Outreach Highlights with Operational Map

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2 Prasac Annual Report Outreach Highlights With Operational Map Outreach Highlights with Operational Map Coverage Branch network Provinces : 24 Branches : 18 Districts : 164 Sub Branches : 74 Communes : 1,398 Service Offices : 50 Villages : 9,396 Staff : 1,440 Total assets : US$ 112,229,378 Outstandings : US$ 104,952,771 2

3 Prasac Annual Report Key Financial Highlights Key Financial Highlights Financial Information (US$ Currency) Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Balance Sheet Loan Outstanding (net) 21,668,864 32,988,091 57,950,559 62,730, ,474,768 Total Assets 26,127,547 37,018,632 60,772,860 70,886, ,229,378 Total Liabilities 16,245,051 22,363,534 41,133,042 48,984,651 86,309,657 Total Equity 9,882,496 14,655,098 19,639,818 21,901,661 25,919,721 Profit and Lost Statement Operating Income Before Loan Loss Provision 4,694,559 7,579,170 11,261,730 11,881,556 15,257,389 Loan Loss Provision (57,173) (178,942) (448,522) (507,615) (1,082,035) Net Operating Income Before Operating Expense 4,637,386 7,400,228 10,813,208 11,373,941 14,175,354 Total Operating Expense (3,643,279) (4,831,201) (7,133,943) (8,131,016) (10,157,799) Net Profit before Non Operating Activities 994,108 2,569,026 3,679,266 3,242,925 4,017,553 Non Operating Income 10, , , ,332 Non Operating Expense (164,839) (175,999) (54,874) - - Net Profit Before Tax 839,326 2,393,027 3,743,698 3,528,181 4,317,885 Income Tax Expense (169,962) (494,939) (928,030) (851,781) (926,668) Net Profit After Tax 669,364 1,898,088 2,815,668 2,676,399 3,391,217 3

4 Table of Contents 2 Outreach Highlights with Operational Map 3 Key Financial Highlights About PRASAC 5 6 Vision and Mission 7 Background 8 Milestones 9 Our Challenges 10 Business Objectives 11 Clients and Client Highlights 14 Financial Products 17 Organizational Chart 18 Shareholders 19 Board Committee 20 Board of Directors 23 Management 29 Remark from Chairman 31 Remark from President & CEO 32 Financial Performance Highlights 34 Operational Higlights 37 Staffing & Capacity Building 39 Internal Control & Risk Management 41 Marketing Activities Audited Financial Statements Report of the Board of Directors 48 Report of the Independent Auditors 49 Balance Sheet 50 Income Statement 51 Statement of Changes in Equity 52 Statement of Cash Flows 4

5 About PRASAC Vision and Mission 6 Background 7 Milestone 8 Our Challenges 9 Business Objectives 10 Clients and Client Highlights 11 Financial Products 14 Organizational Chart 17 Shareholders 18 Board Committee 19 Board of Directors 20 Management 23 Remark from Chairman 29 Remark from President & CEO 31 Financial Performance Highlights 32 Operational Higlights 34 Staffing & Capacity Building 37 Internal Control & Risk Management 39 Marketing Activities 41 5

6 VISION To improve the living standards of the rural people contributing to sustainable economic development by being a financially viable microfinance institution MISSION To provide sustainable access to financial services for rural communities and micro- enterprises 6

7 Prasac Annual Report Background Background PRASAC MFI was a former credit component of PRASAC s project funded by the European Union and implemented by three ministries of the Royal Government of Cambodia. The project was started in 1995 to rehabilitate and support agricultural sector in six provinces around Phnom Penh i.e. Kampong Cham, Kampong Chhnang, Kampong Speu, Takeo, Prey Veng, and Svay Rieng. PRASAC s project was finished in December To ensure the access to financial services to rural communities and micro-enterprises, PRASAC s Project Steering Committee made a strategic decision to transform its credit component into a licensed MFI. In March 2002, the transformation was started by creating PRASAC Credit Association as credit operator registered with the National Bank of Cambodia (NBC). In 2003, a trust fund called Cambodia Rural Development Foundation (CRDF) and PRASAC Staff Company were established to facilitate the transformation. With two initial shareholders, PRASAC MFI Ltd was established by registering with the Ministry of Commerce as a private limited liability company in August 2004 and got its license from the NBC in November 2004 to legally provide financial services to rural communities and micro-enterprises. To finalize its transformation, PRASAC started to identify and negotiate with investors since 2005 in order to replace the temporary shareholders i.e. CRDF. In 2007, PRASAC completed its transformation by replacing CRDF with new five shareholders such as BIO (Belgian Investment Company for Developing Countries), DGC (Dragon Capital Group), FMO (The Netherlands Development Finance Company), LOLC (Lanka ORIX LEASING Company Ltd), and Oikocredit. Particularly, PRASAC received a permanent license from NBC in December PRASAC engaged primarily in the provision of micro-finance services to the rural population of Cambodia through its headquarter in Phnom Penh and various provincial and district offices in Cambodia. The amended Memorandum and Articles of Association for the changes in shareholders were certified by the Ministry of Commerce and the National Bank of Cambodia on 14 October 2008 and 6 November 2008 respectively. In order to meet requirements and serve as a platform for future growth and diversification, PRASAC launched Oracle FLEXCUBE Universal Banking as its Core Banking System to ease banking transactions, to build a competitive advantage, to help us to better serve targeted customers across Cambodia and to effectively manage the information system. On 27 August 2010, PRASAC obtained a Microfinance Deposit Taking Institution ( MDI ) license for the Head Office to conduct deposit taking business from the National Bank of Cambodia. With a permanent license to conduct micro finance business and MDI license for savings mobilization in Cambodia, PRASAC is now focusing on strengthening its operations and processes to take on a larger role in the country s financial development by providing financial services to rural communities and microenterprises. 7

8 Prasac Annual Report Milestone Milestone : PRASAC I, EU-funded three rural development projects in six provinces, with three different credit components : Extension as PRASAC II, combined to one project, one credit component : First strategic decision to create a sustainable institution beyond the closure of PRASAC II project : HO and branch offices separated from PRASAC II, with separate management but still as a part of the project : The establishment of PRASAC Credit Association (PCA) was registered with the NBC in March 2002 as Rural Credit Operator : Two initial shareholders were created, a Trust Fund called CRDF created by PRASAC II and PRASAC Staff Company created by staff members : Registered as PRASAC MFI Ltd with Ministry of Commerce as a private limited liability company and received license from NBC : The credit fund was transferred from EC to the government and finally to PRASAC MFI Ltd as Subordinated Debt with free interest and valid from Dec : The commercialization process was to seek for equity investment participation from commercial and social investors : PRASAC completed its transformation by replacing CRDF with new five shareholders, BIO, DCG, FMO, LOLC, and Oikocredit. Particularly, PRASAC received a permanent license from NBC in December : PRASAC increased its capital to 15 billion riels from six shareholders. PRASAC was rewarded for extending its financial services throughout the country : PRASAC selected Oracle Flexcube to modernize its core system to build competitive advantages, offer more diversified ranges of products and prepare for the next level : PRASAC obtained a Microfinance Deposit Taking Institution ( MDI ) license to conduct deposit taking business from the National Bank of Cambodia. 8

9 Prasac Annual Report O u r C h a l l e n g e s Our Challenges To continue serving the rural poor under high professional and moral standards implementing transparency and good governance on all operational levels. To reinforce credit discipline among staffs and clients by strengthening internal control system. To diversify loan portfolio and review financial products and services to be competitive and suit clients demands, and to look for external funding to safeguard funds and plan expansion. 9

10 Prasac Annual Report Business Objectives Business Objectives The business objectives of the Company are to carry out activities of microfinance by providing financial services to rural households and small and medium enterprises, such as: 1 2 Credit services in the form of group and individual loans Savings and money transfer services 3 4 To raise funds or borrow money in such manner as the company shall think fit and to secure the repayment of any money borrowed, raised or owed to creditors Do all such other things as incidental or which the Company may think fit and conducive to the attainment of the above objectives The objectives shall be achieved by strict adherence of high professional and moral standards, transparency, and good governance. 10

11 Prasac Annual Report Clients & Client Highlights Clients & Client Highlights PRASAC s Clients Rural Communities: Clients are the rural village households that have repayment capacity residing in rural areas outside the urban areas of all provincial towns. Microenterprise Clients are microenterprises that have number of employees less than 11 and or assets less than USD50, 000. Client Highlights: Mrs. Theara at her store in the market Mrs. Morm Theara, 41, Electronic Appliance Retailer, PRASAC MFI With her friendly greeting, Mrs. Theara happily informs us about her business with many kinds of electronic appliances in the store. She is one of PRASAC s clients living in Chong Prek Village, Svay Rieng Commune, Svay Rieng District in Svay Rieng province. At the previous time, she sold not many electronic items owing to shortage of working capital. In this regard, she usually buys the items from Phnom Penh suppliers and sells to the local people from various districts in Svay Rieng province. She has applied loans from PRASAC for two times. Concerning with this, she could develop her business activity with more electronic apparatus options available for her clients with the rural financial assistance from PRASAC MFI. At the same time, she could improve her competitiveness against the competitors in the same business activity as well as diversification of suppliers. 11

