Brac Lanka Finance PLC 2013 Cover · BRAC Bank is a recognised bank in Bangladesh which also...

CHANGING LIVES

ANNUAL REPORT 2013/14

MANAGEMENT INFORMATION

Chairman’s Review 04

CEO’s Report 06

Board of Directors 08

Management Discussion & Analysis 12

Operational Review 14

Financial Review 16

Risk Management 18

SUSTAINABILITY REPORT

Sustainability Report 24

Our Events 27

Corporate Governance Report 29

Report of the Directors 55

Director’s Statement on Internal ControlsOver Financial Reporting 60

Report of the Audit Committee 61

Report of the IntegratedRisk Management Committee 61

Report of The Remuneration Committee 62

Directors‘ Responsibility For Financial Reporting 63

FINANCIAL INFORMATION

Independent Auditors’ Report 66

Statement of Comprehensive Income 67

Statement of Financial Position 68

Statement of Changes in Equity 69

Cash Flow Statement 70

Notes to the Financial Statements 71

Shareholders’ Information 98

Branch Network 100

Notice of Meeting 101

Notes 102

Brac Lanka Finance PLC Form of Proxy

Corporate Information - Inner Back Cover

CONTENTS

OUR VISION

OUR MISSION

To be a customer centric, innovative and broad based financial solutions partner.

Operate and expand aggressively, efficiently and profitably; with special focus on the Micro, Small and Medium Enterprise segments

Develop and offer high quality, innovative products and services

Seek and grow business and markets with significant potential growth

Make products easily accessible to the target consumer by investing in distribution channels

Setup the ‘best-in-the-breed’ operational platform to support growth aspirations

Offer a challenging and rewarding work environment that provides opportunities for growth

Contribute to the quality of life in our communities

Transform the company into a trusted household financial brand

CHANGING LIVESBRAC Lanka Finance PLC was established with a passion and tenaciousness to support and sustain the emerging lives of Sri Lankans. We used the platform of Microfinance and Financial solutions to setup a regulated finance company imbued with decades of experience of BRAC partnered with LOLC. BRAC is the World’s largest development organization inured with poverty reduction and empowerment of women with its specialist knowledge in Microfinance and Lanka ORIX Leasing Company PLC is one of the most successful and well-respected group of companies in Sri Lanka. Our combination of expertise in international Microfinance applications and domestic market knowledge will ensure innovative solutions and constitute a long term relationship pushing the boundaries of financial inclusion to empower and create wealth for people across the country.

Annual Report 2013/14 | 1

MANAGEMENT INFORMATION

2 | BRAC Lanka Finance PLC

CHAIRMAN’S REVIEW

Since its inception in 1972 in Bangladesh, BRAC has been driven by its founder Sir Fazle Hasan Abed’s vision of a world free from all forms of exploitation and discrimination, where everyone has the opportunity to realise their potential ability. This further emanates from Sir Abed’s philosophy that poverty is not an act of God, but is a result of societal attitudes and social systems that disempower some communities. As noted by Sir Abed, the root cause of poverty is exclusion and denial of access to the three basic rights of finance, education and health. Therefore, BRAC was designed with a mission of empowering people in situations of poverty and exclusion, through economic and social programmes that intervene in the three areas of health, education and finance. We believe in the old adage that health is wealth, which is particularly true for people with little or no access to resources. We believe education is a key tool of empowerment, by paving the way for people to help themselves. Education is a stepping stone to financial literacy and economic empowerment that in turn, facilitate autonomy and self determination. Finally BRAC supports financial development for the poorest of poor through Micro Credit Programmes that help the under privileged families overcome poverty. Today, as the world’s largest Non Governmental Organisation, BRAC has made it its business to combat poverty across 14 countries in the world through a range of interventions that support the BRAC philosophy of people empowerment.

In Bangladesh, BRAC is one of the strongest non government providers of health and education services and is a prominent advocate to women and children’s rights. Our poverty alleviation programmes are funded not only through donor funds but also through our own enterprises and investments. BRAC’s objective was not to generate profit, but to build a genuine strong social impact and this differentiates BRAC’s social enterprises that are aimed at creating livelihoods towards poverty alleviation. This unique model of self financing has been the key to BRAC’s long term sustainability. Today, BRAC Bank is a recognised bank in Bangladesh which also play’s a vital role in reaching out to undeserved populations at the bottom of the pyramid. BRAC EPL Investments Limited (BEIL), is an investment bank, which is the only institution in Bangladesh certified for consultancy services for environmental and social impact assessment, by the United Nations Framework Convention for Climate Change.

BRAC Lanka Finance PLC in Sri Lanka, which is a joint venture with the local financial giant Lanka ORIX Leasing Company PLC, is yet another international venture by BRAC. As the world’s most successful Microfinance Organisation, we strive to introduce our tried and tested poverty alleviation model in Sri Lanka. Our aim is to replicate the BRAC Microfinance model in Sri Lanka, to empower rural Sri Lankan populations who do not have

Muhammad A. (Rumee) AliChairman


access to formal financial services. However, due to Sri Lanka’s plans for financial sector consolidation, BRAC Lanka Finance PLC, like all other financial institutions in Sri Lanka, is in the process of evaluating its strategic direction for the future. Nevertheless, as an Organisation that believes in human values, the best interests of all stakeholders will be upheld in our final decision, with regards to our plans for Sri Lanka.

I wish to thank the regulators, our business partners LOLC, the Board, Management and staff of BRAC Lanka Finance PLC, for their contributions rendered during the current year. I also extend my warm appreciations to our customers in Sri Lanka.

Sincerely

Muhammad A. (Rumee) AliChairman

“BRAC Lanka Finance PLC in Sri Lanka, which is a joint venture with the local financial giant Lanka ORIX Leasing Company PLC, is yet another international venture by BRAC. As the world’s most successful Microfinance Organisation, we strive to introduce our tried and tested poverty alleviation model in Sri Lanka.”


CEO’S REVIEW

Abedur Rahman SikderChief Executive Officer

I would like to thank all our shareholders for gracing this second Annual General Meeting of BRAC Lanka Finance PLC. I am most privileged to present the performance of the Company for the first year of its operations, since its acquisition by BRAC Bangladesh and Lanka ORIX Leasing Company PLC (LOLC) of Sri Lanka.

BRAC Lanka’s entry into the Sri Lankan financial markets took place against a backdrop of many positive developments in the Sri Lankan economy. Although global economic conditions continued to remain weak, with global GDP growth contracting from 3.1% in 2012 to 3% in 2013. The Sri Lankan economy improved from a 6.3% rate of growth in 2012 to a GDP growth rate of 7.3% by the end of 2013. The industrial sector expanded by 9.9% during the year. The agriculture sector recorded a growth rate of 4.7%, compared the 5.2% growth in 2012, and the services sector saw a robust growth of 6.4%, compared to the 4.6% rate of growth in 2012. In spite of significant rising adjustments to the domestic energy prices, the rate of inflation was stable and remained at single digit level. Headline inflation was 4.7% year-on-year and 6.9% on an annual average basis. With exports recording a growth of 6.4% in 2013 and import expenditure declining by 6.2%, a significant improvement was seen in the trade balance, and the overall balance of the BOP recording a surplus of US$ 985 million in 2013, in comparison to a surplus of US$ 151 million recorded in 2012. Economic growth is expected to reach 7.8% in 2014

and then to enter a higher growth path of over 8% in the medium term. This expansion is expected to be broad based with all major sectors, contributing positively in the coming years.

The even more encouraging fact is that Sri Lanka’s National Development Policy places special emphasis on Small and Medium Enterprise (SME) for women focused growth, as outlined in the Central Bank Road Map for 2014. This policy framework opens a clear window for BRAC Lanka Finance PLC involvement in Sri Lanka’s future growth, and in this positive backdrop we look forward to introducing the tried and tested BRAC poverty alleviation model in Sri Lanka. In our first phase of operations, we will focus on strengthening Sri Lanka’s grassroots economy through Microfinance that will empower rural, female populations. Under our second phase of growth we will target Small and Medium Enterprise sector development through a range of specialised products. Even at this early stage of operations, BRAC Lanka Finance PLC is a true example of rural and women focused development, as our client base comprises about 40,000 who are women Microfinance recipients, served by a workforce which is about 90% women. Through our operations we have not only opened up avenues of economic empowerment for women by way of entrepreneurial activities for women, we also create employment and growth opportunities within the company, for women.


our respected Shareholders and all other Stakeholders for the trust placed in me to head this Company. With our years of experience in poverty alleviation through Micro Credit, and your cooperation as Shareholders of this Company, I am confident we can take this Company to the next level of growth.

Sincerely

Abedur Rahman SikderChief Executive Officer

The current Financial year was a challenging one for BRAC Lanka Finance PLC due to the need of consolidating market position, while shifting to the Microfinance business model. During the current financial year, we commenced this process by placing the infrastructure for Microfinance Services, including the recruitment of experienced personnel from Sri Lanka’s Microfinance sector and expanding the Branch / Service Network from 01 to 10. To deliver Microfinance services to Sri Lanka’s rural populations we intend to expand our Branch / Service Network exponentially over the next few years starting with 80-100 Branches / Service Centers by end 2014. I am happy to report that even with our extremely limited infrastructure, during the current financial year, BRAC Lanka Finance PLC disbursed over LKR 700 mn in micro loans. In addition to this, progress over the current financial year includes a customer base increased to 39,378 from 994 in 2013, with a total asset base growth of 191%, where the loan portfolio has expanded by 284%. I am confident of sustained growth over the next few years that will position BRAC Lanka Finance PLC as a leading Microfinance Institution in Sri Lanka.

I would like to thank the Board of Directors for their guidance and leadership during this formative year of BRAC Lanka Finance PLC towards building a solid foundation for the future. I would like to thank the Management and Staff of BRAC Lanka Finance PLC for their dedication and hard work over the last year. I also thank

“The current Financial year was a challenging one for BRAC Lanka Finance PLC due to the need of consolidating market position, while shifting to the Microfinance business model. During the current financial year, we commenced this process by placing the infrastructure for Microfinance Services, including the recruitment of experienced personnel from Sri Lanka’s Microfinance sector and expanding the Branch/ Service Network from 01 to 10.”


BOARD OF DIRECTORS

1. Mr. Muhammad A (Rumee) Ali Chairman - Non-Executive Director

Rumee Ali Chairman of BRAC Bangladesh and Board of Director of BRAC Lanka Finance PLC, has served at different levels for the local and international Banking sectors. Prior to joining BRAC, he served as the Deputy Governor of Bangladesh Bank. With his appointment as Country Head and General Manager of ANZ Grindlays Bank, Bangladesh in March 1997, Mr. Rumee Ali became the first Bangladeshi to head a major international bank in Bangladesh. In July 2000, following the takeover of ANZ Grindlays Bank by Standard Chartered Bank, Mr. Rumee Ali was appointed the Chief Executive Officer of the Standard Chartered Group in Bangladesh, heading both Standard Chartered Bank and Standard Chartered Grindlays Bank. His banking experience includes stints in India, United Kingdom and Australia. Mr. Rumee Ali was elected as fellow member of the Bangladesh Institute of Bankers in 2001.

He is the Chairman of BRAC EPL Investments Ltd, BRAC EPL Stock Brokerage Ltd, bKash Ltd, BRAC Sajaan Exchange Ltd, BRAC IT Services Ltd, BRAC Lanka Finance Ltd and also the Director of several other organisations, including BRAC Bank, BRAC Net and Alliance for Bangladesh Worker Safety. Mr. Rumee Ali is a member of the global steering committee of the performance-based grants initiatives of the International Finance Corporation, and the technical advisory committee of Bangladesh

Investment Climate Fund, International Chamber of Commerce, Bangladesh and CEOs Forum for inclusivity. He also served as a member of the governing body of PKSF and as a Vice-President of Bangladesh Association of Banks and of the Employers Federation of Bangladesh.

He has received a number of awards including C. R. Das, Atish Dipanker and Sarojini Naidu Gold Medal for Banking in 1995, 1999 and 2009 respectively, and the ‘CEO of the Year’ award by Junior Chamber International, Bangladesh.

Mr. Ali received his BA and MA in economics from the University of Dhaka.

2. Mr. Ishara Chinthaka Nanayakkara Non-Executive Director

Ishara Nanayakkara joined the Board of Lanka ORIX Leasing Company PLC (LOLC) in 2002 and is, presently the Deputy Chairman of LOLC and of Lanka ORIX Finance Company PLC. He is also the Chairman of Commercial Leasing and Finance PLC, a leading finance company in the country.

Mr. Nanayakkara is the Chairman of LOLC Micro Credit Limited, the Microfinance arm of LOLC Group. He also serves on the Board of PRASAC Microfinance Institute; one of the largest Microfinance institutions in Cambodia. His enduring interest in Microfinance was further evident by his latest initiative and LOLC’s first overseas investment

1 3 52 4

76 8 9


- LOLC Myanmar Microfinance Company Ltd in which he is the founding Chairman. He was also instrumental in the joint venture between BRAC and LOLC to form BRAC Lanka Finance PLC.

Mr. Nanayakkara is the Deputy Chairman of Seylan Bank PLC, a premier commercial bank in the country. His strategic participation in general, life and micro insurance through LOLC Insurance Company Ltd, factoring and working capital through LOLC Factors Ltd, stock brokering and securities through LOLC Securities Ltd, Islamic finance through LOLC Al-falaah, SME financing in addition to conventional lending and deposit product knowhow, reflects his vivid exposure in the financial services arena.

He is also the Executive Chairman of Brown & Company PLC and Browns Investments PLC. The Browns Group is a renowned conglomerate with leading market position in trade, leisure, manufacturing, consumer appliances and agriculture equipment and Browns Investments is the strategic investing arm of Browns that consists a portfolio of Leisure, Plantation, construction, agriculture inputs and banking.

Mr. Nanayakkara also serves on the Boards of Sierra Constructions Ltd, Free Lanka Holdings PLC, Lanka Century Investment PLC, Associated Battery Manufacturers (Cey) Ltd and Agstar Fertilizer PLC.

He holds a diploma in Business Accounting from Australia.

3. Mr. Shib Narayan Kairy Non-Executive Director

Mr. Kairy is the chief financial officer of BRAC and BRAC International. He is also a member of the executive management committee, the organisation’s management decision-making committee. Following the completion of his MCom in accounting from the University of Dhaka, he joined the accounts section of BRAC in April 1982.

At BRAC, he progressed through the roles of chief accountant, finance manager, head of finance, director of finance and accounts, and was appointed to his current position in May 2011.

Mr. Kairy supervises the overall financial control and management over the sources and applications of funds for BRAC activities, both development and commercial. His responsibilities include ensuring effective financial control, transparency and accuracy of financial data and reporting. Mr. Kairy is responsible for ensuring the effective procurement and asset management of BRAC.

He is currently serving on the board of BRAC Bank Limited and BRAC Lanka Finance PLC (Sri Lanka) as a director nominated by BRAC.

4. Mr. Waduthantri Dharshan Kapila Jayawardena Non-Executive Director

Kapila Jayawardena counts over thirty two year’s experience in Banking, Financial Management and Corporate Management. Mr. Jayawardena was appointed as the Group Managing Director/CEO of Lanka ORIX Leasing Company PLC in 2007. He was the former CEO/Country Head of Citibank N.A. Sri Lanka & Maldives.

Mr. Jayawardena has played a pivotal role in the banking sector contributing to the financial market reforms, development and regularly advising regulators on prudential requirements and has widespread experience in introducing innovative financial service products to the market.

LOLC Group is one of the largest conglomerates in Sri Lanka with presence in diversified industries such as Financial Services, Trading, Manufacturing, Construction, Leisure and Renewable Energy.

As an individual with extensive International and domestic financial experience, Mr. Jayawardena was a key member of the following committees:

• Chairman Sri Lanka Bank’s Association (SLBA) 2003/2004

• Member of the Financial Services Reforms Committee (FSRC) 2003/ 2004

• Director of Lanka Clear and was instrumental in completing the Automated Clearing Project for the Sri Lankan banking industry 2004

• President of the American Chamber of Commerce Sri Lanka 2006/2007


• Member of the inaugural Sovereign ratings team for Sri Lanka

• Member of the National Council of Economic Development (NCED)

• Board Member of the United States - Sri Lanka Fulbright Commission

Presently, Mr. Jayawardena holds Chairmanship /Directorship in the following companies:

• Lanka ORIX Leasing Company PLC - Group Managing Director/CEO

• Lanka ORIX Finance Company PLC - Chairman

• LOLC Insurance Company Limited - Chairman

• LOLC Securities Limited - Chairman

• Palm Garden Hotels PLC - Chairman

• Speed Italia (Pvt) Ltd - Chairman

• United Dendro Energy (Pvt) Ltd - Chairman

• LOLC General Insurance Ltd - Chairman

• LOLC Life Insurance Ltd - Chairman

• LOLC Micro Credit Ltd - Director

• Commercial Leasing & Finance PLC - Director

• Brown & Company PLC - Director

• Browns Investments PLC - Director

• Seylan Bank PLC - Director

• Eden Hotels Lanka PLC - Director

• Riverina Resorts (Pvt) Ltd - Director

Qualifications :

Master of Business Administration, American University of Asia

Fellow of the Institute of Bankers, Sri Lanka

Associate of the Institute of Cost and Executive Accountants, London

5. Mr. Sameer Ahmad Independent Director

Sameer Ahmad is a versatile investment banker with over 20 years of experience encompassing the geographic areas of Europe, Middle East, Emerging Africa and South East Asia. Sameer started his career in Kidder Peabody, subsequently UBS in the emerging markets team in

London. He then moved to Global Emerging Markets, a boutique investment bank concentrating on emerging markets based out of London. Subsequently he moved to Bangladesh and was responsible for establishing the structured finance unit of Industrial and Infrastructure Development Finance Company Limited where he launched the first ever zero coupon bond in Bangladesh. Prior to establishing RSA he was the treasury consultant with Price water house Coopers for restructuring Agrani Bank one of the largest state owned banks in Bangladesh.

Mr. Ahmad has established himself as one of the leading structured finance bankers in Bangladesh by launching the first ever zero coupon bond, the first step down syndicated loan facility, the first ever unsecured international term loan facility for a Micro Finance institution and of course the world’s first micro credit securitization, the first ever variable rate subordinated domestic convertible bond as Tier 2 Capital with international participation in the Bangladesh market.

He is also a partner in Mekong Brahmaputra Clean Development Fund involved in investing in clean energy project in Cambodia, Vietnam, Laos, Sri Lanka, Nepal, Thailand and Myanmar.

6. Mr. Ravindra Dhammika Tissera Non-Executive Director Mr. Ravi Tissera joined the LOLC Group in 1993 and is a Development Finance Specialist. Mr. Tissera has obtained his post Graduate Diploma in Marketing and is a member of the Chartered Institute of Marketing UK. He has followed Strategic Leadership Training in Microfinance at Harvard Business School. He is also on the Boards of Sundaya Lanka (Pvt) Ltd, LOLC Micro Investments Ltd, LOLC Micro Credit Ltd and LOLC Myanamar Microfinance Co Ltd. which are subsidiaries of the LOLC Group.

7. Mr. Shameran Abed Non-Executive Director

Shameran Abed manages BRAC’s Micro Finance operations, which serves more than five million clients and has total assets exceeding USD 1 billion. He also serves on the Boards of BRAC Bank’s mobile Financial Services subsidiary, bKash, and the Delta BRAC Housing Finance

BOARD OF DIRECTORS


Corporation. Additionally, he sits on the Microfinance Network Steering Committee and the World Economic Forum Financial Inclusion Steering Committee. Prior to joining BRAC, Mr. Abed was a journalist and wrote primarily on political issues.

Mr. Abed is a lawyer by training, having been made a barrister by the Honourable Society of Lincoln’s Inn in London, UK. He completed his undergraduate studies at Hamilton College in the United States, majoring in economics and minoring in political science.

8. Mr. Syed Afzal Hassan Uddin Independent Director

Afzal is an Advocate of the Supreme Court of Bangladesh and the Managing Partner of SYED ISHTIAQ AHMED & ASSOCIATES (SIA&A) a leading law firm in Dhaka, Bangladesh. Afzal received his BSc (Hons) degree in Chemistry and Management from King’s College, London in 1993. He then completed a postgraduate Diploma in Law in 1994 from South Bank University. Afzal was called to the Bar from Lincoln’s Inn, London in March 1996. Afzal is enrolled as an Advocate of the High Court Division of the Supreme Court of Bangladesh in 2001.

SIA & A offers a full range of legal advice and assistance to business clients in all sectors of industries, both domestic and international. Afzal undertakes a large amount of advisory work for corporate clients on matters such as negotiation and review of contracts, international trade, banking regulations, corporate compliance, joint venture agreements, corporate finance arrangements and establishing and advising companies on financing and restructuring. Afzal advises leading banks, non-banking financial institutions, statutory corporations and private sector corporate clients, including multinational companies, in manufacturing, distribution, logistics, computers, energy, power and telecommunications on a regular basis. His areas of expertise include advising clients in the areas of gas and oil exploration, power generation and telecommunications, mergers and acquisitions, due diligence of companies and general corporate affairs.

