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The Design of NCFs: focusing on fiduciary standards and monitoring evaluation The Case of Indonesian Biodiversity Founda

The Design of NCFs: focusing on fiduciary standards and monitoring evaluation The Case of Indonesian Biodiversity Foundation (KEHATI). Edison Hulu Director of Finance and Administration (KEHATI). Outline of presentation. Briefly about KEHATI KEHATI: Vision and mission The Role of KEHATI

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The Design of NCFs: focusing on fiduciary standards and monitoring evaluation The Case of Indonesian Biodiversity Founda

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  1. The Design of NCFs:focusing on fiduciary standards and monitoring evaluationThe Case of Indonesian Biodiversity Foundation (KEHATI) Edison Hulu Director of Finance and Administration (KEHATI)

  2. Outline of presentation • Briefly about KEHATI • KEHATI: Vision and mission • The Role of KEHATI • KEHATI: Organization Chart, 2008-2012 • KEHATI: Monitoring & Evaluation • KEHATI: Management Principles • Type of Trust Funds • Lesson Learnt #1: Endowment Fund • Lesson Learnt #2: TFCA as Sinking Fund management • Lesson Learnt #3: Green Fund as revolving Fund • KEHATI Attractiveness

  3. KEHATI: Vision and Mission • 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. • Vision • Conservation 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. • Mission • To 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.

  4. The Role of KEHATI a. A grant making institution • 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. • 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. • Encourages innovative environmental social investment activities for the future. • Gives assistance’s for new program in initiatives. • Gives assistance’s to a community group that has no access to capital and other resources. • Support community initiatives uncovered by government program and budget or other formal institutions • Stimulate community self reliance. b. A facilitator and multi-stakeholder mediator • Connects multi-stakeholder’s support in conservation and sustainable use of biodiversity in Indonesia. • Encourages multi-stakeholders mobilization to ensure self reliance and sustainability of institution or civil community organization. • Support knowledge development and technology as well as wisdom of local community which are relevant to natural resources management and biodiversity conservation. • Influence policies and rules of law which are relevant to natural resources management and biodiversity conservation. • 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. • Catalyzes development of sustainable community based ecosystem management. • Facilitates establishment of biodiversity information centre with active involvement of multi-stakeholder.

  5. Governing Board Supervisory Board Executive Board • Grant making Committee • Investment Committee • Resource Development Committee • SRI-KEHATI Index Committee Internal Control Unit Executive Director Special Programs (MFP II, TFCA Sumatera, TFCA Kalimantan) • Policy/Planning, Monitoring & Evaluation Unit • Executive Secretary Directorate Finance and Administration (Director) Directorate Communication and Resource Development (Director) Agriculture Ecosystem Program (Officer) Forest Ecosystem Program (Officer) Coastal & Small Islands Ecosystem Program (Officer) Resource Development Program (Officer) Communication & Education Program • Communication Officer • Education & Outreach Officer Knowledge Management • KM Officer • Resource Center Coordinator • MIS Administrator Human Resource & General Administration (Manager) Finance & Accounting (Manager) Grant Program Administration (Manager) Grant & Non Grant Program Administration Staff • GA & Office administration Staff • Receptionist • General Assistant • Accountant • Cashier KEHATI: ORGANIZATION CHART,2008–2012 • Directorate Conservation and Sustainable of Biodiversity • (Director) • Assistants: • - Investment Assistant • - Legal Assistant

  6. 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: Drs Johan, Malonda & Partners, A member of Nexia International (1996-2000), Paul Hadiwinata, Hidajat, Arsono & Partners (2001-2009), and MulyaminSensiSuryanto, Moore Stephens (2010-2012)

  7. KEHATI: Management Principles • 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. • 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: Cost Effective Ratio, 2008-2011 Cost effective ratio for NGOs experienced : 25%-30%

  8. Primary Types of Trust Funds • 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: • An endowment fund where the interest, but not the capital is spent; • 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 • A revolving fund which continually receives new revenues from earmarked taxes or fees and continually spends these revenues.

  9. 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: Promoting policies for enhancement of biodiversity in Indonesia. Networking among NGOs, research and educational institutions, government agencies and business community, to exchange information related to the conservation and sustainable use of biodiversity. 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: 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. US$2.5 million for start-up operation, local programs and operating expenses of the foundation in its initial development.

