ANNUAL REPORT. YEAR of R&D

Transcription

1 2016 ANNUAL REPORT YEAR of R&D

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3 01 Macro Environment Scan 07. Cambodia Business Environment 08. Bank and Microfinance Development 11. Milestones of KREDIT 02 Governance 13. Vision, Mission, and Core Values 14. Operating Provinces 15. Organization Chart 16. Shareholders 17. Board of Directors 22. Committees at Board Level 26. Executive Committee 31. Product and Service s Research & Development 32. Official Launching of Automatic Teller Machine and Cash Deposit Machine (K Card) 33. Official Launching of FAST Payment Service with the National Bank of Cambodia 34. Official Launching with the Bundle Products: Payroll Service, Personal Loan 03 Business Performance and Working Capital Loan 35. Progress with International Financial Reporting Standards (IFRSs) 36. Risk Management 37. One Decade on the Journey of Financial Training 39. Lenders, Partners, and Networks 41. Operational Report 47. Social Performance Management Report 59. Testimonies (in their own words) 04 External Audit Report 65. External Audit Report

4 Yearly Performance Highlights 2016 Performance Indicator Dashboard Operational Performance Number of offices Number of districts covered Number of communes covered Number of villages covered Loan outstanding (in million USD) Active borrowing accounts Active saving accounts Values of deposit collected (in million USD) ATM Card Issued FAST Payment Service Interbranch Fund Transfer Service Total staff ,163 6, ,555 (Borrowers: 78,770) 60,186 (Savers: 48,093) , transactions, amount USD55,972 6,813 transactions, amount USD11,25million 1,679 Financial Performance Total assets (in million USD) Total equity (in million USD) Return on equity (includes grant) Return on assets (includes grant) Net profit after tax (in million USD) Operational selfsufficiency % 1.38% % Social Performance Borrowers from rural areas + semiurban Average loan size compared to GDP* per capita Women borrowers Percentage of loans to vulnerable clients (without collaterals) Voluntary savers with value below and equal GDP per capital Client s retention rate 91% % 88.41% 29.04% 90% 83% Note: * GDP per capita is USD1, KREDIT Microfinance Institution Plc.

5 Message from Chairman Tim Amstutz, Chairman On behalf of the Shareholders and Directors of KREDIT Microfinance Institution, I am pleased to present KREDIT s 2016 Annual Report. This report serves as a testament to the accomplishments and impact KREDIT has achieved during the past year. I would also like to take this opportunity to congratulate the management and staff of KREDIT who continue to demonstrate great commitment to KREDIT s borrowers and depositors, and to reducing poverty in Cambodia and stimulating economic growth across the nation while also ensuring best practices in financial management and client protection. As in the previous year, KREDIT continued to experience both uncertainties and opportunities for growth in On the one hand, Cambodia s economy continued its steady expansion at a rate of 7% GDP growth in 2016, extending its consistent 7+% growth since Such growth would be considered inconceivable in any highly developed economy in today s sluggish global economic climate. Furthermore, Foreign Direct Investment in Cambodia as a percentage of GDP remains very high, consistently exceeding 9% of GDP over the past few years. Yet on the other hand, such growth in Cambodia masks economic uncertainties to which KREDIT must adapt. Cambodian continues to remain vulnerable to external and regional market forces, in particular China s recent action to restrict overseas investment by Chinese investors. In addition, the potential benefits of the newly formed ASEAN Economic Community are moderated by significant infrastructure, regulatory, and human resource challenges within Cambodia. Increasing KREDIT Microfinance Institution Plc. 02

6 unpredictability in weather patterns and volatility in commodity prices has had a detrimental impact on Cambodia s agricultural sector. As a result, agriculture now forms only a tiny percentage of Cambodia s GDP in comparison to the stronger growth in the industrial and service sectors. This has had a negative impact on smallholder farmers who form the core of KREDIT s signature Vulnerable Services Unit. It requires that KREDIT must be increasingly nimble and creative in its product development. But above all, it requires that KREDIT remain a stable and fundamentally financially sound institution in order to weather the increasing headwinds and uncertainties of internal and external market forces. accounts. We doubled the number of savings accounts from the previous year to 60,186, with total deposits exceeding USD million. This growth in loan portfolio and savings deposits is matched by our increasing scope of reach as KREDIT has expanded to serve customers and their families through a network of 83 field offices and 1,679 staff. As we go forward into 2017, we are proud of KREDIT s accomplishments during this past year, and we are grateful to have the opportunity to steward the financial and human resources of a financially and operationally stable institution ready to face the headwinds and uncertainties ahead. As in previous years, KREDIT continues to take a deliberate path of conservative growth in order to maintain its fundamental stability and strength. We continue to be proactive in designing and customizing products that best suit the changing needs of our customers. For example, in our Vulnerable Services Unit, we take a whole life approach to economic development, recognizing that increasing economic productivity among the poor is not simply a matter of providing financial services such as credit, but also requires responding to family and community needs which create barriers to economic productivity. Because of this, KREDIT continued its strong partnership with ERIKS of Sweden to provide parenting training to 88,843 customers, and financial literacy training to 31,061 customers. We are also exploring to develop a partnership with TrueMoney to provide money transfer and remittance services to our customers in this age of increasing mobility and economic migration. With best wishes and warm regards from the Shareholders and Directors of KREDIT MFI, Tim Amstutz, Board Chair As we maintain this needed stability and product innovation, we are very proud of KREDIT s accomplishments in reducing poverty and increasing financial sustainability among the economically active poor in By the end of the year, KREDIT provided loans totaling more than USD 142 million to 83, KREDIT Microfinance Institution Plc.

7 Message from CEO CHAN MACH, Chief Executive Officer The government has reported that the economic growth for Cambodia was 7% in 2016, and has projected a growth rate of around 7% for 2017 and This strong growth projection has also been confirmed by the World Bank (WB), Asia Development Bank (ADB), and the International Monetary Fund (IMF). The garment and textile, construction and real estate, and tourism sectors are all still driving factors to support Cambodia s economic growth. However, agriculture sector growth is still slow affecting farmers living conditions. A long hot season affected crop production, and prices of main agricultural commodities rice, cassava, rubber, and pepper declined to record lows. The management of KREDIT, with some concerns over the slow growth in the agriculture sector and overlapping loans mainly with rural Credit Operators who are not under Central Bank regulation, decided to take more conservative path for growth than what we had planned during the year. KREDIT s original 2016 plans projected growth in loan portfolio of about 25%, but actual 2016 growth was 11%, reaching USD142 million in loans last year. However, we saw strong growth in our deposits of about 28%, reaching to USD68.79 million. In 2016, KREDIT focused more attention on long term sustainability through staff capacity building, loan quality management, and new product development. During the year, we expanded our range of services through the official launchings of our ATM Service, the FAST Payment Service with the National Bank of Cambodia, Payroll Services for businesses and NGOs, and we are about to launch our Parent Child Account. KREDIT Microfinance Institution Plc. 04

8 We also took many actions to further enhance our risk functions enhancing risk culture and governance, reviewing regular reports on risk and compliance, assessing risks for new products and processes, and strengthening operational risk policy and procedures and information classification and management. FATCA regulations and forms are now fully implemented in the whole of KREDIT and its report format has been successfully tested. Finally, I would like to express my appreciation to all of KREDIT s staff and management for their commitment. I also wish to thank our customers, the Board of Directors and shareholders, and other stakeholders for their continuous support for the stable growth of KREDIT since the beginning up to now. As a social enterprise, we are committed to the social performance goals of KREDIT. In 2016 KREDIT was qualified and granted certification for complying with international standards of Client Protection Principles (CPP). We have been continuing our social and community development programs. Currently, we are deploying 8 dedicated financial trainers to provide financial literacy training to our borrowers, and we continue to provide practical agriculture training and good parenting training to our most vulnerable customers. Chan Mach Chief Executive Officer KREDIT looks forward to continuing our vision and mission. We will keep modifying and developing new products and services to serve our rural and urban customers at or near the bottom of the economic pyramid. We believe that our new products and services will greatly expand opportunities and benefits to our clients, communities and the nation of Cambodia as a whole. 05 KREDIT Microfinance Institution Plc.