Prior to joining Syed Ishtiaq Ahmed & Associates, Afzal worked for the Civil Litigation Department of Price

Waterhouse in London from October 1995 to February 1998. At Price Waterhouse, he assisted in a variety of fraud related investigations, including investigation into allegations of market manipulation and insider dealing and asset tracing exercises for both criminal and civil prosecutions. He also assisted in the review of various operations of different foreign banks in London to ensure their compliance with the Banking Act 1987. Whilst at Price Waterhouse, Afzal assisted in writing articles on asset tracing and money laundering for Price Waterhouse internal journals and newsletters. He was also involved in preparing articles and presentations on fraud prevention initiatives for businesses.

Mr. Uddin is currently serving on the board of AB Bank Limited, one of the first private sector banks in Bangladesh and also on the board of Square Textiles Limited, a publicly listed company and one of the largest manufacturing industries in Bangladesh, as an independent director. Afzal is also sits on the board of FRIENDSHIP, a non-government organization, which provides education, training and medical facilities to the rural poor of Bangladesh.

9. Ms. Chrishanthi S Emmanuel Company Secretary

Ms. Chrishanthi Emmanuel brings over 20 years of experience to the role of Company Secretary. She is a Fellow of the Institute of Chartered Secretaries and Administrators – UK and a Fellow of the Institute of Chartered Corporate Secretaries (Sri Lanka). She also served as Company Secretary of several companies within the LOLC Group and now serves as a Director of LOLC Corporate Services (Private) Ltd.


MANAGEMENT DISCUSSION & ANALYSIS

BRAC Lanka Finance PLC is a joint venture between BRAC Bangladesh and Lanka ORIX Leasing Company PLC (LOLC) Sri Lanka. The Company was originally incorporated in Sri Lanka in January 1961, as a limited liability company under the Companies Ordinance No. 51 of 1938 and re-registered under the Companies Act no. 07 of 2007 in 2008. Nanda Investments and Finance PLC was brought by BRAC and there after the Nanada name changed to BRAC Lanka Finance PLC. Following the acquisition of the Company by BRAC Bangladesh and Lanka ORIX Leasing Company PLC (LOLC) in 2013. BRAC Lanka Finance PLC is now a Licensed Finance Company registered with the Central Bank of Sri Lanka. The core business of the Company is Microfinance.

Scope of OperationsPost Acquisition, the Company had one branch in Colombo. Following a rights issue in December 2013, approval was obtained from the Board to set up 15 new Branches including the head office of the Company to provide Microfinance services. As at end March 2014, the BRAC Lanka Finance PLC Service Network comprised 10 Service Delivery points including 3 Branches in Colombo (Head Office), Kalmunai and Kandy and 7 Service Centers. The Service Center are located in Mahara in the Gampaha District, Udapalatha in Kandy, Dambulla, Eravur in the Batticaloa District, Mullipothana in the Trincomalee District, and Hikkaduwa and Habaraduwa in the Galle District.

Business Portfolio BRAC Lanka Finance PLC lending portfolio comprises Microfinance, Auto Finance, Commercial Credit and Personal Loans. Since acquisition, a range of new products have been introduced. There are Micro Credit, Personal Loans, Education Loans, Housing Loans and Short Term Trading Loans for Retail Small and Medium Enterprise (SME) Entrepreneurs. The existing Auto Financing Portfolio was rebalanced with the introduction of high value asset classes such as Motor Cars, tourist coaches and machinery.

Lending Portfolio Composition As at 31st March 2014, Microfinance accounting for 69.3% of total lending, Loans, Mortgages, Personal and Education Loans account for 15% of total lending, leasing represented 6.4% of lending while Hire Purchase accounted for 9.3% of the portfolio.

As at 31st March 2014, the total value of the lending portfolio stood at LKR 1.06 bn, against LKR 276.8 mn as at 31st March 2013, which is a 283.5% growth. Hire Purchase saw a decline of LKR 49 mn due to premature settlements, while Lease and Loans saw a growth of 42.7% and 91.3% respectively to LKR 68.1mn and LKR 159.8m. The Micro Credit portfolio, which is a new addition to the business brought in LKR 736.9 mn.

Lending Poftfolio asat 31st March 2014

7%9%

15%

69%

Micro Credit

Loans, Mortgages, Personal andEducation Loans

Leasing

Hire Purchase


Marketing and Sales Credit Marketing activities have been revitalised through the establishment of a Credit Marketing Team. This is a dedicated sales force to market and sell BRAC Lanka Finance PLC Loan products.

Credit AdministrationA Credit Administration Division has been established to evaluate all commercial lending to mitigate credit risk. The evaluation process comprise rating the credit application and screen it for creditworthiness and compiling security documentation.

Recoveries Department Recoveries have been streamlined with the setting up of a Recoveries Department. The dedicated recovery unit has improved efficiency of Credit Management and contributed directly towards reducing the overall NPL ratio from 4.2% to 2.6%. Despite the sharp growth in the lending portfolio overall provisioning saw only a marginal increase of LKR 0.4 mn to reach LKR 11.1 mn.

Deposits A Deposit Division has been established with an enhanced Sales Team to raise awareness and attract deposits. However, expansion of the deposit portfolio was challenging due to lowering interest rates during the current financial year and lack of awareness in the market regarding BRAC as a new financial entity. In spite of these challenges the deposit base recorded a net growth of 19.4% to reach LKR 105.4 mn from LKR 88.2 mn.

The total deposit base comprises Fixed Deposits. We are currently in the process of developing Savings Products for the Sri Lankan Market.

TechnologyNew technology infusions have enhanced performance efficiency and productivity at BRAC Lanka Finance PLC. A significant improvement has been the replacement of the manual ledger system with a cloud system from Bangladesh that has increased accuracy and speed of accounting operations. Employees are provided training on the new system to ensure maximum benefits. New software has also been introduced to facilitate internal documentation and reporting, which has improved monitoring and communications of daily activities.


OPERATIONAL REVIEW

Loans & AdvancesDuring the FYE 2014 total advances of the company grew by Impressive 283.5% to RS.1.06 bn owing to introduction of Microfinance facilities to the Company, utilizing the expertise of it’s new owners. Although HP portfolio witnessed a decline of Rs.49mn due to premature settlements effected during the period of transition, lease and loan portfolios grew by 42.7% & 91.3% to Rs. 68.1 mm & 159.8mm respectively due to concerted efforts and the efficient business model introduced by the new management.

Whilst the Company has taken steps to aggressively expand their HP, Leasing & Loan portfolios, key area of focus remains on it’s Microfinance Operations which the current portfolio outstanding is Rs. 736.9 mn.

2014 (Rs.) 2013 (Rs.) 2012 (Rs.) 2011 (Rs.)

HP 96,746,848 145,542,429 117,970,747 117,663,120

LEASE 68,145,962 47,759,706 34,903,707 12,852,426

Loan 159,850,245 83,575,075 81,403,036 41,478,057

Microfinance 736,945,328 - - -

Total 1,061,688,383 276,877,210 234,277,490 171,993,603

DepositsDespite the change of ownership of the Company, it’s Fixed deposit portfolio reported a steady growth of 19.4% to reach Rs.105.4mn during the period under review, reflecting the renewed confidence and support of the Deposit holders towards the new owners.

The company is currently planning to launch a unique savings product to expand the deposit base through it’s newly commissioned 2 Branch Offices and 7 Service Centers.

2014 (Rs.) 2013 (Rs.) 2012 (Rs.) 2011 (Rs.)

105,476,750 88,287,900 47,884,400 35,562,450

2014 2013 2012 2011

Portfolio Trend

HPRs. Mn.

LeaseLoanMicro Finance

0

100

200

300

400

500

600

700

800

2014 2013 2012 2011

FD Portfolio

FD

0

20

40

60

80

100

120Rs. Mn.


Credit Risk ManagementAlthough the NPA Ratio has significantly improved during the period under review to 1.8% from 4.20%, over the FYE 2013 total provisioning for Non-performing Accommodations has increased marginally by Rs. 4mn to reach Rs. 11.1mn. However, we expect to reverse this trend through implementation of more stringent debt recovery mechanism and restructuring of recoveries division to facilitate a smoother and effective operation.

Provision for doubtful debts

2014 (Rs.) 2013 (Rs.) 2012 (Rs.) 2011 (Rs.)

HP 6,725,044 5,612,706 8,154,493 5,742,316

LEASE 1,219,364 499,423 - -

Loan 3,177,188 4,528,421 3,515,344 312,222

Total 11,121,596 10,640,550 11,669,837 6,054,538

2014 2013 2012 2011

NPA Provision

HPLeaseLoan

0

2

4

6

8

10Rs. Mn.


The dawn of the new financial year posed challenges to the Company due to rapid expansion of business activities and changes of strategic direction from conventional Leasing and Hire Purchases business to Microfinance business. In spite of the expansion plan and the policy changes of government relating to Finance, Company has managed to maintain its financial performance at an acceptable level.

ProfitabilityAs at 31st March 2014, profit before tax stood at LKR 21.7 mn, compared to LKR 31.4 in the previous year, which is a decrease of LKR 9.6 mn. The company saw lower profitability during the first year of operations due to investments in human resources, and infrastructure. This was mainly due to expansion activities, which saw a sharp increase in overheads and staff costs, with the recruitment of over 142 personnel and the setting up of the branch network. Profit after tax amounted to LKR 13.9 mn, against LKR 28.5 mn in the previous year due to the change in tax rates from 10% to 28%, in current financial year as a Group of Companies.

Interest IncomeBRAC Lanka Finance PLC saw interest income increase by 40.29% to LKR 96.6 mn, from LKR 68.8 mn. The growth was mainly due to Microfinance business which is a new segment to the Company.

As at 31st March 2014 Microfinance Portfolio is Rs. 736.9 mn compared with last year nil balance.

Interest ExpensesInterest Expenses increased to LKR 20.3 mn, from LKR 11.4 mn, due to a loan of US$ 3 mn, from BRAC International. The credit was utilized to finance Microfinance Portfolio.

Operating CostsOperating costs increased by LKR 20 mn, which is a 48.46% increase over the previous year. This cost increase was mainly due to setting up the branch/service network and recruitment of new staff.

Net Interest MarginNet interest margins have been positively affected with the inclusion of Microfinance portfolio into the lending book. Net interest income increase to 76.3 Mn compared to 57.3 Mn in last yaer.

Total AssetsTotal assets increased to LKR 1.9 bn from LKR 0.6 bn, which is a 191% growth. Asset growth was mainly driven by the addition of Microfinance to the lending portfolio and borrowing done to finance that portfolio.

LiabilitiesTotal liabilities have increased to LKR 1.3bn due to borrowings made to finance the lending growth.

Capital AdequacyA rights issue was made in December 2013 to the value of LKR 45.3 Mn. as declared in note no. 29.

NPL’sThe overall NPL ratio has improved due to the Microfinance portfolio that has extremely low default rates. NPL’s of the Micro Credit Portfolio stood at 0% as at 31st March 2014 and the overall NPL ratio improved to 1.8% from 4.2% in the previous year. Total provisioning was LKR 5 mn for the current financial year.

Portfolio at Risk (PAR)The PAR is the default rates for Loan for a period of 3 months or more. As at 31 March 2014, the PAR was 4.8% of the Company.

FINANCIAL REVIEW


Earnings Per ShareEarnings per share was LKR 0.14 as at 31st March 2014, Compared to the LKR 0.28 in 31st March 2013 due to lower profit after tax compared to last year and increase in number of shares as a right issue,

Return on AssetsThe return on assets fell from 4.52%, to 1.06% in 2014, due to lower profit after tax over the increased asset base. This is mainly due to expansion that was in place in the latter part of the financial year. Asset base has increased rapidly whereas corresponding income represents only for the last two months.

Share PriceBRAC Lanka Finance PLC share price increased to LKR 7.50 from LKR 5.90 a year ago, which is indicative of the growing public confidence in the Company following acquisition by BRAC Lanka Finance PLC and Lanka ORIX Leasing Company PLC (LOLC).


RISK MANAGEMENT

Risk is the probability that an actual return on an activity that will be lower than the expected. In all types of undertaking there is the potential requirement for events and consequences that constitute opportunities for benefit or threats to success and it’s an integral and inevitable component which exists in different degrees. Being a registered finance company, BRAC Lanka Finance PLC is also exposed to some form of risk as it faces the task of wealth maximization of all its Stakeholders.

Risk in general can be identified as the potential that a chosen action or activity will lead to an undesirable outcome or a significant condition, circumstance, action or an event that could adversely affect an entity’s ability to achieve its objectives and execute its strategies.

Hence an effective risk management system is key to the success of the Company since it maintains a balance between risk and rewards. The prime objective of BLF’s risk management framework is to ensure that the impact of risk is predictable, measurable and within the acceptable levels in order to maximize the shareholders returns.

Risk Management ApproachThe Company with the awareness of the risk and reward relationship has placed a Risk Management Governance Structure with oversight by the Board of Directors, through the Integrated Risk Management Committee.

Board’s Role in Risk ManagementThe Board approves the strategies and policies, monitors compliance and activities of the Senior Management and this approach is monitored through Board approved Committees. The Committee consists of members of the Board and Senior Management. The committees which ensure the practice of an effective Risk Management Policy in the company are as follows;

Integrated Risk Management Committee (IRMC)Primary purpose of the IRMC is to assist the Board in fulfilling its oversight responsibilities, providing insight into the business decision making process in order to enhance management effectiveness.

Members of this committee are appointed by the Board of Directors and include Board Members with the participation of the CEO, General Manager, Chief Financial Officer, Head of Microfinance and Head of Human Resources

Credit RiskCredit risk is the risk of loss arises due to the failure of the borrower or counterparty to meet their financial obligations to the lender. In the ordinary course of the business, the Company is exposed to credit risk through its lending activities.

To counter this risk, the Company has implemented a sound credit evaluation process to ascertain the credit worthiness of borrowers and guarantors and continuously review the exposure and credit concentration of customers. groups and sectors. Additionally, BRAC Lanka Finance PLC has implemented a strong recovery process to monitor and collect the dues on time.

The Company has identified NPL ratio as one of the most important measures of credit risk. The ratio is on NPL for the year at 1.8%. Therefore, Credit Risk Management remains healthy and further the recorded ratio of 1.8% is very much advanced over the industry average.


Concentration Risk This can arise from ineffective diversification of the credit portfolio

Focusing on to one or few products in the Company product portfolio, geographical areas and industries or even with a few customers would expose high concentration risk. Company has been mostly focusing on the Microfinance as the main product.

Asset Concentration

Leasing, Hire-purchase and Loans

Agriculture & Fishing Manufacturing TourismTransportConstruction

TradesNew EconomyFinancial andBusiness ServicesOther Services

33.53% 33.05%

31.47%

0.29%0.01%

Micro Finance

0.01%0.01%

1.07%

0.56%

31-03-2014

Agriculture & FishingBank Finance and InsuranceBevarage FoodsChemicals and PharmaceuticalConstruction and EngineeringFootwear and TextileHotels and Travels

Land & PropertyManufacturingPlantationPrinting /AdvertisingServicesTelecommunicationTrading

141 1

21

1 12

31

43

544

73

31-03-2013

Agriculture & FishingBank Finance and InsuranceBevarage FoodsConstruction and EngineeringFootwear and TextileFootwear / TextilesHotels and Travels

Land & PropertyManufacturingPlantationServicesTelecommunicationTrading

213 1

61

1 10

537

612

28


Liquidity RiskLiquidity risk arises due to unmatched maturities of assets and liabilities, and hinders the Company’s capacity to honor its commitments as and when they fall due or will have to do so at an excessive cost.

At present the Company maintains a healthy liquidity position and this is mainly because of significant amount of assets of the Company is being financed from equity where a major percentage comes through the share capital.

Market RiskThis is the risk associated with a change in the value of investments due to the volatility of economic indicators interest rates, equity and Prices.

BRAC Lanka Finance PLC has taken measures to analyse the market risk.

Interest Rate RiskThis is an inevitable risk for financial institutions. In order to manage the interest rate risk, the Company regularly monitors the movement of the interest rates and ensures the containment of this risk at an acceptable level. The interest rates movements are analysed on regular basis to ascertain their impact on the earnings of the Company.

Compliance RiskThis is the Inability to comply with rules and regulations applicable to a Company. Company has to comply with number of laws, regulations and acts passed by different authorities including Finance Business Act & SEC regulations. Inability to comply with these rules imposed by the regulators may lead to losses, penalties, sanctions or even negative public perception of the

Company. In order to manage the compliance risk, the Company has appointed a Compliance Officer whose duty is to regularly evaluate the compliance position of the Company in addition to the monthly assessment of compliance being reported to the Board of Directors & confirming the adherence to regulatory requirements.

Operational RiskOperational risk is the possible financial loss arising due to human error of fraud, failure of information systems, challenges in, data migration with new systems, unforeseen natural disasters, breaches in set policies and procedures and non-compliance with laws and regulations.

Operational Risk Management is a main responsibility of the Senior Management of each Department. They are responsible for the maintenance of internal controls and procedures of the Company. In order to mitigate operational risk the Company has implemented proper control procedures, segregated duties of each category of employees and deployed highly qualified internal audit team. The internal audit team regularly monitors the daily operational activities of each staff member and ensures that controls are in order.

New IT systems and processes are to be implemented to reduce the need for manual records. Yet all online transactions are supported by manual records to avoid malpractices.

RISK MANAGEMENT


Reputation RiskRisk of losing current & prospective earnings and capital base due to negative public perception of the Company and low spending on communication and brand building.

Any internal fault/error which creates customer dissatisfaction can be the root cause of negative public perception of the Company.

Since the Company in the business of servicing the public and especially the word of mouth advertisement technique is adopted by the Company and special attention is made by the Company to maintain the reputation.

All employees are encouraged to be professional maintaining the highest level of integrity.

The release of financial information to the public is subject to the approval of the Board.

Proper care is given at the transaction levels to avoid any loopholes which could result in customer dissatisfaction or lead to legal issues.

Staff is recruited form respective branch areas to enhance the Company’s image at the regional level.



Our Approach to SustainabilityBRAC Lanka Finance PLC formally known as Nanda Investments and Finance PLC (NIFL) is a reputed Non-Banking Financial Institution (NBFI). NIFL was incorporated in 1961 and the company is enlisted in Colombo Stock Exchange since July 2011. NIFL is an innovative financial services provider for the last fifty two years which is now acquired by BRAC Lanka Finance PLC that continues to provide financial services in Sri Lanka. BRAC Lanka Finance PLC is majority owned by BRAC International B.V., registered in the Netherlands as the holding company of BRAC International which is the international arm of the Bangladeshi Non Governmental (NGO) organization BRAC. Over the last four decades BRAC focused in poverty reduction and empowerment of women and its significant expertise in Microfinance and Small and Medium Enterprises (SME) lending, which consist mainly females who are underprivileged. Our internal governance systems include Risk Management, Management and Information Systems, Human Resources and Research and Information Systems centers around retaining Public Trust in our prestigious organization. Therefore our approach to sustainability is founded on the principles of long term relationship building with our stakeholders and we strive to ensure long term values for our shareholders and customers.

BRAC has never shied away from entering into the private sector domain as a pro-poor actor, to create more secure and rewarding links between the market and the livelihoods of the poor. This has led BRAC to venture into many frontier market developments that create backward and forward linkages to the enterprises of the poor increasing accessibility to finance. BRAC experiments in high-risk ventures have sometimes shown the private sector ways to invest in a new areas in frontier as well as emerging economies.

This is the genesis of a sustainable social enterprise. Initially Sir Fazle’s visionary mind created the first of

BRAC’s sustainable social enterprises three decades ago. In doing so, BRAC gave the world the true definition of ‘Corporate Social Responsibility’ or CSR. Businesses that do not consider the long and short-term social and environmental impact of their products and processes, focusing primarily on maximising profit, cannot claim to be socially responsible, irrespective of how much budget they give for CSR. To really make an impact, CSR means moving past the ‘Maximization of Shareholder Value’ to ‘Maximisation of Stakeholder Value’.

Innovative, client-focused and sustainable, BRAC’s Microfinance programme is a critical component of our holistic approach to support livelihoods across the Nations. Over the course of the last few decades, we have grown to become one of the world’s largest providers of financial services to the poor, providing tools that millions can use to better manage their lives.

With our inception in 2005 in Sri Lanka immediately after the devastating Tsunami, BRAC diversified its intervention from relief to Microfinance, with the vision of a sustainable future for both the Organisation and our Clients in Sri Lanka. We have over 68,000 borrowers who are served by 650 trained staff. The salient feature of BRAC is its remarkable efforts to protect the core value of Microfinance with its concept of village organisations where economically active women are empowered to achieve better living standards.

We provide poor women with access to targeted financial services. We strongly believe that the poor are able to help themselves when organised effectively. With this in mind, we conduct comprehensive door-to-door surveys, consulting community and government leaders to select poor, uneducated but economically active women. These groups, led by rigorously trained BRAC Credit Officers, network and support the women to be effective conduits for their own social and financial change.


While improving the sustainability of our own operations that expresses our values, improving the sustainability of the projects we deliver for clients offers the potential to address global issues in a much more powerful way. In partnership with our clients, we can help reduce the energy and fuel consumption of major civil works and industrial facilities; curtail carbon emissions; optimize efficiency in manufacturing and other processes to reduce material resource consumption; redesign processes to eliminate the use of toxic or hazardous substances; restore damaged lands and ecosystems; find beneficial uses for waste; and revitalize urban areas.

