A Member of PhillipCapital Group. Standard Building of KREDIT Microfinance Institution Plc.

Transcription

1 A Member of PhillipCapital Group Standard Building of KREDIT Microfinance Institution Plc.

2 HIGH INTEREST RATE UP TO Pages Contents 4 Vision, Mission, and Core Values 5 Performance Highlights 7 Operating Provinces 8 Business Environment Review 9 KREDIT's Overview 10 Message from Chairman 11 Message from CEO 12 Organization Chart 13 Shareholders 14 Board of Director's Profiles 17 Committees at Board Level 20 Executive Committee 23 Staff Capacity Development 26 New Core Banking System 27 Our Products and Services 32 Operational Performance 36 Social Performance Management and KREDIT 39 Our Lenders, Partners, and Network 41 Listen to Our Staff, Partners, and Clients Talking about KREDIT 43 Awards Received Within External Audit Report 61 Contact Us

3 Vison, Mission and Core Value Performance Highlights Vision INDICATORS YEARS Operational Performance Number of branches To contribute to the social and economic development of communities by enabling the economically active poor to improve their lives. Number of sub branches/units Number of districts covered Number of communes covered Mission Number of villages covered 4,216 4,631 5,402 Loan outstanding (in mil USD) Active borrowing accounts 56,519 60,905 73,115 To be a reliable and well known financial institution that provides diverse and innovative financial solutions to communities, serving and protecting our clients while maintaining organizational sustainability with a commitment to the poor. PAR % 0.26% 0.28% Active saving accounts 1,254 3,358 9,023 Values of deposit collected (in mil USD) Total staff ,014 Financial Performance Total assets (in mil USD) Core Values Total equity (in mil USD) Return on equity (includes grant) 21.04% 16.37% 18.65% Return on equity (excludes grant) 17.80% 13.91% 16.90% Commitment: Working hard to achieve service excellence Integrity: Doing what is right Team work: Working together to achieve one goal Responsibility: Being accountable for our actions Dignity: Showing mutual respect for all Transparency: Working clearly and ethically Communication: Relating in an open and friendly way to all Christian faith: Acting in accordance with Christ s love Return on assets (includes grant) 4.12% 3.03% 3.44% Return on assets (excludes grant) 3.5% 2.58% 3.12% Net profit after tax (in mil USD) Operational self-sufficiency 123% 118% 123% Social Performance Borrowers from rural areas 71.32% 93% 91% Average loan size compared to GDP per capita 86.80% 94.6% (or USD894) 98% Women borrowers 91.93% 91.96% 90.42% Unsecured borrowers (without collaterals) 22.99% 29.61% 32% Voluntary savers with value below and equal GDP per capital 71.18% 55.84% 83% Women savers 47.53% 74.44% 58% Client s retention rate 88.09% 86% 89% With the direction from the board, KREDIT has put more focus on poor clients by making increases on their percentage from one year to another: 22.99%, 29.61%, and 32% for 2011, 2012, and 2013 respectively. This market share is big and they are a group who really need micro financial services. 4 5

4 Performance Highlights (Continued) Operating Provinces SOCIAL PERFORMANCE TOOLS AND MECHANISMS Poverty Targeting and Monitoring Social performance reporting Customer Care and Product Enhancement Transparent pricing Client satisfaction survey Client feedback system Market research for product development Non-Financial Services Social responsibility activities Financial literacy program Others Personnel Policies Employees satisfaction survey Other policies Bi-Annually produce and share with BoD, shareholders, lenders, and others through different channels. Prices, terms and conditions of all financial products are fully disclosed to the customer, including interest charges, insurance premiums, minimum balances, all fees, penalties, linked products, 3rd party fees, and whether those can change over time. Staff are well trained to inform and explain these to clients. Multiple channels for disclosing clear and accurate information: brochures, orientation sessions, meetings, posting information in the branch, websites, etc. Loan contracts (1) show an amortization schedule that separates principal, interest, fees; (2) define the amount, number and due dates of installment payments; and (3) include fees and conditions for early repayment, late payments and default. Debt collection practices are revealed to the borrowers prior to the time of sale. Conduct yearly or every 2 years. Staff are assigned to receive complaints via telephone and resolve issues that are being raised by clients. Client satisfaction, clients exit, competitor matrix survey regularly conducted to provide better products and more convenient services for the clients. - 4,533 clients received special agriculture training. - 8,751 clients received child education training along with 6,766 of educational reading books given. - About 4,000 units of helmet produced and given to saving clients and staff. Daily radio program on safe traffic program is continued with National Radio. Become the single Cambodia MFI. - 5% of the yearly net income is set aside to the community development programs. - Outstanding loans from VSU Clients are written off when the borrower passes away; and KREDIT also gives grants to the family to assist in funeral arrangements. 20,404 clients received finance related training from KREDIT which includes saving, budgeting, and household income and expense management. - Endorsement with Smart Campaign and selected by Cambodia Microfinance Association (CMA) and Agency French Development (AFD) to enhance client protection principles (CPP). - Received 2 Awards from Kiva: Facilitation of Savings and Client Voice - Have just become a member of Banking With The Poor (BWTP). - Got Most Innovative Non - Profit / Social Enterprise Awards from Singapore Venture Capital and Private Equity Association (SVCA) 21st Anniversary Gala & Awards Dinner for the year Conducted & updated yearly. - Good HR policy in place and yearly updated based on industry study making sure that our benefits are competitive at the market. - Staff turn- over rate for the last 6 months 7.18%. Whistle blowing policy and environmental and social policy. Pailin Thailand Banteay Meanchey Oddor Meanchey Battambang Koh Kong Siem Reap Tonle Sap Pursat Sihanouk Ville Kampong Chhnang Kampong Speu Kampot Kep Preah Vihear Kampong Thom Phnom Penh Kandal Takeo Kampong Cham Prey Veng Steung Treng Kratie Svay Rieng Laos Ratanakiri Modolkiri Vietnam Operating Provinces Potential Provinces 6 7

5 Business Environment Review KREDIT's Overview In 2013, Cambodia's economy achieved commendable result with a GDP growth of 7% as forecast by the IMF and the World Bank and 7.2% by ADB even some political issues has yet been solved since the national election in July However, the ruling and opposition parties have continued talking for solutions. Despite forecasting strong growth for Cambodia this year and 7.2% for 2014, IMF also warned of risks posed to the country's economy by the anticipated winding down of the US Federal Reserve's quantitative easing. The total GDP of the country about USD bil or USD1, 036 per capita. The inflation rate in Cambodia was recorded at 4.18 percent in October of 2013 by the National Institute of Statistics of Cambodia. Cambodia's trade reached a total of USD15.9 billion in 2013, equaling an 18% rise from Exports were valued at USD6.9 billion, up from USD5.5 billion, with garment and textiles accounting for more than 80% of the whole. Meanwhile, Cambodian spending on imports such as petrol, vehicles and construction materials topped exports, increasing from USD7.9 billion in 2012 to USD9 billion in The Cambodian Ministry of Commerce had granted operating licenses to 2,223 new companies in the first nine months of 2013, downed 14.6% compared with 2,606 new firms over the same period last year. The Ministry had registered 1,118 foreigner-owned firms, downed 9% year-on-year, and 1,105 local Cambodianowned companies, downed 20%. In 2013, numbers of visitor's arrival to the country was recorded increased 17% from the last year or 4.2 mil. The estimation of construction investment was USD1.52 bill or 50.20% up from the last year. Cambodia approved domestic and foreign investment projects worth USD4.9 bill in 2013, up 69% from USD2.9 bill. Cambodia exported rice with a total amount of 378,856 tons which was 84% increased and 2013 was the second year in a raw that Cambodian rice got "the world best rice award" and become attractive by foreign countries; however, the chair of Cambodian rice export association raised that there are still challenges for 1- million ton goal in 2015 such as transportation, rice seed, and loan from the bank. The value of Cambodia's garment and footwear exports topped USD5.07 billion in the first 11 months of 2013, an increase of 22% over the same period last year, four subcommittees formed to begin establishing a new minimum wage rate for garment workers that will go into effect next year. The Cambodia's manufacturers has also started shifted to higher-value clothing by moving away from producing the most basic clothing items and diversifying to manufacture more intricate products for international buyers. The total weight of cargo transported through Sihanouk Ville Autonomous Port in the first 10 months of the year increased 16% compared to the same period last year. About 2.48 million tons of goods passed through the port to the end of October compared with 2.15 million tons during the same period in 2012, was due largely to an increase in rice exports and construction material imports. Banks and MFIs Performance Cambodian bank and microfinance market has continued its growth with more increase in their performance and covering more geographic areas of Cambodia allowing our people to experience with many more different financial services and technologies. According to the report of the National Bank of Cambodia (NBC), lending at the kingdom's 34 commercial banks rose from USD5.88 billion in 2012 to USD7.4 billion, receiving deposits totaling USD7.74 billion, up 14% from USD6.8 billion a year earlier. Last year, the banks lent USD712 million to agriculture, up 29% from USD552 million a year earlier. The pool of outstanding loans held by Cambodia's microfinance institutions (MFIs) grew to more than USD1.325 billion in 2013, marking a 49% industry-wide increase from 2012, when the figure stood at USD890 million. Consumer deposits grew more than 59% to reach USD million last year, up from USD280 million in Non-performing loans accounting for less than 1%. Even though most banks are only available in the cities and provincial towns but a few MFIs have now operated nationwide with many more physical offices. Commercial banks have likely gone down market to smaller while a few MFIs have started to go upmarket their products to serve higher level market. More than that some local banks are eyeing on expanding oversea. Transfer service, ATM, mobile banking, E- banking have been introduced and used by our people. Some foreign parties have also entered into the market with partial or complete acquisitions of local banks. KREDIT, since its humble beginning in 1993, has grown to be one of the largest microfinance institutions in Cambodia. With more than 23 years of experiences, KREDIT still focuses on its vision and mission to help poor unbanked families ready access to financial help to improve their lives. This includes free non- financial service such as cash flow and money management and starting micro business know-how training under our integrated approach with many different development organizations and partners. As of Dec 2013, with a total asset of more than USD87.65 millions, KREDIT has provided loans to more than 70,000 families, collected savings from 7,800 depositors in 16 out of 25 provinces and cities of Cambodia. Our shareholders are Phillip Capital Singapore and World Relief USA. KREDIT with its dynamic and pragmatic board and management teams and committed employees have achieved triple- bottom lines embracing sustainability and enabling its clients to achieve socio-economic development by following and practicing Christian beliefs to maximize the impact Cake-cutting ceremony during KREDIT s 20 year anniversary. on the clients lives. KREDIT has continued expansion of Vulnerable Service Unit (VSU) by working through integrated approach with development partners to provide our clients other complimentary services, some services provided directly by KREDIT s staff while some by our partners based on topics and their specializations. You will find our complimentary services in below point talking about KREDIT s social report. The complimentary services is provided not only to our clients but to non- clients, local authorities, and staff of our partners. Under the partnership approach, KREDIT has innovative products and services that allow our rural clients to have better access to basic necessities for daily uses such as loan for latrine, loan for water filter, and loan for education, etc. Having seen the commitment and real programs and activities done, KREDIT got very high appreciation from clients, local authorities, national and international partners, lenders, and also won recognition awards from different partners. 8 9

