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PROSPECTUS 2019

Housing Development Finance Corporation PLC.

PROSPECTUS 2019


PROSPECTUS TO THE ISSUE

HDFC FIXED INCOME BONDS ISSUE NO.3

Public offer of 80,000 Fixed Rate Bonds of 7.0% p.a., Maldivian Rufiyaa (MVR) 1,000 per bond, to the

total value of MVR 80,000,000 (Eightymillion), with a semi-annual payment of capital and interest

Issue date of the prospectus 29.08 2019

Opening date for application/subscription 22.09.2019

Closing date for subscription 12.11.2019

Issuer/Offeror

Housing Development Finance Corporation Plc

HDFC Plc. [incorporated as a state owned enterprise on 28 January 2004 by a Presidential Decree

under the Companies Act, Law No: 10/96 ,registered as a public company on the 9th of February 2006

and privatized with the signing of a Shareholders’ agreement for privatization between the GOM

(49%), IFC (18%), ADB (18%) and HDFC-Investments Ltd.-India (15%) on July 23, 2008 and

incorporated in the Republic of Maldives as a Privatized Company-

Registration Number C-107/2006]

Issuer’s contact information

Registered Address: 4th Floor, H.Mialani, Sosun Magu, Male', Rep. of Maldives.

Telephone: 3338810 / 3315896 / 3315897 Fax: 3315138

Email: [email protected]

Managing Director Company Secretary

Ms. Raheema Saleem

Mr. Adam Athif

LEGAL COUNSEL

Mazlan & Murad Law Associates

2st Floor M. Faamdheyrige, Orchid

Magu, Male’, Maldives

[email protected]

BANKERS

Bank of Maldives Plc.

11, Boduthakurufaanu Magu, Male’,

20094, Republic of Maldives

[email protected]

Maldives Islamic Bank Pvt. Ltd.

Ameer Ahmed Magu, Male’Republic

of Maldives

[email protected]

Bank of Ceylon

“Aage”, 12, Boduthakurufaanu

Magu, Male’, Republic of Maldives

[email protected]

BANKERS

Habib Bank Limited

H.Thuniya, Boduthakurufaanu Magu,

Male’, Republic of Maldives

[email protected]

HSBC

H.MTCC Tower, Boduthakurufaanu

Magu, Male’ 20057, Maldives

[email protected]

State Bank of India

H. Sunleet, Boduthakurufaanu Magu

Male', Republic of Maldives

[email protected]

AUDITORS

PricewaterhouseCoopers

(External Auditors)

H. Thandiraimaage, 3rd Floor,

Roashanee Magu, Male’, Maldives

KPMG (Internal Auditors)

H. Mialani, 2nd Floor, Sosun Magu

Male’ Maldives

Mailing address. P.O. Box 2033; Male;

2033; Maldives.

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Housing Development Finance Corporation Plc.

Our Vision

Our vision is to provide decent and affordable homes in a safe and healthy environment, and work

towards uplifting the living standards of all Maldivians by becoming the market leader for financial

services in the Maldives.

Our Mission

Our mission is to offer financial and social strength to all Maldivians by providing home loans and

other savings and investment products managed professionally and profitably to the highest

International Standards and to the complete satisfaction of all stakeholders.

Our Pledge

HDFC would strive hard and explore all avenues to:

▪ Process loan applications to the highest professional standard to give a speedy and effective

service.

▪ Manage all aspects of customer relationship with due care, communication and sensitivity to

ensure 100% loan performance.

▪ To conduct all affairs as a responsible corporate citizen with good governance, accountability

and transparency.

▪ Provide a solution to every single customer.

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Table of Contents 1.0 Corporate Information.................................................................................................................... 12

2.0 Introduction .................................................................................................................................... 15

2.1 Presentation of Financial Information ...................................................................................... 16

2.2 Law and Exclusive Jurisdiction .................................................................................................. 16

2.3 Consents for the Offer ................................................................................................................. 16

2.4 Absolute Responsibility .............................................................................................................. 17

3.0 Responsibility Statement ................................................................................................................ 18

4.0 Report by the Directors to Confirm Due Inquiry .......................................................................... 19

5.0 Details of the Bond Offer ............................................................................................................... 20

5.1 Authority to Issue the Bonds ..................................................................................................... 20

6.0 Notice to Investors .......................................................................................................................... 21

7.0 About the Prospectus ...................................................................................................................... 21

7.1 Purpose of the Bond Issue .......................................................................................................... 21

7.2 Subscription List ......................................................................................................................... 21

7.3 Amount and Rate of the Bond Offer ......................................................................................... 22

7.4 Underwriting and Issue Costs ................................................................................................... 22

7.5 Minimum and Maximum Subscription .................................................................................... 22

7.6 Inspection of Documents ........................................................................................................... 22

8.0 Procedure for Application.............................................................................................................. 22

8.1 Eligible Participants ................................................................................................................... 23

8.2 Prospectus and Application Form............................................................................................. 23

8.3 Subscription via Online Applications ....................................................................................... 24

8.4 Subscription via Physical Application ...................................................................................... 24

8.5 Mode of Payment ....................................................................................................................... 24

8.6 Dematerialized Offering ............................................................................................................ 24

8.7 Allotment .................................................................................................................................... 25

8.8 Acceptance and Refunds ........................................................................................................... 25

8.9 Payment of Money at Redemption ........................................................................................... 25

8.10 Rejection of Applications ........................................................................................................... 25

8.11 Successful Applications and MSD Lodgement ......................................................................... 26

8.12 Paying Agent .............................................................................................................................. 26

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8.13 Officer in Charge for the Prospectus ......................................................................................... 26

9.0 Collateral.......................................................................................................................................... 27

10.0 Listing .............................................................................................................................................. 27

11.0 Rights of the Bond Holder .............................................................................................................. 27

12.0 Non Dependency on any Particular Business ................................................................................ 27

13.0 No Relationship of the Directors with the Management .............................................................. 27

14.0 Directors Report ............................................................................................................................. 28

14.1 Overview of the Company.......................................................................................................... 28

14.2 Macro-Economic Scenario and Housing Sector ...................................................................... 30

14.3 Products Offered ......................................................................................................................... 31

14.4 Revenue ....................................................................................................................................... 31

14.5 Operating Profit .......................................................................................................................... 31

14.6 Sharia Profit ................................................................................................................................ 31

14.7 Operating Expenses ................................................................................................................... 32

14.8 Dividend ..................................................................................................................................... 32

14.9 Loans Performance .................................................................................................................... 32

14.10 Assets Quality ......................................................................................................................... 32

14.11 Internal Credit Rating for Loans/Facilities .............................................................................. 33

14.12 Recovery and Non- Performance Loans ................................................................................... 33

14.13 Impairment Provision ............................................................................................................... 33

14.14 Corporate Social Responsibility ................................................................................................ 34

14.14.1 Affordable products ........................................................................................................... 34

14.14.2 Social housing schemes ..................................................................................................... 34

14.14.3 Access to finance ................................................................................................................ 35

14.14.4 Environmental protection and conservation ................................................................... 35

14.15 Regulatory Compliances ............................................................................................................ 36

14.16 Human Resources ...................................................................................................................... 36

14.17 Achievement and Recognition .................................................................................................. 36

14.18 Future Outlook of the Company ................................................................................................ 37

14.19 Acknowledgement ....................................................................................................................... 37

15.0 Corporate Structure ....................................................................................................................... 38

15.1 Board of Directors ...................................................................................................................... 38

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15.2 Details of The Company’s Board of Directors .......................................................................... 39

15.3 Profiles of the Board of Directors .............................................................................................. 40

15.4 Board Meetings .......................................................................................................................... 48

15.5 Annual General Meeting ............................................................................................................ 48

15.6 Shari’ah Committee ................................................................................................................... 48

15.7 Directors Compensation ............................................................................................................ 49

15.8 Management Team .................................................................................................................... 49

15.9 Details of the Management Team ............................................................................................. 49

15.10 Profile of the Management Team .............................................................................................. 50

16.0 Corporate Governance ................................................................................................................... 53

16.1 Responsibilities of the Board .................................................................................................... 53

16.2 Board Committees ..................................................................................................................... 54

16.2.1 Audit Committee Report ................................................................................................... 54

16.2.2 Objective of the Audit Committee .................................................................................... 54

16.2.3 Composition and Attendance of the Audit Committee .................................................... 55

16.3 Nomination and Remuneration Committee Report ................................................................ 56

16.3.1 Objectives of the Nomination and Remuneration Committee ....................................... 56

16.3.2 Composition and Attendance of the N & R Committee ................................................... 56

16.4 Credit Risk Management Committee ........................................................................................ 57

16.4.1 Composition and Attendance of the Credit Management Committee ............................ 57

16.4.2 Objectives of the Committee .............................................................................................. 57

16.5 Sharia’h Committee .................................................................................................................... 57

17.0 Risk Related to the Issuer .............................................................................................................. 58

17.1 Risk Management Policies ......................................................................................................... 61

17.2 Capital Management of HDFC .................................................................................................. 62

18.0 Material Outstanding Indebtedness in Relation to the Issue ...................................................... 62

19.0 Staff Details .................................................................................................................................... 63

20.0 Disclosure of Material Contracts and Conflict of Interest of Directors ...................................... 63

20.1 Summarized Detail of Material Contracts as at 31 December 2018 ....................................... 64

21.0 Auditors .......................................................................................................................................... 64

22.0 Capital Structure ............................................................................................................................ 65

23.0 Other Information .......................................................................................................................... 66

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23.1 Litigations ................................................................................................................................... 66

23.2 Taxes ........................................................................................................................................... 66

23.3 New Standards, Amendments and Interpretations Issued But Not Yet Adopted .................. 66

Annexes

Annex-1. Bond Redemption Schedule (Per Bond)

Annex-2. Legal Due Diligence

Annex-3. Accountant’s Report

Annex-4. Extract of Articles of Association

Annex-5. Audited Financial Statements for the Year Ended 31.12. 2018

Annex-6. Extract of Corporate Governance Code

Annex-7. MIRA Letter

Annex-8 Rating Communication

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1.0 Corporate Information

The Company Housing Development Finance Corporation Plc.

Legal formation of the

Company

A company incorporated as state owned enterprise on 28 January

2004 by a Presidential Decree under the Companies Act, No

10/96, registered as public company on the 9th February 2006

and privatized on 23rd July, 2008 with the signing of a

Shareholders’ Agreement between Government of Maldives (49%),

IFC (18%), ADB (18%) and HDFC-Investments Ltd.- India (15%).

Company Registration C-107/2006

Location of Incorporation Male’ Republic of Maldives

Registered Address 4th Floor,H. Mialani,

Sosun Magu, Male’

Republic of Maldives

Phone: Telephone: (960) 3338810 / 3315896 / 3315897

Fax: (960)3315138


Share capital MVR 159,375,000

Board of Directors Mr. Mohamed Mauroof Jameel (Nominee Director, GOM)

Mr. Hamid Sodique (Alternate Director, GOM)

Ms. Aminath Sheena Musthafa (Nominee Director, GOM)

Mr. Mohamed Zuhair (Alternate Director, GOM)

Mr. Conrad D’Souza (Director HDFC Investments Ltd. - India)

Mr. Nihal Senanayake Welikala (Nominee Director, IFC)

Mr. Asif Saeed Cheema (Alternate Director, ADB)

Ms. Raheema Saleem (Managing Director)

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Legal Counsel Mazlan & Murad Law Associates

2nd Floor, Unit-C, Faamudheyrige Building

Orchid Magu, Male’, Maldives

Phone: (960) 3344720 Fax: (960) 3344721


Bankers

Bank of Maldives Plc.

11, Boduthakurufaanu Magu, Male’, 20094, Republic of Maldives


Maldives Islamic Bank Pvt. Ltd.

Ameer Ahmed Magu, Male’Republic of Maldives

Telephone: (960) 3325555; Fax: 3007885


Bank of Ceylon,

“Aage”, 12, Boduthakurufaanu Magu, Male’, Republic of Maldives

Telephone: (+960) 3337564


Habib Bank Limited

H.Thuniya Building

Boduthakurufaanu Magu,


PABX(960)3322051-52,Fax:(960)3326791


HSBC

H. MTCC Tower, 1st Floor Boduthakurufaanu Magu, Male’ 20057,

Maldives

Phone: (960)3330770; Fax: (960)3312072


State Bank of India

H. Sunleet, Boduthakurufaanu Magu

Male', Republic of Maldives

Tel: (960)3312111


mailto:[email protected]



https://sbimaldives.com/contact-us

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Auditors to the Company PricewaterhouseCoopers (External Auditors)

H. Thandiraimaage, 3rd Floor, Roashanee Magu, Male’

Tel: (960)3318342,(960)3336046, Fax: (960)3314601

KPMG (Internal Auditors)

H. Mialani, 2nd Floor, Sosun Magu, Male’ Maldives

Phone: (960)3310420, Fax (960)3323175

Fairness Opinion PWC

Thandiraiymaage, RoashaneeMagu, Malé, Maldives.

Mailing address: PO Box 20124, Malé, Maldives

Tel:(960)3318342,(960)3336046, Fax: (960) 3314601

Registrars Maldives Securities Depository

H. Gadhamoo, 3rd Floor, Boduthakurufaanu Magu, Male’.


Tel: (960)3306868, Fax: (960)3305034

Company Secretary Mr. Adam Athif


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2.0 Introduction

We, at HDFC Plc., Maldives believe that safe and secure housing is the number one priority for the

progressive Maldivian society.

Therefore, we wish to offer you a safe and secure investment opportunity to Bond with us, and share

in our mission to make every Maldivian’s dream home, a reality through innovative housing finance

products.

Housing Development Finance Corporation (HDFC) Plc. was established as a specialized Housing

Finance Company in the Maldives in 2004 under state ownership and privatized in July 2008 through

a Public Private Partnership with a joint foreign investment of 51% shares held by International

Finance Corporation (IFC) of the World Bank Group, Asian Development Bank (ADB) and HDFC

Investments Ltd. of India. HDFC Plc. remains as the only specialized Housing Finance Institution in

the Republic of Maldives.

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2.1 Presentation of Financial Information

The only source of Company-specific financial information used in this Prospectus are audited

financial statements of the Company prepared in accordance with International Financial Reporting

Standards (IFRS) except for the financial years 31 December 2007 and 31 December 2008, which

were prepared with the modification of the requirements of IAS 39 - Financial Instrument:

Recognition and measurement in respect of loan loss provisioning by MMA’s circular No- GM-9/96

dated 25 April 1996 on Credit Risk Grading System and Loss Provision Requirements. The financial

statements for years ended December 31, 2004 to 2008 were audited by Ernst & Young, Chartered

Accountants and by PricewaterhouseCoopers (PWC), Chartered Accountants for each of year ended

December 31, 2009 to December 31, 2012. For years ended 2013 - 2016, KPMG audited the financial

statements. Internal audit was awarded to PWC for the same period. The present external auditor

from 2017 is PWC and the internal auditor is KPMG.

2.2 Law and Exclusive Jurisdiction

This prospectus and the Bond shall be governed by and construed in accordance with the laws and

regulations of the Maldives. Each of the parties hereto irrevocably agrees that the courts in the

Maldives shall have exclusive jurisdiction to hear and determine any suit, action or proceeding, and to

settle any disputes, which may arise out of or in connection with this prospectus and the Bond, and for

such purposes irrevocably submits to the jurisdiction of such courts. However, before going to the

Court, the dispute shall be first taken to an arbitration proceeding.

2.3 Consents for the Offer

The Written consent of the Auditors and Reporting Accountants to the Offer

The Auditors and reporting accountants to the offer has given, and has not before delivery of the

Prospectus for the Approval of CMDA withdrawn its written consent to the issue of the Prospectus

with the statement in the form and context in which it is included in the Prospectus. (Annex: 3)

The Written Consent of the Legal Counsel

The legal Counsel to the offer has given a declaration of legal diligence for the Company, and has not

before delivery of the Prospectus for approval to CMDA, withdrawn its written consent to the issue of

the Prospectus with the statement in the form and context in which it is included. (Annex 2)

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2.4 Absolute Responsibility

Under the mandatory requirement, approval has been obtained from the Board of Directors of the

Company and Registrar of the Companies as required by the Companies Act (10/96). In addition

HDFC has also obtained approval from the Capital Market Development Authority (CMDA) and

Maldives Stock Exchange (MSE) to issue these securities.

However, neither the Registrar of the Companies nor the Capital Market Development Authority takes

any responsibility for the accuracy of any statement made thereof or for the financial soundness of the

Company or the value of securities concerned, and shall not be liable to any action for damages

suffered as a result of any prospectus registered with the Authority. HDFC Plc. takes absolute

responsibility for the accuracy of the information disclosed in the document.

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3.0 Responsibility Statement

We, the undersigned who are named as Directors of HDFC Plc. Limited hereby declare and confirm

that we have seen and approved this document and we collectively and individually accept full

responsibility for the accuracy of the information given and confirm that after making reasonable

inquiries and to the best of our knowledge and belief, there are no other facts, the omission of which

would make any statement misleading.

Name Address Passport/NIC

Number Signature

Mr. Conrad D’Souza

(Director, Non-executive for HDFC

Investments Ltd, India)

HDFC House, 6th Floor, H T

Parekh Marg, 165-166,

Backbay Reclamation,

Churchgate, Mumbai

400 020, India

Z2480661

Mr. Asif Saeed Cheema

(Alternate Director, non-executive for

ADB)

Oakwood Preimier, Suite

2211, 17 ADB Avenue,

Ortigas Center, Pasig City

16000, Philippines

AG4154424

Mr. Nihal Senanayake Welikala

(Nominee Director, non-executive for

IFC)

9/1 Hyde Park Residencies,

79 Hyde Park Corner,

Colombo 2, Sri Lanka

N2773623

Mr. Mohamed Mauroof Jameel


GOM)

M. Dhoores, Orchid Magu,

Male’ Maldives

A039093

Ms. Aminath Sheena Musthafa


GOM)

M. Kandufushi, Male’,

Maldives

A043440

Ms Raheema Saleem

(Managing Director, Executive)

Ma. Bandhuge, Male’

Maldives

A033318

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4.0 Report by the Directors to Confirm Due

Inquiry

We, the undersigned as Directors of the Company hereby confirm performance of due inquiry in

relation to the interval between 31 December 2018 (the date to which the last accounts have been

made up) and 20th August 2019 (the date which prospectus is being issued) that:

a) the business of the Company have in our opinion been satisfactorily maintained;

b) there have in our opinion not arisen since the last Annual General Meeting of the Company

any circumstances adversely affecting the trading or the value of the assets of the Company;

c) the current assets of the Company appear in the books at values which are believed to be

realizable in the ordinary course of business;

d) there are no contingent liabilities by reason of any guarantees given by the Company; or

e) there are, since the last annual report, no changes in published reserves or any unusual

factors affecting the profit of the Company.

Name Address Passport/NIC

Number Signature


(Director, Non-executive for

HDFC Investments Ltd, India)

HDFC House, 6th Floor, H

T Parekh Marg, 165-166,

Backbay Reclamation,

Churchgate, Mumbai

400 020, India

Z2480661


(Alternate Director, non-

executive for ADB)

Oakwood Preimier, Suite

2211, 17 ADB Avenue,

Ortigas Center, Pasig City

16000, Philippines

AG4154424

Mr. Nihal Senanayake

Welikala

(Nominee Director, non-

executive for IFC)

9/1 Hyde Park Residencies,

79 Hyde Park Corner,

Colombo 2, Sri Lanka

N2773623

Mr. Mohamed Mauroof

Jameel


executive for GOM)

M. Dhoores, Orchid Magu,

Male’, Republic of

Maldives

A039093

Ms. Aminath Sheena

Musthafa


executive for GOM)

M. Kandufushi, Male’,


A043440

Ms Raheema Saleem

(Managing Director, Executive)

Ma. Bandhuge, Male’,


A033318

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5.0 Details of the Bond Offer

The following information summary should be read in conjunction with, and is qualified in its entirety

by the detailed information elsewhere in the Prospectus. Prospective investors in this Secured Fixed

Rate Bond should see the section in the prospectus under “Risk Factors” that discusses certain factors

that should be considered in connection with an investment in the Bond.