In delivering these sustainable solutions, we help generate positive financial metrics for our clients, provide long-term social benefits, and act in accordance with the precautionary principle, which means that when confronted with a choice that affects the environment, we choose that which carries the lesser impact. Our people are energized by these opportunities to make the world a better place. In the last few years, we have attracted and trained talented people who offer expertise along the full spectrum of sustainable solutions.

We work closely with our clients to work within their economic constraints, while also maximizing their return on investment. Another challenge associated with the rapidly evolving sustainability market is staying at the forefront of technical developments. Consequently, we invest in our people to attend courses, present papers, and participate in technical forums and professional programmes.

From a business perspective, sustainability trends present a range of issues and risks, as well as the opportunity to bring new value, services, and improved delivery systems and technologies to our clients.

The world is at a critical juncture. As we observe global population growth combined with crumbling and non-existent infrastructure, increasingly scarce natural

resources, demands for energy and water, and the potentially devastating effects of climate change, it becomes increasingly clear that everything in our world is connected. Businesses and governments must work together, across boundaries and jurisdictions, to create a thriving green economy that will sustain a safe world for those generations coming after us.

Sustainability is not only about being a good corporate citizen, but also about risk mitigation and economics, helping communities and organizations develop practical actions that save money, support economic development, and benefit the environment at the same time.

Our Pledge to the WorldBRAC Lanka Finance PLC embraces the Values out lined by the BRAC Group in order adhere to good governance such as complying with Labour Laws of Sri Lanka including Prohibition of underage recruitments, Zero Tolerance against Sexual Harassment within the organization, Non Discrimination against Religion or Ethnicity and our employees enjoy freedom of association.

Our Ethics and PracticesWe maintain an Open Door policy which enables and helps our employees disclose any concerns or grievances, feedbacks and suggestions. We believe that employees are the core strength of our organization and organizational growth which will take BRAC forward to improve the livelihoods of poor people uplifting their financial position in the economy.

Rewarding Our TeamBRAC Lanka Finance PLC values every member of our organization and we provide the support and the care to make sure our staff members achieve their goals which are regained and valued while overall it improves the organizational growth. It is vital to improve the Human



Resource pool of an organization while investing in human capital through rewarding the existing employees and following various programmes that will improve the service level of staff to achieve better results in a very competitive landscape

Development and GrowthWe believe development enhances and enables the employee a better quality in work hence we have provided trainings which some of it are in-house and some are external.

Employee WelfareOur employees are our strength hence the Organization has taken initiatives to provide subsidiary for meals, donations for weddings and death. We have many plans in the pipeline which are still to be implemented as we grow as an Organization and those programmes include blood donation campaigns, donations to cancer patients, workshops for eye care, child protection and grooming women.

EmployeesAs a Financial Organization we understand that our employees are our greatest asset and vital to build our brand and growing our business and taking it forward. We have set in place policies and procedures which govern the needs and shelter the discipline and standards. Our employees grew from 27 to 364 as we created opportunities to groom and a firm and unbroken career path. We maintain an open door communication system which helps employees to address their graveness and concerns which are dealt with confidentiality which we will continue maintaining through effective implementation of best practices in Human Resources Management.

Human Resources – Our Family

Recruitment Development Retain

• Identified Business Needs

• Diversity & Inclusion

• Appraisal

• Training

• Professional Qualifications

• Promotions

• Reward & Recognition

• Work-Life-balance

• Communication

• Grievance Handling

Culture, Respect, Values and Trust

Our Human Resources strategies are formulated to recruit, develop and retain our staff to take into account their aspirations and needs. We have implemented to ensure that we take Human Resource services to the staff, particularly at the branches by visiting them to identify their needs and evaluate the effectiveness of the solutions implemented. We strive to nurture the cultural values and we believe that our ability to retain staff has enabled the fostering of our culture to a great degree. We are proud that our employees trust us to deliver on our promises and provide the means for achieving for aspirations.


New Year Celebration

Dambulla Service Center Opening

BRAC Birthday

Kandy Branch Opening

OUR EVENTS


Cricket Match Talent Event at the BRAC Birthday Celebration

OUR EVENTS

Sinhala & Tamil New Year IT System Training


In August 2013 the Company was acquired by subsidiaries of BRAC International (“BRAC”) and Lanka ORIX Leasing Company PLC (“LOLC”) .Following the acquisition, the Board was re-constituted. BRAC and LOLC both subscribe to the principles of good governance , and the new Board has endeavoured to bring the Company into a state of compliance. Much effort has gone into analyzing the requirements and reviewing the existing systems, to ascertain the gaps if any. Steps have been taken and are continuing to be taken, to put in place procedures and measures that will facilitate both monitoring and ensuring compliance.

The chart below gives more details on the Company’s compliance.

Direction No.

Reference to the Finance Companies Corporate Governance Direction No. 3 of 2008

The Company’s level of compliance

2 The Responsibilities of the Board of Directors

2.1 The Board of Directors shall strengthen the safety and soundness of the finance company by:

a. approving and overseeing the finance company’s strategic objectives and corporate values and ensuring that such objectives and values are communicated throughout the finance company;

Complied with The Board has approved a vision and mission. The corporate values are being finalized.

b. approving the overall business strategy of the finance company, including the overall risk policy and risk management procedures and mechanisms with measurable goals, for at least immediate next three years;

Complied with. A two year Business Plan has been approved by the Board and progress is monitored at each Board meeting.

c. identifying risks and ensuring implementation of appropriate systems to manage the risks prudently;

Complied withThe Board has delegated this functionality to the Integrated Risk Management Committee (IRMC) , which is a Board subcommittee,.

Approved minutes of the IRMC meetings are tabled at Board Meetings thereby ensuring that the entire Board is kept informed.

d. approving a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers;

Complied withA Board approved Stakeholder Communication Policy which covers all stakeholders is in place.

e. reviewing the adequacy and the integrity of the finance company’s internal control systems and management information systems;

The Board has delegated this functions to the Audit Committee, which is a sub-committee of the Board.

The approved minutes of the Audit Committee meetings are tabled at Board Meetings for their information and review.

CORPORATE GOVERNANCE REPORT


Direction No.



f. identifying and designating key management personnel, who are in a position to:

1. influence policy;

2. direct activities; and

3. exercise control over business activities, operations and risk management;

Complied withThe Board has identified and designated KMPs as defined in the Sri Lanka Accounting Standards.

g. defining the areas of authority and key responsibilities for the Board and for the key management personnel;

Complied with A Board approved, documented description of the role of the board defines the powers and duties of the Board Directors.

The responsibilities of the key management personnel have been defined in individual job descriptions.

h. ensuring that there is appropriate oversight of the affairs of the finance company by key management personnel, that is consistent with the finance company’s policy;

Complied withTo assist in this oversight, the Board has appointed an Asset Liability Committee. The CEO together with the CFO / Compliance Officer also monitor financial affairs and report periodically to the Board.

i. periodically assessing the effectiveness of its governance practices, including:

1. the selection, nomination and election of directors and appointment of key management personnel;

2. the management of conflicts of interests; and

3. the determination of weaknesses and implementation of changes where necessary;

Complied withAs mentioned at the beginning of this report, following the acquisition of the Company, the newly appointed Board has commenced a review of the existing governance practices, to facilitate compliance.

A Board approved procedure for appointment of Directors has been put in place . Directors are selected and nominated to the Board for skills and experience which will enable them to play an effective role and add value to the discussion and decision making of the Board

A Board approved procedure for related party transactions addresses conflicts of interest. Further, on a monthly basis directors disclose their directorships in other companies.

Performance and conformance reports (written and oral) presented at Board meetings enable the Board to make this determination and rectify procedures.



Direction No.



j. ensuring that the finance company has an appropriate succession plan for key management personnel;

Will be complied withAs a part of the restructuring of the Company, the employees and the organization chart were reviewed. The succession plan will follow.However any decision in this regard will be subject to the Central Bank’s direction on financial sector consolidation.

k. meeting regularly with the key management personnel to review policies, establish lines of communication and monitor progress towards corporate objectives;

Complied withManagement has been delegated to the CEO, who is invited to attend board meetings. Through the CEO’s reports and also through discussions, the Directors can verify that objectives are being clearly communicated. The Board approved process on delegation has ensured that delegation happens in a manner that enables the Board to remain in control.

Key Management Personnel will be called in by the members of the Board during board and board committee meetings when the need arises to explain matters relating to their area of functions.

l. understanding the regulatory environment; Complied withThe Board continues to put in place systems and procedures which will facilitate monitoring and reporting.

At each Board meeting, all correspondence with regulators received since the last meeting is tabled. This further contributes to an understanding of the regulatory environment, including updates on directives.

The process will be strengthened further by calling for additional reports.

m. exercising due diligence in the hiring and oversight of external auditors.

Complied withThe Auditors of the Company are KPMG, a reputed audit firm and one of the “big four” globally recognized audit firms.

The Audit Committee has recommended that the auditors be re-appointed for 2014/15, and the Board is making a similar recommendation to the shareholders.


Direction No.



2.2 The Board shall appoint the Chairman and the Chief Executive Officer and define and approve the functions and responsibilities of the chairman and the chief executive officer in line with paragraph 7 of this Direction.

Complied withThe Board has appointed the Chairman, M A Rumee Ali and CEO A R Sikder.

Functions and responsibilities of the Chairman and the CEO will be defined and approved going forward.

2.3 There shall be a procedure determined by the Board to enable directors, upon reasonable request, to seek independent professional advice in appropriate circumstances, at the finance company’s expense. The Board shall resolve to provide separate independent professional advice to directors to assist the relevant director(s) to discharge the duties to the finance company.

Complied with The Board has approved a policy on its role, which includes provision for obtaining independent professional advice.

2.4 A director shall abstain from voting on any Board resolution in relation to a matter in which he or any of his relatives or a concern in which he has substantial interest, is interested, and he shall not be counted in the quorum for the relevant agenda item at the Board meeting.

Complied with.The relevant Board approved procedure on Related Party Transactions provides for Directors to declare their interests and refrain from participating in the discussions or decision making. This is also detailed in the Board approved policy on the Role of the Board

2.5 The Board shall have a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the finance company is firmly under its authority.

Complied withThe role of the Board has been defined, documented and approved by the Board. This includes details of the Board’s responsibilities and the matters which are specifically reserved to it for approval.

At its meetings the Board discussed both performance and compliance, ensuring that control is exercised.

2.6 The Board shall, if it considers that the finance company is or is likely to be unable to meet its obligations or is about to become insolvent or is about to suspend payments due to depositors and other creditors, forthwith inform the Director of the Department of Supervision of Non-Bank Financial Institutions of the situation of the finance company prior to taking any decision or action.

No such situation has arisen.In the unlikely event of such a situation occurring, the Board will ensure that the Company complies with all requirements.

2.7 The Board shall include in the finance company’s Annual Report, an annual corporate governance report setting out the compliance with this Direction.

Complied withThis report serves the said requirement.

2.8 The Board shall adopt a scheme of self-assessment to be undertaken by each director annually, and maintain records of such assessments.

Will be complied withEvaluations carried out by finance sector companies will be benchmarked.



Direction No.



3 Meetings of the Board

3.1 The Board shall meet at least twelve times a financial year at approximately monthly intervals.

Obtaining the Board’s consent through the circulation of written or electronic resolutions/papers shall be avoided as far as possible.

Will be complied withA schedule of meetings to comply with this requirement was agreed on at the end of the previous calendar year. However, as there are several directors who are based overseas, certain meetings have had to be re-scheduled.

Approvals obtained through the circulation of resolutions are subsequently tabled at the next board meeting.

3.2 The Board shall ensure that arrangements are in place to enable all directors to include matters and proposals in the agenda for regular Board meetings where such matters and proposals relate to the promotion of business and the management of risks of the finance company.

Complied withA Board approved Policy on the Board’s relationship with the Company Secretary provides for all directors to include matters and proposals in the agenda for regular board meetings.

As notice of a meeting is given in advance, any director is able to request the inclusion of matters on the agenda.

3.3 A notice of at least 7 days shall be given of a regular Board meeting to provide all directors an opportunity to attend. For all other Board meetings, a reasonable notice shall be given.

Complied withA schedule of all meetings planned for the year was tabled at the Board meeting held at the end of the previous calendar year.

Reasonable notice has been given for all other board meetings.

Notices and agendas are sent out 7 days prior to the meeting.

Dates of meetings are communicated to all Directors and consensus sought where possible.

3.4 A director who has not attended at least two-thirds of the meetings in the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meetings held, shall cease to be a director. Provided that participation at the directors’ meetings through an alternate director shall, however, be acceptable as attendance.

Will be complied withAs several of the directors are based overseas, appointing suitable alternate directors is being considered.


Direction No.



3.5 The Board shall appoint a company secretary whose primary responsibilities shall be to handle the secretarial services to the Board and shareholder meetings and to carry out other functions specified in the statutes and other regulations.

Complied withThe Company Secretary for the year under review is a fully qualified Chartered Secretary, admitted as a Fellow of the Institute of Chartered Secretaries & Administrators, UK (FCIS) and of the Institute of Chartered Corporate Secretaries, Sri Lanka. (FCCS) and registered as a Company Secretary with the Registrar General of Companies.

In addition to assisting the Chairman with Board meetings, she handles all other Company Secretarial functions including those related to shareholder meetings. This is included in the Board approved procedure relating to the functions of the Company Secretary.

3.6 If the chairman has delegated to the company secretary the function of preparing the agenda for a Board meeting, the company secretary shall be responsible for carrying out such function.

Complied withThe Board approved policy on the Board’s relationship with the Company Secretary provides for the Chairman to delegate to the Company Secretary the preparation of the agenda for board meetings.

3.7 All directors shall have access to advice and services of the company secretary with a view to ensuring that Board procedures and all applicable laws, directions, rules and regulations are followed.

Complied withThe Board approved policy on the Board’s relationship with the Company Secretary provides that all directors shall have access to the advice/services of the Company Secretary.

3.8 The company secretary shall maintain the minutes of Board meetings and such minutes shall be open for inspection at any reasonable time, on reasonable notice by any director

Complied withThe Minutes are in the custody of the Company Secretary , who can provide them to any director for inspection at any reasonable time, on reasonable notice by any director. This is also provided for in the policy on the Board’s relationship with the Company Secretary.



Direction No.



3.9 Minutes of Board meetings shall be recorded in sufficient detail so that it is possible to gather from the minutes, as to whether the Board acted with due care and prudence in performing its duties. The minutes of a Board meeting shall clearly contain or refer to the following:

(a) a summary of data and information used by the Board in its deliberations;

(b) the matters considered by the Board;

(c) the fact-finding discussions and the issues of contention or dissent which may illustrate whether the Board was carrying out its duties with due care and prudence;

(d) the explanations and confirmations of relevant executives which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations;

(e) the Board’s knowledge and understanding of the risks to which the finance company is exposed and an overview of the risk management measures adopted; and

(f) the decisions and Board resolutions.

Complied withDetailed minutes are kept covering the given criteria.

4 Composition of the Board

4.1 The number of directors on the Board shall not be less than 5 and not more than 13.

Complied withThe Board comprises 8 members.

4.2 The total period of service of a director other than a director who holds the position of chief executive officer or executive director shall not exceed nine years. The total period in office of a non executive director shall be inclusive of the total period of service served by such director up to the date of this Direction.

Complied withNone of the non executive directors have completed 9 years of service during the financial year.

4.3 Subject to the transitional period an employee of a finance company may be appointed, elected or nominated as a director of the finance company (hereinafter referred to as an “executive director”) provided that the number of executive directors shall not exceed one-half of the number of directors of the Board. In such an event, one of the executive directors shall be the chief executive officer of the company.

Complied withNone of the Directors are executive directors.


Direction No.



4.4 Subject to the transitional period the number of independent non-executive directors of the Board shall be at least one fourth of the total numbers of directors. A non-executive director shall not be considered independent if such director:

a) has shares exceeding 2% of the paid up capital of the finance company or 10% of the paid up capital of another finance company;

b) has or had during the period of two years immediately preceding his appointment as director, any business transactions with the finance company as described in paragraph 9 hereof, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds of the finance company as shown in its last audited balance sheet;

c) has been employed by the finance company during the two year period immediately preceding the appointment as director;

d) has a relative, who is a director or chief executive officer or a key management personnel or holds shares exceeding 10% of the paid up capital of the finance company or exceeding 12.5% of the paid up capital of another finance company.

e) represents a shareholder, debtor, or such other similar stakeholder of the finance company;

f) is an employee or a director or has a share holding of 10% or more of the paid up capital in a company or business organization:

(i) which has a transaction with the finance company as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

(ii) in which any of the other directors of the finance company is employed or is a director or holds shares exceeding 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

(iii) in which any of the other directors of the finance company has a transaction as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds, as shown in its last audited balance sheet of the finance company.

Complied withThere are 02 independent directors on the Board, S A H Uddin and S Ahmad, and this constitutes one fourth of the Board.



Direction No.



4.5 In the event an alternate director is appointed to represent an independent non-executive director, the person so appointed shall also meet the criteria that apply to the independent non-executive director.

Complied withDuring the year under review there were no appointments of alternate directors.

4.6 Non-executive directors shall have necessary skills and experience to bring an objective judgment to bear on issues of strategy, performance and resources.

Complied withDirectors profiles are provided on pages 8 to 11.

4.7 A meeting of the Board shall not be duly constituted, although the number of directors required to constitute the quorum at such meeting is present, unless at least one half of the number of directors that constitute the quorum at such meeting are non-executive directors.

Complied withAll the directors are non-executive , thus at any Board meeting the quorum will be as stipulated.

4.8 The independent non-executive directors shall be expressly identified as such in all corporate communications that disclose the names of directors of the finance company. The finance company shall disclose the composition of the Board, by category of directors, including the names of the chairman, executive directors, non-executive directors and independent non-executive directors in the annual corporate governance report which shall be an integral part of its Annual Report.

Complied withThe directors for the year under review are:

M. A. (Rumee) Ali - Non Executive Director (Chairman )S. N. Kairy - Non Executive DirectorS. B. Abed - Non Executive DirectorI. C. Nanayakkara - Non Executive DirectorW. D. K. Jayawardena - Non Executive Director R. D. Tissera - Non Executive DirectorS. A. H Uddin - Independent DirectorS. Ahmad - Independent Director The directors profiles are given on pages 8 to 11.

4.9 There shall be a formal, considered and transparent procedure for the appointment of new directors to the Board. There shall also be procedures in place for the orderly succession of appointments to the Board.

Complied withThere is a Board approved procedure for appointment of a Director. In addition, the Board ensures that all regulatory and statutory requirements are complied with

4.10 All directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment.

Complied withAt the last Annual General Meeting, which was the first such Meeting held after the acquisition of the Company , every director retired and was re-appointed by the shareholders .


Direction No.



4.11 If a director resigns or is removed from office, the Board shall announce to the shareholders and notify the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka, regarding the resignation of the director or removal and the reasons for such resignation or removal, including but not limited to information relating to the relevant director’s disagreement with the Board, if any.

Complied withWhile there were no such resignations during the year under review, the Company will ensure compliance if such a situation arises.

5 Criteria to assess the fitness and propriety of directors

5.1 Subject to the transitional provisions contained herein, a person over the age of 70 years shall not serve as a director of a finance company

Complied withNone of the Directors are over 70 years of age. All the Directors have been assessed as fit and proper in terms of section 3 (3) and (4) of the Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 3 of 2011

5.2 A director of a finance company shall not hold office as a director or any other equivalent position in more than 20 companies/societies/bodies corporate, including associate companies and subsidiaries of the finance company. Provided that such director shall not hold office of a director or any other equivalent position in more than 10 companies that are classified as Specified Business Entities in terms of the Sri Lanka Accounting and Auditing Standards Act, No. 15 of 1995.

Complied withNo director holds directorships of more than 20 companies /entities/ institutions inclusive of subsidiaries or associate companies.

6 Delegation of Functions

6.1 The Board shall not delegate any matters to a board committee, chief executive officer, executive directors or key management personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

Complied withThe Board has approved polices on delegation of authority by the directors to the CEO and Management and on oversight of the affairs of the company by KMPs.

6.2 The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the finance company.

Complied withThe delegated powers are reviewed periodically by the Board.

7 The Chairman and the Chief Executive Officer

7.1 The roles of chairman and chief executive officer shall be separated and shall not be performed by the one and the same person.

Complied with.The roles of Chairman and CEO are separate and held by two different individuals, appointed by the Board.



Direction No.



7.2 The chairman shall be a non-executive director. In the case where the chairman is not an independent non-executive director, the Board shall designate an independent non-executive director as the Senior Director with suitably documented terms of reference to ensure a greater independent element. The designation of the Senior Director shall be disclosed in the finance company’s Annual Report.

Complied with The Chairman is a non-executive Director. An independent director will be appointed the Senior Director.

7.3 The Board shall disclose in its corporate governance report, which shall be an integral part of its Annual Report, the name of the chairman and the chief executive officer and the nature of any relationship [including financial, business, family or other material/ relevant relationship(s)], if any, between the chairman and the chief executive officer and the relationships among members of the Board.

Complied with by this statement There is no financial, business, family or other relationship between the Chairman and the CEO.

There is no financial, business, family or other material relationship between any other members of the Board except for some Directors serving together on other Boards.

7.4 The chairman shall:

(a) provide leadership to the Board;

(b) ensure that the Board works effectively and discharges its responsibilities and

(c) ensure that all key issues are discussed by the Board in a timely manner.

Complied with The Chairman ensures that all directors participate in discussion and decision making and also invites the CEO to provide information clarification or other contribution.