12 Prasac Annual Report Clients & Client Highlights Mrs. Theara (Continous) Generally, PRASAC has a clear credit policy and loan procedures for evaluating each client. In this regard, Mrs. Thera is one of the qualified borrowers in terms of business activity, clear source of income, business growth, experiences, good attitudes and the like. First of all, she requested USD 2,000 in 2007 with 12 months following with monthly interest and principal paid. With this loan, she bought more electronic items to support her business and competition. With the convenience of loan procedures and services, she then applied for the next loan with USD 5,000 from PRASAC with 24 months and monthly interest and principal paid as well. In this regard, she could afford to supply more devices to her domestic customers with wide ranges of products available. With loans from PRASAC, I could improve my business, competitions as well as supply options said Mrs. Theara Mrs. Thary Producing jar Mrs. Hean Thary, 35, Jar Producer, PRASAC MFI Mrs. Hean Thary, 35, is a client in Thnal Chorpon Village, Roleab Commune, Sampov Meas District, and Pursat Province. She used to be a porridge seller at home for the locals. She had to get up early in the morning to cook porridge to sell. With low income she stopped selling porridge and she has started a new economic activity in terms of jar making. She requested loans from PRASAC for many times in order to buy cement and other instruments to process her works. In this regard, she could develop a new economic activity to earn more income to support her family. She requested USD 700 for the first loan to buy a new motorbike and then USD 2,000 for running her new business of Jar Production. Concerning with this, she has a specific source of income and commitments to her work. This brings about the reliability between PRASAC and her to be a partner. Last time she got another USD 2,000 with 12 months to improve her working processes as well as productivity. In this regard, her business grows with more working capital to improve the working process with adequate instruments. At the same time, she could buy some household assets including another new motorcycle, some land and the like. Furthermore, she expects to have another loan in case she could run another new economic activity. 12

13 Prasac Annual Report Clients & Client Highlights Mrs. Chenda is cooking for her families Mrs. Norng Chenda, 31, a Biodigester Client, PRASAC MFI Mrs. Chenda is a farmer living in Chantrea Village, Chantrea Commune in Svay Rieng province. She grows paddy for her living and raises livestock for extra income. At the same time, her husband is a teacher in the community. Through the agricultural agency working related to the National Biodigester Program in the community, she learned how to access to get financial assistance for biogas plant construction. At the same time, she has many cattle that enable her to construct a biogas plant. She requested loan USD 500 from PRASAC for 4 months loan term with monthly interest and principal paid through PRASAC s credit officer. With this loan she could construct 6 cubic meters of biogas plant in which produces gas from kg for household consumptions. This plant, gives her convenience for cooking and boiling water for the household. At the same time, it produces electricity for the family at night that is no longer hard to look for firewood and spend money for battery charged like before. Furthermore, she could have bio-slurry from the plant to fertilize the farm soil, and other crops to produce more yields. Biodigester loan provides me convenience for cooking and boiling water in the household said Mrs. Chenda. 13

14 Prasac Annual Report Financial Products and Eligibility Financial Products About Credits PRASAC gives the variety of credit product types to fulfill its client needs and satisfaction (families and enterprises), living in rural areas and towns. Loans are granted based on actual needs and repayment capacity of the clients. Interest rates and loan term are competitively set and based on borrowers income generation. Loans can be granted in Khmer Currency (KHR), Thai Currency (THB) and US Dollar (USD). With loans given by PRASAC, borrowers will be able to improve their living conditions and sustainability of the national economy as well. The following are about the financial products created and launched by PRASAC MFI as of December Credit Product Types PRODUCT 1: GROUP LOAN PRASAC is offering group loans to its customers as loan security. The group loan has been characterized in simple features. The loan size per group is up to KHR 5, 000, 000 or THB 50, 000 or USD 1, 250 with flexible repayment modes and loan term up to 12 months owing to income-generation activities. The clients can use loans for opening or running their micro businesses such as farming and other legal income generation activities. The annual interest rate ranges from 36% to 39% for KHR& THB or from 32.4% to 36% for USD. PRODUCT 2: MICRO-SMALL-MEDIUM LOAN Loans up to KHR 40, 000, 000 or THB 800, 000 or USD 25, 000 with term up to 36 months and flexible repayment modes are considered as micro-small-medium loans developed by PRASAC to grant to clients who need fund to open or expand their businesses, trades, farming, plantation, and other legal income generation activities. The interest rates range from 25.2% to 39% per annum for KHR, from 22.8% to 39% per annum for THB, or from 19.2% to 36% per annum for USD. PRODUCT 3: BIG TICKET LOAN In response to obvious needs of Micro-Small- Medium enterprises for bigger loan amount to expand their businesses, trades, plantation and other legal income generation activities, PRASAC launched big-ticket loans to be granted up to USD 50, 000 with maximum loan term of 36 months and flexible repayment modes. The loans are just given in USD to borrowers with the interest rates ranging from 16.8 % to 19.2% per year. PRODUCT 4: PERSONAL CONSUMPTION LOAN To help clients in managing and reserving cash for purchasing furniture, equipment, paying school tuition fee, and other consumption tools; PRASAC has developed personal consumption loans up to KHR 40, 000, 000 or USD 25, 000 or THB 800, 000, loan term up to 36 months, flexible repayment modes, and annual interest rates ranging from 25.2% to 34.8% for KHR, from 22.8% to 34.8% for THB, or from 19.2% to 32.4% for USD. 14

15 PRODUCT 5: HOME IMPROVEMENT LOAN To comfort and brighten clients living, PRASAC develops loans for them to use for improving and decorating their existing houses. A client can borrow a loan up to KHR 40, 000, 000 or USD 25, 000 or THB 800, 000, loan term up to 36 months, flexible repayment modes, and annual interest rates ranging from 25.2% to 34.8% for KHR, from 22.8% to 34.8% for THB, or from 19.2% to 32.4% for USD. PRODUCT 6: BIO-GAS LOAN With NBP (National Biodigester Program) collaboration and in terms of social responsibility for poverty reduction and environmental protection, PRASAC has developed bio-gas loan for people living in rural areas with full capacity to collect animal feces in order to be able to construct plants for producing bio-gas for cooking and generating electricity for family uses. Loans are granted (only in US currency) up to USD 1, 000 with term up to 24 months, annual interest rate of 14.4% per annum and flexible repayment modes. About Deposits PRASA has received an MDI License from National Bank of Cambodia in August 2010 to conduct Deposit Taking Business as a step further from its core credit business to savings mobilization from the public. Looking ahead to 2011, if the Cambodian economic environment becomes better and the savings mobilization strategies will be well prepared for, it is reasonable to expect more deposits from the public and higher savings growth in our balance sheet. 15

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17 Prasac A n n u a l R e p o r t O r g a n i z a t i o n C h a r t Organizational Chart Product Management Division Remuneration Committee Executive Committee Asset & Liability Committee Credit Committee Human Resources Division Personnel Department SHAREHOLDERS BOARD OF DIRECTORS Audit Committee Credit & Risk Committee President & Chief Executive Officer Internal Audit Department Credit Product Development Committee Fee-based Product Development Committee Business Management Division Finance Division Finance Department Operations Department Operations Division Risk Management Department Credit Product Department Phnom Penh Branch Prey Veng Branch Deposit Product Department Kandal Branch Svay Rieng Branch Marketing & Corporate Communication Department Kampong Speu Branch Kratie Branch Company Secretary & Legal Company Training & Development Department Takeo Branch Kampot Branch Pursat Branch Battambang Branch Sales Support Department Performance Management Department Treasury Department Kep Branch Sihanouk Branch Koh Kong Branch Kampong Cham Branch Kampong Thom Branch Pailin Branch Banteay Meanchey Branch Siem Reap Branch Oddar Meanchey Branch Preah Vihear Branch IT Department Stung Treng Branch Ratanakiri Branch General Administration Department Kampong Chhnang Branch Mondolkiri Branch 17

