The Design of NCFs:focusing on fiduciary standards and monitoring evaluation

The Case of Indonesian Biodiversity Foundation (KEHATI)

•

Edison HuluDirector of Finance and Administration (KEHATI)

2

Outline of presentation

1. Briefly about KEHATI• KEHATI: Vision and mission• The Role of KEHATI• KEHATI: Organization Chart, 2008-2012• KEHATI: Monitoring & Evaluation• KEHATI: Management Principles

2. Type of Trust Funds3. Lesson Learnt #1: Endowment Fund4. Lesson Learnt #2: TFCA as Sinking Fund

management5. Lesson Learnt #3: Green Fund as revolving

Fund6. KEHATI Attractiveness

KEHATI was established in Jakarta on 12 January 1994 as non profit grant making foundation, which support conservation and sustainable use of biodiversity. KEHATI provides resources and facilities the partner organizations: Civil Society Organizations, NGOs, community group, research group, and educational institutions.

VisionConservation and sustainable use of biodiversity that respect fair and equitable benefit sharing and encourage human empowerment to achieve human well being as well as the highest quality of life.

MissionTo achieve biodiversity conservation by means of building strategic alliance to secure community development to promote endeavors of public policy advocacy, mobilize resource support, encourage shared learning, and enhancement participation of society.

KEHATI: Vision and Mission

a. A grant making institution

1. Provides facilities and giving support in term of funding for its grantee and other stakeholders to facilitate development of conservation activities and increase community welfare through sustainable and fair use biodiversity.

2. Support effort of strategic, complex, multi-dimensional and long term problem solving, instead of giving assistance’s to fulfill needs or recovery for a short time.

3. Encourages innovative environmental social investment activities for the future.

4. Gives assistance’s for new program in initiatives.

5. Gives assistance’s to a community group that has no access to capital and other resources.

6. Support community initiatives uncovered by government program and budget or other formal institutions

7. Stimulate community self reliance.

b. A facilitator and multi-stakeholder mediator

8. Connects multi-stakeholder’s support in conservation and sustainable use of biodiversity in Indonesia.

9. Encourages multi-stakeholders mobilization to ensure self reliance and sustainability of institution or civil community organization.

10. Support knowledge development and technology as well as wisdom of local community which are relevant to natural resources management and biodiversity conservation.

11. Influence policies and rules of law which are relevant to natural resources management and biodiversity conservation.

12. Encourages biodiversity as one factor or main aspect to be considered as in taking decision which relevant which politic, socio-cultural, and economic, for community development.

13. Catalyzes development of sustainable community based ecosystem management.

14. Facilitates establishment of biodiversity information centre with active involvement of multi-stakeholder.

The Role of KEHATI

Special Programs(MFP II, TFCA Sumatera,

TFCA Kalimantan)

Governing Board

Executive Board

Executive Director•Policy/Planning, Monitoring & Evaluation Unit •Executive Secretary

•Grant making Committee•Investment Committee•Resource Development Committee•SRI-KEHATI Index Committee

Directorate Communication and Resource Development

(Director)

Directorate Finance and Administration

(Director)

Forest Ecosystem Program(Officer)

Human Resource & General

Administration(Manager)

Communication & Education

Program•Communication Officer •Education & Outreach Officer

Finance & Accounting(Manager)

Grant Program Administration

(Manager)

Supervisory Board

•GA & Office administration Staff•Receptionist•General Assistant

•Accountant•Cashier

Grant & Non Grant Program Administration Staff

Coastal & Small Islands

Ecosystem Program(Officer)

Agriculture Ecosystem Program(Officer)

Resource Development

Program(Officer)

Knowledge Management

•KM Officer •Resource Center Coordinator •MIS Administrator

Internal Control Unit

Assistants:- Investment Assistant- Legal Assistant

Directorate Conservation and Sustainable of Biodiversity

(Director)

KEHATI: ORGANIZATION CHART, 2008–2012

KEHATI: Monitoring & Evaluation Tools of controls and problem solvers

General board and main boards Committee Management (Directors & Managers) Internal auditors, external auditors, donors Stakeholders (NGO’s , Government, Grantee)