7.5 The chairman shall be primarily responsible for the preparation of the agenda for each Board meeting.

The chairman may delegate the function of preparing the agenda to the company secretary.

Complied withThe Chairman has delegated this function to the secretary.

This has been included in the “Policy on Board’s relationship with the Company Secretary” approved by the Board.

7.6 The chairman shall ensure that all directors are informed adequately and in a timely manner of the issues arising at each Board meeting.

Complied withThrough delegation to the Company Secretary, the Chairman ensures that the agendas of Board meetings notify all directors of the issues to be discussed, with supporting board papers containing further information.

As Minutes of previous month’s board meeting are among the agenda items and board papers, issues can be discussed to a satisfactory conclusion.


Direction No.



7.7 The chairman shall encourage each director to make a full and active contribution to the Board’s affairs and take the lead to ensure that the Board acts in the best interests of the finance company.

Complied withThe Chairman ensures that all Directors participate in discussions. Directors contribute further by serving on Board sub committees.

7.8 The chairman shall facilitate the effective contribution of non-executive directors in particular and ensure constructive relationships between executive and non-executive directors.

Complied withAll the Directors are non-executive directors, and the Chairman facilitates their effective contribution by ensuring that they have received the relevant papers and other information in a timely manner.

7.9 The chairman shall not engage in activities involving direct supervision of key management personnel or any other executive duties whatsoever.

Complied withThe Chairman is a non-executive director and does not engage in any executive activities

7.10 The chairman shall ensure that appropriate steps are taken to maintain effective communication with shareholders and that the views of shareholders are communicated to the Board.

Complied withThe Board has approved a policy on communication with stakeholders.

The Annual General Meeting of the Company provides a forum for shareholder communication. Periodic announcements made to the Colombo Stock Exchange also contribute towards keeping all stakeholders informed and updated on significant actions of the Company.

7.11 The chief executive officer shall function as the apex executive-in-charge of the day-to-day-management of the finance company’s operations and business.

Complied withThe CEO is the apex executive-in charge of the Company’s business operations.



Direction No.



8 Board appointed Committees

8.1 Every finance company shall have at least the two Board committees set out in paragraphs 8(2) and 8(3) hereof. Each committee shall report directly to the Board.

Each committee shall appoint a secretary to arrange its meetings, maintain minutes, records and carry out such other secretarial functions under the supervision of the chairman of the committee.

The Board shall present a report on the performance, duties and functions of each committee, at the annual general meeting of the company.

Complied withThe Company has appointed an Audit Committee and an Integrated Risk Management Committee. A Remuneration Committee has also been appointed . Minutes of Meetings of these Committees are tabled at Board meetings, which help to keep the Board informed of Committee discussions and decisions.

The Company Secretary functions as the Committee Secretary .

The Annual Report includes individual reports of each committee, including a summary of its duties and performance.

Please refer the reports on pages 61 to 62.

8.2 Audit Committee Please refer page 61 for the Committee Report

a. The chairman of the committee shall be a non-executive director who possesses qualifications and experience in accountancy and/or audit.

Complied with The Chairman of the Audit Committee is S N Kairy, a Non-Executive director. Mr. Kairy has a Master of Commerce degree in Accounting from the University of Dhaka, Bangladesh.

b. The Board members appointed to the committee shall be non-executive directors.

Complied withThe remaining members of the Committee are:

R. D. Tissera - Non-Executive director

S. A. H. Uddin - Independent director

c. The committee shall make recommendations on matters in connection with:

(i) the appointment of the external auditor for audit services to be provided in compliance with the relevant statutes;

(ii) the implementation of the Central Bank guidelines issued to auditors from time to time;

(iii) the application of the relevant accounting standards; and

(iv) the service period, audit fee and any resignation or dismissal of the auditor, provided that the engagement of an audit partner shall not exceed five years, and that the particular audit partner is not re-engaged for the audit before the expiry of three years from the date of the completion of the previous term.

Will be complied with.After the conclusion of the Financial year, a formal Agenda for Audit Committee meetings including items prescribed by the Direction was drawn up for the conduct of Audit Committee meetings.

The Board has approved Terms of Reference for the Audit Committee.


Direction No.



d. The committee shall review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit processes in accordance with applicable standards and best practices.

Complied withThe external Auditors are independent as they report direct to the Audit Committee of the Board.

e. The committee shall develop and implement a policy with the approval of the Board on the engagement of an external auditor to provide non-audit services that are permitted under the relevant statutes, regulations, requirements and guidelines. In doing so, the committee shall ensure that the provision by an external auditor of non-audit services does not impair the external auditor’s independence or objectivity. When assessing the external auditor’s independence or objectivity in relation to the provision of non-audit services, the committee shall consider:

(i) whether the skills and experience of the auditor make it a suitable provider of the non-audit services;

(ii) whether there are safeguards in place to ensure that there is no threat to the objectivity and/or independence in the conduct of the audit resulting from the provision of such services by the external auditor; and

(iii) whether the nature of the non-audit services, the related fee levels and the fee levels

individually and in aggregate relative to the auditor, pose any threat to the objectivity and/or independence of the external auditor.

Will be complied withThe Board has approved such a policy. This was done subsequent to the end of the financial year under review.

f. The committee shall, before the audit commences, discuss and finalize with the external auditors the nature and scope of the audit, including:

(i) an assessment of the finance company’s compliance with Directions issued under the Act and the management’s internal controls over financial reporting;

(ii) the preparation of financial statements in accordance with relevant accounting principles and reporting obligations; and

(iii) the co-ordination between auditors where more than one auditor is involved.

Complied withBefore the commencement of the Audit, the Committee met with the external auditors to discuss the scope of the audit and any other issues of concern.



Direction No.



g. The committee shall review the financial information of the finance company, in order to monitor the integrity of the financial statements of the finance company, its annual report, accounts and periodical reports prepared for disclosure, and the significant financial reporting judgments contained therein. In reviewing the finance company’s annual report and accounts and periodical reports before submission to the Board, the committee shall focus particularly on:

(i) major judgmental areas;

(ii) any changes in accounting policies and practices;

(iii) significant adjustments arising from the audit;

(iv) the going concern assumption; and

(v) the compliance with relevant accounting standards and other legal requirements.

Complied withThe Committee reviewed the quarterly and annual audited financial statements presented by the CFO.

h. The committee shall discuss issues, problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss including those matters that may need to be discussed in the absence of key management personnel, if necessary.

Complied withThe Committee met with the external auditors in the absence of the executive management and discussed issues arising from the audit.

i. The committee shall review the external auditor’s management letter and the management’s response thereto.

Will be complied with As a part of the continuous process to identify and rectify gaps in the governance process, the Committee will be including this in its annual agenda.


Direction No.



j. The committee shall take the following steps with regard to the internal audit function of the finance company:

(i) Review the adequacy of the scope, functions and resources of the internal audit department, and satisfy itself that the department has the necessary authority to carry out its work;

(ii) Review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit department;

(iii) Review any appraisal or assessment of the performance of the head and senior staff members of the internal audit department;

(iv) Recommend any appointment or termination of the head, senior staff members and outsourced service providers to the internal audit function;

(v) Ensure that the committee is apprised of resignations of senior staff members of the internal audit department including the chief internal auditor and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning;

(vi) Ensure that the internal audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care;

Will be complied withThe Committee will work with the Head of Internal Audit to put these in place.

k. The committee shall consider the major findings of internal investigations and management’s responses thereto;

Will be complied withAny internal investigations with the management’s responses thereto will be considered by the Committee.

l. The chief finance officer, the chief internal auditor and a representative of the external auditors may normally attend meetings. Other Board members and the chief executive officer may also attend meetings upon the invitation of the committee. However, at least once in six months, the committee shall meet with the external auditors without the executive directors being present.

Complied withThere are no executive Directors. The only executive officer invited to attend the meeting with the External Auditors was the CEO , as the Committee and the Board wished to ensure he was properly instructed on the measure to be taken to rectify any deficiencies.



Direction No.



m. The committee shall have:

(i) explicit authority to investigate into any matter within its terms of reference;

(ii) the resources which it needs to do so;

(iii) full access to information; and

(iv) authority to obtain external professional advice and to invite outsiders with relevant experience to attend, if necessary.

Complied withThe Board approved Terms of Reference of the Audit Committee ensures that it has the authority as required.

n. The committee shall meet regularly, with due notice of issues to be discussed and shall record its conclusions in discharging its duties and responsibilities.

Will be complied withThe Committee will meet regularly. At a meeting held after the end of finacial year, an annual agenda was agreed upon, to ensure that all necessary issues are monitored.

o. The Board shall, in the Annual Report, disclose in an informative way,

(i) details of the activities of the audit committee;

(ii) the number of audit committee meetings held in the year; and

(iii) details of attendance of each individual member at such meetings.

Complied withPlease refer report on page 61.

p. The secretary to the committee (who may be the company secretary or the head of the internal audit function) shall record and keep detailed minutes of the committee meetings

Complied withThe Company Secretary has been appointed as the secretary to the Committee. Minutes of the Meetings of the Committee are recorded and maintained by her.

q. The committee shall review arrangements by which employees of the finance company may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. Accordingly, the committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow-up action and to act as the key representative body for overseeing the finance company’s relations with the external auditor.

Will be complied withSteps will be taken to put a procedure in place.


Direction No.



8.3 Integrated Risk Management Committee Please refer page 61 for the Committee Report

a. The committee shall consist of at least one non-executive director, CEO and key management personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks. The committee shall work with key management personnel closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the committee.

Complied withThe Integrated Risk Management Committee comprises:

R. D. Tissera - Non-Executive Director Committee Chairman S. N. Kairy - Non-Executive Director S. Ahmad - Independent Director A. R. Sikder - CEO U. Suraweera - General Manager

b. The committee shall assess all risks, i.e., credit, market, liquidity, operational and strategic risks to the finance company on a monthly basis through appropriate risk indicators and management information. In the case of subsidiary companies and associate companies, risk management shall be done, both on the finance company basis and group basis.

Will be complied withThe Terms of reference of the Committee have been approved by the Board and the Committee will ensure that meetings will focus on identifying , monitoring and mitigating risks.

c. The committee shall review the adequacy and effectiveness of all management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the committee.

Will be complied with The Credit Committee and the Asset Liability Committee (ALCO) were recently reconstituted. Further steps will be taken to ensure their effectiveness .

d. The committee shall take prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the committee on the basis of the finance company’s policies and regulatory and supervisory requirements.

Will be complied withProcedures to facilitate this action by the committees will be adopted

e. The committee shall meet at least quarterly to assess all aspects of risk management including updated business continuity plans.

Will be complied withAs a part of strengthening governance, meetings will be scheduled quarterly .

f. The committee shall take appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions as recommended by the committee, and/or as directed by the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka.

Will be complied withIf such instances are identified, appropriate steps will be taken.

g. The committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific directions.

Will be complied withThe Committee will work with the Internal Auditor to put appropriate procedures in place.



Direction No.



h. The committee shall establish a compliance function to assess the finance company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated compliance officer selected from key management personnel shall carry out the compliance function and report to the committee periodically.

Complied with A Compliance Officer has been appointed by the Board to monitor compliance of CBSL rules, regulations and directions issued under the Finance Business Act.

9 Related party transactions

9.1 The following shall be in addition to the provisions contained in the Finance Companies (Lending) Direction, No. 1 of 2007 and the Finance Companies (Business Transactions with Directors and their Relatives) Direction, No. 2 of 2007 or such other directions that shall repeal and replace the said directions from time to time.

9.2 The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction of the finance company with any person, and particularly with the following categories of persons who shall be considered as “related parties” for the purposes of this Direction:

a) A subsidiary of the finance company;

b) Any associate company of the finance company;

c) A director of the finance company;

d) A key management personnel of the finance company;

e) A relative of a director or a key management personnel of the finance company;

f) A shareholder who owns shares exceeding 10% of the paid up capital of the finance company;

g) A concern in which a director of the finance company or a relative of a director or a shareholder who owns shares exceeding 10% of the paid up capital of the finance company, has substantial interest.

Complied withThe Board has approved a procedure on related party transactions.

Further, at each Board meeting, the Directors individually declare any companies in which they have a significant influence, which facilitates avoidance of conflicts of interest


Direction No.



9.3 The transactions with a related party that are covered in this Direction shall be the following:

a) Granting accommodation,

b) Creating liabilities to the finance company in the form of deposits, borrowings and investments,

c) providing financial or non-financial services to the finance company or obtaining those services from the finance company,

d) creating or maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party.

Complied withThe Board has approved a procedure on related party transactions.

Further, at each Board meeting, the Directors individually declare any companies in which they have a significant influence, which facilitates avoidance of conflicts of interest



Direction No.



9.4 The Board shall ensure that the finance company does not engage in transactions with a related party in a manner that would grant such party “more favourable treatment” than that is accorded to other similar constituents of the finance company. For the purpose of this paragraph, “more favourable treatment” shall mean:

a) Granting of “total net accommodation” to a related party, exceeding a prudent percentage of the finance company’s regulatory capital, as determined by the Board. The “total net accommodation” shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related party in the finance company’s share capital and debt instruments with a remaining maturity of 5 years or more.

b) Charging of a lower rate of interest than the finance company’s best lending rate or paying a rate of interest exceeding the rate paid for a comparable transaction with an unrelated comparable counterparty;

c) Providing preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/ commissions, that extends beyond the terms granted in the normal course of business with unrelated parties;

d) Providing or obtaining services to or from a related-party without a proper evaluation procedure;

e) Maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party, except as required for the performance of legitimate duties and functions.

The documented process and the existing reporting system will be further reviewed to strengthen identification and extraction of the required details of such transactions and to monitor that “More favorable treatment” is not offered to related parties.


Direction No.



10 Disclosures

10.1 The Board shall ensure that: (a) annual audited financial statements and periodical financial statements are prepared and published in accordance with the formats prescribed by the regulatory and supervisory authorities and applicable accounting standards, and that (b) such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

Complied withThe financial statements are prepared in accordance with the new Sri Lanka Accounting Standards (SLFRSs/LKASs)and the formats prescribed by the regulators.

Annual financial statements are disclosed in the annual report; biannual (unaudited) financial statements are published in newspapers in all three languages and the quarterly statements are posted on CSE website

10.2 The Board shall ensure that at least the following disclosures are made in the Annual Report:

a. A statement to the effect that the annual audited financial statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

Complied with by this statement The Annual Audited financial statements have been prepared in line with applicable accounting standards and regulatory requirements , inclusive of specific disclosures .

b. A report by the Board on the finance company’s internal control mechanism that confirms that the financial reporting system has been designed to provide a reasonable assurance regarding the reliability of financial reporting, and that the preparation of financial statements has been done in accordance with relevant accounting principles and regulatory requirements.

Complied withPlease refer the Directors Statement on Internal Controls Over Financial Reporting on page 60.

c. The external auditor’s certification on the effectiveness of the internal control mechanism in respect of any statements prepared or published after March 31, 2010.

Complied withThe Company has obtained a certification from KPMG Chartered Accountants on the effectiveness of the internal controls over financial reporting.

d. Details of directors, including names, transactions with the finance company.

Complied withPlease refer the Directors transactions with the Company on page 55.



Direction No.



e. Fees/remuneration paid by the finance company to the directors in aggregate, in the Annual Reports published after January 1, 2010.

Complied withThe directors do not receive any Remuneration

f. Total net accommodation as defined in paragraph 9(4) outstanding in respect of each category of related parties and the net accommodation outstanding in respect of each category of related parties as a percentage of the finance company’s capital funds.

Complied withNet accommodations granted to each category of related parties as a percentage of capital funds of the Company at the year-end:

Entities in which the Parent of the Company has a substantial interest 13%

Key Management Personnel 0%

g. The aggregate values of remuneration paid by the finance company to its key management personnel and the aggregate values of the transactions of the finance company with its key management personnel during the financial year, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the finance company.

Complied withPlease refer page 83 Note 8.

h. A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any non - compliances.

Complied withStatus of compliance with prudential requirements, regulations and laws as set out in this report.

i. A statement of the regulatory and supervisory concerns on lapses in the finance company’s risk management, or non compliance with the Act, and rules and directions that have been communicated by the Director of the Department of Supervision of Non-Bank Financial Institutions, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the finance company to address such concerns.

Complied withThere were no significant supervisory concerns/ lapses in the Company’s risk management and compliance with this direction to be directed by the Monetary Board to be disclosed to the public.

j. The external auditor’s certification of the compliance with the Act and rules and directions issued by the Monetary Board in the annual corporate governance reports published after January 1, 2011.

Complied withThe Company has engaged the services of the external auditors to assess the company’s level of compliance with the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board.


Section No.

Rules of the Colombo Stock Exchange The Company’s Level of compliance

7.10 Corporate Governance

7.10 Statement confirming that as at the date of the annual report that the Company is in compliance with these rules.

The Company’s compliance with the listing rules of the Colombo Stock Exchange is explained below.

7.10.1 Non-Executive DirectorsThe Board of Directors of a listed entity shall include at least : two non-executive directors; or such number of non-executive directors equivalent to one third of the total number of directors whichever is higher

Complied withThe Board comprises 8 directors of whom all are non executive directors

7.10.2 Independent DirectorsWhere the constitution of the Board of Directors includes only two non-executive directors in terms of 7.10.1, both such non-executive directors shall be independent. In all other instances two or 1/3rd of the non-executive directors appointed to the Board, whichever is higher shall be independent.

Complied withThe Board comprises 2 independent directors.

7.10.3-4 Directors disclosuresAnnual determination as to the independence or non-independence of each non-executive director

Will be complied withThe relevant declaration, as prescribed by the Colombo Stock Exchange were called for from each director after the end of the financial year.

Please refer directors profiles on pages 8 to 11

7.10.5 Remuneration CommitteeShall comprise of a minimum of two independent non- executive directors or of non-executive directors a majority of whom shall be independent, which ever shall be higher

Will be complied withThe Remuneration Committee comprises 2 non-executive directors. S Abed and I C Nanayakkara

Please refer the committee report on page 62.

7.10.6 Audit CommitteeShall comprise of a minimum of two independent non- executive directors or of non-executive directors a majority of whom shall be independent, which ever shall be higher

Will be complied withAfter the Financial year the committee was re-constituted and now comprises:

S N Kairy - Non-Executive director

R D Tissera - Non-Executive director

S A H Uddin – Independent director

Please refer committee report on page 61.



Attendance at Board Meetings

Date of the Meeting 05.04.2013 23.05.2013 08.07.2013 12.09.2013 27.11.2013 25.02.2014 19.03.2014

Director Classification

M. A. (Rumee) Ali*1 Non-Executive Chairman

√ √ - √

I. C. Nanayakkara*1 Non-Executive Director

√ √ √ √

S. N. Kairy*1 Non-Executive Director

√ √ √ √

W. D. K. Jayawardena*1 Non-Executive Director

√ √ √ √

S. B. Abed*1 Non-Executive Director

√ √ √ √

R. D. Tissera*1 Non-Executive Director

√ √ √ √

S. Ahmad*1 Independent Director

√*3 √ √ √*3

S. A. H. Uddin*1 Independent Director

√ √ √ √*3

Dr. S P Jayawardane*2 Non-Executive Chairman

√ √ -

Mr. L A Mallawarachchi*2 Managing Director

√ √ √

Mrs. G P Mallawarachchi*2 Executive Director

√ √ √

Mrs. C Mallawarachchi*2 Executive Director

√ √ √

Mr. J O M Gamage*2 Independent Director

√ √ -

Mr. K L J N Perera*2 Independent Director

√ √ √

*1 appointed w.e.f. 29th August 2013 *2 resigned w.e.f. 29th August 2013 *3 via teleconference


Attendance at Audit Committee Meetings

Date of the Meeting 27.11.2013 19.03.2014


R. D. Tissera (appointed w.e.f. 12th September 2013)

Non-Executive Director√ √

S. A. H. Uddin (appointed w.e.f. 12th September 2013)

Independent Director√ √

S. Ahmad (appointed Chairman w.e.f 16th July 2014)

Committee Chairman, Independent Director

√ -

S. N. Kairy (appointed Chairman on 12th September 2013 and resigned as Chairman on 16th July 2014)

Committee Chairman, Non-Executive Director √ √

Attendance at Remuneration Committee Meetings

Date of the Meeting 27.11.2013


S. A. H. Uddin (appointed Chairman on 16th July 2014)

Committee Chairman, Independent Director -

I. C. Nanayakkara (appointed on 12th September 2013)

Non-Executive Director √

S. B. Abed (appointed Chairman on 12th September 2013 and resigned as Chairman on 16th July 2014)

Committee Chairman,

Non-Executive Director√

Attendance at Integrated Risk Management Committee Meetings

Date of the Meeting 27.11.2013


R. D. Tissera*1 Committee Chairman, Non-Executive Director √

S. Ahmad*1 Independent Director -

S. N. Kairy*1 Non-Executive Director √

*1 appointed w.e.f. 12th September 2013)



REPORT OF THE DIRECTORS

Following the acquisition of the Company by the BRAC Group and the LOLC Group, the Board has sought to build on the Company‘s strengths. Steps were taken to expand the branch network, and also enhance both the lending and deposit mobilization portfolio. Processes and procedures are also being reviewed and amended, thereby facilitating improvements in both performance and conformance.