6 Message from Chairman Message from CEO Mr. TIMOTHY MARK AMSTUTZ Mr. CHAN MACH Chairman CEO I bring you warm greetings and best wishes for success on behalf of the Board of Directors and Shareholders of KREDIT Microfinance Institution Plc. On behalf of the Board of Directors of KREDIT MFI, it is my honor to once again greet you and present to you this 2013 Annual Report of KREDIT s performance during the past year. In this past year we have observed significant shifts in momentum and responses in Cambodia s political landscape. We have seen the hopes and aspirations of the Cambodian people rise as they seek new ways of responding to entrenched societal problems. We have seen changes in the response of government both positive and negative as they recognize the impact of these political shifts. All of these political developments remind us that politics cannot be separated from the economic, social, and physical needs and aspirations of the Cambodian people. They desire and deserve justice in all aspects of life. Cambodia will prosper as a nation and as a people only insofar as there is justice and fair treatment for all. KREDIT is committed to these same principles of justice and fair treatment, as well as compassion, empowerment, and sustainability of Cambodian families and communities. It is these values that drive our goals and priorities as a microfinance institution. As a result, the Board of Directors of KREDIT has given particular attention during this past year not only to the economic empowerment of our clients, but also to their social welfare and community empowerment. Just as the current political environment reminds us of the interdependence of all aspects of life, KREDIT recognizes that the economic progress of families must be rooted in a commitment to justice and empowerment in the social and physical needs of the families and communities that it serves. These values and priorities are the focus of the Social Performance Committee of the Board of Directors of KREDIT. We are fully committed to the financial and social protection of our clients, and are further strengthening our standards for client protection. We have established a Community Development Fund within KREDIT to complement our financial services and help meet the social, health, educational, and developmental challenges in the communities we serve. We have funded several village infrastructure improvement projects such as digging wells and renovation of a canal to provide a sustainable source of water to rice paddies. We have provided enhanced financial literacy training to 87% of our most economically vulnerable clients so that they equipped to succeed as small scale entrepreneurs. We are working in partnership with Handicap International to provide specialized outreach and services to clients with disabilities. Fulfilling KREDIT s social mandate requires a strong financial foundation. The Board of Directors is therefore proud to present to you the results of KREDIT s financial and economic empowerment performance in this Annual Report. We continue to see steady year on year growth in KREDIT s portfolio of loans outstanding, registering a growth in portfolio of nearly 39% in 2013, to more than USD 74 million. KREDIT s Operating Self Sufficiency was 123% in 2013, providing needed funds to expand its reach to new areas of service. Please join me in congratulating the CEO, Senior Management, and all the staff of KREDIT who have worked tirelessly in 2013 to achieve KREDIT s mission and strengthen the economic and social framework of Cambodian society. With best wishes for continued success and fulfillment of the hopes of the Cambodian people, Despite some political issues after national election in 2013, the businesses in all sectors have made good growths. Farmers and micro-business people still need more capital for expansion of their businesses allowing KREDIT to grow and serve many more clients in broader coverage areas. So today I would like to bring all stakeholders and readers to pay attention and recognize our achievements for the year as below: In the year, our loan outstanding grew for 39% from 53.49million to $74.20 million, the borrowers growth about 20% and saving collection also increased by 81% from $8.95million to $16.21million. The existing lenders and new lenders have continued supporting us with their loans; more than that, our shareholders strongly supported by making more capital injection to support our growth and investments. With this great support, guidance from BoD, and commitment from all levels of staff and management, KREDIT made a good net profit after tax up 52.36% (amounting $2.62 million) compared to 2012 which was only $1.72 million. To enhance our core banking capacity and to better serve the clients, KREDIT decided to equip with the World top core banking system Oracle Flexcube. The project has started since August 2013, and with support from implementation team from BFSI, India and the commitment from management and staff at all levels, we have moved as timeline and sound manageable, did go lives for 3 sub branches and HQ and plan to go live fully by end of Regarding risk management, after being established in 2012 and with support from the board risk advisor and some of our partners, we have enhanced this function starting from the development of policy, procedure, risk threshold and report regularly to the board risk committee. As an MFI originally moved from an NGO lending project, we have never forgotten our social vision and mission. Our finance and non-financial services have been continuously studied, adjusted or developed to fit to the need of our target clients. Social Performance Management Committee at the BoD level was also successfully established with clear charter and run smoothly. Environmental and social policy already approved by the BoD. Training on social performance management and client protection principle have been also trained to some of our staff and will be continued for the following years. Partnership with development NGOs have been strengthened and expanded to provide more complimentary services to the clients. More than that, with 5% to 10% of our yearly net profit after tax from the shareholders, in year 2013, KREDIT has supported a lot of projects such as digging well for villagers, channel renovation, and building villagebased kindergarten, etc. With the achievements, I would like to express my sincere appreciation and thanks to our shareholders, board of directors, regulators, creditors, management and staff; especially clients and other business partner that always support us. On behalf of management and staff, we commit providing better services with varieties of products and services which are the needs of our clients by using the top technology so that we can contribute to the community and economic development of Cambodia

7 Organization Chart Shareholders As of Dec 2013, KREDIT has 2 shareholders: Phillip MFI Pte Ltd and World Relief Corporation. Phillip MFI Pte Ltd, A member of PhillipCapital Group Since 1975, the PhillipCapital network has grown into an integrated Asian financial house with a global presence that offers a full range of quality and innovative services to retail and high net worth individuals, family offices, corporate and institutional customers. Our comprehensive suite of financial products and services includes broking in securities, futures, foreign exchange, bonds, precious metals and commodities, unit trusts, contracts for difference, exchange traded funds; fund management, managed accounts, insurance planning, regular savings plan, investment research, equity financing and property consultancy*. Institutions can also benefit from our corporate finance and advisory services as well as information technology solutions. With more than 3,500 employees and over 900,000 clients worldwide, our assets under custody/ management totals to more than USD 24 Billion with shareholders' funds in excess of USD 1 Billion. PhillipCapital (with headquarters in Singapore) operates in the financial hubs of 16 countries, including offices in Malaysia, Cambodia, Indonesia, Thailand, Hong Kong, China, Japan, India, Sri Lanka, Australia, UAE, UK, France, Turkey and USA. World Relief Corporation World Relief works alongside local churches and communities on four continents to serve the most vulnerable. Partnering with like-minded organizations, World Relief extends its reach into many of the poorest and least developed nations on earth. We empower and assist 2.8 million people annually. World Relief focuses on Maternal & Child Health, HIV & AIDS, Child Development, Human Trafficking, Agriculture and Food Security, Disaster Response, and Microfinance in countries such as Burundi, India, Nicaragua, Cambodia, Indonesia, Rwanda, China, Kenya, South Sudan, Congo, Kosovo, Zambia, Sudan, Malawi, Haiti, and Mozambique. And as agreement from the shareholders, another shareholder of KREDIT is planned to be established soon, named KREDIT s Staff Association (KSA). KSA s Board of Directors have already elected through clear voting process from all eligible KREDIT s staff and the drafted Article of Association (AOA) of KSA was also done and waiting to be finalized from KSA s BoD. So, we hope that KREDIT will have 3 shareholders in the near future % 58.15% Shares 67,034 Shares 44, % 41.85% Shares 32,380 Shares 32,

8 Board of Directors' Profiles Board of Directors' Profiles (Continued) TIMOTHY MARK AMSTUTZ, Chairman TAN TECK KEONG MICHAEL, Board member Mr. AMSTUTZ has been KREDIT s Chairman since he joined the Board in He is an American citizen who was born and raised in India. He returned to the U.S. to complete his university degree at Wheaton College in Illinois, USA. Mr. Amstutz has worked for World Relief in a number of positions since 1982, including various U.S-based positions. He was responsible for launching and leading a number of ground-breaking programs for World Relief in Chicago, including its Legalization and Immigration programs, its Education Services program, and ultimately World Relief s National Immigration Resource Network of which he was the Founding Director. During this time he also served as Midwest Regional Director for World Relief s U.S. operations. Mr. Amstutz moved with his family to Cambodia in 2001 to serve as Country Director for World Relief Cambodia. Since 2007, he has served as Asia Regional Director, overseeing World Relief s work in Cambodia, Indonesia, India, and China, and has recently transitioned back to serving as World Relief s Cambodia Country Director. Mr. Amstutz s broad management and leadership experience has provided a platform for him to speak and lead seminars at numerous conferences and events on topics ranging from non-profit board development and non-profit management, to leadership development and microfinance. Mr. Amstutz lives with his family in Phnom Penh, Cambodia Mr. TAN is currently Director, Corporate Development at PhillipCapital. Prior to joining PhillipCapital and championing microfinance initiatives within the Group, he previously held positions in both industry and academia including stints as Assistant Professor at University of Nevada, Reno, United States, Lecturer at National University of Singapore, and various IT management and consultancy positions in Singapore. He holds a PhD in Information Systems from the National University of Singapore, a Certified SAP Consultant (Project Systems) certification from SAP Germany and a CDipAF (Accounting and Finance) qualification from ACCA (UK). SREYHEM ROBERTS, Board member Mrs. ROBERT is a Cambodian/Canadian national with over 20 years of experience working and consulting with NGOs and businesses in Cambodia. Her professional activity in the non-profit and business worlds includes administration, human resources management, accounting, business development, and project management. She is working as a General Manager for First Trust Co;Ltd, a property holding company. ONG TEONG HOON, Shareholder Representative and Board Member Mr. ONG started working in the financial sector in 1977, first as a Money Broker and then, after a year, with Standard Chartered Bank, as a Management Trainee. For 25 years with the Bank, he had been through all aspects of Commercial Banking, apart from Treasury function and he ended, his banking career as Country Manager for the Bank in Cambodia in This was after being the Bank's Chief Representative in Myanmar and before that, Regional Manager, Asia Pacific Region covering Financial Institutions. Almost immediately after that, he joined Phillip Securities Pte Ltd and had covered various functions, including a stint in Phillip Securities Thailand PLC as its Ag CEO and was last, the Director OTC Capital prior to being assigned to KREDIT PLC in Mr. Ong is a graduate from the University of Singapore with a Bachelor of Business Administration and an Associate of the Chartered Institution of Bankers since ING VARONY, Board member Ms. ING is a Cambodian national holding master in Public Administration from the University of North Texas, Denton, USA and University of Cambodia in She has twenty five years of experience working with NGOs/International organizations, especially the United States Agency for International Development (USAID) where microfinance institutions were her main responsibility. Prior to that, she worked in the Poverty Reduction and Economic Management Unit (PREM) a World Bank program where the financial reform program was introduced to the Ministry of Economy and Finance and Councils of Minister. She has six years work experience with the Cambodian government, Ministry of Industry, Mine and Energy, where she helped in developing the manufacturing public sector. Varony has spent with Hagar International for five years as Programming Manager who managed two main programs. She is currently Senior Manager, The Harpswell Foundation (HF)