9 Macro Environment Scan Cambodia Business Environment Bank and Mircrofinance Develpment

10 Cambodia Business Environment Since last year, Cambodia has become Lower Middle Income nation. The government has reported that the economic growth for Cambodia was 7% in 2016, and has projected a growth rate of around 7% for 2017 and The strong growth projection was also made by World Bank (WB), Asia Development Bank (ADB), and (The International Monetary Fund (IMF). In 2016, Cambodia s nominal GDP was USD19.8 billion making the GDP per capita at USD1,300. The inflation rate remained low at around 2.9% due to the drop in oil prices. Garment and textile, construction and real estate, and tourism are still driving factors to support the economic growth. Although the trade deficit of Cambodia remains high in the year USD2.2 billion. Cambodia s total export value increased about 3.06% to about USD9.86 billion from USD9.56 billion in 2015, and total imports were more than USD12 billion, a 5.10% increase, making the total trade value in 2016 to USD21.93 billion, up about 4.18% from USD21.02 billion in Foreign direct investment was up 25% for the year 2016, reaching to USD2.15 billion, most of which was channeled into the financial sector, manufacturing, real estate, and agriculture. Japan is the third largest investor in Cambodia, behind China and South Korea. ADB has also earmarked an additional USD1 billion against the previous allocation in developmental loans and grants to Cambodia for projects that boost infrastructure development, increase agricultural competitiveness and enhance education for the next 4 years. However, World Bank experts identified several key challenges facing the Cambodian economyparticularly a weak agricultural sector, poor education, and rapid credit growth. Some other challenges include US Monetary policy and the decline of global economic growth, but we also can benefit from the planned integration of ASEAN, the Asia Infrastructure Investment Bank (AIIB) and zero tariff for export to US and European countries. Agriculture This year, the prices of the main agricultural products for export cassava, rubber, and rice declined to record lows, creating economic hardship to the growers, mainly those with loans. Hot competition in the international markets also put more pressure on Cambodian agriculture products because of the high cost of production. Cambodia exported rice to 65 countries amounting to 542,144 tons in 2016, 0.7% up from last year, with China and France being the biggest importers. Export of rubber was 150,000 tons, up from 120,000 tons in Tourism and Flight Traffic Total international tourists visiting Cambodia in 2016 was about 5 million, a 5% increase. The tourism industry directly employed some 620,000 workers, earning about USD3 billion. Cambodia has been ranked 4th among the 10 most popular budget destinations for tourists in Also, Cambodia s famed UNESCO Angkor Wat was ranked by Lonely Planet travel publication as the number one destination in the list of the world s most beautiful places beating 500 other tourist destinations and mesmerizing millions of investors. Ticket sales revenue for the Angkor archaeological Park increased by 4.2% last year, topping 2.19 million visitors and generating nearly USD63.6 million. Real Estate The Kingdom s construction industry saw formidable growth in 2016 with a total of 2,636 projects having been undertaken nationwide with the total investment in the sector growing a staggering 156% and reaching USD8.5 billion. Garment In 2016, the garment sector increased by about 12%. The US withdrawal from the TransPacific Partnership (TPP) will boost the competitiveness of Cambodia s domestic garment and footwear industry and return Cambodia to closer parity with neighboring Vietnam, a signatory of the freetrade agreement. The continued Chinese shift from lowvalue added production to products of higher value is of great benefit to Southeast Asian countries, including Cambodia. 07 KREDIT Microfinance Institution Plc.

11 Bank and Microfinance Development Even though some international institutions have warned of rapid growth of credit and real estatelinked risk, the financial sector in Cambodia is still healthy because, from the National Bank of Cambodia (NBC) s point of view, the lending was made across many different sectors, the rate of NPL is still in a good position, and funding sources for lending is also stable. Collection of saving has also increased across Cambodia. As of now, there are 37 commercial banks, 15 specialized banks, 7 Micro DepositTaking Institutions (MDIs), 63 Microfinance Institutions (MFIs), and 170 credit operators. Others include 12 leasing companies, 7 representative offices and 2,261 money exchanges. Total assets of the sector was USD27.8 billion in Credit growth has gradually slowed from 31% in 2015 down to 23% in Overall credit issued by banks and MFIs was USD16.9 million last year while deposits grew by about 21% to USD15.1 billion spurred by a strong base of customers beginning to use financial services. Last year, the annual average exchange rate was KHR4,050 per USD1, with monthly variance less than 1%. Interest rates on credit continue to go down. More development of products and services have been increasing gradually through such services as transfer, ATM, and internet banking. In the Microfinance sector, under the Cambodia Microfinance Association (CMA), there are 58 members, including Sathapana which just moved to become a commercial bank, an increase of 9 from Loan outstanding of all CMA members including Sathapana reached to some USD3,676 million, up 24.55%, borrowing accounts were 2,043,220, about 1% up from 2015, nonperforming loan (PAR30+ and write off) was at 1.57%, the amount of savings collected reached USD2,073 million, up 57.3%, the number of saving accounts was 1,81million, 27.60% up from To support economic growth and mitigate associated risks, the NBC in 2016 issued some new Prakas (regulations), including launching a new operation called a LiquidityProviding Collateralized Operation (LPCO) to provide liquidity in Riel in response to the need of banks and microfinance institutions. The financial institutions who want to use LPCO will need to place Negotiable Certificates of Deposit (NCDs) with NBC. It is a step towards the development of interbank lending in Cambodia. Also, the NBC released a new Prakas to set a minimum of 10% of outstanding (KHR) as local currency loan to all Cambodian financial players with a deadline by end of December Non acceptance of national legal tender subject to a fine 100 times the amount is also described in another Prakas. FAST Payment, one of the remarkable milestones of the financial sector, was initiated by the NBC and launched mid2016 with some financial institutions serving as pioneer members, including KREDIT. FAST Payment aims at providing an alternative channel that is safe, fast, efficient, and reliable for commercial banks and MDIs to execute interbank fund transfers and payment transactions in Riel for their customers all over the country. The NBC has planned to launch a central share switch in 2017 to create easier access to funds. People holding locally issued debit and ATM cards will be able to use them to check out at registers and withdraw money at cash machines owned by other banking institutions. Once all domestic institutions are connected, we can then connect to other national share switches within ASEAN and beyond. The NBC also wants to increase the usage of mobile banking services, especially in farflung rural areas, by encouraging Cambodians to open bank accounts and avail themselves of the convenience and secure nature afforded by digital banking. This will also bring more people into the formal banking segment. Under partnership with some development partners, the NBC KREDIT Microfinance Institution Plc. 08

12 has also focused on financial inclusion to improve financial knowledge of Cambodian people. The goal of the NBC is to promote the use of Riel currency, financial stability, and economic development. With support from Good Return, the NBC and the Ministry of Education, Youth and Sport (MoEYS) has arranged the official launch of a financial literacy booklet, called Let Talk about Money in early Under this plan, they will print and distribute the book to all schools nationwide. They also plan to incorporate financial literacy into school curriculum. The Cambodia derivatives market officially started and up to now, there are at least 5 companies which have been granted licenses by the Securities and Exchange Commission of Cambodia (SECC) to operate as a central counterparty and as a derivatives broker. The Cambodian insurance market saw more growth in More insurance companies arrived: Daiichi Life Insurance will become the first Japanese life insurer in Cambodia. AIA, Asia's largest insurer, is interested in making a fullfledged entrance into Myanmar, while Cambodia is another market AIA is waiting to "open more fully." Dhipaya, Thailand s secondlargest insurer, Bangkok Life and Muang Thai Life will also start setting up operations in Cambodia. China Export and Credit Insurance Corporation (Sinosure) is also in talks with officials to enter the country s insurance market. 09 KREDIT Microfinance Institution Plc.

13 Governance Milestones of KREDIT Vision, Mission, and Core Values Operating Provinces Organization Chart Shareholders Board of Directors Committees at Board Level Executive Committee

14 Milestones of KREDIT PhillipCapital officially became the major shareholder of KREDIT 2012 Revised vision, mission, and core values as well as name and logo. Summited the request to the NBC for approval on the restructuring of shareholders: PhillipCapital to get in while World Relief Canada and World Hope to move out Received Micro DepositTaking Institution (MDI) license from the NBC so that KREDIT can collect saving from the public. Social performance paper developed and approved in principle by the BoD Functioned as a project of World Relief Cambodia s Secured the license from the NBC as a formal microfinance institution (MFI). 11 KREDIT Microfinance Institution Plc.

15 Successfully merged with CBIRD, another MFI which was also owned by PhillipCapital Group 2014 One of the top Cambodian MFIs with a total asset of USD175,36 million, 1,679 staff, and is operating in 20 out of 25 provinces. KREDIT is managing 83,555 borrowing accounts with loan outstanding USD142,32million, 60,186 saving accounts with total saving value of USD68,79 million using 83 offices. Launched ATM Service Launched FAST Payment Service Launched Payroll Service Package Certified Client Protection Principles New Core Banking System Oracle Flexcube goes live KREDIT Microfinance Institution Plc. 12

16 Vision, Mission and Core Values To contribute to the social and economic development of communities by enabling the economically active poor to improve their lives. Vision Mission 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. 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 Core Values 13 KREDIT Microfinance Institution Plc.

