Norfund has a mandate whereby investments made by the company are required to be additional, by providing access to capital and expertise for companies that would not otherwise have received such financing because of the high risk involved. Norfund’s investments are evaluated through an extensive selection process that consists of checking against Norfund’s mandate, thorough evaluations and analysis of legal, financial, commercial and ESG-related aspects. The Investment Committee and/or the Board take the final decision regarding investment.

Efforts are made to diversify portfolio risk by achieving portfolio breadth in terms of countries, industries, business partners, instruments and time of making investments. Norfund exercises active ownership in the largest investments in its portfolio through representation on boards, investment committees or other governance bodies

Norfund is exposed to several different types of risk, including liquidity risk, credit risk, currency risk, interest-rate risk and other market risk, including political risk. The financial risk management has been established to identify and analyse these risks, and to establish appropriate risk limits and risk controls. Norfund regularly reviews the established risk management guidelines and the system that has been established to ensure that changes in markets are reflected in the risk limits.

The Board has adopted Norfund’s zero tolerance policy, which is based on the risk Norfund is willing to take in order to deliver on its mandate. This includes country risk and political risk, and in 2021 developing a system for managing country risk has been a high priority task. Efforts to actively minimise risk are largely about how Norfund chooses its investment partners and how the investment process and other operational processes in the business are carried out. This concerns risk of corruption, for example, and if this is detected an immediate response is triggered. Minimising and managing risk associated with ESG and questions concerning the integrity of our business partners are based on best practice for development finance institutions (DFIs). Norfund’s approach to risk is summarised in a Risk Appetite Statement adopted by the Board and published on Norfund’s website.

Market risk

Market risk is an umbrella term for the risk of losses occurring as a consequence of changes in conditions, exchange rates or prices that influence the earning capacity of the companies in which we have invested. Norfund’s mandate is to invest in developing countries, which means that the macroeconomic conditions and uncertainties are more complex, and the risk is accordingly higher. Future returns depend among other things on the ability to manage and mitigate risk in all phases of an investment.


Norfund’s income is also substantially affected by fluctuations in the fixed income market, as 30 per cent of the investment portfolio is in the form of loans, 57 per cent of which have a floating interest rate, with Libor/SOFR + margin making up the largest proportion.  In addition, Norfund has significant cash holdings and a bond portfolio (see Note 12) which accrue interest. Thus the interest rate level has a substantial direct effect on Norfund’s operating and financial revenue.

Credit risk

Norfund has a significant number of loans, and individual semi-annual reviews are conducted of the borrowers’ financial standing, history and other relevant factors. If default on a loan is considered highly likely, it is written down. A loan is regarded as non-performing when a payment has not been made within 60 days of the due date. In the event of default, our total investment in the borrower is evaluated.

Norfund does not carry any general loss provisions for the loan portfolio, but makes a specific allocation for each loan; see also Note 3.

Liquidity risk

Liquidity risk is the risk of Norfund being unable to fulfil its commitments, which are therefore monitored closely in relation to available liquidity. To ensure strong financial freedom of manoeuvre, Norfund aims to maintain a real and solid liquidity reserve that must at least cover future committed investments plus a minimum amount. Liquidity is strengthened through annual allocations from the Owner and through repayments from the investment portfolio in the form of  interest, repayment of the principal, dividends and exits from companies. Norfund does not use debt instruments in its liquidity management.

The liquidity reserve consists of bank deposits, short-term placements in banks with terms of up to one year, and a bond portfolio. Placements in anything other than Norfund’s relationship banks must be in accordance with the investment mandate laid down by the Board, which regulates amounts and terms.

The Finance Department monitors Norfund’s liquidity and adapts the placement of resources to ensure an appropriate return on the liquidity placements and according to the expected cash flow prior to investment.

Currency risk

Norfund’s operations are strongly exposed  to currency risk, as we receive our allocations in NOK, while investments largely take place in other currencies, USD being by far the largest. In consequence, costs associated with investments will also largely be in currencies other than NOK.

Norfund’s base currency is NOK, which means that its future returns and gains/losses for accounting purposes are strongly influenced by the exchange rate between NOK and other currencies. Investments are subject to a greater or lesser extent to fluctuations in the exchange rate between USD and the local currency in the individual country, which in turn may affect the results and values of these companies in Norfund’s balance sheet.

Three-month forward contracts are used to hedge the portion of the bond portfolio denominated in EUR and GBP against USD; see Note 12.

Norfund’s liquid assets are mainly placed in NOK-denominated, interest-bearing accounts in Norges Bank, while its USD-denominated liquid assets are mainly placed in DNB and short-term investments.

FX rates used in conversion
31.12.202231.12.2021Change during the year
US dollarUSD9.8578.81911.8%
South African randZAR0.5810.5535.0%
Indian rupeeINR0.1190.1180.9%
Kenyan shillingKES0.0790.0772.4%
Ugandan shillingUGS0.0030.0026.4%
Mozambican meticalMZN0.1530.13712.1%
Bangladeshi takaBDT0.0960.101-5.2%
Ghana shillingGHS0.9631.424-32.4%
Tanzania shillingTZS0.0040.00410.0%

Operational risk

Operational risk is the risk of financial losses occurring as a consequence of errors in internal processes and systems, human error or as a consequence of external events such as criminality or natural disasters.. Management of operational risk has become increasingly important in Norfund in recent years, as the company is growing significantly and becoming a more complex organisation.

The identification, management and control of operational risk is a management task, and is coordinated through Norfund’s Enterprise Risk Management System. The management’s most important aid is semi-annual reviews of the risk picture and action plans, and systematic work to maintain these. There is also continuous work on awareness-raising and knowledge-building in the organisation. If weaknesses are detected, they are reported to the organisation’s management team.

Norfund places emphasis on authorisation hierarchies, clear descriptions of procedures and well defined areas of authority as elements of our framework for managing operational risk.

Norfund’s risk exposure and management thereof are followed up by the company’s external internal auditor, and reports are submitted regularly to the Board and the Risk and Audit Committee.