1 Issuer: Housing Development Finance Corporation Plc.

2 Issue Price: MVR 1,000.00 per Bond

3 Issue Date: 29.08.2019

4 Subscription Opening: 22.09.2019 , 0900hrs

5 Subscription Closing: 12-11-2019, 1400hrs

6 Settlement Date: Date of Allotment

7 Allotment: Within 05 business days from the closure of subscription

8 Total Issue: MVR. 80,000,000 (80,000 bonds)

9 Purpose: To fund mortgage housing finance operations

10 Tenure: Ten (10) years from the allotment date

11 Coupon: 7% pa (schedule of redemption in Annexure 1)

Based upon an actual day count/ three-hundred and sixty

five (365) days

Semi-Annually in arrears on the reducing balance

12 Payment Dates: Every six months after the date of allotment, until the bond is

fully redeemed

13 Security Type Conventional Bond

14 Collateral No collateral or guarantee for the Bond issue. Home

Mortgages subsequent to the offer will be pledged against the

Bond.

15 Next Business Day: The first day following a non-working day.

16 Type of Issue: Dematerialized

5.1 Authority to Issue the Bonds

The Bond has been offered upon approval, having obtained from the Board of Directors of HDFC on

27th August 2019, Registrar of Companies, Capital Market Development Authority and Maldives

Stock Exchange.

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6.0 Notice to Investors

Invitation to subscribe

The Board of Directors of Housing Development Finance Corporation Plc (HDFC PLC) on 27th

August 2019 passed resolution approving the company to raise MVR 80 million through a Bonds

Issue to the public, financial institutions, public corporations, private entities and other institutions.

7.0 About the Prospectus

This prospectus has been drawn up in accordance with the laws of the Maldives. The main aim of this

Prospectus is to provide all the information necessary for the investors to make an informed decision

regarding this Bond Issue. Each investor must study this Issue of Prospectus carefully in order to

decide whether it is appropriate to invest in it by taking into consideration all the factors relating to

the status and circumstance. It is solely the responsibility of the Issuer to include any essential and

accurate information or data in this Prospectus.

Unless stated otherwise, the financial information used in this prospectus is derived from the

Company’s yearly audited financial statements of 2018 which has been prepared in accordance with

the International Financial Reporting Standards and audited by PriceWaterhouseCoopers (PwC).

Each prospective investor should carefully review the contents of the Prospectus, and if in doubt about

the contents of this document he/she should consult a person who specializes in advising on different

forms of securities.

7.1 Purpose of the Bond Issue

The funds raised by the issue of bonds will be utilized to give mortgage loans and no amount of the

proceeds will be utilized for any other purpose other than for the purpose specified herein. The Bond

Issue is part of HDFC PLC’s intention to leverage its capital base with a diversified portfolio of debt

instruments that would include local investors as well.

Another objective of issuing bonds to the public by HDFC is to create a secured low-risk long-term

investment avenue for the local insurance companies, Maldives Pension Authority, government

corporations, companies and the members of public. HDFC has embraced principles of sustainable

and responsible finance in all aspects of operations. HDFC Bonds with a listing in the Maldives Stock

Exchange will increase vibrancy in the market by giving opportunities for varying investors to take

part in the national housing development endeavour.

7.2 Subscription List

The subscription list will open at 9:00 hours on 22 September 2019 and remain open for 35 market

days and close at 14:00 hours on 12 November 2019 HDFC reserves the right to close the issue prior to

the closing date in the event of an oversubscription following due notice to the public.

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Duly completed Application Forms will be accepted by HDFC PLC at its office of business. The

Prospectus and Application Forms will be made available 14 (fourteen) market days prior to the

opening of the subscription list.

7.3 Amount and Rate of the Bond Offer

The Bond offer will amount to a maximum of MVR 80,000,000 (Eighty million Maldivian Rufiyaa)

and would be raised by offering up to 80,000 bonds. The rate per bond is at MVR 1,000 (One

thousand Maldivian Rufiyaa).

7.4 Underwriting and Issue Costs

No underwriter has been appointed for this series of bonds issue. All expenses and fees attributable to

the series of bonds issue, including legal fees, authority fees, advisory charges, Paying Agent fees and

bank charges will be borne by the Issuer. All costs related to the offer will be borne by the Issuer, and

no costs will be attributed to the subscriptions raised from the bond issue.

7.5 Minimum and Maximum Subscription

Minimum subscription decided by the Company is MVR 1,000/-(One Thousand Maldivian Rufiyaa).

The maximum amount shall be MVR 80,000,000 (Eighty Million Maldivian Rufiyaa)

7.6 Inspection of Documents

The Memorandum and Articles of Association of HDFC Plc., Shareholders Agreement and all other

documents including audited financial statements and any materials contracts of the Company

referred to in this Prospectus may be inspected at any time during normal business (8.30am to

2.00pm) hours excluding public holidays at the registered office of HDFC Plc., until the end of

subscription period.

The registered office of HDFC Plc.;


4th Floor, H. Mialani, Sosun Magu


Tel: 3338810, Fax 3315138


8.0 Procedure for Application

Applications must be made on the Application Form supplied with this Prospectus. Application Form

can also be downloaded from our website http://www.hdfc.com.mv. Applicants using downloaded

forms are requested to inspect the Prospectus, which is on the company website or a hard copy will be

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available at HDFC Plc.’s Office. All the Application should be submitted directly to HDFC Plc. at the

following address;

Housing Development Finance Corporation Plc.

4th Floor, H. Mialani

Sosun Magu


8.1 Eligible Participants

This issue is open to any individual or corporate legal entity that is permitted to transact on the

Maldives Stock Exchange in accordance with the laws of the Maldives. This would include individuals,

partnerships, public limited liability companies, corporative societies, statutory bodies and legal

entities.

All supporting documents accompanied with the application should be valid; this includes copies of

national identity cards, passport copies, birth certificates and any other documents validating the

name and date of birth of the applicant.

For Individuals:

▪ A Maldivian citizen must enter his/her valid National Identity Card (NIC) and attach both

sides of a copy of his/her valid NIC.

▪ A foreign applicant must enter his/her current Passport Number and attach a certified

copy of the bio-data pages of his/her current PP.

▪ If the applicant is a minor (under 18 years of age), a copy of the birth certificate of the

minor and a copy of his/her NIC (both sides) along with his/her guardian’s NIC (both

sides) must be attached or uploaded.

For Legal Entities:

▪ In case of a body corporate a copy of the Certificate of Registration must be attached.

▪ A certified copy of the resolution of its governing board authorising the investment in

HDFC Fixed Income Bond Issue No.3 and the opening and operation of an account

including appointing authorized signatory of the account with MSD.

▪ A copy of the Memorandum & Articles of Association and bylaws that govern the

operations of the entity, if any

▪ A copy of the National Identity Card of the authorized signatories.

8.2 Prospectus and Application Form

Prospectus and Application Form may be obtained without any fee from HDFC Head Office. The

application Form is part of this Prospectus. Applicants who wish to apply for the offered Bond should

submit their applications in the manner set out in this Prospectus.

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The Prospectus and Application Form can also be downloaded from HDFC website www.hdfc.com.mv

8.3 Subscription via Online Applications

Online applicants can apply for the offer by accessing the online electronic application system in

https://infinity.mv

Special consideration must be given to strictly follow the instructions on the website in filling the

online application form. Online applications that do not follow the instructions and other conditions

set out may be cancelled at the discretion of the Company.

8.4 Subscription via Physical Application

Submission of physical Application forms must be clearly filled as per the instructions, along with the

applicable remittance via the mode of payment as stated in Section 8.5. Each applicant will be given a

receipt for each Application Form submitted.

8.5 Mode of Payment

i. Each application should accompany a cheque/cash/on-line payment for the full payment of

the bond applied. The amount payable should be calculated as per the following formula:

V=Bn

Where V = full payment of bonds applied

B = price per bond (i.e. MVR1,000)

n = number of bonds applied

ii. Payments should be made by cheque, crossed as “Account Payee Only” and made payable to

Bank of Maldives, HDFC –Bond 2, 7701143666102

iii. All such cheques will be banked on the ‘Subscription Closing’ date and HDFC Plc. has all the

rights to reject the application if a cheque is not honoured on its first presentation.

iv. An acknowledgement receipt will be issued for the cheques received and Application Forms

accepted.

v. Application Forms and the accompanying cheques which are incomplete in any way and/or

not in accordance with the terms, conditions and instructions set out in this Prospectus, and

application forms which are illegible will be rejected.

8.6 Dematerialized Offering

This offering of Bonds will be carried out in a dematerialized environment. This means that the bond

certificates by HDFC Plc. will be deposited with the Maldives Securities Depository (MSD). A record of

each bond holder and bond/s held shall be maintained by MSD, and statements shall be issued upon

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request from time to time to evidence the holding. An MSD account opening form is enclosed with

each bond application form, and must be perfected by every applicant subscribing to the Bond Issue.

8.7 Allotment

The bonds will be allotted to the successful applicants within 05 (five) business days from the

‘Subscription Closing’ date. In the event of an over subscription of the Bond offer, the basis of

allocation will be on a pro-rata basis or as decided at the discretion of the Board of Directors in a fair

and equitable manner. In the event of an under subscription, all applicants will be allocated with the

total number of Bonds applied in full.

8.8 Acceptance and Refunds

Where an application is not accepted in full, the balance of the application money shall be refunded to

the applicant within 15 (fifteen) working days from the closure of the issue. Refunds will be made via

crossed cheques available for collection at the registered office of the Company in case the applicant

has not provided accurate and complete details of the Applicants bank account in the Application

Form.

HDFC PLC reserves the right to accept subscriptions in full or in part from any subscriber.

8.9 Payment of Money at Redemption

a) The Bond Holder, whose ownership of the Bonds is registered with the MSD, will receive bi-

annually fixed-income in accordance with Annexure 1.

b) Redemption money will only be deposited to the bank account given in the ‘Application

Form’. The bank account should be in his/her/entity’s name and should be in a local bank in

Maldivian Rufiyaa (MVR). This account must be live and operational all the time during the

tenor of the bond.

c) After the bond allotment, MSD should be contacted for any update to the particulars provided

earlier.

d) If any Bond Holder fails to update his/her particulars or refuses to claim and receive payment

of the redemption money payable to such Bond Holder, the amount due to such Bond Holder

shall be deposited by the Paying Agent to a separate bank account at the end of thirty days

after the date of maturity and shall be paid to the holder of such Bonds when a claim is

lodged.

8.10 Rejection of Applications

▪ Incomplete applications will be rejected at HDFC’s absolute discretion.

▪ Late Applications (delivered after the closure of the Subscription Period) will be rejected.

▪ Online applications which do not confirm with the instructions and conditions set out will

be deemed incomplete and be rejected.

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▪ Applications supported by way of cheques, which are not honoured on first presentation

will be rejected.

▪ All applications rejected after having received the payments will be refunded within 15

working days after the closure of Subscription period

▪ The Management and Board of Directors reserve the right to refuse or accept any

application owing to a valid reason.

8.11 Successful Applications and MSD Lodgement

Allocated Bonds will be deposited directly to the respective Securities Account opened at Maldives

Securities Depository within a maximum of 10 working days from the date of allocation.

An Account Statement indicating the deposit of Bonds will be made available to those successful

applicants upon request from MSD.

8.12 Paying Agent

Maldives Securities Depository Company Pvt. Ltd. will be appointed as the Paying Agent whose

address is given below;

Maldives Securities Depository Company Pvt Ltd

H. Gadhamoo Building, 3rd Floor, Boduthakurufaanu Magu,

Male’, Maldives.

T: (+960) 3307878, F: (+960) 3305034, email: [email protected]

W: www.mse.com.mv

W: www.msd.com.mv

8.13 Officer in Charge for the Prospectus

The Investor, should they require any further clarification regarding any information in the

Prospectus, he/she can contact the person stated below:

Name: Mohamed Shafeeq

Designation: Assistant General Manager - Finance

Contact No: +960 3000114



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9.0 Collateral

The purpose of this Bond is to fund conventional loans for housing. There is no guarantee or collateral

particular to this Bond issue. A waiver has been obtained for the requirement imposed for collateral or

guarantee under listing rules from the Maldives Stock Exchange for the purpose of this Bond issue.

Notwithstanding this, home mortgages funded through this Bond will be subsequently pledged as

collateral for the Bond issue.

10.0 Listing

The Bonds offered under this prospectus will be eligible for trading in the Maldives Stock Exchange.

Application for listing has been made in accordance with the relevant rules and regulations to the

Maldives Stock Exchange.

11.0 Rights of the Bond Holder

The Bond Holder will be entitled to a bi-annual fixed income in accordance with the terms given in

this prospectus and the schedule of settlement given in Annexure 1. In the event the Bond Holder

needs liquidate before the Bond’s date of maturity, the Bond will be eligible for trading in the Maldives

Stock Exchange and the holder has the right to transfer ownership through secondary market.

12.0 Non-Dependency on any Particular Business

The Issuer (HDFC), is independent from its customers, financiers, and does not depend on any

particular business and/or customer, patents, intellectual property rights, licenses or particular

contracts that are important to the Issuers business.

13.0 No Relationship of the Directors with the

Management

The Management of the Issuer, performing an independent, administrative and a Supervisory

function has no particular ties of kinship with any of the Board of Directors and each particular person

acts independently in his or her own capacity.

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14.0 Directors Report

We are pleased to present this report for inclusion in the prospectus of HDFC Plc. with extracts from

the Audited Accounts for the year ended 31 December 2018.

Financial Highlights

(MVR Millions)

Performance 2014 2015 2016 2017 2018

Total Income 122.7 131.6 151.8 173.2 191.2

Profit Before Tax 64.6 71.5 85.7 87.4 116.3

Profit After Tax 54.9 60.5 72.3 75.3 99.0

Total Equity 383.1 403.8 416.3 456.6 515.8

Loans and Advances to customers

941.5 1086.5 1302.0 1410.0 1617.0

Financial Ratios

Net Assets value per Share 240.39 253.38 261.24 286.51 323.62

Earnings/ (loss) Per Share (EPS)

34.44 37.99 45.36 47.27 62.11

Dividend Per Share* 25 17.5 20 22 25

Dividend pay-out (%) 73% 46% 44% 47% 40%

ROAE (%) 14% 15% 17% 16% 19%

Debt/Equity Ratio 188.00% 206.39% 277.008% 246.69% 239.57%

Dividend per share *MVR 25 FY 2015 includes a special dividend of MVR 10 per share in relation to the 10th Anniversary

14.1 Overview of the Company

HDFC was incorporated as a state owned enterprise on 28 January 2004 by a Presidential Decree

under the Companies Act Law No. 10/96. The Company was registered as a public company on 9

February 2006 and was privatized with the signing of a “Shareholders” agreement for privatization

between the Government of Maldives (GOM), International Finance Corporation (IFC) of the World

Bank Group, Asian Development Finance Corporation (ADB) and HDFC Investments Ltd- India on

July 23, 2008. This Public Private Partnership has a joint foreign investment of 51% shares, jointly

held by IFC, ADB and HDFC Investments Ltd. of India. Initiative taken in July 2008 to restructure

the capital and recommence the business of HDFC Plc. became effective in February 2009.

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Having restructured its capital, and with new lines of long-term credit, HDFC re-entered the market

for mortgage loans for housing needs of individuals and families. HDFC is a specialised housing

finance institution in the Maldives. With seven commercial banks operating in the mortgage housing

loan market, HDFC’s competitive long repayment terms and pooled-income home loans enabled the

Company’s achievements.

Over the years HDFC has developed and launched a number of products since its privatisation and

has built the housing portfolio of over MVR 1.6 billion, both covering Conventional Home loans and

Islamic facilities.

Loan portfolio 2016 2017 2018

Home loans 81% 79% 78%

Islamic facilities 19% 21% 22%

During the Financial Year 2018, a considerable growth was witnessed in the demand for housing as a

result of the increase in expatriate workforce, growing income levels, and urbanization. Despite high

demand, the State’s involvement in developing new housing projects was focused on mass housing

programs only. As a result, the private sector has emerged as the major provider of houses for middle

and high-income segment, while the Government continues to be involved in providing housing

facilities for low and middle income households and specific groups, where HDFC plays a key role in

facilitating this segment.

The demand for home loans continue at a rate of growth that outstrips the supply of matching funds,

and long-term bonds denominated in MVR is seen as the way forward to create sustainable housing

finance in the Maldives.

The GOM’s policy of improving the infrastructure in focus islands to facilitate economic development

through zonal investment opportunities for Public, Private, Partnership (PPP) ventures is viewed as a

positive factor in going forward with the development of housing finance. Such an approach would

assist sustainable growth in home ownership based on mortgage security over properties that will

appreciate in value to satisfy the fair value criterion in debt provisioning and managing credit risk.

This is very important as a market characteristic, especially in the light of the financial crisis faced by

developed economies of the world.

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14.2 Macro-Economic Scenario and Housing Sector

Housing is a primary human necessity in every economy and is a basic indicator of growth and social

wellbeing. Development of housing is not just important to economic growth of the nation but is also

one of the tools for economic development considering the multiplier effect it has on various

industries including construction and infrastructure sector. The government recognises the

socioeconomic challenge and opportunity that the sector presents and has made the Maldives vision

“Housing-For-All by 2022” as its headline mission. The government and the regulators have followed

up on this with landmark policy initiatives.

A major percentage of the current population is the youth of the nation (18-35 years of age). The

government has envisioned and planned Hulhumale' to be a Youth City. In this regard, a substantial

number of residential apartments such as studio apartments of 1 and two rooms will be developed and

allocated to this class.

Alongside a youth-focused residential accommodation and an international cruise terminal,

Hulhumale’' will also offer recreational areas such as a yacht marina, Olympic-sized swimming pool,

water theme park, sports arena, football and cricket stadia as well as a music and arts institute. After

completion of these projects, the aim is to provide housing for more than one-third of the total

population of the Maldives, which is 416,000.

The government also announced a very ambitious plan in late November last year (2018) by launching

the largest social housing project in Hulhumale’, the “Hiyaa Project”. The project is to produce 7000

social housing units in Phase 2 of Hulhumale’. The project is part of the larger programme by HDC to

establish 15,000 social units in Hulhumale’. This is in addition to the hundreds of semi luxury and

luxury units awarded to more than a dozen private companies.

With the much-anticipated connection of Hulhumale’ to the capital city of Male’ through the China-

Maldives Friendship Bridge, in 2019 has boosted the development of housing market. Today this is

driven primarily by the private developers while the government addresses the social housing sector.

However, under the initiative of the government it is welcoming to note that state-owned companies

have entered the market of real estate sector.

At the macro level housing finance generates economic growth via import duty, real estate and

economic linkages while at individual level, it makes possible for both shelter and a real asset.

However, regulators need to formulate a clear medium-term vision and a road map for the housing

finance sector.

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14.3 Products Offered

Conventional

▪ Standard Home Loan is below MVR 1 million with less than one third of the developed

area given on rent and two thirds or more occupied by owner/s and co- applicant/s, at 11.25%

per annum.

▪ Million Plus Home loans exceeding MVR 1 million with less than 1/3 of the developed area

given on rent and 2/3 or more occupied by owner/s and or co-applicant/s, at 11.50% per

annum.

▪ Rent Option Home loans where more than one third of the built area of the property is

intended for, or already rented out at 12.50% per annum.

▪ Renovation Home loan for essential repairs, refurbishments, and improvement to the home

at 11.25% per annum.

Islamic

▪ Isthisna': Home construction facility.

▪ Musharaka Muthanagisa/with forward lease: Purchase of land and construction or

purchase of Housing units.

▪ Murabahah: purchase of materials.

14.4 Revenue

The total revenue for the year ended 31 December 2018 is recorded as MVR 191.2 million as against

MVR 173.2 million corresponding period in the year 2017.

14.5 Operating Profit

Net interest income has grown to MVR 95.1 million from MVR 89.8 Million, in addition Net income

on shari’ah products, Fee income and other income decreased by MVR 1 million indicating an

increase of operating profit by 24.7% compared to financial year 2017. With these performances,

HDFC was able to record profit for the year MVR 98.9 million as against MVR 75.3 million in 2017 an

increase of 31.34%.