17 Operating Provinces L aos Oddor Meanchey Preah Vihear Poi Pet Banteay Meanchey Steung Traeng Siem Reap Battambang Pailin To nl e Sa p Kampong Thom Modolkiri Pursat Kratie Kampong Chhnang Koh Kong Rotanakiri Kampong Speu Kampong Cham Phnom Penh Kandal Prey Veng Vietnam nd la ai Th Svay Rieng Sihanouk Ville Kampot Takeo Kep ATM location Operating Provinces Potential Provinces KREDIT Microfinance Institution Plc. 14

18 Organization Chart 15 KREDIT Microfinance Institution Plc.

19 Shareholders KREDIT was originally formed under the agreement of World Relief, an International NGO, with the Ministry of Foreign Affairs. The organization became a Private Limited Liability Company in 2003 in response to the requirement of the Banking and Financial Institutions Act (2000) for organizations with a portfolio and clients above the stated threshold to become a licensed MFI in In 2010, KREDIT received another upgrade of license to Micro DepositTaking Institution (MDI) from the NBC. Currently KREDIT has two shareholders with the ownership structure as follows: Phillip MFIs Pte Ltd, A member of PhillipCapital Group Phillip MFIs Pte Ltd, a member of the PhillipCapital Group based in Singapore, is a holding company for the Group s longterm investments in Cambodia. 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. Its 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, general and life insurance, wealth management, regular savings plans, investment research, equity financing and property consultancy. Institutions can also benefit from its corporate finance and advisory services as well as information technology solutions. With more than 3,500 employees and over 1 million clients worldwide, the assets under custody/management totals to more than USD28 billion with shareholders' funds in excess of USD1 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, an international humanitarian and economic development NGO, works alongside local churches and communities on four continents to serve the most vulnerable. Partnering with likeminded organizations, World Relief extends its reach into many of the poorest and least developed nations on earth. It empowers and assists 2.8 million people annually. World Relief focuses on Maternal & Child Health, HIV & AIDS, Child Development, Human Trafficking, Agriculture and Food Security, Disaster Response, Enconomic Development and Microfinance in countries such as Burundi, India, Nicaragua, Cambodia, Indonesia, Rwanda, Kenya, South Sudan, Congo, Kosovo, Zambia, Sudan, Malawi, Haiti, and Mozambique. Ownership 2016 World Relief Corporation 27.90% Phillip MFIs Pte Ltd, 72.10% KREDIT Microfinance Institution Plc. 16

20 Board of Directors Currently, KREDIT s Board has 9 directors, 5 of whom are independent directors, and 3 are women. The directors are from different professional backgrounds providing support and combining of commercial and development sides. TIM AMSTUTZ Chairman 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 studies at Wheaton College in Illinois, USA. Mr. Amstutz worked for World Relief in a number of leadership roles since 1982, including various U.Sbased positions. He was responsible for launching and leading a number of groundbreaking 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. In 2007 he was appointed Asia Regional Director, overseeing World Relief s work in Cambodia, Indonesia, India, and China. Mr. Amstutz now serves as an independent consultant in organizational leadership and development, serving business and NGO clients in Southeast Asia. Mr. Amstutz s broad management and leadership experience provides a platform for him to speak and lead seminars at numerous conferences and events on trends and developments in microfinance, social entrepreneurship, organizational development and leadership. Mr. Amstutz divides his time between the US and Cambodia. LIM HUA MIN Director Mr. Lim is the Executive Chairman of PhillipCapital Group of Companies and was also appointed Chairman of IFS Capital Limited on 20 May He began his career holding senior positions in the Stock Exchange of Singapore and the Securities Research Institute. He has served on a number of committees and subcommittees of the Stock Exchange of Singapore. In 1997, he was appointed Chairman of the Stock Exchange of Singapore (SES) Review Committee, which is responsible for devising a conceptual framework to make Singapore s capital markets more globalized, competitive and robust. For this service, he was awarded the Public Service Medal (PBM) in 1999 by the Singapore Government. He served as a board member in the Inland Revenue Authority Singapore from 2004 to Mr. Lim holds a Bachelor of Science Degree (Honours) in Chemical Engineering from the University of Surrey and obtained a Master s Degree in Operations Research and Management Studies from Imperial College, London University. 17 KREDIT Microfinance Institution Plc.

21 ONG TEONG HOON Shareholder Representative and Director 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 in Currently, he is also serving on the Board of PhillipBank Plc., Cambodia which is part of PhillipCapital Group and also on the Board of First Finance, which is a micromortgage firm in Cambodia in which PhillipCapital Group is also a minority shareholder. He currently volunteers as Chairman of Methodist School in Cambodia as well as a Director of Village Works which is a social enterprise helping the marginalized women in Baray district, Kampong Thom Province. TAN TECK KEONG MICHAEL Director Mr. Tan is currently Director, Corporate Office at PhillipCapital. Prior to joining PhillipCapital, 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, a CDipAF (Accounting and Finance) qualification from ACCA (UK), and has also passed various CMFAS modules administered by Institute of Banking & Finance (Singapore) and Singapore College of Insurance (Singapore). 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 KREDIT Microfinance Institution Plc. 18

22 SREYHEM ROBERTS Director and Chair of SPM* Committee 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 nonprofit 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. *SPM: Social Performance Management ING VARONY Director and Chair of Audit Committee 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. Ms. Varony served with Hagar International for five years as Programming Manager who managed two main programs. She is currently Senior Manager in Cambodia, The Harpswell Foundation (HF). 19 KREDIT Microfinance Institution Plc.

23 TEA CHANSOTHEARY Director and Chair of Risk Committee 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. FONG KIM CHOY (PHILIP) Director Mr. Fong is the founder of JM Asia Cambodia Pte Ltd. He is the lead consultant and trainer who is a fully qualified and accredited trainer under the Singapore Government Work Skills Qualification Initiatives. He is a Csuited executive with more than 30 years international business experience. Mr. Fong is also the master trainer with Century 21 Cambodia, a member of Century 21 global real estate brand Beside microfinance, Mrs. Tea 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. KREDIT Microfinance Institution Plc. 20

24 ANTHONY NATHAN Director Mr. Nathan is the CEO of Complete Intelligence. As a thought leader on economics and risk, Nathan is a frequent public speaker and a facilitator of strategic discussions with business and government leaders. He is a regular contributor to leading global media which include regular sessions on CNBC, Bloomberg, BBC World and Al Jazeera. He is also a key contributor to regional economic and industry forums and closeddoor corporate executive dialogues. Nathan has a longstanding track record of creating, inspiring, motivating and leading culturally diverse teams in developed and developing markets across EMEA, North America and Asia, where he has lived and worked for over a decade. Previously, Nathan was VP of Consulting at IHS (formerly Global Insight) overseeing Asia and the Middle East. Prior to IHS, Tony built and led the global research and consulting business for The Economist (EIU) and initiated their first Asia acquisition (ClearState). He has also been a social entrepreneur, media entrepreneur, writer and consultant. Nathan has a Master degree in International Relations from the Fletcher School of Law & Diplomacy at Tufts University and a BA in Business Management from Texas A&M University. 21 KREDIT Microfinance Institution Plc.

25 Committees at BoD Level To support the BoD and Management, KREDIT has established 3 committees at the BoD level including: Audit Committee, Risk Committee, and Social Performance Committee. BoD Audit Committee, chaired by an independent BoD member Roles of BoD Audit Committee The BoD Audit Committee performs the following general functions: Establishes and monitors compliance of all KREDIT operations according to operating policies, internal financial controls, and the corporate code of conduct. Reviews the findings of audits or examinations conducted by the Internal Audit department and other agencies. Discusses and resolves disagreements between internal or external auditors and management. Inquires about the external auditor s opinion on the competence of financial and accounting personnel and the internal auditors. Reviews the adequacy of internal control structures over financial reporting. Oversees the company s internal controls for safeguarding its assets. Evaluates the internal auditor s objective. Reviews the internal auditor s work and assesses their performance and capacity building. Ensures that the internal auditor s involvement in auditing the financial reporting process in wellcoordinated with the work of the external auditors. Achievements of BoD Audit Committee in 2016 The Board Audit Committee met four times in 2016, in March, June, September and December. The committee has approved the annual internal audit department plan for the year The committee and chair of BoD approved the rotation plan of regional internal auditors, the internal audit department report grading for each business unit and internal control report 2016 for National Bank of Cambodia (NBC). The internal audit department reported directly to the Board Audit Committee. All key operational, business and management processes were audited according to riskbased methodologies which provide independent and objective assurance over the adequacy, sustainability, and effectiveness of the company s governance, internal controls and risk management process. The internal audit department examined the strategies of the company, the adequacy and effectiveness of the relevant policies, procedures and regulatory guidelines The internal audit department discussed the result of all assessments with management and reported its observation/findings, recommendations and opinions, via a structured process, to the Board Audit Committee. Within the whole year, 2016, the internal audit department conducted 210 assessments in which 201 were on operational scope (10 special cases), 1 on compliance, 2 on HR, 4 on finance, and 2 on IT. In 2017, internal audit will apply the internal audit report grading for each audit area and is processing with IT department to design the internal audit report system. KREDIT Microfinance Institution Plc. 22

