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CHAMROEUN MICROFINANCE LIMITED
FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
CHAMROEUN MICROFINANCE LIMITED
FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
CONTENTSPages
STATEMENT OF THE BOARD OF DIRECTORS 1 � 4
INDEPENDENT AUDITOR�S REPORT 5 � 6
FINANCIAL STATEMENTS
Balance sheet 7
Income statement 8
Statement of changes in shareholders� equity 9
Cash flows statement 10
Notes to the financial statements 11 � 48
APPENDIX 1: NOTES ON COMPLIANCE WITH THE CENTRAL BANK�S PRAKAS* i � vii
* This Appendix does not form part of the audited financial statements
CHAMROEUN MICROFINANCE LIMITED
BALANCE SHEETAS AT 31 DECEMBER 2011
7
2011 2010
Notes Riel �000 Riel �000
ASSETS
Cash on hand 4 23,773 8,658
Balances with the Central Bank 5 118,618 -
Balances with banks 6 3,771,423 793,264
Loans and advances to customers 7 12,973,728 6,791,044
Other assets 8 530,570 343,793
Property and equipment 9 203,465 53,802
Intangible assets 10 5,620 14,482
TOTAL ASSETS 17,627,197 8,005,043
LIABILITIES AND SHAREHOLDERS� EQUITY
LIABILITIES
Compulsory savings from customers 11 3,523,506 1,737,905
Borrowings 12 8,977,400 3,109,545
Amount due to shareholder 13 - 494,534
Deferred grant income - 26,140
Accruals and other liabilities 14 2,006,327 76,158
Current income tax liabilities 15 (a) 205,487 112,110
Total Liabilities 14,712,720 5,556,392
SHAREHOLDERS� EQUITY
Share capital 16 1,912,750 1,912,750
Retained earnings 1,001,727 535,901
Total Shareholders� Equity 2,914,477 2,448,651
TOTAL LIABILITIES AND SHAREHOLDERS�EQUITY 17,627,197 8,005,043
The accompanying notes on pages 11 to 48 form an integral part of these financial statements.
CHAMROEUN MICROFINANCE LIMITED
INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2011
8
2011 2010
Notes Riel �000 Riel �000
Interest income 17 4,440,507 2,076,790
Interest expense 18 (479,224) (90,779)
Net interest income 3,961,283 1,986,011
Grant income 19 153,928 258,744
Other operating income 20 466,469 404,161
Operating income 4,581,680 2,648,916
Commission expenses (2,255) (1,107)
Personnel expenses 21 (2,407,498) (1,265,073)
Operating and other expenses 22 (1,503,242) (711,763)
Provision for bad and doubtful loans 7 (447) (1,097)
Operating profit before income tax 668,238 669,876
Income tax expense 15 (202,412) (133,975)
Net profit for the year 465,826 535,901
The accompanying notes on pages 11 to 48 form an integral part of these financial statements.
CHAMROEUN MICROFINANCE LIMITED
STATEMENT OF CHANGES IN SHAREHOLDERS� EQUITYFOR THE YEAR ENDED 31 DECEMBER 2011
9
Share Retained
capital earnings Total
Riel �000 Riel �000 Riel �000
Balance as at 1 January 2010 1,057,970 - 1,057,970
Additional capital injection 854,780 - 854,780
Net profit for the year - 535,901 535,901
Balance as at 31 December 2010 1,912,750 535,901 2,448,651
Balance as at 1 January 2011 1,912,750 535,901 2,448,651
Net profit for the year - 465,826 465,826
Balance as at 31 December 2011 1,912,750 1,001,727 2,914,477
The accompanying notes on pages 11 to 48 form an integral part of these financial statements.
CHAMROEUN MICROFINANCE LIMITED
CASH FLOWS STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2011
10
2011 2010
Notes Riel �000 Riel �000
Cash flows from operating activities
Net cash used in operating activities 23 (3,900,029) (2,520,659)
Cash flows from investing activities
Purchases of property and equipment 9 (236,439) (54,523)
Purchases of intangible assets 10 - (7,336)
Proceeds from disposal of property and equipment 612 3,668
Net cash used in investing activities (235,827) (58,191)
Cash flows from financing activities
Proceeds from borrowings 7,727,890 2,449,373
Repayments of borrowings (1,860,035) (502,192)
Repayments to shareholders (494,534) 494,534
Proceeds from additional capital - 854,780
Net cash generated from financing activities 5,373,321 3,296,495
Net increase in cash and cash equivalents 1,237,465 717,645
Cash and cash equivalents at the beginning of theyear 801,922 84,277
Cash and cash equivalents at end of the year 24 2,039,387 801,922
The accompanying notes on pages 11 to 48 form an integral part of these financial statements.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
11
1 BACKGROUND INFORMATION
On 03 July 2006, Entrepreneurs du Monde (�EdM�), an international French NGO, signed aMemorandum of Understanding with the Ministry of Foreign Affairs of Cambodia to establisha programme called �Chamroeun Microfinance Service� (�the Programme�) to play a vital rolein providing financial services and non financial services that provide supporting to financialservices supporting families in urban depressed areas in Phnom Penh city. On 25 June2007, EdM obtained a cooperation letter from Phnom Penh Municipality to allow theProgramme to operate its activities in Phnom Penh.
The Programme obtained a certificate from the Ministry of Commerce as a limited liabilitycompany hereunder referred to as Chamroeun Microfinance Limited (�the Company�) underregistration number Co. 5613/09E, dated 02 February 2009. In March 2009, the Companyreceived a Certificate for Registration as a Rural Credit Operator from the National Bank ofCambodia (�the Central Bank�). On 03 August 2011, the Company received a license fromthe Central Bank which allows the Company to conduct business as a MicrofinanceInstitution.
The Company as a micro-finance institution continues to be primarily an urban-based creditand savings institution with twelve main branches, three district offices, nine satellites officesand a head office in Phnom Penh. The Company�s corporate focus is to provide reliable andaffordable access to financial services to poor micro-entrepreneurs in urban areas and in thevicinity of Phnom Penh and provinces.
The Company�s head office is at No. 42D, Street 320, Boeung Keng Kang III, Chamkar Morn,Phnom Penh, the Kingdom of Cambodia.
The financial statements were approved for issue by the Board of Directors on 27 April 2011.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of these financial statementsare set out below. These policies have been consistently applied to all the years presented,unless otherwise stated.
2.1 Basis of preparation
The financial statements have been prepared in accordance with the guidelines issued bythe Central Bank and Cambodian Accounting Standards (�CAS�). In applying CAS, thecompany also applies CFRS 7: Financial Instruments: Disclosures.
The accounting principles applied may differ from generally accepted accounting principlesadopted in other countries and jurisdictions. The accompanying financial statements aretherefore not intended to present the financial position, financial performance and cash flowsin accordance with jurisdictions other than the Kingdom of Cambodia. Consequently, thesefinancial statements are only addressed to those who are informed about Cambodianaccounting principles, procedures and practices.
The financial statements have been prepared under historical cost convention.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
12
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of preparation (continued)
The preparation of financial statements in accordance with Cambodian AccountingStandards requires the use of estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date of financialstatements and the reported amounts of revenues and expenses during the reporting period.Although these estimates are based on management�s best knowledge of current event andactions, actual results ultimately may differ from those estimates. The areas involving ahigher degree of judgment or complexity, or areas where assumptions and estimates aresignificant to the financial statements are disclosed in Note 3.
2.2 New accounting standards and interpretations
(a) New standards, amendments to existing standards and interpretations effective in theyear 2011
There were no standards, amendments to existing standards and interpretations whichbecame effective in the financial year ended 31 December 2011.
(b) Standards and amendments to existing standards issued but not yet effective
On 28 August 2009, the National Accounting Council of the Ministry of Economy and Financeannounced the adoption of Cambodian International Financial Reporting Standards(�CIFRS�) which are based on all standards published by International Accounting StandardBoard including other interpretation and amendment that may occur in any circumstances toeach standard by adding �Cambodian�. Public accountable entities shall prepare theirfinancial statements in accordance with CIFRS for accounting period beginning on or after 1January 2012.