14.6 Sharia Profit

Net income from Shari’ah products increased to MVR 25.1 million compared to MVR 22.5 million

same periods previous year. This reflects an increase of 11.1%.

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14.7 Operating Expenses

The total operating expenditure was MVR 18.3 million as compared to MVR 15.6 million in the same

period of 2017, which is an increase of 17.3 % (excluding provision).

14.8 Dividend

In view of the overall performance of the Company, while retaining capital to support future growth,

the Board of Directors on the 29 November 2018 recommended an interim dividend of MVR 25.00

per share with a pay-out ratio of 40%, which was made final on the 18th March 2019 meeting of the

Board of Directors.

14.9 Loans Performance

As of 31st December, the Company’s total portfolio value of loans/facilities has increased to 1.6 billion

from MVR 1.4 billion in 2017, with the loan attrition rate at 9%. In order to mitigate the attrition rate

and the potential exposure to credit risk, HDFC focuses more on ways to make a positive customer

experience and lending for home construction based on sound collateral and strong repayment

capacity from employment and other businesses.

HDFC have substantial market share 33 % in (2018), with additional players in the market, the

competition is now fierce. However, the credit culture of the Maldives continues to present a

formidable challenge, more specifically in the light of the average NPL percentage of the Maldives

Banking sector, which has remained at 9% in Q1 of 2019 as reported in the MMA’s Quarterly

Economic Bulletin of March 2019. HDFC’s success in managing a low level of NPL is due to the

commitment and diligence of all members of staff who are focused on managing this critical success

factor every stop of the way by building effective relationships with each and every customer.

During the year, 2018 HDFC has approved loans amounting to MVR 363.9 million as compared to

MVR 324 million in the previous year. During the year 2018, the Company disbursed loans worth

MVR 315.1 million, the previous year MVR 230.1 million was disbursed.

14.10 Assets Quality

The Company maintained its asset quality during the year (when compared to 2017 of the same

periods) despite the aggressive competition. At the end of 31 December 2018, the total net

loan/facility portfolio amounts to MVR 1.6 billion. The Company maintains an internal credit rating

system for all facilities either past neither due nor impaired. At the end of 31 December 2018, the

facility value falling under category A+ was maintained at 100%.

In order to minimise the potential increase of the credit risk exposure, HDFC focuses more on

advancing loans/facilities to greater Male’ region than in the outer atolls. All assets are covered by

insurance and all loans are now covered by insurance for the tenure of the loans/facilities.

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14.11 Internal Credit Rating for Loans/Facilities

As at 31 December 2018 As at 31 December 2017

Internal Ratings

Basis for grading (B/A)

Loans to customers

Percentage of total loans

Loans to customers


MVR

MVR

A+ 0.2% 1,467,845,678 100.00% 1,175,930,073 100.00%

A 0.2% to 0.5% - - - -

A- 0.5% to 1% - - - -

B+ 1% to 1.5% - - - -

B 1.5% to 2% - - - -

C above 2% - - - -

1,467,845,678 100% 1,175,930,073 100.00%

14.12 Recovery and Non- Performance Loans

The Company’s collection philosophy is keeping its NPLs as the lowest in the market. Along with

rigorous implementation of collection efforts and best possible use of legal channel, of recovery,

HDFC has maintained the same among the leading banks in the industry. Structured early warning

system, regular reviews and prompt actions have helped in minimising default and maximising

collections. However, we experienced a slight increase in Non-Performing loans (NPLs) to1.5% as at

31 December 2018, in comparison to 1.4% at the end of 2017.

14.13 Impairment Provision

The impairment provision is computed in compliance with IFRS 9 for the year, and collective

impairment total provision reduced by MVR 2.3 million to MVR 26.2 million as at 31 December 2018.

During the year, the Company did not write off any bad loans or facilities.

While in the past impairments are based on incurred losses, the IFRS 9, introduces an approach based

on future expectation, namely expected losses. As part of impairment provisioning under IFRS 9,

companies will have to identify relevant macroeconomic variables for their businesses, study them for

historical trends and impact, establish their relationship with historical default rates and track them

for available forecasts in order to estimate expected losses. This accounting standard is to be followed

from 1 January 2018.

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14.14 Corporate Social Responsibility

At HDFC Plc., the welfare of the society at large is an integral component. Our aim is to support

inclusive growth through focused initiatives.

Culture and customs of Maldives is rooted in Islam and it is a privilege for HDFC to be a conduit in

processing Islamic Finance.

14.14.1 Affordable products

Product design for inclusion began by defining market segments; maintain a middle to low income

orientation and augmenting such methods as Flexible Instalments Plans (FLIP), Step-Up Repayment

Facility (SURF), and savings related loan products for the self-employed and prudential norms on

fixed obligations to income ratio (FOIR) to eliminate over indebtedness. An in-depth market analysis

was carried out to identify the social performance matrix to serve the low-income population with

lower mortgage security value in the outer island to be financed under HDFC Salary Benefit Scheme.

HDFC integrated social performance management approaches such as respectful collection practices,

and high ethical standards in the treatment of customers with a comprehensive complaint handing

process to serve them more effectively by including customer feedback for appropriate product design

and delivery.

14.14.2 Social housing schemes

Another important element was the engagement of government social housing schemes to formalise

operational guidelines and monitor key policies related to customer protection, environmental

standards and socio-economic data for such scheme. The monitoring of compliance and

implementation of key policies is carried out at all operational levels, including customer care staff,

loan appraisal by credit officers, loan approvals by the credit committee, accounts, internal audit and

human resources

At HDFC, Responsible Financial Inclusion Strategy sets out the following strategic objectives

▪ Extend financial services to underserved segments through HDFC salary benefit scheme

▪ Create income generation potential in the down-market segment by financing for income

generating units

▪ Integrate micro and SME income support solutions to create a responsible credit culture

▪ Design customer-centric products to maximize the social benefit

▪ Contribute to the learning agenda in social performance

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14.14.3 Access to finance

The success of IFCs Pilot Program with HDFC using Performance Based Grant Initiative for Access to

Finance is based on an inclusive business model with following objective:

▪ Expand financial services to underserved segments by developing a range of financial services

available to low-income populations innovative products tailored to the needs of low –income

customers.

▪ Going down-market with a clear strategy to manage risk through principles of customer

protection.

▪ Provide incentives and motivation for staff to go beyond traditional financial service to

innovative access to finance.

▪ Widening the range of products, features and services based on a customer-centric approach.

▪ Contribute to the learning agenda in social performance and improving customers’ financial

literacy.

14.14.4 Environmental protection and conservation

As a low-lying nation with only a few meters above the sea level at the highest point a low carbon

footprint is important to the Maldives. Over the years, the staff of HDFC have become habitually

concerned for green practices at the work-place that involves the most the most environmental-

friendly lighting, air-conditioning, paper and other material usage in the day-to day life of the office.

In order to extend such practices to those who are developing their homes through HDFC Finance, we

have formed Environment Committee to oversee, and the following process in place:

a) An environmental and social screening and assessment system identifies and assesses the

environmental and social impacts and issues (including technical and environmental liability

and risk), and financial implications related to environmental and social issues using a Rapid

Environmental and Social Assessment Checklist to aid decision-making.

b) Review and evaluate any environmental clearances and/or applicable national and local

government permits/clearance issued by environmental authorities such as land use and

zoning clearances, permits covering sanitation, elect rival and mechanical operations,

occupancy etc.

c) Conduct environmental and social audits whenever which is necessary to quantify the extent

of environmental and social problems associated with mortgage lending and identify

necessary mitigation measures. For example, soil and surface water contamination from

domestic sewage and solid wastes. Another important aspect is resettlement where

involuntary processes are prohibited for funding.

d) Assess adequacy of the environmental and social management plan. The document agreed

between the customer and HDFC identifies environmental and social impacts and measures

to mitigate, which would provide the basis for environmental and social monitoring.

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14.15 Regulatory Compliances

The Housing Development Finance Corporation Plc., is a Company incorporated as a public limited

liability company under the Companies Act No: 10/96 in the Republic of Maldives. HDFC is licensed

by the Maldives Monetary Authority as a Non-Bank Financial Institution. The Company engages in

the business of granting housing loans for residential and commercial purposes.

The Company complies with the guidelines issued by the International Finance Corporation, and the

Asian Development Bank, as well as guidelines and directives issued by the regulatory bodies (for

example, know your customer (KYC) guidelines, Anti-Money Laundering and combating the finance

terrorism, and the Company’s Act, Articles of Association and Memorandum of Association.

The Company’s financial statement has been prepared in accordance with the International Financial

Reporting Standards (IFRS).

14.16 Human Resources

We believe that the Management of HDFC has successfully integrated its people and its operations

with the Board’s strategy in order to deliver successfully and have been able to develop a loyal

employee base. The Company strongly believes that staff is key to driving performance and

developing a competitive advantage. The emphasis has been on proper recruitment of talent and

empowerment while devoting resources for their continuous development as a team of dedicated

employees who work with passion and a sense of belongingness. The HDFC team plays a defining role

in accelerating the growth of the Company.

Our performance is driven by our team. We value our employees and ensure roles and responsibilities

are assigned as per the interest and specialisation of each employee. This has created a strong

foundation of a dedicated and determined workforce. We focus on providing financial strength, health

and security, work-life balance and personal development. Our aim is to attract, motivate and retain

employees of high calibre.

The total number of staff as at 31st March 2018 is 36.

14.17 Achievement and Recognition

Over the years HDFC has been recognised for its services rendered to the public by different

institutions. The most recent recognition(s) being, the best Award for Excellence in Finance from

Blazon Inc. and Gold 100 award presented by Corporate Maldives.

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14.18 Future Outlook of the Company

The future outlook for the HDFC looks bright, with the Maldivian economy predicted to continue its

growth momentum in 2019 by 6.8 percent, opens wider opportunities to grow its business, and also to

contribute more in its role as one of the leading housing finance institutions in the Maldives. This

demand is further driven by changes in demographic profile including increase in the rate of

household formation due to a structural shift from a joint family system to smaller nuclear families,

rapid urbanization, rise in disposable income levels and tax benefits.

The construction sector is expected to record a stronger growth driven primarily by existing multi-

year housing projects. The government is expected to continue to support the infrastructure projects,

underpinned by the nation’s development needs and the government’s ability to support the projects.

Overall, the sector outlook remains positive, with several positive supply side initiatives underway

through the housing policy where the Government remained very involved in facilitating housing for

low and lower

The Company is focused on long term low risk secured lending, through mortgage-backed loans as the

Company continues to grow its client base, it will maintain its focus on secured lending to low risk

segments in order to maintain high-quality loan portfolio and minimize client delinquencies and

defaults. It will continue its hard work, as this is important to HDFC as we rely on short, mid-term

funding from locally and external borrowing. The Company continues to identify various alternative

sources of funding to diversify its funding sources and maintain stable, low cost of borrowing.

New age technologies and innovation will also play a key role in defining the future of the Company

Embracing interactive technologies (mobile apps, social media, software) will not only help in market

segmentation and expansion, but also help in reaching out to customers with tailored products

according to their financial needs and reduce human intervention and ensure a speedy delivery of

services to the customers.

14.19 Acknowledgement

The Board of Directors wish to express their gratitude for the continuous assistance and support

received from the investors, clients, bankers, regulatory and government authorities, during the year.

The Directors also wish to place on record their deep sense of appreciation for the contributions made

and committed services rendered by the employees of the Company at various levels, to the growth

and success of the Company.

Mohamed Mauroof Jameel

(Director for Government of Maldives)

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15.0 Corporate Structure

15.1 Board of Directors

The Board of Directors is the highest decision-making body of the Company. The Board comprises of 5

nominees from the shareholders; the Government of Maldives, HDFC Investments Limited, (India),

the Asian Development Bank and the International Finance Corporation. Each of the shareholders is

represented by one nominee director with the exception of the Government of Maldives, which has

two nominees in the Board.

The shareholders also have the right to nominate Alternate director, who may participate in the Board

meetings but can only exercise the right to vote in the absence of the Nominee director representing

the shareholder.

A non-voting Managing director who is responsible for policy implementation and on-going operation

also has a seat in the Board.

All directors possess a wide range of talents, skill and experience with proven track records in the field

of housing finance, banking, business administration, and architecture/design

The Shareholders’ Agreement of HDFC facilitates the election of an Independent director upon the

occurrence of public offering of shares of the Company.

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15.2 Details of The Company’s Board of Directors

Nominee Directors Address Shareholder

Represented

Mr. Mohamed Mauroof Jameel

(Non-executive Independent

director)

M. Dhoores, Orchid Magu, Male’,

Maldives

Government of Maldives

Ms. Aminath Sheena Musthafa

(Non-executive director)

M. Kandufushi, Male’, Maldives Government of Maldives

Mr.Nihal Senanayake Welikala


director)

9/1 Hyde Park Residencies, 79 Hyde

Park Corner, Colombo 2, Sri Lanka

International Finance

Corporation (IFC)



director)

HDFC House, 6th Floor, HT Parekh

Marg, A Wing, 165-166, Backbay

Reclamation, Churchgate, Mumbai

400-020, India

HDFC Investments

Limited (India)

Alternate Directors Address

Shareholder

Represented



director)

Oakwood Preimier, Suite 2211, 17

ADB Avenue, Ortigas Center, Pasig

City 16000, Philippines

Asian Development Bank

Mr. Hamid Sodique


Director)

Alhiyaage, Lh. Naifaru, Male’,

Maldives

Government of Maldives

Mr. Mohamed Zuhair


director)

M. Naghuma, Male’, Maldives Government of Maldives

Ms. Raheema Saleem

(Executive Director)

Ma. Bandhuge, Male’ Maldives

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15.3 Profiles of the Board of Directors

Mr. Mohamed Mauroof Jameel (59 years)

Nominee Director (Independent), Non-Executive –Government of Maldives

Mr. Mohamed Mauroof Jameel was appointed as a non-executive director by the Government of

Maldives on 22 September, 2016.

Qualification and experience

He has more than 30 years of experience in architecture and construction. He is an architect and

specialist. He holds MSc in Architecture from University of Malaya, Malaysia, and Post Graduate

Diploma from University of Sheffield, UK. In addition he also holds Ba (Hons.) in Architecture,

Manchester Metropolitan University, UK. Mr. Mauroof Jameel is also a fellow of the Chartered

Architect of the Royal Institute of British Architectural (RIBA), UK since 2004. He also served as a

cabinet Minister at the Ministry of Construction and Public Infrastructure and was the Chairman and

CEO of Hulhumale Development Corporation.

Other appointments

▪ Part-time lecturer at Maldives National University

Board Committees

▪ Nomination and Remuneration Committee (Chairman)

▪ Audit Committee (Member)

▪ Credit Risk Management Committee (Member)

He does not hold any shares in any company in the Maldives that has or will be perceived as a conflict

of interest with HDFC Plc.

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Mr. Nihal Senanayaka Welikala (72 years)

Nominee Director (Independent), Non-Executive – International Finance Corporation (IFC)

Mr. Welikala was appointed as the nominee director by the International Finance Corporation on 02

November, 2016.


Mr. Nihal has been with the NDB Group for more than 9 years including more than 6 years as CEO

and prior to this post he was employed at Citibank in Colombo from 1981 to 1999 which included 11

years as CEO where he was the first Sri Lankan to hold this post. In addition, Mr. Nihal also has

worked at Ernst & Young, London Office for more than 7 years in the audit and tax department. He is

trained as a Chartered Accountant with Ernst & Young in London. He holds a Bachelor of Law degree

from the University of Sri Lanka and is also a Fellow member of the Institute of Chartered

Accountants in England and Wales and Institute of Chartered Accountants of Sri Lanka. In addition,

Mr. Nihal also served as NDB’s Nominee-Director at MFLC, Maldives.

Other appointments

▪ Consultant to the Ministry of Public Enterprise Development, Chairman, AMW Capital

Leasing Ltd of Al-futaim group of Dubai,

▪ Non-executive Director of National Development Bank (NDB) and Bartleet & Co Ltd.

▪ Independent consultant in the financial sector.

Board Committees

▪ Credit Risk Management Committee (Chairman)

▪ Audit Committee (Member)



PROSPECTUS 2019

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Ms. Aminath Sheena Musthafa (43 years)

Nominee Director (Independent), Non-Executive –Government of Maldives

Ms. Aminath Sheena Musthafa was appointed as a non-executive Director by the Government of

Maldives on 11 April 2018.


She has more than 18 years of experience working in the Government of Maldives. She holds Master

of Business Administration from Anglia Polytechnic University, Anglia Business School, Cambridge,

UK. In addition she also holds Degree of Bachelor of Arts (Management Single Honours) from Trinity

and All Saints University College, University of Leeds, UK. She has also served as the Chairperson of

the Management Audit Committee (Joint Project of the President’s Office and Civil Service

Commission), as a member in the Maldives Scholarship Board and as a member of the Civil Service

Innovation Award Committee. She is currently Head of the Human Resource and Performance

Management Section at The President’s Office as Director General.

She does not hold any shares in any company in the Maldives that has or will be perceived as a conflict


Other appointments

▪ Director General- Head of Human Resources and Performance Management Section,

Presidents office

Board Committees

▪ None

PROSPECTUS 2019

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Mr. Conrad D’souza (59 years)

Nominee Director (Independent), Non-Executive - HDFC Investments Limited (India)

Mr. D’Souza was appointed as the Nominee Director on 15 March 2019. Previously he was the

alternate director by the HDFC Investments Ltd. India from 9th September 2009 till 14 March 2019.

Qualification and Experience

Mr. Conrad has a Master’s Degree in Commerce, a Master’s Degree in Business Administration and is

a Senior Executive Program (SEP) graduate of the London Business School. He joined HDFC in 1984

and is a Member of the Executive Management & Chief Investor Relations Officer. He is also a

Member of the Asset Liability Committee (ALCO). He was earlier the Treasurer of HDFC and his

responsibilities included resource mobilisation both domestic and international and asset liability

management. He has also worked earlier in Operations and Management Services at HDFC and was

also Regional Manager - Maharashtra.

As Treasurer he was also responsible for HDFC’s US $ 500 million Foreign Currency Convertible

Bond and also the country’s first simultaneous issue of a Non-Convertible Bond with a Warrant in the

domestic markets.

He has been a consultant to USAID / UNDP and IFC (Washington) and has undertaken assignments

in Asia, Africa and Eastern Europe.

Other appointments

Mr D’Souza has been a member of national committees to review the Introduction of Variable Rate

Mortgages and for the creation of a Secondary Mortgage Market in India. He has been instrumental in

setting up mortgage finance companies in Bangladesh, Egypt, Maldives and Tanzania and is currently

on the Board of First Housing Finance (Tanzania) Limited. He is also a Director on Nations Trust

Bank, Sri Lanka.

Board Committees

▪ Audit Committee (Chairman)

▪ Nomination and Remuneration Committee (Member)

He does not hold any shares in any company of the Maldives that has or will be perceived as a conflict


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Mr. Asif Saeed Cheema (48 years)

Alternate Director (Independent), Non-Executive – Asian Development Bank (ADB)

Mr. Cheema was appointed as the alternate director by the Asian Development Bank on the 1st of April

2015.


Mr. Cheema started his career at Deutsche Bank Securities, New York as an Equity Research Associate

in 1996. Before joining ADB Mr. Cheema has worked in various financial institutions including J.P.

Morgan Securities, New York, HSBC Investment Bank, Dubai and London, Nomura International,

Dubai as Executive Director, Corporate Finance and Investment Banking. He also has worked at

Alpen Capital, Dubai, and UAE. Mr. Cheema, holds a master’s degree in Business Administration

(MBA) from Yale University and course work in International Affairs from Colombia University and

Bachelor of Science in accounting and finance from New York Institute of Technology, New York

Other Appointments

▪ Financial Institutions Investment Specialist (ADB)

Board Committees

▪ None

He does not hold any shares in any company of the Maldives that has or will be perceived as a conflict


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Mr. Hamid Sodique (44 years)

Alternate Director Independent, Non-Executive– Government of Maldives

Mr. Sodique was appointed as the alternate director by the Government of Maldives on 10th April

2011.