26 It is the opinion of the Audit Committee that the internal controls, audit procedures and risk management processes are adequate to safeguard the company s asset and to provide sufficient assurance and integrity of the financial accounts. BoD Risk Committee, chaired by an independent BoD member Roles of the BoD Risk Committee: Critically assesses KREDIT Business Strategies and processes and plan from the risk perspectives. Analyzes future risks including trends and provides comments to management. Monitors procedures for compliance with government regulation. Reviews all policies and procedures for risk mitigation. Sets out the nature, role, responsibility and authority of the risk management function with the outline of the scope of risk management framework. Reviews critical risk management activities of KREDIT as reported by the management and finds out definitely activities are all requirement of the policy are being complied with. Suggests or commends to the management for any preemptive action for any external factors influence the company operation such as political, economy, regulatory framework. Reviews and estimates the integrity of the risk control system and ensures that the risk policy and strategies are effectively managed. Reviews and approves for risk policy. Through report from Risk and Compliance Department or ALCO committee, does suggestion or commend to the management for any action to mitigate risk, risk acceptant or risk transfer. Achievements of BoD Risk Committee in 2016 The BoD Risk Committee met four times in 2016, in March, June, September and December. During the year, there were significant steps taken as follows: Enhancing risk culture and governance in KREDIT to ensure that our risk management is able to respond to current and future business operational risks. Reviewing regular reports on risk and compliance and report high risk issues or concerns to the Board Providing oversight of KREDIT s risk management framework and significant inputs for enhancing our internal risk management practices. Assessed risk for new products and processes. Supported branches for risk assessment. Operational risk policies and procedures were finalized and ready for discussion in Board meeting. Information Classification and Management was drafted and discussed in Operational Risk and Compliance committee. Updated on economic and business news. Inputted new items in BoD Risk Committee and Operational Risk and Compliance committee report. Developed online large depositors to other account forms. Conducted annual update on compliance checklist, AML/CFT practices, and challenges in FATCA. Whistle blowing policy was revised and ready for discussion in Board Risk Committee meeting. 23 KREDIT Microfinance Institution Plc.

27 Conducted annual blacklist screening on foreign clients. FATCA forms have been implemented in the whole KREDIT and FATCA report format was successfully tested Social Performance Committee, chaired by an independent BoD member Roles of the Social Performance Committee The roles of the social performance and community development committee include: 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 man agement 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. Achievements of BoD SPM Committee in 2016 The Board SPM Committee met four times in 2016, in March, June, September and December. After completing the missing policies and procedures and with approval from the SPM committee, in 2016 KREDIT received Client Protection Principles (CPP) Certificate from Smart Campaign. The committee approved to expand the partnership with Handicap International to Siem Reap province after testing in Kampong Cham province. The committee approved the partnership with Clear Cambodia to support the construction of hygiene and sanitation equipment in 3 schools in Kampong Cham province. Each school received a set of equipment, including school bios and filter (sbsf), latrine, hand washing facility, garbage kiln. Under the partnership, we also provided health and hygiene training to principals, leaders of school clusters and teachers. KREDIT Microfinance Institution Plc. 24

28 The committee approved to provide schooling material to another 10 preschools. The committee approved to build hand washing facility for schools even it is outside the operation areas of the Vulnerable Service Unit. The committee suggested to study the creation of KREDIT LNGO by separating it from KREDIT microfinance operations. The committee also approved to build many preschools: Kork Kong Kert commune, Kanhchriech, district, Prey Veng (1 room) Chroy Banteay Commune, Prek Brosorb District, Kratie (1 room) Korki Thom, Kandal (2 rooms) Prasat Phnom Khjong Commune, Kampong Trach district, Kampot province (2 rooms) Sambor Commune, Sambor District, Kratie Province (1 room) O Malou Commune, Stoeung Trang Distict, Kampong Cham Province (1 room) The committee also approved many other projects. 25 KREDIT Microfinance Institution Plc.

29 Executive Committee CHAN MACH Chief Executive Officer (CEO) Bachelor in Mathematic, Master in Management, and Master in Finance and Banking. 20 years of experience of which 18 years in MFI in Audit, Training, Branch and Operations Management, and Math teaching. HIM VIBOL Chief Finance Officer (CFO) Bachelor in Economics, Master in Finance and Accounting, Advanced Diploma in Accounting and Business from ACCA, and is pursing ACCA Program. 14 years of experience with MFI in Audit, Accounting, Finance, Treasury and IT Systems. SOUNG ENG CHHAY Chief Administration Officer (CAO) Bachelor in Management and Master in Management. 21 years of experience with MFI in Accounting, Branch Management, and Auditing. KHENG TILEN Chief Business Officer (CBO) Bachelor in Business, Art of English for International Business, and Master in Management from Thailand, and is pursuing ACCA from UK. 12year experienced in banking and microfinance sectors in Marketing, Product and Business Development, and Branch Management and Support. KREDIT Microfinance Institution Plc. 26

30 HUY BUNHUOT Head of HR Department Bachelors in Law, Bachelors in Education, and Master in Development Management. 17 years of experience with MFI in Admin and Human Resources Management. HEANG KIM Head of Marketing Department Bachelor in Marketing and Master in Management. 15 years of experience with MFI including work in Management of Marketing, Research, Customer Service, Fund Mobilization and Partnership Relation. SOK KIMCHHAY Head of IT Department Bachelor in Computer Science, Master of SIT, and pursuing Certified Accounting Technician (CAT) from UK. 13 years of experience in IT management with MFI. ROM VANARA Head of Operations Department High Diploma of Accounting & Finance, Bachelor of Art in English, and Master in Finance and Banking. 15 years of experience with MFI in Micro Credit Lending as well as Branch and Operations Management. 27 KREDIT Microfinance Institution Plc.

31 HAY VANHOM Head of Treasury Department Bachelor in Accounting and Master in Auditing. 14 years of experience with MFI in Bookkeeping, Auditing, Accounting and Finance Management, and Treasury. EAR NHAR Head of Logistic and Administration Department Bachelor in Accounting and Master in Finance. 10 years experiences in Administration with NGOs and 8 year with MFI, including Insurance for staff. SOK CHANTHEARA Head of Finance Department Bachelor Degrees in Accounting and English Teaching, completed ACCA program from United Kingdom and ACCA membership. Collected extensive experiences in audit with external audit firm, Price WaterhouseCoopers (PWC) in charge of difference types of clients, including financial services, corporate, garment factor, and local & international NGOs. KIM RATANA Head of Product Development Department Associate Degree in English, Bachelor in Banking and Finance, and Master in Business Administration. 10 years experiences with MFI in Operations Management and Product Development. KREDIT Microfinance Institution Plc. 28

32 YOS VEASNA Head of Training and Capacity Building Department Bachelor s degree in Finance and Banking, a Master s degree in Finance Management. More than 12year professional experiences in training and capacity building in Microfinance. TUN VIBOL Head of Sales and Customer Service Department Master s Degree in Business Administration (MBA). 20year work experience and joint financial sector since 2003 in branch management, sales and customer service. VORN LENG Head of Retail Banking Department Bachelor's Degree in Management Information System. Joint financial sector since 2009 and worked in various fields: EBanking, Information Technology, Business Process Improvement, and Project Management at ANZ Royal Bank. THAV SOKLY Acting Head of Internal Audit Department Bachelor in Economics and pursuing Master in Management. 8 years experiences with MFI in credit operations, internal audit, risk management, internal control system on financial business. Resigned in April KREDIT Microfinance Institution Plc.

33 Business Performance Product and Service s Research & Development Official Launching of Automatic Teller Machine and Cash Deposit Machine (K Card) Official Launching of FAST Payment Service with the National Bank of Cambodia Official Launching with the Bundle Products: Payroll Service, Personal Loan and Working Capital Loan Progress with International Financial Reporting Standards (IFRSs) Risk Management One Decade on the Journey of Financial Training Lenders, Partners, and Networks Operational Report Social Performance Management Report Testimonies (in their own words)

34 Product and Service's Research & Development Competition in the Cambodian financial markets has gotten tighter. We are competing not only with local players but also large companies from the global market. To respond to such strong competition, we need to become increasing nimble and adaptive by continuously updating our existing products and services while developing and innovating new wellfocused products and services. Fast movement in technology also encourages more innovation of financial products and services. For KREDIT, with its Worldclass core banking system, Oracle Flexcube, we are able to develop, adapt, and justify our products and services with ease. In addition, KREDIT continues to explore partnerships with various institutions to provide additional benefits to its clients when they use KREDIT s products and services. Research still plays a critical role to support new product and service development and testing. It keeps KREDIT more nimble and able to respond quickly to market changes by monitoring the economic environment and providing data to support many changes of our existing products and services. As of December 2016, KREDIT is providing these main products as below: Loan ATM Service Local Money Transfer Payroll Service Deposit FAST Payment Service 31 KREDIT Microfinance Institution Plc.