18 Prasac Annual Report PRASAC s Shareholders Shareholders The share capital of the Company as at December 2008 was KHR 15 Billion (Fifteen billion Khmer Riel) distributed among the six shareholders - BIO, Dragon Capital Group (DCG), The Netherlands Development Finance Company (FMO), Lanka Orix Leasing Company (LOLC), Oikocredit, and PRASAC Staff Company (PS Co.). Vietnam and international financial circles as one of the premier Vietnam-focused financial institutions. Dragon Capital Group serves the investment banking needs of international and domestic businesses to enable them to realize their investment goals in Vietnam. Shareholders % Shareholding BIO 18% DCG 18% FMO 18% LOLC 18% Oikocredit 18% PSCo 10% The Netherlands Development Finance Company (FMO) supports the private sector in developing countries and emerging markets in Asia, Africa, Latin America and Central and Eastern Europe. We do this with loans, participations, guarantees and other investment promotion activities. BIO is a member of EDFI, the Association of European Development Finance Institutions. BIO participates in European Financing Partners / EFP, a co-financing facility established by ten of the EDFI-members. Its purpose is to facilitate the financing of private sector projects in the ACP states in collaboration with the European Investment Bank. Dragon Capital Group (DCG) is a diversified investment banking institution offering traditional financial products and services with an exclusive focus on Vietnamese capital markets. The firm is known both within Lanka Orix Leasing Company strives to deliver financial services to its customers with both corporate and rural grass roots level, in every region where it operates in Sri Lanka. Since its inception in 1980, it has been working with small and medium size entrepreneurs, which represents over 80% of its client portfolio. The Company innovates continuously in providing adapted financial solutions such as leasing products, factoring services, savings and deposit products, small loans and insurance broking services. 18

19 Prasac Annual Report PRASAC s Shareholders: Board Committee Oikocredit started as a pioneer in the field of development financing. Today, it is one of the largest financiers of the microfinance sector worldwide. Oikocredit is one of the few ethical investment funds, which finances development projects in the South benefiting disadvantaged and marginalized people. Privately owned, Oikocredit is a unique cooperative society, which encourages investors to invest their funds in a socially responsible manner. PRASAC Staff Company (PSCo.) was established under the law and general provisions of Kingdom of Cambodia and has the following objectives: To make equity investments in PRASAC MFI Ltd and to manage the investments in accordance to high moral and professional standards, with transparency and good governance. The company might be engaged in any other capital and asset management, investment and trading and other financial or other activities and services which relate directly or indirectly to the above objectives or similar purposes, and are characteristic of the development of the company s operations. Board of Director Committee: With full capacity of the Board of Directors, the two initial committees were created in order to support the management in operations. Audit Committee: The audit committee comprises of two Board of Directors, i.e. Mr. Michael Temple and Mr. Ranjit Fernando and Internal Audit Department Manager. The duties of the audit committee are to review the report of the internal and external audit reports, monitor the integrity of the financial statements, compliance of the policies and procedures, review the internal control system and risk management of PRASAC, and provide recommendations for implementation. In addition, the non-executive members will meet the external auditors twice a year i.e. in September before the external audit starts and in March after the completion of the external audit assignment. The committee will meet at every three months. HR and Remuneration Committee: The key role of this committee is to evaluate the performance of the top management and determine remuneration for the top management. The committee is composed of Mr. Stefan Harpe and Ms. Anne Demeuse. 19

20 Prasac Annual Report Board of Directors Board of Directors MR. MichAel TEMPLE, Director, Chairman of the Board, Representative of DCG MichaEl was educated in both Hong Kong and Scotland and joined the HSBC Group as an International Manager in He worked for HSBC in a number of areas primarily in the corporate banking and risk management in Germany, Brunei, Hong Kong, India, Indonesia, Bahrain and Vietnam. His last role in the HSBC Group was Chief Operating Officer in Vietnam where he worked for 6 years. He was also the project leader in evaluating the potential of Vietnam as a site for an HSBC Data Processing and Call Center site. He s retired from the HSBC Group in 2005 and became a Director of Dragon Capital, a UK based Investment Bank and Fund Management Company whose main focus of business is in Vietnam. He is the Group COO and is part of the committee that evaluates the Groups private investments. PRASAC is the Dragon Capital Groups first investment in Cambodia. MR. STEFAN HARPE DIRECTOR, Member of the Board, Representative of Oikocredit STEFAN is Manager Equity Investments, Oikocredit, Amersfoort, Netherlands; working with Oikocredit s local managers in 28 country offices in Africa, Latin America, Asia and Eastern Europe to manage the private equity investment portfolio i) financial (mostly microfinance); ii) non-financial (businesses with high development impact); iii) specialized equity funds. Oikocredit is a global development finance institution with about 340 million total assets, funded by individuals (26,000 shareholders), churches, and institutional investors. While not profit-maximizing, and balancing dual objectives of development impact and investment return, Oikocredit is sustainable and generates a healthy surplus on the total portfolio (loans and equity). Previously, Stefan was Fund Manager, AfriCap Microfinance Fund, based in, Senegal, and prior to that Director International Operations, Calmeadow, Toronto, Canada. His formal education includes - MBA, University of Western Ontario, Canada, and B.Sc (Econ), LSE, England. 20

21 Prasac Annual Report Board of Directors MR. RANJIT MICHAEL SAMUEL FERNANDO Director, Member of the Board, Representative of Fmo RANJIT is Team Leader ICT Capacity Building Program, implemented by the Government of Sri Lanka and funded by the World Bank. He is also a team leader in consultancy assignment funded by the World Bank for the setting up of the Housing Finance Corporation in the Maldives. He is an expert in Project / SME / Microfinance Financing Specialist, Development Banking, Legal Aspects relating to credit and Banking, Institutional Development and Strategic Planning, and Corporate Governance. He holds Attorney at Law (1st Class Honours), Ceylon Law College, Sri Lanka; Bachelor of Laws (Hons), University of Sri Lanka; Fellow of the Chartered Institute of Bankers, United Kingdom; Fellow of the Chartered Institute of Management Accountants, United Kingdom. MR. ISHARA C. NANAYAKKARA DIRECTOR, Member of the Board, Representative of LOLC Ishara is the Deputy Chairman of Lanka ORIX LEASING Company Ltd. He is the Managing Director of Ishara Traders, the pioneering importer of reconditioned motor vehicles in Sri Lanka. Having obtained a diploma in Business Accounting from Australia, he worked in Japan for two years with the largest exporter of reconditioned motor vehicles Yamagin Corporation, Tokyo. Ishara is a Director of Ishara Plantations (Pvt) Ltd, and Ishara Property Development (Pvt) Ltd. Mr. I C Nanayakkara also serves as a director on the boards of all LOLC subsidiaries. MS. ANNE DEMEUSE DIRECTOR, Member of the Board, Representative of BIO ANNE has been active within BIO nearly since its inception in July She initiated BIO s first investments, mainly in the microfinance sector and SME funds, and held the position of Senior Investment Officer Asia until the end of Later in 2006, she changed to the position of Portfolio Controler, responsible for the monitoring of BIO s investments. Before joining BIO, Ms. Demeuse worked in the banking sector, and more specifically in commercial banking and corporate finance where she advised for IPOs and trade sale transactions. She also gained audit experience within Ernst and Young after her graduation. Ms DEMEUSE holds a degree of Management Engineer from the Solvay Business School. 21

22 Prasac Annual Report Board of Directors MR. OUM SAM OEUN Director, Member of the Board, Representative of PSCo. SAM OEUN used to work as chief accounting officer in Takeo Province commerce department. Since 1995, he has worked with PRASAC credit program, and he has attended several training courses related to microfinance operations. He was elected as Chairman of Board of Director of PRASAC Staff Company (PSCo., Ltd) since 2003, and he was re-elected as the chairman PS Co., Ltd until now. He holds Master Degree of Business Administration, Bachelor degree in Business Management and obtained a Diploma in Accounting and Commerce in MR. PHAI TOUCH Independent Director, Member of the Board Dr. Phai Touch has years of working experiences at all corporate levels, educational backgrounds and continuous professional development. He is working as a Business Analyst/CAE for Daun Penh Cambodia Group. He spent time almost two decades worked in different industries for both non-profit and profit organizations as an Internal Audit Director, Finance Manager, Independent Board Member, Credit Administrator, Finance Operations Executive, consultant, internal audit supervisor, and with UNTAC and US Embassy. He earned MBA (Finance) from Charles Sturt University, Australia; MBA (Accounting) from MUM, IOWA, USA; and Doctor of Business Administration from Preston University and other certificate LCCI, UK. Overseas Main Cashier, Foreign Service Institute, Washington D.C. U.S.A, Good Governance and Effective, Shorecap Exchange, IFC, Washington D.C. and other numerous overseas and local trainings for the corporate level. 22

23 Prasac Annual Report Management Management MR. SIM SENACHEERT President & ceo Senacheert holds Master and Bachelor Degrees in Business Administration and obtained Diploma in Accounting and Finance in Since 1995, he has attended several training courses related to microfinance operations and management. He is also an accredited Microfinance Training of Trainer certified by ADBI, TDLC of the WB, and UNCDF. He used to work in banking sector, and he started working with PRASAC since 1995 as Credit Officer and was promoted to various positions such as accountant, Branch Manager, MB Trainer and Supervisor, Finance Manager. From mid 2002, he used to hold positions of Branch Manager, Operation Manager, and Deputy CEO with another MFI before joining PRASAC as General Manager in late He is currently holding the position of President & Chief Executive Officer. MR. OUM SAM OEUN EVP & COO Sam Oeun holds MBA of Banking and Finance and he obtained a Diploma in Accounting and Commerce in 1988 and holds a Bachelor degree in Business Management. Since 1995, he has attended several training courses related to microfinance operations and management. He is also an accredited Micro Finance Training of Trainer certified by ADBI, TLDC of the WB, and UNCDF. He used to work as chief accounting office in Takeo province commerce department. Since 1995, he has worked with PRASAC credit program, and he has attended several training courses related to microfinance operations. He was promoted as Deputy General Manager of PRASAC MFI in early He is currently holding the position of Executive Vice-President & Chief Operations Officer. 23

