
Other
recognised
gains/
(losses)
Transfers
Balance at
31 December
2020
£
£
£
£
£
£
969,104
2,538,719
(2,361,107)
(299,239)
(572,948)
274,529
-
-
-
-
572,948
572,948
969,104
2,538,719
(2,361,107)
(299,239)
-
847,477
11,299
259,575
(233,974)
-
-
36,900
3,293
148,951
(146,204)
-
-
6,040
-
67,212
(62,955)
-
-
4,257
20,750
20,750
3,605
10,000
(13,605)
-
-
-
18,197
506,488
(456,738)
-
-
67,947
987,301
3,045,207
(2,817,845)
(299,239)
-
915,424
Unrestricted funds
General fund
Restricted funds
Malawi
Zambia
Zimbabwe
UK infrastructure
Total funds		 Balance at
1 January
2019
Income
Expenditure
Other
recognised
gains/
(losses)
Transfers
Balance at
31 December
2019
£
£
£
£
£
£
689,362
2,761,844
(2,351,789)
(130,313)
-
969,104
-
213,810
(202,511)
-
-
11,299
93,330
190,596
(280,633)
-
-
3,293
32,189
68,609
(100,798)
-
-
-
49,941
-
(46,336)
-
-
3,605
175,460
473,015
(630,278)
-
-
18,197
864,822
3,234,859
(2,982,067)
(130,313)
-
987,301

The designated 'Africa Investment' fund reflects the book value of assets that have been committed or already advanced to our projects in Africa through either grants, equity or intergroup loans. It is calculated net of any long term borrowings that have been used to finance this investment. This fund is now shown separately from the General fund because it does not represent liquid resources that are available to meet UK financial commitments as they fall due. The fund balance includes a total of £105,917 in respect of a revaluation reserve created in respect of land and buildings owned in Malawi.

Restricted funds represent the total of individual fund balances received for activities within the charity's countries of operation, as indicated by the fund name. The 'Africa general' fund comprises of amounts where the donors have stipulated that the funds should be applied directly to our projects within Africa but have not specified a particular country.

The trustees do not consider there to be any individually material amounts within each aggregated fund balance that would require separate disclosure.

76 MicroLoan Foundation

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019 77

Notes to the Financial Statements for the year ended 31 December 2020

19 Financial Instruments

Categorisation of financial instruments
Financial assets measured at fair value through income and expenditure
Financial assets that are debt instruments measured at amortised costs
Financial liabilities measured at amortised cost
Loan commitments measured at cost less impairment		 2020
£
2019
£
-
-
2,991,979
3,049,533
2,991,979
3,049,533
110,737
298,085
2,323,949
2,190,408
2,434,686
2,488,493

Financial assets measured at fair value

There are no financial assets measured at fair value.

Financial assets that are debt instruments measured at amortised cost

Notes to the Financial Statements for the year ended 31 December 2020

Items of income, expense, gains or losses
2020
Financial assets measured at fair value through income
and expenditure
Financial assets that are debt instruments measured at
amortised cost
2019
Financial assets measured at fair value through income
and expenditure
Financial assets that are debt instruments measured at
amortised cost		 Income
£
Expense
£
Net gains
£
Net losses
£
-
-
-
-
-
-
2,081,775
-
-
2,081,775
-
-
-
-
-
-
-
2,187,275
-
-
-
2,187,275
-
-
-

The total interest income for financial assets not measured at fair value through income and expenditure is £2,081,775 (2019: £2,187,275).

This comprises of microcredit loans, trade debtors, other debtors, cash and cash equivalents (as applicable).

Impairment

Financial liabilities measured at historic cost

This comprises of trade creditors, other creditors and accruals.

Loan commitments measured at cost less impairment This comprises of loans

Microcredit loans

The amount of the impairment loss during the year is £197,992 (2019: £80,150). Impairment loss is included in expenditure on charitable activities. The amount of reversal of impairment recognised in the current year and prior period, which is also included in expenditure on charitable activities, is £nil. The overall net impairment loss during the year is £197,992 (2019: £80,150).

Fair Value Hedges

Currency forwards - contracts to buy

The group is exposed to foreign currency risk when it borrows in currencies other than the functional currency. The Charity's policy is to hedge this risk wherever it is practical and affordable using forward foreign currency contracts.

Interest rate swaps

From time to time, the group may also enter into interest rate swaps in respect of foreign currency borrowings in order to reduce exposure to foreign currency risk in respect of scheduled interest payments.

There were no financial instruments designated as hedging instruments at the end of either the current or prior financial year and therefore their fair value was £nil (31 December 2019: £nil).

The amount of the change in fair value of hedged items recognised in income and expenditure for the year is £nil (2019: £nil).

78 MicroLoan Foundation

79

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019

20 Analysis of cash and cash equivalents and of net debt

Cash at bank and in hand
Total cash and cash equivalents
Loans falling due within one year
Loans falling due after more than one year
Total		 At 1 January
2020
£
Cash fows
£
Other
non-cash
changes
£
At 31
December
2020
£
505,029
68,699
(50,187)
523,541
505,029
68,699
(50,187)
523,541
(661,382)
(757,976)
649,735
(769,623)
(1,529,026)
891,517
(916,817)
(1,554,326)
(1,685,379)
202,240
(317,269)
(1,800,408)

21 Charity status

The charity is a company limited by guarantee and consequently does not have share capital. The member is liable to contribute an amount not exceeding £1 towards the assets of the charity in the event of liquidation..

22 Ultimate controlling party

The charity's ultimate parent undertaking and controlling party is WildHearts Foundation Limited, a registered Scottish charity (SC037072) and a company limited by guarantee (SC290665). Copies of its consolidated financial statements are available from Companies House.

~~MicroLoan Foundation’s companies and advisors~~

MicroLoan Foundation Companies

MicroLoan Foundation USA

237 Bonad Road Chestnut Hill MA 02467

MicroLoan Foundation UK Registered Office 1-2 Paris Garden London SE1 8ND

MicroLoan Foundation Australia 101 John Lund Drive Hope Island Queensland 4212

MicroLoan Foundation Malawi

Group Auditors

Registered Office P.O. Box 2292, Area 6 Lilongwe

Sayer Vincent

Invicta House 108-114 Golden Lane London EC1Y 0TL

MicroLoan Foundation Zambia

Registered Office P.O. Box 310082 Plot 346, 4th Street Chelstone Green Salama Park Lusaka

UK Bankers

Barclays

Barclays Bank Plc Leicester LE87 2BB

MicroLoan Foundation Zimbabwe

Registered Office c/o Scanlen & Holderness, 13th Floor Cabs Centre 74 Jason Moyo Avenue Harare

© Peter Caton

80 MicroLoan Foundation

81

Annual Report and Financial Statements 2020Annual Report and Financial Statements 2019

~~Contact us~~

MicroLoan Foundation UK 1-2 Paris Garden London SE1 8ND

+44 (0)20 8827 1688 contact@mlf.org.uk microloanfoundation.org.uk

Twitter: @MicroLoan Facebook: @microloanfoundation Linkedin: @microloanfoundation Instagram: @microloanfoundation