35 Official Launching of Automatic Teller Machine (ATM) and Cash Deposit Machine (CDM) K Card Come to get K Card for free and enjoy special offer by our partners nationwide! KREDIT introduced its ATM card, called K Card in early 2016 with two card options: VIP and Normal cards that the clients can choose based on their preference. The ATM and CDM services provide a high level of convenience to KREDIT s customers for quick and easy access to cash. The ATM can serve the customers with many functions such as cash withdrawal, cash withdrawal via code, fund transfer to own account, fund transfer to other account, fund transfer to cash, balance inquiry, mini statement, and PIN change. Moreover, the CDM can transact many services such as cash deposit, cash deposit without card, cash withdrawal, cash withdrawal via code, fund transfer to own account, fund transfer to other account, fund transfer to cash, balance inquiry, mini statement, and PIN change. As of December 2016, KREDIT s ATM service is available in 9 provinces and cities: Phnom Penh, Siem Reap, Battambang, Kampong Cham, Sihanouk Ville, Kampot, Takeo, Poipet of Banteay Meanchey Province, and Takhmao of Kandal Province. More ATM are coming soon to serve more of our clients. As of December 2016, 2,269 cards issued with a total 45,582 transactions. KREDIT Microfinance Institution Plc. 32

36 Official Launching of FAST Payment Service with the National Bank of Cambodia Transfer or receive funds and settle payment for products or services in a safe, fast, efficient and reliable manner through Counter Computer Phone ATM Founding Members Safe, fast, efficient, and reliable for interbank fund transfer and payment transaction FAST Payment, one of the remarkable milestones of the financial sector was initiated by the NBC and launched in mid 2016 with pioneer members of financial institutions, including KREDIT. FAST Payment aims at providing an alternative channel that is safe, fast, efficient, and reliable for commercial banks and MDIs to execute interbank fund transfer and payment transaction in Riel for their customers all over the country. For the time being, the customers are able to use this service at some commercial banks and the following MDIs: KREDIT, Phillip Bank, ACLEDA, Cambodia Public Bank, Canadia Bank, ABA, BIDC, Sathapana, AMK, VisionFund, Prasac, AMRET, and Hattha Kaksekar. The service will be widely accessible in the near future at other commercial banks and MDIs. 33 KREDIT Microfinance Institution Plc.

37 Official Launching with the Bundle Products: Payroll Service, Personal Loan and Working Capital Loan More convenient and costeffective with Payroll Service of KREDIT! Payroll Service is another new product introduced in 2016 to help business owners, companies or organizations in saving their time in preparing and managing payroll for staff so that the company can focus on its business operations. KREDIT s payroll service generates many different benefits for the company, organization, and staff: Benefits for Company or Organization: Can reduce cost on payroll preparation: staff and time; No minimum balanced required before effective day; Reduce errors in preparing payroll administration; Can get working capital loan up to USD70,000 with good deals KREDIT can send our team to your office to open the account for your staff. Benefits for Staff: Get ATM Card (K Card) for free; Can withdraw their salary through KREDIT s office or ATM machines nationwide; Can get personal loan with ease up to 3 times of their salary with special interest, and NO COLLATERAL requirement; With K Card, they also can enjoy great discounts from KREDIT s business partners nationwide by just presenting their K Card. KREDIT Microfinance Institution Plc. 34

38 Progress with International Financial Reporting Standards (IFRSs) Progress on Financial Report in according to Cambodian International Financial Reporting Standards (CIFRS) As a private company, KREDIT complies with all Prakas and regulations from related line ministries of the Royal Government of Cambodia. Cambodian International Financial Reporting Standards (CIFRS) will be a new accounting standard requirement with plans to be implemented by the government by the end of It is a new standard for all financial institutions, and KREDIT serves as a member of the CIFRS taskforce team at the CMA level. KREDIT has compared its current standard with the CIFRS and is already preparing for the impact to the financial statements, and will explore external expertise to ensure compliance if needed. KREDIT is optimistic about CIFRS and looking forward to the full implementation as set by the government. 35 KREDIT Microfinance Institution Plc.

39 Risk Management Risk Management plays a very important role in improving KREDIT s control and in supporting the achievement of its corporate goals by focusing on two aspects protecting capital and optimizing the relationship between risks and returns. To embed a strong risk management culture in its daytoday business operations and decisionmaking, KREDIT has implemented and adapted a Risk Management System model into three lines of defense consisting of: 1. Controls within the business line hierarchy (Fist Line of Defense): controls carried out and implemented by operators at all levels of the organization and to ensure their tasks and duties and outcomes in accordance are with the policies and procedures in place and assigned plan. Here, business lines own the risk, control, and loss/incident and are responsible for identifying, analyzing, mitigating, and reporting on risks. 2. Measure carried out by an independent Risk Management Team (Second Line of Defense): controls carried out and implemented by Risk and Compliance Department to monitor and ensure that operators adequately and properly apply and implement the risk management policies and procedures in place and ensure that a strong culture of internal control and low tolerance for risk is built and communicated to all staff. Here, Risk and Compliance Department is mainly responsible for designing and developing overall risk management framework, facilitating and mentors risk management practices, and escalating and providing aggregated risks and compliance reports. 3. Control of Controls handled by internal audit (Third Line of Defense): controls carried out and implemented by Internal Audit Department to evaluate permanent control and report to Board of Director independently. Here, the Internal Audit Department performs independent testing and verification of efficiency of business standard and business line compliance and provides assurance that the risk management framework is functioning as designed. The Board Risk Management Committee is established by the Board of Directors to assist the Board in the effective discharge of its responsibilities for risk management and to regularly review management's ability to assess and manage KREDIT s risks. Our philosophy is to ensure that the risks that we take help us attain our business strategy and corporate goals while remaining in line with risk appetite and in balance between risks and returns. In addition to the Risk Management Committee (RMC), there are three other relevant internal management committees including the Assets and Liabilities Committee (ALCO), Credit Risk Committee (CRC), and Operational and Compliance Risk Committee (OCRC). Board Level Risk Management Committee Board Risk Advisor Management Level Assets & Liability Committee (ALCO) Credit Risk Committee (CRC) Operational & Compliance Risk Committee (OCRC) Covering Risks Financial Risk Liquidity Risk Interest Rate Risk FX Risk Product Risk Others Credit Risk Credit Policy Credit Approval Portfolio Management Collateral Others Operational Risk Process Transaction Risk System Risk Human Resources Risk Fraud Risk Business Contingency Plan (BCP) Etc Reputation and Regulatory KREDIT Microfinance Institution Plc. 36

40 One Decade on the Journey of Financial Training to Clients A long chronic war left most Cambodian people now aged 40 and up with very little or no education. This has especially affected those who are living in rural areas. The impact is that these otherwise productive adults find it hard to deal with many things in their daily lives, including managing their family finances. They depend mostly on agriculture activities, and while they can often earn incomes across two or three seasons during the year, they find it difficult to manage their finances across the whole year. As a result, immediately after sales of their agriculture products, some easily spend their recently acquired income without any thought of saving or preparing for the next season, and when they start the new agriculture season, they do not have any funds on hand and must approach lenders for loans, thereby unnecessarily increasing their indebtedness. At KREDIT, we believe that financial knowledge can break this cycle of indebtedness among poor rural families and reduce their economic vulnerability. With good family financial management, they are able to mitigate risks from seasonal changes that sometimes bring financial shocks and calamity to their lives. Without this necessary family financial management training, poor rural families remain at very high risk of further economic and financial shocks. In order to address this issue, KREDIT has been providing family financial training to poor rural families since 2007 a full one decade. We started with our inhouse curriculum covering 3 main topics: Importance of Saving, Household Cash Flow Management, and Debt Management. Later on, we received support from PlaNet Finance to revise and enhance our curriculum and as of now KREDIT is implementing the curriculum called Consumer Awareness Financial Empowerment (CAFE) from Good Return, a project of World Education Australia. From the external assessment, we found the financial training really impactful on lives of the poor. Below are a few findings from CAFE training, phase II conducted by Good Return in 14 branches of KREDIT: 92% of participants are women 83% with primary or below 31% cannot write 29% cannot read a) Pre/Post Survey Results Overview Overall, improvements are seen across all assessed areas Scores for Money Management Practices and Confidence have strong improvement Learners demonstrated good performance over Knowledge & Awareness ( I know ), Money Management Practices ( I do ), and Confidence ( I can ) with these areas scored above 4 on a scale of 1 to Knowledge & Awareness Money Management Practices Confidence Financial Wellbeing Pretraining Posttraining 37 KREDIT Microfinance Institution Plc.