The Board of Directors The Board of Directors is as follows :

M A (Rumee) Ali (Chairman) - Non-Executive Director

S N Kairy - Non-Executive Director

S B Abed - Non-Executive Director

I C Nanayakkara - Non-Executive Director

W D K Jayawardena - Non-Executive Director

R D Tissera - Non-Executive Director

S A H Uddin - Independent Director

S Ahmad - Independent Director

The Directors profiles can be found on pages 8 to 11 Lists of other companies on which they serve as directors are given on pages 57 to 59.

Directors’ interests in contracts The Directors have made the declarations required by the Companies Act No. 7 of 2007 . These have been noted by the Board, recorded in the Minutes and entered into the Interest Register which is maintained by the Company.

Directors’ remuneration The New Directors did not receive any remuneration for the year under review. The Report of the Remuneration Committee is on page 62.

Directors shareholdings 2014 2013

M A (Rumee) Ali (Chairman) Nil Nil

S N Kairy Nil Nil

S B Abed Nil Nil

I C Nanayakkara Nil Nil

W D K Jayawardena Nil Nil

R D Tissera Nil Nil

S A H Uddin Nil Nil

S Ahmad Nil Nil

Shareholding structure Following the Rights Issues last year, the Company has 105, 752,566 shares in issue. The shareholding structure is given on pages 98 to 99, together with the 20 largest shareholders. During the year, the share price ranged from Rs. 5.40 to Rs. 9.00. As at the end of trading on 31st March, 2014, the share price was Rs. 7.50/-

Compliance with laws and regulations Following the acquisition, the new Board of Directors is continuously reviewing and improving compliance. The Company is compliant with the Listing Rules of the Colombo Stock Exchange, including the rules relating to Corporate Governance.

Financial Statements The Financial statements together with the notes are thereon, found on pages 67 to 97, are in compliance with Sri Lanka Accounting Standards and the requirements of the Companies Act No. 7 of 2007.

Significant accounting policies The significant accounting policies adopted when preparing these financial statements and any changes thereof if applicable are given on pages 71 to 81.


Statutory Payments For the year under review, all known statutory payments have been made and all retirement gratuities have been provided for. Further, all management fees and payments to related parties for the year under review have been reflected in the accounts. Details are given in Note no 8 on page 83.

Going concern The Directors have reviewed the interim financials and the year-end financials, reports on operations for the year and projections for the coming year. Based on information received, the Directors are of the opinion that the Company is in a position to continue its operations in the foreseeable future. Accordingly, the Financial Statements are prepared on the basis that the Company is a going concern

Directors’ responsibility for financial reporting The Directors statement on responsibility for financial reporting is on page 63.

Auditors

The Auditors, M/s KPMG retire and offer themselves for re-appointment. The Board recommends their re-appointment for the year 2014/2015 at a fee to be decided upon by the Board.

The fees paid to the auditors are disclosed in the notes to the Accounts on page 83.

As far as the Directors are aware, the Auditors do not have any other relationship with the Company or any of its subsidiaries nor do they have any interest in contracts with the Company or any of its subsidiaries.

The Report of the Auditors is given on page 66.


Post Balance Sheet Events

Financial sector consolidation In accordance with the Central Bank’s direction on financial sector consolidation, the Company is in discussion with other financial sector companies, with a view to an amalgamation.

Amendments to the Articles Having obtained the approval of the Central Bank of Sri Lanka, the Board is now recommending to the shareholders that the Company’s Articles of Association be amended to better reflect the dynamic environment in which finance companies operate, as listed and regulated companies. The proposed new Articles conform to statutory and regulatory requirements.

Notice of MeetingThe notice of Meeting is found on page 101. If you are unable to be present, please complete and return the Form of Proxy.

On behalf of the board of DirectorsBRAC Lanka Finance PLC

Mr. M A (Rumee) Ali Chairman

Ms. Chrishanthi Emmanuel Director - LOLC Corporate Services (Pvt) Ltd Secretaries


Directors’ Declarations

Name Directorships held

M. A. (Rumee) Ali Chairman:BRAC Impact Ventures Limited

BRAC Environment Enterprise Ltd

BRAC EPL Investments Ltd

BRAC EPL Stock Brokerage Limited

bKash Ltd

BRAC Sajaan Exchange Ltd

BRAC Lanka Finance PLC

Vice Chairman:Bangladesh Association of BRAC

Director: BRAC Bank Ltd

Delta BRAC Housing Finance Corporation Ltd

Advisor:Enterprise and Investment – BRAC Bangladesh

I. C. Nanayakkara Chairman:Commercial Leasing & Finance PLC

Brown & Company PLC

LOLC Micro Credit Limited

Browns Investments PLC

Deputy Chairman:Lanka ORIX Leasing Company PLC

Lanka ORIX Finance PLC

Seylan Bank PLC

Director:PRASAC Microfinance Institute

Sierra Constructions Limited

Agstar Fertilizers PLC


LOLC Myanmar Microfinance Co. Ltd

FLC Holdings PLC

Associated Battery Manufacturers (Ceylon) Ltd

Lanka Centuary Investments PLC



S. N. Kairy Director:BRAC Bank Limited

BRAC IT Services Limited

BRAC Impact Ventures Limited

BRAC Environmental Enterprises Ltd

BRAC Karnafuli Tea Company Ltd

BRAC Kaiyachera Tea Company Ltd

BRAC Banskhali Tea Company Ltd

BRAC Kodala Tea Compant Limited

BRAC Lanka (Guarantee) Ltd

BRAC Lanka Investment (Private) Limited

Stichting BRAC International, Inc (Philippines)


Mr W. D. K. Jayawardena Chairman:LOLC Insurance Company Limited

LOLC Securities Ltd

United Dendro Energy (Private) Limited

Lanka ORIX Finance PLC

Eden Hotels Lanka PLC

LOLC Life Insurance Limited

LOLC General Insurance Limited

Palm Garden Hotels PLC

Speed Italia (Pvt) Limited

Managing Director/ Group CEO:Lanka ORIX Leasing Company PLC

Director:LOLC Micro Credit Limited

Commercial Leasing & Finance PLC

Brown & Company PLC

Browns Investments PLC

Riverina Resorts (Pvt) Ltd


Seylan Bank PLC




S. B. Abed Director:bKash Limited

Delta BRAC Housing Finance Corporation Ltd

BRAC Tanzania Finance Ltd

BRAC Uganda

BRAC Uganda Microfinance Company Ltd

BRAC Microfinance (SL) Ltd

BRAC Myanmar Microfinance Company Ltd


R. D. Tissera Director:Sundaya Lanka (Pvt) Ltd

LOLC Micro Credit Ltd

LOLC Micro Investments Ltd

LOLC Myanmar Microfinance Co Ltd


S. Ahmad Founder/Owner:RAS Capital

Director:Apex Investments Limited

Guardian Life Insurance Limited

Apex Hotels Limited


S. A. H. Uddin Director:A B Bank Limited

AB Exchange (UK) Limited

Millennium Aviation Limited

Managewell Holdings Limited

Managewell Investmets Limited

Managewell Communications Limited

Managewell Services Limited

Managewell Media Limited

Hyundai Auto Mobiles Bangladesh Limited

Forwardair Aviation (Pvt) Ltd



DIRECTOR’S STATEMENT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

ResponsibilityIn line with the Finance Companies Direction No. 03 of 2008 section 10(2)(b) , the Board of Directors present this report on Internal Control over Financial Reporting.

The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company and this process includes the system of Internal Control over Financial Reporting. The process is regularly reviewed by the Board. The Board is of the view that the system of Internal Control over Financial Reporting in place is sound and adequate to provide reasonable assurance regarding the reliability of Financial Reporting, and that the preparation of Financial Statements for external purposes is in accordance with relevant accounting principles and regulatory requirements. The management assists the Board in the implementation of the Board’s policies and procedures pertaining to Internal Control over Financial Reporting. The management is continuously in the process of enhancing the documentation of the system of Internal Control over Financial Reporting. In assessing the Internal Control System over Financial Reporting, identified officers of the Company collated all procedures and controls that are connected with significant accounts and disclosures of the Financial Statements of the Company. These in turn are being observed and checked by the Internal Auditor of the Company for suitability of design and effectiveness on an on-going basis.

ConfirmationBased on the above processes, the Board confirms that the Financial Reporting System of the Company has been designed to provide reasonable assurance regarding the reliability of Financial Reporting and the preparation of Financial Statements for external purposes and has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.

External Auditors CertificationThe External Auditors have submitted a certification on the process adapted by the Directors on the system of internal controls over financial reporting.

By order of the BoardBRAC Lanka Finance PLC




REPORT OF THE AUDIT COMMITTEE

The Committee was re-constituted during the year, to include S. N. Kairy (Non-Executive Director), R. D. Tissera (Non-Executive Director) and S. A. H. Uddin (Committee Chairman, Independent Director) as Committee Members. In July the Committee again changed. The Committee now comprises the following:

S. Ahmad (Committee Chairman) - Independent Director

S. A. H. Uddin - Independent Director

R. D. Tissera - Non-Executive Director

At its first meeting, the Committee approved Terms of Reference. These Terms of Reference detailed the scope

of the Committee, and facilitate the role the Committee needs to play in ensuring compliance with directives of the Central Bank of Sri Lanka, and also of Accounting Standards and other regulations.

An annual agenda, which would ensure that significant issues are addressed, was also agreed upon.

Mr. S. Ahmad Chairman - Audit Committee

REPORT OF THE INTEGRATED RISK MANAGEMENT COMMITTEE

The Committee was re-constituted during the year, and now comprises the following:

Mr. Ravi Tissera (Committee Chairman) - Non-Executive Director

Mr. Narayan Kairy - Non-Executive Director

Mr. Sameer Ahmad - Independent Director

Mr. Abedur Sikder - Chief Executive Officer

Mr. Upul Suraweera - The General Manager

At its first meeting, the Committee approved Terms of Reference, which included the scope of the Committee.

Mr. Ravi Tissera Chairman - Integrated Risk Management Committee


REPORT OF THE REMUNERATION COMMITTEE

The Committee was re-constituted during the year, to include Mr. S. B. Abed (Committee Chairman, Non-Executive Director) and Mr. I. C. Nanayakkara (Non-Executive Director) as Committee Members. In July, the Committee again changed. The Committee now comprises the following:

S. A. H. Uddin (Committee Chairman) - Independent Director

I. C. Nanayakkara - Non-Executive Director

S. B. Abed - Non-Executive Director

The Committee drafted a Remuneration Policy relating to employees, including the CEO and Executive Directors. The policy recognizes the need for remuneration to be

competitive in the market, to attract, motivate and retain human resources and to encourage and reward high levels of performance and achievement of corporate goals and objectives.

The Committee also reviewed remuneration proposals submitted, and made its recommendation to the Board.

Mr. S. A. H. Uddin Chairman - Remuneration Committee


DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

The Directors confirm that the Company’s financial statements for the year to 31st March, 2014 have been prepared and presented in conformity with the requirements of the Sri Lanka Accounting Standards, the Regulations and Directions of the Central Bank of Sri Lanka, the Listing Rules of the Colombo Stock Exchange, the Finance Business Act No. 42 of 2011 and the Companies Act No. 7 of 2007. They are therefore of the view that these financial statements present a true and fair view of the state of the affairs of the Company for the above mentioned financial year.

The Directors accept responsibility for the integrity and accuracy of the Financial Statements presented, and confirm that appropriate accounting policies have been selected and applied consistently, and reasonable and prudent judgment has been exercised so as to accurately report transactions.

The Directors confirm that to the best of their knowledge, all statutory payments due in respect of the Company as at the balance sheet date have been paid for, or where relevant, provided for.

M/s KPMG, the Auditors, were provided with the opportunity to make appropriate inspections of financial records, connected documentation and minutes of directors’ and shareholders’ meetings to enable them to form an opinion of the Financial Statements. The Report of the Auditors is on page 66.

By Order of the BoardBRAC Lanka Finance PLC




FINANCIAL REPORTS



INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS OF BRAC LANKA FINANCE PLCReport on the Financial StatementsWe have audited the accompanying Financial Statements of BRAC Lanka Finance PLC, which comprise the Statement of Financial Position as at 31st March 2014, and the Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flow for the year then ended, and a summary of Significant Accounting Policies and other Explanatory notes set out on pages 67 to 97 of the annual report.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these Financial Statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the Financial Statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall Financial Statement presentation.

We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

OpinionIn our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31st March 2014 and the Financial Statements give a true and fair view of the financial position of the company as at 31st March 2014 and its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory RequirementsThese Financial Statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007.

CHARTERED ACCOUNTANTS

27th May 2014Colombo.


STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31ST MARCH 2014 2013 Restated Note Rs. Rs.

Interest Income 4 96,630,493 68,878,504 Interest Expense 5 (20,328,870) (11,494,220)Net Interest Income 76,301,623 57,384,284 Change in Fair Value of Investment Property 1,507,808 3,849,898 Other Income 6 10,392,565 10,573,773 88,201,996 71,807,955 Operating ExpensesStaff Cost (26,673,589) (15,833,062)General & Administration Expenses (23,858,522) (13,565,909)Depreciation and Amortization (4,634,790) (5,341,682)Premises, Equipment and Establishment Expenses (6,254,241) (6,632,073) (61,421,142) (41,372,726)Profit from operations before loan loss provision & tax 26,780,854 30,435,229 (Provision) / Reversal for Losses on Loans and Inventory 7 (5,009,542) 1,029,286 Profit Before Tax 8 21,771,312 31,464,515 Income Tax Expense 9 (7,854,953) (2,934,004)Profit for the Year 13,916,359 28,530,511

Other Comprehensive IncomeRetirement benefit plan actuarial gains/ (losses) (938,165) 313,200 Revaluation gain on Property, plant and equipment net of tax 1,271,330 1,850,473 Total Comprehensive Income for the year 14,249,524 30,694,184

Earnings per share (Rs) 10 0.14 0.28

The accounting policies and explanatory notes form an integral part of these financial statements.

Figures in brackets indicate deductions.


STATEMENT OF FINANCIAL POSITIONAS AT 31ST MARCH 2014 2013 Restated Note Rs. Rs.

ASSETSCash and Cash Equivalents - 3 months renewable 11 90,961,055 38,548,526 Fixed Deposits with Bank 12 396,358,574 - Investment in Government Securities - less than 3 months 13 14,796,665 5,210,741 Investment Securities - unquoted 14 211,000 211,000 Receivable on Hire-Purchase 15 106,136,939 153,639,556 Receivable on Lease 16 71,741,189 48,622,160 Receivable on Secured Loans and Microfinance 17 908,737,176 86,675,376 Other Receivables 18 6,686,489 4,222,255 Deposits and Prepayments 1,471,190 1,677,223 Income Tax Receivable - 2,515,008 Inventory 19 13,256,155 2,242,222 Property, Plant and Equipment 20 99,855,538 84,827,594 Intangible Assets 21 1,072,834 1,145,338 Investment Property 22 236,291,712 238,987,604 Total Assets 1,947,576,516 668,524,603

EQUITY AND LIABILITIESLiabilitiesBank Overdraft 11 49,868,105 - Deposits from Customers 23 111,660,087 97,641,296 Interest Bearing Loans and Borrowings 24 667,218,582 1,880,386 Trade Payables 25 481,988,829Accrued Charges and Other Payables 26 19,034,751 18,508,393 Microfinance Fund Account 2,583,200 - Income Tax Payable 1,819,076 - Retirement Benefit Obligations 27 6,745,767 4,423,733 Deferred Tax Liabilities 28 18,230,163 17,214,887 Total Liability 1,359,148,560 139,668,695

EquityStated Capital 29 171,180,454 125,857,930 Capital Reserves 135,714,017 133,746,869 Revenue Reserves 281,533,485 269,251,109 Total Equity 588,427,956 528,855,908 Total Equity and Liabilities 1,947,576,516 668,524,603

The Accounting Policies and Notes form an integral part of these Financial Statements.

These financial statements are prepared in accordance with the requirement of the Companies Act No 07 of 2007.

H. T. P. Sushantha A. R. SikderChief Financial Officer Chief Executive Officer

The Board of Directors are responsible for the preparation and presentation of these financial statements.Approved and signed for and on behalf of the Board of BRAC Lanka Finance PLC.

M A (Rumee) Ali R. D. Tissera Chairman Director

27th May 2014Colombo.


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31ST MARCH 2014 Capital Reserves Revenue Reserves

Stated Reserve Revaluation General Retained Total

Capital Fund Reserve Reserve Earnings

Restated

Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 1st April 2012 125,857,930 45,500,000 74,396,396 44,300,000 210,688,334 500,742,660

Effect on restatements - - - - 4,469,235 -

Restated balance as at 1st April 2012 125,857,930 45,500,000 74,396,396 44,300,000 215,157,569 505,211,895

Revaluation gain on Property, plant and equipment

net of tax - - 1,850,473 - - 1,850,473

Transfer to Reserve Fund - 12,000,000 - 12,000,000 (24,000,000) -

Profit for the Year - - - - 28,530,511 28,530,511

Retirement benefit plan actuarial gains/ (losses) - - - - 313,200 313,200

Dividend - 2011/12 - - - - (7,050,171) (7,050,171)

Restated balance as at 31st March 2013 125,857,930 57,500,000 76,246,869 56,300,000 212,951,109 528,855,908

Revaluation gain on Property, plant and equipment

net of tax - - 1,271,330 - - 1,271,330

Transfer to Reserve Fund - 695,818 - - (695,818) -

Right Issue 45,322,524 - - - - 45,322,524

Profit for the Year - - - - 13,916,359 13,916,359

Retirement benefit plan actuarial gains/ (losses) - - - - (938,165) (938,165)

Balance as at 31st March 2014 171,180,454 58,195,818 77,518,199 56,300,000 225,233,485 588,427,956

The accounting policies and explanatory notes form an integral part of these financial statements.

Figures in brackets indicate deductions.


CASH FLOW STATEMENTFOR THE YEAR ENDED 31ST MARCH 2014 2013 Rs. Rs.

Cash Flows from Operating ActivitiesInterest Receipts 100,896,204 73,560,797 Interest Payments (20,328,870) (11,286,555)Receipts from Other Operating Activities 10,392,565 8,897,053 Gratuity Paid (134,418) - Cash Payments to Employees and Suppliers (67,806,120) (37,543,999) 23,019,361 33,627,296`

Changes in Operating AssetsShort Term Funds (Net) (822,061,800) (505,631)Funds Advanced to Secured Loan Customers - Net 24,383,588 (2,172,039)Others 475,089,058 (32,250,585) (322,589,154) (34,928,255)Changes in Operating LiabilitiesNet Security Deposits Received/(Refunded) to Customers 14,018,792 40,403,500 Finance Creditors - - 14,018,792 40,403,500

Income Tax Paid (3,000,000) (6,408,652)Net Cash Inflow/ (Outflow) from Operating Activities (288,551,001) 32,693,889

Cash Flows from Investing ActivitiesProceeds from Disposal Property, Plant and Equipment - 2,992,857 Purchase of Property, Plant and Equipment (13,620,795) (445,317)Purchase of Intangible Asset - (93,872)Net Cash used in Investing Activities (13,620,795) 2,453,668

Cash Flows from Financing ActivitiesShare Issue 45,322,524 - Investments in Treasury Bills (9,585,924) - Term Loan Received 666,253,245 - Term Loan Rentals Paid (915,049) (2,017,336)Dividend Paid - (7,050,171)Net Cash Inflow/ (Outflow) from Financing Activities 701,074,796 (9,067,507)

Net Change in Cash and Cash Equivalents 398,902,999 26,080,050 Cash and Cash Equivalents at the beginning of the year 38,548,526 12,468,476 Cash and Cash Equivalents at the end of year 437,451,524 38,548,526

Note: AReconciliation of Cash and Cash EquivalentsFixed Deposit 396,358,574 13,437,041 Cash in Hand and Cash at Bank 41,092,950 25,111,485 437,451,524 38,548,526


NOTES TO THE FINANCIAL STATEMENTS1 REPORTING ENTITY

1.1 General BRAC Lanka Finance PLC (Formaly Known as Nanda

Investments and Finance PLC) is a limited liability Company incorporate domiciled in Sri Lanka, under the Companies Act No. 07 of 2007. The Registered Office of the Company is situated at No.25 C. W.W Kannagara Mawatha, Colombo 07.

1.2 Principal Activities and Nature of Operations. The principal line of business of Company consist

of lease finance, hire purchase, secured loans, Microfinance and property mortgaged loans.

2 BASIS OF PREPARATION

2.1 Statement of Compliance The Financial Statements of the Company comprise

the Statements of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flows together with the Accounting Policies and Notes to the Financial Statements.

These Financial Statements have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS) as issued by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and with the requirements of the Companies Act No. 07 of 2007.

2.2 Date of authorization for issue. The Financial Statements of BRAC Lanka Finance

PLC for the period ended 31st March 2014 were authorized for issue by the Board of Directors on 27th May 2014.

2.3 Responsibility for Financial Statements The Board of Directors is responsible for the

preparation and presentation of the Financial Statements of the Company in accordance with the provisions of the Companies Act No. 07 of 2007 and Sri Lanka Accounting Standards.

2.4 Basis of Measurement The Financial Statements have been prepared on

historical cost basis except for the following material items in the Statement of Financial Position.

• Employee Benefit Liability recognized based on actuarial valuation (LKAS - 19)

• Investment Property measured at fair value.

• Land and Building measured at fair value.