He has over 15years of experience in Consultation work in Project and Management area and was a

member of the Maldives Pension Administration Office and served in the Investment Committee of

the Board until August 2011. He started his Professional career in the Maldives Monetary Authority in

2006 and since then has worked at prominent positions in well-known Organization such as

UNESCO. He has executed many national and international projects on business management,

strategic planning, Entrepreneurship Skills Training and Mentoring. Mr. Sodique holds a master’s

degree in business administration from the University of Adelaide, Australia in addition to a

bachelor’s degree in Business Administration from University of Brunei Darussalam.

Other appointments

▪ Chief Executive Officer, FJS Consulting Pvt. Ltd.

Board Committees

▪ None


of interest with HDFC Plc., except 1480 shares of Bank of Maldives Plc. and 145 shares of State

Trading Organization.

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Mr. Mohamed Zuhair (61 years)

Alternate Director (Independent), Non-Executive –Government of Maldives

Mr. Mohamed Zuhair was appointed as a non-executive alternate director by the Government of

Maldives on 11 April 2018.


He has more than 30 years of experience at prominent positions in the Government of Maldives. He

holds MSc in Agricultural Studies from University of Queensland, Australia. In addition, he also holds

Bachelor of Science (in Agriculture) and Post Graduate Diploma of Ingenieur Agricola from American

University of Beirut, Lebanon. He also served as a Deputy Minister at the Ministry of Fisheries,

Agriculture and Marine Resources and was the Chairman of MIFCO. In addition, he has served as

Managing Director at Fantasy Pvt Ltd, a leading trading company in Maldives. His current portfolio is

Minister of State at the Ministry of Defence and National Security.

Other appointments

▪ Chairman of Kadhdhoo Airport Company

Board Committees

▪ None



PROSPECTUS 2019

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Ms. Raheema Saleem (58 years)

Executive Director/Managing Director – HDFC PLC Maldives

She was the founding managing director until the Company was privatised in 2008, where she was

appointed as the advisor to the Managing Director until 2010 when she left for her sabbatical and

returned in 2014 and was appointed as the Operations Director and Company Secretary till 2017. In

February 2017 she was appointed as the Managing Director of the Company. She was also on the

Board of Directors of HDFC from 2004 till 2010. Prior to joining HDFC, she served at the Ministry of

Finance and Treasury for more than 16 years at various senior positions. In addition, she also served

as the Board Director of State Trading Organisation and during those 3 years she was also the

Chairman of the Maldives National Oil Company and was also the Chairman of the Audit Committee

of the STO Board. She holds Master of Management from Monash University and Master of Tourism

from Monash University Australia and Bachelor of Commerce in Accounting and Marketing (Double

Major) from Curtin University, Western Australia.

Other Appointments

▪ None

Board Committees

▪ None

She has declared that she does not hold any shares in any company in the Maldives that has or will be

perceived as a conflict of interest with HDFC Plc.

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15.4 Board Meetings

The Board meets a least once in every three months to review the Company’s performance and to

address specific or urgent matters requiring Board direction and approval. Where appropriate, the

Board liaises with the senior management through electronic media.

Director Attendance

Mr. Mohamed Mauroof Jameel (Nominee Director, GOM) 4/4

Ms. Aminath Sheena Musthafa(Nominee Director, GOM) 3/3

Mr. Mohamed Zuhair(Alt. Director, GOM) 0/4 (not require to attend)

Mr. Hamid Sodique (Alt. Director, GOM) 0/4 (not require to attend)

Mr. Conrad D’Souza (Nominee Director HDFC Investments/India) 4/4

Mr. Asif Saeed Cheema (Alt. Director, ADB) 0/4 (not require to attend)

Mr. Nihal Senanayake Welikala (Nominee Director, IFC) 4/4

Ms. Raheema Saleem (Managing Director, HDFC Maldives) 4/4

15.5 Annual General Meeting

The Annual General Meeting (AGM) of the shareholders requires a quorum comprising of

shareholders holding majority of shares of the Company. The AGM was held on the 18 May 2019 at

Champa Central Hotel.

15.6 Shari’ah Committee

HDFC Amna window is managed and systemised to ensure proper Shari’ah governance and

mechanism both within the section and among its shareholders. A Shari’ah Committee consisting of

three members has been established to advise the Board of Directors of HDFC on Shari’ah related

matters. The Shari’ah committee comprises of the following members.

Member Capacity

Dr. Ibrahim Zakariyya Moosa Chairman

Associate Professor Dr. Rusni Hassan Member

Dr. Mohamed Ibrahim Member

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15.7 Directors Compensation

All expenses to attend the Board meetings are borne by the Company. The Company’s board directors

are paid a sitting fee of MVR 4000/-for every Board meeting and MVR 2000/- for every board

committee sitting.

15.8 Management Team

HDFC’s management team has a very successful track record and many years of experience in the

Financial Services domain. The team, many of those members have been with the company for over 14

years, have several years of experience with some of the country’s largest financial institutions. The

senior management team started most of the company’s core functions and have steered them

through the challenges the company faced over the years. Apart from their core roles, each of the

senior management team members contribute to setting the overall direction of the company and

keep the same in mind when running their individual teams. The team has a continuous and strong

focus on improving the risk profile of the Company. The management promotes a results-oriented

culture that rewards employees on the basis of merit.

15.9 Details of the Management Team

NAME AGE ADDRESS DESIGNATION

Ms. Raheema Saleem 58 Ma. Bandhuge, Male’,

Maldives

Managing Director

Mr. Mohamed Fathy 44 M. Aveela, Orchid Magu,

Male’, Maldives

Assistant General Manager -IT

Ms. Aishath Rasheeda 49 Ma. Dhanas, Male’, Maldives Assistant General Manager -

Credit

Mr. Mohamed Shafeeq 42 H. Beehive, Male’, Maldives Assistant General Manager-

Accounts and finance

Mr. Adam Athif 48 H. Hulhumale’ Lot11360,

Hulumale, Maldives

Assistant General Manager -

Administration

Mr.Faisal Haleem 47 H. Cozy House, Male’,

Maldives

Manager Compliance

Mr.Azmeen Rasheed 30 G. Dolphin House, Male’,

Maldives

Manager-Islamic Finance

Mr. Ahmed Jawad 37 Ma. Red Heavan, Male’,

Maldives

Manager- IT

Mr. Ahmed Anwar 37 Anderpoolge. ADh. Omadhoo,

Maldives

Manager - Recovery

PROSPECTUS 2019

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15.10 Profile of the Management Team

Raheema Saleem- Managing Director

▪ Appointed as MD in 2017

▪ Joined HDFC in 2004

▪ Key positions held in HDFC include, Founding MD, Advisor to the MD and Operations

Director and Company Secretary.

▪ Over 25 years of operational and management experience both in public and private

sector. Worked in various positions including Assistant Director of Treasury. Specialist in

mortgage lending and finance

▪ Master of Business & Management and Master of Tourism from Monash University of

Melbourne and B.Com in Accounting and Marketing (double major) from Curtin

University of Western Australia

Mohamed Fathy- Assistant General Manager (IT)

▪ Appointed as AGM- IT in 2017

▪ Joined HDFC in 2004.

▪ Key positions held in HDFC include, Head of Internal Audit, Manager- IT and Senior

Manager IT.

▪ M.Sc. in IT Management from Asia Pacific University of Malaysia and B.Com. from

Bangalore University of India

Mohamed Shafeeq- Assistant General Manager (Finance)

▪ Appointed as AGM (Finance) in 2017


▪ Key positions held in HDFC include, Head of Finance, Senior Manager Business

Development and Operations, Manager Business Development and CRM and Accountant.

▪ Worked at Society of Health Education (SHE) as Finance Director from 1997-2009.

▪ Fellow member of Association of Charted Certified Accountants (ACCA).

▪ Master of Business Administration from University of Ballarat, through Unity College,

Malaysia, BA (Hons) Accounting and Finance by University of East London, UK obtained

through HELP University College, Malaysia.

Aishath Rasheeda - Assistant General Manager (Credit)

▪ Appointed as AGM- Credit in 2017


▪ Worked in Maldives Monetary Authority for more than 15 years

▪ Key positions held in HDFC include Credit Officer, Manager Credit and Senior Manager

Credit.

▪ Over 15 years of experience in mortgage finance

▪ Master of Business Administration from Cardiff Metropolitan University, Uk through

International College of Business Technology (ICBT) Sri Lanka

PROSPECTUS 2019

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Adam Athif- Assistant General Manager (Administration) & Company Secretary

▪ Appointed as Assistant General Manager in 2019


▪ Worked in the government and private sector since 1990-2004.

▪ Key positions held at HDFC include Senior Manager Administration and Human

Resource Development, Manager Administration and Human Resource Development and

Manager Administration.

▪ Diploma in Business Administration (ABE)

Faisal Haleem-Manager- (Compliance and Quality Assurance)

▪ Appointed as Manager in 2017 (Compliance & Quality & Assurance)


▪ Worked in the Ministry of Education

▪ Held key positions at HDFC including Assistant Manager-credit, Assistant Manager

Credit Audit.

▪ Affiliate member of Association of Charted Certified Accountants (ACCA).

▪ BA (Hons) Accounting and Finance from University of East London, UK through HELP

University College, Malaysia.

Azmeen Rasheed- Manager (Islamic Finance)

▪ Appointed in 2016 as Manager (Islamic Finance)


▪ Registered attorney in the Maldives,

▪ Lecturer on governance and Sharia related subjects.

▪ Master in Law, (Banking and Taxation Law) from Maldives National University.

▪ Bachelor’s Degree majoring in Sharia Law from Islamic University of Almadinah Al

Munawwarah (KSA).

Ahmed Jawad-Manager (IT)

▪ Appointed in 2016 as Manager IT


▪ Worked in MIFCO from 2003-2016

▪ Over 14 years of experience in Information Technology, especially in Enterprise Resource

Planning Environments and Data Management.

▪ M.Sc. in IT Management from Staffordshire University, UK, through Asia Pacific

University of Malaysia and BA in Business Information Technology from Coventry

University, UK through INTI International University of Malaysia.

PROSPECTUS 2019

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Ahmed Anwar-Manager (Recovery)

▪ Appointed as Manager - Recovery in 2019 (Compliance & Quality & Assurance)


▪ Worked in Omadhoo Council

▪ Held key positions at HDFC include Credit Officer, Accounts Assistant, Recovery Officer

and Assistant Manager - Recovery.

▪ Diploma in AAT, Certificate in Maldivian Land Law and Diploma in Shari’ah and Law.

PROSPECTUS 2019

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16.0 Corporate Governance

Sound Corporate Governance practices and responsible corporate behaviour contribute to long term

performance of companies. Best practices on governance issues are an evolutionary and continuing

process. There is no single template to define good governance. Broadly, however, good Corporate

Governance practices should aim at striking a balance between interests of various stakeholders on

the one hand and the duties and responsibilities of the Board and senior management in overseeing

the affairs of the Company on the other. The Corporate Governance policy in the Company

encompasses the simple doctrines of integrity, transparency and fairness in whatever the company

does and what it basically aims at achieving is a complete adherence to the applicable Statutes while at

the same time ensuring a complete commitment to values and the highest ethical standards in every

facet of its operations and in each of the functional areas. This in turn ensures that best in the class

concept of Corporate Governance practices become a way of life in the Company.

In line with the nature and size of operations of the Company, the Corporate Governance framework

in HDFC Maldives is based on the following main principles:

▪ Constitution of a Board of Directors of appropriate composition, size, varied experience and

commitment to discharge their responsibilities and duties.

▪ Conduct all affairs adhering to the highest standards of ethics, transparency, accountability,

honesty and integrity.

▪ Ensuring timely flow of information by providing accurate, fair, timely, full and meaningful

disclosures in the periodic reports to the Board, its Committees and other Stakeholders and

regulatory agencies to enable them to discharge their functions effectively.

▪ Independent verification and assured integrity of financial reporting.

▪ Timely and balanced disclosure of all material information concerning the Company and

potential conflicts of interest that the directors or management may have in the discharge of

their duties and responsibilities on corporate governance.

▪ A sound system of risk management and internal control.

▪ Prevent the misuse of misapplication of HDFC’s assets and resources.

▪ Compliance with applicable laws, rules and regulations.

16.1 Responsibilities of the Board

The HDFC Board is accountable to the shareholders for overseeing the management and performance

of the Company, and is responsible for the Company’s overall strategy and governance. The Board has

delegated the responsibility for day-to-day management of the Company to the Managing Director.

PROSPECTUS 2019

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16.2 Board Committees

The Board has constituted the following committees

▪ Audit Committee

▪ Nomination and Remuneration Committee

▪ Credit Risk Management Committee

16.2.1 Audit Committee Report

The Audit Committee was established in accordance with the Articles of Association 123 of HDFC Plc.,

and Article II Corporate Governance Section (b) of the Shareholders Agreement executed between the

Shareholders on 23 July, 2008, consisting of 3 non-executive directors from amongst the Board

Directors.

16.2.2 Objective of the Audit Committee

Prime objective of the Audit committee is to assist the Board in fulfilling its overall responsibilities

and shall include the following.

▪ To oversee the financial reporting process and disclosure of financial information;

▪ To review with management, quarterly, half yearly and annual financial statements and

accuracy and correctness before submission to the Board;

▪ Review the effectiveness of HDFC’s internal risk controls and risk management system;

▪ To review with management and internal auditors, the adequacy of internal control systems,

approving the internal audit plans/ reports and reviewing the efficacy of their function,

discussion and review of periodic audit reports including findings of internal investigations;

▪ To recommend the appointment of the internal and statutory auditors and their

remuneration;

▪ To review and approve required provisions to be maintained and write off decisions;

▪ To hold discussions with the Statutory and Internal Auditors;

▪ Review and monitoring of the auditor’s independence and performance, and effectiveness of

audit process;

▪ Examination of the auditors’ report on financial statements of the Company (in addition to

the financial statements) before submission to the Board;

▪ Scrutiny of corporate loans and investments;

▪ Review valuation undertaken for the Company;

▪ Review and critically evaluate the accounting policies, including the consistency in the

application of the policies, and any change being recommended to the accounting policies;

▪ Ensure that compliance requirements are adhered to and are being reported on a timely

manner;

▪ Evaluation of the risk management systems

▪ To hold post audit discussions with the auditors to ascertain any area of concern;

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16.2.3 Composition and Attendance of the Audit Committee

There were 03 meetings of the Audit Committee held during the year of 2018.Matters arising out of

the Audit Committee were also discussed across the Board. Membership and attendance details are as

follows;

Members Attendance

Mr. Conrad D’ Souza (Chairman) 3/3

Mr. Mohamed Mauroof Jameel Member 3/3

Mr. Nihal Senanayake Welikala Member 2/3

The period under review (Year 2018), the committee in general deliberated on the followings:

▪ Reviewed the Audited Financials for the year ended 2017

▪ Reviewed the budget for 2018 and approved for authorisation from the Board

▪ Reviewed the proposals sent by the external auditors for 2018 (PWC)

▪ Reviewed the proposals sent by the internal auditors for 2018 (KPMG)

▪ Reviewed CMDA quarterly reports through circulation

▪ Approval Ramzan allowance

▪ Presentation of AML report

▪ Endorsements to the changes made to the manuals

▪ Presentation of loan book against title deeds

▪ Review of directors’ approval on credit limit for borrowers

▪ Approval for closing of Addu Center and re-deploying the staff to Male’ head office

▪ Approval of 2019 budget and 2019 Business Plan

▪ Approval of Dividend

▪ Approval of Whistle Blowing Policy, Dividend Policy and Corporate Governance Policy

PROSPECTUS 2019

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16.3 Nomination and Remuneration Committee Report

The Nomination and Remuneration Committee was established in accordance with the Article of

Association 123 and Article II of the Corporate Governance Section (b) of the Shareholders Agreement

executed between the Shareholders on 23 July, 2008, consisting of 3 non-executive directors.

16.3.1 Objectives of the Nomination and Remuneration Committee

Prime objective of the Nomination and Remuneration Committee is to assist the Board in fulfilling its

overall responsibilities and shall include the following:

▪ Formulation of the criteria for determining qualifications, positive attributes and

independence of a director and recommend to the board of directors a policy relating to, the

remuneration of the directors, key managerial personnel and other employees;

▪ Formulation of criteria for evaluation of performance of independent directors and the board

of directors;

▪ Review of the organisation structure;

▪ Review and endorse HR policies;

▪ Adopt best HR practices for training, retention and development of staff

▪ Set and recommend new staff benefit schemes to the Board.

▪ Identify and shortlist suitable candidates to be recruited to the senior level positions.

Summary of the key activities the committee undertook during the period is listed:

▪ Approval of the renewal of MD’s Contract

▪ Approval of the bonus for 2018 and Ramadan Allowance for 2019

▪ Endorsement of the newly appointed nominee directors and alternate director

16.3.2 Composition and Attendance of the N & R Committee

There are 3 members in the Nomination and Remuneration Committee. There were 03 meetings of

the Nomination and Remuneration Committee during the period in review (1 Jan 2018- 31 December

2018).

Members Attendance

Mr. Mohamed Mauroof Jameel (Chairman) 3/3

ADB 3/3

Mr. Conrad D’ Souza 3/3

The details of the corporate governance is provided in Annex:7

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16.4 Credit Risk Management Committee

The Credit Risk Management Committee was established in accordance with the 123 of Article of

Association of HDFC Plc. and Article II Corporate Governance Section (b) of the Shareholders

Agreement executed between the Shareholders on July 23, 2008.

16.4.1 Composition and Attendance of the Credit Management Committee

Members Attendance

Mr. Nihal Senanayake Welikala (Chairman/Member) 1/1

Mr. Mohamed Mauroof Jameel (Member) 1/1

ADB (Member) 1/1

Note: All matters relating to credit approvals were circulated to the committee members. 10

conventional credit files were circulated to the board for approval and 12 Islamic Credit files were

circulated to the board for their approval.

16.4.2 Objectives of the Committee

▪ To approve proposed changes in Lending Prudential guidelines and major credit policies

▪ To approve discretion’s and onward delegation guidelines of the next level of management

▪ To consider and determine proposals exceeding management’s approval limits

▪ To receive and review reports on credit quality, risk management policies and procedures

▪ To consider and approve general provisioning policies and specific provisions

▪ Carryout such other duties that may be delegated to the committee by the Board from time to

time

16.5 Sharia’h Committee

HDFC’s Amna wing is managed to ensure proper Sharia’h governance mechanism both within the

department and among its shareholders. A Sharia’h committee consisting of three members has been

established to advise the Board of Directors of the Company on Sharia’h related matters and issues.

Five meetings of the Sharia’h Committee were held during the year ended 31 December 2018.

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17.0 Risk Related to the Issuer

As a housing finance Company, risk is inherent to our activities, but it is managed through a process of

on-going identification, measurement and monitoring, subject to risk limits and related controls

HDFC’s activities primarily relate to the provision of mortgage home finance for the construction and

purchase of residential properties.

The Company’s activities are exposed to a variety of financial risks and those activities involve

analysis, evaluation, acceptance and management of risk or a combination risk.

HDFC’s Balance Sheets value as at the year ended 31 December, 2018 stood at MVR 1.58 billion of

which, borrowings (See Note: 24 of the audited Financial Statements in Annexure 5) MVR 0.64 billion

represented by:

1. DEG

2. FMO

3. BML

4. BOC

5. HBL

6. SBI

7. WAKALA

8. Pension Benefit Scheme Fund

In addition to the above, HDFC total debt securities (See Note: 23 of the audited Financial Statements

in Annexure 5) MVR 0.21 billion represented by:

billion

Listed and Corporate Bonds 0.10

Listed Sukuk 0.11

Comprehensive discussion and analysis of exposure to risks, coupled with periodic reviews of the

quality and adequacy of risk controls throughout the year enabled us to manage risks in a rapidly

changing economic and regulatory environment. We continue to review on an on-going basis, the

organization’s risk profile relative to its risk appetite and changes in local economic conditions. Our

rigorous internal controls, internal audit and compliance regimen ensure that our risk mitigation

processes remain robust and dependable as identification and management of these risks are essential

to the Company’s success and financial soundness.