9 Board of Directors' Profiles (Continued) Committees at Board Level TEA CHANSOTHEARY, Board member Mrs. TEA is a Cambodian national who has been involved in the Cambodia microfinance sector since its infancy more than 20 years ago. She has a broad wealth of experience having worked for a number of institutions covering nearly every level of operations including training, human resource, finance and audit and various senior management positions. She also served as a board member for various institutions and as a shareholder representative. Beside microfinance, Sotheary have served as finance manager for Hagar international; country manager for the Ratanak Foundation which is based in Vancouver, Canada. She has done consulting work in Finance, Audit, Development and Microfinance both within Cambodia and internationally for organizations such as World Vision, Child fund, World Relief, PACT, JICA and UNDP. Currently she resides in Yangon, Myanmar where she takes care of her family and does freelance consulting. FONG KIM CHOY (PHILIP), Board member Mr. FONG currently the Managing Director and Principal Trainer of JM_Asia Cambodia) Pte.,Ltd a marketing and branding consultancy and soft skill training firm with offices in Singapore, Malaysia, China and New York. He is business consultant, personal mentor & coach to several wealthy business owners and businesses. He has positions of Country Manager for Kristlite Cambodia, Chief Marketing Officers for Hagar International and OnLine.Com, besides other corporate experience with American MNCs and Singapore companies listed in the SGX and HKSE. Philip has more than 35 year experience in a variety of senior management positions across industries: IMPEX Trading, F&B, Marketing & Branding Consultancy, furniture manufacturing and distribution, and managing large scale events. There are 3 committees at the BoD level including: Audit Committee, Risk Committee, and Social Performance Management Committee. Audit Committee Responsibilities of Audit Committee The Audit Committee is the responsibility of the Board of Directors and is required to perform the following general functions: - Establish and monitor compliance with a corporate code of conduct; - Monitor procedures for compliance with government regulation; - Review the findings of audits or examinations conducted by other agencies; - Discuss disagreements between internal or external auditors and management; - Inquire about the external auditor s opinion on the competence of financial and accounting personnel and the internal auditors; - Review the adequacy of internal control structures over financial reporting; - Oversee the company s internal controls for safeguarding its assets; - Evaluate the internal auditor s objective; - Review the internal auditor s work and assess their performance and capacity building; - Ensure that the internal auditor s involvement in auditing of the financial/it and operational scopes are well-coordinated and implemented; Activities and Achievements of the audit committee for the year The Audit Committee met four times during the year in Board Level Mar, May, Aug and Nov 2013; - The Audit Committee has approved the annual internal audit plan for the year 2014; - Internal audit department reports directly to the Board Audit Committee; - All key operational, business and management process are audited according to risk-based methodologies which provide independent and objective assurance over the adequacy, sustainability, and effectiveness of the company s governance, internal controls and risk management process; - Internal Audit examines the strategies of the company the adequacy and effectiveness of the relevant policies, procedures and regulatory guidelines; - Internal Audit discusses the result of all assessments with management and reports its observation/findings, recommendations and opinions, via a structured process, to the Board Audit Committee; It is the opinion of the Committee that the internal controls, audit procedures and risk management processes are adequate to safeguard the company and to provide sufficient assurance and integrity of the financial accounts; In 2013, the Internal Audit Department conducted 137 assessments in which 134 assessments are the operational scopes, 2 assessments as financial scopes and 1 assessment as the IT scope. Risk Committee Risk Management Structure Step by step, the risk management structure becomes full and stronger consisting of 1 board risk committee and 3 committees at management level. Risk Management Committee Board Risk Advisor DANIEL JOHN BROSE, Board member Mr. BROSE is the Africa Regional Director for World Relief. Dan has previously served World Relief as Country Director in Rwanda and Burundi, Africa Great Lakes Regional Director, and Sr. Program Advisor. Dan graduated with an MS in Chemical Engineering at Stanford University, and he worked for 15 years in the pharmaceutical research industry before joining World Relief in Under Dan's leadership, World Relief's activities in the Africa Great Lakes region grew from one country program in Rwanda to significant country programs in Rwanda, Burundi, and Congo; microfinance institutions were grown and launched in Rwanda, Burundi, and Congo; and Ikirezi Natural Products, SA was launched in Rwanda to pioneer the sustainable production of high quality essential oils to benefit poor rural farmers. Dan currently serves on the board of directors of Urwego Opportunity Bank in Rwanda. Management Level Covering Risks Assets & Liability Committee (ALCO) Financial Risk - Liquidity Risk - Interest Rate Risk - FX Risk - Product Risk - Others Credit Risk Committee (CRC) Credit Risk - Credit Policy - Credit Approval - Portfolio Management - Collateral - Others Reputation and Regulatory Operational & Compliance Risk Committee (OCRC) Operational Risk - Process Transaction Risk - System Risk - Fraud Risk - Business Contingency Plan (BCP) - Etc 16 17

10 Committees at Board Level (Continued) Committees at Board Level (Continued) Roles of Risk Management Committee Overall function of Risk Management Committee (RMC) is to identify, understand and assess risks that can lead to server impact on the organization and their likelihood of occurrences. 1. Assets and Liability Committee (ALCO) ALCO committee meets on monthly basic to discuss and make decision on various aspects of financial risk management, particularly, liquidity risk, interest rate risk, FX risk, and other concerned financial risks. In every meeting, financial performances and financial risk indicators (liquidity ratio, solvency ratio, Debt covenant, market risk ratio, etc) were reported and discussed with some action taken as needed. As a result, most of those indicators are well managed and risk position is in a safe zone. 2. Credit Risk Committee (CRC) or Credit Committee (CC) Besides the daily loan approval, Credit Risk Committee has met in quarterly basic to discuss and take action on some potential credit risks. In the meeting, some issues were discussed and reported such as Portfolio at Risk, loan trend, loan procedure update, issues on lending, and some actions taken. Generally, credit risk remains the most fundamental risk to which the lending industry in general and microfinance industry. Portfolio at Risk (PAR) especially PAR>30 is closely monitored on continuous basis. At the end of 2013, the overall performance of loan portfolio quality was in a good position at 99.78%. 3. Operational and Compliance Risk Committee (OCRC) Operation risk is just approved by Risk Management Committee. This new committee focuses on managing all operational risks such as Fraud Risk, Process Transaction Risk, System risk, HR risk, Business Contingency Plan (BCP), etc. In addition to implementation of existing internal control more effectively and efficiency, the committee has decided to test and roll out Risk Control Self- Assessment (RCSA) to branch and department level. Also, Business Contingency Plan (BCP) is in priority of Operation and Compliance Risk Committee. Achievement of Risk and Compliance Department for year Risk Management policy was approved by Board risk Committee; - Some risk indicators were added into Risk appetite and reported; - Operational Risk committee was approved by Board risk committee; - Quarterly report to Risk management committee; - AML and Combating Financing to terrorists (CFT) policy was updated and approved by Board; - Cash Transaction Report and Suspicious Transaction Report were regularly reported to Financial Intelligent Unit (FIU). Social Performance Management Committee (SPMC) Roles of SPM committee Even though the committee has just established in 2013, but it has functioned well and actively in the following authorities: - Sets clear goals and objectives and creates strategy to ensure that the Board of Directors, Management, and Employee are aware of the goals and objectives and committed to achieving them and in line with universal standard report of SP of social performance task force (SPTF) and best practices in community development principles; - Creates and reviews Social Performance Indicators to ensure they remain relevant to the strategic growth of KREDIT; - Studies, initiates, proposes and implements relevant and impactful initiatives and projects or programs to achieve both the short- term and long- term social performance goals of KREDIT; - Comes up with some measurements tools to measure and track the social performance activities of KREDIT approved by the BoD; - Establishes working groups with a specific task and is authorized to take any independent professional advice as it considers necessary to assist the Committee; - Manages the budget, current year and accumulated funds, approved by the Board and set aside by management of KREDIT to ensure the various strategic program's and initiatives are carried out professionally and prudently; and to ensure the results and impact of these funds disbursements are an integral part of the management report to the Board regularly; - Validates action plans and budgets related to SPM, and monitors their implementation of the activities and program; - Monitors the trend of the endorsed indicators in the context of market and country developments, and to report to the Board on any significant changes, analysis of the causes of key changes as well as to recommend appropriate plans and actions to ensure KREDIT keeps to the core of these social performance expectations and achievements; Achievement of Social Performance Management Committee - Created social performance and community development fund away from KREDIT s account and the clear charter in using the fund; - Approved the support 5 water pumps: 4 in Sa Ang District under partnership with World Relief Cambodia and 1 in a primary school in Samakimean Cheuy district, Kampong Chhnang province; - Supported a channel renovation in Tik Pos district, Kampong Chhnang province - Support the repairing of kindergarten at Kampong Tralach Sub-Branch, Kampong Chhnang Branch - Approve Environmental and Social Policy - 2 times meeting to see the social reports and proposal MICHAEL GOH Board Risk Advisor has 25 years of experience in financial institutions across Asia Pacific with expertise in Credit, Risk Management & Corporate Governance. He held Senior Management positions in global financial institutions: Chief Risk Officer - Asia Pacific Region for AIG Group, Chief Credit & Risk Officer for the JV between global technology group and Standard Chartered Bank and Senior Regional Head, Credit & Risk Management, for European and Hong Kong banks. He is a CPA, has Masters in Finance, Baruch College, NY and is an adjunct Senior Lecturer for UOL LSE International banking programs. He is a Member of Singapore Institute of Directors and Board Member of Risk Management Association. His commercial business experience are wide ranging including Corporate Development Director for PE investments, Risk Advisory Consultancy Services and delivering Banking & Risk Management Training Courses in Asia. He is also currently an Independent Director/Chairman of Board Risk Committee of MFI in Cambodia. MICHAEL joint KREDIT as Board Risk Advisor in July 2012 and resigned May 2014 During the mission with KREDIT, Michael injected insights to the start- up of this new functions and other fields. We would like to take this chance to thank for his valued inputs to the start- up. We hope that this function will implement well in the near future. KREDIT s CEO gave helmets and funds to Cambodian Red Cross to contribute to road traffic accidence in Cambodia

11 Executive Committee Executive Committee (Continued) Being led by the CEO, KREDIT s Ex- Com consists of the CEO, CFO, COO, Head of HR Department, Head of Marketing Department, Head of Business Development Department, Head of Branch Support Department, Head of Finance Department, Head of Internal Audit Department, Head of IT Department, Head of Treasury Department, and Head of Logistic and Administration Department. With the direction from the BoD, KREDIT s Ex-Com is responsible for preparing the annual strategic plan (strategic framework) and making sure that the institution achieve the plan. The team is also a unit that draft policies and strategies for BoD to have a review, make comments and approval. The team also has a role to provide leadership to KREDIT s staff as whole to meet the institutional goals. Ex-Com will hold meetings one a month and special meeting can be held at any times as needed. SOUNG ENG CHHAY, Head of Internal Audit Department BBA in Management and MBA in Management. 18 years of experience with MFI in Accounting, Branch Management and Auditing. HUY BUNHUOT, Head of HR Department CHAN MACH, Chief Executive Officer (CEO) MBA in Management, MFB, and Bachelor in Mathematic. 18 years of experience with 15 years in MFI in Audit and Training as well as Branch Management and Operations Management and Math teaching. - 2 Bachelors: in Law and in Education - Master in Development Management 14 years of experience with MFI in Admin and Human Resources Management HIM VIBOL, Chief Finance Officer (CFO) Bachelor in Economics, MBA in Finance and Accounting, pursuing ACCA. 11 years of experience with MFI in Audit, Accounting and Finance Management. HEANG KIM, Head of Marketing Department BBA in Marketing and MBA in Management. 12 years of experience with MFI including work in Management of Marketing, Research, Customer Service, Fund Mobilization and Partnership Relation. PO YORT, Chief Operations Officer (COO) Bachelor in Accounting and Finance, MBA in Management. About 16 years of experience in Accounting, Admin, Training and Human Resources, and Operations Management. SOK KIMCHHAY, Head of IT Department Bachelor in Computer Science, MSIT, and pursuing a Certified Accounting Technician (CAT) from UK. 10 years of experience in IT management with MFI

12 Executive Committee (Continued) Staff Capacity Development ROM VANARA, Head of Branch Support Department High Diploma of Accounting & Finance, B. ED in English, MBA in Finance and Banking. 12 years of experience with MFIs in Micro Credit Lending, as well as Branch and Operations Management. Within the year, KREDIT has continued its training provision with a clear training curriculum set. All new staff is required to be trained clearly and carefully before they start performing the jobs while some refresher training provided to old staff. This is to make sure that staff is competent enough to perform their job with high quality of service. Some training is provided by our training unit team and some provided by professional trainers outside the organization. In addition to the short course training, degree schooling is also provided to our staff who have a long-term commitment with KREDIT. Internal Training refers to the internal training courses designed and provided by training and capacity building unit and others department of KREDIT based on the institutional training need analysis, the internal training program includes (orientation course, basic course, short course, and specialized course) Orientation and Refresher Training HAY VANHOM, Head of Finance Department Bachelor in Accounting and Master in Auditing. 11 years of experience with MFI in Bookkeeping, Auditing, and Accounting and Finance Management. Nº Course titles # of courses # of participants 1 Staff orientation round Staff orientation round VSU loan product orientation Field promotion orientation Orientation for CSO transfer OT 1 24 KER MAKTHURA, Head of Treasury Department Bachelor in Finance and Banking and pursuing MBA. 12 years experiences in MFI starting from Credit Operations, Cashiering, Accounting, and Treasury Management. 6 Refresher on loan policy Internal Short Course Training Total Nº Course titles # of courses # of participants 1 Help desk system 2 36 EAR NHAR, Head of Logistic and Administration Department - Bachelor in Accounting - Master in Finance 11 years experiences in administration with NGOs and 5-years with MFI, including insurance for staff. 2 Customer care training Unit online Make-up class Banking products Anti-money laundering Social performance management and client protection principle SME loan training course Saving policy for loan and saving officers HONG RY, Deputy Head of Risk and Compliance Department Master of Business Administration and Bachelor in Accounting. Over 3 years of experience with private company in bookkeeping and accounting and 6 years of experience with MFI in Auditing and Risk Management. 10 Education loan Saving product for new MDI sub branch New promotion staff training (HT & SBM) Training of trainer 3 98 Total