41 b) CAFE Learners VS Nonparticipants To have a better understanding of the possible impact of CAFE F2F Training, surveys were conducted (using the posttraining questionnaire) among clients from 10 neighbouring villages at similar socioeconomics conditions for comparison. It is observed that, Overall, CAFE Learners have outperformed nonparticipants across all areas assessed Differences between the two groups are all statistically significant The biggest gaps in scores between CAFE Learners and Nonparticipants are seen in Money Management Practices, followed by Knowledge & Awareness Financial Wellbeing Confidence Money Management Practices Knowledge & Awareness Nonparticipants CAFE Learners With a strong commitment to bring financial knowledge and best practices to our rural households, KREDIT is now employing 8 professional financial education trainers to provide the training to our rural poor families. Their roles are solely focused on providing training to families and coaching trainees from the community who will be able to expand the impact of our training to many other poor families. With CAFE, the trainees are required to join for 21 weeks, 1 hour per week, and they also need to complete many different homework assignments. The CAFE app is also available for the trainees to test their knowledge after learning. More than 31,000 households have received financial training from KREDIT in 11 provinces. With support from Good Return, in addition to our clients, KREDIT has recently started providing financial management awareness to students at high schools and secondary schools with hope that the knowledge will help them to start thinking of money management for themselves and their future families. KREDIT is also very happy to see the great plan of the NBC and MoEYS to print this financial literacy book and distribute it to students nationwide. We are also pleased that these lessons will be incorporated into school curriculum in the near future. We believe positive changes will happen in our young generation, and they will find more freedom in the management and use of their money. This will contribute greatly to the improvement of family and national economy as a whole. Under this circumstance, again KREDIT would like to thank the NBC, MoEYS, and Good Return for such great project and support. We also would like to thank ERIKS for being partner with KREDIT in financial training provision since KREDIT Microfinance Institution Plc. 38

42 Lenders, Partners, and Networks Lenders Dependence level on lenders by Cambodian Micro DepositTaking Institutions (MDIs) has reduced from one year to the next. In 2011, the percentage of value of savings collected compared to loan outstanding was only 17.81%, but as of December 2016, it reached to 56.4%. This also means that the Cambodian MDIs have helped in collecting local surplus funds and lending to those who are facing shortage of fund, thus making our economy more vibrant. We hope to collect much more local surplus money to lend in the future. Nevertheless, KREDIT will continue to take loans from overseas in order to diversify risks and create more options. Lending to MFIs by Cambodian commercial banks will also continue and expand, and this will also provide more funding access options. Despite no official overall data about lending by international lenders to Cambodian MFIs, KREDIT continues to receive strong support from its overseas lenders. The fact that we continue to receive more loans at larger amounts and more favorable terms demonstrates the continued and growing confidence in KREDIT by international lenders. KREDIT's Lenders 2016 Etimos KREDIT FINANCIAL TRUST Phillip MFIs Pte Ltd 39 KREDIT Microfinance Institution Plc.

43 Partners and Networks KREDIT believes in the power of partnership and that our financial services alone are not enough to move our poor and poorest clients out of poverty, because they usually need support and services through many different specialized interventions. Because of this holistic approach to poverty and development, KREDIT works with many different development players to equip our poor clients with other complementary services. We collaborate together to provide many different services needed by our clients based on specializations of each individual organization. You can find links to our partners in KREDIT s website. Many more... KREDIT Microfinance Institution Plc. 40

44 Operational Report Operational Area and Office Outreach KREDIT has continued its geographic expansion as well as products and services while maintaining a good quality in its services. As at the end of 2016, KREDIT is operating through 83 offices in 20 provinces and cities, 157 districts, 1,163 communes and 6,996 villages. The Coverage Areas of KREDIT, Description Number of Offices Provinces Districts Communes ,114 1,163 Villages 4,631 5,402 6,070 6,660 6,996 Loan Performance By the end of 2016, the loan outstanding of KREDIT grew by 11% reaching to USD million while the number of borrowing accounts was a bit lower than 2015 to 83,555. The most percentage sectors of loan utilization are business loans 34%, consumer loans 28%, and agriculture loans 22%. Trend of Loan Performance ,905 73,115 93,081 92, , ,000 90,000 80,000 70,000 60, , , ,000 20, , Loan outstanding (in million USD) Active borrowing accounts 41 KREDIT Microfinance Institution Plc.

45 Education Loan 0% Education Loan 1% Social Loan 7% Business Loan 34% Agriculture Loan 22% Mortgage Loan 9% Percentage of Loan Outstanding by Purposes Percentage of Borrowing Account by Purposes Social Loan 30% Business Loan 18% Agriculture Loan 22% Mortgage Loan 5% Consumer Loan 28% Consumer Loan 24% Note: Social Loan includes community bank loan, emergency, solar, and latrine loan. Monthly Disbursement of Year 2016 In terms of number of borrowing accounts, in the whole MFI industry, the growth rate was about only 1% with a total of 2,043,220 accounts. Concern over multiple loans would be one main reason for the slow growth. To cope with the concern over multiple loans, a lending guideline was initiated and planned to be introduced in 2017 by all CMA members and some banks to limit the number of lenders to a single client. The lending guideline was also endorsed by many funding sources (lenders) and also got big support from the NBC and Cambodia Bureau Cambodia (CBC). KREDIT s Trend Disbursement FY , , , , ,152 5, , , , ,623 5, , ,000 7,000 6,000 5,000 4, , , ,000 0 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Portfolio Lent out (in USD millionl) Nº of Borrowing Account KREDIT Microfinance Institution Plc. 42

46 Loan Quality Structure As of December 2016, the Portfolio at Risk (PAR30+) ratio of KREDIT was 1.12%. The percentage of writeoff was also increased to 0.25%. However, the nonperforming loan (PAR30+ and writeoff) of the CMA members as whole was at 1.57%. This means that KREDIT s loan quality is at a higher standard compared to the industry performance. Loan Quality 1.20% 1.12% 1.00% 0.80% 0.60% 0.61% 0.40% 0.26% 0.28% 0.31% 0.25% 0.20% 0.00% 0.14% 0.08% 0.06% 0.10% PAR30+ WriteOff Staff Productivity and Workload KREDIT has improved its staff productivity over the past years, as on average, loan outstanding per CO/LSO as well as per staff has increased as shown below: Productivity Loans/CO&LSO (in USD) 152, , , , ,381 Loans/Front line staff (in USD) 101, , , , ,136 Loan/Total staff (in USD) 63,087 74,649 79,433 77,736 84, KREDIT Microfinance Institution Plc.

47 Loan Productivities 1.12% 300, , , , ,000 50, Outstanding/CO&LSO (in USD) Outstanding/Front line staff (in USD) Outstanding/staff as whole(in USD) Deposit KREDIT has continued its good growth for saving mobilization. As of December 2016, KREDIT is managing 60,186 saving accounts (up by 94.48%) with a total value saving collected USD68.79 million (increased by 28.22%). Deposit Performance 70, , , ,000 40,000 30,000 20,000 10, % , , , Active saving accounts Values of deposit collected (in million USD) KREDIT Microfinance Institution Plc. 44

48 Term Deposit 82% Saving Account 18% Percentage of Money Collected by Products Percentage of Saving Account by Products Term Deposit 10% Saving Account 90% Percentage of Trend Saving to Loan Outstanding % % % % % 60% 50% 40% 30% 20% 10% 0% % Saving to Loan Loan Outstanding (in million USD) Values of Deposit Collected (in million USD) The above chart shows the relationship between loan and saving performance, and from one year to another, KREDIT has collected more and more local funds to support their lending activities. These funds are proving to be a strong asset for Cambodia s financial players, and as KREDIT s deposit continue to increase dramatically, it has become more and more important in facilitating the financial circulation of funds in the country between those who are with surplus money and those who are in need of loans. ATM Service (K Card) KREDIT introduced K Card in 2016 and till now ATM machines of KREDIT are available in 9 provinces and cities (Phnom Penh, Battambang, Battambang, Kampong Cham, Daun Keo (Takeo), Poipet, Krong Kampot, Preah Sihanouk, Ta Khmao, and Siem Reap) with more to be installed in As of December 2016, there were a total of 2,269 cards issued and used by our clients. Clients can get K Card from KREDIT for free. The K card holders enjoy a very special offer by KREDIT s business partners nationwide. 45 KREDIT Microfinance Institution Plc.