The following Cambodian International Accounting Standards (�CIAS�) or CIFRS andamendments to existing standards, which have been published are relevant and mandatoryfor the Company for accounting periods beginning on or after 1 January 2012, but have notbeen early adopted by the Company:
CIAS 1 (Amendment), �Financial statement presentation� regarding othercomprehensive Income
The main change resulting from these amendments is a requirement for entities togroup items presented in �other comprehensive income� (OCI) on the basis of whetherthey are potentially reclassifiable to profit or loss subsequently (reclassificationadjustments). The amendments do not address which items are presented in OCI. Thisis not expected to have a material impact on the Company�s financial statements.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
13
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 New accounting standards and interpretations (continued)
(b) Standards and amendments to existing standards issued but not yet effective (continued)
CIAS 19 and amendment, �Employee benefits�
The objective of this standard is to prescribe the accounting and disclosurerequirements for employee benefits. The Standard requires an entity to recognise: (a)a liability when an employee has provided service in exchange for employee benefits tobe paid in the future; and (b) an expense when the entity consumes the economicbenefit arising from service provided by an employee in exchange for employeebenefits.
A subsequent amendment to the standard is to eliminate the corridor approach andcalculate finance costs on a net funding basis. This is not expected to have a materialimpact on the Company�s financial statements.
CIAS 24 (Revised), �Related Party Disclosures�
CIAS 24 was revised by (a) simplifying the definition of a related party, clarifying itsintended meaning and eliminating inconsistencies from the definition; and (b) providinga partial exemption from the disclosure requirements for government-related entities.This is not expected to have a material impact on the Company�s financial statements.
CIAS 32, �Financial Instruments: Presentation�
The objective of this standard is to establish the principles for presenting financialinstruments as liabilities or equity and for offsetting financial assets and financialliabilities. It applies to the classification of financial instruments, from the perspective ofthe issuer, into financial assets, financial liabilities and equity instruments as well asclassification of the related interest, dividends, losses and gains. This is not expectedto have a material impact on the Company�s financial statements.
CIAS 38 (Amendment), 'Intangible Assets'
The revised standard provides clarification in respect of fair value measurement of anintangible asset acquired in business combination and it permits the grouping ofintangible assets as a single asset if the individual assets have similar useful economiclives. The amendment will not have a material impact on the Company�s financialstatements.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
14
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 New accounting standards and interpretations (continued)
(b) Standards and amendments to existing standards issued but not yet effective (continued)
CIAS 39, �Financial Instruments: Recognition and Measurement�
The standard establishes principles for recognising and measuring financial assets,financial liabilities and some contracts to buy or sell non-financial items. Adoption ofCIAS 39 will result in the following revisions to the accounting policies on financialinstruments:
Loans to customersLoans to customers are currently stated in the balance sheet at outstanding principal,less any amounts written off and provision for loan losses. Under CIAS 39, loans andreceivables are initially recognised at fair value - which is the cash consideration tooriginate or purchase the loan including any transaction costs and are subsequentlymeasured at amortised cost using the effective interest rate method.
Impairment of financial assetsThe Company currently follows the mandatory credit classification and provisioning asrequired by Prakas No. B7-02-186 dated 13 September 2002 issued by the CentralBank, as disclosed in note 2.7 to the financial statements. CIAS 39 requires theCompany to assess at each reporting date whether there is objective evidence that afinancial asset or group of financial assets is impaired, either on an individual orcollective assessment basis. Impairment loss is measured as the difference betweenan asset�s carrying amount and present value of estimated future cash flows (excludingfuture credit losses that have not been incurred) discounted at the asset�s originaleffective interest rate. For the purposes of collective impairment assessment, assetsare grouped on the basis of similar credit risk characteristics.
Compulsory savings from customersThe Company currently measures compulsory savings from customers at the depositamount. CIAS 39 requires financial liabilities (which include compulsory savings fromcustomers) to be measured at amortised cost.
Interest income and interest expenseThe Company currently recognises interest income and expense on an accrual basis atcontractual rates, except where serious doubt exists as to the collectability, in whichcase interest is suspended until it is realised on a cash basis. CIAS 39 requires interestincome and expense for all interest-bearing financial instruments to be recognisedusing the effective interest method. In respect of a financial asset or a group of similarfinancial assets which are impaired, interest income is to be recognised at the interestrate used in discounting future cash flows for the purpose of measuring the impairmentloss.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
15
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 New accounting standards and interpretations (continued)
(b) Standards and amendments to existing standards issued but not yet effective (continued)
CIFRS 7 (Amendment), �Financial Instruments - Disclosures�
The revised standard requires enhanced disclosures in respect of fair valuemeasurement and liquidity risk. In particular, the amendment requires disclosure of fairvalues by fair value measurement hierarchy as follows:
- Level 1 - Quoted prices (unadjusted) in active markets for identical assets orliabilities;
- Level 2 - Inputs, other than quoted prices included within Level 1, that areobservable for an asset or liability, either directly or indirectly; and
- Level 3 - Inputs for an asset or liability that are not based on observable marketdata.
The standard also emphasises the interaction between quantitative and qualitativedisclosures about the nature and extent of risks associated with financial instruments.
CIFRS 9, �Financial instruments�
CIFRS 9 is the first standard issued as part of a wider project to replace CIAS 39.CIFRS 9 retains but simplifies the mixed measurement model and establishes twoprimary measurement categories for financial assets: amortised cost and fair value.The basis of classification depends on the entity�s business model and the contractualcash flow characteristics of the financial asset. The guidance in CIAS 39 on impairmentof financial assets and hedge accounting continues to apply. The Company is yet toassess CIFRS9�s full impact on financial statements.
CIFRS 13, �Fair value measurement�
CIFRS 13 aims to improve consistency and reduce complexity by providing a precisedefinition of fair value and a single source of fair value measurement and disclosurerequirements for use across CIFRSs. The requirements, which are largely alignedbetween CIFRSs and US GAAP, do not extend the use of fair value accounting butprovide guidance on how it should be applied where its use is already required orpermitted by other standards within IFRSs or US GAAP. This is not expected to have amaterial impact on the Company�s financial statements.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
16
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 New accounting standards and interpretations (continued)
(b) Standards and amendments to existing standards issued but not yet effective (continued)
Other than the improvements and amendments to existing standards as set out above, theother published standards, amendments and interpretations to existing standards, which areapplicable for accounting periods beginning on or after 1 January 2011, are not relevant tothe Company�s operations.
(c) Early adoption of standards
During the period, the Company did not early-adopt any new or amended standardsprescribed in Note 2.2 (b).
2.3 Basis of aggregation
The financial statements include the financial statements of the Company�s head office andits branches within Cambodia. On aggregation of balances, all significant inter-branchbalances and transactions are eliminated in full.
2.4 Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of the Company are measured using the currencyof the primary economic environment in which the Company operates (�the functionalcurrency�). The Company maintains its accounting records and its financial statements inKhmer Riel (�Riel�), the Company�s functional currency. The functional currency is Rielbecause of the significant influence of the Riel on its operations. The financial statements arepresented in Riel, which is the Company�s functional and presentation currency.
(ii) Transactions and balances
Transactions in currencies other than Riel, the functional and presentation currency aretranslated into Riel at the exchange rates prevailing at the dates of transactions. Foreignexchange gains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rate of monetary assets and liabilities denominated incurrencies other than Riel, are recognised in the income statement.
2.5 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash onhand; demand deposits; and short-term highly liquid investments with maturities of 90 daysor less from the date of acquisition that are readily convertible to known amounts of cash andsubject to an insignificant risk of changes in value.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
17
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.6 Loans to customers
Loans to customers are stated in the balance sheet at the amount of principal outstandingless any amounts written off and provision for doubtful loans to reflect the estimatedrecoverable amount.
The adequacy of the provision for bad and doubtful loans is evaluated monthly bymanagement. The provision for doubtful loans charged to expense is based on themanagement�s judgment of the amount necessary to maintain the provision balance at alevel adequate to absorb losses.