The Company is exposed to the following risks;

▪ Interest rate risk

▪ Exchange risk

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▪ Credit spread risk

▪ Liquidity risk

▪ Equity risk

▪ Market risk

▪ Payment (default) risk

Interest Rate Risk

HDFC is exposed to the risks associated with the effects of fluctuation in the prevailing levels of

market interest rates. This exposure while concentrating in its liabilities is also applicable in the

determination of market interest rates on mortgage financing. The extent of the interest rate risk

depends on the value and period of the maturity mismatch between interest bearing assets and

liabilities and the ability and speed of HDFC in re-pricing them. The Asset Liability Committee

(ALCO) regularly reviews these gaps to ensure that they are within acceptable norms. HDFC regularly

monitors the market behaviour and products are appropriately re-priced when necessary.

Exchange Risk

Foreign exchange risk is mitigated through a hedging mechanism by entering into a “Currency Swap

Agreement”. Presently we have an arrangement with State Trading Organization Plc.

Credit Spread Risk

Credit spread risk arises only if the HDFC Fixed Income Bond yields a return lower than the yields on

treasuries. Since HDFC Bond (II) pricing will offer a premium to the investor giving a yield of 240

basis points above the Government Treasury Bill Rate (GTBR), the Credit Spread risk has been

effectively addressed.

Liquidity Risk

The offered Bond (II) will be listed on the Maldives Stock Exchange, and their liquidity and trading

ability will be dependent on the attributes of this market. Liquidity can be made available for the Bond

holders through trading on the Stock Exchange.

Equity Risk

Since the shares of HDFC is not listed on the Maldives Stock Exchange and held between

International Shareholders and the Government of Maldives, the company does not have an equity

risk.

Market Risk

Market risk is the risk that the fair value or the future cash flows of the financial instruments will

fluctuate because of the changes in market prices. HDFC has a significant concentration of fair value

risk on the properties taken as mortgage security for home loans. Due to the very nature of the assets

funded under the portfolio, it makes the Company exposed to the risks associated with economic

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standing of the Maldives particularly as it relates to the cost of construction, rental market for

residential properties, real estate values and sales.

Market risk is mitigated by

▪ Strict credit criteria that preserve the margin of the amount funded versus the cost/value on

any property.

▪ Prudential criteria that would ensure that the ability to repay debt is reasonably assured by

customer’s financial circumstances and credit history

▪ Regular review and assessment of market factors that affect the quality of the mortgage

portfolio.

Payment (Default) Risk

Payment risk is the risk that the issuer will default on payment of interest and principal. HDFC’s

liquidity management process ensures that it has sufficient liquidity to pay its creditors and lenders

when they fall due. Assets and Liabilities Management Committee (ALCO) closely monitors the

maturity profile of assets and liabilities of the Company.). ALCO is a strategic decision making body

constituted under the corporate governance philosophy to mitigate the risks arising from cash flow

mismatches. The Committee comprises of the Company’s EXCO team which meets regularly every

week.

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17.1 Risk Management Policies

HDFC’s risk management is a discipline that forms the core of the Company and encompasses all the

activities that affect the company’s risk profile. As a housing finance institution, the Company is

exposed to various risks like credit risk and market risk. The risk management policies and processes

adopted by HDFC are given below.

a) Credit Risk

The Company takes on exposure to credit risk, which is the risk that counterparty will cause a

financial loss for HDFC by failing to discharge an obligation. Credit risk is the most important risk for

HDFC’s business; management therefore carefully manages its exposure to credit risk. Credit

exposure arises principally in lending activities that lead to loans and advances. There are also credit

risks in off-balance sheet financial instruments.

Credit policies were formulated covering HDFC’s credit activities and establishment of individual

limits of authority for initiating, reviewing and approving credit. Prudential due diligence on

customers’ credit worthiness is assessed using the Maldives Credit Information Bureau, physical

verification and background screening.

b) Liquidity Risks

Liquidity risk arises when HDFC is unable to meet its payment obligations associated with its

financial liabilities when they fall due, and to replace funds when they are withdrawn. The

consequence may be the failure to meet obligations to repay depositors and fulfil commitments to

lend.

HDFC’s liquidity management process, as carried out within HDFC and monitored by the EXCO

management team of the company includes:

▪ Day-to-day funding, managed by monitoring future cash flows to ensure that requirements

can be met. This includes replenishment of funds as they mature or are borrowed by

customers;

▪ Maintaining a portfolio of deposits with bank and treasury bills that can easily be liquidated

as protection against any unforeseen interruption to cash flow;

▪ Monitoring balance sheet liquidity ratios against internal requirement;

▪ Managing the profiles of debt maturities;

▪ Monitoring and reporting in the form of cash flow measurement and projections for the next

week and month respectively, as these are key periods for liquidity management. The starting

point for those projections is an analysis of the contractual maturity of the financial liabilities

and the expected collection date of the financial assets.

▪ HDFC also monitors unmatched medium-term assets, the level and type of undrawn lending

commitments and undrawn borrowings.

PROSPECTUS 2019

~ 62 ~

17.2 Capital Management of HDFC

HDFC’s objectives when managing capital, which is a broader concept than the “equity” on the face of

the balance sheet, are:

▪ To comply with the capital requirements set by the lender;

▪ To safeguard HDFC’s ability to continue as a going concern so that it can continue to provide

returns to shareholders and benefits for other stakeholders;

▪ To maintain a strong capital base to support the development of its business;

▪ Capital adequacy and the use of regulatory capital are monitored daily by HDFC’s

management, employing techniques based on the guidelines developed by the Basel I

Committee, for supervisory purposes.

A risk-weighted assets are measured by means of a hierarchy of five risk-weights classified according

to the nature of - and reflecting an estimate of credit, market and other risks associated with each

asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is

adopted for off-balance sheet exposure, with some adjustments to reflect the more contingent nature

of the potential losses.

18.0 Material Outstanding Indebtedness in

Relation to the Issue

As at 31st December 2018 HDFC Plc., does not have any debts in the Company’s Statement of

Financial position that cannot be serviced from its ordinary course of business.

PROSPECTUS 2019

~ 63 ~

19.0 Staff Details

At the date of publication of prospectus, the company has 36 permanent staff. Broad categories

20.0 Disclosure of Material Contracts and Conflict of

Interest of Directors

▪ None of the Board Directors have any material interest in any contract of the Company.

▪ The Company is not in any breach or violation of, or in default under, any material contract.

▪ As of the date of this prospectus, the Company has not received any written notice of default

under any material contract.

▪ No event has occurred which would result in a breach or violation of, or a default under any

material contract.

▪ No material Contract has been cancelled by the Company or any other party.

▪ The Company has entered into contracts worth MVR 856.84 million to facilitate the business

of HDFC and commence operations. There are no claims by any parties pending under any

Material Contract.

▪ The Company does not anticipate any termination of or change to, or receipt of a proposal

with respect to any Material Contract as a result of issuing the Prospectus.

Categories Number

Corporate 1

Finance 10

Credit 6

HR and Admin 6

AMNA 3

Technical 2

Recovery 3

IT 3

Support Staff 2

Total 36

PROSPECTUS 2019

~ 64 ~

20.1 Summarized Detail of Material Contracts as at 31 December 2018

No. Borrowings/ Lender Balance (MVR)

Instalment Maturity

1 Long Term Loan - FMO 21,454,736

Biannually 2019

3 Long Term Loan - BML 74,250,000.00

Monthly 2023

4 Long Term Loan - DEG 106,475,238

Biannually 2023

5 Long Term Loan - BOC 106,970,084

Biannually 2022

6 Long Term Loan - HBL 46,200,000.00

Biannually 2021

8 Listed and corporate Bonds 104,759,542 Biannually 2028

9 Wakala Facility (Islamic) 140,217,356 Biannually 2018-

2023

10 Listed Sukuk 114,219,795 Biannually 2024

11 Pension Benefit Scheme Fund 3,041,482 Biannually

12 Long Term Loan- SBI 139,256,754 Biannually 2025

21.0 Auditors

The Board of Directors on the recommendation of the Audit Committee, appointed PwC as the

Company’s External Auditor for 2019.

The internal auditor for 2019 is KPMG. The internal audit is conducted quarterly all through the year

with emphasis on different operational components being addressed every quarter while compliance

and financial components addressed at every quarter end.

The internal audit’s focus was concentrated on the following areas

▪ Accounting and Finance Reporting

▪ Treasury operations

▪ Fixed asset management

▪ Compliance

▪ Housing loans

▪ IT audit

▪ Administration

▪ Procurement

▪ Human resource management

PROSPECTUS 2019

~ 65 ~

22.0 Capital Structure

As at the date of this Prospectus the share capital of the company is as follow. Details of the

shareholding Company is given below (including Directors of the Board).

Authorized share capital: MVR 318,750,000

Issued share capital: MVR 159,375,000

MVR 100 par value

Shareholders Name Value of share(s) held No. of share(s) held

Government of Maldives 78,092,800 780,928

International Finance Corporation 28,687,500 286,875

Asian Development Bank 28,687,500 286,875

HDFC Investments Ltd. 23,906,200 239,062

Mr. Ibrahim Naeem 100 01

Ms. Raheema Saleem 100 01

Mr. Hamid Yusuf 100 01

Mr. Mohamed Shahudy 100 01

Ms. Aishath Rasheeda 100 01

Mr. Mohamed Fathy 100 01

Mr. Mohamed Hamdhan Fahumy 100 01

Mr. Ahmed Anwar 100 01

Mr. Nahid Idrees 100 01

Reserved for Expat MD 100 01

PROSPECTUS 2019

~ 66 ~

23.0 Other Information

23.1 Litigations

At the date of publication of this Prospectus, to the best of the Company’s knowledge and

understanding, there is no significant on-going litigation by or against HDFC or any of its directors.

There has not been any significant litigation against HDFC or any of its directors in the past five years,

nor are there any penalties imposed by any regulatory authority or judicial decision.

23.2 Taxes

Housing Development Finance Corporation is required to pay the following taxes.

1) Business Profit Tax 15%

2) Withholding Tax 10%

At the date of this prospectus there is no unpaid tax from the Company.

(MIRA letter in Annex: 8)

23.3 New Standards, Amendments and Interpretations Issued But Not

Yet Adopted

The following new standards and amendments to standards had been issued but were not mandatory

for annual reporting periods ending 31 December 2018.

▪ IFRS 16 “Leases” (effective annual periods beginning on or after 1 January 2019)

Annex: 1

Bond Redemption Schedule


Prospectus – HDFC Fixed Income Bonds Issue No. 03

Amount 1,000.00 Interest Rate (per annum) 7.00%Period (in years) 10No. of repayment instalments 20Fixed Instalment 70.36 Schedule

Instalment Opening Balance Principal Amount InterestSchedule payment Closing Balance

1 1,000.00 35.36 35.00 70.36 964.64 2 964.64 36.60 33.76 70.36 928.04 3 928.04 37.88 32.48 70.36 890.16 4 890.16 39.21 31.16 70.36 850.96 5 850.96 40.58 29.78 70.36 810.38 6 810.38 42.00 28.36 70.36 768.38 7 768.38 43.47 26.89 70.36 724.91 8 724.91 44.99 25.37 70.36 679.92 9 679.92 46.56 23.80 70.36 633.36

10 633.36 48.19 22.17 70.36 585.17 11 585.17 49.88 20.48 70.36 535.29 12 535.29 51.63 18.73 70.36 483.66 13 483.66 53.43 16.93 70.36 430.23 14 430.23 55.30 15.06 70.36 374.92 15 374.92 57.24 13.12 70.36 317.68 16 317.68 59.24 11.12 70.36 258.44 17 258.44 61.32 9.05 70.36 197.13 18 197.13 63.46 6.90 70.36 133.66 19 133.66 65.68 4.68 70.36 67.98 20 67.98 67.98 2.38 70.36 0.00-

TOTAL 1,000.00 407.22 1,407.22

BOND REDEMPTION SCHEDULE

Annex: 2

Legal Due Diligence



Annex: 3

Accountants Report



Annex: 4

Extract of Articles



EXTRACT OF ARTICLES OF ASSOCIATION The Objects for which the Corporation is established are

(a) To engage in the business of granting loans advances or any other financial facilities or accommodation with or without subject to interest to any individual, partnership , business, corporation, company, association, society and the like/or the purpose of purchasing or otherwise acquiring lands, dwelling houses, Flats, Apartments, Housing Units, Buildings, Premises, Commercial Buildings, Offices, Business and Shopping Complexes and the like for residential or commercial purposes and/or the purpose of erecting constructing or building houses, Flats, Apartments, Housing Units, buildings, Shopping Complexes and/or for the purpose of demolishing, rebuilding, enlarging, altering, adding extending, renovating, repairing, decorating, modifying, furnishing or improving existing houses, Flats, Apartments, Housing Units, buildings and/or for Promotion and development of commercial property and Housing Schemes and Housing Projects and to convert appropriately any such land into other facilities and generally to deal with and develop the property either with or without security or upon the securities of all descriptions whether real or personal or upon the mortgage of property.

(b) To accept time and savings deposits and opening, maintaining and managing deposit,

savings and other similar accounts.

POWERS TO ALTER CAPITAL

Section 18 & 19

“The Corporation may from time to time with the sanction of an Ordinary Resolution in a general meeting alter the conditions of the Memorandum relating to Share capital by:-

a) Increasing its capital by the creation of new Shares. b) consolidating and dividing all or any of its Share capital into Shares of larger amounts

than its existing Shares; c) converting all or any of its paid-up Shares into stock, or reconverting stock into paid-

up Shares of any denomination; d) subdividing all or any of its Shares into Shares of smaller amount than is fixed by the

Memorandum and so that the resolution whereby any Share is sub-divided may determine that, as between the Holders of the Shares resulting from such sub-division one or more of the Shares may have any such preferred or other special rights over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Corporation has power to attach to unissued or new Shares; or

e) cancel any Shares which at the date of the passing of the resolution have not been taken or agreed to be taken.

Section 21

Subject to Section 41 of the Act, the Corporation may, by Special Resolution and with prior written approval of the registrar of companies, reduce its Share capital (and thereby alter the Memorandum and the amount of the Shares) provided that the:-

a. capital available for satisfying the claims of creditors shall not be diminished except

by ordinary business risks; and

b. reduction is equitable as between the various classes of Members.

BORROWING POWERS

Section 130 The Directors may exercise all the powers of the Corporation to borrow money and may mortgage or charge its undertaking property and uncalled capital, and issue debentures, debenture-stock, convertible loan stock and other securities, whether outright or as collateral security for any debt, liability or obligation of the Corporation or of any third party; provided that the aggregate amount at any one time outstanding of moneys borrowed by the Corporation and its subsidiaries (exclusive of inter Corporation borrowings) shall be :-

a) any temporary borrowing secured or unsecured from bankers or others in the ordinary course of business to meet temporary requirements; and

b) moneys borrowed with or without security for the purpose of conversion, redemption, renewal or payment off of previously existing debentures, debenture-stock or other loan capital;

c) The Corporation shall not without the previous sanction of the Corporation in general meeting by ordinary, extra-ordinary or Special Resolution exceed twenty (20) times the total of -

d) the nominal amount of the issued and Paid Up Share capital of the Corporation for the time being; and

e) the amount for the time being standing to the credit of the Share Premium account in the books of the Corporation.

Section 131

Nevertheless no person dealing with the Corporation shall be concerned to see or inquire whether these limits are observed and no debt incurred or security given in excess of such limit shall be invalid or ineffectual unless the lender or the recipient of the security had, at the time when the debt was incurred or security given, express notice that the limit hereby imposed had been or would thereby be exceeded.

Section 132

a) Any bonds, debentures, debenture- stock, convertible loan stock or other securities issued or to be issued by the Corporation shall be under the control of the Directors, who may issue them upon such terms and conditions and in such manner and for such consideration as they shall consider to be for the benefit of the Corporation.

b) Bonds, debentures, debenture-stock, convertible loan stock and other securities may be made assignable free from any equities between the Corporation and the person to whom the same may be issued.

c) Any bonds, debentures, debenture-stock, convertible loan stock or other securities may be

issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of Shares, attending and voting at general meetings of the Corporation, appointment of Directors and otherwise

d) All certificates for debentures, debenture-stock, loan stock or other securities issued in terms of these presents shall be issued under the Seal of the Corporation.

SHARE QUALIFICATION OF DIRECTORS

Section 103 The number of Directors comprising the Board shall not be more than seven (7). Each Initial Shareholder holding shares or Share Equivalents representing at least five per cent (5%) of all Shares then outstanding on an as-converted basis shall have the right to nominate one (1) Director and one (1) Alternate Director who shall be elected to the Board, except for the GOM who shall have the right

to nominate two (2) Directors who shall be elected to the Board. The Managing Director will have a seat on the Board without any voting right. Section 105 The Directors of the Corporation shall be Shareholders of the Corporation. If the Shareholders are legal entities then the Directors shall be persons nominated by the respective entity

REMUNERATION OF DIRECTORS

Section 107

The remuneration of the Directors (excluding any remuneration payable under any other provisions of these Articles) shall be such sum as the Corporation in general meeting shall determine, and such remuneration shall be divided among the Directors in such manner as they shall from time to time determine and shall accrue de die in diem. The Corporation may also by Ordinary Resolution vote extra remuneration to the Directors or to any Director for either one Year or any longer or shorter period. Section 108 The Corporation may repay to any Director all such reasonable expenses as he may incur in attending and returning from meetings of the Directors or of committees of the Directors or general meetings, or which he may otherwise incur in or about the businesses of the Corporation or may pay to any Director such allowances as the Directors think proper in respect of such expenses. Section 109 Any Director who serves on any committee or who otherwise performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director, may in addition to the reimbursement of expenses reasonably incurred by him be paid such extra remuneration by way of salary, percentage of profits or otherwise as the Directors may determine.

POWER OF DIRECTORS TO VOTE ON A CONTRACT ON WHICH HE IS INTERESTED

Section 120 A Director who is in any way, whether directly or, indirectly interested in a contract or proposed contract with the Corporation shall declare the nature of his interest.

ELECTION AND REMOVAL OF DIRECTORS

Section 113 Each Member shall subject to the provisions of Article 103 hereof, have the power at any time and from time to time to appoint any person to be a Director. However the total number of Directors and the number of Directors appointed by a Member shall not any time exceed the maximum numbers appointable as fixed by these Articles.

Section 114 Subject to the provisions of Article 113 no Director can be removed from office except by the Member that appointed him.

Section 115 A letter from the party having the power to appoint Directors under Article addressed to the Corporation appointing or removing their respective appointees shall be sufficient for such appointment or removal and such appointment or removal shall become effective immediately upon the delivery of such letter at the registered Office of the Corporation.

Section 116 The office of Director shall be vacated upon the happening of any one of the following events, namely – a. if he becomes prohibited by law from acting as a Director; b. if (not being an executive Director holding office as such for a fixed term) he resigns by writing

under his hand left at the Office; c. if a receiving order is made against him or if he compounds with his creditors or is adjudicated an

insolvent; d. if he be lunatic or becomes of unsound mind; e. if he be absent from three consecutive meetings of the Directors without leave and the Directors

resolve that his office be vacated; f. if (being required to hold any qualification) he does not obtain his qualification within two

Months after his appointment, or at any time thereafter ceases to hold his qualification, and so that a Director vacating office under this provision shall be incapable of being re-appointed a Director until he shall have obtained his qualification;

g. by death.

VOTING RIGHTS OF SHAREHOLDERS

Section 87 Subject to any rights or restrictions attached to any Shares or class of Shares, on a show of hands every Member who is present in person (or by proxy) shall have one vote and on a poll every Member present in person (or by proxy) shall have one vote for every Share of which he is the Holder.

Section 88 No Member shall be entitled to vote at a general meeting either personally or by proxy or by attorney or by representative or to exercise any privilege as a Member unless all calls or other sums presently payable by him in respect of Shares in the Corporation have been paid.

Section 91 No objection shall be raised to the qualification of any person to vote except at the meeting or adjourned meeting at which the vote objected to is tendered, and every vote not disallowed at the meeting shall be valid. Any objection made in due time shall be referred to the chairman whose decision shall be final and conclusive.

Section 92 On a poll votes may be given either personally or by proxy.