24 Prasac Annual Report Management MR. OUM SOPHAN EVP & CFO Sophan holds Master Degree in Business Administration and holds Bachelor s Degree in economics, specializing in banking and finance. Before joining PRASAC s team, Sophan had many years of experience in the field of accounting management; banking and finance management and CFO position of other MFI, Commercial Bank and NBC as well as private companies. He joins PRASAC as Deputy General Manager, Chief Finance Officer in He is currently holding the position of Executive Vice-President & Chief Financial Officer. MR. SOU VANTHAN SVP & HR Head Vanthan is pursuing MPA and holds Diploma in Banking in He is also a certified TOT on Principles of MFIs and Delinquency Management certified by CGAP & EDA Rural Systems Pvt Ltd,. Since1982 he has attended several training courses related to banking operation management, microfinance operations management and human recourse management. Vanthan had more than twenty years of experience in various positions with PRASAC project, NBC and other MFIs by starting from Credit Officer, accountant, micro banker and teller, internal auditor and field supervisor, district bank manager, provincial credit coordinator, vice-credit department manager, branch manager, area manager, and regional manager. Vanthan rejoined PRASAC in 2009 as Human Resource Manager. He was promoted to be a Senior Vice-President & Head of Human Resource Division in

25 Prasac Annual Report Management MR. NEANG SOKHIM SVP & Biz Management Head Sokhim is an accredited Micro Finance Training of Trainer certified by ADBI, TLDC of the WB, and UNCDF. He holds Master Degree in Business Administration and obtained bachelor degree of science in Agronomy in He has attended many courses related to micro finance operations and other courses. He started working in microfinance sector in 1998 as Credit Officer then was promoted to be a Junior Internal Auditor, Senior Internal Auditor, Deputy Operation Manager, Deputy Credit Manager, Credit Manager. He was promoted to be a Senior Vice-President & Head of Business Management Division in MR. SAY SONY SVP & Product Management Head Sony an accredited Microfinance Training of Trainer certified by ADBI, TDLC of the WB, and UNCDF, holds master of business administration and bachelor degree in Marketing Management. He has attended numerous local and international training courses in Asia and Europe related to microfinance operations, products development, clients management, and management. He has more than eight-year experience in project management, marketing management, product development and management in social, private sector and Microfinance. He joined working with PRASAC MFI in early 2005 as Chief Marketing and was promoted to be a Marketing Manager in He was promoted to be a Senior Vice-President & Head of Product Management Division in MR. MAY KANO CS & Legal Company Kano is a MBA candidate of Banking and Finance and holds bachelor degree of Education in English. He has attended in several training courses in career development of Microfinance skills both in local and oversea courses. He has more than five years of experiences in Microfinance and Banking sector. He joined PRASAC in 2009 Company Secretary. He is currently holding the position of CS & Legal Company. 25

26 Prasac Annual Report Management MR. SUM SINATH VP & OperationS Manager Sinath accredited Microfinance Training of Trainer certified by ADBI, TDLC of the WB, and UNCDF, obtained associate degree in Accounting and Finance, bachelor degree in Business Administration and holds Master degree of Business Administration. Moreover, he participated in several training courses in career development of Microfinance skills both from local and oversea courses. He has more than seven-year experiences in Microfinance sector. He joined PRASAC in 2002 as credit officer; he was promoted to be branch manager, Regional Manager and then Branch Support Manager in early He is currently holding the position of Vice-President & Operations Manager. MR. CHOUB VEASNA VP & Credit Product Manager Veasna holds master degree of Finance and Banking and bachelor degree in finance and banking. He has attended in several training courses in career development of Microfinance skills both in local and oversea courses. He has more than eight year experiences in microfinance sector. He joined PRASAC in 2002 as Credit Officer; he was promoted to be Sub Branch Manager, Branch Manager and Lending Unit Manager. He was promoted to be a Vice-President & Credit Product Manager in MR. LY SOPHEAKTRA VP & IT Manager Sopheaktra holds M.Sc. IT and MBA of Finance & Banking; He obtained B.Sc. of IT in 2002 and BA of Accounting & Finance in Since 2002, he has attended numerous local and international training courses in Asia and Europe related to IT/MIS technology, Management, and Microfinance. He has almost ten-year experiences in IT/MIS Management, Database Design & Report Writing, Financial Accounting, and Microfinance operations. Prior to joining PRASAC, He used to work for a private construction company. He joined PRASAC in 2002 as MIS Officer, moving on to be senior staff in 2003 as MIS Unit Manager, and he was promoted to be IT Department Manager in early He is currently holding the position of Vice-President & IT Manager. 26

27 Prasac Annual Report Management MR. YANG KIMSRENG VP & Finance Manager Kimsreng holds MBA in Finance and Banking, BA in the field of Accounting and holds Associates degree of Banking. Since 1998, he participated in several training courses related to microfinance. Kimsreng has more than ten-year experiences with Micro-banker system as well as finance and banking. He joined PRASAC in 1998 and was promoted to be senior staff in 2001 then Deputy Finance Manager in October 2007 and Finance Manager in April He is currently holding the position of Vice-President & Finance Manager. MR. OUK SAROEUNG VP & Internal Audit Manager Saroeung holds Master degree of Business Administration and obtained a Bachelor degree in Banking. Since 1995, he participated in several training courses both local and international including in Asia, Africa and Europe related to Audit, Finance, Management, and Microfinance. He has more than ten-year experiences in microfinance. He used to work in banking sector. Also, he worked for the National Bank of Cambodia at Branch Svay Rieng in various supervisory positions, including credit and planning from 1983 to He joined PRASAC in 1995; he was promoted to be Audit Manager in He is currently holding the position of Vice-President &Internal Audit Manager. MR. PHO NIMOL VP & Chief Risk Officer Nimol holds a master degree in finance and banking and pursuing ACCA. He participated in many training courses such as TOT, Risk Management, internal audit, Saving and fund transferred. Nimol had almost ten-year experiences with PRASAC in various positions such as Credit Officer, Cashier, Branch Accountant, Micro Banker Teller, Internal Auditor, Senior Auditor, Deputy Internal Audit Manager. He was promoted to be a Vice-President & Chief Risk Office in

28 Prasac Annual Report Management MS. CHHIN KEOSETHAVEARY VP & Treasury Manager Veary holds Master Degree in Financial Management, bachelor s Degree in Accounting and finance and Diploma in Accounting and Finance. She participated in training courses such as Assets Liabilities Management, TOT, Strategic Planning for Microfinance Institutions and other courses Prior to joining PRASAC, she used to work for a private construction company. She joined PRASAC in 2005 as Cashier and was promoted to Accountant, Treasury Officer, and Treasury Unit Manager. She was promoted to be a Vice-President & Treasury Manager in MR. CHEA HANG VP & General Administration Manager Hang holds Master and Bachelor Degrees in Business Administration and holds BA in Accounting and Finance. He has many years experiences in field of finance, accounting, and procurement & administration management. He used to work at various positions as Finance & Administration Manager, Finance Procurement & Administration Adviser, Board Director of PRASAC MFI Ltd, Assistant of Project Administrator of the PRASAC, Management Adviser as well as free lance consultant in finance, procurement, human resource management and administration. He rejoined PRASAC as Vice-President & General Administration Manager in