13 Staff Capacity Development (Continued) Staff Capacity Development (Continued) External Training Course External Training Course refers to the training course conducted by outside Training Service Providers outside KREDIT MFI and leads to a certificate of completion or a certificate of participation from those Training Service Providers. Orientation and Refresher Training Nº Course # of Staff 1 Accounting 1 2 Advance excel II 1 3 Advance risk management 1 4 ATM concept training 20 5 Behavioral base interviewing skill 2 6 Business risk management 3 7 CAS and CIFRS 2 8 Child development and parenting skill 2 9 Effective telephone handling skill 1 10 Excel Financial risk management 2 12 How to determine cost covering interest rate 1 13 Internal audit writing 3 14 IT assurance & security audit 2 15 Loan contract laws and land laws 6 16 Make-up class Managing branch for bank and MFI 2 18 Market research 1 19 Market research and financial product development 2 20 Mobile payments and banking 2 21 MS Lync 4 22 Oracle 11 g database administration level Public relation strategy 4 24 Strategy saving mobilization 2 25 The successful closing sales by personality 3 26 Understanding agriculture production English language 23 Total 556 Degree Scholarship Program Local Degree Scholarship refers to the Degree Scholarship that is locally provided by any institutions within Cambodia that leads to a Diploma/Associate Degree, a Bachelor Degree, a Master Degree, ACCA/CPA Degree, and CFA, COB Degree. Nº Description Male Staff Female Staff Total Staff 1 MBA BBA ACCA Total Internship and Research Scholar Program Internship and Research Scholar Program refers to the university student (Bachelor, Master or Doctor Degree) who is approved to do internship through research in KREDIT MFI for a period of less than 6 months. Nº Offices / Branches # of interns 1 Head Office 9 2 Siem Reap 17 3 Prey Veng 10 4 Soung 13 5 Kratie 3 6 Kampong Cham 67 7 Phnom Penh 12 Total 126 International Training Program For courses that match with the higher level training need of KREDIT and mostly do not exist or cannot be found in Cambodia or are deem compulsory. Nº Description # of country # of Staff 1 Oversea Training 1 4 KREDIT s professional staff waiting to serve clients

14 New Core Banking System Our Products and Services To keep and sharpen its competitiveness at the market, KREDIT seeks and employs many different strategies so that we can provide products and services preferred by the market. One of core strategies selected in 2013 is new core banking system. KREDIT, with the support of a member of the BoD who is an IT Specialist carefully studied to select a new core banking system. A Another core banking team was later on set up to work with the experts of the selected system. More staff, mainly at IT department have been added to make sure that we have sufficient internal staff to work out with the experts. Training on the new core banking system was carefully provided by the experts to our internal team. A clear timeline was set and followed strictly. Our internal At KREDIT, we believe that financial service alone is not enough to help the poor clients who are a big part of our market from the poverty cycle. With this believe and to contribute to the social and economic development of communities, KREDIT has provided and continue providing diverse and innovative finance and nonfinance services to their clients; with majority living in Individual Loan This loan requires physical collateral and aims at supporting any individual who will use the loan to start up or expand businesses, invest in agricultural production, purchase household goods or personal items, or improve their accommodations. consultant who had a long- term experience in this field was partnered to help in the detailed process. A taskforce at management level was set up. Many different software venders came and made presentation of their products and costs. Shortlist was done to select the top 3 and finally we got the finalist. The new core banking that KREDIT selected is Oracle Flexcube, which is the worldwide-used core banking system and now is being used by National Bank of Cambodia (NBC) and some Cambodian financial players. It is really a big investment for the company costing about USD1.8 million. KREDIT has carefully moved with guidance from BFSI experts of the selected system. staff has devoted their times for this new core banking system despite night time and weekends. So far, KREDIT has already gone live this new core banking system with 3 sub branch offices plus Head Office and plans to fully go live by the end of year With the powerful new core banking system, KREDIT commits to providing even higher qualities of services with many varieties of products and services to our clients. We hope our clients will enjoy great experiences with this world latest technology leading KREDIT to grow and serve more clients. the rural community using integration approaches with different development organizations. For all of our services, we study and address real needs of our target clients with clear assessment with clients, staff, and local authorities. For financial services, KREDIT is providing loan, saving, local money transfer, and currency exchange. For non- financial service, KREDIT has two main programs: permanent and need- based services which will be detailed in the social performance part below. Loan Products To satisfy client s preference and market competition, KREDIT continuously modifies its existing loan products, studys and also introduces some more new loan products. The individual loan represents up to around 91% of the loan portfolio. KREDIT offers the individual loan in both KHR and USD currencies. This loan targets the economically active poor clients as well as micro small and medium enterprises who can present legal collateral. The loan amount varies from KHR200,000 or USD 100 to KHR 40,000,000 or USD 50,000 (for loan from USD 10,000 to USD 50,000, KREDIT requires clients to invest at least 60% for investment or business expansion) with a maximum length up to 48 months. The interest rate varies from 3% to 1.4% per month, depending on the loan amount, type of currencies, repayment location, and also clients risk perspective. The interest is calculated by using a declining balance repayment. Clients are offered with different payment options: monthly principle and interest for business loan and for agriculture loan clients can be: (1) interest monthly and principal at the end of loan term, or (2) interest monthly and principal paid by every 3, 4, 5, or KREDIT provides small and micro business and agricultural loans of a variety of sizes to meet the needs 6 months) of poor Cambodians and their families for livelihood development. KREDIT also offers the opportunity for clients to borrow in either KHR or USD denominations. Payments can be made at the office or at the village level. Our current individual loan product is classified into different categories depending on the clients consumption purposes: business, consumption, housing improvement, real estates, and agriculture. Under the Individual Loan, we have developed specific KREDIT s core loan product is an individual loan, which allows clients to structure around their personal needs and ability to repay. loan products to target specific customers, like SME loan, education loan, and staff housing loan. SME Loan KREDIT is currently providing four different types of loan methodologies: Individual Loan, Small Group Solidarity Loan, Community Bank Loan, and Large Group Solidarity Loan (Trust Bank). Loan for small and medium-sized businesses is a type of individual loan to promote small and medium enterprises related to production and business services. This Loan require collateral and aim at supporting the financial resources for expansion or starting up new Server room prepared for the new core banking system

15 Our Products and Services (Continued) Our Products and Services (Continued) business. They can use this loan to pay or manage Staff Housing Loan Several groups (with a maximum of 20 groups) form It is a joint-liability group loan that does not require daily operations, such as working capital, for medium Staff housing loan is one specific product developed for a Community Bank Committee. The Community collaterals of the members, and it is targeted and long- term investment expansion of the business. our internal KREDIT s staff who need cash to purchase Bank Committee is headed by an elected Chief which the economically active poor VSU clients who have The target clients of this SME loan are individual and a new house/ land, construct new house, repair house is being assisted by the specialized credit officer/ shown their commitment to use of loans to improve entity/companies. The loan size is from USD 20,000 and/ or house improvement. Loan Size ranges from loan and saving officer. The loan amount in the 1st their standard of living. A group leader is elected by - USD 50,000 (available only in USD currency), loan USD10,000 to USD70,000 or equal to 70% of total cycle is KHR1,200,000 (around USD300), the 2nd members and being assisted by KREDIT s specialized term is months, and monthly interest rate is price of the house or land to be bought (USD Currency KHR1,400,000 (USD350), and the 3rd and so on CO. The loan amounts are offered differently from cycle 1.4% - 1.6%. only), loan term is from months, and interest KHR1,600,000 (USD400). The maximum loan term to cycle, for the 1st cycle KHR500,000 to KHR1,200,000 rate 9% per annum. is 12 months, but determined by the majority vote in (USD125 - USD300), 2nd cycle from KHR500,000 - Education Loan the group. The interest rate is charged at 2.9% per KHR1,400,000 (USD125 - USD350), and 3rd cycle from Education is one of the most important investments that Small Group Solidarity Loan month, using declining balance calculation method KHR500,000 - KHR1,600,000 (USD125 - USD400). can be made in life. Higher studies and specialization It is a joint-liability group loan of 3-5 members, and it is with monthly interest repayment. To help the vulnerable in certain fields call for additional financial support from targeted to supporting the economically active poor in poor people and their family, the loan will be written off Note: To build up clients awareness on cash flow and time to time. the rural area who commits to use the loan to improve in case client died; in addition, some amount of money finance management, child-related issues, as well as their standard of living. We do not require the collateral, from KREDIT is also given to clients for arrangement of improvement of agriculture skill, some training provided The educational loan scheme aims at providing financial but client must have own total asset to proof when funeral ceremony. to Community Bank Loans (VSU Loan) and Large Group support to deserving/ meritorious students for pursuing credit officer conduct loan assessment. This solidarity Solidarity Loans (Trust Bank Loan): children education higher education in Cambodia. The main emphasis group loan product is designed for poorer client in rural To encourage loan discipline and cooperation among training, finance- related training, and agriculture skill is that every meritorious student is provided with an areas with willingness to uplift the quality of their lives the community bank members, KREDIT provides training. opportunity to pursue education with financial support and their experiences in household activities such as a benefit of 3% on interest collected to the Chief of with unique characteristics that include affordable trading, farming, animal raising, palm sugar production, each community bank who is supporting KREDIT to Also under partnership with other development conditions and tailored terms. To prevent risk with and services related businesses among others. meet community bank objectives. This supports and organizations, KREDIT has provided these Community longer loan term, we also require physical collateral maintains help collection rates of 100%. Bank Loans (VSU Loan) and Large Group Solidarity with value of total collateral is 100% of loan request A joint liability group loan of 3 to 5 people that guarantee Loans (Trust Bank Loan) some loans for latrine and for (primary collateral value covered at least 75%). In each other in loan repayment can avail a maximum loan Large Group Solidarity Loan (Trust Bank Loan) water filter with hope that the rural community sanitation addition, to encourage student clients who has secure/ amount of KHR2,000,000 or USD 500 per member, To support the VSU Program, KREDIT has developed and hygiene will be improved. permanence job, we also offer special education loan with monthly interest rate of 3% to 2.6% depending on another product which is called the Trust Bank product. without collateral requirement. This product aims at currencies and repayment locations with a maximum academic or vocational students who are from poor/ term of 12 months. The interest is calculated by using a low/medium income families and have good academic declining balance. Clients can pay interest monthly and performance and a strong commitment in pursuing principal at the end of loan term. higher, professional or technical education that need financial support for accomplishing their dream Community Bank Loan (VSU Loan) academic or vocational skills to increase their income It is a micro loan that does not require physical collateral, and to improve the future living standard. This loan is but a joint liability group of 4-6 persons formed to act as for all skill development including vocational training, a community bank. It aims at serving the poor, poorest professional academic, Higher Education Program. Our and vulnerable in the rural community who will use the loan size is from USD 200 to USD 6,000 (Only USD loan for upgrading the economics of their household. currency), loan term from 06 months to 84 months with This loan product is being implemented through allow grace period to pay principal up to 84 months, a special project of KREDIT called the Vulnerable and interest rate ranging from 1.6% - 1.3%. Services Unit (VSU). Getting more success with loan from KREDIT