2.5 Functional and Presentation Currency The Financial Statements are presented in Sri Lankan

Rupees which is the Company’s functional currency.

2.6 Significant Accounting Judgments, Estimates and Assumptions

The preparation of the financial statements in conformity with Sri Lanka Accounting Standards (SLFRS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the result of which form the basis of making the judgment about carrying values of assets and liabilities that are not readily apparent from the other sources.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes:

• Note - 27 – Measurement of deferred tax liability.

• Note - 26 – Employee Benefit.

3 Significant Accounting Policies The accounting policies set out below have been

applied consistently to all the periods presented in these Financial Statements and have been applied consistently by the Company, unless otherwise stated.

The directors have made an assessment of the Company’s ability to continue as a going concern in the foreseeable future and is satisfied that it has the resources to continue in business for the foreseeable future and they do not foresee a need for liquidation or cessation of business. Therefore, the Financial Statements continue to be prepared on the going concern basis.


3.1 Foreign Currency Translation In preparing the Financial Statements of the

individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded in the functional currencies using the exchange rates prevailing at the dates of the transactions.

At each reporting date, monetary items denominated in foreign currencies are translated at the closing rate. Non-monetary items measured at fair value are translated at the rates prevailing on the date when the fair value was determined Non-monetary items measured at historical cost are translated at the rates prevailing on the date of transaction.

Exchange differences arising on the settlement of monetary items and on the translation of monetary items are included in profit or loss for the period.

Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period except for the differences which are recognized in other comprehensive income.

3.2 Financial Instrument

3.2.1.1 Finance Assets

3.2.1.2 Initial Recognition and Measurement Financial assets within the scope of LKAS 39 are

classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. The Company determines the classification of its financial assets at initial recognition.

All financial assets are recognized initially at fair value plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs.

The Company’s financial assets include cash and short term deposits, trade and other receivables and loans and receivables.

3.3.1.2 Subsequent Measurement The subsequent measurement of financial assets

depends on their classification as follows:

3.3.1.2.1 Financial assets at fair value through profit or loss

A financial asset at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the Statement of Financial Position at fair value with changes in fair value recognized in finance income or finance costs in the Statement of Comprehensive Income.

3.3.1.2.2 Loans and receivables Loans and receivables are non-derivative financial

assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the Statement of Comprehensive Income. The losses arising from impairment are recognized in the Statement of Comprehensive Income in finance costs.

Loans and receivables held by the Company comprise of trade receivables, amounts due from related parties, deposits, advances and other receivables and cash and cash equivalents.

3.3.1.2.3 Held-to-maturity investments Non-derivative financial assets with fixed or

determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the

NOTES TO THE FINANCIAL STATEMENTS


Statement of Comprehensive Income. The losses arising from impairment are recognized in the Statement of Comprehensive income in finance costs.

3.3.1.2.4 Available-for-sale financial investments Available-for-sale financial investments include

equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the available-for-sale reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the Statement of Comprehensive Income in finance costs and removed from the available-for-sale reserve. Interest income on available-for-sale debt securities is calculated using the effective interest method and is recognized in profit or loss.

3.3.1.3 De –recognition A financial asset (or, where applicable a part of

a financial asset or part of a Company of similar financial assets) is derecognized when:

• The rights to receive cash flows from the asset have expired

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

3.3.2 Financial Liabilities

3.3.2.1 Initial Recognition and Measurement Financial liabilities within the scope of LKAS 39 are

classified as financial liabilities at fair value through profit or loss or loans and borrowings, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognized initially at fair value plus, in the case of loans and borrowings, transaction costs that are directly attributable to the acquisition or issue of such financial liability.

The Company’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings.

3.3.2.2 Subsequent Measurement

3.3.2.2.1 Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on liabilities held for trading are recognized in the Statement of Comprehensive Income.

The Company has not designated any financial liabilities upon initial recognition as at fair value through profit or loss.

3.3.2.2.2 Loans and borrowings After initial recognition, interest bearing loans

and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the Statement of Comprehensive Income when the liabilities are derecognized as well as through the effective interest rate method (EIR) amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance costs in the Statement of Comprehensive Income.


3.3.2.3 De-recognition A financial liability is derecognized when the

obligation under the liability is discharged or cancelled or expires.

3.3.2.4 Offsetting of Financial Instruments Financial assets and financial liabilities are offset

and the net amount reported in the Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

3.3.3 Amortized Cost Measurement The amortized cost of a financial asset or liability is

the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments and any impairment and plus/minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.

3.3.4 Fair Value Measurement Fair value is the amount for which an asset could

be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date.

The fair value of financial instruments that are traded in an active market at each reporting date is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market.

Transactions reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.

3.4 Impairment

3.4.1 Impairment of Non-derivative Financial Assets Financial assets other than those measured at fair

value are assessed for indicators of impairment at

the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash from the asset has been affected.

The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a Company of financial assets is impaired. A financial asset or a Company of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that loss event had an impact on the estimated future cash flows of the financial asset or the Company of financial assets that can be reliably estimated.

3.4.2 Impairment Losses on Financial Assets carried at Amortized Cost

Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate.

Impairment losses are recognized in profit or loss and reflected in an allowance account against loans and advances. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

3.4.3 Impairment Losses on Available-for-Sale Financial Assets

Impairment losses on available-for-sale investment securities are recognized by transferring the cumulative loss that has been recognized in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortization, and the current fair value, less any impairment loss previously recognized in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income.



If, in a subsequent period, the fair value of an impaired available for- sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income.

3.4.4 Impairment of Non-Financial Assets The carrying amount of the Company’s non-financial

assets other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is an indication of impairment. If any such indication exists or when annual impairment testing for an asset is required, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value, less costs to sell, an appropriate valuation model is used.

An impairment loss is recognized if the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit and loss. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

3.5 Cash and Cash Equivalents Cash and cash equivalents comprise cash in hand,

demand deposits and short-term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand and deposits in banks net of outstanding bank overdrafts. Investments with short maturities, i.e. three months or less from the date of acquisition are also treated as cash equivalent.

3.6 Property, Plant & Equipment Property, plant and equipment are tangible items

that are held for use in the production or supply of goods or services or for administrative purposes and are expected to be used during more than one period.

3.6.1 Cost and Valuations(a) Cost Model

The Company applies the Cost Model to all plant and equipment which comprises the cost of purchase together with any incidental expenses thereon less accumulated depreciation and any accumulated impairment losses.

(b) Revaluation Model The company applies the Revaluation Model for the

entire class of freehold land and buildings. Such properties are carried at a revalued amount, being the fair value at the date of revaluation less any subsequent accumulated depreciation on buildings and any accumulated impairment losses charged subsequent to the date of valuation.

Revaluation is made with sufficient regularity to ensure that their carrying amount does not differ materially from their fair value as at the Balance Sheet date. On revaluation of an asset, any increase in the carrying amount is credited directly to equity, under Revaluation Reserve or used to reverse a previous loss on revaluation of the same asset, which was debited to the income statement. In this circumstance, the increase is recognized as income only.

to the extent of the previous written down. Any decrease in the carrying amount is recognized as an expense in the income Statement or debited directly to revaluation reserve under equity only to the extent of any credit balance existing in that reserve in respect of that asset. Any balance remaining in the revaluation surplus in respect of an asset, is transferred directly to Retained Earnings on retirement or disposal of the asset.

3.6.2 Subsequent Costs Expenditure incurred to replace a component of

an item of property, plant and equipment that is accounted for separately, is capitalized with the carrying amount of the component being written off. Other subsequent expenditure is capitalized only when it increases the future economic benefits


embodied in the item of property, plant and equipment. All other expenditure is recognized in the income statement as an expense as incurred.

Expenditure incurred for the purpose of acquiring, extending or improving assets of a permanent nature by means of which to carry on the business or to increase the earning capacity of the business has been treated as capital expenditure.

3.6.3 Depreciation Depreciation is recognized in profit and loss on a

straight line basis over the estimated useful lives of each part of an item of property, plant and equipment except for freehold buildings. Freehold buildings are depreciated using a reducing balance method. Assets held under finance lease are depreciated over the shorter of the lease term and their useful lives of equivalent owned assets. Freehold land is not depreciated.

The estimated useful lives are as follows:

Buildings 10 years

Furniture and Fittings 10 years

Office Equipment 10 years

Motor Vehicles 04 years

Plant and Machinery 03 years

Depreciation of an asset commences when the asset is available for use and ceases at the earlier of the date in which the asset is derecognized and held for sale. Methods of depreciation, useful lives and residual values are reviewed at each reporting date and adjusted prospectively if appropriate, as changes in accounting estimates.

3.6.4 Gains and losses on disposal Gains and losses on disposal of an item of property,

plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized net within “other income/other expenses” in profit or loss.

3.6.5 De-recognition The carrying amount of an item of Property, Plant

& Equipment is derecognized on disposal or when no future economic benefits are expected from

its use or disposal. The gain or loss arising from the de-recognition of an item of Property, Plant & Equipment is included in profit or loss when the item is derecognized. When replacement costs are recognized in the carrying amount of an item of Property, Plant and Equipment, the remaining carrying amount of the replaced part is derecognized. Major inspection costs are capitalized. At each such capitalization, the remaining carrying amount of the previous cost of inspections is derecognized.

3.7 Leased Assets Assets funded through finance leases are stated at

an amount equal to the lower of its fair value and the present value of minimum lease payments at the inception, less accumulated depreciation and the resulting lease obligations are included in creditors net of finance charges. Lease payments consisting of capital and interest elements are charged to Income statement. Assets held under finance lease are amortized over the estimated useful lives unless ownership is not transferred at the end of the lease period. In such case the assets are amortized over the shorter of lease term or their useful lives.

3.8 Investment Property Investment property is property held either to

earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of the business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at fair value. Formal valuations are carried out annually by a qualified valuer and any change therein recognized in profit or loss.

Investment Properties are derecognized when disposed of, or permanently withdrawn from use because no future economic benefits are expected. Any gains or losses arising from retirement or disposal are recognized in the income statement in the year of retirement of disposal.

When the use of the property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

3.9 Intangible Assets An intangible asset is recognized if it is probable

that future economic benefits will flow to the entity and the cost of the asset can be measured



reliably in accordance with LKAS 38 on Intangible Assets. Intangible assets with finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses.

3.9.1 Software All computer software cost incurred, which are

not internally related to associate hardware, which can be clearly identified, reliably measured and its probable that they will lead to future economic benefits, are included in the Statement of Financial Position under the category of intangible assets.

3.9.1.1 Subsequent Expenditure Expenditure incurred on software is capitalized

only when it increases the future economic benefits embodied in the specific assets to which it relates. All other expenditure is recognized in the income statement as incurred.

Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. Amortization expense on intangible assets with finite lives is recognized in profit or loss on a straight-line basis over the estimated useful lives, from the date they are available for use.

The estimated useful lives of intangible assets with finite lives are as follows:

The Class of Intangible Assets Useful Life

Computer Software 20 years

3.10 Inventories Inventories are measured at the lower of cost and

net realizable value after making due allowances for obsolete & slow moving items. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale

3.11 Stated Capital Ordinary shares are classified as equity. Incremental

costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects

3.12 Provisions Provisions are recognized when the Company has

a present legal or constructive obligation as a result of a past event, that can be measured reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

3.13 Capital Commitments and Contingencies Capital commitments and contingent liabilities of

the Company are disclosed in the respective Notes to the Financial Statement unless the outflow of resource is remote.

3.14 Employee benefits

3.14.1 Short-term employee benefits Short term employee benefit obligations are

measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

3.14.2 Defined Benefit plans The liability recognized in the Statement of Financial

Position is the present value of the Defined Benefit Obligation at the reporting date, with the advice of an actuary. The Company’s obligation in respect of Defined Benefit Pension Plans is calculated annually using the Projected Unit Credit (PUC) Method as recommended by LKAS 19 – Employee Benefits. Actuarial gains or losses arising are recognized in other comprehensive income in the period in which they arise. Past service costs are recognized immediately in the Statement of Comprehensive Income.


The provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19 – ‘Employee Benefits’. However, under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.

3.14.3 Defined Contribution Plan A defined contribution plan is a post-employment

benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.

3.14.4 Employees’ Provident Fund The Company and employees contribute 15% and

10% respectively of the employee’s monthly gross salary (excluding overtime) to the Provident Fund. The Company’s Provident Fund is an approved fund under the Employees’ Provident Fund Act.

3.14.5 Employees’ Trust Fund The Company contributes 3% of the salary of each

employee to the Employees’ Trust Fund. The total amount recognized as an expense to the Company for contribution to ETF is disclosed in the notes to Financial Statements.

3.15 STATEMENT OF COMPREHENSIVE INCOME

3.15.1 Revenue Recognition Revenue is recognized to the extent that it is

probable that the economic benefits will flow to the Company and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and turnover taxes. The following specific criteria are used for the purpose of recognition of revenue.

3.15.1.1 Hire Purchase, Lease and Loans & Advances The excess of aggregated contract receivables

over the cost of the hired assets constitutes the total unearned income at the commencement of a contract. The unearned income is recognized as

revenue as it is earned, using the effective interest rate method.

(a) Interest

Interest income and expense are recognized in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial assets or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial instruments, but not future credit losses.

The calculation of the effective interest rate includes all transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

Interest income and expense presented in the statement of comprehensive income includes:

• Interest on financial assets and financial liabilities measured at amortized cost calculated on an effective interest basis;

• Interest on available-for-sale investment securities calculated on an effective interest basis;

(b) Fees and commission

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Other fees and commission income, including account servicing fees, are recognized as the related services are performed.

Other fees and commission expense relate mainly to transactions and service fees, which are expensed as the services are received.

(c) Dividends Dividend income is recognized when the right to

receive income is established.

(d) Others Other income is recognized on an accrual basis.



3.15.2 Expenditure Recognition Expenses are recognized in profit or loss on the basis

of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the Property, Plant & Equipment in a state of efficiency has been charged to income in arriving at the (loss) for the period.

3.15.2.1 Finance Lease Minimum lease payments made under finance

leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

3.15.2.2 Taxation Income tax expense comprises both current and

deferred tax. Income tax expense is recognized in profit and loss, except to the extent that it relates to items recognized directly in equity, or in other comprehensive income.

a) Current Taxes The current tax is the expected tax payable on

the taxable income for the period, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.

b) Deferred Taxation Deferred tax is recognized in respect of temporary

differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on tax laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognized for unused tax losses and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. The carrying amount of deferred tax assets is reviewed at each reporting date and is reduced to the extent that it is no longer probable that the related tax benefit will be realized.

3.15.2.3 Borrowing Costs. Borrowing costs are recognized as an expense in

the period in which they are incurred.

3.15.2.4 Events after the Reporting Period All material events after the reporting date have

been considered and where necessary adjustments made in these Financial Statements.

3.15.2.5 Earnings per Share The company presents basic Earnings per Share

(EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted number of ordinary shares outstanding during the period.

3.15.3 Cash Flow Statement The cash flow statement has been prepared using

the direct method. For the purpose of cash flow statement, cash and cash equivalents consists of cash in hand, and Fixed Deposits.

3.16 New Accounting Standards Issued But Not Yet Effective

Standard issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. This listing is of standards issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they become effective.

a) SLFRS 9 – Financial Instruments SLFRS 9 as issued reflects the replacement of LKAS

39 and applies to the classification and measurement of financial assets and financial liabilities as defined in LKAS 39. This standard becomes effective for annual periods beginning on or after January 01, 2015. The adoption of SLFRS 9 will have an impact on classification and measurement of Company’s financial assets.


b) SLFRS 10 – Consolidated Financial Statements SLFRS 10 replaces the portion of LKAS 27

Consolidated and Separate Financial Statements that address the accounting for Consolidated Financial Statements. SLFRS 10 establishes a single control model that applies to all entities including special purposes entities. The changes introduced by SLFRS 10 will require management to exercise significant judgment to determine which entitles are controlled and therefore are required to be consolidated by the parent. This standard becomes effective for annual periods beginning on or after January 01, 2014.

c) SLFRS 11 – Joint Agreements SLFRS 11 replaces LKAS 31 Interest in Joint Ventures

and removes the option to account jointly control entities using proportionate consolidation. Under the new standards joint ventures must be accounted for using the equity method. This standard becomes effective for annual periods beginning on or after January 01, 2014.

d) SLFRS 12 – Disclosure of interest in other entities SLFRS 12 includes all of the disclosures that were

previously in LKAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in LKAS 31 and LKAS 28. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after January 01, 2014.

e) SLFRS 13 – Fair Value Measurement SLFRS 13 establishes a single source of guidance

under SLFRS for all fair value measurements. SLFRS 13 does not state when an entity is required use fair value, but provides guidance on how to measure fair value under SLFRS when fair value is required or permitted. This standard becomes effective for annual period beginning on or after January 01, 2014.

3.17 Financial Risk Management

3.17.1 Financial Risk Management Overview The Company has exposure to the following risks

from its use of financial instruments:

• Credit risk• Liquidity risk• Market risk• Interest rate• Operational risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk and the Company’s management of capital. Further quantitative disclosures are included throughout these Financial Statements.

3.17.2 Risk Management Framework The Board of Directors has overall responsibility for

the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits.

Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Board of Directors oversees how management monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company’s Directors are assisted in their oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Company’s Directors.

a) Credit Risk Credit risk is the risk of financial loss to the

Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s trade and other receivables.

Treasury Bills The Company invests not less than 7.5% of the

Public Deposits in Treasury Bills to comply with the Central Bank of Sri Lanka Direction No. 1 of 2009.

Loans and advances to Customers The Company’s exposure to credit risk relates to

sale of products on installment credit/hire purchase which is an integral part of the business of the Company.

The Company’s exposure to credit risk on instalment credit/ hire purchase contracts is influenced mainly by the individual characteristics of each customer. The demographics of the Company’s customer



base, including the default risk of the country in which customers reside, has a lesser influence on credit risk. Geographically, there is no concentration of credit risk. Goods are sold, subject to collateral undertakings so that in the event of non-payment, the Company can have a secured claim.

The Company assesses the impairment of Loans and Advances to customers on a collective basis. In assessing collective impairment the Company uses historical trends of the probability of default, timing of recoveries and the amount of losses incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical data. Default rates, loss rates and expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.

b) Liquidity Risk Liquidity risk is the risk that the Company will not be

able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

c) Market Risk Market risk is the risk that changes in market prices,

such as foreign exchange rates, Government Duties and interest rates will affect the Company’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

d) Interest Rate Risk The Company manages interest rate risk on

borrowings by using a combination of fixed and floating interest rates.

e) Operational Risk Operational risk is the risk of direct or indirect loss

arising from a wide variety of causes associated with the Company’s processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements

and generally accepted standards of corporate behaviour. Operational risks arise from operations of the company.

The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management of the company. This responsibility is supported by the development of company standards for the management of operational risk in the following areas:

• Requirements for appropriate segregation of duties, including the independent authorization of transactions.

• Requirements for the reconciliation and monitoring of transactions.

• Compliance with regulatory and other legal requirements.

• Documentation of controls and procedures

• Requirements for the periodic assessment of operational risks faced and the adequacy of controls and procedures to address the risks identified.

• Requirements for the reporting of operational losses and proposed remedial action.

• Development of contingency plans.

• Training and professional development.

• Ethical and business standards.

• Risk mitigation, including insurance where this is effective

Compliance with Company standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate Senior Management of the company and the Board of Directors.



FOR THE YEAR ENDED 31ST MARCH 2014 2013 Rs. Rs.

4 Interest Income Hire Purchase Interest Income 35,031,823 36,404,244 Leasing Interest Income 16,726,365 8,648,419 Secured Loans Interest Income 20,468,583 18,265,196 Overdue Rentals and Finance Charges 11,697,813 9,014,750 Interest Income on Government Securities and Deposits with Banks (Note 4.1) 5,121,737 1,228,188 Interest on Microfinance Group Loans 11,849,883 - Gross Interest 100,896,204 73,560,797 Less : VAT on Financial Services (4,201,334) (4,682,293) Nation Building Tax (64,377) - Net Interest 96,630,493 68,878,504

4.1 Notional Credit for Withholding Tax on Government Securities on Secondary Market Transactions Section 137 of the Inland Revenue Act No. 10 of 2006 provides that a Company which derives interest income from

the secondary market transactions in Government securities be entitled to a notional tax credit (being one ninth of the net interest income), provided such interest income forms part of the statutory income of the Company for that year of assessment.