Tools of monitoring & evaluation Legal documents KEHATI as a foundation Independent external evaluator report Document five years strategic plan Document of yearly planning and budgeting Financial audited report by registered public

accountant that recognized by USAID. Annual report on realization of programs &

budgeting Monthly management report Occasional or special case report Memorandums and Agreements Meeting notes, memos Standard operational manuals Quality of services (ISO 1998), Financial and accounting manual Others documents

Expressed “Unqualified opinion” on those financial statements of KEHATI by Certified Public Accountants as follows:

1. Drs Johan, Malonda & Partners, A member of Nexia International (1996-2000),

2. Paul Hadiwinata, Hidajat, Arsono & Partners (2001-2009), and

3. Mulyamin Sensi Suryanto, Moore Stephens (2010-2012)

1. Transparent management of funds and programs. There is a transparent policies, clear procedures for disbursement of grants, which is also open to the public, by means of criteria, and selection procedures for partners and programs, selected by an independent team of proposal assessors as well as regular reports for the public.

2. Principle accountability for the public. Funds that have been receive and spent by the institution are clearly reported in detail not only to the donor, but also to the public. This is undertaken through the implementation of the effective of resource uses, the principle of careful monetary management, also followed by the ability to maintain a schedule and targets; for program implementation, location as well as communities who receive funds.

KEHATI: Management Principles

Indicators 2008 2009 2010 2011

General Administration Cost (Rp) 3,497,776,135 3,465,360,348 3,352,731,029 6,506,789,410 Total Expenditure (Rp) 22,286,264,029 21,569,140,273 23,474,428,464 50,890,932,568 Cost Effective Ratio 15.69% 16.07% 14.28% 12.79%

Kehati: Cost Effective Ratio, 2008-2011

Cost effective ratio for NGOs experienced : 25%-30%

Conservation trust funds provide an investment avenue that can be used to finance conservation program costs over many years. Trust funds also establish the administrative and management mechanisms that help involve local people and enable non-governmental organizations to work together with government agencies to carry out conservation activities.

Depending on the legal system of the country, trust funds can be established as foundations, nonprofit corporations, common-law trusts, or special institutions. Trust funds can be financed by debt swaps, through grants or donations, or through other financing mechanisms such as earmarked taxes and fees.

There are three primary types of trusts funds:

1. An endowment fund where the interest, but not the capital is spent; 2. A sinking fund where the income and part of the capital is spent every year, eventually

sinking the fund to zero over a pre-determined time; and 3. A revolving fund which continually receives new revenues from earmarked taxes or

fees and continually spends these revenues.

Primary Types of Trust Funds

Lesson Learnt #1: Endowment Fund Management

KEHATI, in its cooperation with the USAID under Cooperative Agreement no. 497-0384-A-00-5011-00, titled “Indonesian Biodiversity Foundation (IBF) Project” between USAID and KEHATI signed on April 1995. Three strategic objectives of KEHATI which will supported under this Cooperative Agreement:

1) Promoting policies for enhancement of biodiversity in Indonesia.2) Networking among NGOs, research and educational institutions, government agencies

and business community, to exchange information related to the conservation and sustainable use of biodiversity.

3) Fostering and improving the capacities of society to conserve and use biodiversity in a fair, equitable and sustainable manner.

To support the above objectives, USAID have agreed to provide a fund for KEHATI in the total of US$ 19 million, which will be made available for:a. US$ 16.5 million for the capitalization of an endowment fund with approved asset

managers. This endowment fund is for investment purposes, of which the income generated from invested endowment shall be used to support KEHATI’s programs and operations.

b. US$2.5 million for start-up operation, local programs and operating expenses of the foundation in its initial development.