16 Our Products and Services (Continued) Our Products and Services (Continued) Savings Products KREDIT is currently providing a variety of savings products to customers: savings account, term deposit account, and partnership savings account. KREDIT ensures the liquidity safety and convenience for the depositors and charges no account keeping fees. Interest on deposits is daily calculated and at the highest rate in the market. Savings Account Savings account targets both KREDIT s staff and the public who wishes to keep their money in a secure and accessible place and allows them to withdraw at any time. With this type of saving, clients can open an account with a minimum balance of only KHR20,000 or USD5 with 4.5% interest rate per annum on KHR currency and 3.5% interest per annum for USD currency. The interest is compounded monthly. No account keeping fee is charged. Term Everyday Balance Annual Interest Minimum Maximum KHR USD KHR20,000 $5 KHR100,000,000 $50, % 3.5% We have two types of Term Deposit a) Wealthy Return: with it, the depositor can withdraw the interest every month and the principal at the maturity date, b) Wealthy Growth, the interest and principal can be transacted at the maturity date. The term can be 1 month, 3 months, 6 months, 9 months, 12 months, 18 months, 24 months, and 36 months. The yearly highest interest rate is 12% for saving in local currency (KHR) and 8.5% for USD currency. Partnership Savings Account KREDIT provides affordably professional services to partner organizations by streamlining savings and credit facilities through the NGO s normal administration operations. Partnership Savings targets companies or institutions that want to save for staff in their own personal saving account, and/or for future expenses and investment. Only USD5 is needed as a minimum deposit to open a partnership savings account with 5% per annum interest rate on saving being provided to clients. The interest is calculated daily on the outstanding balance and added to the principal at the end of each month. Local Money Transfer Local Money Transfer is another service that KREDIT is providing. With this new service, KREDIT can allow clients to repay loans to KREDIT at any of our offices in our operational areas. This service is with an affordable fee, fast and secure. Till now, we have found that our clients enjoyed much with this service. Starting with only $1, you can send money nationwide with KREDIT. Currency Exchange With the MDI license, we are yet to have authorities to provide currency exchange to the public but we can do with our existing clients. However, it also helps ourclients to solve exchange problem that usually requires them to go to the market, make currency exchange and come to KREDIT's office for loan repayment. To serve the market movement and the capacity of new core banking system (Oracle Flexcube), KREDIT has also studied and developed some new financial services and planned to introduce in the near future. We hope that the product modifications and development will help provide our clients with more convenience and choices. convenient and more innovative products and services as their preference. To see satisfactory levels on our products and services as well as their potential preference, in early 2014, KREDIT also conducted client s satisfaction survey with 607 clients who have been with KREDIT at least for 13 months from 12 offices in 8 provinces using the random method. We also conducted clients exit survey with 217 voluntarily exited clients from 7 offices. Below are some findings from the survey: - 99% of ID clients and 96% of VSU clients satisfied with loan sizes providing by KREDIT; - 97% of clients satisfied with our current repayment modes; - 95% of VSU and 92% of ID clients satisfied with loan term; - Compared with the last exit survey study in Feb 2013, reasons of exit related to KREDIT s policy was down from 33% to 27% while issues of group loan is still similar. The main reasons of exit are personal and occupations which are external factors. With the findings, we can see that our current loan conditions are mostly satisfied by the clients; however, we also found a few points needed to be improved. Term Deposit Account Term Deposit Account is a contracted saving with a certain amount of money, terms, and interest rate agreed upon between KREDIT and the clients. Term Balance Annual Interest Minimum Maximum USD Everyday $5 3% of KREDIT s Net Worth 5% Market Study for Modifications and Development KREDIT is really careful with products and services provision to the clients. We want to provide them With the findings, the management has taken actions to enhance them and hopefully we can serve our clients much better. Start saving with us now...! Starting with only $1, you can send money nationwide with KREDIT

17 Operational Performance Operational Performance (Continued) Despite good economic growth of the country for the year of about 7.2%, KREDIT has carefully expanded by keeping focus on quality of work while maintaining good services provision to the clients within the operations areas. To enhance the quality of the service provided to the clients; as normal, KREDIT in 2013 also arranged a workshop so called management level 2 workshop at where all branch managers, sub branch managers, and other branch management staff come to join with presences of all Ex Com members. During the workshop, we discussed and we did reflection what we are doing in different offices, challenges and issues, and comments from the field levels. Responsible departments and units who also attended the workshop clarified points raised by the participants. Comments from staff and also findings from the research help the management in decision making for any adjustments to the products and services. With good coordination and commitment of management and staff at all levels, KREDIT has continued its growth with quality for year Operational Area and Office Outreach At the end of the year 2013, KREDIT operates through 60 branch / sub-branch offices and 6 unit offices, in 15 provinces, 110 districts, 857 communes and 5,402 villages. The increase of numbers of offices and coverage area is really beneficial to clients as the services are closer to their hands so that they can easily access when needed. Notes: After the implementation of Cambodia Credit Bureau (CBC), KREDIT decided classifying loan purposes as below to fit to CBC: - Social loan includes latrine loan, community bank loan, trust bank loan, emergency loan, and water filter loan; - Consumption loan covers complete house loan, loan for buying motor for renting to KREDIT by staff, agr- assets acquisition loan, and other consumptionpurpose loan; - Business loan covers production loan, trade and commerce, and services; - Mortgage loan includes real estate loan, loan for buying land and house; - Agriculture loan covers loan for cropping and animal husbandry Disbursement of the Loan for the Year In 2013, KREDIT disbursed loan totaling $ 91,890, to 76,337 clients. It is increased $ 25,098,694 (27.31%) and 12,673 (16.60%), in terms of loan and clients compared to The most percentage disbursed to client are social loan 35.53%, agriculture loan 25.45%, consumer loan 18.28%, and business loan 17.52%. Amount Disbursement by Loan Purposes Descriptions Branches Sub Branches Unit Offices Provinces Districts Communes Villages 3,986 4,216 4,631 5,402 Business Loan 35.93% Consumer Loan 23.67% Education Loan 0.01% Mortgage 6.28% Social Loan 7.67% Loan Portfolio Compared to 2012, the portfolio outstanding and clients have grown to 39% and 20% respectively reaching $ million and 73,115 clients from $ million and 60,905 clients. The most percentage sectors of loan utilization are business loan 37.19%, agriculture loan 25.52%, and consumer loan 22.76%. Agriculture 26.45% Loan Outstanding by Purposes Education Loan 0.01% Mortgage 6.25% Social Loan 8.27% Loan Outstanding and Borrowing Account Business Loan 37.19% Consumer Loan 22.76% Agriculture 25.52% Borrowers by Purposes Education Loan 0.01% Mortgage 3.40% Business Loan 20.05% Borrowing Account Social Loan 33.84% Agriculture 23.61% Consumer Loan 19.09% 32 33

18 Operational Performance (Continued) Operational Performance (Continued) Loan Quality Structure The portfolio at risk (Par 30+) ratio as of Dec 2013 was 0.28% which is a bit higher compared to 2012, 0.26%. However, the percentage of write-off loan was decreased from 0.15% in 2012 to 0.10% in Staff Productivity and Workload The average number of borrowing accounts per credit officer/loan and saving officer (CO/LSO) was increased from 171 clients to 175 clients, per front line was increased from 114 clients to 116 clients; however, average number of borrowing accounts per total staff was decreased from 76 clients to 71 clients. The reason for the decrease of productivity ratio to total staff is because numbers of our support staff have been increased; mainly at IT department which is currently so busy with the new core banking system. For average loan outstanding per CO or LSO, per front line, and to total staff were all increased. Productivity Loans/CO&LSO (in USD) 125, , , ,123 Borrowers/CO&LSO Loans/Front line staff (in USD) 100, , , ,443 Borrowers/Front line staff Loan/Total staff (in USD) 55,898 62,192 63, ,649 Borrowers/Total staff Deposit With different activities employed for this new service, we have found that saving performance of KREDIT for the year 2013 is also good. At the end of 2013, KREDIT has 9,023 depositing accounts with deposit amount of USD16, 217,004. To ensure bigger growth for next year, KREDIT also held special workshops with all related staff from all saving-collection offices to identify some challenges so that we can address. We are looking forwards to hug growth for the year 2014 as we planned to do many different activities after the workshops

19 Social Performance Management and KREDIT Social Performance Management and KREDIT (Continued) Our Progress with SPM No too long after having clear social performance and community development unit; in 2013, KREDIT successfully established the social performance committee at BoD level with clear charter. The committee set up a Term of Reference (TOR), so-called Social Performance and Community Development Fund to give clear nature of the social fund, to set out some criteria for eligible projects or activities to be supported, and also to provide general process to use the fund. 5%- 10% of yearly net profit from the company is also flew in to this account after the audit report issued and BoD approved. Within the year 2013, the environmental and social policy had been also presented to the BoD and got approval. The partnership with our development NGOs, school, and vocational training have been smoothly expanded allowing our clients can get many more benefits from our services. Training on social performance management (SPM) and client protection principles (CCP) has also been provided to some of staff within the year 2013 and will be provided more in From the training, staff can understand the concept of SPM, its benefits to KREDIT, to staff, to clients, etc. The staff will also understand what are activities or programs that KREDIT will do and what are their contributions and involvement in the activities and programs. Within the year, KREDIT has also continued working with CMA and Agency France Development (AFD) on an assessment about the current implementation of client protection principles (CPP) in KREDIT. Now, the report form the assessment issued, points to be improved have been identified, and actions plan set with clear responsible departments and units and deadline. As planned, 2014 will be the year that most gaps in CPP be filled. Our Social Performance Programs/ Projects KREDIT addresses the real needs of their targeted clients. This means that before starting a project/ program, KREDIT conducts assessments based on the needs of the clients, working closely with staff, villagers and local authorities to ensure that they offer products that are truly wanted in the communities. KREDIT categorized the social performance programs/ projects in to 2: permanent and need- based programs / projects: Permanent Programs KREDIT will sharpen these programs from one time to another so that in the future KREDIT will become a main player to these selected issues. Here are permanent programs of KREDIT: Vulnerable Services Unit (VSU) A special program which is specially designed to address the need of rural poor household by providing them with finance and non- financial services. Some of nonfinancial services provided by KREDIT and some by our partners. This is to ensure that the service providers are expertise by their own field. The VSU operations have been expanded to cover many more coverage areas. The financial service is still special in terms of: lower interest rate, without collateral and villagebased service. Non-financial services have also been continued and described in next points. In addition when clients in this project died, their family no need to repay the balanced loan and they will also get a package of money to arrange the funeral ceremony from KREDIT. As of Dec 2013, VSU project is handing 23,395 (32% of total KREDIT borrowers) poor and poorest families with loan outstanding USD 5.53 mil in 174 communes of 41 districts. Finance-Related Training Financial-related training is specially designed and provided directly by KREDIT's staff to poor clients with an aim at increasing their knowledge and good practice on family financial management. The training topics include saving, budgeting, and debt management. The training is provided directly by our credit officers/ loan and saving officers. From an assessment conducted by external consultant, it revealed a majority of clients that attended the training were highly appreciative of the sessions. Training communicates to clients the importance of savings, ways to increase their daily income, decrease unnecessary expenses, cash flow projection and management, also smart ways to select financial partners when needed. As of Dec 2013, a total of 20,404 clients already received such necessary training from our staff. Besides the clients, KREDIT also provides this training to normal villagers and staff of our partners. KREDIT with support from our partners planned to update the financial training tools making sure that it is easier understood by clients and more beneficial for them. Early 2014, KREDIT was selected by National Bank of Cambodia and CMA to produce a documentary about financial training to clients for Global Money Week, arranged by Child and Youth Finance International. Agriculture Training Special agriculture training is designed to equip rural poorest and poor clients with their most preferred agriculture skill. The training is very special because the group members discuss and select a topic that they mostly like to learn while trainers are experts from KREDIT's development partners. The training conducted on both ways: theory and on-hand practice with demonstration farm and usually it takes 2 days at their villages. During the on-hand training, all members are getting involved in all activities on the field so they can not only hear from trainer, but they can see and they practice themselves. In addition, follow up program is also arranged to give trainers and trainees an opportunity to talk about their experiences when putting theories in to their own practice. As of the same date, 4,533 families of clients already received such training from our expert NGO partners. Child Education Training To promote child education and development, KREDIT and its partners developed child education training to be provided to our staff and poor clients so that they can provide better education and better care to their children which is a basic need and the right of all children. We want to see perceptions of poorest and poor clients changed by investing more resources towards education and welfare of their children instead of sending them to work field. The training topics include good parents, needs of children, building a happy family, child protection, child abuse, and child labor. 8,751 clients have received this good training along with educational reading books containing different topics without return. However, the clients are also advised to swap the books among the group after their reading so that they can get more knowledge from it. This training is also provided to normal villagers, staff of our partners and our own staff by a special group of staff who are specialized in this field. Education loan is also another new product already tested for a year. Even though the performance of this loan for the year is still low, but we have learnt much more from this new product and we have identified points for improvements. We hope to get higher performance for upcoming years. Along with our activities at the field with clients, KREDIT is also a member of Cambodia child welfare group which is formed by organizations working with children affair in Cambodia. We have a monthly meeting to talk about child issues and also we have a weekly program on Friday, 5:30-6:30pm on a radio in which experts in children are invited as speakers. Contribution to Reduction of Traffic Accident KREDIT has continued getting even more involvement in this intervention. Radio program to build awareness of people about traffic law still continued and many more helmets produced and given to staff and clients. More programs planned to work out more with Cambodian Red Cross includes workshop with high schools and universities to build awareness about traffic law, banner at each traffic light, and other promotional leaflets. Contribution to Improvement of Hygiene and Since late 2012, KREDIT has partnered with some development partners to lend small loans to poor rural families to buy a simple set of latrine and water filter for their daily uses. As of Dec 2013, 1,012 families bought latrines and 33 bought water filter from our promotion in which some got loans from KREDIT and some used their own saving. This intervention aims at contribution to hygiene and sanitation improvement at rural community. Need-based program Besides permanent program, KREDIT also has another program called Need- Based Program to respond to the real needs of the clients and communities we are working with. Under this programs, we have done some activities: supporting pump well, canal renovation, kindergarten building, etc. We will study other real needs of people in different areas by working with the local commune council using community development plan