29 Prasac Annual Report Remark form Chairman Remark from Chairman The rebound in tourism and clothing exports and agriculture drove a recovery in GDP growth to 6.3% in 2010 from a sharp slowdown in 2009 caused by the global economic turmoil. Bank lending in the private sector increased by 27% by end of 2010, a year-on-year basis, up from 6.5% by end of Cambodia GDP growth is projected at 6.5% in 2011 and 6.8% in 2012 according to a report by ADB. Since the inception, PRASAC MFI has undertaken various steps in preserving and promoting the interests of its customers, employees, shareholders while serving the greater purpose of sustainable development. Corporate Social Responsibility is incorporated in all the activities of PRASAC MFI. PRASAC operates in a manner where profit and social responsibility go hand in hand as it strives towards a poverty reduction and contribution to the development of Cambodia. PRASAC has wide distribution coverage across Cambodia in microfinance clients and SMEs. PRASAC holds the Number One position in term of loan portfolio and office network among all MFIs. PRASAC has total loan portfolio of US$ million by December 2010, and has 142 offices consisting of 18 branches, 74 sub-branches and 50 service offices. In 2010, PRASAC has achieved a total profit after tax of US$ 3.4 million which is 26.7% higher than previous year. The higher growth of profit highlights an increased efficiency of PRASAC s operations. PRASAC s total assets stood at US$ 112 million with a 58.3% growth. PRASAC is keen to develop the human resources as it is a vital component for the Company s development. Human resources are considered to be a competitive edge over competition and important product expansion. Throughout the year we have conducted well planned training programmes. In the year 2010 a total of 1995 participants attended a total of 49,523 training hours; in average each staff member has received 25 hours of formal training. We are proud that our staffs have been fully trained on professional skills, IT & new system, policy refreshment and communication as well. In late 2010, the National Bank of Cambodia awarded PRASAC a MDI license, which enables PRASAC to launch savings and deposit service to its clients and public. The MDI licenses for all of PRASAC branches were awarded in the late of first quarter of The NBC has granted permission for PRASAC to provide micro-insurance service in 2010 and the micro-insurance license from the Ministry of Economic and Finance was granted in early With these licenses, PRASAC has the opportunity to better manage PRASAC s financial efficiency and serve the need its clients. We strongly believe that 2011 will be a good year for PRASAC MFI. By adopting and implementing the most modern technology as well as having a dedicated & skilled management, we will be able to bring sustainable growth with improved asset quality that will maximize value for all the stakeholders. 29

30 Prasac Annual Report Remark form Chairman We are always striving to cater to the banking needs of a wider customer base and enhance our mission of promoting sustainable access to financial service for rural communities and micro-enterprises. I would like to thank all my colleagues on the Board of Directors for their consistent guidance, support and leadership. The management and staff of PRASAC MFI deserve a heartfelt appreciation for hard work and their firm commitment to our goals and strategies. My gratitude also go to all the regulatory authorities like the National Bank of Cambodia for all their support and advice and our customers for the ongoing confidence in our ability to serve their needs. Finally, I thank you all once again for placing your trust in us. I am confident, with your support and cooperation, we will continue to strive to uphold trust they placed in us by all our stakeholders. On behalf of Chairman Oum Sam Oeun Director 28 March

31 Prasac Annual Report Remark from President & CEO Remark from President & CEO PRASAC was also the largest Microfinance Institution in Cambodia in term of employment, office networks, and operational areas. PRASAC had 1,440 staff working in more than 142 offices. Our service has reached out to in 9,396 villages, 1,398 communes, 164 districts and 24 provinces and cities. In 2010, PRASAC MFI has achieved a net profit of US$ 3.4 million representing a 26.7% growth. PRASAC s total assets stood at US$ 112 million with a 58.3% growth from a year earlier. PRASAC s portfolio grows at 63.8% from US$ 64 million to US$ million at the end of December 2010 from December Our loan quality has been improved with rate of portfolio at-risk down to 1.02% from 1.66% the previous year. The numbers of active borrowers increased dramatically by 28.3% to 112,872 borrowers from 87,945 at the end of The group loans increased by 41% to US$ 2.3 million compared with the previous year. In addition, the individual loans also increased by 64% from US$ 62.5 million to US$ million in By the end of 2010, PRASAC financial performance was favorable. PRASAC considerably improved its efficiency and productivity by decreasing operating cost ratio to 10.9% from 13.4% at December However, the return on assets slightly decreased from 4.1% at the end of 2009 to 3.7% at the end of The year 2010 mark a new milestone that PRASAC has dropped its legacy Core Banking Microbanker System in November 2010 without any major problems and it was replaced by Oracle s Flexcube Universal Banking. By end of December 2010, there were 79 offices connected to our new core banking system online. PRASAC has been trying to drive productivity and innovation to stay ahead of the competition. We feel a need to streamline our structures and process. I would like to thank Mr Mike Temple, former chairman who resigned from the board in January 2011 and all other directors for their guidance, support and leadership. I would like to extend my appreciation to the management and staff of PRASAC for their dedication, honesty and hard work, and all other stakeholders especially our customers and the National Bank of Cambodia. We believe that the objectives for 2011 will be achieved and we will continue to delivering on our commitments to all stakeholders. Sim Senacheert President and CEO 31

32 Prasac Annual Report Financial Performance Highlights Financial Performance Highlights Productivities and Efficiency Description Productivities And Efficiency Exchange Rate 4,056 4,003 4,081 4,169 4,053 Currency USD USD USD USD USD Net Loan Portfolio 21,668,864 32,988,091 57,950,559 62,730, ,474,768 Number of Credit Officer Portfolio per Credit Officer 66,266 89, , , ,635 Number of Active Client 94,264 94, ,116 87, ,872 Active Client per Credit Officer Portfolio at Risk 0.24% 0.22% 0.23% 1.66% 1.02% 180, , , , ,000 80,000 60,000 40,000 20, , , ,314 89,157 66, % 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% Portfolio per credit officer Portfolio at risk Active Client per Credit Officer Over the past 5 years, the trend of portfolio per credit officer showed annual growth rate by 51% in 2006, 35% in 2007, 21% in 2008, 6% in 2009, and 33% in 2010 while number of active clients per credit officer consecutively decreased during the past four years, started from 288 clients in 2006 to 162 clients in 2009 and up to the end of 2010 slightly increased to 169 clients. PRASAC has successful experience in improving its performance by maintaining portfolio at risk 30 days below 1% (0.24% in 2006, 0.22% in 2007, and 0.23% in 2008). The influence of financial crisis was affected on the PAR 30 days increased to 1.66% in year 2009 and 1.02% in 2010 respectively; however, this rate still remained low within peer group of microfinance institution in Cambodia. 32

33 Prasac Annual Report Financial Performance Highlights Profitability Description Profitability Yield on Portfolio 32.1% 31.8% 30.0% 26.8% 24.4% Financial Expense Ratio 3.5% 4.4% 5.5% 6.9% 6.1% Operating Expense Ratio 18.7% 15.8% 14.8% 12.5% 11.0% Administrative Expense Ratio 6.3% 5.5% 5.5% 3.7% 3.8% Return on Assets (ROA) 3.4% 6.0% 5.8% 4.1% 3.7% Yield on Portfolio Financial Expense Ratio 40.0% 30.0% 20.0% 10.0% 32.1% 31.8% 30% 26.8% 24.4% 8.0% 6.0% 4.0% 2.0% 3.5% 4.4% 5.5% 6.9% 6.1% The yield on portfolio continued to decrease consecutively from year 2006 to 2010 trading at 32.1%, 31.8%, 30.0%, 26.8%, and 24.4% respectively. As of 2010, funding cost showed a good signal after the previous year dropped by 6.1% from 6.9% in 2009 due to diversified strategy to reduce cost of sources of funds. Operating Expense Ratio Administrative Expense Ratio 20.0% 17.5% 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% % 15.8% 14.8% 12.5% 11.0% The decrease of operating expense ratio can be reflected on a good financial management started from 18.7% in 2006 to 11.0% in % 6.0% 4.0% 2.0% - 6.3% 5.5% 5.5% 3.7% 3.8% Administrative expense increased slightly from 3.7% in 2009 to 3.8% in Return on Assets (ROA) 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% - 6.0% 5.8% 3.4% 4.1% 3.7% Return on Assets decreased from 4.1% in 2009 to 3.7% in

34 Prasac Annual Report Remark from the General Manager Operational Higlights Loan Porfolio And Quality ( ) By the end of 2010, the PRASAC s loan portfolio reached KHR 425,374 million, increased 59.21% over the previous year. Portfolio at risk ratio was 1.02%; it decreased 0.64% from the previous year. Loan Portfolio (Amounts are in KHR Millions) 450, % 425, , , , , , , , % 150, , ,000 89,416 50, % 0.22% 0.23% Total Loan Portfolio PAR Ratio (30 days) 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% Loan Disbursement In 2010, PRASAC disbursed loan with total amount of KHR 455,676 Millions in which it increased 31.58% over the previous year. Loan Disbursed (Amounts are in KHR Millions) Total Disbursed , , , , , , , ,000 88, , Total Disbursed Amount Operation Area and Branch Network By the end of 2010, PRASAC operated in 24 provinces, 164 districts, 1,398 communes, and 9,396 villages, an increase of 3 provinces, 33 districts, 142 communes, 1,298 villages compared to previous year. Key indicator Productivities And Efficiency Total Number of Province Total Number of District Total Number of Commune ,180 1,256 1,398 Total Number of Village 5,363 6,210 7,475 8,098 9,396 Loan Portfolio By the end of 2010, the PRASAC s loan portfolio reached KHR 425,374 million, increased % over the previous year. Loan has been classified as group loan and individual loan that can be disbursed in KHR, USD and THB currency. The group loan represented 2.20 % whereas individual loan represented 97.80% of total portfolio outstanding. The group loan portfolio outstanding increased by 37.54% with amount of KHR2,559 million and individual loan increased by percent with amount of KHR 155,632 million compared to the previous year. Loan portfolio in KHR currency grew by 8.86 % with amount of KHR 9,528 million, loan portfolio in USD currency grew by % with amount of KHR148,254 million and THB currency grew by KHR