Section 93 An instrument appointing a proxy shall be in writing

Annex: 5

Audited Financial Statements

For The Year Ended 31-12-18



HOUSING DEVELOPMENT FINANCE CORPORATION PLC

Financial Statements – 31 December 2018

PricewaterhouseCoopers, H. Thandiraimage, 3rd Floor, Roshanee Magu, Malé, Republic of Maldives

Tel: +960 3318342, 3336046, Fax: +960 3314601, www.pwc.com/lk

Partners D.T.S.H. Mudalige FCA, C.S. Manoharan FCA, Ms. S. Perera ACA, T.U. Jayasinghe FCA

Resident Partner Jatindra Bhattray FCA

PricewaterhouseCoopers is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Independent auditor’s report

To the Shareholders of Housing Development Finance Corporation Plc

Our opinion

In our opinion, the accompanying financial statements give a true and fair view of the financial

position of Housing Development Finance Corporation Plc (“the Company”) as at December 31,

2018, and of its financial performance and cash flows for the year then ended in accordance with

International Financial Reporting Standards (IFRS).

What we have audited

The financial statements of the Company, which comprise:

the statement of financial position as at December 31, 2018;

the statement of comprehensive income for the year then ended;

the statement of changes in equity for the year then ended;

the statement of cash flows for the year then ended; and

the notes to the financial statements, which include a summary of significant accounting policies.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s Responsibilities for the

Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the International Ethics Standards Board

for Accountants Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our

other ethical responsibilities in accordance with the IESBA Code.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in

our audit of the financial statements of the current period. These matters were addressed in the

context of our audit of the financial statements as a whole, and in forming our opinion thereon, and

we do not provide a separate opinion on these matters.

2

Key audit matter How our audit addressed the Key audit matter

Impairment of loans and advances

Refer to Note 16 of the financial statements.

Specific work that we performed on the loss allowance on loans and advances recognised by management included the following;

As at 31 December 2018, 92.3% of the total assets of the Company consisted of loans and advances amounting to MVR 1.6 billion shown net of loss allowance of MVR 26.2 million.

The loss allowance in respect of loans and advances represent management’s best estimate of the impairment loss incurred and expected within the loan portfolio at the reporting date.

The loss allowance had been calculated using statistical methods and historical collection trends adjusted for forward-looking information. Significant estimates and assumptions used by the management in such calculations and the basis for impairment allowance is disclosed in Note 29.1.

- Tested the completeness of the loans and advances considered in the loan loss calculation by checking the mathematical accuracy of the listing obtained and matched the outstanding balances with the general ledger.

- Assessed the reasonableness of management’s estimated future recoveries of individual customer loans and advances including the expected future cash flows, discount rates and valuation of collateral held by testing the key underlying assumptions and evaluating the process by which those were drawn up.

- Tested the accuracy and completeness of underlying information in loans and advances used in the expected loan loss allowance calculation, such as disbursed and undisbursed loan amounts, deposits, values of the collateral, aging and loan tenure periods by agreeing details with the respective customer statements and files on a sample basis. - Tested the methodology applied in the loan loss allowance calculation by checking compliance with the requirements of IFRS 9, Financial instruments; recognition and measurement, and also considered reasonableness of macro-economic and other factors used by the management by comparing them with publicly available data and information sources.

The impact on transition to IFRS 9 on recognition of expected credit loss to the Company’s financial statements has been quantified and presented separately in Note 2.2 of the financial statements.

- Assessed the adequacy of the related financial statement disclosures as set out on Notes 2.2, 16 and 29.1 for compliance with required IFRS 9 disclosures.

We have identified expected credit loss allowance for loans and advances as a key audit matter as the calculation of loan loss allowance is a complex area and requires management to make significant assumptions and judgements.

Other information

Management is responsible for the other information. The other information comprises the annual report for the year ended 31 December 2018 (but does not include the financial statements and our auditor’s report thereon) which is expected to be made available to us after the date of this auditors’ report.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the Board. Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

3


31 December 2018

Notes to the financial statements

(All amounts in Maldivian Rufiyaa)

1 General information

2 Summary of significant accounting policies

2.1 Basis of preparation

2.2

9

This financial report for the year ended 31 December 2018 has been prepared in accordance withInternational Financial Reporting Standards (IFRS). The financial statements have been preparedunder the historical cost convention whereby the transactions are recorded at the values prevailing onthe dates when the assets were acquired, the liabilities were incurred or the capital obtained.

The accounting policies adopted are consistent with those of the previous financial year except forthe adoption of new and amended standards as set out in Note 4.

In the process of applying HDFC's accounting policies, management has used its judgements andmade estimates in determining the amount recognised in the financial statements. The mostsignificant use of judgement and estimates are set out in Note 3.

Changes in accounting policies

HDFC has adopted IFRS 9 as issued by the IASB in July 2014 with a date of transition of 1 January2018, which resulted in changes in accounting policies and adjustments to the amounts previouslyrecognised in the financial statements. HDFC did not early adopt any of IFRS in previous periods.

As permitted by the transitional provisions of IFRS 9, HDFC elected not to restate comparativefigures. Any adjustments to the carrying amounts of financial assets and liabilities at the date oftransition were recognised in the opening retained earnings of the current period. Consequently, fornotes disclosure, the consequential amendments to IFRS 7 disclosures have also only been applied tothe current period. The comparative period notes disclosures repeat those disclosures made in theprior year.

Housing Development Finance Corporation PLC (HDFC) is engaged in the business of grantinghousing loans for residential and commercial purpose. The registered office is situated at 4th Floor,H. Mialani, Sosun Magu, Male', Republic of Maldives.

HDFC is a limited liability company and is incorporated and domiciled in the Republic of Maldives.

The principal accounting policies adopted in the preparation of these financial statements are set outbelow. These policies have been consistently applied to all the years presented, unless otherwisestated.

The adoption of IFRS 9 has resulted in changes in the accounting policies for recognition,classification and measurement of financial asssets and liabilities and impairment of financial assets.IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7"Financial instruments: Disclosures".

Set out below are disclosures relating to the impact of the adoption of IFRS 9 of HDFC. Furtherdetails of the specific IFRS 9 accounting policies applied in the current period ( as well as theprevious IAS 39 accounting policies applied in the comparative period) are described in more detailin section 2.3 below.


31 December 2018

Notes to the financial statements (continued)


2.2

Carrying amount

Carrying amount

Cash and cash equivalents 135,525,548 135,525,548

Financial assets held to maturity 29,959,834 29,959,834

Loans and advances 1,410,515,498 1,404,660,700

IAS 39 carrying amount 31 December 2017

Amortised cost

135,525,548

29,959,834

10

Amortised cost (Loans and receivables) Amortised cost

Amortised cost (Held to maturity) Amortised cost

Amortised cost (Loans and receivables) Amortised cost

Changes in accounting policies (continued)

(a) classification and measurement of financial instruments

The measurement category and the carrying amount of financial assets and liabilities in accordancewith IAS 39 and IFRS 9 at 1 January 2018 are compared as follows:

Financial assetsIAS 39 IFRS 9

Measurement categoryMeasurement

category

Remeasurements IFRS 9 carrying

amount 1 January 2018

Cash and cash equivalents

Opening balance under IAS 39 and closing balance under IFRS 9

- 135,525,548

There were no changes to the classification and measurement of financial liabilities.

(b) Reconciliation of statement of financial position balances from IAS 39 to IFRS 9

HDFC performed a detailed analysis of its business models for managing financial assets andanalysis of their cash flow characteristics.

Please refer to the note 2.3.1 for more detailed information regarding the new classificationrequirements of IFRS 9.

The following table reconciles the carrying amounts of financial assets, from their previousmeasurement category in accordance with IAS 39 to their new measurement categories upontransition to IFRS 9 on 1 January 2018:

Financial assets held to maturity

Opening balance under IAS 39 and closing balance under IFRS 9

- 29,959,834


31 December 2018



2.2

IAS 39 carrying amount 31 December 2017

Amortised cost

1,410,515,498

Measurement category

Loan loss allowance under IAS 39/ Provision under IAS 37

28,581,371 4,918,633

- 936,165

2.3

11

Remeasurement : ECL allowance

(5,854,798)

Closing balance under IFRS 9 1,404,660,700

The total remeasurement loss of MVR 5,854,798 was recognised in opening retained earnings at 1January 2018.

Loans and advancesOpening balance under IAS 39

Remeasurements IFRS 9 carrying

amount 1 January 2018

(b) Reconciliation of statement of financial position balances from IAS 39 to IFRS 9 (continued)

Changes in accounting policies (continued)

Loans and advances 33,500,004

Loan commitments

Loans and advances 936,165

(c) Reconciliation of impairment allowance balance from IAS 39 to IFRS 9

The following table reconciles the prior period's closing impairment allowance measured inaccordance with IAS 39 incurred loss model to the new impairment allowance measured inaccordance with the IFRS 9 expected loss model at 1 January 2018:

Remeasurements Loan loss provision

under IFRS 9

Loans and receivables ( IAS 39) / financial assets at amortised cost (IFRS 9)

The amortised cost is the amount at which the financial asset or financial liability is measured atinitial recognition minus the principle repayments, plus or minus the cumulative amortisation usingeffective interest rate method of any difference between that initial amount and the maturity amountand, for financial assets, adjusted for any loss allowance.

Further information on the measurement of the impairment allowance under IFRS 9 can be found innote 29.1.2.

Summary of significant accounting policies

This note sets out the significant accounting policies adopted in the preparation of these financialstatements.

2.3.1 Financial assets and liabilities

Measurement methods

Amortised cost and effective interest rate


31 December 2018



2.3

Interest income

12

Effective interest rate is the rate that exactly discounts estimated future cash payments or receiptsthrough the expected life of the financial asset or financial liability to the gross carrying amount of afinancial asset ( i.e. its amortised cost before any impairment allowance ) or to the amortised cost of afinancial liability. The calculation does not consider expected credit losses and, the loan processingfees since the amount is immaterial.

When HDFC revises the estimates of future cash flows, the carrying amount of the respectivefinancial assets or financial liability is adjusted to reflect the new estimate discounted using theoriginal effective interest rate. Any changes are recognised in profit or loss.

Interest income is calculated by applying the effective interest rate to the gross carrying amount offinancial assets, except for the financial assets that have subsequently become credit-impaired ( orstage 3'), for which interest revenue is calculated by applying the effective interest rate to theiramortised cost (i.e. net of the expected credit loss provision).

Initial recognition and measurement

Financial assets and financial liabilities are recognised when HDFC becomes a party to thecontractual provisions of the instrument. Regular way purchases and sales of financial assets arerecognised on trade-date, the date on which HDFC commits purchase or sell the asset.

Summary of significant accounting policies

2.3.1 Financial assets and liabilities (continued)

Measurement methods (continued)

Amortised cost and effective interest rate (continued)

At initial recognition, HDFC measures a financial asset or financial liability at its fair value plus orminus, in the case of a financial asset or financial liability not at fair value through profit or loss,transaction costs that are incremental and directly attributable to the acquisition or issue of thefinancial asset or financial liability, such as fees and commissions. Immediately after initialrecognition, an expected credit loss allowance (ECL) is recognised for financial assets measured atamortised cost, as described in note 2.3.1.1, which results in an accounting loss being recognised inprofit or loss when an asset is newly originated.

When the fair value of financial assets and liabilities differs from the transaction price on initialrecognition, the entity recognises the difference as follows:

(a) When the fair value is evidenced by a quoted price in an active market for an identical asset orliability (i.e. a Level 1 input) or based on a valuation technique that uses only data from observablemarkets, the difference is recognised as a gain or loss.

(b) In all other cases, the difference is deferred and the timing of recognition of deferred day oneprofit or loss is determined individually. It is either amortised over the life of the instrument, deferreduntil the instrument's fair value can be determined using market observable inputs, or realisedthrough settlement.


31 December 2018



2.3

(i) HDFC's business model for managing the asset; and(ii) the cash flow characteristics of the asset.

(ii) Impairment

13

2.3.1.1 Financial assets

(i) Classification and subsequent measurement

From 1 January 2018, HDFC has applied IFRS 9 and classifies its financial assets at amortised cost.

Summary of significant accounting policies (continued)

HDFC assesses on a forward-looking basis the expected credit losses ('ECL') associated with its debtinstrument assets carried at amortised cost with the exposure arising from loan commitments. HDFCrecognises a loss allowance for such losses at each reporting date. The measurement of ECL reflectsan unbiased and probability-weighted amount that is determined by evaluating a range of possibleoutcomes;

SPPI: Where the business model is to hold assets to collect contractual cash flows, HDFC assesseswhether the financial instruments' cash flows represent solely payments of principal and interest (the`SPPI test'). In making this assessment, HDFC considers whether the contractual cash flows areconsistent with a basic lending arrangement i.e. interest includes only consideration for the timevalue of money, credit risk, other basic lending risks and a profit margin that is consistent with abasic lending arrangement. Where the contractual terms introduce exposure to risk or volatility thatare inconsistent with a basic lending arrangement, the related financial asset is classified andmeasured at fair value through profit or loss.

HDFC reclassifies debt investments when and only when its business model for managing thoseassets changes. The reclassification takes place from the start of the first reporting period followingthe change. Such changes are expected to be very infrequent and none occurred during the period.

Business model: the business model reflects how HDFC manages the assets in order to generate cashflows. HDFC's objective is solely to collect the contractual cash flows from the assets. Factorsconsidered by HDFC in determining the business model for a group of assets include past experienceon how the cash flows for these assets were collected, how the asset's performance is evaluated andreported to key management personnel, how risks are assessed and managed.

The classification requirements for debt instruments are described below:

Debt instruments are those instruments that meet the definition of a financial liability from theissuer's perspective, such as loans, government and corporate bonds.

Classification and subsequent measurement of debt instruments depend on:

Amortised cost: Assets that are held for collection of contractual cash flows where those cash flowsrepresent solely payments of principal and interest ('SPPI'), and that are not designated at FVPL, aremeasured at amortised cost. The carrying amount of these assets is adjusted by any expected creditloss allowance recognised and measured as described in note 29.1.2. Interest income from thesefinancial assets is included in 'Interest and similar income' using the effective interest rate method.


31 December 2018



2.3

14

(i) The time value for money; and


2.3.1.1 Financial assets (continued)

(ii) Impairment (continued)

• Significant change in the interest rate.• Insertation of collateral, other security or credit enhancements that significantly affect the credit riskassociated with the loan.

If the terms are substantially different, HDFC derecognises the original financial asset and recognisesa 'new' asset at fair value and recalculates a new effective interest rate for the asset. The date ofrenegotiation is consequently considered to be the date of initial recognition for impairmentcalculation purposes, including for the purpose of determining whether a significant increase in creditrisk has occurred. However, HDFC also assesses whether the new financial asset recognised isdeemed to be credit-impaired at initial recognition, especially in circumstances where therenegotiation was driven by the debtor being unable to make the originally agreed payments.Differences in the carrying amount are also recognised in profit or loss as a gain or loss onderecognition.

(ii) Reasonable and supportable information that is available without undue cost or effort at thereporting date about past events, current conditions and forecasts of future economic conditions.

Note 29.1.2 provides more detail of how the expected credit loss allowance is measured.

(iii) Modification of loans

HDFC sometimes renegotiates or otherwise modifies the contractual cash flows of loans tocustomers. When this happens, HDFC assesses whether or not the new terms are substantiallydifferent to the original terms. HDFC does this by considering, among others, the following factors:

• If the borrower is in financial difficulty, whether the modification merely reduces the contractualcash flows to amounts the borrower is expected to be able to pay.• Significant extension of loan term when the borrower is not in financial difficulty.

If the terms are not substantially different, the renegotiation or modification does not result inderecognition, and HDFC recalculates the gross carrying amount based on the revised cash flows ofthe financial asset and recognises a modification gain or loss in profit or loss. The new gross carryingamount is recalculated by discounting the modified cash flows at the original effective interest rate.

(iv) Derecognition other than on a modification

Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the cashflows from the assets have expired, or when they have been transferred and either (i) HDFC transferssubstantially all the risks and rewards of the ownership, or (ii) HDFC neither transfers nor retainssubstantially all the risk and rewards of ownership and HDFC has not retained the control.


31 December 2018



2.3

2.4

(a) Functional and presentation currency

15


(ii) Derecognition

Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specifiedin the contract is discharged, cancelled or expired).

The exchange between HDFC and its original lenders of debt instruments with substantially differentterms, as well as substantial modification of the terms of existing financial liabilities, are accountedfor as an extinguishment of the original financial liability and the recognition of a new financialliability. The terms are substantially different if the discounted present value of the cash flows underthe new terms, including any fees paid net of any fees received and discounted using the originaleffective interest rate, is at least 10% different from the discounted present value of the remainingcash flows of the original financial liability. In addition, other qualitative factors, such as thecurrency that the instrument is denominated in, changes in the type of interest rate, new conversionfeatures attached to the instrument and change in covenants are also taken into consideration. If anexchange of debt instruments or modification of term is accounted for as an extinguishment, anycosts or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchangeor modification is not accounted for as an extinguishment, any costs or fees incurred adjust thecarrying amount of the liability and are amortised over the remaining term of the modified liability.

2.3.1.2 Financial liabilities

(i) Classification and subsequent measurement

In both the current and prior period, financial liabilities are classified and subsequently measured atamortised cost except for loan commitments (Note 2.3.2).

2.3.2 Loan commitments

Loan commitments provided by HDFC are measured as the amount of the loss allowance ( calculatedas described in note 29.1.3). HDFC has not provided any commitment to provide loans at a belowmarket interest rate, or that can be settled in cash or by delivering or issuing another financialinstrument.

For loan commitments, the loss allowance is recognised as a provision. However, for contracts thatinclude both a loan and an undrawn commitment and HDFC cannot separately identify the expectedcredit loss on the undrawn commitment component from those on the loan component, the expectedcredit loss on the undrawn commitment are recognised together with the loss allowance for the loan.To the extent that the combined expected credit loss exceeds the gross carrying amount of the loan,the expected credit losses are recognised as a provision.

Foreign currency translation

Items included in the financial statemements are measured using the currency of the primaryeconomic environment in which the entity operates ('the functional currency'). These financialstatements are presented in Maldivian Rufiyaa, which is HDFC's functional and presentationcurrency.


31 December 2018



2.4

(b) Transactions and balances

2.5

2.6

2.7

Leasehold improvements - 10 yearsFurniture and fixture -Computer equipment -Motor vehicles -

-

16

Foreign currency transactions are translated into functional currency using the exchange ratesprevailing at the date of the transactions. Foreign exchange gains and losses resulting from thesettlement of such transactions and from the translation at year-end exchange rates of monetary assetsand liabilities denominated in foreign currencies are recognised in the income statement.

Cash and cash equivalents

Cash and cash equivalents are items which are readily convertible to known amounts of cash andwhich are subject to an insignificant risk of changes in value. Cash and cash equivalents include allbank placements with original maturities of less than three months. Funds restricted for a period ofmore than three months on origination are excluded from cash and cash equivalents. Cash and cashequivalents are carried at amortised cost.

Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statements offinancial position if, and only if, there is currently enforceable legal right to offset the recognizedamounts and there is an intention to settle on a net basis, or to realize the asset and settle the liabilitysimultaneously. The legal enforceable right must not be contingent on the future events and must beenforceable in the normal course of business and in the event of default, insolvency or bankruptcy ofHDFC or the counter party.

Property, plant and equipment

Foreign currency translation (continued)

4 yearsOffice equipment 3 - 8 years

The charge for the depreciation commences from the date on which the assets are available for use.

All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or are recognised as a separate asset, asappropriate, only when it is probable that future economic benefits associated with the item will flowto the HDFC and the cost of the item can be measured reliably. All other repairs and maintenance arecharged to other operating expenses during the financial year in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual valuesover their estimated useful lives, as follows:

5 years5 years


31 December 2018



2.7

2.8

2.9

2.10

2.11

17

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at eachreporting date. Assets that are subject to amortisation are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount may not be recoverable. An asset’scarrying amount is written down immediately to its recoverable amount, if the asset’s carryingamount is greater than its estimated recoverable amount. The recoverable amount is the higher of theasset’s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. Theseare included in other operating income or other operating expenses, as the case may be, in the incomestatement.