20 Social Performance Management and KREDIT (Continued) Our Lenders, Partners, and Network Special thanks to KREDIT s shareholders for their commitment to help Cambodia rural community by setting aside Our Lenders Despite positive trend of saving mobilization in the country, the main funding sources of MFIs in Cambodia are still from loans lent by oversea lenders. However, we have observed that the saving collection trend will be continuing its positive path and will become very good local fund for Cambodian MFIs in the near future or we can say that the Cambodian MFIs will cut down dependency on outside fund from year to year. Lending to MFIs by Cambodian commercial banks have been continued and expanded. Despite no official data about lending by international lenders to Cambodian MFIs but KREDIT has continued getting much more supports from our lenders. More loans with bigger amounts and better deals have been continued lending to KREDIT. Below are names of KREDIT s current lenders: 5-10% of their yearly net profits LENDER NAMES 1 Developing World Market 18 MicroFinance Enhancement Facility for social programs and activities in this country! 2 Conzorio Etimos 19 responsibility Global Microfinance Fund 3 Etimos Fund 20 responsability SICAV (LUX) Mikrofinanz-Fonds 4 Calvert Foundation 21 responsability SICAV (LUX) Microfinance Leaders 5 Triple Jump 22 responsability SICAV (Lux) Financial Inclusion Fund 6 MicroCredit Enterprise 23 Oikocredit 7 BlueOrchard MicroFinance Fund 24 World Hope International 8 Microfinance Initiative Fund for Asia 25 ICO (Spain) 9 GoodDeed Company 26 Partner For Development 10 Wallburge Invest S.A 27 VDK Spaarbank 11 Finethic Microfinance S.C.A.,SICAV-SIF 28 Impulse 12 IC Fund SICAV 29 BANK IM BISTUM ESSEN e.g 13 Dual Return Fund S.I.C.A.V 30 Commerzbank A.G 14 GoodDeed Company 31 HwangDBS 15 Symbiotic SICAV 32 Maruhan 16 responsability SICAV (LUX) 33 ACLEDA Bank 17 Credit Suisse Microfinance Fund Management 34 Kiva 38 39

21 Our Lenders, Partners, and Network (Continued) Listen to Our Staff, Partners, and Clients Talking about KREDIT Partners KREDIT believes that our financial service alone is not enough to move our poor and poorest clients from the poverty because they usually need many more basic supports from many different interventions. Having seen this, KREDIT has worked with many different development players to equip our poor and the poorest clients with other complimentary services. We are together to provide many different services needed by our clients based on specializations of each individual organization. Clients CHUON CHEAR, 40, and her husband CHHOEM CHHOEU, 45, are farmers, growing cassava and corn. They are living with their two children in Battambang Province. Describing her future goals, Chuon Chear says in the future I want my children to study in the University and get a good job, while I have nothing to pass on to them I want them to be knowledgeable. SIE CHANLY, 33 years old, is a resident of Ratanak Modul district, Battambang province, where she lives with her husband, NHOEM NOU, and her son. Before the loan from KREDIT, my family s life was terrible because I only work at a corn and soybean farm for a daily wage. Now we own land for growing cassava and corn, she says. I thank KREDIT for the loan and the many training courses in finance, agriculture and child education that changed my family s life. Now I believe that my son will go for a higher education and my husband and I will help him to achieve his dream. Networking Partners - A member of Cambodian Microfinance Association, - A permanent and active member of Cambodia Child Warfare Group - A member of Social Performance Task Force - The oldest active partner of Kiva in their partner s list - A members of Banking With The Poor (BWTP) - A member of Mix Market - A partner of AFD and CMA project to enhance Client Protection Principles - A partner of road traffic program of Cambodia Red Cross, the only one Cambodian MFI to be invited to endorse with joint statement Motorcycle passengers, including children, must wear helmets issued by Asia Injury Prevention Foundation, Coalition for Road Safety, and Handicap International - One of 6 Cambodian MFIs got support from PlaNet Finance on FinIncAsia and 2 of staff were certified as SPM trainers and mentors from the project - An institution who endorsed with Smart Campaign on client protection principle - An institution who got certification from Transparent Pricing Initiative by MFTransparency Organization - An institution who got 2 times of Merit Award from CGAP on Finance Transparency; CHOEM MOUN, 54, lives with his wife SOEUN SEAR, 50, and four children in Kilomet village, Battambang province north of Phnom Penh. He is a farmer who loves to take care of his crop and is eager to develop his business. When KREDIT came to the village he saw his chance of starting a business from having nothing and he made a plan for the future. People in the village take the loan without a plan and that is why they are still poor, Choem Moun says, I always had a plan for my family. In the future he wants to expand his chicken farm and continue to do what he loves the most so the children can in heritage his business and take care of it

22 Listen to Our Staff, Partners, and Clients Talking about KREDIT (Continued) Awards Received Within 2013 Village Leader With a smiling face, Mr. CHEA PECH, village leader of Bos Ty, Kok Commune, Ponhea Krek District, Thbaung Khmum commune, expressed his delight in attending the parenting training conducted by KREDIT. He believes the villagers who came for the training got more knowledge and they will practice it in the future. As a leader, he will continue to share such good knowledge to those who did not attend by talking to young mothers whenever he gets the chance. 1 Gala MOST INNOVATIVE NON - PROFIT SOCIAL ENTERPRISE from Singapore Venture Capital and Private Equity Association (SVCA) 21 st Anniversary & Awards Dinner for the year Village Bank Leader Mrs. En Yei who declared that she has five grandchildren showed great appreciation towards KREDIT for providing the training to the families in her village. She was very interested in the role of parents also being teachers and she practices this herself. She said, everyday I share the knowledge gained from parenting training to other villagers and I always bring with me the materials provided by KREDIT to show them. 2 transparent Seal of Pricing Transparency 2013 This is a widely recognized guarantee of our efforts to abide by the best international practices. The award was given to KREDIT by Transparent Pricing Initiative in Cambodia and it certifies that KREDIT is in its product pricing. Message from Board Chairman and Shareholder Representative On behalf of KREDIT's shareholders, Phillip Capital and World Relief, we wish to thank the CEO, management and staff for the hard work that you have all put in to produce such good results for I am sure all our customers are blessed by the loans that we have extended to them and we must all be very pleased to have made a difference in their lives. Once again thank you and we shall all continue to put forth our best efforts together and be an even greater blessings to our borrowers in the years to come. 3 Visit: 2 awards from KIVA for: Facilitation of Savings and Client Voice

23 External Audit Report External Audit Report (Continued) DIRECTORS REPORT BAD AND DOUBTFUL LOANS The Board of Directors ( the Directors ) hereby submits its report together with the audited financial statements of KREDIT Microfinance Institution Plc., formerly known as CREDIT Limited ( the Company ) for the year ended 31 December PRINCIPAL ACTIVITY The principal activity of the Company is to provide credit to local customers through its head office in Phnom Penh and its various provincial and district offices in the Kingdom of Cambodia. Before the financial statements of the Company were drawn up, the Directors took reasonable steps to ascertain that actions had been taken in relation to the writing off of bad loans and the making of allowance for bad and doubtful loans, and satisfied themselves that all known bad loans had been written off and that adequate allowance had been made for bad and doubtful loans. At the date of this report, the Directors are not aware of any circumstances that would render the amount written off for bad loans or the amount of allowance for doubtful loans in the financial statements of the Company inadequate to any material extent. On 29 December 2010, the Company received a licence from the National Bank of Cambodia ( the Central Bank ) to conduct a deposit-taking business. FINANCIAL PERFORMANCE AND DIVIDENDS The financial performance for the year ended 31 December 2013 is set out in the income statement on page 8. ASSETS Before the financial statements of the Company were drawn up, the Directors took reasonable steps to ensure that any assets that were unlikely to be realised in the ordinary course of business at their values as shown in the accounting records of the Company have been written down to an amount which they might be expected to realise. On 3 May 2013, dividends amounting to US$409,338 were declared and paid in respect of the Company s profit for the year ended 31 December 2012 (2012: US$334,915). At the date of this report, the Directors are not aware of any circumstances that would render the values attributed to the assets in the financial statements of the Company misleading in any material respect. SHARE CAPITALS VALUATION METHODS On 19 September, 2012, the Central Bank approved the increase of the authorised and registered share capital by Riel 4,410 million (approximately US$ 1,102,500). The revised share structure was registered in the Ministry of Commerce on 21 May The details of authorised and registered shareholding are as follows: % of ownership Number of shares Amount US$ % of ownership Number of shares Amount US$ Phillip MFI Pte Ltd ,034 3,351, ,984 2,249,200 World Relief Corporation ,380 1,619, ,380 1,619, ,414 4,970, ,364 3,868,200 At the date of this report, the Directors are not aware of any circumstances that have arisen that would render adherence to the existing method of valuation of assets and liabilities in the financial statements of the Company misleading or inappropriate in any material respect. CONTINGENT AND OTHER LIABILITIES At the date of this report, there is: (a) no charge on the assets of the Company that has arisen since the end of the year that secures the liabilities of any other person; and (b) no contingent liability in respect of the Company that has arisen since the end of the year other than in the ordinary course of business. No contingent or other liability of the Company has become enforceable, or is likely to become enforceable within the period of 12 months after the end of the year that, in the opinion of the Directors, will or may have a material effect on the ability of the Company to meet its obligations as and when they become due. CHANGE OF CIRCUMSTANCES At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Company that would render any amount stated in the financial statements misleading in any material respect