KEHATI Endowment Fund (US$ million), 1995–June 30, 2012

Market value & return of Assets ● Original value at inception (1995) : $ 16,500,000 (a)● Market value (neto, June 2012) : $ 16,214,491.76 (b) ● Total withdrawals (1997- June 2012) : $ 17,445,824 (c)● Gross value of Endowment Fund : $ 32,137,443 d=(b+c)● Total returns generated : $ $15,637,443 (d-a)● Annualized returns on investment : 6.12% p.a.

•2005 : Office KEHATI US$ 500,000,- •2009 : TFCA US$1 million

0.6 0.

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95

1996

1997

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Withdrawl Nilai Investasi

• Dow Jones (1996-2012) 8.4% p.a. • S&P 500 (1996-2012) 8% p.a.• JCI (1997-2012) 30% p.a.• Hang Seng (1996-2012) 5% p.a

Value of investment

Lesson Learnt #2: TFCA as a Sinking fund Management

Fund name : Tropical Forest Action for Sumatra (TFCA-1) Country: GOI (Government of Indonesia) and USG (United

States of America Government) Objective: to facilitate the conservation, protection,

restoration, and sustainable use of tropical forests in Indonesia.

Governing body: Ministry of Forestry (Indonesia) Legal status: U.S. Tropical Forest Conservation Act of

1998, Public Law No. 105-214 Capital: US$ 2 million (swap partner capital) which generated

fund for tropical forest conservation Indonesia in value of US$ 30 million for 8 years (2009-2017).

Beneficiaries : NGOs, Community group, and local people

Lesson Learnt #2 (Cont.)Trust Fund model

Treasury

USAID

$19.6 million

USG

GOI

(MOF)

$2 million

Swap Partners

SP #1

SP #2

Trustee Administrator

Oversight Committee

USG, GOI, SP

Local NGOs

Other local

entities

Pos. GOI(exceptional

circumstances)

New

Obl

igati

on

Makes decisions on grants

X

Debt

repa

ymen

ts

on tr

eate

d de

bt

canc

elle

d

Gran

ts to

TFCA Swap Deal

TFCA Management Structure

GOI

CI KEHATI

Forest ConservationAgreement

OVERSIGHT COMMITTEE

Other Local

Entities

Local NGOs/CBOs

ADVISORY COMMITTEE

Ad Hoc

Grant to :

Grant Recipient Agreement

Grant Recipient (Eligible Entities)

Designee of USG, GOI, CI, KEHATI, Designated Member Institution + Authorized Representative of Administrator as a Secretary of OCAcceptance Instrument

ADMINISTRATOR

TFCA Fund Management

GOIOVERSIGHT COMMITTEE

ADMINISTRATOR(KEHATI)

TRUSTINSTITUTION

TrusteeCustodian

Trust

Designation

Trust Agreement

Instruction

Debt Service Account

New Obligation settlement for 10 years

FCA Grant Account

Grant to :Grant Recipient (Eligible Entities)

US$30 million

Settlor

Oversight Committee (OC)

Executive Director (KEHATI)

TFCA Program Director

Conservation

Specialist

Communication &

Outreach Officer

Finance Officer

Assistant to Program

Director /Grant Manager

M1 • Request for Proposal

M2 • Evaluation proposal• OC (yes,no)

M3 • Proposal Technical Assistant• Proposal revision

M4 • Proposal evaluation• OC decision (yes or no)

M5 • Final Proposal

M6• OC grant budget• Grant Agreement• Grant Disbursement

TFCA: Project Organization Chart & Selecting Proposal from Grantee

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Lesson Learnt #2 (Cont.)The main project manual

Project Management manual Organization Grant making policies Grant making procedure

Debt swap management manual General principles and governance Investment policy Risk Management

Finance and accounting policies Budgeting manual Management expense account manual Payment manual Auditing manual