Property, plant and equipment (continued)

When an operating lease is terminated before the lease period has expired, any payment required tobe made to the lessor by way of penalty is recognised as an expense in the period in whichtermination takes place.

Debt securities in issue

Debt securities in issue include bonds and sukuk issued by HDFC. Debt securities are stated atamortised cost. If HDFC purchases its own debt securities in issue, they are removed from thestatement of financial position and the difference between the carrying amount of the liability and theconsideration paid is included in gains arising from early retirement of debt.

The obligation to make future payments of principal and interest to bondholders is carried atamortised cost until extinguished on maturity of the bonds.

Other borrowed funds

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings aresubsequently carried at amortised cost; any difference between the proceeds (net of transaction costs)and the redemption value is recognised in the income statement over the period of the borrowingsusing the effective interest method.

Intangible assets

Costs associated with software are capitalised and amortised using the straight-line method overestimated useful life of four years. The carrying amount of intangible asset is reviewed annually andadjusted for permanent impairment where it is considered necessary. All other costs associated withcomputer software, e.g. its maintenance, are expensed when incurred.

Operating leases

Leases of assets under which all the risks and benefits of ownership are effectively retained by thelessor are classified as operating leases. Payments made under operating leases are charged to theoperating expenses in the income statement on a straight-line basis over the period of the lease.


31 December 2018



2.11

2.12

2.13

2.14

2.15

2.16 Share capital

2.17 Dividends

18

Other borrowed funds (continued)

Derivative financial instruments, including currency swaps are carried at their fair value.

All derivative instruments are carried as assets when fair value is positive, and as liabilities when fairvalue is negative. Changes in the fair value of derivative instruments are included in profit or loss forthe year (gains less losses on derivates).

Provisions for liabilities and charges

Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. Theyare accrued when HDFC has a present legal or constructive obligation as a result of past events, it isprobable that an outflow of resources embodying economic benefits will be required to settle theobligation, and a reliable estimate of the amount of the obligation can be made.

Trade and other payables

Fees paid on the establishment of the loan facilities are recognised as transaction costs of the loan tothe extent that it is probable that some or all of the facility will be drawn down. In this case, the fee isdeferred until the draw-down occurs. To the extent there is no evidence that it is probable that someor all of the facility will be drawn down, the fee is captalised as a pre-payment for liquidity servicesand amortised over the period of the facility to which it relates.

Borrowings are removed from the statement of financial position when the obligation specified in thecontract is discharged, cancelled or expired. The difference between the carrying amount of afinancial liability that has been extinguished or transferred to another party and the considerationpaid, including any non-cash assets transferred or liabilities assumed, is recognised in the statementof comprehensive income as other income or finance costs.

Borrowings are classified as current liabilities unless HDFC has an unconditional right to defer thesettlement of the liability for at least 12 months after the reporting period.

Customer accounts

Customer accounts are non-derivative liabilities to individuals, state or corporate customers and arecarried at amortised cost.

Derivative financial instruments

Trade payables are accrued when the counterparty has performed its obligations under the contractand are carried at amortised cost.

Ordinary shares are classified as equity.

Dividends on ordinary shares are recognised in equity in the period in which they are approved by the HDFC's shareholders.


31 December 2018



2.18 Fiduciary activities

2.19

2.20

19

Current and deferred business profit tax

The tax expenses for the period comprises current and deferred tax. Tax is recognised in the incomestatement, except to the extent that it relates to items recognised directly in equity.

The current business profit tax charge is calculated on the basis of the tax laws enacted orsubstantively enacted at the balance sheet date. Management periodically evaluates positions taken intax computation with respect to situations in which applicable tax regulation is subject tointerpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

The provisions for business profit tax is based on the elements of income and expenditure as reportedin the Financial Statements and computed in accordance with the provisions of the Business ProfitTax Act.

HDFC is liable to business profit tax at rate of 15%, if the taxable profit of the year exceeds MVR500,000.

HDFC commonly acts as trustees and in other fiduciary capacities that result in the holding or placingof assets on behalf of Ministry of Housing and Infrastructure (MHI). These assets and income arisingthereon are excluded from these financial statements, as they are not assets of the HDFC.

Deferred business profit tax is recognised, using the liability method, on temporary differencesarising between the tax bases of assets and liabilities and their carrying amounts in the financialstatements. However deferred business profit tax is not accounted for if it arises from initialrecognition of an asset or liability in a transaction other than a business combination that at the timeof the transaction affects neither accounting nor taxable profit or loss. Deferred business profit tax isdetermined using tax rates that have been enacted or substantially enacted by the balance sheet dateand are expected to apply when the related deferred business profit tax asset is realised or thedeferred business profit tax liability is settled.

Deferred business profit tax assets are recognised only to the extent that it is probable that futuretaxable profit will be available against which the temporary difference can be utilised.

Deferred business profit tax assets and liabilities are offset when there is a legally enforceable right tooffset current tax assets against current tax liabilities and when the deferred business profit tax assetsand liabilities relate to business profit tax levied by the same taxation authority. Current tax assetsand tax liabilities are offset where HDFC has a legally enforceable right to offset and intend either tosettle on a net basis, or to reduce the asset and settle the liability simultaneously.

Fees, commissions and other income and expenses

Fees, commissions and other income and expenses items are generally recorded on an accrual basisby reference to completion of the specific transaction assessed on the basis of the actual serviceprovided as a proportion of the total services to be provided.


31 December 2018



2.21 Staff costs and related contributions

2.22 Segment reporting

2.23 Comparatives

20

Segments are reported in a manner consistent with the internal reporting provided to the board ofDirectors of HDFC. Segments whose revenue results or assets are ten percent or more of all thesegments are reported separately.

Where necessary, comparative figures have been adjusted to conform with changes in presentation inthe current period.

Wages, salaries, contributions to the Maldives Government pension funds, paid annual leave and sickleave, bonuses, and non-monetary benefits are accrued in the year in which the associated servicesare rendered by the employees of HDFC. HDFC has no legal or constructive obligation to makepension or similar benefit payments beyond the payments to the statutory defined contributionscheme.




2.24 Presentation of statement of financial position in order of liquidity

Within 12 months of the reporting

period

After 12 months of the reporting period

Total Within 12 months of the reporting

period

After 12 months of the reporting period

Total

Assets

Cash and cash equivalents 91,653,575 - 91,653,575 135,525,548 - 135,525,548

Financial assets at amortised cost 29,976,096 - 29,976,096 29,959,834 - 29,959,834

Loans and advances 210,577,567 1,406,801,129 1,617,378,696 122,027,588 1,288,487,910 1,410,515,498

Property, plant and equipment - 1,324,053 1,324,053 - 1,221,874 1,221,874

Intangible assets - 621,847 621,847 - 385,118 385,118

Deferred business profit tax assets 3,125,228 - 3,125,228 3,450,871 - 3,450,871

Other assets 1,780,826 5,575,479 7,356,305 1,048,740 6,819,206 7,867,946

Total assets 337,113,292 1,414,322,508 1,751,435,800 292,012,581 1,296,914,108 1,588,926,689

Liabilities

Deposits from customers - 82,423,308 82,423,308 - 68,435,976 68,435,976

Debt securities in issue 8,865,375 210,113,962 218,979,337 37,802,938 111,602,000 149,404,938

Other borrowed funds 170,040,277 467,825,373 637,865,650 204,818,894 468,041,620 672,860,514

Other liabilities 59,412,596 228,608,264 288,020,860 55,570,179 172,363,564 227,933,743

Current tax liabilities 8,371,271 - 8,371,271 7,812,821 - 7,812,821

Total liabilities 246,689,519 988,970,907 1,235,660,426 306,004,832 820,443,160 1,126,447,992

21

Amounts expected to be recovered or settled

Amounts expected to be recovered or settled

31 December 2018

HDFC does not have a clearly identifiable operating cycle and therefore does not present current and non-current assets and liabilities separately inthe statement of financial position. Instead, analysis of assets and liabilities by their expected maturities is presented in Note 29.2.2.

The following table provides information on amounts expected to be recovered or settled before and after twelve months of the reporting period.

31 December 2018 31 December 2017




3

3.1 Impairment losses on loans and advances

- determining the criteria for significant increase in credit risk; and- Choosing appropriate models and assumptions for the measurement of ECL.

3.2 Deferred tax asset recognition

3.3 Useful life time of property, plant and equipment and intangible assets

22

31 December 2018

Critical Accounting Estimates, and Judgements in Applying Accounting Policies

HDFC makes estimates and assumptions that affect the amounts recognised in the financialstatements, and the carrying amounts of assets and liabilities within the next financial year.Estimates and judgements are continually evaluated and are based on management’s experienceand other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involvingestimations, in the process of applying the accounting policies. Judgements that have the mostsignificant effect on the amounts recognised in the financial statements and estimates that cancause a significant adjustment to the carrying amount of assets and liabilities within the nextfinancial year include:

The measurement of the expected credit loss allowance for financial assets measured atamortised cost is an area that requires the use of complex models and significant assumptionsabout future economic conditions and credit behaviour. Explanation of the inputs, assumptionsand estimation techniques used in measuring ECL is further detailed in note 29.1.2, which alsosets out key sensitivities of the ECL to changes in these elements.

A number of siginificant judgements are also required in applying the accounting requirementsfor measuring ECL, such as;

Detailed information about the judgements and estimates made by HDFC in the above areas isset out in the note 29.1.2.

The recognised deferred tax asset represents business profit taxes recoverable through futuredeductions from taxable profits, and is recorded in the statement of financial position. Deferredtax assets are recorded to the extent that realisation of the related tax benefit is probable.

The future taxable profits and the amount of tax benefits that are probable in the future are basedon a medium term business plan prepared by management and extrapolated results thereafter.The business plan is based on management expectations that are believed to be reasonable underthe circumstances.

HDFC reviews the residual values, useful lives and methods of depreciation and amortisation ofproperty, plant and equipment and intangible assets at each reporting date. Judgment of themanagement is exercised in the estimation of these values, rates, methods and hence they aresubject to uncertainty.


31 December 2018



4

23

The following amendments to the International Accounting Standards that are relevant for thepreparation of the financial statements have been adopted by HDFC for the first time with effectfrom financial year beginning on 1 January 2018.

Adoption of new or revised standards and interpretations

(a) New accounting standards, amendments and interpretations adopted in 2018

- IFRS 9- Financial instruments

- IFRS 15- Revenue from contracts with customers

- Annual improvements 2014-2016 cycle

- Interpretation 22 - Foreign Currency Transactions and Advance Consideration

HDFC had to change its accounting policies and make certain adjustments following theadoption of IFRS 9. This is disclosed in Note 2. Most of the other amendments listed above didnot have any impact on the amounts recognized in prior periods and are not expected tosignificantly affect the current or future periods.

- Interpretation 23 - Uncertainity over income tax treatment.

IFRS 15 is effective from 1 January 2018. This standard defines principles for recognisingrevenue and are applicable to all contracts with customers. However, interest and fee incomeintegral to financial instruments and leases continue to fall outside the scope of IFRS 15 and areregulated by the other applicable standards (e.g. IFRS 9 and IFRS 16).

IFRS 15 establishes a five-step model to account for revenue arising from contracts withcustomers. Revenue under IFRS 15 requires to be recognised as goods and services aretransferred, to the extent that the transferor anticipates entitlement to goods and services. Thestandard also specify a comprehensive set of disclosure requirements regarding the nature, extentand timing as well as any uncertainty of revenue and corresponding cash flows from customers.

An evaluation of relevant existing contracts, which fall mainly under fee and commission basedincome, had been performed by HDFC in relation to the adoption of IFRS 15. This assessmentdid not reveal any significant change to HDFC’s revenue recognition pattern. However, HDFCcontinues to evaluate and quantify the accounting impact and will modify its systems andprocesses if necessary.


31 December 2018



4 Adoption of new or revised standards and interpretations (continued)

24

Certain new accounting standards and interpretations have been published that are not mandatoryfor 31 December 2018 reporting periods and have not been early adopted by HDFC.

- IFRS 16 Leases

IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on thestatement of financial position by lessees, as the distinction between operating and finance leasesis removed. Under the new standard, an asset (the right to use the leased item) and a financialliability to pay rentals are recognised. The only exceptions are short-term and low-value leases.HDFC will apply the standard from its mandatory adoption date of 1 January 2019. HDFCintends to apply the simplified transition approach and will not restate comparative amounts forthe year prior to first adoption. Right-of-use assets for property leases will be measured ontransition at the amount of the lease liability on adoption (adjusted for any prepaid or accruedlease expenses). HDFC has taken an office premise in Male`which is on lease. HDFC is in theprocess of evaluating the impact and it is not expected to have material impact.

There are no other standards that are not yet effective and that would be expected to have amaterial impact on the entity in the current or future reporting periods and on foreseeable futuretransactions.

(b) New standards, amendments and interpretations issued but not yet adopted


31 December 2018

Notes to the financial statements continued

(all amounts are shown in Maldivian Rufiyaa unless otherwise stated)

5 Net interest income2018 2017

Interest incomeHousing loans 140,344,524 130,696,265 Treasury bills / other deposits with banks 1,065,124 537,778

141,409,648 131,234,043

Interest expenseOther borrowed funds 40,626,443 38,450,982

4,576,593 1,875,641 1,098,877 1,084,502 46,301,913 41,411,125

Net interest income 95,107,735 89,822,918

6 Net income on Shari'ah products2018 2017

Revenue from housing facilities 40,133,888 33,050,608 Revenue from short term investments 1,069,364 58,266 Fee income 2,524,840 1,790,461 Amna investors' profit share (18,643,578) (12,318,855)

25,084,514 22,580,480

7 Fee income2018 2017

Housing loan processing fees 1,786,147 1,933,175 Other fee income 978,427 1,214,850 Management fees 2,249,170 547,330

5,013,744 3,695,355

25

Other fee income includes SWAP commitment fees and other miscellaneous incomes such asdocumentation fees and printing charges.

Debt securities in issueDeposits from customers

SWAP commitment fees are computed on a daily basis on the outstanding US$ balance committed tobe sold back by State Trading Organisation Plc. The fee percentage is stipulated in the respectiveSWAP agreements.

In the second SWAP agreements signed in 2011, the commitment fees, as stipulated in the agreement,was 3% per annum.


31 December 2018



8 Other income 2018 2017

Penalty interest and early interest settlement charges 724,865 2,207,101 Insurance commissions 375,978 350,348 Recovery of professional development expenses - 851,726

1,100,843 3,409,175

9 Salaries and personnel expenses2018 2017

Salaries and allowances 8,348,445 7,668,667 Ramadan allowances and bonus 821,870 727,889 Contribution to employees pension fund 364,056 332,815 Employee benefit expense amortisation 278,204 97,941 Staff medical insurance 143,903 79,158 9,956,478 8,906,470

10 Provision for loan impairment2018 2017

Provision (reversed)/ made during the year (Note 16) (8,226,277) 10,576,163

11 Other operating expenses2018 2017

Other expenses 2,298,462 2,183,078 Professional fees 1,611,411 963,923 Premises, equipment and establishment expenses 1,387,945 1,128,470 Board remuneration and meeting expenses 1,080,224 791,165 Bank charges 534,677 309,828

449,492 464,924 Communication expenses 300,906 310,069 Advertising and marketing expenses 231,261 274,798 Amortization on intangible assets (Note 20) 174,147 71,793 Printing and stationary expenses 172,962 180,550 Loss on disposal 72,624 52,047

8,314,111 6,730,645

12 Taxation

2018 2017

Current tax 16,941,656 15,506,981 Deferred tax (Note 18) 325,643 (3,399,440)Business profit tax expense 17,267,299 12,107,541

26

Depreciation on property, plant and equipment (Note 19)


31 December 2018



12 Taxation (continued)

Reconciliations between business profit tax expenses and the accounting profit :

2018 2017

Profit before tax 116,262,524 93,294,650 Add: Non-deductible expenses 67,462,908 65,945,158 Adjusted net profit for the year 183,725,432 159,239,808 Less: Deductible expenses (74,852,379) (55,359,937)Taxable profit 108,873,053 103,879,871 Tax allowance (500,000) (500,000)Taxable profit after tax allowance 108,373,053 103,379,871 Current tax (15%) 16,255,958 15,506,981 Prior year adjustments 685,698 - Total current tax 16,941,656 15,506,981 Deferred tax 325,643 (3,399,440)Business profit tax expense 17,267,299 12,107,541

Current tax liabilities

2018 2017

As at 1 January 7,812,821 7,902,742 Provisions during the year 16,255,958 15,506,981 Prior year adjustments 685,698 - Payments made during the year (16,383,206) 15,596,902

As at 31 December 8,371,271 7,812,821

13 Dividends

14 Earnings per share

27

Dividend of MVR 22 per share amounting to MVR 35,062,500 was declared for the year ended 31December 2017 in the board meeting held on 5 November 2017. Dividend amounting MVR 25 pershare totalling to MVR 39,843,750 was declared for the year December 2018 in the board meetingheld on 29 November 2018.

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by theweighted average number of ordinary shares in issue during the year.

Diluted Earnings Per Share is calculated by dividing the profit attributable to ordinary equity holdersof HDFC by the weighted average number of ordinary shares outstanding during the year plus theweighted average number of ordinary shares that would be issued on the conversion of all the dilutivepotential ordinary shares into ordinary shares. As there were no potential ordinary equity outstandingat year end, Diluted Earnings Per Share is equal to the Basic Earnings per Share for the year.


31 December 2018



14 Earnings per share (continued)

2018 2017 98,995,225 81,187,109 1,593,750 1,593,750 62.11 50.94

15 Cash and cash equivalents2018 2017

Cash on hand 9,500 9,500 Balances with other banks 76,644,075 68,516,048 Short term investments with MIB 15,000,000 67,000,000

91,653,575 135,525,548

16 Housing loans2018 2017

Housing loans to customers 1,252,647,892 1,137,133,718 Housing loans to staff 6,613,752 5,663,292 Amna assets 384,326,943 296,299,857

1,643,588,587 1,439,096,867 Less: Provision for impairment (26,209,891) (28,581,369)Net housing loans 1,617,378,696 1,410,515,498

Movements in provision for impairment are as follows:

2018 2017Provision for impairmentOpening balance 28,581,371 18,005,208 Changes on initial application of IFRS 9 5,854,798 -

(8,226,277) 10,576,163 Closing balance 26,209,891 28,581,371

28

Net profit attributable to shareholdersWeighted average number of ordinary shares in issueEarnings per share - basic / diluted (MVR)

Cash and cash equivalents include the above for the purposes of the statement of cash flows. All thebank balances are maintained at the banks / branches located in Maldives. The banks in Maldives havenot been rated.

Short term investments with MIB are for a period of 3 months and are entitled for a profit share whichhas ranged between 1.5% to 3.5% per annnum.

Provision (reversed)/ made during the year ( Note 10)

There were no transactions involving ordinary shares or potential ordinary shares between thereporting date and the date of the completion of these financial statements which would require therestatement of earnings per share.


31 December 2018



17 Financial assets at amortised cost2018 2017

Investments in Treasury bills 29,976,096 29,959,834

18 Deferred business profit tax assets

2018 2017

Deferred tax assets 3,125,228 3,461,266 Deferred tax liabilities - (10,395)Net deferred tax asset 3,125,228 3,450,871

2018 2017Opening balance 3,450,871 51,431

(325,643) 3,399,440 Closing balance 3,125,228 3,450,871

2018 2017

Temporary difference on PPE 131,225 (69,297) 20,703,625 23,075,103 20,834,850 23,005,806

Tax rate 15% 15%Net deferred tax asset 3,125,228 3,450,871

The balance comprises the following temporary differences.

2018 2017

Property plant and equipment

Opening balance (10,395) 51,431 Credit / (debit) to the income statement 30,079 (61,826)

Closing balance 19,684 (10,395)

Opening balance 3,461,266 - (Debit) / credit to the income statement (355,722) 3,461,266

Closing balance 3,105,544 3,461,266

Net deferred tax asset 3,125,228 3,450,871

29

Provision for loan impairment

Deferred business profit tax is calculated on all difference under the liability method. The movementin deferred business profit tax asset account is as follows:

(Debit) / credit to the income statement

The movement in deferred tax assets and liabilities of HDFC during the year ended are as follows:

Treasury bills amounting MVR 19,988,528 and MVR 9,987,568 will mature on 7 and 14 January 2019respectively and carry an interest rate of 3.5% per annum.