5 Interest Expense Interest on Customer Deposits 14,523,536 11,073,595 Interest on Borrowings 2,934,647 420,625 Interest on Related Party Loans 2,870,687 - 20,328,870 11,494,220

6 Other Income Rent Income 8,874,507 7,301,238 Dividend Received 19,800 19,800 Sundry Income 586,394 159,445 Profit on Sale of Property Plant and Equipment - 1,656,920 Commissions Received on Insurance 306,645 412,951 Profit on sale of Threewheel Stock 10,830 550,756 Exchange Gain 65,000 - Creditors Written back 529,389 472,663 10,392,565 10,573,773

7 (Provision) / Reversal for Losses on Loans and Inventory Impairment Provision/(Reversal) for Hire Purchase Rental Receivable 1,112,338 (2,541,787) Impairment Provision/(Reversal) for Lease Rental Receivable 719,941 499,424 Impairment Provision/(Reversal) for Loan Rental Receivable (1,351,233) 1,013,077 Provision made for Re-possessed Assets 5,594,269 - Provision Reversal on Sale of Re- Possessed Assets (1,065,773) - 5,009,542 (1,029,286)



8 Profit from operations before loan loss provision & tax is stated after charging all the expenses including the following. Directors’ Emoluments 726,742 1,736,133 Directors’ Fees 127,500 405,000 Legal Expenses 345,987 783,810 Secretarial Fees 407,318 252,538 Auditors’ Remuneration - Statutory Audit 400,000 350,000 Donations 25,000 86,600 Staff Related Cost; Salaries, Wages and Bonus 23,729,961 11,532,978 Defined Contribution Plan Cost -EPF/ETF 2,278,980 1,406,869 Defined Benefit Plan Cost - Retiring gratuity 1,518,287 752,081 VAT on Financial Services (Note 8.1) 4,201,334 4,682,293

8.1 The value base for Value Added Tax for the Company is the adjusted accounting profit before tax and emoluments paid to employees. The adjustment to the accounting profit before tax is for economic depreciation computed on prescribed rates, instead of the rates adopted in the financial statements. The tax rate of 20% commencing from 1st January 2006 was decreased to 12% from 1st January 2011.

9 Income Tax Expense9.1 Tax on Profit for the Year 7,520,816 3,077,513 (Over) / Under Provision in Respect of Previous Year (186,733) (4,613,669) Deferred Tax Expense (Note 27) 520,870 4,470,161 Total Income Tax Expense 7,854,953 2,934,004

9.2 Reconciliation of Accounting Profit and Taxable Income Accounting profit 21,771,312 31,464,515 Less:- Non - Business Income (18,253,973) (13,746,305) 3,517,339 17,718,210 Aggregate Disallowed Items 16,309,420 16,365,285 Aggregate Allowable Items (6,050,586) (7,415,555) Taxable Business Profit 13,776,173 26,667,940 Non Business Income 13,083,885 4,107,185 Taxable Income 26,860,058 30,775,126

Income Tax @ 28% (Tax Rate for 2012/2013 was 10%) 7,520,816 3,077,513 7,520,816 3,077,513

The provision for income tax is based on the elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act No.10 of 2006 and subsequent amendments thereto. In terms of the section 59B of the Inland Revenue Act No. 10 of 2006 newly introduced by the Inland Revenue (Amendment) Act No. 22 of 2011, the Company is liable for income tax at 10% on its taxable income for any year of assessment commencing on or after April 1, 2011 on the basis that its annual turnover does not exceed Rs. 300 Mn. However this will not be applicable for a group of company. As such for the year of assessment 2013/2014 this concession will not be applicable for the company since it is a group of company from 26th June 2013.



9.3 Reconciliation of Tax Loss from Leasing Business Loss Brought Forward - 2,101,780 Loss during the year - - Set-off against current tax expense - (2,101,780) Loss Carried Forward - -

10 Basic Earnings per Share The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders for the year divided

by the weighted average number of ordinary shares outstanding during the year and is calculated as follows,

Profit Attributable to the Ordinary Shareholders for the year (Rs.) 13,916,359 28,530,511 Weighted Average number of Ordinary Shares outstanding during the year 101,958,443 100,716,730 Basic Earnings per Share (Rs.) 0.14 0.28

10.1 Calculation of Weighted Average Number of Ordinary Shares Weighted average number of ordinary shares at the beginning of the year 100,716,730 100,716,730 Effect of the right issue 1,241,713 - Weighted average number of ordinary shares at the ending of the year 101,958,443 100,716,730

AS AT 31ST MARCH

11 Cash and Cash Equivalents - 3 months renewable Favourable Balance Fixed deposits with bank - 13,437,041 Cash at bank 40,592,002 25,041,485 Cash in hand 369,053 70,000 Cash in Transit 50,000,000 90,961,055 38,548,526 Unfavourable Balance Bank Overdraft (49,868,105) - Cash and cash equivalents for the purpose of Statement of Cash Flow 41,092,950 38,548,526

12 Fixed Deposits with Bank Fixed Deposits - BOC 4,168,574 - USD Fixed Deposit at - HNB 130,730,000 - Commercial Bank USD F/D 130,730,000 - Seylan Bank USD F/D 130,730,000 - 396,358,574 -

13 Investment in Government Securities Treasury Bills - Face Value 14,942,833 5,254,483 Less: Interest in Suspense (146,168) (43,742) 14,796,665 5,210,741



AS AT 31ST MARCH 2014 2013 Rs. Rs.

14 Investment Securities - Unquoted 110 Shares of Rs.100/- each in Credit Investment Bureau of Sri Lanka 11,000 11,000 20,000 Shares of Rs.10/- each in Finance Houses Consortium (Pvt) Ltd. 200,000 200,000 211,000 211,000

14.1 Non-Performing Investments Included in the above 20,000 Shares of Rs.10/- each in Finance Houses Consortium (Pvt) Ltd. 200,000 200,000 200,000 200,000

15 Receivable on Hire-Purchase15.1 Future Rentals Receivable Rentals Receivable 128,629,477 201,475,114 Less : Un-earned Finance Income (31,882,629) (55,932,685) 96,746,848 145,542,429

15.2 Overdue rental receivable Hire Purchase Debtors 16,115,135 13,709,833 (Less) Provision for Impairment (6,725,044) (5,612,706) 9,390,091 8,097,127 Total Receivable 106,136,939 153,639,556

16 Receivable on Lease16.1 Future Rentals Receivable Rentals Receivable 96,063,857 69,580,598 Less : Un-earned Finance Income (27,917,895) (21,820,892) 68,145,962 47,759,706

16.2 Overdue rental receivable Lease Debtors 4,814,591 1,361,877 (Less) Provision for Impairment (1,219,364) (499,423) 3,595,227 862,454 Total Receivable 71,741,189 48,622,160



17 Receivable on Secured Loans Future Rentals Receivable 207,865,358 117,295,560 Secured Loan Debtors 14,860,710 7,188,722 Loans Secured by Fixed Deposits 258,081 440,000 Microfinance Group Loans 736,945,328 - Less : Un-earned Finance Income (48,015,113) (33,720,485) Provision for Impairment (3,177,188) (4,528,421) 908,737,176 86,675,376

18 Other Receivables Value Added Tax Recoverable 1,858,337 1,683,139 Notional Tax Receivable - 64,377 Shop Rent Receivable 3,332,159 2,126,816 Interest Receivable on Fixed Deposits 1,430,853 226,923 Others 65,140 121,000 6,686,489 4,222,255

19 Inventory Re-Possessed Assets 18,892,071 4,415,413 Less: Provision for decrease in value (5,635,916) (2,173,191) 13,256,155 2,242,222

20 Property, Plant and Equipment20.1 Cost/ Valuation Balance Additions Surplus on Disposals Balance as at during Revaluation Transfer as at 1-Apr-13 the year During 31-Mar-14 the year Rs. Rs. Rs. Rs. Rs.

Land 61,031,780 - - - 61,031,780 Buildings 16,980,616 - 492,192 4,203,700 21,676,508 Motor Vehicles - Freehold 8,786,446 2,736,000 - - 11,522,446 Furniture and Fittings 4,203,118 4,006,575 - - 8,209,693 Office Equipments 5,044,156 6,878,220 - - 11,922,376 Plant and Machinery 2,186,033 - - - 2,186,033 Total Cost 98,232,149 13,620,795 492,192 4,203,700 116,548,836



AS AT 31ST MARCH

20.2 Accumulated Depreciation Balance Charge Surplus on Disposals Balance as at for the Revaluation Transfer as at 1-Apr-13 year During 31-Mar-14 the year Rs. Rs. Rs. Rs. Rs.

Buildings - 1,815,457 (1,273,544) - 541,913 Motor Vehicles - Freehold 6,654,625 1,458,362 - - 8,112,987 Furniture and Fittings 2,201,773 446,580 - - 2,648,353 Office Equipments 2,794,539 614,726 - - 3,409,265 Plant and Machinery 1,753,618 227,162 - - 1,980,780 Total Accumulated Depreciation 13,404,555 4,562,287 (1,273,544) - 16,693,298

Written Down Value 84,827,594 99,855,538

20.3 The land and building were valued as at 31st December 2013 by Mr. N.M. Jayatilake, Incorporated valuer. The surplus on revaluation was incorporated in the financial statements from its effective date which is 31st December 2013. Such assets were valued on an open market value for existing use basis, the surplus arising from the revaluation was transferred to the revaluation reserve.

Method of Valuation Valuer Revalued Market Company Properties Valuation as at Amount Value Rs. Rs.

Building constructed on land at Contractor’s 31-Dec-13 Mr. N.M. 82,708,288 82,708,288 No: 25, Dr. C.W.W. Kannangara Mawatha, Test Jayatilake

Colombo 7.

20.4 The cost of the fully depriciated assets as at reporting date is as follows.

2014 2013 Rs. Rs.

Motor Vehicles 5,740,000 3,994,445 Furniture and Fittings 1,297,771 1,149,157 Office Equipments 1,662,165 1,662,165 Plant and Machinery 1,504,547 1,504,547 Total 10,204,483 8,310,314

21 Intangible Assets - Computer Software Cost/Valuation Balance at the beginning of the year 1,595,445 1,501,573 Add: Additions during the year - 93,872 Balance at the end of the year 1,595,445 1,595,445

Accumulated Amortization Balance at the beginning of the year 450,107 281,156 Amortization for the year 72,504 168,951 Balance at the end of the year 522,611 450,107 Written Down Value 1,072,834 1,145,338



22 Investment Property Fair Value at the beginning of the year 238,987,604 235,137,706 Change in Fair Value during the year 1,507,808 3,849,898 Transfer to property, plant and equipment (4,203,700) Fair Value at the end of the year 236,291,712 238,987,604

22.1 In accordance with the Sri Lanka Accounting Standard (LKAS) 40 - Investment Property, the commercial property of the Company was classified as Investment Property.

22.2 With effect from 1st of January 2014 part of the Investment property (662 Sq feet at a rate of Rs. 6350/- per Sq feet) has been reclassified as Property plant and equipment based on the fair value of the date of reclassification.

22.3 In order to adopt the Fair Value model on Investment Property, Land and Building related to Investment Property was valued by Mr. N.M. Jayatilake, an Incorporated Valuer & a registered member of the Institute of Valuers of Sri Lanka, as at 31st December 2013. Such assets were valued on an open market value for existing use basis, the surplus arising from the revaluation amounting to Rs. 1,507,808/- (2013 March - Rs. 3,849,898/-) was transferred to the Statement of Comprehensive Income as gain on change in Fair Value of Investment Property.

22.4 In the opinion of the Directors of the Company the Fair Value of Investment Property as at 31st March 2014 amounted to Rs. 236,291,712/- (2013 March - Rs. 238,987,604/-).

22.5 The company earned rental income of Rs. 8,874,507/- (2012/13 - Rs.7,301,238/-) during the financial year by renting out the Building and Land. Direct cost incurred during the year is Rs. 667,760/-. ( 2012/13 Rs. 549,628/-)

2014 2013 Rs. Rs. Restated

23 Deposits from Customers Fixed Deposits 105,476,750 88,287,900 Add: Interest accrued 6,183,337 9,353,396 111,660,087 97,641,296

24 Interest Bearing Loans and Borrowings Balance at the beginning of the year 1,880,386 3,897,724 Add: Loans obtained during the year (24.3) 666,253,245 - 668,133,631 3,897,724 Less: Loans repaid during the year (915,049) (2,017,338) Balance at the end of the year 667,218,582 1,880,386

24.1 Payable within One Year Gross Loan Obligation 131,751,670 2,301,608 Less: Interest in Suspense (25,223,088) (421,222) Net Loan Obligation 106,528,582 1,880,386

24.2 Payable After One Year Gross Loan Obligation 584,749,500 - Less: Interest in Suspense (24,059,500) - Net Loan Obligation 560,690,000 - Total Net Obligation 667,218,582 1,880,386



AS AT 31ST MARCH 201424.3 Company has entered into a loan agreement with Seylan Bank PLC to borrow Rs.100,000,000/- at a rate of 9.5% per

annum to be settled within 12 months. The loan was secured through a Fixed deposit bearing number CGD/14/448503 amounting to USD 1,000,000/-.

Company has entered into loan agreements with Hatton National Bank to borrow Rs. 57,600,000/-, Rs. 6,400,000/- and Rs. 54,500,000/- at the rates of 12%,12.5% and 10.5% per annum respectively to be settled in 2 years .The loans are secured through Fixed deposits bearing number 076921014570 and 076921014563 total amounting to USD 1,000,000/-.

Company has entered into a loan agreement with Commercial Bank to borrow 130,000,000/- at a rates of 9.75% , 10.25% and 11% in year -1 ,year -2 and year - 3 per annum respectively and to be settled within three years as bullet payment being the first instalment of said loan company received Rs. 50,000,000/- as at 31/3/2014. The Loan was secured through a Fixed Deposit bearing number 3010003033 amounting to USD 1,000,000/-.

24.4 Company has entered into a Loan Agreement with BRAC International BV under External Commercial Borrowing Scheme (ECBS) to borrow USD 7,000,000/- and an amount of USD 3,000,000/- has been received up to 31/03/2014 at a rate of 7% per annum.

2014 2013 Rs. Rs.

25 Trade Payables BRAC Lanka (Guarantee ) Limited 481,988,829 -

25.1 During the current financial year, BRAC Lanka (Guarantee) Limited, customers with facilities amounting to Rs 732,148,869/- have approached BRAC Lanka Finance PLC for new facilities and the Company has settled Rs. 250,160,040/- to BRAC Lanka (Guarantee) Limited on request of their Customers. Balance amounting to Rs.481,988,829/- is payable as at 31st March 2014.

2014 2013 Rs. Rs.

26 Accrued Charges and Other Payables Accrued Expenses 3,510,065 936,234 Rent Received in Advance 3,751,392 3,907,914 Hire Purchase Rentals Received in Advance 1,159,166 292,916 Tax Payable 822,407 1,467,384 VAT Payable on Financial services 656,527 347,935 Payable to Software Vendor 266,100 266,100 Professional Fee Payable 595,121 350,000 Other Payables 4,087,843 759,910 Payable to suppliers 3,687,681 10,180,000 Withholding Tax payable 498,449 - 19,034,751 18,508,393


AS AT 31ST MARCH 2014

2014 2013 Rs. Rs.

27 Retirement Benefit Obligation Balance as at 1st of April 2013 4,423,733 3,984,852 Provision made during the year 2,456,452 438,881 Benefit paid by the plan (134,418) - Balance at the end of the year 6,745,767 4,423,733

The amount recognized in the Statement of Financial Position are as follows Present value of unfunded obligation - - Recognised liability for defined benefit obligation 6,745,767 4,423,733 6,745,767 4,423,733

Movement in the present value of the defined benefit Obligation Balance as at 1 st April 4,423,733 3,984,852 Current Service Cost 1,075,914 353,596 Interest Cost 442,373 398,485 Actuarial (Gains)/ Losses 938,165 (313,200) 6,880,185 4,423,733 Benefit paid by the plan (134,418) - Liability for Defined benefit obligation as at 31st March 6,745,767 4,423,733

Expense recognized in Statement of Comprehensive Income Current service cost 1,075,914 353,596 Interest cost 442,373 398,485 1,518,287 752,081

Expense recognized in Statement of Other Comprehensive Income Unrecognized net (gains) / Losses 938,165 (313,200) 938,165 (313,200)

The actuarial valuation was carried out by a professionally qualified actuary of Actuarial and Management Consultants (Pvt) Ltd for retirement gratuity for employees as at 31st March 2014.

2014 2013 (i) Discount Rate (per annum) : 10% 11.0% (ii) Rate of Salary Increase (per annum) : 10% 10.0% (iii) Age of Retirement (years) 60 60 (iv) Staff Turnover Factor (per annum) (%) : 0% 0%




28 Deferred Tax Liability Deferred Tax is provided using the Liability Method, for temporary differences between the carrying amounts of assets

and liabilities for financial reporting purposes and the amounts used for taxation purposes at the rate of 28%.

2014 2013 Restated Rs. Rs.

Balance at the Beginning of the Year 17,214,887 12,025,097 Deferred Tax on revaluation 494,406 719,629 Origination/ (Reversal) during the year 520,870 4,470,161 Balance at the End of the Year 18,230,163 17,214,887

Deferred Tax Liability as at the year end is made up as follows, 2014 2013 Temporary Tax Effect on Temporary Tax Effect on Difference Temporary Difference Temporary Difference Difference

On Property, Plant & Equipment 5,828,798 1,632,063 (213,297) (59,723) On Leased Assets 6,820,272 1,909,676 7,505,233 2,101,465 On Investment Property 49,191,424 13,773,599 52,019,384 14,565,428 On revalued Building 21,134,595 5,917,687 16,980,616 4,754,572 On Retirement Gratuity Obligation (6,745,767) (1,888,815) (4,423,733) (1,238,645) General Provisions on impairment (11,121,596) (3,114,047) (10,386,464) (2,908,210) 65,107,726 18,230,163 61,481,739 17,214,887

2014 2013 Rs. Rs.

29 Stated Capital Balance at the beginning of the year (100,716,730 no. of Ordinary Shares) 125,857,930 125,857,930 Issue of shares during the year (5.035,836 number of Ordinary shares) 45,322,524 - Balance at the end of the year (105,752,566 no. of Ordinary Shares) 171,180,454 125,857,930

29.1 According to ordinary resolution adopted at an Extra Ordinary General Meeting held on 27th November 2013 company has issued 5,035,836 shares through a right issue for a consideration of Rs. 45,322,524/-.

30 Reserve fund The reserve fund is maintained in compliance with Direction No. 1 of 2003 Central Bank of Sri Lanka (Capital Funds) issued

to finance Companies.



31 Segment Reporting Rs. For the year ended 31st March 2014 Finance Hire Term Loan Unallocated Total Lease Purchase

Revenue 16,726,365 35,031,823 32,318,466 23,598,186 107,674,840 Investment Income 5,121,737 5,121,737 16,726,365 35,031,823 32,318,466 28,719,923 112,796,577 Percentage 15% 31% 29% 25% 100%

Expenditure Interest Expenses 3,014,525 6,313,643 5,824,626 5,176,075 20,328,870 Depreciation - - - 4,634,790 4,634,790 Unallocated Expenses 61,795,895 61,795,895 Total Expenses 3,014,525 6,313,643 5,824,626 71,606,760 86,759,554 Profit Before Taxation 13,711,840 28,718,179 26,493,840 (42,886,837) 26,037,023 VAT on Financial Institution (4,265,711) Profit on Ordinary Activities before Income Tax 21,771,312 Income Tax on Profit on Ordinary Activities 7,854,953 Profit After Income Tax 13,916,359

Rs. For the year ended 31st March 2013 Finance Hire Term Loan Unallocated Total Lease Purchase

Revenue 8,648,419 36,404,244 18,265,196 23,438,421 86,756,280 Investment Income 1,228,188 1,228,188 8,648,419 36,404,244 18,265,196 24,666,609 87,984,468 Percentage 10% 41% 21% 28% 100%

Expenditure Interest Expenses 1,129,822 4,755,821 2,386,151 3,222,426 11,494,220 Depreciation - - - 5,341,682 5,341,682 Unallocated Expenses - - - 35,001,759 35,001,759 Total Expenses 1,129,822 4,755,821 2,386,151 43,565,867 51,837,661 Profit Before Taxation 7,518,596 31,648,423 15,879,045 (18,899,258) 36,146,807 VAT on Financial Institution (4,682,293) Profit on Ordinary Activities Before Tax 31,464,514 Income Tax on Profit on Ordinary Activities (2,934,004) Profit After Tax 28,530,511

32 Capital Commitments On 12th September 2013, the Board of Directors has approved the purchase and implementation of the software,

sbiCloud, for the Microfinance business, amounting to USD 151,210. However as at the reporting date the Company has not entered in to agreement with vendor other than that there are no material capital commitments which have been approved or contracted for as at the date of Statement of Financial Position.

33 Contingent Liabilities There are no material contingent liabilities which would require adjustments to or disclosures in the Financial Statements.




34 Events Occurring After The Reporting Period No circumstance have arisen since the Balance Sheet date which would require adjustments to or disclosure in the financial

statements.

35 Related Party Disclosures Transactions with Key Management Personnel According to Sri Lanka Accounting Standard (LKAS) 24 ‘Related Party Disclosures’, key management personnel are those

having authority and responsibility for planning, directing and controlling the activities of the entity and their close family members. Accordingly, the Board of Directors (including Executive and Non-Executive) and their close family members have been identified as key management personnel of the Company. Independent transaction with Key Management Personnel, and any transactions with their close family members are disclosed as follows,

(i) Loans to Directors No loans have been given to the Directors of the company.

(ii) Key Management Personnel Compensation The following are the details of Key Management Personnel compensation.

2014 2013 Rs. Rs.

Directors Emoluments Salary 726,742 1,916,133 Directors Fees 127,500 322,500

Transactions with Directors or Close Family Members Deposits kept by Directors - 8,212,000 Deposits kept by Directors’ close family members - 15,524,950

(iii) Other Transactions with Key Management Personnel Deposit kept by close family members of key Managers 4,750,000 -

(iv) Transactions with Related Parties

Name of the Company Names of Directors Nature of Amount and Relationship Transaction 2014 2013

BRAC International BV Sir. Fazle Hasan Abed Loan Received 395,060,688 - Dr. Mahabub Hossain Ms. Susan Davis Ms. Sylvia Borren M/s. Orangefield Trust

(Netherlands) B.V.