24 External Audit Report (Continued) External Audit Report (Continued) ITEMS OF AN UNUSUAL NATURE There were no items, transactions or events of a material and unusual nature that, in the opinion of the Directors, materially affected the financial performance of the Company for the year ended 31 December There has not arisen in the interval between the end of the year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Company for the current year. THE BOARD OF DIRECTORS The Directors confirm that the Company has complied with the above requirements in preparing the financial statements. APPROVAL OF THE FINANCIAL STATEMENTS The accompanying financial statements, together with the notes thereto, present fairly, in all material respects, the financial position of the Company as at 31 December 2013 and its financial performance and cash flows for the year then ended in accordance with the guidelines issued by the National Bank of Cambodia and Cambodian Accounting Standards, were approved by the Board of Directors. The members of the Board of Directors during the year and as at the date of this report are: Mr. Timothy Mark Amstutz, Chairman Mr. Daniel John Brose; Member (appointed on 25 January 2012) Mr. Ong Teong Hoon, Member Mr. Tan Teck Keong Michael, Member Ms. Srey Hem Roberts, Member Ms. Ing Varony, Member Ms. Tea Chansotheary, Member Mr. Fong Kum Choy, Member On behalf of the Board of Directors. RESPONSIBILITIES OF THE BOARD OF DIRECTORS IN RESPECT OF THE FINANCIAL STATEMENTS The Directors are responsible for ensuring that the financial statements are properly drawn up so as to present fairly, in all material respects, the financial position of the Company as at 31 December 2013 and its financial performance and cash flows for the year then ended. In preparing these financial statements, the Directors are required to: i) adopt appropriate accounting policies that are supported by reasonable and prudent judgements and estimates, and then apply them consistently; ii) comply with the disclosure requirements and the guidelines issued by the National Bank of Cambodia and Cambodian Accounting Standards or, if there has been any departure from such standards in the interest of fair presentation, ensure that this has been appropriately disclosed, explained and quantified in the financial statements; iii) maintain adequate accounting records and an effective system of internal controls; iv) prepare the financial statements on a going-concern basis unless it is inappropriate to assume that the Company will continue operations in the foreseeable future; and v) effectively control and direct the Company and be involved in all material decisions affecting its operations and performance and ascertain that such matters have been properly reflected in the financial statements

25 External Audit Report (Continued) External Audit Report (Continued) Independent auditor s report To the Shareholders of KREDIT Microfinance Institution Plc. We have audited the accompanying financial statements of KREDIT Micorfinance Institution Plc. (the Company), which comprise the balance sheet as at 31 December 2013, and the income statement, the statement of changes in equity and the cash flow statement for the year ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s responsibilities for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Cambodian Accounting Standards and guidelines of the National Bank of Cambodia, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Cambodian International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2013, and its financial performance and its cash flows for the year ended in accordance with the Cambodian Accounting Standards and the guidelines of the National Bank of Cambodia

26 External Audit Report (Continued) External Audit Report (Continued) 50 51

27 External Audit Report (Continued) External Audit Report (Continued) APPENDIX: NOTES ON COMPLIANCE WITH THE CENTRAL BANK S PRAKAS 52 53

28 External Audit Report (Continued) External Audit Report (Continued) APPENDIX: NOTES ON COMPLIANCE WITH THE CENTRAL BANK S PRAKAS FOR THE YEAR ENDED 31 DECEMBER 2013 LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIO, Prakas No. B Licensed microfinance institutions shall classify their loan portfolios into the following four classes, depending on the financial situation of the borrower and the timeliness of principal and interest payments. Loan term of one year or less than one year SOLVENCY RATIO, Prakas No. B A licensed deposit-taking microfinance institution shall at all times maintain a solvency ratio of more than 15%. As at 31 December 2013, the solvency ratio of the Company was 20.96%. The net worth and solvency ratio calculation are detailed in Schedule LIQUIDITY RATIO, Prakas No. B A licensed deposit-taking microfinance institution shall at all times maintain a liquidity ratio of at least 50%. As at 31 December 2013, the liquidity ratio of the Company was %. The liquidity ratio calculation is detailed in Schedule NET OPEN POSITION IN FOREIGN CURRENCY, Prakas No. B A licensed microfinance institution shall at all times maintain a net open position in foreign currencies in either any foreign currency or an overall net open position in all foreign currencies, whether long or short, which shall not exceed 20% of the Company s net worth. As at 31 December 2013, the net open position in Khmer Riel was short 7.84% and in Euro was long 0.24%. Standard: good financial condition and punctual payment of principal and interest Sub-standard: some payments of principal and/or interest are overdue by 30 days or more Doubtful: some payments of principal and/or interest are overdue by 60 days or more Loss: some payments of principal and/or interest are overdue by 90 days or more Loan term of more than one year Standard: good financial condition and punctual payment of principal and interest Sub-standard: some payments of principal and/or interest are overdue by 30 days or more Doubtful: some payments of principal and/or interest are overdue by 180 days or more Loss: some payments of principal and/or interest are overdue by 360 days or more Mandatory provisions on the loans are classified as follows: Sub-standard: 10% regardless of the collateral value except cash Doubtful: 30% regardless of the collateral value except cash Loss: 100% As at 31 December 2013, the provision provided by the Company was KHR 829,290 which is in compliance with the Central Bank s Prakas. Loan classification, provision and delinquency ratio calculation are detailed in Schedule 5. The net open position calculation is detailed in Schedule RESERVE REQUIREMENT, Prakas No. B A licensed deposit-taking microfinance institution shall deposit 8% of its deposits into an account maintained with the Central Bank. On 29 December 2010, the Company received a licence from the Central Bank to conduct a deposit-taking business. As at 31 December 2013, the Company s reserve requirement was KHR 64,786,931 which is greater by KHR 59,603,977 than the Central Bank s requirement. The reserve requirement calculation is detailed in Schedule

29 External Audit Report (Continued) External Audit Report (Continued) SCHEDULE 1 NET WORTH AND SOLVENCY RATIO AS AT 31 DECEMBER 2013 KHR 000 KHR 000 I- Sub-total A: Items to be added - Capital or endowment 19,857,947 - Reserve, other than revaluation reserves 3,741,565 - Premium related to capital (share premium) 5,583,013 - Provision for general banking risks, with the prior agreement of the - Central Bank - Retained earnings 18,862,220 - Audited net profit for the latest financial year 6,212,621 - Other items approved by the Central Bank - 54,257,366 II- Sub-total B: Items to be deducted - For shareholders, directors, managers and their next of kin 359,614 > Unpaid portion of capital - > Advances, loans, security and the agreement of the persons - concerned as defined above - Holding of own shares at their book value - - Accumulated losses - - Formation expenses - - Losses determined on dates other than the end of the annual accounting period (including provisions to be made for doubtful debt and securities) - 359,614 I- Numerator (A) Net worth 66,661,381 II- Denominator (B) Assets * KHR 000 Weighting - Cash 12,739,136 0% - - Gold - 0% - - Claims on the Central Bank 17,900,732 0% - - Assets collateralised by deposits - 0% - - Claims on sovereigns rated AAA to AA- - 0% - - Claims on sovereigns rated A+ to A- - 20% - - Claims on banks rated AAA to AA- - 20% - - Claims on sovereigns rated BBB to BBB- - 50% - - Claims on or guaranteed by banks or corporation 232,580 50% 116,290 - All other assets 317,857, % 317,857, ,729, ,973,648 III- Solvency ratio (A/B) 20.96% * The denominator of the ratio shall comprise the aggregate of the assets (net amount after deduction of provision and depreciation) and off-balance sheet items, weighted to their degree of risk. It excludes the items that are deducted in calculating the net worth according to the provisions of the Prakas on the calculation of microfinance institutions net worth. III- Total C: BASE NET WORTH = A B 53,897,752 IV- Sub-total D: Items to be added - Revaluation reserves, with the prior agreement of the Central Bank - - Subordinated debt, with the prior agreement of the Central Bank, up to 7,990, % of base net worth - Other items, with the prior agreement of the Central Bank, could be included in the calculation of net worth and shall not be more than the base net worth 4,773,629 12,763,629 V- Sub-total E: Items to be deducted - Equity participation in banking and financial institutions - - Other items - - VI- Total F: TOTAL NET WORTH = C + D - E 66,661,

30 External Audit Report (Continued) External Audit Report (Continued) SCHEDULE 2 LIQUIDITY RATIO AS AT 31 DECEMBER 2013 SCHEDULE 3 NET OPEN POSITION IN FOREIGN CURRENCY AS AT 31 DECEMBER Numerator: Liquid assets KHR 000 Liabilities Net open NOP/ Currency Assets and capital position (NOP) Net worth Limit KHR 000 KHR 000 KHR 000 % % - Cash on hand 12,739,135 - Balances with the Central Bank 10,877,126 - Balances with banks 9,380,480 US$ 278,560,017 (273,495,495) 5,064, % 20% KHR 70,366,387 (75,593,925) (5,227,538) (7.84%) 20% EUR 163, , % 20% Sub-Total (A) 32,996,741 Total 349,089,420 (349,089,420) - -% Less: - Amount owed to the Central Bank - Net worth 66,661,381 - Amount owed to banks 2,663,562 Sub-total (B) 2,663,562 SCHEDULE 4 RESERVE REQUIRMENT AS AT 31 DECEMBER 2013 Net liquidity (A B) 30,333,179 Plus: - Portion of loans outstanding maturing in less than one month 13,183,684 Liquid assets (L) 43,516, Denominator: Adjusted amount of deposits (A) Category of deposits KHR 000 % - Voluntary savings 64,786,931 25% 16,196,733 LIQUIDITY RATIO (L/A) % KHR Voluntary 1-1 Demand Savings (3.5%-6% per annum) 11,859, Term 52,927, Other Total reservable deposits 64,786, Compulsory 2-1 Program (3% per annum) Program Program Total compulsory savings - 3- Total savings mobilised 64,786,931 8% Reservable deposits 5,182,

31 External Audit Report (Continued) Contact Us SCHEDULE 5 LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIO AS AT 31 DECEMBER 2013 Mandatory Amount Rate Provision Loan classification KHR 000 % KHR Loans of one year or less 1-1 Standard 52,467,198 0% Substandard past due 30 days 21,529 10% 2, Doubtful past due 60 days 11,805 30% 3, Loss past due 90 days 31, % 31,812 Sub-total 1 52,532,344 37,509 2-Loans of more than one year 2-1 Standard 242,054,585 0% Substandard past due 30 days 394,067 10% 39, Doubtful past due 180 days 229,093 30% 68, Loss past due 360 days 140, % 140,984 Sub-total 2 242,818, ,116 Grand total 1+2 * 295,351, ,625 All loans past due > 30 days (A) 829,290 Loans outstanding (B) * 295,351,073 Delinquency ratio (A/B) 0.28% * Gross loans to customers without taking into consideration the offsetting of loans prepayments. HEAD OFFICE Building Nº 71, St. 163, Sangkat Toul Svay Prey I, Khan Chamkarmorn, Phnom Penh, Cambodia. Phone: (855) / (855) , Fax: (855) , info@kredit.com.kh 1. PHNOM PENH BRANCH 1.1 Phnom Penh Branch and Sub Branch Office Building Nº 71, St. 163, Sangkat Toul Svay Prey I, Khan Chamkarmorn, Phnom Penh. Phone: (855) Meanchey Sub Branch Office House Nº 694, St. 271, Group 41, Village 7, Sangkat Phsar Doeum Thkov, Khan Chamkarmorn, Phnom Penh. Phone: (855) Porthi Sencheuy Sub Branch Office House Nº 113, Russian Blvd., Porprok Tbaung Village, Sangkat Ka Kab, Khan Porthi Sencheuy, Phnom Penh. Phone: (855) Toul Kork Sub Branch Office Nº 115 AI, St. 273, Group 2, Toul Kok Village, Sangkat Toul Sangke, Khan Russei Keo, Phnom Penh. Phone: (855) Stueng Meanchey Sub Branch Office House Nº 8A, Monireth Blvd., Trea 3 Village, Sangkat Stueng Meanchey, Khan Meanchey, Phnom Penh. Phone: (855) KANDAL BRANCH 2.1 Kandal Branch and Takmao Sub Branch Office House Nº 14, National Road Nº 2, Ta Kdol Village, Sangkat Ta Kdol, Krong Takmao, Kandal Province. Phone: (855) Sa Ang Sub Branch Office House Nº 322, National Road Nº 21, Prek Ron Village, Prek Kouy Commune, Sa Ang District, Kandal Province. Phone: (855) Koh Thum Sub Branch Office For full external audit report, please visit: House Nº 65, National Road Nº 21, Kampong Svay Krom Village, Prek Thmey Commune, Koh Thom District, Kandal Province. Phone: (855) Kong Pisei Sub Branch Office National Road Nº 3, Tram Kna Village, Snom Kraper Commune, Kong Pisei District, Kampong Speu Province. Phone: (855)