2.7 Provision for bad and doubtful loans
The Company follows the mandatory credit classification and provisioning as required byPrakas B7-02-186 dated 13 September 2002 for licensed micro financial institutions. ThePrakas requires microfinance institutions to classify their loan portfolio into the following fourclasses and ensure that the minimum mandatory level of specific provisioning is provided:
Classification Number of days past due ProvisionShort term loans (less than one year):Standard 0 - 30 days 0%Substandard 31 - 60 days 10%Doubtful 61 - 90 days 30%Loss Over 90 days 100%
Long term loan (more than one year):Standard 0 - 30 days 0%Substandard 31 - 180 days 10%Doubtful 181 - 360 days 30%Loss Over 360 days 100%
The provision is calculated as a percentage of the loans outstanding at the time the loan isclassified and is charged as expense in the income statement.
Loans are written off when there is no realistic prospect of recovery. Recovery of previouslywritten-off loans to customers is recognised in the income statement.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
18
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.8 Property and equipment
Items of property and equipment are recorded at cost less accumulated depreciation and anyaccumulated impairment losses. Historical cost includes expenditure that is directlyattributable to bringing the assets to the location and condition necessary for it to be capableof operating in the manner intended by management.
Subsequent costs are included in the asset�s carrying amount or recognised as a separateasset, as appropriate, only when it is probable that future economic benefits associated withthe item will flow to the Company and the cost of the item can be measured reliably. Thecarrying amount of the replaced part is derecognised. All other repairs and maintenance arecharged to the income statement during the financial year in which they are incurred.
Depreciation of property and equipment is charged to the income statement on a decliningbalance method at the following annual rates:
Motor vehicles 25%
Equipment 25%Furniture and fixtures 25%Computers 50%
The assets� residual values and useful lives are reviewed, and adjusted prospectively ifappropriate, if there is an indication of a significant change since the last reporting date.
An asset�s carrying amount is written down immediately to its recoverable amount if theasset�s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carryingamount and are recognised in the income statement.
2.9 Intangible assets
Intangible assets, which comprise acquired computer software licenses (mainly MB Winsoftware for loan and deposit modules) and related costs, are stated at cost lessaccumulated amortisation and impairment loss. Acquired computer software licenses arecapitalised on the basis of the cost incurred to acquire the specific software and bring it touse. Intangible assets are amortised on a straight-line basis at the rate of 25% per annum.
Costs associated with maintaining computer software are recognised as an expense whenincurred.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
19
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.10 Impairment of non-financial assets
Assets that are subject to amortisation or depreciation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which the asset�s carryingamount exceeds its recoverable amount. The recoverable amount is the higher of an asset�sfair value less costs to sell and value in use.
Any impairment loss is charged to income statement in the year in which it arises. Reversalof impairment loss is recognised in the income statement to the extent that the asset�scarrying amount does not exceed the carrying amount that would have been determined, netof depreciation and amortisation, had no impairment loss been recognised.
2.11 Borrowings
Borrowings are stated at the amount of the principal outstanding.
2.12 Provisions
A provision is recognised in the balance sheet when the Company has a legal or constructiveobligation as a result of a past event, and it is probable that an outflow of economic benefitswill be required to settle the obligation; and the amount has been reliably estimated.
When there are a number of similar obligations, the likelihood that an outflow will be requiredin settlement is determined by considering the class of obligations as a whole. A provision isrecognised even if the likelihood of an outflow with respect to any one item included in thesame class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required tosettle the obligation using a pre-tax rate that reflects current market assessments of the timevalue of money and the risks specific to the obligation. The increase in the provision due topassage of time is recognised as interest expense.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
20
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.13 Income tax
The current income tax, recognised in the income statement, is calculated on the basis of thetax laws enacted or substantively enacted at the balance sheet date in the Kingdom ofCambodia where the Company operates and generates taxable income.
Deferred income tax is provided using the liability method, on temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts in the financialstatements. Deferred income tax is determined using tax rates (and laws) that have beenenacted or substantially enacted by the balance sheet date and are expected to apply whenthe related deferred income tax asset is realised or the deferred income tax liability is settled.Deferred tax assets and liabilities are offset if there is a legally enforceable right to offsetcurrent tax liabilities and assets, and they related to income taxes levied by the same taxauthority on the same taxable entity.
Deferred income tax assets are recognised only to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can be utilised.Deferred tax assets are reviewed at each reporting date and are reduced to the extent that itis no longer probable that the related tax benefit will be realised.
2.14 Interest income and expense recognition
Interest income earned on loans is recognised on an accrual basis taking into considerationthe principal amount of loans outstanding. When a loan becomes non-performing, therecording of interest as income is suspended until it is realised on a cash basis.
Interest expenses on deposits from customers and borrowings are recognised in the incomestatement on an accrual basis.
2.15 Fee and commission income
Fee and commission income is recognised on an accrual basis when the service has beenprovided. Fee and commission income comprise income received from loan processing feeswhich are recognised as income when loan is disbursed.
2.16 Grants
Grants are recognised as income in the income statement when received and conditionsattached to the grants were fulfilled.
2.17 Operating leases
Operating leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made under operatingleases (net of any incentives received from the lessor) are charged to the income statementon a straight-line basis over the period of the lease.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
21
3 CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
Estimates, assumptions and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to bereasonable under the circumstances. The Company makes estimates, assumptions andjudgements concerning the future. The resulting accounting estimates will, by definition,seldom equal the related actual results. The estimates, assumptions and judgements thathave a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year are discussed below.
a) Taxation
Taxes are calculated on the basis of current interpretation of the tax regulations. However,these regulations are subject to periodic variation and the ultimate determination of taxexpense will be made following inspection by the tax authorities.
Where the final tax outcome of these matters is different from the amounts that were initiallyrecorded, such differences will impact the tax provisions in the period in which suchdetermination is made.
(b) Impairment losses on loans to customers
The Company follows the credit classification and provisioning in accordance with PrakasNo. B7-02-186 dated 13 September 2002 on the classification and provisioning for bad anddoubtful debts for licensed microfinance institutions. The Central Bank requires microfinanceinstitutions to classify their loan portfolios into four classes and ensure that the minimummandatory level of specific provision is made depending on the classification concerned andregardless of the assets (except for cash) pledged as collateral. For the purpose of loanclassification, it requires to take into account the borrower�s historical payment experienceand financial condition.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
22
4 CASH ON HAND
2011Riel �000
2010Riel �000
Head office 12,189 793Branches 11,584 7,865
23,773 8,658
5. BALANCES WITH THE CENTRAL BANK
2011Riel �000
2010Riel �000
Current accounts 1,000 -Statutory capital deposit (i) 117,618 -
118,618 -
(i) Statutory capital depositIn compliance with Prakas B7-06-209 dated 13 September 2006 on the LicensedMicrofinance Institutions, the Company is required to maintain a statutory capital deposit withthe Central Bank of 5% of registered capital. This deposit is refundable should the Companyvoluntarily liquidate and have no deposit liabilities.
(ii) Interest ratesThe statutory capital deposit in Riel earns interest ranging at 0.5% of refinancing rate set bythe Central Bank. The interest payment is settled semi-annually.
6. BALANCES WITH BANKS
2011 2010Riel �000 Riel �000
Current accounts 1,892,084 708,648
Savings accounts 122,530 84,616
Term deposits 1,756,809 -
3,771,423 793,264
Interest rates (per annum):
2011 2010
Savings accounts 1.25% 1.25%
Term deposits 6.00% -
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
23
7 LOANS AND ADVANCES TO CUSTOMERS
All loans and advances to customers presented below are of fixed terms.