  10. KEHATI Endowment Fund (US$ million), 1995–June 30, 2012 Value of investment • 2005 : Office KEHATI  US$ 500,000,- • 2009 : TFCA  US$1 million • 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. • 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

  11. Lesson Learnt #2: TFCA as a Sinking fund Management

  12. Lesson Learnt #2 (Cont.) Trust Fund model • 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) whichgenerated fund for tropical forest conservation Indonesia in value of US$ 30 million for 8 years (2009-2017). • Beneficiaries : NGOs, Community group, and local people

  13. TFCA Swap Deal USG Swap Partners Treasury SP #1 $19.6 million $2 million SP #2 USAID Trustee Administrator X Debt repayments on treated debt cancelled Oversight Committee New Obligation Grants to Makes decisions on grants USG, GOI, SP GOI (MOF) Local NGOs Other local entities Pos. GOI (exceptional circumstances)

  14. TFCA Management Structure GOI Forest Conservation Agreement CI KEHATI Designee of USG, GOI, CI, KEHATI, Designated Member Institution + Authorized Representative of Administrator as a Secretary of OC Ad Hoc OVERSIGHT COMMITTEE ADVISORY COMMITTEE Acceptance Instrument ADMINISTRATOR Grant to : Grant Recipient Agreement Local NGOs/ CBOs Other Local Entities Grant Recipient (Eligible Entities)

  15. Designation OVERSIGHT COMMITTEE GOI Instruction US$30 million TRUST INSTITUTION ADMINISTRATOR (KEHATI) New Obligation settlement for 10 years Settlor Trustee Custodian Trust Trust Agreement Debt Service Account FCA Grant Account Grant to : Grant Recipient (Eligible Entities) TFCA Fund Management

  16. TFCA: Project Organization Chart & Selecting Proposal from Grantee

  17. 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

  18. TFCA: An example the detail of Operating cost standard

  19. KEL: Linge Isak • First Period (2011-2014) - Accepted 5 proposals. - Total Fund: Rp. 24,2 billion - Intervention area: Leuser ecosystem, Forest BatangToru-TN BatangGadis, KerinciSeblat, Semenanjung Kampar-Senepis KEL: SIngkil HutanBatang Toru-TN BatangGadis Semenanjung Kampar-Senepis TN Kerinci Seblat Partners: YayasanLeuserInternasional, ConsorsiumSahabat (Petra-Bitra), Institut Green Aceh, KKI Warsi, Jikalahari

  20. Second Period (2011-2014) • Accepted 7 proposals • Total funds: Rp. 29.8 billion. Landscape intervention: KerinciSeblat, Bukit Tigapuluh, KEL-RawaTripa, KaroLangkat, Siberut, TessoNilo, and Bukit BarisanSelatan KEL-Blok Karo Langkat KEL-Rawa Tripa BT Toru- TN Bt Gadis TN Tesso Nilo TN Siberut TN Kerinci Seblat Partners: JaringanAkar, Konsorsium WWF-PKHS Riau, YayasanEkosistem Lestari, KonsorsiumYayasan Orangutan Sumatera Lestari - Orangutan Information Centre (OIC), KonsorsiumYayasanKirekat Indonesia, KonsorsiumYayasan TN TessoNilo,KonsorsiumUnila-PILI TN Bukit Barisan Selatan

  21. Lesson Learnt #3: Green Fund as revolving Fund Investment goal is to invite investor to involve and to care about the sustainable development and to protect biodiversity for future generation. Mutual Funds KEHATI LESTARI PT BAHANA Capital Custodian Bank: Mandiri Portfolio: 10%-79% (fixed income), 5%-79% (money market), and 10%-79% (Equity). Minimum investment: Rp 1,000,000 Management cost = 3% Custodian cost = 0.2% Buy (cost) = 0.5%-2% Redemption cost = 0.25%-1% Mutual Funds Mega Sri KEHATI Harmoni PT Mega Capital Indonesia Custodian Bank: CIMB Niaga Portfolio: 10%-79% (fixed income), 5%-79% (money market), and 10%-79% (Equity). Minimum investment: Rp 1,000,000 Management cost = 3% Custodian cost = 0.2% Buy (cost) = 0.5%-2% Redemption cost = 0.25%-1% 50% of management cost for KEHATI

  22. Lesson Learnt #3: (Cont.) Mutual Fund Mega Dana SRI KEHATI Harmoni  (MSKH), Rp billion Mutual Fund KEHATI Lestari (RDKL), Rp billion Harvesting from RDKL  Year 2011 : Rp 1 billion, year 2010 : Rp 2 billion Key Success factor - Trust, return, promotion, and economic condition.

  23. 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.

  24. Thank You Edison Hulu edison.hulu@kehati.or.id; hulu.edison@yahoo.com The Indonesian Biodiversity Foundation YayasanKeanekaragamanHayati Indonesia (KEHATI) Jalan Bangka VIII No 3B, PelaMampang, Jakarta 12720, INDONESIA email: kehati@kehati.or.id; www.kehati.or.id Phone: +62 21 7183185, 7183187 Fax : +62 21 7193161

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