35 Prasac Annual Report Financial Performance Highlight Key indicators Changed Amount Changed % Total loan portfolio 22,045, ,548, ,905, ,088, ,952,771 40,864, % Portfolio in group loan 2,421, ,371, ,780, ,635,038 2,312, , % Portfolio in individual loan 19,623, ,176, ,125, ,452, ,640,127 40,186, % Portfolio loan in KHR 11,705, ,163, ,875, ,802,205 28,891,379 3,089, % Portfolio loan in USD (000) 41, , , ,285,824 75,960, , % Portfolio loan in THB (000) , , Borrowers By the end of 2010, the number of active borrowers was 112,872 and it increased 28.34% over the previous year. In terms of product types, group loan borrowers increased by 51.10%, and individual loan borrowers increased by 25.54%. In term of gender, female borrowers increased by 45.54% while male borrowers increased by 9.21% over the previous year. Key indicators Changed Changed % Amount Total Number of Borrower 94,264 94, ,116 87, ,872 24, % Group Loan Borrowers 40,775 27,237 19,179 9,634 14,557 4, % Individual Loan Borrowers 53,489 67,318 80,937 78,311 98,315 20, % Female 53,789 43,555 46,053 46,311 67,402 21, % Male 40,475 51,000 54,064 41,634 45,470 3, % Loan Disbursement In 2010, PRASAC disbursed loan with total amount of KHR 455,676 million an increase of 31.58% over the previous year. The total number of loans disbursed in 2010 was 114,834, increased of %over the previous year. The average disbursed loan size was KHR 3.97 million. Key indicators Changed Changed Amount % Total Disbursed Amount 21,832, ,112, ,290, ,068, ,429, ,360, % Total Number of Loans Disbursed 19,507, ,235, ,457, ,284, ,333, ,048, % Avg Loan Amount Disbursed % 35

36 Loan Porfolio Quality (Amounts are in USD) At the end of 2010, Portfolio at risk ratio was 1.02% and repayment ratio 96.48%. The good loan portfolio comes from good portfolio monitoring from all staff levels, well trained staff; especially credit officers, well established credit policy, and procedures and clear loan work out policy. Staff motivation, such as incentive that link with loan quality is also a tool for maintaining good portfolio quality. Besides these, the current Flexcube system can provide data and information available for staffs to monitor and to follow up and to analyze portfolio well. Key indicators Changed Amount Changed % PAR Amount (30days) 52, , , ,064,197 1,067,394 3, % Principal Past Due 52, , , , , , % PAR Ratio (30days) 0.24% 0.22% 0.23% 1.66% 1.02% -0.64% % PAR Ratio (30 days) Group Loan 0.57% 0.90% 0.01% 3.54% 1.77% -1.77% % PAR Ratio (30 days) individual Loan 0.20% 0.19% 0.23% 1.66% 1.00% -0.66% % Repayment Ratio 99.00% 99.30% 99.30% 97.45% 96.48% -0.97% -0.99% 36

37 Prasac Annual Report Staffing & Capacity Building Staffing & Capacity Building Staffing 1. Staff turnover by year Remark Total Staff Staff Turn Over % Total Staff Staff Turn Over % Total Staff Staff Turn Over 1, % 1, % 1, % % (including support staff) 2. Staff turnover by type Type Number % Number % Number % Resignation % % % Cancel Working % % % End Contract % % % Retirement % % % Expel % % % Death % % % Lay Off % % % Total % % % The staff turnover ratio as of 31, Dec 2010 was 8.19 % ( 118 staff) among total staff 1140 staff, if comparing to 7.14% (89 staff) in 2009) in which increased by 1.05%. Anyway, it decreased by 2.65% compared to the turnover rate in 2008 when it was about 10.84% (111 staff) among 1,024 staff. It is noted that the key reason behind that was Personal Matter. Anyway, some employee left the institution without stating us the real reasons. Concerning with this, it could be due to the family status, business or resident relocation. The second big pie was the leaving for another job. With enough experience and opportunity to move, some employee applied to another company in higher position. Even PRASAC give much opportunity to internal staff in terms of promotion, but it is still limited availability of vacant position. The majority of resigned staff was Credit Officers at branch office, guards and cleaners. We could also say that turnover rate in PRASAC was improved because it was lower than the past year Recruitment and selection Total Staff Recruitment % Total Staff Recruitment % Total Staff Recruitment % 1, % 1, % 1,

38 Prasac Annual Report Staffing & Capacity Building Capacity Building 1. Staff Training and Development PRASAC employs 1440 staff to work in our office based mission of providing the financial services in all provinces of Cambodia. Staff capacity building and development is an engine to push for higher a performance of each staff, team, branch and institution. To align their Knowledge, Skill and Attitude (KSA) to our policies, business concept and strategies, PRASAC has supported and organized many staff training and development activities as internal, local and abroad. Staff capacity building and development has been considered as a long term investment for support and enlarge PRASAC talent pool. As a result, in the year 2010, We launched 8 new staff training courses which were participated by 312 staff, included new entrance staff and promoted staff. Besides this, we also provided refreshment and professional training with internal resources. We have sent 492 staff to attend 55 local courses organized by our partners. 13 high performance staffs were supported to join oversea event such as training course, study visit and seminar in Asia and Europe. In conclusion, a total of 1995 persons trained; in average each staff member has received 25 hours of formal training. We are proud that our staffs have been fully trained on professional skills, IT & new system, policy refreshment and communication as well. 2. Social Activities: Ecosorn Result At the same time, PRASAC also worked on financial literacy training to target villages in three provinces. Continuous from 2008 and 2009, we provided only second modules, Household Budgeting, in The main objective of this learning section is to guide them on controlling their expenses and using their money wisely to stay within budget for their financial household goal. In 2010, we organized 53 courses at the villages of Battambang, Banteay Mean Chey and Siem Reap. There are 2,581 participants which 74% are female. To sum up the 3-year result of these training activities, the total participants from 91 villages of 39 communes and 14 districts in Battambang, Banteay Mean Chey and Siem Reap are: For the first modules-saving: 4,682 households (67% Female) For the second modules-budgeting: 4,029 households (74% Female) This project was successfully ended in October Social Activities: Internship & Volunteer As a part of social activities to guide and support youth career development planning in Cambodia, PRASAC also provides chances to all university students to join us as volunteer and to do their thesis research on the field related to our business. With 2010 result, we have accepted 35 student teams to learn about our operation for their thesis at our branch office and head office. In addition, we also have employed 25 students to fill the volunteer position in each department at our head office in Phnom Penh. 38

39 Prasac Annual Report Internal Control & Risk Management Internal Control & Risk Management Risk analysis and risk management strategies are critical to build and ensure the sustainability of PRASAC microfinance institution. PRASAC s management has used Internal Control and risk management in the purposes of dealing with risk factors. Risk management is the process of managing within a well designed control environment to reduce the likelihood of a loss occurred and to minimize the scale of the losses,. Risk management includes the prevention of potential problems, the early detection of actual problems when they occur, and the correction of the policies and procedures that permitted the risk occurrence. A strong Internal Control system is one of the best mitigation strategies for managing internal operational risk in PRASAC s MFI. PRASAC s management uses Internal Control to ensure a system of accountability along with the prevention of errors and irregularities. Internal Audit Department is an independent, objective assurance and consulting activity designed to add value and improve an organization s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approaches to evaluate and improve the effectiveness of risk management, control, and governance processes. Internal Audit Department was started in 2001 with a clear roles and responsibilities to improve the Internal Control and risk analysis related to the operations as well as the compliance by producing accurate reports on time to branch management and executive management for action taken. The internal audit reports are issued monthly based on each branch with recommendations to respond to the real cases and findings. Additionally, the summary of significant findings is issued monthly basis to Audit Committee as well as the management to understand the current business situation and trends. At the beginning of the Internal Audit role, the Internal Control policy and procedures have been developed and updated accordingly and particularly with professional staff. As at December 2010, the total staff of Internal Audit Department consists of one Internal Audit Manager, three Audit Unit Managers, one Senior Auditor and 12 Audit Assistants working in three main units such as Operation Internal Audit Unit, Finance and Admin Internal Audit Unit and IT/MIS Internal Audit Unit. Through the findings of Internal Audit Assignment in the full year of 2010, we noticed that the trend of errors and frauds decreased, and most field staff shown stronger commitments to comply with institutional policies and procedures. Moreover, most of clients are not only satisfied with PRASAC s services but also appreciated with our professional staff with customer care minded. 39