2011 2010
Riel �000 Riel �000
Chamroeun loans 4,419,722 3,332,441
Entrepreneur loans 6,115,585 2,990,801
Social emergency loans 1,766 1,053
Developing loans 2,134,438 367,000
Staff loans 308,021 111,288
12,979,532 6,802,583
Provision for bad and doubtful loans- Specific provision (5,804) (11,539)
(5,804) (11,539)
12,973,728 6,791,044
The movements in provision for bad and doubtful loans to customers are as follows:
2011 2010
Riel �000 Riel �000
At the beginning of year 11,539 16,487
Provision for bad and doubtful loans 447 1,097
Loans written off during the year (6,182) (6,045)
At the end of year 5,804 11,539
The loans (gross) to customers are analysed as follows:
(a) By maturity:
2011 2010
Riel �000 Riel �000
No later than1 month 120,519 71,045
Later than 1 month and no later than 3 months 1,109,190 604,945
Later than 3 months and no later than 12 months 11,514,347 6,082,852
Later than 12 months 235,476 43,741
12,979,532 6,802,583
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
24
7 LOANS AND ADVANCES TO CUSTOMERS (continued)
(b) By currency:
2011 2010
Riel �000 Riel �000
Khmer Riel 12,979,532 6,802,583
12,979,532 6,802,583
(c) By economic sector:
2011 2010
Riel �000 Riel �000
Agriculture 1,998,299 390,768
Trade and commerce 7,217,232 4,356,296
Services 1,666,835 1,175,400
Transportation 1,191,284 302,639
Construction 286,954 110,761
Household/family 58,833 26,632
Other categories 560,095 440,087
12,979,532 6,802,583
(d) By relationship:2011 2010
Riel �000 Riel �000
External customers 12,671,511 6,691,295Management loans 109,580 24,025Staff loans 198,441 87,263
12,979,532 6,802,583
(e) By interest rate (per annum):
2011 2010
% %
Staff loans 9.6% - 12% 18%
External customers
Entrepreneur loan 39% - 42% 42%
Chamroeun loans 45% - 48% 48%
Social emergency loans 24% 24%
Developing loans 30% - 36% 48%
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
25
7 LOANS AND ADVANCES TO CUSTOMERS (continued)
(f) By location:
2011 2010
Riel �000 Riel �000
Phnom Penh 4,691,509 4,311,838
Kandal 3,116,512 647,104
Battambang 1,047,620 608,806
Siem Reap 1,043,147 583,402
Kampong Cham 1,095,633 540,145
Banteay Meanchey 774,383 -
Kompong Chhang 93,788 -
Kompong Speu 407,890 -
Kompong Thom 401,029 -
Head Office 308,021 111,288
12,979,532 6,802,583
(g) By performance:
2011 2010
Riel �000 Riel �000
Staff loans - -
External customers
Standard Loans 12,973,067 6,788,784
Sub-Standard Loans 734 2,346
Doubtful Loans - 212
Loss Loans 5,731 11,241
12,979,532 6,802,583
8 OTHER ASSETS
2011 2010
Riel �000 Riel �000
Accrued interest receivable 310,446 157,703
Prepayments and deposits 220,124 186,090
530,570 343,793
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
26
9 PROPERTY AND EQUIPMENT
MotorVehicles
OfficeSupplies &Furniture
ComputerHardware Total
Riel �000 Riel �000 Riel �000 Riel �000
At 1 January 2010
Cost 18,462 17,004 77,789 113,255
Accumulated depreciation (10,649) (7,751) (60,627) (79,027)
Net book amount 7,813 9,253 17,162 34,228
Year ended 31 December 2010
Opening net book amount 7,813 9,253 17,162 34,228
Additions - 8,858 45,665 54,523
Disposals - net (3,900) - - (3,900)
Depreciation charge (1,816) (3,350) (25,883) (31,049)
Closing net book amount 2,097 14,761 36,944 53,802
At 31 December 2010
Cost 6,894 25,862 123,454 156,210
Accumulated depreciation (4,797) (11,101) (86,510) (102,408)
Net book amount 2,097 14,761 36,944 53,802
Year ended 31 December 2011
Opening net book amount 2,097 14,761 36,944 53,802
Additions 138,580 22,907 74,952 236,439
Disposals - net (1,692) - - (1,692)
Depreciation charge (34,535) (6,827) (43,722) (85,084)
Closing net book amount 104,450 30,841 68,174 203,465
At 31 December 2011
Cost 138,583 48,769 198,406 385,758
Accumulated depreciation (34,133) (17,928) (130,232) (182,293)
Net book amount 104,450 30,841 68,174 203,465
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
27
10 INTANGIBLE ASSETS
SoftwareLicense Total
Riel �000 Riel �000
At 1 January 2010
Cost 63,939 63,939
Accumulated depreciation (42,294) (42,294)
Net book amount 21,645 21,645
Year ended 31 December 2010
Opening net book amount 21,645 21,645
Additions 7,336 7,336
Amortisation charge (14,499) (14,499)
Closing net book amount 14,482 14,482
At 31 December 2010
Cost 71,275 71,275
Accumulated amortisation (56,793) (56,793)
Net book amount 14,482 14,482
Year ended 31 December 2011
Opening net book amount 14,482 14,482
Amortisation charge (8,862) (8,862)
Closing net book amount 5,620 5,620
At 31 December 2011
Cost 71,275 71,275
Accumulated amortisation (65,655) (65,655)
Net book amount 5,620 5,620
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
28
11 COMPULSORY SAVINGS FROM CUSTOMERS
2011 2010
Riel �000 Riel �000
Loan Capital Build Up (LCBU) 1,684,530 630,263
Capital Build Up (CBU) 1,838,976 1,107,642
3,523,506 1,737,905
The deposits - Loan Capital Build Up (�LCBU�) are compulsory as required by the Companyfor loan disbursements and bear no interest. These LCBU savings are refunded at the end ofthe loan cycle. Customers are required to pay 15% in addition to each of their loan principalsettlement as this LCBU.
The deposits - Capital Build Up (�CBU�) are compulsory and not yet refunded to customers atthe end of the loan cycle and bear interest at rates ranging from 2 % to 4.5% (2010: 2% to4.5%) per annum. The Company has taken steps to return all CBU savings to customersgradually.
12 BORROWINGS
2011 2010
Riel �000 Riel �000
Grameen Credit Agricole Microfinance Foundation 2,468,160 585,200
Foreign Trade Bank 1,760,000 -ResponsAbility 1,756,965 808,500
Entrepreneurs Du Monde 1,373,576 1,077,976
Whole Planet Foundation (***) 822,000 -Babyloan 528,949 368,369
Microfinance Solidaire 215,440 215,600
Microfinance for Mothers 52,310 53,900
8,977,400 3,109,545
*** Under borrowing agreement between Whole Planet Foundation (�WPF�) and theCompany, WPF agreed to provide in Riel the borrowing facility equivalent to US$500,000 fora period of three years from 2011 to 2013 to support the Company�s expansion of thedeveloping group loans in its seven branches in Phnom Penh and the branches withinKampong Cham. The Company withdrew US$200,000 during the year. The remaining facilitywill be utilised as specified in the agreement at US$150,000 equally in 2012 and 2013.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
29
12 BORROWINGS (continued)
All borrowings are unsecured and bear fixed interest rates ranging from 0% to 12% (2010:0% to 12%) per annum.
The borrowings by maturity are analysed as follows:
2011 2010
Riel �000 Riel �000
No later than 1 year 3,822,099 422,269
Later than 1 year and no later than 5 years 5,155,301 808,500
Later than 5 years - 1,878,776
8,977,400 3,109,545
13 AMOUNT DUE TO SHAREHOLDER
2011 2010
Riel �000 Riel �000
EdM - Current account - 494,534
- 494,534
The amount was payable to EdM and had no fixed term of payment. This payable was fullysettled during the year.