Human resources, fixed asset management manual

Operating cost manual Reporting and proposal manual

A. Maximum cost of meeting standard rateMeeting cost Rupiah Explanation

1. Consumption 250,000 man/day

2. Meeting room a. Nasional 2,000,000 per/day b. Province level 1,500,000 per/day c. District level 1,000,000 per/day

3. Hotel (accomodation) 750,000 room /day

B. Maximum cost of seminar standard rateSeminar cost Rupiah Explanation1. Speaker & paper 1,500,000 per section

2. Moderator 750,000 per section

3. Notulist 500,000 per/day

4. Transcripter 250,000 per/day

5. local transport 100,000 man/day

6. Opportunity cost 150,000 man/day

C. Maximum Training cost standard rateTraining cost Rupiah Explanation1. National Trainner 2,000,000 per section

2. Local trainner 750,000 per section

3. Notulist 500,000 per/day

4. Transcripter 250,000 per/day

5. local transport 100,000 man/day

6. Opportunity cost 150,000 man/day

D. Maximum Reporting cost standard rateReporting cost Rupiah Explanation1. Designer 4,000,000 per project2. Lay-outer 4,000,000 per report3. Writer 5,000,000 per report4. Editor 3,500,000 per report

5. Photographer 250,000 per page

6. Writing introduction 2,500,000 per report

E. Maximum honorarium standard rateExpert level Rupiah Explanation1. Local senior 2,000,000 per day2. Local midle level 1,000,000 per day

3. Local yunior 750,000 per day

4. Foreign senior USD 750 per day5. Foreign midle level USD 500 per day6. Foreign junior USD 300 per day

F. Transportation cost standard rateTransportation cost Explanation1. Air transportation Pay at cost 2. Airport tax Pay at cost 3. Maximum rent car Rp 1,000,000 per day 4. Domestic per diem Rp 300,000 per day 5. Abroad per diem USAID role 6. Insurance Pay at cost

TFCA: An example the detail of Operating cost standard

KEL: Linge Isak

Hutan Batang Toru-TN Batang Gadis

TN Kerinci Seblat

Semenanjung Kampar-Senepis

KEL: SIngkil

• First Period (2011-2014) - Accepted 5 proposals. - Total Fund: Rp. 24,2 billion - Intervention area: Leuser

ecosystem, Forest Batang Toru-TN Batang Gadis, Kerinci Seblat, Semenanjung Kampar-Senepis

Partners: Yayasan Leuser Internasional, Consorsium Sahabat (Petra-Bitra), Institut Green Aceh, KKI Warsi, Jikalahari

BT Toru- TN Bt Gadis

TN Siberut

TN Kerinci Seblat

TN Tesso Nilo

TN Bukit Barisan Selatan

KEL-Blok Karo Langkat

KEL-Rawa Tripa

Partners: Jaringan Akar, Konsorsium WWF-PKHS Riau, Yayasan Ekosistem Lestari, Konsorsium Yayasan Orangutan Sumatera Lestari - Orangutan Information Centre (OIC), Konsorsium Yayasan Kirekat Indonesia, Konsorsium Yayasan TN Tesso Nilo, Konsorsium Unila-PILI

• Second Period (2011-2014)

- Accepted 7 proposals- Total funds: Rp. 29.8 billion.Landscape intervention: Kerinci Seblat, Bukit Tigapuluh, KEL-Rawa Tripa, Karo Langkat, Siberut, Tesso Nilo, and Bukit Barisan Selatan

Mutual Funds Mega Sri KEHATI HarmoniPT Mega Capital Indonesia

Custodian Bank: CIMB NiagaPortfolio: 10%-79% (fixed income), 5%-79% (money market), and 10%-79% (Equity).Minimum investment: Rp 1,000,000Management cost = 3%Custodian cost = 0.2%Buy (cost) = 0.5%-2%Redemption cost = 0.25%-1%

Platinum Investor

•Investment and returns on investment for KEHATI

Gold Investor

•Investment for investor•Returns on investment for KEHATI

Silver Investor

•Investment for investor•Return on investment for investor (50%) and for KEHATI (50%)

Regular Investor

•Investment and return on investment for investor

50% of management cost for KEHATI

Mutual Funds KEHATI LESTARIPT BAHANA Capital

Custodian Bank: MandiriPortfolio: 10%-79% (fixed income), 5%-79% (money market), and 10%-79% (Equity).Minimum investment: Rp 1,000,000Management cost = 3%Custodian cost = 0.2%Buy (cost) = 0.5%-2%Redemption cost = 0.25%-1%

Lesson Learnt #3: Green Fund as revolving FundInvestment goal is to invite investor to involve and to care about the sustainable development and to protect biodiversity for future generation.