49 Nº Accumulated ATM Cards Issued in ,500 2,000 1,690 1,822 1,996 2,108 2,202 2,269 1,500 1,307 1,432 1, Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Transactions of ATM by Month 7,000 6,000 5,000 4,000 3,000 2,000 1,297 1,405 2,202 3,274 4,227 4,447 4,949 5,433 5,886 5,357 5,276 5,708 1,000 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 FAST Payment For KREDIT as of December 2016, we performed 119 transactions of FAST Payment service with total cash transactions KHR million or about USD55,972 in which 73 were outgoing and 46 were incoming transactions. We are optimistic to see the growth of the service in the near future. KREDIT Microfinance Institution Plc. 46

50 Social Performance Management Report As of December ,061 clients received financial training from KREDIT After more than 20 years on the journey, KREDIT still focuses on contributing to the social and economic developmentof communities by enabling the economically active poor to improve their lives. With this vision and variety of financial and nonfinancial services it provides, KREDIT also sets aside 510% of their yearly net profit for community development programs within the country. To support our Social Performance Management (SPM), KREDIT has set a clear governance structure to oversee its social performance programs. 9,686 families of clients received special agriculture training from KREDIT 88,843 people have received Parenting training from KREDIT in 129 communes. 562 student clients received education loans from KREDIT. Governance of SPM Chaired by an independent BoD and including both board directors and related management, the Committee is in charge of designing and monitoring implementation of KREDIT s SPM work. The committee set up a clear charter to manage its Social Performance and Community Development Fund. This charter describes nature of the social fund, sets out some criteria for eligible projects or activities to be supported, and also to provide a general process to use the fund. Additionally, a social performance and community development unit has been formed and is led by a unit manager with a few staff in order to carry out the implementation of KREDIT s social performance goals at the operational level. Our Social Performance 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 alongside staff, villagers and local authorities to ensure that we offer real solution to the communities. Some of our social performance programs are permanent while some are needbased programs. KREDIT will sharpen the focus of its permanent programs from time to time so that in the future KREDIT will become the main player in responding to these selected issues. 47 KREDIT Microfinance Institution Plc.

51 A Social Responsibilities towards Clients Chicken raising training session Financial Training Financial training is especially designed and provided by our staff to poor clients with an aim at increasing their knowledge and good practice on family financial management. KREDIT started providing financial training to clients since As of December 2016, a total of 31,061 clients have already received such necessary training from KREDIT. Now, with support from Good Return, KREDIT is using the CAFE program as its financial training tool. Besides training to the clients, from 2017 KREDIT also plans to provide financial management awareness to students at high school and secondary school so that they can have knowledge and start having good experience with money management. In early 2017, the National Bank of Cambodia (NBC) and ministry of education with support from Good Return also plans to print a financial literacy training book, called Let Talk about Money and give to schools nationwide. We also look forward to seeing this training incorporated into the school curriculum in Special Agriculture Training This special training is designed to equip the rural households with their most preferred agriculture skill. The group members discuss and select a topic that they wish to learn, and trainers who are experts in that field are provided from KREDIT s development partners. The training is conducted in both theory and handson practice with a demonstration farm set up for the training. This specialized skills training usually takes 2 days at the clients villages. During the handson training, all members get involved in all activities in the field in order to help them to see it and put it into practice. In addition, a followup program is also arranged to give trainers and trainees an opportunity to talk about their experiences when putting theories into own practice. Now, we have built strong network with many different district agriculture offices so that they can provide training to their local people. With this network, the trainees are easy to approach their local trainer as needed for any supports. KREDIT Microfinance Institution Plc. 48

52 Handson practice during chicken raising training chick vaccination 49 KREDIT Microfinance Institution Plc.

53 Coaching with Commune Committee for Woman and Children (CCWC) Parenting Training To promote child education and development, KREDIT developed and provided parenting training to our staff, poor clients, and staff of our partners. We want to see perceptions of poorest and poor clients changed by investing more resources towards the education and welfare of their children instead of sending them to work. KREDIT provides Training of Trainers to the Commune Committee for Woman and Children (CCWC) and then they can provide training themselves to their local people with technical and fund support from KREDIT and its partner ERIKS. Till now, CCWCs from 129 communes have received the training from KREDIT; and started providing the training to local people. Contribution to Improvement of Hygiene and Sanitation Since 2012 and under partnership approach with specialized NGOs, KREDIT has started lending small loans to the rural households for a specific purpose, such as purchasing latrine, water filter, and solar panel. In addition, KREDIT also works with rural schools to build sets of handwashing facilities along with a basic handwashing training and promotion poster. In 2016, KREDIT also worked with Clear Cambodia to build different types of Hygiene and Sanitation equipment in Kampong Cham province. The interventions aim at contributing to the hygiene and sanitation of children and their communities, as well as to build awareness and overall improvement in rural communities. Education Loan After being launched in 2013, KREDIT has committed to improving and modifying the education product features which are really responsive to the educational needs of the adult. KREDIT Microfinance Institution Plc. 50

54 We clean our hands daily with this equipment, it is really good! 51 KREDIT Microfinance Institution Plc.

55 The first and only Cambodian MFI partnering with Handicap International (HI) to provide special financial accessibility for people with disabilities Loan for People with Disabilities KREDIT is committed to helping this vulnerable group and KREDIT became the first and only Cambodian microfinance institution to provide special financial accessibility for people with disabilities by partnering with Handicap International (HI). We have set special features for this group of clients. We have learnt ways to serve people with disabilities and also modified our office facilities to fit their needs. Under this partnership, we are now serving people living with disabilities in 2 provinces: Kampong Cham and Siem Reap. Photo Régis Binard/Handicap International KREDIT Microfinance Institution Plc. 52

56 InHouse Micro Insurance For clients who are community bank loan recipients and who die, KREDIT will write off the balance of their loan and additionally provide a financial assistance package of money to their family for the funeral ceremony. Over the past 5 years, 287 group loan clients and their families have been beneficiaries of this service, and we have written off loans totalling USD80,273. Client Protection Principles With strong commitment to mainstreaming Client Protection Principles (CPP) into its operations, KREDIT endorsed and received the CPP certificate from SMART campaign. At the time of receiving CPP accreditation, we were one among only some 60 microfinance company in the world that have received this certificate. KREDIT s CPP was developed according to 7 Principles: 1) appropriate product design and delivery, 2) prevention of overindebtedness, 3) transparency, 4) responsible pricing, 5) fair and respectful treatment of clients, 6) privacy of client data, and 7) mechanisms for complaint resolution. The training on the principles have been provided to all staff so that they can understand the concepts and be able to provide quality services to the clients. 53 KREDIT Microfinance Institution Plc.

57 B. Social Responsibility towards Staffs Photo after staff's training completed Staff Recruitment and Benefit The recruitment process is designed to provide fair treatment for all candidates regardless gender, race, religion, skin color or political party, etc and only focuses on staff competency and ethics. KREDIT provides equal opportunities to all when applying within KREDIT. As of December 2016, KREDIT is a family of 1,679 members in which 32.4% are women. Whistle blowing and harassment policies are in place so that the staff can report grievances to a specific committee if any issues arise. KREDIT also cares for the working environment and benefits as well as career development of staff. KREDIT follows all regulations and Prakas issued by the Ministry of Labor. For staff benefits, KREDIT benchmarks other players in the industry by working with some MFIs through a consultancy service. Staff satisfaction survey is conducted every 2 years to gain understanding of the satisfaction level of staff towards the working environment and job satisfaction. Staff Capacity KREDIT carefully studies and provides different types of training to ensure our staff are competent enough to perform their roles and duties with high quality. The training includes internal, external, oversea, and degree courses. KREDIT Microfinance Institution Plc. 54

58 Within the year 2016, below training were provided to our staff: Course Tittles No. of Courses No. of Participants Internal Course Orientation Training New Recruitment Staff Internal Specialist Course Refresher and Field Coaching External Course External Specialize Course General English Program International Training Program International Courses and Workshop Degree Scholarshop Program Master Degree ,146 1, C Social Responsibility to Community and Environment Contribution to Reduction of Traffic Accident Having seen that traffic accidents are the hot issue of the country, from year to year, KREDIT has continued getting more involved in this intervention. Radio programs to build awareness of people about the traffic law still continues and we have produced many more helmets to give to staff and clients. Workshops with high schools and universities to build awareness about the traffic law, banners at each traffic light, and other promotional leaflets have also been arranged. Environmental and Social Policy KREDIT recognizes the importance and relevance of social and environmental risk management in microfinance institutions. KREDIT is committed to identifying and addressing all short, medium, and longterm social and environmental risks associated with its activities by effective and sound social and environmental risk management at the microfinance level. KREDIT has and implements the Environmental and Social Policy along with an exclusive list. This policy outlines the ways that KREDIT will put into practice its commitment to promote environmental and social sustainability. Volunteer and Internship Program This program has been established to provide volunteers and interns with an opportunity to get real work experience with KREDIT. Within the year 2016, 6 groups with a total of 45 students were given chances to have internship within KREDIT. Within the year, we also hosted 2 different international financial institutions to see KREDIT s operations: one from the Bank of Nepal and another one from Proximity, Myanmar. 55 KREDIT Microfinance Institution Plc.

59 Yearly net profits for social programs and activities in Cambodia KREDIT Microfinance Institution Plc. 56

60 Some social activities we have done in 2016 Some social activities we have done in KREDIT Microfinance Institution Plc.