14 ACCRUALS AND OTHER LIABILITIES
2011 2010
Riel �000 Riel �000
Advance capital received from shareholder * 1,597,171 -
Interest payable 140,041 46,170
Withholding tax payable 121,958 10,817
Provision for 13th month bonus 78,574 18,456
Accrued incentive 66,520 -
Other payables 2,063 715
2,006,327 76,158
* This advance from shareholder was to increase the Company�s share capital and subject tothe Central Bank�s approval. The Company has not received the approval by 31 December2011 and as of the date of this report.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
30
15. TAXATION
(a) Current income tax liabilities
2011 2010
Riel �000 Riel �000
Balance at beginning of year 112,110 -
Income tax expense 202,412 133,975
Income tax paid (109,035) (21,865)
Balance at end of year 205,487 112,110
(b) Income tax expense
2011 2010
Riel �000 Riel �000
Current income tax 242,247 133,975
Over provision in respect of prior year (39,835) -
202,412 133,975
Income tax reconciliation:
Profit before income tax 668,238 669,876
Income tax using statutory rate (20%) 133,648 133,975
Effect of:
Non-deductible expenses 108,599 -
Over provision in respect of prior year (39,835) -
202,412 133,975
In accordance with Cambodian tax laws, the Company has an obligation to pay corporateincome tax in the form of either Tax on Profit at the rate of 20% of taxable profit or minimumtax at 1% of turnover, whichever is higher.
(c) Other tax matters
The Company�s tax returns are subject to periodic examination by the General Department ofTaxation. Some areas of tax laws and regulations may be open to different interpretation;therefore, the tax amounts reported in the financial statements could be changed at a laterdate upon final determination by the General Department of Taxation.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
31
16 SHARE CAPITAL
The details of shareholding are as follows:
EntrepreneursDu Monde
MicrofinanceSolidaire
HumbertGarreau de
Labarre Total
Riel �000 Riel �000 Riel �000 Riel �000
As at 1 January 2010 1,016,970 - 41,000 1,057,970
Additional paid-up capital 326,980 527,800 854,780
Total share capital as at 31December 2010 1,343,950 527,800 41,000 1,912,750
As at 1 January 2011 1,343,950 527,800 41,000 1,912,750
Total share capital as at 31December 2011 1,343,950 527,800 41,000 1,912,750
During the year, the shareholders� resolution was made to increase share capital from1,912,750 thousand riel to 3,599,900 thousand riel. However, it has not been approved bythe National Bank of Cambodia (�the Central Bank�) as of 31 December 2011 and as of thedate of this report.
Dec 2011 Dec 2010
% of Number of % of Number of
Shareholders ownership shares ownership shares
Entrepreneurs Du Monde 70% 26,879 70% 26,879
Microfinance Solidaire 28% 10,556 28% 10,556
Humbert Garreau de Labarre 2% 820 2% 820
100% 38,255 100% 38,255
17 INTEREST INCOME
2011 2010
Riel '000 Riel '000
Loans and advances to customers 4,407,782 2,075,595
Balances with banks 32,725 1,195
4,440,507 2,076,790
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
32
18 INTEREST EXPENSES
2011 2010
Riel '000 Riel '000
Borrowings 434,780 69,032
Compulsory savings from customers 44,444 21,747
479,224 90,779
19 GRANT INCOME
2011 2010
Riel '000 Riel '000
Grant income for investments 26,140 29,734
Grants income for operation (a) 127,788 229,010
153,928 258,744
(a) The amount represents the unconditional grant received from Grameen Credit AgricoleMicrofinance Foundation, Don Boule de Neige ("DBN") and Pour un Sourire d'Enfant("PSE").
20 OTHER OPERATING INCOME
2011 2010
Riel '000 Riel '000
Non-interest income (*) 534,069 308,287
Foreign exchange gains - 91,680
Other income 7,024 4,194
541,093 404,161
Foreign exchange losses (74,624) -
466,469 404,161
(*) Non-interest income includes sales of passbooks, loan processing fees and feesfrom training courses and others.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
33
21. PERSONNEL EXPENSES
2011 2010
Riel '000 Riel '000
Salaries and wages 1,589,946 856,734
Vehicle related allowances 271,966 154,075
Bonuses 231,507 64,243
Incentives 139,830 122,210
Training expenses 58,040 22,222
Staff uniform 51,913 8,760
Staff insurance 22,245 25,827
Medical benefits 5,593 -
Other staff benefits 36,458 11,002
2,407,498 1,265,073
22 OPERATING AND OTHER EXPENSES
2011 2010
Riel '000 Riel '000
Occupancy expenses 413,340 259,085
Office expenses 350,258 213,225
Tax and other fee 189,140 19,468
Professional fee 150,261 35,506
Depreciation and amortisation 93,946 45,548
Travel and transportation expenses 71,889 40,814
Banking charge 56,409 23,709
Seminar and workshop 39,306 16,218
Fuel expenses 18,901 250
Other training expenses 17,413 14,475
Security expenses 13,067 251
Repair and maintenance expenses 2,948 -
Loss on disposal of fixed assets 1,080 232
Other general and admin expenses 85,284 42,982
1,503,242 711,763
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
34
23. NET CASH USED IN OPERATING ACTIVITIES
2011 2010Riel �000 Riel �000
Profit before income tax 668,238 669,876Adjustments for:Depreciation and amortisation 93,946 45,548Provision for bad and doubtful loans 447 1,097Loss on disposals of fixed assets 1,080 232
Interest income (4,440,507) (2,076,790)Interest expenses 479,224 90,779
(3,197,572) (1,269,258)
Changes in working capital:Statutory capital deposit (117,618) -Balances with banks (1,756,809) -Loans and advances to customers (6,183,131) (3,992,061)Other assets (32,327) (69,282)Compulsory savings from customers 1,785,601 908,084Accruals and other liabilities 1,836,298 6,642Deferred grant income (26,140) (29,733)
(7,691,698) (4,445,608)
Interest received 4,286,057 1,993,889Interest paid (385,353) (47,075)Income tax paid (109,035) (21,865)
Net cash generated used in operating activities (3,900,029) (2,520,659)
24 CASH AND CASH EQUIVALENTS
2011 2010
Riel �000 Riel �000
Cash on hand 23,773 8,658
Balances with the Central Bank - current accounts 1,000 -
Balances with banks matured not later than 3 months 2,014,614 793,264
2,039,387 801,922
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
35
25 COMMITMENTS
Lease commitments
The Company leases various offices (usually one year period) under cancellable operatinglease agreements. The Company is required to give one month�s notice for the nullification ofthese agreements. The lease expenses are charged to office rentals in the income statementduring the year.
26 RELATED PARTY TRANSACTIONS
a) Loans and advances to key management
2011 2010
Riel �000 Riel �000
Balance at beginning of year 24,025 10,029
Loans disbursed 480,280 39,700
Loan payments (394,725) (25,704)
Balance at end of year 109,580 24,025
Loans provided to management of the Company have two-year repayment term and bearinterest rates ranging between 9.6% to 12% per annum.
b) Balance with related parties
2011 2010
Riel �000 Riel �000
Amounts due to:
Grameen Credit Agricole (Note 12) 2,468,160 585,200
Entrepreneurs Du Monde (Note 12, 13 and 14) 1,767,465 1,572,510
Sophie Dulax 824,978 -
Microfinance Solidaire (Note 12 and 14) 480,933 215,600
Chamroeun Staff Association 118,150 -
5,659,686 2,373,310
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
36
26 RELATED PARTY TRANSACTIONS (continued)
c) Other transactions with related parties
2011 2010
Riel �000 Riel �000
Grant from Grameen Credit Agricole Microfinance Foundation 54,490 -
Rental income from Entrepreneurs Du Monde 5,687 4,205
Interest earned from loans and advances to key management 7,907 602
Balance at end of year 68,084 4,807
d) Key management compensations
2011 2010
Riel �000 Riel �000
Salaries and short-term benefits 887,487 272,333
27 FINANCIAL RISK MANAGEMENT
The Company�s activities expose it to a variety of financial risks: credit risk, market risk(including currency risk, interest rate risk and price risk), and liquidity risk. Taking risks is thecore of the financial business, and the operational risks are an inevitable consequence ofbeing in business.
Carrying value
Riel '000 Riel '000
2011 2010
Financial assets
Cash on hand 23,773 8,658
Balances with the Central Bank 118,618 -
Balances with banks 3,771,423 793,264
Loans and advances to customers 12,973,728 6,791,044
Other assets 310,446 157,703
17,197,988 7,750,669
Financial liabilities
Compulsory savings from customers 3,523,506 1,737,905
Borrowings 8,977,400 3,109,545
Amount due to shareholder - 494,534
Accruals and other liabilities 1,884,369 65,341
14,385,275 5,407,325
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
37
27 FINANCIAL RISK MANAGEMENT (continued)
27.1 Credit risk
The Company takes on exposure to credit risk, which is the risk that counterparty will causea financial loss to the Company by failing to discharge an obligation. Credit risk is the mostimportant risk for the Company�s business. Credit exposures arise principally in lendingactivities that lead to loans to customers. Credit risks are managed and studied by the creditassessment team before loans are disbursed to customers.