Alocation Asset Feb-10 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12

Equity 5.39 5.66 5.51 6.00 6.27 2.37 2.74 1.90 2.36 3.82 3.69 3.73 3.30 3.17 3.21 3.23

Fixed Income 0.76 0.80 0.78 0.85 0.89 1.21 1.43 1.55 1.18 1.44 1.55 1.63 1.68 1.62 1.64 1.65

Money Market & Equivalents 0.75 0.79 0.77 0.84 0.87 4.34 3.76 3.99 4.20 2.58 2.75 2.73 3.04 2.92 2.96 2.98

Total 6.90 7.25 7.06 7.69 8.03 7.93 7.93 7.43 7.74 7.84 7.99 8.10 8.01 7.72 7.80 7.86 Total NAV 35.37 37.76 45.03 29.76 25.95 21.94 25.84 22.33 18.88 15.58 14.75 14.14 13.20 12.11 12.02 10.99 Investment KEHATI 19.5% 19.2% 15.7% 25.8% 30.9% 36.1% 30.7% 33.3% 41.0% 50.3% 54.1% 57.3% 60.7% 63.7% 64.9% 71.5%

Mutual Fund Mega Dana SRI KEHATI Harmoni  (MSKH), Rp billion

Alocation Asset Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12Equity 0.38 0.36 0.43 0.01 0.00 - - 0.01 0.01 0.01 0.01 0.01 Fixed Income 3.42 3.30 3.88 0.16 0.36 0.38 0.34 0.33 0.34 0.33 0.34 0.35

Money Market & Equivalents 0.16 0.15 0.28 0.01 0.04 0.04 0.07 0.06 0.05 0.05 0.05 0.05

Total 3.96 3.81 4.59 0.18 0.40 0.42 0.41 0.40 0.41 0.40 0.40 0.42 Total NAV 11. % 11.7% 16.1% 0.7% 1.6% 1.6% 1.2% 1.2% 1.2% 1.2% 1.3% 1.3%Investment KEHATI 11.8% 11.7% 16.1% 0.7% 1.6% 1.6% 1.2% 1.2% 1.2% 1.2% 1.3% 1.3%

Mutual Fund KEHATI Lestari (RDKL), Rp billion

Harvesting from RDKL Year 2011 : Rp 1 billion, year 2010 : Rp 2 billion RDKL 1 Year 3 Year 4 YearReturn 10.30% 36.15% 58.21%

Key Success factor - Trust, return, promotion, and economic condition.

Lesson Learnt #3: (Cont.)

KEHATI Attractives• KEHATI is the best endowment fund management under USAID Ten

years evaluation (1995-2005)• KEHATI is the best performance of sinking fund and program

management under TFCA project over the world International External Evaluator.

• KEHATI is the first NGOs in Indonesia who developed the innovation of revolving fund for sustainable development.

Key key success factor: Consistent with KEHATI principles management: transparent and

accountability. Risk management . The ability to provide its own initial investments in

the communities and programs reduces the risks for partners wanting to engage in the same activities.

Stakeholder Management. Relations, networking, and connections to various publics allows it to serve as a convener and bridge to different sectors

Information and Know how . Has access to technical and expert advice which can be used by companies for decision making and practices

Reputation. Reputation and credibility as an environmental organization could provide partners with significant advantage.

Thank YouEdison Hulu

edison.hulu@kehati.or.id; hulu.edison@yahoo.com

The Indonesian Biodiversity Foundation Yayasan Keanekaragaman Hayati Indonesia (KEHATI)

Jalan Bangka VIII No 3B, Pela Mampang, Jakarta 12720, INDONESIA email: kehati@kehati.or.id; www.kehati.or.id

Phone: +62 21 7183185, 7183187 Fax : +62 21 7193161