32 Contact Us Continued Contact Us Continued 3. TAKEO BRANCH 3.1 Takeo Branch and Daun Keo Sub Branch Office Phsar Takor Village, Sangkat Rokaknoung, Krong Doun Keo, Takeo Province. Phone: (855) Bati Sub Branch Office National Road Nº 2, Chork Village, Trapeang Sap Commune, Bati District, Takeo Province. Phone: (855) Tram Kok Sub Branch Office National Road Nº 3, Prey Romdeng Village, Ang Tasom Commune, Tram Kok District, Takeo Province. Phone: (855) Kirivong Sub Branch Kampong Village, Choun Chum Commune, Kirivong District, Takeo Province. Phone: (855) Kampong Chreuy Unit Office House Nº 129, National Road Nº 2, Group 5, Kampong Chreuy Village, Smorng Commune, Treang District, Takeo Province. Phone: (855) KAMPONG CHAM BRANCH 4.1 Kampong Cham Branch and Sub Branch Office National Road Nº 7, Boeng Snay Village, Sangkat Sambourmeas, Krong Kampong Cham, Kampong Cham Province. Phone: (855) Batheay Sub Branch Office National Road Nº 6A, Ph av Village, Ph av Commune, Batheay District, Kampong Cham Province. Phone: (855) Prey Chhor Sub Branch Office National Road Nº 7, Daun Dey Village, Chrey Vien Commune, Prey Chhor District, Kampong Cham Province. Phone: (855) Chamkar Leu Sub Branch Office National Road Nº71, Thnal Bek Koeut Village, Svay Teap Commune, Chamkar Leu District, Kampong Cham Province. Phone: (855) Stueng Trang Sub Branch Office 4.6 Bos Knaor Sub Branch Office National Road Nº71, 10 Makara Village, Bos Knaor Commune, Chamkar Leu District, Kampong Cham Province. Phone: (855) Baray Sub Branch Office National Road Nº 6, Sala Khum Village, Triel Commune, Baray District, Kampong Thom Province. Phone: (855) Cheung Prey Unit Office National Road Nº 6, Skun Village, Sotip Commune, Cheung Prey District, Kampong Cham Province. Phone: (855) Bek Anloung Unit Office Bek Anloung Village, Arak Tnoat Commune, Stueng Trong District, Kampong Cham Province. Phone: (855) SOUNG BRANCH 5.1 Soung Branch and Sub Branch Office National Road Nº 7, Choeung Lorng Village, Sangkat Soung, Krong Soung, Kampong Cham Province. Phone: (855) Memot Sub Branch Office National Road Nº 7, Masin Tek Village, Memot Commune, Memot District, Kampong Cham Province. Phone: (855) Ponhea Kraek Sub Branch Office National Road Nº 7, Stueng Village, Koang Kang Commune, Ponhea Kraek District, Kampong Cham Province. Phone: (855) Ou Reang Ov Sub Branch Office Tomneap Village, Kong Chey Commune, Ou Reang Ov District, Kampong Cham Province. Phone: (855) Kraek Sub Branch Office National Road Nº 72, Chimoin Lech Village, Kraek Commune, Ponhea Kraek District, Kampong Cham Province. Phone: (855) Rokarpor Pram Unit Office (Trapaing Russei Unit Office) Trapaing Russei Village, Rokarpor Pram Commune, Tbaung Khmum District, Kampong Cham Province. Phone: (855) Dambe Sub Branch Office National Road Nº 73, Dambe Village, Dambe Commune, Dambe District, Kampong Cham Province. Phone: (855) Beoung Deng Village, Prek Kok Commune, Stueng Trang District, Kampong Cham Province. Phone: (855)

33 Contact Us Continued Contact Us Continued 6. NEAK LOEUNG BRANCH 8. KAMPONG CHHNANG BRANCH 6.1 Neak Loeung Branch and Peam Ro Sub Branch Office National Road Nº 1, Village 1, Preak Khsay Khor Commune, Peam Ro District, Prey Veng Province. Phone: (855) Leuk Dek Sub Branch Office Kampong Chamlorng Village, Prek Tonlaob Commune, Leuk Dek District, Kandal Province. Phone: (855) Baphnom Sub Branch Office House Nº 45, Chhoeur Kach Village, Chheour Kach Commune, Baphnom District, Prey Veng Province. Phone: (855) Kampong Trabek Sub Branch Office Doun Tung Village, Prasat Commune, Kampong Trabek District, Prey Veng Province. Phone: (855) Preah Sdach Sub Branch Office Krosaing Toung Village, Ang Reach Commune, Preah Sdach District, Prey Veng Province Phone: (855) PREY VENG BRANCH 7.1 Prey Veng Branch and Svay Antor Branch Office Pou Chentam Village, Svay Antor Commune, Svay Antor District, Prey Veng Province. Phone: (855) Pea Reang Sub Branch Office House Nº 174, National Road Nº 8, Group 16, Snay Pol Village, Roka Commune, Pea Reang District, Prey Veng Province. Phone: (855) Prey Veng Sub Branch Office House 01, Group 1, Village 4, Sangkat Kampong Leav, Krong Prey Veng, Prey Veng Province. Phone: (855) Kamchay Mear Sub Branch Office House Nº 09, National Road Nº 8, Group 10, Chhor 2 Village, Kronhoung Commune, Kamchay Mear District, Prey Veng Province. Phone: (855) Kanh Chriech Unit Office Prongeuy Muoy village, Thma Pun Commune, Kanh Chriech District, Prey Veng Province. Phone: (855) Kampong Popil Unit Office House 271, Kampong Popil Village, Kampong Popil Commune, Pea Reang District, Prey Veng Province. Phone: (855) Kampong Chhnang Branch and Sub Branch Office National Road Nº 5, Damnak Popoul Village, Sangkat Kampong Chhnang, Krong Kampong Chhnang, Kampong Chhnang Province. Phone: (855) Kampong Trolach Sub Branch Office Kaort Village, Peany Commune, Kampong Trolach District, Kampong Chhnang Province. Phone: (855) Boribo Sub Branch Office Cheung Khnar Village, Ponley Commune, Boribo District, Kampong Chhnang Province. Phone: (855) Kampong Leng Sub Branch Office Kampong Boeng Village, Kampong Hao Commune, Kampong Leng District, Kampong Chhnang Province. Phone: (855) Toek Phos Sub Branch Office Sre Tachey Village, Ark Phiwat Commune, Toek Phos District, Kampong Chhnang Province. Phone: (855) Oddong Sub Branch Office National Road Nº 5, Tep Pror Nom Village, Vihea Luong Commune, Pongnea Leu District, Kandal Province. Phone: (855) SIEM REAP BRANCH 9.1 Siem Reap Branch and Sub Branch Office House Nº 29, Group 4, Ta Phul Village, Sangkat Svay Dangkum, Krong Siem Reap, Siem Reap Province. Phone: (855) Puok Sub Branch Office National Road Nº 6, Otaprak Village, Pouk Commune, Pouk District, Siem Reap Province. Phone: (855) Sothnikom Sub Branch Office House Nº 8, National Road Nº 6, Domdek Phsa Village, Domdek Commune, Sothnikom District, Siem Reap Province. Phone: (855) Kralanh Sub Branch Office House Nº 39, National Road Nº 6, Group 1, Kampong Thkov Village, Kampong Thkov Commune, Kralanh District, Siem Reap Province. Phone: (855) BATTAMBANG BRANCH 10.1 Battambang Branch and Sub Branch Office House Nº 33, National Road Nº 5, Group 2, Romchek 5 Village, Sangkat Rottanak, Krong Battambang, Battambang Province. Phone: (855) Moung Russei Sub Branch Office National Road Nº 5, Group 5, Moung Village, Moung Commune, Moung Russei District, Battambang Province. Phone: (855)

34 Contact Us Continued Contact Us Continued 10.3 Thma Koul Sub Branch Office House Nº 76, Group 7, Thma Koul Village, Ta Mern Commune, Thma Koul District, Battambang Province. Phone: (855) Mongkol Borei Sub Branch Office House Nº 265, Group 15, Kouk Svay Village, Russei Kraok Commune, Mongkol Borei District, Bateay Meanchey Province. Phone: (855) Ratanak Mondul Sub Branch Office House Nº 156, National Road Nº 57, Group 01, Sdao Village, Sdao Commune, Ratanak Mondul District, Battambang Povince. Phone: (855) KRATIE BRANCH 11.1 Kratie Branch and Sub Branch Office House Nº 541, Wat Village, Sangkat Kratie, Krong Kratie, Kratie Province. Phone: (855) Chhlong Sub Branch Office Chrouy Tmor Krorm Village, Chhlong Commune, Chhlong District, Kratie Province. Phone: (855) Angkor Cheuy Sub Office National Road 31, Bral village, Tani Commune, Angkor Cheuy District, Kampot Province. Phone: (855) Kampong Trach Sub Office National Road Nº 33, Kampong Trach 1, Kampong Trach Khang Keut, Kampong Trach District, Kampot Province. Phone: (855) PURSAT BRANCH 14.1 Pursat Branch and Sub Branch National Road Nº 5, Sathani Village, Sangket Svay At, Pursat Town, Pursat Province. Phone: (855) Krokor Sub Branch Office Samrorng Village, Kbal Trach Commune, Krokor District, Pursat Province. Phone: (855) Bakan Sub Branch Office National Road Nº 5, Group 19, Boeung Khna Village, Boeung Khna Commune, Bakan District, Pursat Province. Phone: (855) Sam Bo Sub Branch Office Keang Phra Sat Village, Sam Bo Commune, Sam Bo District, Kratie Province. Phone: (855) SVAY RIENG BRANCH 12.1 Svay Rieng Branch and Sub Branch Office Rorng Bonlaer Village, Sangkat Svay Rieng, Krong Svay Rieng, Svay Rieng Province. Phone: (855) Bavet Sub Branch Office National Road Nº 1, Toul Ampel Village, Sangkat Chrokmtes, Krong Bavet, Svay Rieng Province. Phone: (855) Romeas Hek Sub Branch Office Krosang Village, Krosang Commune, Romeas Hek District, Svay Rieng Province. Phone: (855) KAMPOT BRANCH 13.1 Kampot Branch and Chhouk Sub Branch National Road Nº 3, Satv Pong Village, Satv Pong Commune, Chhouk District, Kampot Province. Phone: (855) Get your professions and skills with KREDIT s education loan