The lending activities are guided by the Company�s credit policy to ensure that the overallobjectives in the area of lending are achieved; i.e., that the loan portfolio is strong andhealthy and credit risks are well diversified. The credit policy documents the lending policy,collateral policy, and credit approval processes and procedures implemented to ensurecompliance with the Central Bank�s guidelines.
(a) Credit risk measurement
The Company is exposed to credit risk primarily with respect to loans. Such risks aremonitored on a revolving basis and subject to annual follow-up visits. Exposure to credit riskis managed through regular analysis of the ability of borrowers and potential borrowers tomeet interest and capital repayment obligations and by changing these lending limits whereappropriate. Loans are also provided to those borrowers that are deemed profitable.
(b) Risk limit control and mitigation policies
The Company operates and provides loans to individual customers or group loans(developing loan) within the Kingdom of Cambodia. The Company manages limits andcontrols the concentration of credit risk whenever they are identified.
The Company employs a range of policies and practices to mitigate credit risk depending onthe credit products including co-signatures, witnesses, collateral, group liability, which iscommon practice.
(c) Maximum exposure to credit risk before collateral held or other credit enhancements
Management believes that the Company�s maximum exposure to credit risk is limited to thecarrying amount of loans less provisions for bad and doubtful loans.
2011 2010
Riel �000 Riel �000
Credit exposure relating to on-balance sheet assets:
Balances with banks 3,771,423 793,264
Loans and advances to customers 12,973,728 6,791,044
Other assets 310,446 157,703
17,055,597 7,742,011
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
38
27 FINANCIAL RISK MANAGEMENT (continued)
27.1 Credit risk (continued)
(c) Maximum exposure to credit risk before collateral held or other credit enhancements(continued)
The above table represents a worst case scenario of credit risk exposure to the Company at31 December 2011 and 31 December 2010, without taking account of any collateral held orother credit enhancement attached. For on-balance sheet assets, the exposures set outabove are based on net carrying amounts.
As shown above, 76% of total maximum exposure is derived from loans to customers (2010:88%).
Management is confident in its ability to continue to control and sustain minimal exposure ofcredit risk to the Company resulting from its loans to customers on the following basis:
99% of the loans to customers are considered to be neither past due nor impaired(2010: 99%); andThe Company has introduced a strict selection process for granting loans to customers.
(d) Loans and advances to customers
Loans and advances to customers are summarised as follows:
2011 2010
Riel �000 Riel �000
Loans to customers neither past due nor impaired 12,972,767 6,787,032
Loans to customers past due but not impaired 300 1,752
Loans to customers individually impaired 6,465 13,799
Gross amount 12,979,532 6,802,583
Less: Specific provision for loan losses (5,804) (11,539)
Net loans and advances to customers 12,973,728 6,791,044
Specific provision is provided in accordance with its accounting policies and requirementfrom the Central Bank. Loan ageing analysis is the basis for the loan provisioning.
For the purpose of loan provisioning, the expected recovery from collateral (except cash) isnot taken into consideration in accordance with the Central Bank�s requirements. The totalprovision for bad and doubtful loans is Riel 5,804 thousand (2010: Riel 11,539 thousand),which represents the mandatory provision required by the Central Bank for loan losses.
(i) Loans and advances to customers neither past due nor impaired
Loans to customers not past due are not considered impaired, unless other information isavailable to indicate the contrary.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
39
27 FINANCIAL RISK MANAGEMENT (continued)
27.1 Credit risk (continued)
(d) Loans and advances to customers (continued)
(ii) Loans and advances to customers past due but not impaired
Loans to customers less than 30 days past due are not considered impaired, unless otherinformation is available to indicate the contrary. Gross amount loans to customers that werepast due but not impaired were as follows:
2011Riel �000
2010Riel �000
Past due up to 30 days 300 1,752
(*): Most of the customers� collaterals are in the form of land or house title receipts (which arenot official land title deeds), as the Company generally issues loans to low-incomehouseholds, particularly women in urban areas. The Company does not perform arevaluation of collateral either internally or externally. Since no legal official land title deedshave been obtained, management believes that the value of collateral is nil. Under theCentral Bank�s regulations, the value of collateral is not taken into account when determiningthe impairment of loans to customers.
(iii) Loans and advances to customers individually impaired
The classification and provisioning for bad and doubtful debts, loans to customers of 30 daysor more past due are considered impaired and the minimum level of specific provision forimpairment is made depending on the classification concerned, unless other information isavailable to indicate the contrary.
2011Riel �000
2010Riel �000
Past due 30-59 days 734 2,346Past due 60-89 days - 212Past due 90 days and more 5,731 11,241
6,465 13,799
Total outstanding loans 12,979,532 6,802,583
(iv) Loans and advances to customers renegotiated
There was no loan restructuring activity for the years ended 31 December 2011 and 2010.
CHAMROEUNMICROFINANCELIMITED
NOTESTOTHEFINANCIALSTATEMENTS
FORTHEYEARENDED31DECEMBER2011
40
27
FINANCIALRISKMANAGEMENT(continued)
27.1Creditrisk(continued)
(e)Concentrationoffinancialassetswithcreditriskexposure
(i)Geographicalsector
ThereisnoriskregardingthegeographicalsectorasallloansprovidedandallotherassetsarelocatedinCambodiaonly.
(ii)Industrysector
ThefollowingtablebreaksdowntheCompany�smaincreditexposureattheircarryingamounts,ascategorisedbytheindustrysectorsofthe
counterparties.
Agriculture
Tradeand
commerce
ServicesTransportationConstruction
Household
/family
Financial
institution
Other
categories
Total
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Asat31December2011
Balanceswithbanks
--
--
--
3,771,423
-3,771,423
Loansandadvancestocustomers
1,998,299
7,217,232
1,666,835
1,191,284
286,954
58,833
-560,095
12,979,532
Otherassets
--
--
--
-312,153
312,153
Totalassets
1,998,299
7,217,232
1,666,835
1,191,284
286,954
58,833
3,771,423
872,248
17,063,108
Asat31December2010
Balanceswithbanks
--
--
--
793,264
-793,264
Loansandadvancestocustomers
390,768
4,356,296
1,175,400
302,639
110,761
26,632
-440,087
6,802,583
Otherassets
--
--
--
-157,703
157,703
Totalassets
390,768
4,356,296
1,175,400
302,639
110,761
26,632
793,264
597,790
7,753,550
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
41
27 FINANCIAL RISK MANAGEMENT (continued)
27.2 Market risk
The Company takes on exposure to market risk, which is the risk that the fair value or futurecash flow of a financial instrument, will fluctuate because of changes in market prices. Marketrisk arises from open positions in interest rates, currency and equity products, all of whichare exposed to general and specific market movements and changes in the level of volatilityof market rates or prices such as interest rates, credit spreads, foreign exchange rates andequity prices.
The Company does not use derivative financial instruments such as foreign exchangecontract and interest rate swaps to hedge its risk exposure.
(i) Foreign exchange risk
The Company operates in Cambodia and transacts in Riel, US$ and Euro and is exposed tocurrency risks, primarily with respect to US$ and Euro. The exposure in foreign exchangerisk mainly arising from borrowings.
Foreign exchange risk arises from future commercial transactions and recognised assets andliabilities denominated in a currency that is not the Company�s functional currency.
Management monitors its foreign exchange risk against functional currency. However, theCompany does not hedge its foreign exchange risk exposure arising from future commercialtransactions and recognised assets and liabilities by using forward contracts.