40 Prasac Annual Report Internal Control & Risk Management PRASAC has designed Risk Management tools and approaches that respond to their specific clients, lending methodologies, operating environments, financial and social performance objectives and currently, PRASAC has launched saving as well in order to support its fund. Each Department has identified risks by themselves with mitigation measures in place, but we are in process of doing. The effective approaches to managing Risk in PRASAC are included as the following: Well-designed screening form for borrowers, careful loan assessment, closed monitoring, clear collection procedures and active oversight by senior management. Delinquency is understood and addressed promptly to avoid its rapid spread and potential for significant loss. Good portfolio reporting that accurately reflects the status and monthly trends in delinquency, including a portfolio at risk aging schedule and separate reports by loan product. Well designed to control over introduction of savings policy and procedures and closed monitoring by senior management. 40

41 Prasac Annual Report Marketing Activities Marketing Activities 1. Market and Clients After walking through the world financial storm, PRASAC tried its best to keep taking the lead among microfinance practitioners in Cambodia in terms of number of office networks, staff and loan outstanding. As of December 2010, PRASAC expanded its outreach to the nationwide clients in which there were 160 office networks in 24 provinces and city accompanied by 1,440 professional staff serving financial services. Among 14 CMA members, PRASAC captured 25% of market shares in terms of loan outstanding leading to increase its total asset up to more than USD 100 million. Aligning with its vision and mission, PRASAC serves clients in the rural community at the most in which represents for 94% of the total clients. In this regard, the clients could access to formal financial services from PRASAC with cheap sources of fund compared to access to private money lenders with high interest rate charged in the previous time. Furthermore, PRASAC also promoted the rural micro-entrepreneurs through its specific loan products geared towards their needs while they were hard to access to loans from commercial banks. As a result, PRASAC provided loans to the clients in agricultural activity with around 31% whereas 34% used in improving and expanding trade and commerce activities and 16% were used for household consumptions. Anyway, PRASAC keeps improving its financial products and services including new front-line staff trainings, market surveys, and complaint mechanism installments by branches in order to get client feedbacks. 2. Branding and Communications Following its remarkable growth, PRASAC worked hard to build branding images and raise public awareness on financial products and services provided. Concerning with this, PRASAC renovated and standardized some branch offices with well-equipped materials and decorations in order to respond to the public confidence in terms of savings mobilizations. At the same time, PRASAC selected key strategic communications for effective outreach to the target clients. In this regard, PRASAC promoted its product and service information via direct team promotion, radio and TV to reach mass population while other communication tools were also developed to support marketing activities including leaflets, banners, T-shirts, annual report, calendars, posters, press release, yellow page, green book directory book. Furthermore, PRASAC participated in several public events and conferences relevant to microfinance and banking sectors in terms of public relationship. 41

42 3. Environmental Protections PRASAC provides loans to the clients based on its professional manners and policy; Credit policy mainly states about some specific activities leading to environmental damages such as toxic gas, water pollutions, chemical substance, and other human-made activities affecting to environmental pollutions prohibited by international laws. Concerning with this, each loan request is thoroughly monitored and evaluated on loan purposes before disbursements. Furthermore, the loans were generally followed up after disbursement to make sure that they were properly used compliant with the credit policy. At the same time, PRASAC encourages its staff to save the electricity, water consumptions and paper usages in order to ensure that it would be still available for the next generations. Furthermore, PRASAC collaborates with the National Biodigester Program (NBP) to provide loans to the public for biodigester plant (biogas) constructions. The collaboration aims at improving the living standards of the rural communities and environmental protection in particular. As of December 2010, PRASAC offered loans to 3, 942 borrowers for biogas plan constructions with total loan outstanding of USD 2,267,820 in 13 provinces in Cambodia. As a result, the rural people could gain several benefits from biogas plants including electricity usage, gas for cooking, biogas residue for fertilizer and saving time for participations in social activities. Moreover, PRASAC is committed to provide more biogas loans to the rural community through its nationwide office networks. 42

43 Audited Financial Statements Report of the Board of Directors 44 Report of the Independent Auditors 48 Balance Sheet 49 Income Statement 50 Statement of Changes In Equity 51 Statement of Cash Flows 52 43

44 Prasac Annual Report Report of the Board of Director Report of the Board of Directors The Board of Directors have pleasure in submitting their report together with the audited financial statements of PRASAC Microfinance Institution Limited ( the Company or PRASAC ) for the year ended 31 December Principal activity PRASAC is engaged primarily in the provision of micro-finance services to the rural population of Cambodia through its headquarters in Phnom Penh and various provincial offices in the Kingdom of Cambodia. Financial results The financial results of the Company for the year ended 31 December 2010 were as follows: KHR 000 Profit before income tax 17,500,388 Income tax expense (3,755,786) Profit for the year 13,744,602 Reserves and provisions There were no material movements to or from reserves and provisions during the financial year other than as disclosed in the financial statements. Bad and doubtful loans Before the income statement and balance sheet of the Company were prepared, the Board of 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 doubtful loans, and satisfied themselves that all known bad loans had been written off and adequate allowance had been made for bad and doubtful loans. At the date of this report, the Board of Directors is not aware of any circumstances, which 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 substantial extent. Current assets Before the income statement and balance sheet of the Company were prepared, the Board of Directors took reasonable steps to ensure that any current assets, other than debts, which were unlikely to be realized in the ordinary course of business at their value as shown in the accounting records of the Company had been written down to an amount which they might be expected to realize. At the date of this report, the Board of Directors is not aware of any circumstances, which would render the values attributed to the current assets in the financial statements of the Company misleading. Valuation methods At the date of this report, the Board of Directors is not aware of any circumstances which have arisen which render adherence 44

45 Prasac Annual Report Report of the Board of Director to the existing method of valuation of assets and liabilities in the financial statements of the Company as misleading or inappropriate. Contingent and other liabilities At the date of this report, there does not exist: 1. any charge on the assets of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; 2. any contingent liability in respect of the Company that has arisen since the end of the financial year other than in the ordinary course of its business operations. No contingent or other liability of the Company has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Company to meet its obligations as and when they fall due. Change of circumstances At the date of this report, the Board of Directors is not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Company, which would render any amount stated in the financial statements misleading. Items of unusual nature The results of the operations of the Company for the financial year were not, in the opinion of the Board of Directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Board of Directors, to affect substantially the results of the operations of the Company for the current financial year in which this report is made. Events since the balance sheet date No significant events occurred after the balance sheet date that requires disclosure or adjustment other than those already disclosed in the accompanying notes to the financial statements. The Board of Directors The members of the Board of Directors during the year and at the date of this report are: 1. Mr. Joseph Hoess, representing Dragon Capital Group Limited, (Director appointed on 15 February 2011) 2. Mr. Michael A. Temple, representing Dragon Capital Group Limited (resigned on 30 January 2011) 3. Mr. Hanco Halbertsma, representing Belgian Investment Company for Developing Countries SA, (Director, appointed on 5 November 2010) 4. Mrs. Anne Demeuse, representing Belgian Investment Company for Developing Countries SA, (resigned on 25 January 2011) 5. Mr. Ranjit Fernando, representing the Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V., (Director) 6. Mr. Ishara C. Nanayakkara, representing Lanka ORIX LEASING Company Ltd, (Director) 45

46 Prasac Annual Report Report of the Board of Director 7. Mr. Stefan A.V. Harpe, representing Oikocredit, Ecumenical Development Cooperative Society, U.A., (Director) 8. Mr. Oum Sam Oeun, representing PRASAC Staff Company Ltd., (Director) 9. Mr. Phai Touch (Independent Director, appointed on 5 November 2010) All members are non-executive board members, except Mr. Oum Sam Oeun, who holds the position of Executive Vice President and Chief Operating Officer. Directors interests The Directors are representing the interests of shareholders of PRASAC during the year and at the date of this report are as follows: Shareholder Represented by Holding % Number of Shares KHR 20,000 each Dragon Capital Group Limited Mr. Joseph Hoess 18% 138,626 Belgian Investment Company for Developing Countries SA (BIO) Mr. Hanco Halbertsma 18% 138,626 The Nederlandse Financierings Maatschappij voor Ontwikkelingslanden N.V.(FMO) Mr. Ranjit Fernando 18% 138,626 Lanka ORIX LEASING Company Ltd (LOLC) Mr. Ishara C. Nanayakkara 18% 138,626 Oikocredit, Ecumenical Development Cooperative Society, U.A. Mr. Stefan A. V. Harpe 18% 138,626 PRASAC Staff Company Ltd. Mr. Oum Sam Oeun 10% 77, % 770,150 Directors benefits During and at the end of the financial year, no arrangements existed to which the Company is a party with the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no Director of the Company has received or become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by the Directors as disclosed in the financial statements) by reason of a contract made by the Company or a related corporation with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest other than as disclosed in the financial statements. Responsibilities of the Board of Directors in respect of the financial statements The Board of Directors is responsible for ascertaining that the financial statements are properly drawn up so as to give a true and fair view of the financial position of the Company as at 31 December 2010, and of the results of its financial performance and 46