BRAC Lanka (Guarantee) Limited Sir Fazle Hasan Abed Microfinance Loans introduce 732,148,869 Dr. Mahabub Hossain Settlement (250,160,040) Mr. Muhammad A Rumee Ali Loan Granted 79,000,000 - Mr. Faruque Ahmad Mr. S.N Kairy Mr. Tanwir Rahman

Seylan Bank PLC Mr. W. D. K. Jayawardena Loan Received 100,000,000 Mr. I. C. Nanayakkara



36 Maturity of Assets and Liabilities An analysis of the total assets employed and total liabilities as at the year end, based on the remaining period at the

Balance Sheet date to the respective contractual maturity dates are given below.

Less than 3 - 12 1 - 3 Over 3 Months Months Years 3 Years Total Rs. Rs. Rs. Rs. Rs.

Assets Cash and Cash Equivalents 90,961,055 - - - 90,961,055 Fixed Deposits 4,168,574 - 392,190,000 - 396,358,574 Investment in Government Securities 14,796,665 - - - 14,796,665 Investment Securities - unquoted - - - 211,000 211,000 Rental Receivable on Hire-Purchase 96,746,848 6,299,954 851,671 2,238,466 106,136,939 Rentals Receivable on Lease 68,145,962 2,487,275 1,107,952 - 71,741,189 Rentals Receivable on Secured Loans 80,850,245 5,343,443 83,245,589 2,094,490 171,533,767 Loans against Fixed Deposits 258,081 - - - 258,081 Microfinance Group Loans 368,472,664 368,472,664 - - 736,945,328 Other Receivables - 3,332,159 3,354,330 - 6,686,489 Deposits and Prepayments - 1,471,190 - - 1,471,190 Inventory - 13,256,155 - - 13,256,155 Property, Plant and Equipment - - - 99,855,538 99,855,538 Intangible Assets - - - 1,072,834 1,072,834 Investment Property - - - 236,291,712 236,291,712 724,400,094 400,662,840 480,749,542 341,764,040 1,947,576,517

Liabilities Bank Overdraft 49,868,105 - - - 49,868,105 Deposits from Customers 6,570,837 86,156,200 17,673,050 1,260,000 111,660,087 Interest Bearing Loans and Borrowings - 272,157,894 395,060,688 - 667,218,582 Accrued Charges and Other Payables 1,977,626 3,751,392 1,159,166 12,146,567 19,034,751 Retirement Benefit Obligations - - 6,745,767 - 6,745,767 Deferred Tax Liabilities - - - 18,230,163 18,230,163 Microfinance Fund Account - - 2,583,200 2,583,200 Trade Payables 481,988,829 - - - 481,988,829 Income Tax Payable - 1,819,076 - - 1,819,076 540,405,397 363,884,561 420,638,671 34,219,930 1,359,148,560



AS AT 31ST MARCH 201437 Financial Instruments37.1 Credit Risk Sector wise analysis of Company’s Loan portfolio reflecting the exposure to credit risk in the various sectors of the economy

is depicted below.

2014 2013 Rs. Rs.

Transport 349,669,976 288,937,092 Individual 736,945,328 - 1,086,615,304 288,937,092

Financial Instruments - Available for Sale Non Quoted Credit Information Bureau of Sri Lanka 11,000 11,000 The Finance House Association 200,000 200,000 211,000 211,000

37.2 Credit Risk Exposure to Credit Risk Carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the

reporting date was

Loans and advances receivables by customers 1,086,615,304 288,937,092 1,086,615,304 288,937,092

37.3 Liquidity Risk The following are contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting

agreement

31st March 2014 Carrying Contractual 6 months 6 - 12 1 - 2 2 - 5 Non -Derivative Financial Liabilities Amount cash flows or less Months years years

Secured Bank Loans 667,218,582 795,990,382 31,037,829 128,167,141 164,512,800 472,272,612 Accrued Charges and Other Payables 19,034,751 19,034,751 - - - - Other Financial liabilities due to customers 111,660,087 111,660,087 - - - - Trade payables 481,988,829 481,988,829 - - - - Bank Overdraft 49,868,105 49,868,105 - - - - 1,329,770,354 1,458,542,154 31,037,829 128,167,141 164,512,800 472,272,612

31st March 2013 Secured Bank Loans 1,880,386 2,303,062 816,395 405,455 1,081,212 - Accrued Charges and Other Payables 18,508,393 18,508,393 - - - - Other Financial liabilities due to customers 97,641,296 97,641,296 - - - - 118,030,075 118,452,750 816,395 405,455 1,081,212 -

Interest Rate Risk Profile At the reporting date, the interest profile of the Company interest bearing financial instrument was

2014 2013 Rs. Rs.

Fixed Rate Instruments Financial Assets 1,497,770,543 332,907,359 Financial Liabilities 777,913,332 97,641,296 2,275,683,875 430,548,655

Variable Rate Instruments Financial Assets - - Financial Liabilities 965,337 1,880,386 965,337 1,880,386


AS AT 31ST MARCH 201437.4 Fair Value Fair Value Versus carrying Amounts The fair value of financial assets and liabilities, together with the carrying amounts in the Statement of Financial position,

are as follows.

Company Loans and Other Financial Total Carrying Fair Value 31st March 2014 Receivables Liabilities Amount Rs. Rs. Rs. Rs.

Secured Bank Loans - 667,218,582 667,218,582 667,218,582 Rental Receivable on Hire-Purchase 106,136,939 - 106,136,939 106,136,939 Rentals Receivable on Lease 71,741,189 - 71,741,189 71,741,189 Rentals Receivable on Secured Loans 908,737,176 - 908,737,176 908,737,176 Accrued Charges and Other Payables - 19,034,751 19,034,751 19,034,751 Fixed Deposit Liability due to Customers - 111,660,087 111,660,087 111,660,087 Trade Payables - 481,988,829 481,988,829 481,988,829 1,086,615,304 1,279,902,249 2,366,517,554 2,366,517,554

Company Loans and Other Financial Total Carrying Fair Value 31st March 2013 Receivables Liabilities Amount Rs. Rs. Rs. Rs.

Secured Bank Loans - 1,880,386 1,880,386 1,880,386 Rental Receivable on Hire-Purchase 153,639,556 - 153,639,556 153,639,556 Rentals Receivable on Lease 48,622,160 - 48,622,160 48,622,160 Rentals Receivable on Secured Loans 86,675,376 - 86,675,376 86,675,376 Accrued Charges and Other Payables - 18,508,393 18,508,393 18,508,393 Fixed Deposit Liability due to Customers - 97,641,296 97,641,296 97,641,296 Bank Overdrafts - - - - 288,937,092 118,030,075 406,967,167 406,967,167

38 Prior Year Adjustments(A) Prior year adjustments has been made in relation to the Fixed deposit Interest expense and Fixed deposit liabilities to

confirm with the current year’s presentation and classifications.

(B) As per LKAS 19 - “Employee Benefits” (Bound Volume - 2011), Finance Companies with less than 100 employees had an option to value its Retirement benefit obligation (RBO) using the ‘Formula Method’.But with the implementation of LKAS 19 “Employee Benefits” (Bound Volume - 2013) this option has been withdrawn. Therefore,company has retrospectively valued the RBO using Project Unit Credit method using an actuarial valuer which has resulting the following RBO & taxation related restatements

(C) Prior year adjustment has been made in relation to the error in computing temporary differences of deferred tax as at 31st March 2013.

Statement of Comprehensive Income For the year ended 31.03.2013 As previously Adjustments As Re-stated reported

Rs. Rs. Rs.

Interest Expense on Fixed Deposit A 12,630,448 (1,556,853) 11,073,595 Retirement Benefit Expense B 616,882 135,199 752,081 Tax Expense B/C 4,838,365 (7,772,370) (2,934,005) Defined benefit plan Actuarial Gain/(Loss) B 414,119 (100,919) 313,200



AS AT 31ST MARCH 2014 Statement of Financial Position As at 31.03.2013 As at 31.03.2012 As previously Adjustments As Re-stated As previously Adjustments As Re-stated reported reported

Rs. Rs. Rs. Rs. Rs. Rs.

Retained Earnings A/B/C 214,933,509 (1,982,400) 212,951,109 210,688,334 4,469,235 215,157,569 Overall impact on total equity 214,933,509 (1,982,400) 212,951,109 210,688,334 4,469,235 215,157,569

Fixed Deposit A 104314714 (6,673,418) 97,641,296 57,642,145 (5,116,565) 52,525,580 Retirement Benefit Obligation B 3,540,285 883,448 4,423,733 3,337,522 647,330 3,984,852 Deferred Tax B/C 9,442,517 7,772,370 17,214,887 - - - Overall impact on total liabilities 117,297,516 1,982,400 119,279,916 60,979,667 (4,469,235) 56,510,432

Prior year adjustment has been made in relation to the error in computing temporary differences of deferred tax as at 31st March 2013.

The effect of this applications has been accounted for retrospectively. Since the adjustments to the statement of financial position as at1st of April 2012 is immaterial, three statement of financial position have not been presented.


01 SHAREHOLDINGS The 20 largest shareholders of the Company as at 31st March were as follows:

Name of Shareholder 2014 2013No. of Shares (%) No. of Shares (%)

1 BRAC Lanka Investments (Private) Limited 62,745,908 59.33 - - 2 LOLC Micro Investments Limited 37,029,733 35.02 - - 3 Mr. W. A. S. P. De Saram 928,035 0.88 368,210 0.37 4 Mrs. S. N. Mayadunne 421,926 0.40 450,000 0.45 5 Mrs. S. P. Wewegama 344,960 0.33 - - 6 Mrs. C. H. Hapangama 344,960 0.33 264,400 0.26 7 Miss. H. D. Mallawarachchi 200,000 0.19 200,000 0.20 8 Mrs. A. Mayadunne 200,000 0.19 200,000 0.20 9 Ms. C. Mallawarachchi 200,000 0.19 - - 10 Mr. P. S. Panduwawala 160,000 0.15 - - 11 Mrs. D. D. Jayawardena 150,000 0.14 650,000 0.65 12 Mr. W. S. D. Lowe 128,500 0.12 - - 13 Commercial Bank of Ceylon PLC/Sithijaya Fund Limited 127,470 0.12 - - 14 Mr. U. G. R. S. H. Dharmasiri 117,240 0.11 - - 15 Mr. G. K. Rajakaruna 110,000 0.10 - 16 Mrs. C. Kalansooriya 100,000 0.09 17 Mr. J. P. Hapangama 94,620 0.09 18 Mr. J. G. D. Jinadasa 90,000 0.09 19 Mr. A. N. Mallawarachchi 85,760 0.08 20 Mrs. M. M. M. Panduwawala 65,820 0.06

103,644,932 98.01 - -OTHERS 2,107,634 1.99 - -TOTAL 105,752,566 100.00 - -

02 PUBLIC HOLDING As at 31st March 2014, 5.65% (2012/2013 – 34.56 %) of the issued ordinary shares were held by the public.

03 ANALYSIS OF SHAREHOLDING AS AT 31ST MARCH

Range2014 2013

No. of Shareholders

No. of Shares % of Shares No. of Shareholders

No. of Shares % of Shares

1 - 1,000 517 173,571 0.16 559 229,091 0.23

1,001 - 10,000 197 688,700 0.65 304 1,073,863 1.06

10,001 - 100,000 52 1,681,563 1.59 91 3,159,729 3.14

100,001 - 1,000,000 13 3,433,091 3.25 24 7,273,930 7.22

Over 1,000,000 - Shares 2 99,775,641 94.35 11 88,980,117 88.35

781 105,752,566 100.00 989 100,716,730 100.00

SHAREHOLDERS’ INFORMATION


04 CATEGORIES OF SHAREHOLDERS

2014 2013

No. of Holders No. of Shares % No. of Holders No. of Shares %

Individuals 761 5,715,313 5.40 964 85,614,971 85.00

Institutions 20 100,037,253 94.60 25 15,101,759 15.00

781 105,752,566 100.00 989 100,716,730 100.00

05 MARKET INFORMATION ON ORDINARY SHARES OF THE COMPANY

As at 31st March 2014 As at 31st March 2013

Market price per share as at the last trading date Rs. 7.50 Rs. 5.80

Highest during the year Rs. 9.00 Rs. 10.50

Lowest during the year Rs. 5.40 Rs. 4.00

Earnings per share Rs. 0.14 Rs. 0.28

Net asset per share Rs. 5.56 Rs. 5.25

06 RELATED PARTY TRANSACTIONS EXCEEDING 10% OF EQUITY AND 5% OF TOTAL ASSETS1. On the 17th of March 2014, the Company obtained

a 3 year loan of USD 2Mn from BRAC International Holdings BV at an interest rate of 7% to expand its Microfinance business operations. BRAC International Holdings BV is the ultimate holding company of BRAC Lanka Finance PLC.

On the 21st March 2014, the Company obtained a loan of Rs 100 Mn from Seylan Bank PLC at an interest rate of 9.5% against the foreign currency received. The foreign currency received has been placed with Seylan Bank as a fixed deposit bearing an interest of 4% to the Company.

The Company engaged in the transaction of obtaining a SLR loan against the USD deposit as a mechanism of hedging against foreign currency exposure.

Mr W.D.K Jayawardena and Mr. I.C. Nanayakkara, who are Directors of the Company are also on the Board of Seylan Bank PLC.

2. On 16th May 2014, the Company obtained a loan of USD 4Mn from BRAC International Holdings BV at an interest rate of 7% for a period of three years to expand its Microfinance business operations. BRAC International Holdings BV is the ultimate holding company of BRAC Lanka Finance PLC.

This borrowing has been made by the Company under its External Commercial Borrowing Scheme.


BRANCH NETWORK

Office Name Office Type Address

Colombo Head office Branch No. 25, C.W.W Kannangara Mawatha, Colombo - 7

Kandy Branch Office No. 83/2/1/1, Aniyawaththa, Kandy.

Kalmunai Branch Office No. 411/02, Main Road, Pandirupu 02, Kalmunai.

Habaraduwa Service Center Dikkumbura Road, Habaraduwa.

Hikkaduwa Service Center No. 144, Baddegama Road, Kirihandigoda, Hikkaduwa.

Beliaththa Service Center No. 25, Matara Road, Beliaththa.

Dikwella Service Center No. 3, Mudiyanselage Waththa, Dikwella, Matara.

Mahara Service Center 415/2, Parakrama Waththa, Kirillawala, Kadawatha.

Dambulla Service Center No. 12, Nissanka Mawatha, Dambulla.

Udapalatha Service Center No. 227/15, 1st Lane, Jayamalapura, Gampola.

Mullipothana Service Center 98/11/R, Galmatiyawa, Thambalagamuwa.

Eravur Town Service Center Forkar Road, Eravur 06.

Lankapura Service Center No. 67, BOP 314, Thambala, Polonnaruwa.

Weliweriya Service Center No. 392/5, Biyagama Road, Weliweriya.


NOTICE IS HEREBY GIVEN THAT THE FIFTY THIRD ANNUAL GENERAL MEETING of the Company will be held on Tuesday, 30th September 2014 at 10.00 a.m. in the Auditorium of Lanka ORIX Leasing Company PLC, 100/1, Sri Jayawardenapura Mawatha, Rajagiriya for the following purposes:

1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March, 2014 with the Report of the Auditors thereon.

2. To re-appoint as auditors KPMG, Chartered Accountants at a remuneration to be agreed by the Directors.

3. To approve by special resolution the amending of the articles by deleting the existing articles and adopting the attached articles instead.

By order of the Board BRAC LANKA FINANCE PLC


27th August 2014 Rajagiriya (in the greater Colombo)

NOTICE OF MEETING

NOTE:1. A member entitled to attend and vote at the Meeting

is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the Company.

2. The completed Form of Proxy should be received by the Company at its Secretariat office, LOLC Corporate Services (Pvt) Ltd, 100/1, Sri Jayawardenapura Mawatha Rajagiriya, not later than 10.00 am on 28th September 2014.

3. A Form of Proxy accompanies this Notice.


NOTES

Annual Report 2013/2014

I/We …………………..……………....……………………..…………………………………………………………………………….

of ...……………..…………………………………………………………………………………………………………………….……

being a member/members of the above named Company hereby appoint …………...…………………………………....

....…………………….…..………………………………………………………………………………………………………………..

of …………………………………………………………………………….................................................................. whom failing;

Muhammad Abdul (Rumee) Ali of Bangladesh or failing him

Ishara Chinthaka Nanayakkara of Colombo or failing him

Shib Narayan Kairy of Bangladesh or failing him

Waduthantri Dharshan Kapila Jayawardena of Colombo or failing him

Shameran Abed of Bangladesh or failing him

Ravindra Dhammika Tissera of Colombo or failing him

Sameer Ahmad of Bangladesh or failing him

Syed Afzal Hassan Uddin of Bangladesh

as my/our proxy to represent me/us and vote on my/our behalf at the Fifty Third Annual General Meeting of the Company to be held on Tuesday, 30th September 2014 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting. For Against

1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March, 2014 with the Report of the Auditors thereon.

2. To re-appoint as auditors KPMG, Chartered Accountants at a remuneration to be fixed by the Directors.

3. To amend the Articles of Association of the Company by adopting the Articles tabled.

dated this …………………. day of ……………………….. 2014

……………………………………… Signature of Shareholder

NOTE:

1. a proxy need not be a member of the company

2. Instruction as to completion appear on the reverse hereof

BRAC LANKA FINANCE PLC FORM OF PROXY


INSTRUCTIONS AS TO COMPLETION

1. Please return the completed Form of Proxy after filling in legibly your full name and address, signing on the space provided and filling in the date of signature.

2. The completed Form of Proxy should be deposited at the Secretariat office of the Company, LOLC Corporate Services (Pvt) Ltd, 100/1 Sri Jayawardenapura Mawatha, Rajagiriya not less than 48 hours before the time appointed for the holding of the Meeting.

Name of CompanyBRAC Lanka Finance PLCDate of Incorporation13th January 1961Legal FormA Public Quoted Company with Limited LiabilityCompany Registration NoPB 263 PQStock Exchange ListingThe Ordinary shares of the Company are listed on the Colombo Stock Exchange of Sri LankaDirectors(appointed w.e.f. 29th August 2013)M. A. (Rumee) Ali - Non-Executive Chairman I. C. Nanayakkara - Non-Executive Director S. N. Kairy - Non-Executive Director W. D. K. Jayawardena - Non-Executive DirectorS. B. Abed - Non-Executive Director R. D. Tissera - Non-Executive DirectorS. Ahmad - Independent Director S. A. H. Uddin - Independent Director(resigned w.e.f. 29th August 2013)Dr. S. P. Jayawardane - Non-Executive Chairman Mr. L. A. Mallawarachchi - Managing Director Mrs. G. P. Mallawarachchi - Executive DirectorMrs. C. Mallawarachchi - Executive DirectorMr. J. O. M. Gamage - Independent DirectorMr. K. L. J. N. Perera - Independent DirectorAudit Committee(appointed on 12th September 2013)R. D. Tissera - Non-Executive DirectorS. A. H. Uddin - Independent Director (appointed Chairman on 16th July 2014)S. Ahmad - Committee Chairman, Independent Director(appointed Chairman on 12th September 2013 and resigned as Chairman on 16th July 2014)S. N. Kairy - Committee Chairman, Non-Executive Director(resigned on 29th August 2013)K. L. J. N. Perera - Committee Chairman, Independent DirectorMr. J. O. M. Gamage - Independent DirectorRemuneration Committee(appointed Chairman on 16th July 2014)S. A. H. Uddin - Committee Chairman, Independent Director

CORPORATE INFORMATION

(appointed on 12th September 2013)I. C. Nanayakkara - Non-Executive Director (appointed Chairman on 12th September 2013 and resigned as Chairman on 16th July 2014)S. B. Abed - Committee Chairman, Non-Executive DirectorIntegrated Risk Management Committee(appointed on 12th September 2013)R. D. Tissera - Committee Chairman, Non-Executive Director S. N. Kairy - Non-Executive Director S. Ahmad - Independent Director A. R. Sikder - Chief Executive Officer U. Suraweera - General Manager Registered OfficeNo. 25, C W W Kannangara Mawatha,Colombo 07, Sri Lanka.Tel : +94 11 2686523-6Fax : +94 11 2698614Company Secretaries(resigned w.e.f. 7th October 2013)Nanayakkara Management Services (Private) Limited No. 1017, Sinharamulla, Kelaniya.(Appointed w.e.f. 7th October 2013 & stepped down w.e.f. 3rd June 2014)Miss Chrishanthi S. Emmanuel, FCIS, FCCS(appointed w.e.f. 3rd June 2014)L O L C Corporate Services (Pvt) LtdAuditorsKPMG Chartered AccountantsLawyersMr. I. W. Gunawardana, Attorney-at-LawNo. 133, St. Sebastian Street, Colombo 12Mr. Priyadarshana B Rajakarunaratne, Attorney-at-LawNo. 75, Kurunduwatta Road, PitakotteRegistrarsSSP Corporate Services (Pvt) Ltd101, Inner Flower Road, Colombo 3, Sri Lanka.BankersCommercial Bank of Ceylon PLCPeople’s BankSeylan Bank PLCHatton National Bank PLCBank of Ceylon

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