The table below summarises the Company�s exposure to foreign currency exchange rate riskat 31 December 2011 and 31 December 2010. Included in the table are the Company�sfinancial instruments at carrying amount by currency in Riel equivalent.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
42
27. FINANCIAL RISK MANAGEMENT (continued)
27.2 Market risk (continued)
(i) Foreign exchange risk (continued)
(KHR'000 equivalent)
KHR Euro US$ Total
31 December 2011
Assets
Cash on hand 23,773 - - 23,773
Balances with the Central Bank 118,618 - - 118,618
Balances with banks 2,000,283 - 1,771,140 3,771,423Loans and advances tocustomers 12,973,728 - - 12,973,728
Other assets 310,446 - - 310,446
Total financial assets 15,426,848 - 1,771,140 17,197,988
LiabilitiesCompulsory savings fromcustomers 3,523,506 - - 3,523,506
Borrowings 6,423,736 581,259 1,972,405 8,977,400
Accruals and other liability 1,884,369 - - 1,884,369
Total financial liabilities 11,831,611 581,259 1,972,405 14,385,275
Net asset position 3,595,237 (581,259) (201,265) 2,812,713
31 December 2010
Total financial assets 7,641,318 - 109,350 7,750,668
Total financial liabilities 3,914,786 1,471,578 20,961 5,407,325
Net asset position 3,726,532 (1,471,578) 88,389 2,343,343
(ii) Price risk
The Company is not exposed to securities price risk because it does not hold anyinvestments classified on the balance sheet either as available for sale or at fair valuethrough profit or loss. The Company currently does not have a policy to manage its price risk.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
43
27. FINANCIAL RISK MANAGEMENT (continued)
27.2 Market risk (continued)
(iii) Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument willfluctuate because of changes in market interest rates. Fair value interest rate risk is the riskthat the value of a financial instrument will fluctuate because of changes in market interestrates. Interest margins may increase as a result of changes but may reduce losses in theevent that unexpected movements arise. The management of the Company at this stagedoes not have a policy to set limits on the level of mismatch of interest rate reprising that maybe undertaken; however, the management regularly monitors the mismatch.
The table below summarises the Company�s exposure to interest rate risks. It includes theCompany�s financial instruments at carrying amounts, categorised by the earlier ofcontractual re-pricing or maturity dates.
The interest rate risk exposure of financial assets and financial liabilities (in Riel� 000) are asfollows:
CHAMROEUNMICROFINANCELIMITED
NOTESTOTHEFINANCIALSTATEMENTS
FORTHEYEARENDED31DECEMBER2011
44
27.FINANCIALRISKMANAGEMENT(continued)
27.2Marketrisk(continued)
(iii)Interestraterisk(continued)
Lessthan
1monthto
3months
1yearto
Over
NonInterest
1month
3months
to1year
5years
5years
Bearing
Total
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Asat31December2011
Assets
Cashonhand
--
--
-23,773
23,773
BalanceswiththeCentralBank
--
--
-118,618
118,618
Balanceswithbanks
2,014,614
500,000
1,256,809
--
-3,771,423
Loansandadvancestocustomers
120,519
1,108,456
11,508,616
235,476
-661
12,973,728
Otherassets
--
--
-310,446
310,446
Totalassets
2,135,133
1,608,456
12,765,425
235,476
-453,498
17,197,988
Liabilities
Compulsorysavingsfromcustomers
387,863
58,893
947,104
2,129,646
--
3,523,506
Borrowings
-1,045,265
822,000
6,528,877
-581,258
8,977,400
Accrualsandotherliabilities
--
--
-1,884,369
1,884,369
Totalliabilities
387,863
1,104,158
1,769,104
8,658,523
-2,465,627
14,385,275
Maturitygap
1,747,270
504,298
10,996,321
(8,423,047)
-(2,012,129)
2,812,713
Asat31December2010
Totalfinancialassets
94,101
666,504
6,082,852
43,741
-875,010
7,762,208
Totalfinancialliabilities
429,563
75,086
1,479,049
2,864,467
-559,160
5,407,325
Maturitygap
(335,462)
591,418
4,603,803
(2,820,726)
-315,850
2,354,883
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
45
27 FINANCIAL RISK MANAGEMENT (continued)
27.3 Liquidity risk
Liquidity risk is the risk that the Company is unable to meet its payment obligationsassociated with its financial liabilities when they fall due and to replace funds when they arewithdrawn. The consequence may be the failure to meet obligations to repay depositors andfulfil commitments to lend.
(a) Liquidity risk management process
The management monitors balance sheet liquidity and manages the concentration andprofile of debt maturities. Monitoring and reporting takes the form of the reviewing of the dailycash position and projections for the next day, week and month, as these are key periods forliquidity management. The management monitors the amount of cash collected and theprojection of its disbursement.
(b) Non-derivative cash flows
The table on the following page presents the cash flows payable of the Company under non-derivative financial liabilities by remaining contractual maturities at the balance sheet date.The amounts disclosed in the table are the contractual undiscounted cash flows, whereas theCompany manages the inherent liquidity risk based on expected undiscounted cash flows.
CHAMROEUNMICROFINANCELIMITED
NOTESTOTHEFINANCIALSTATEMENTS
FORTHEYEARENDED31DECEMBER2011
46
27
FINANCIALRISKMANAGEMENT(continued)
27.3Liquidityrisk(continued)
(b)
Non-derivativecashflows(continued)
Lessthan
1to3
3to12
1to5
Over5
1month
months
months
years
years
Total
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Riel�000
Asat31December2011
Liabilities
Compulsorysavingsfromcustomers
387,863
58,893
947,104
2,129,646
-3,523,506
Borrowings
581,258
1,062,584
822,000
7,544,570
-10,010,412
Accrualsandotherliabilities
1,739,275
145,094
--
-1,884,369
Totalfinancialliabilities
2,708,396
1,266,571
1,769,104
9,674,216
-15,418,287
Asat31December2010
Liabilities
Compulsorysavingsfromcustomers
6,579
75,086
670,549
985,691
-1,737,905
Borrowings
422,269
-987,421
2,076,724
-3,486,414
Amountduetoshareholder
494,534
--
--
494,534
Accrualsandotherliabilities
18,456
--
--
18,456
Totalfinancialliabilities
941,838
75,086
1,657,970
3,062,415
-5,737,309
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
47
27 FINANCIAL RISK MANAGEMENT (continued)
27.4 Fair value of financial assets and liabilities
(a) Financial instruments measured at fair value
The Company did not have financial instruments measured at fair value.
(b) Financial instruments not measured at fair value
As at the balance sheet date, the fair values of financial instruments of the Companyapproximate their carrying amounts.
The estimated fair values are based on the following methodologies and assumptions.
i. Balances with banks
Balances with banks include non-interest bearing current accounts, savings deposits andshort-term deposits. The fair value of balances with banks approximates the carryingamount.
ii. Loans and advances to customers
Loans and advances to customers are net of provision for doubtful and bad loans and theircarrying value approximates fair value. The provision for doubtful and bad loans is madeunder the requirements of the Central Bank�s Prakas.
iii. Deposit from customers and borrowings
The fair value of deposits from customers approximates the carrying amount. The fair valueof deposits from customers with no stated maturities which include non-interest bearingdeposits is the amount repayable on demand.
The fair value of fixed interest-bearing deposits and borrowings are not quoted in an activemarket. Their value approximates the carrying amount.
iv. Other assets and liabilities
The carrying amounts of other assets and liabilities are assumed to approximate their fairvalues as these are not materially sensitive to the shift in market interest.
CHAMROEUN MICROFINANCE LIMITED
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011
48
27 FINANCIAL RISK MANAGEMENT (continued)
27.5 Capital risk management
The Company�s objectives when managing capital, which is a broader concept than the�equity� on the face of the balance sheet, are:
To comply with the capital requirement set by the Central Bank;To safeguard the Company�s ability to continue as a going concern so that it cancontinue to provide a return for shareholders and benefits for other stakeholders; andTo maintain a strong capital base to support the development of the business.
The Central Bank requires all commercial banks and financial institutions to: i) adhere to theminimum capital requirement; ii) maintain net worth at least equal to the minimum capitalamount; and iii) comply with solvency and liquidity ratios.