47 Prasac Annual Report Report of the Board of Director its cash flows for the year then ended. In preparing these financial statements, the Board of Directors is required to: (i) adopt appropriate accounting policies which are supported by reasonable and prudent judgments and estimates and then apply them consistently; (ii) comply with Cambodian Accounting Standards and the guidelines issued by the National Bank of Cambodia or, if there have been any departures in the interest of true and fair presentation, ensure that these have 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) control and direct effectively the Company in all material decisions affecting the operations and performance and ascertain that such have been properly reflected in the financial statements. The Board of Directors confirms that the PRASAC has complied with the above requirements in preparing the financial statements. On behalf of the Board of Directors Oum Sam Oeun Director 28 March

48 Prasac Annual Report Report of the Independent Auditors to the Shareholders Report of the Independent Auditors KPMG Cambodia Ltd Telephone +855 (23) th floor, Delano Center Fax +855 (23) No. 144, Street 169 Internet Sangkat Veal Vong, Khan 7 Makara, Phnom Penh Kingdom of Cambodia REPORT OF THE INDEPENDENT AUDITORS To the shareholders PRASAC Microfinance Institution Limited We have audited the accompanying financial statements of PRASAC Microfinance Institution Limited ( the Company or PRASAC ), which comprise the balance sheet as at 31 December 2010, and the income statement, statement of changes in equity and statement of cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information as set out on pages 8 to 69. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Cambodian Accounting Standards and the guidelines of the National Bank of Cambodia relating to the preparation and presentation of the financial statements. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of 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 our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider 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 give a true and fair view of the financial position of PRASAC as at 31 December 2010, and of its financial performance and its cash flows for the year then ended in accordance with Cambodian Accounting Standards and the guidelines of the National Bank of Cambodia relating to the preparation and presentation of the financial statements. The accompanying financial statements have been translated into United States Dollars solely for presentation purposes. We have audited the translation and, in our opinion, the financial statements expressed in Khmer Riel have been translated into United States Dollars on the basis as set forth in Note 4 to the financial statements. 48

49 Prasac Annual Report Balance Sheet Balance Sheet As at 31 December KHR 000 US$ KHR 000 US$ Cash on hand 3,103, ,762 1,923, ,488 Deposits and placements with banks 18,804,255 4,639,589 18,198,317 4,365,152 Placement with other financial institution ,743 3,776 Statutory deposits 1,622, , , ,159 Loans to customers 415,330, ,474, ,525,129 62,730,902 Other assets 7,760,420 1,914,735 5,406,607 1,296,859 Deferred tax assets 1,022, , , ,512 Intangible assets 3,999, ,833 3,946, ,607 Property and equipment 3,222, ,069 3,071, ,858 Total assets 454,865, ,229, ,525,038 70,886,313 Liabilities and shareholders equity Liabilities Deposits from customers 749, ,932 2,006, ,254 Borrowings 332,223,051 81,969, ,696,755 45,981,471 Other liabilities 8,844,704 2,182,261 3,872, ,995 Provision for income tax 3,382, ,517 3,109, ,790 Provision for severance pay 4,613,455 1,138,282 3,531, ,141 Total liabilities 349,813,040 86,309, ,217,011 48,984,651 Shareholders equity Share capital 15,403,000 3,800,395 15,403,000 3,694,651 Other reserves 8,924,831 2,202,031 5,216,423 1,251,241 Retained earnings 35,067,221 8,652,164 25,031,027 6,004,084 Net shareholders equity 59,395,052 14,654,590 45,650,450 10,949,976 Subordinated debt 45,657,577 11,265,131 45,657,577 10,951,686 Total shareholders funds 105,052,629 25,919,721 91,308,027 21,901,662 Total liabilities and shareholders equity 454,865, ,229, ,525,038 70,886,313 The accompanying notes form part of these financial statements. 49

50 Prasac Annual Report Income Statements Income Statement For the year ended 31 December KHR 000 US$ KHR 000 US$ Interest income 83,886,270 20,697,328 68,130,025 16,342,055 Interest expense (21,448,635) (5,292,039) (15,952,420) (3,826,438) Net interest income 62,437,635 15,405,289 52,177,605 12,515,617 Other operating income 2,256, , , ,372 Operating income 64,694,071 15,962,021 52,704,451 12,641,989 Fee and commission expense (1,572,259) (387,925) (2,898,985) (695,367) Operating and other expenses (42,453,181) (10,474,508) (34,169,466) (8,196,082) Provision for bad and doubtful loans (4,385,488) (1,082,035) (2,116,245) (507,615) Profit from operations 16,283,143 4,017,553 13,519,755 3,242,925 Grant income 1,217, ,332 1,189, ,255 Profit before income tax 17,500,388 4,317,885 14,708,981 3,528,180 Income tax expense (3,755,786) (926,668) (3,551,075) (851,781) Net profit for the year 13,744,602 3,391,217 11,157,906 2,676,399 The accompanying notes form part of these financial statements. 50

51 Prasac Annual Report Statement of Changes in Equity Statement of Changes in Equity For the year ended 31 December 2010 Share capital Subordinated debt Other reserves Retained earnings Total KHR 000 KHR 000 KHR 000 KHR 000 KHR 000 Balance as at 1 January ,403,000 45,657,577 2,282,879 16,806,665 80,150,121 Net profit for the year 11,157,906 11,157,906 Transfers of special reserve * 2,282,879 (2,282,879) Transfers of ICO loan reserve ** 650,665 (650,665) Balance as 31 December ,403,000 45,657,577 5,216,423 25,031,027 91,308,027 Net profit for the year 13,744,602 13,744,602 Transfers of special reserve * 2,282,879 (2,282,879) Transfers of ICO loan reserve ** 1,425,529 (1,425,529) Balance as 31 December ,403,000 45,657,577 8,924,831 35,067, ,052,629 (US$ equivalents) 3,800,395 11,265,131 2,202,031 8,652,164 25,919,721 * Special reserve represents reserves transferred from net profit which are calculated based on 5% of subordinated debt. The amount is non-distributable. ** ICO loan reserve represents reserves transferred from net profit for the year which are calculated based on 3.5% of outstanding principal of loan obtained from Instituto De Crédito Oficial of the Kingdom of Spain. The amount is non-distributable. The accompanying notes form part of these financial statements. 51

52 Prasac Annual Report Statement of Cash Flows Statement of Cash Flows For the year ended 31 December KHR 000 US$ KHR 000 US$ Cash flows from operating activities Profit before income tax 17,500,388 4,317,885 14,708,981 3,528,180 Adjustments for: Severance expense 1,278, ,552 1,241, ,680 Depreciation and amortisation 1,528, , , ,931 Provision for bad and doubtful loans 4,385,488 1,082,035 2,116, ,615 Gain on disposals of property and equipment (7,500) (1,850) (42,767) (10,259) Property and equipment written off - - 1, Operating profit before changes in operating assets and liabilities 24,685,869 6,090,765 18,878,871 4,528,393 (Increase)/decrease in operating assets Statutory deposits (792,050) (195,423) (5,902) (1,416) Loans to customers (158,190,592) (39,030,494) (27,145,144) (6,511,188) Other assets (2,353,813) (580,758) 603, ,666 Increase/(decrease) in operating liabilities Deposits from customers (1,256,816) (310,095) 1,751, ,119 Other liabilities 4,971,725 1,226,677 (796,246) (190,992) Cash used in operations (132,935,677) (32,799,328) (6,713,831) (1,610,418) Severance pay paid (197,209) (48,658) (75,273) (18,055) Income tax paid (3,898,781) (961,949) (4,068,533) (975,901) Net cash used in operating activities (137,031,667) (33,809,935) (10,857,637) (2,604,374) Cash flows from investing activities Purchase of property and equipment (1,644,302) (405,700) (2,351,330) (564,003) Purchase of intangible assets (93,308) (23,022) (3,948,331) (947,069) Proceeds from disposals of property and equipment 12,864 3,174 78,985 18,946 Net cash used in investing activities (1,724,746) (425,548) (6,220,676) (1,492,126) Cash flows from financing activities Proceeds from borrowings 220,328,370 54,361,799 50,707,141 12,162,902 Repayments of borrowings (79,802,074) (19,689,631) (15,983,498) (3,833,893) Repayment of share subscription received in advance - - (172,897) (41,472) Net cash generated from financing activities 140,526,296 34,672,168 34,550,746 8,287,537 Net increase in cash and cash equivalents 1,769, ,685 17,472,433 4,191,037 Cash and cash equivalents at beginning of year 20,138,004 4,830,416 2,665, ,166 Translation difference - 138,250 - (13,787) Cash and cash equivalents at end of year 21,907,887 5,405,351 20,138,004 4,830,416 The accompanying notes form part of these financial statements. 52

53 PRASAC Provides Credits & Deposits Nationwide

54 PRASAC HEAD OFFICE Nº25, St 294&57 Boeung Kengkang 1 Phnom Penh Cambodia P.O.Box: 2412 info.pp@prasac.com.kh