61 KREDIT Microfinance Institution Plc. 58

62 Testimonies (in their own words) From Clients Mr. Koy Saran I am really satisfied with KREDIT: loan with reasonable interest rate and so friendly staff, easy to access said by both Mr. Sek Chenda and Mr. Koy Saran, KREDIT s clients from Svay Rieng Province KREDIT helped many different social programs in my areas. For myself, I learnt agriculture training supported by KREDIT. I have practiced what I learnt and now I am successful in animal raising. I wish KREDIT further success. Mr. Sek Chenda and his wife 59 KREDIT Microfinance Institution Plc.

63 From Proximity, Myanmar Proximity group during presentation at KREDIT's HQ office KREDIT is very organized and methodical about what they do. Policies and procedures are clear and that allows staff and clients to understand what they are doing and what is expected of them. All the staff who presented to us were very informed and experienced in their fields. Also most of them are good trainers. We got to learn much from them about how they have grown and what sort of challenges they faced. Having heard about all those could prepare, Proximity in terms of what to expect and what the possible solutions are. So overall, it was an informative trip and the lessons learned from that trip can be applied here at Proximity KREDIT Microfinance Institution Plc. 60

64 From Senior Child Education Trainer Rathy was with arrangement of International Child Right Day People said to me You will never ever change people s mindset towards raising their children. This is what I was made to believe since I first joined the mission with KREDIT for their Child Education Project. However, one thing that kept me moving despite little inspiration was that I was abused emotionally and physically just like those children, and then I grew up as an adult who learnt that it happened because there was no one who ever told my parents a better way to raise me well. I would like to emphasize that it was because they did not know; not because they did not want to treat me better. Unavoidably, it produced consequences, which I grew up as an emotionally suffering person. Hence, I don t want to give any parents an excuse to let their children experienced those difficult things; I need to at least get them known. I started the journey with KREDIT since 2011 and with their greatest support, I get the exact answer the reality is that the parents in the communities also love and want the best for their children like every parents do. They were inspired by our new ways of teaching, disciplining, modeling, and protecting their children. For me, I am more than happy to do both: to contribute the little knowledge and skill to benefit those innocents and to get myself healed and restored along the journey. I finally found that those whispers in my ears were right too. In fact, I was not able to change people mindset; I just helped add more things they had missed, and the reward I always chase for is the smile on their children s faces. 61 KREDIT Microfinance Institution Plc.

65 Statement from CAFE Program CAFE (Consumer Awareness and Financial Empowerment) is an innovative initiative implemented in Cambodia through a partnership between Good Return, Cambodia Microfinance Association and several of its members. Its goal is to strengthen the relationship between financial service providers and their clients. KREDIT Microfinance is putting clients at the center of its work through its ongoing investment in the CAFE initiative. KREDIT now boasts a team of 8 highly trained and motivated financial education coaches. These 8 trainers receive capacity building from CMA and Good Return in the latest training methodologies, designed to encourage strong financial behaviors in lowincome clients. Photos of financial training KREDIT Microfinance Institution Plc. 62

66 KREDIT s trainers study the psychology behind an individual s behavior. They understand that our financial decisions can often be irrational and out of line with our financial goals and best interests. These trainers coach KREDIT clients to be more mindful about the influences on their financial decisions (whether it is an unpleasant past experience, lack of information or confidence, or cultural or peer pressure). Being more mindful allows consumers to exercise greater control and confidence when faced with making financial decisions. CAFE is not just innovative for its focus on behavior, there is also a strong focus on the application of technology. KREDIT trainers access elearning via their tablets, supporting their professional development and continually assessing their capacity to deliver effective training and coaching. The learners, who are considered the poorest and most vulnerable of KREDIT s clients, also use appbased technology during each session to register their attendance and answer questions on their attitudes and behavior. Most of these learners have never used an app or a tablet before CAFE. After completing the program 72% of learners felt confident with the CAFE.app technology and an incredible 83% felt a lot more confident with technology in general. This is a huge achievement that will help these individuals to confidently engage in the formal economy. An evaluation of CAFE showed that when compared to clients surveyed from neighboring communities, CAFE learners outperformed their counterparts in grasping basic financial knowledge, practicing good money management, being confidence in money matters and having better subjective financial wellbeing. KREDIT s commitment to CAFE is part of its broader commitment to delivering responsible and inclusive financial services to Cambodians. The CAFE curriculum is influenced by the Smart Campaign s client protection principles. Good Return is also proud to have supported KREDIT to achieve the distinguished award of Smart Certification and we are proud to continue supporting KREDIT on the CAFE initiative. From one of CAFE Trainee I am interested in topics on Debt Reduction, Fraud and Scam and Communication with MFI. These content helps keep myself and family away from fraud and scam and it is easy for me to learn to make good decision or choose the right products. Moreover it helps my family to save and follow the golden rule. 63 KREDIT Microfinance Institution Plc.

67 External Audit Report External Audit Report

68 REPORT OF THE BOARD OF DIRECTORS The Board of Directors ( the Directors ) hereby submits its report together with the audited financial statements of KREDIT Microfinance Institution Plc.. ( 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. On 29 December 2010, the Company received a licence from the National Bank of Cambodia ( NBC or the Central Bank ) to conduct a deposittaking business. FINANCIAL PERFORMANCE AND DIVIDENDS The financial performance for the year ended 31 December 2016 is set out in the income statement on page 8. No dividend was declared or paid during the year (2015: US$698,161). SHARE CAPITAL As at 31 December 2016, the share capital of the Company was US$5,869,054. In 2015, there was a conversion of US$2,000,000 from subordinated debt to share capital and share premium. BAD AND DOUBTFUL LOANS 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 badand 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. 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. 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. VALUATION METHODS 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. 65 KREDIT Microfinance Institution Plc.

69 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. 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 members of the Board of Directors during the year and as at the date of this report are: Mr. Timothy Mark Amstutz, Chairman Mr. Ong Teong Hoon, Member Mr. Tan Teck Keong Michael, Member Mr. Lim Hua Min, Member Ms. Ing Varony, Member Ms. Srey Hem Roberts, Member Ms. Tea Chansotheary, Member Mr. Fong Kum Choy, Member Mr. Anthony Nathan, Member KREDIT Microfinance Institution Plc. 66

70 DIRECTORS BENEFITS During and at the end of the financial year, no arrangements subsisted to which the Company is a party with the objective of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company. Since the end of the previous financial year, no Director of the Company has received or become entitled to receive any benefit by reason of a contract made by the Company other than as disclosed in the financial statements. RESPONSIBILITIES OF THE BOARD OF DIRECTORS IN RESPECT OF THE FINANCIAL STATEMENTS The Directors are responsible for ascertaining 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 2016, and its financial performance and its 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 requirements of Cambodian Accounting Standards and relevant accounting regulations and guidelines issued by the National Bank of Cambodia, or, if there have been any departures in the interests of fair presentation, 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 goingconcern 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. The Directors confirm that the Company has complied with the above requirements in preparing the financial statements. STATEMENT OF THE BOARD OF DIRECTORS 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 2016, and its financial performance and its cash flows for the year then ended in accordance with Cambodian Accounting Standards and relevant accounting regulations and guidelines issued by the National Bank of Cambodia, and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. 67 KREDIT Microfinance Institution Plc.

71 On behalf of the Board of Directors Mr. Ong Teong Hoon Director Date: 20 April 2017 KREDIT Microfinance Institution Plc. 68

72 INDEPENDENT AUDITOR S REPORT To the shareholders of KREDIT Microfinance Institution Plc.. Opinion We have audited the financial statements of KREDIT Microfinance Institution Plc.. ( the Company ), which comprise the balance sheet as at 31 December 2016, and the income statement, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies as set out on pages 7 to 48. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2016, and its financial performance and its cash flows for the year then ended in accordance with Cambodian Accounting Standards and relevant accounting regulations and guidelines issued by the National Bank of Cambodia. Basis for Opinion We conducted our audit in accordance with Cambodian International Standards on Auditing ( CISAs ). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Cambodia, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Matters The financial statements of the Company as at and for the year ended 31 December 2015, were audited by another auditor who expressed an unmodified opinion on those statements on 31 March Information Other than the Financial Statements and Auditor s Report Thereon Management is responsible for the other information. The other information comprises the Report of the Board of Directors but does not include the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 69 KREDIT Microfinance Institution Plc.

73 Responsibilities of Management and the Board of Directors for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Cambodian Accounting Standards and relevant accounting regulations and guidelines issued by 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. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Board of Directors is responsible for overseeing the Company s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with CISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. KREDIT Microfinance Institution Plc. 70

74 Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. For Deloitte (Cambodia) Co., Ltd. Khoy Kimleng Director Phnom Penh, Kingdom of Cambodia Date: 20 April KREDIT Microfinance Institution Plc.