The table below summarises the composition of regulatory capital:
2011 2010
Riel �000 Riel �000
Tier 1 Capital
Share capital 1,912,750 1,912,750
Retained earnings 1,001,727 535,901
2,914,477 2,448,651
Less:
Loans to related parties (109,580) (24,025)
Total regulatory capital 2,804,897 2,424,626
_________________________________________________________
APPENDIX: NOTES ON COMPLIANCE WITH THE CENTRAL BANK�S PRAKAS
_________________________________________________________
CHAMROEUN MICROFINANCE LIMITED UNAUDITED
COMPLIANCE WITH THE CENTRAL BANK PRAKASFOR THE YEAR ENDED 31 DECEMBER 2011
i
1. CAPITAL ADEQUACY RATIO (SOLVENCY RATIO), Prakas No. B7-07-133
A licensed micro-finance institution shall at all times maintain a capital adequacy ratio ofmore than 15%. As at 31 December 2011, the capital adequacy ratio of the Company was16.04% which was in compliance with this Prakas.
The capital adequacy ratio calculation is detailed in Schedule 1.
2. LIQUIDITY RATIO, Prakas No. B7-07-163
A licensed microfinance institution shall at all times maintain a liquidity ratio of at least 100%.As at 31 December 2011, the liquidity ratio of the Company was 851%.
The liquidity ratio calculation is detailed in Schedule 2.
3. NET OPEN POSITION IN FOREIGN CURRENCY, Prakas No B7-07-134
A licensed microfinance institution shall at all times maintain a net open position in foreigncurrencies in either any foreign currency or an overall net open position in all foreigncurrencies, whether long or short, which shall not exceed 20% of the Company�s net worth.As at 31 December 2011, the net open position in Euro was 20.72%. The Company was notin compliance with this Prakas at 31 December 2011.
The net open position calculation is detailed in Schedule 3.
CHAMROEUN MICROFINANCE LIMITED UNAUDITED
COMPLIANCE WITH THE CENTRAL BANK PRAKASFOR THE YEAR ENDED 31 DECEMBER 2011
ii
4. LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIO,Prakas No. B702-186
Licensed micro-finance institutions shall classify their loan portfolios into the following fourclasses, depending on the financial situation of the borrower and the timeliness of principaland interest payments.
Loan term of one year or less
Standard: good financial condition and punctual payment of principal and interest.Sub-standard: some payments of principal and/or interest are overdue by 30 days ormore.Doubtful: some payments of principal and/or interest are overdue by 60 days or more.Loss: some payments of principal and/or interest are overdue by 90 days or more.
Loan term of more than one year
Standard: good financial condition and punctual payment of principal and interest.Sub-standard: some payments of principal and/or interest are overdue by 30 days ormore.Doubtful: some payments of principal and/or interest are overdue by 180 days ormore.Loss: some payments of principal and/or interest are overdue by 360 days or more.
Mandatory provisions on the loans classified as follows:
Sub-standard: 10% regardless of the collateral value except cash.Doubtful : 30% regardless of the collateral value except cash.Loss : 100%.
As at 31 December 2011, the mandatory provision provided by the Company was 5,804thousand riel which is in compliance with the Central Bank�s Prakas.
Loan classification, provision and delinquency ratio calculation are detailed in Schedule 4.
CHAMROEUN MICROFINANCE LIMITED UNAUDITED
SCHEDULE 1NET WORTH AND SOLVENCY RATIO AS AT 31 DECEMBER 2010
iii
NET WORTH RATIO
Riel '000
I- Sub-total A : Items to be added
- Capital or endowment 1,912,750
- Reserve, other than revaluation reserves -
- Premium related to capital (share premiums) -
- Provision for general banking risks, with the prior agreement of the NBC -
- Retained earnings 535,901
- Audited net profit for the latest financial year 465,826
- Other items approved by the National Bank of Cambodia -
2,914,477
II- Sub-total B : Items to be deducted
- For shareholders, directors, managers and their next of kind
> Unpaid portion of capital -
> Advances, loans, security and the agreement of the personsconcerned as defined above 109,580
- Holding of own shares at their book value -
- Accumulated losses -
- Formation expenses -- Losses determined on dates other than the end of the annualaccounting period (including provisions to be made for doubtful debt andsecurities) -
109,580
III- Total C : BASE NET WORTH = A - B 2,804,897
IV- Sub-total D : Items to be added
- Revaluation reserves, with the prior agreement of the NBC -
- Subordinated debt, with the prior agreement of the NBC, up to 100% ofbase net worth -
- Other items, with the prior agreement of the NBC, could be included inthe calculation of net worth and shall not be more than base net worth -
-
V- Sub-total E : Items to be deducted
- Equity participation in banking and financial institutions -
- Other items -
-
VI- Total F: TOTAL NET WORTH = C + D � E 2,804,897
CHAMROEUN MICROFINANCE LIMITED UNAUDITED
SCHEDULE 1NET WORTH AND SOLVENCY RATIO AS AT 31 DECEMBER 2011
iv
SOLVENCY RATIO
Riel' 000
I- Numerator (A)
Net worth 2,804,897
II- Denominator (B)
Assets (*)
Riel' 000 Weighting
- Cash 23,773 0% -
- Gold - 0% -
- Claims on the NBC 118,618 0% -
- Assets collateralized by deposits - 0% -
- Claims on sovereigns rated AAA to AA- - 0% -
- Claims on sovereigns rated A+ to A- - 20% -
- Claims on banks rated AAA to AA- - 20% -
- Claims on sovereigns rated BBB to BBB- - 50% -
- Claims on banks rated A+ to A- - 50% -
- All other assets 17,484,806 100% 17,484,806
17,627,197 17,484,806
III- Solvency ratio (A/B) 16.04%
(*): The denominator of the ratio shall comprise the aggregate of the assets (net amount afterdeduction of provision and depreciation) and off-balance sheet items, weighted to theirdegree of risk. It excludes the items which are deducted in calculating the net worthaccording to the provisions of the Prakas on the calculation of microfinance institutions� networth.
CHAMROEUN MICROFINANCE LIMITED UNAUDITED
SCHEDULE 2LIQUIDITY RATIO AS AT 31 DECEMBER 2011
v
Riel' 000
I- Numerator: LIQUID ASSETS (A)
Cash on hand 23,773
Balances with the Central Bank 118,618
Balances with banks 3,771,423
3,913,814
Less:
- Amounts owed to NBC -
- Amounts owed to other banks -
-
Net liquidity 3,913,814
Plus:
- Portion of loans maturing in less than one month 3,913,814
LIQUID ASSETS 3,913,814
II- Denominator: ADJUSTED AMOUNT OF DEPOSITS (B)
Riel' 000 %
Voluntary savings 1,838,976 25 459,744
III- LIQUIDITY RATIO (A/B) 851%
CHAMROEUN MICROFINANCE LIMITED UNAUDITED
SCHEDULE 3NET OPEN POSITION AS AT 31 DECEMBER 2011
vi
Liabilities Net open NOP/
Currency Asset and capital position Net worth Limit
Riel' 000 Riel' 000 Riel' 000 % %
KHR 15,856,057 15,073,533 782,524 27.90% 20%
Euro - 581,259 (581,259) -20.72% 20%
US$ 1,771,140 1,972,405 (201,265) -7.18% 20%
Total 17,627,197 17,627,197 -
Net worth 2,804,897
CHAMROEUN MICROFINANCE LIMITED UNAUDITED
SCHEDULE 4LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIOAS AT 31 DECEMBER 2011
vii
Specific
Amount Rate Provision
Riel' 000 % Riel' 000
Loan classification
1-Loans of one year or less
1-1 Standard 12,973,067 0% -
734 10% 73
30% -
5,731 100% 5,731
Sub-Total 1 12,979,532 5,804
2-Loans of more than one year
2-1 Standard - 0% -
10% -
30% -
100% -
Sub-Total 2 - -
Grand total 1+2 12,979,532 5,804
All loan past due > 30 days (A) 6,465
Loan outstanding (B) 12,979,532
Delinquency ratio (A/B) 0.05%