Temporary difference on provisions for loan impairment


31 December 2018

19 Property, plant and equipment

Office Computer Furniture Motor Leasehold Totalequipment equipment and fixtures vehicles improvements

Year ended 31 December 2017Opening net book amount 327,972 518,599 193,215 16,562 217,567 1,273,915 Additions 151,854 245,222 67,854 - - 464,930 Depreciation charge (Note 11) (79,367) (198,873) (70,267) (16,562) (99,855) (464,924) Disposals- Cost (151,516) (377,015) (81,223) - (91,196) (700,950)

- Accumulated depreciation 130,028 377,015 81,223 - 60,637 648,903 Balance as at 31 December 2017 378,971 564,948 190,802 - 87,153 1,221,874

At 31 December 2017Cost 901,412 2,438,291 774,864 66,250 914,948 5,095,765 Accumulated depreciation (522,441) (1,873,343) (584,062) (66,250) (827,795) (3,873,891) Net book amount 378,971 564,948 190,802 - 87,153 1,221,874

Year ended 31 December 2018Opening net book amount 378,971 564,948 190,802 - 87,153 1,221,874 Additions 39,519 437,336 148,680 - - 625,535 Depreciation charge (Note 11) (81,483) (239,442) (71,458) - (57,109) (449,492) Disposals -

- Cost (100,528) (114,188) (101,998) - (82,846) (399,560) - Accumulated depreciation 84,341 99,557 86,843 - 54,955 325,696

Balance as at 31 December 2018 320,820 748,211 252,869 - 2,153 1,324,053

At 31 December 2018Cost 840,403 2,761,439 821,546 66,250 832,102 5,321,740 Accumulated depreciation (519,583) (2,013,228) (568,677) (66,250) (829,949) (3,997,687) Net book amount 320,820 748,211 252,869 - 2,153 1,324,053

30

a) HDFC operates business from the premises owned by third parties for which MVR 998,575 (December 2017: MVR 600,000) were paid as rent during the year.

b) Property, plant and equipment aggregating to MVR 3,713,474 (December 2017: MVR 3,001,951) were fully depreciated as at the reporting date.


31 December 2018



20 Intangible assets

Software costsYear ended 31 December 2017

Opening net book amount 2,615 Additions 454,296 Amortisation charge (Note 11) (71,793)Closing net book amount 385,118

At 31 December 2017

Cost 1,198,510 Accumulated amortisation (813,392)Net book amount 385,118

Year ended 31 December 2018

Opening net book amount 385,118 Additions 410,876 Amortisation charge (Note 11) (174,147)Closing net book amount 621,847

At 31 December 2018

Cost 1,609,386 Accumulated amortisation (987,539)Net book amount 621,847

21 Other assets2018 2017

Accounts receivable 953,826 824,730 Pre-payments 5,354,084 5,908,649 Advance paid to staff 1,048,395 1,134,567

7,356,305 7,867,946

22 Deposits from customers2018 2017

Equated monthly installment deposits 74,061,145 64,844,086 8,362,163 3,591,890 82,423,308 68,435,976

31

Borrowers deposits

Equated monthly installment deposits are held as contingency to settle the monthly installments in case the borrowers fail to pay. Equated monthly installment deposits carry fixed interest rate at 2.5 % perannum.


31 December 2018



23 Debt securities in issue

2018 2017Listed and Corporate bonds 104,759,542 36,847,574 Listed Sukuk 114,219,795 112,557,364

218,979,337 149,404,938

Payable within one year 8,865,375 37,802,938 Payable after one year 210,113,962 111,602,000

218,979,337 149,404,938

32

Maturity analysis of debt securities in issue

New listed bonds for MVR 100,000,000 were issued in June 2018, out of which, MVR 81,390,000was raised. These bonds carry an interest rate of 7% per annum for 10 years from the allotment date.The bonds were allotted in July 2018. Interest payments are made every six months after the date ofallotment, until the bond is fully redeemed and the first payment was made on 31 December 2018.

During the months of March 2018 HDFC issued two corporate bonds for a value of MVR 10,000,000each with two year maturity. In May 2018 corporate bond with a value of MVR 5,000,000 was rolledover for one year upon maturity . These corporate bonds carry an interest rate of 6.5% per annum.

During the month of January 2014, HDFC has issued Mudarabah Sukuk amounting to MVR22,566,000 at a price of MVR 500 per sukuk for ten (10) years from allotment date and profit is paidevery six months after the date of allotment, until maturity date. The funds are utilized in order tofund shari'ah compliant mortgage housing finance operations under principles and rules of Shari'ah.The profit is shared between Sukuk holder (Rabb al Mal) and HDFC (Mudarib) at a rate of 65% and35% respectively.

On 24 October 2017 HDFC has issued Mudarabah Sukuk No. 2, amounting to MVR 89,036,000(MVR 1,000 per sukuk for ten (10) years), profit is paid every six months after the date of allotment,until maturity date. The funds are utilized in order to fund shari'ah compliant mortgage housingfinance operations under principles and rules of Shari'ah. The profit is shared between Sukuk holder(Rabb al Mal) and HDFC (Mudarib) at a rate of 65% and 35% respectively.


31 December 2018



24 Other borrowed funds

2018 201721,454,736 42,902,920

106,475,238 130,035,038

- 15,743,280 Bank of Ceylon 106,970,084 137,224,408 Bank of Maldives 74,250,000 89,250,000 Habib Bank Limited 46,200,000 61,600,000 Wakala facilities 140,217,356 144,028,896 Pension benefit scheme fund 3,041,482 2,075,827 State Bank of India 139,256,754 50,000,145

637,865,650 672,860,514

Payable within one year 170,040,277 204,818,851 Payable after one year 467,825,373 468,041,663

637,865,650 672,860,514

33

Netherlands Development Finance Company (FMO)Deutsche Investitutions und Entwicklungs Gesellschaft MBH (DEG) Hongkong and Shanghai Banking Corporation Limited

Maturity analysis of other borrowed funds

Netherlands Development Finance Company (FMO)

During the year 2010, HDFC obtained a term facility of MVR 154,200,000. The borrowings fromFMO carry an interest at LIBOR + 4.25%. The term loan from FMO is repayable in sixteen semi-annual installments commencing from 15 April 2012 and ending on 15 October 2019. The FMO loanis secured by all rights of HDFC under any security obtained by HDFC pursuant to the mortgage loansgiven by HDFC from the funds disbursed under the FMO loan. The borrowing is denominated inUnited States Dollars.

Deutsche Investitutions und Entwicklungs Gesellschaft MBH (DEG)

During the year 2014, HDFC has obtained a loan of MVR 200,460,000. The borrowings from DEGcarry an interest at LIBOR + 5%. The loan is repayable in seventeen semi-annual installmentscommencing from 15 June 2015 and ending on 15 June 2023. The DEG loan is secured by a firstranking mortgage on HDFC’s mortgage portfolio and charged over the account in the Maldives intowhich proceeds of the loan were disbursed and from which housing loans were disbursed. Theborrowing is denominated in United States Dollars.


31 December 2018



24 Other borrowed funds (continued)

34

Term loan from Bank of Maldives

Term loan from HSBC

HDFC obtained a loan of MVR 150,000,000 per the agreement dated 6 February 2013 from HSBCMaldives Branch for the purpose of financing mortgage housing loan programs as set out in theagreement dated 28 June 2012 between HDFC and the Government of Maldives. The loan carried aninterest at MTBR + 1.5% per annum and was repaid in ten semi-annual installments commenced fromsix months after the first utilisation date. This loan was fully settled in March 2018. The loan wassecured by a guarantee from the Government of Maldives. The borrowing was denominated inMaldivian Rufiyaa.

Bank of Ceylon - Male' branch

HDFC has obtained a loan facility of MVR 150,000,000 per the agreement dated 15 March 2016 fromBank of Ceylon for the purpose of providing mortgage housing loans. The loan carries an interestpayable monthly during the grace year at the rate of 1 month treasury bill rate + 2.3% per annum andsecond year onwards 6 month treasury bill rate + 2.3% per annum (Floor rate - 5.5% and cap rate -9.00%). This loan is repayable in semi-annual installments commencing after one year grace periodand ending in March 2022. HDFC shall ensure a minimum 150% security coverage. The borrowing isdenominated in Maldivian Rufiyaa.

HDFC has obtained a loan of MVR 150,000,000 per the agreement dated 3 April 2013 from Bank ofMaldives for the purpose of providing mortgage housing loans. The loan carries an interest at a rate of8.5% per annum and repayable in monthly instalments commencing from the first utilization date(November 2013) for 10 years ending on December 2023. The loan is secured by HDFC’s mortgageportfolio created out of proceeds of this facility. The borrowing is denominated in Maldivian Rufiyaa.

Habib Bank limited (HBL)

HDFC has obtained a loan facility of MVR 77,000,000 per the agreement dated 16 March 2017 fromHabib Bank Limited for the purpose of providing mortgage housing loans. The loan carries an interestrate of 8% or 1 year T-Bill rate (with NIL spread), which ever is higher. Interest rate is reset semi-annually (January and July) by taking the 1 year T-Bill rate of the last day of the preceding month (ifthe T-Bill rate is on the higher side). Loan is repaid in ten semi-annual installments starting from June2017 and the interest is paid on monthly basis. HDFC shall ensure a security coverage ratio of at least150% of the outstanding loan amount. The borrowing is denominated in Maldivian Rufiyaa.


31 December 2018




Wakala facilities

Pension benefit scheme fund

35

During 2012, Maldives Islamic Bank has invested MVR 20,000,000 with HDFC under a Wakalaharrangement with a profit target of 11.5% for a year at a profit sharing ratio of 35% : 65% betweenHDFC and investor respectively. This has been rolled over for the seventh time during 2018 for onemore year. During May 2017, Maldives Islamic bank invested MVR 10,000,000 for one year and thiswas rolled over for 2 more years upon Maturity in May 2018. This has a target yield of 7.5%.

During 2015 and 2016 Maldives Hajj Corporation Limited has invested MVR 60,000,000 with HDFCwith a target yield of 10% - 11% per annum with a profit sharing ratio of (30% -35%) : (70% - 65%)for 5 years. However, the investment amounting MVR 50,000,000 can be withdrawn before five yearswith three months prior notice.

During the year 2017, Bank of Maldives PLC has invested MVR 17,188,262 out of an approvedinvestment amounting MVR 50,000,000 with profit target of 8% per annum. HDFC has undrawnborrowing (Wakala) facilities to the extent of MVR 32,811,738 from Bank of Maldives PLC as at thereporting date.This wakala facility from BML Islamic is for 2 years. The wakala facilities aredenominated in Maldivian Rufiyaa.

In December 2018, Ayady Takaful invested MVR 16,000,000 with HDFC for two years with a profitsharing ratio of 70% - 30% respectively between the investor and HDFC.

HDFC has signed an MOU with Maldives Pension Administrative Office (MPAO) to establish ageneral working arrangement between MPAO and HDFC to facilitate the collateralization ofaccumulated Retirement Saving Account (RSA) for the purpose of paying the down payment inobtaining home finance for the members of MRPS. Under this scheme, eligible applicants will be ableto collateralize the accumulated savings in RSA as down payment for home finance (end user). Theamount that can be collateralized (hereafter referred as “collateralized amount”) as down payment willbe determined by MPAO and disbursed to HDFC. The determination of the eligibility for homefinance and acceptability of collateralized amount will be made and decided by HDFC. Accruedinterest at 4.9% per annum is payable to MPAO semi-annually. Also, the amount received fromMPAO will be repaid over the tenure of the individual loans to the end user semi-annually.

During May 2016 and January 2016, Amana Takaful invested MVR 5,000,000 each with HDFC forone year with option to renew at a profit sharing ratio of 35% : 65% between HDFC and investor. Thiswas rolled over for 2 years upon maturity in 2018. Further in October 2018 MVR 5,000,000 wasinvested by Amana Takaful with a maturity of two years.


31 December 2018




State Bank of India (SBI)

25 Other liabilities2018 2017

Ministry of Housing and Infrastructure - GED fund 64,803,265 64,184,740 19,070,945 26,627,304

34,315,111 30,143,690 59,011,843 -

Insurance premium payable 10,333,607 9,224,053 Amounts received from customers in advance 7,991,246 8,308,628 Accruals and other liabilities 1,189,971 2,927,339 Employees pension contribution 53,893 48,321 Advance for share capital 51,407,100 51,407,100 Dividends payable 39,843,879 35,062,568

288,020,860 227,933,743

Ministry of Housing and Infrastructure - GED fund

Ministry of Housing and Infrastructure - MHI Islamic fund

36

HDFC has obtained a loan of MVR 150,000,000 per the agreement dated 5 October 2017 from SBI forthe purpose of providing mortgage housing loans. The loan carries an interest at a rate of 8% perannum and repayable in 8 years on semi-annual basis. The SBI loan is secured by HDFC’s mortgageportfolio created out of proceeds of this facility. As of 31 December 2018, HDFC has fully withdrawnthe loan amount. The borrowing is denominated in Maldivian Rufiyaa.

Ministry of Housing and Infrastructure - MHI Islamic Ministry of Housing and Infrastructure - MHUD Conventional fund

In accordance with the agreement dated 16 February 2014, HDFC manages and administers loanschemes under which HDFC, as a custodian receives funds from the Ministry of Housing andInfrastructure (MHI). The purpose of the fund is to construct houses in islands under HDFC Amna'sIslamic outreach program. The initial Islamic Housing Fund approved for this program was MVR100,000,000 treated as a revolving grant for investment with a profit share of 65% to HDFC and 35%to the Islamic Housing Finance Scheme Fund.

(i) HDFC was appointed as the sole representative to act on behalf of the Ministry of Housing andInfrastructure in matters related to the scheme as a collecting agent. HDFC to use their best effort toobtain monthly instalments due under the Islamic financing facility and all records of collectionsshould be maintained separately. The accumulated fund after deducting the agency fee shall bereleased to the Ministry upon receiving written request from the Ministry.

Ministry of Housing and Infrastructure - 704 Housing


31 December 2018



25 Other liabilities (continued)

Ministry of Housing and Infrastructure - MHUD Conventional fund

Ministry of Housing and Infrastructure - 704- Housing fund

26 Share capital

Number of shares Ordinary shares

1,593,750 159,375,000 1,593,750 159,375,000

27 Reserves2018 2017

General reserve 15,000,000 15,000,000 Staff education reserve - 2,136,480

Total reserves at end of the year 15,000,000 17,136,480

37

(i) HDFC was appointed as the sole representative to act on behalf of the Ministry of Housing andInfrastructure in matters related to the scheme as a collecting agent. HDFC to use their best effort toobtain monthly instalments due under the facility and all records of collections should be maintainedseparately. The accumulated fund after deducting the agency fee shall be released to the Ministry uponreceiving written request from the Ministry.

(ii) HDFC has started managing new housing loans / facilities during December 2017. HDFC wasappointed as the sole representative to act on behalf MHI in matters related to the scheme as acollecting agent. HDFC to use their best effort to obtain monthly instalments due and all records ofcollections should be maintained separately. The accumulated fund after deducting the agency feeshall be released to the Ministry upon receiving written request from the Ministry. This scheme is for25 years period.

Since 2008, HDFC manages and administers conventional loan scheme under which HDFC, as acustodian received funds from the Ministry of Housing and Urban Development (MHUD). HDFCreceives a management fee of 1.75% per annum on the outstanding balance of the loan at the end ofevery month.

At 31 December 2017At 31 December 2018

The total authorized number of ordinary shares as at 31 December 2018 was 3,187,500 (2017:3,187,500) with a par value of MVR 100 (2017: MVR 100) per share. As at 31 December 2018,1,593,750 shares were issued, which were fully paid.

HDFC maintained a staff education reserve for the purpose of providing financial assistance for highereducation of HDFC staff members. During the year the reserve was transferred to retained earnings.




28 Segment Analysis

In thousands of MVR Conventional Islamic Unallocated Total

1,246,980 370,399 - 1,617,379 44,097 47,556 - 91,654 - - 1,946 1,946 29,976 - - 29,976 - - 10,482 10,482

Total assets 1,321,053 417,955 12,427 1,751,436

38

31 December 2018

(c) Measurement of operating segment profit or loss, assets and liabilities

The Board of directors review financial information prepared based on the requirements ofinternal reporting. Such financial information differs in certain aspects from International

Financial Reporting Standards:

(i) funds are generally not allocated between segments;

s Conventional financing service – representing conventional housing finance services;

HDFC’s segments are strategic business units that focus on different customers. They aremanaged separately because each business unit requires different strategies and service level.

Operating segments are components that engage in business activities that may earn revenues orincur expenses, whose operating results are regularly reviewed by the Board of Directors, andfor which discrete financial information is available.

(a) Description of products and services from which each reportable segment

(b) Factors that management used to identify the reportable segments

Other assets

HDFC is organised on the basis of two main business segments:

s Islamic services – representing Amna house related scheme and sukuk and other shari'ah...compliant services.

Segment information for the reportable segments as at 31 December 2018 and for the yearended 31 December 2018 is set out below:

(ii) business profit taxes are not allocated to segments;

(iii) loan provisions are recognised based on management judgement and availability ofinformation, and based on the expected credit loss model prescribed in IFRS 9;(iv) commission income relating to lending is recognised immediately rather than deferred usingthe effective interest method; and

The board of directors evaluate the performance of each segment based on the net incomebefore administrative expenses and tax.

(d) Information about reportable segment profit or loss, assets and liabilities

Loans and advancesCash and cash equivalentsNon-current assetsFinancial assets at amortised cost


31 December 2018



28


62,512 19,911 - 82,423 104,760 114,220 - 218,979 497,648 140,217 - 637,866 93,327 83,874 110,820 288,021

Current tax liabilities - - 8,371 8,371 Total liabilities 758,247 358,223 119,191 1,235,660 Capital expenditure - - 1,036 1,036


141,410 41,203 - 182,613 5,014 2,525 - 7,539 1,101 - - 1,101

Total revenues 147,524 43,728 - 191,252

(46,302) (18,644) - (64,945) 6,692 1,534 - 8,226 - - (624) (624) (16,456) (1,191) - (17,647)

- - (17,267) (17,267)Result 91,458 25,427 (17,891) 98,995


1,142,796 296,300 (28,581) 1,410,515 41,800 26,726 - 68,526 - - 1,607 1,607 29,960 67,000 - 96,960 - - 11,319 11,319

Total assets 1,214,556 390,026 (15,655) 1,588,927

39

Deposits from customersDebt securities in issue

Segment information for the reportable segments as at 31 December 2017 and for the yearended 31 December 2017 is set out below:

Segment Analysis (continued)

(d) Information about reportable segment profit or loss, assets and liabilities (continued)

External revenues:- Interest / profit share- Fee and commission income- Other operating income

Interest expense / profit shareReversal of loan impairmentDepreciation and amortisationAdministrative and other operating expensesBusiness profit tax

Capital expenditure represents additions to non-current assets other than financial instrumentsand deferred tax assets.

Other borrowed fundsOther liabilities

Loans and advancesCash and cash equivalentsNon-current assetsFinancial assets held-to-maturityOther assets


31 December 2018



28


55,581 12,855 - 68,436 36,848 112,557 - 149,405 528,832 144,029 - 672,861 30,144 90,811 106,978 227,933

Current tax liabilities - - 7,813 7,813 Total liabilities 651,405 360,252 114,791 1,126,448 Capital expenditure - - 919 919


131,235 33,109 - 164,344 3,695 1,790 - 5,485 3,409 - - 3,409

Total revenues 138,339 34,899 - 173,238

In thousands of MVR Conventional Islamic Unallocated TotalTotal revenues 138,339 34,899 - 173,238

(41,411) (12,319) - (53,730) (8,461) (2,115) - (10,576) - - (537) (537) (13,343) (1,757) - (15,100)

- - (12,108) (12,108)Result 75,124 18,708 (12,645) 81,187

29 Financial risk management

40

Capital expenditure represents additions to non-current assets other than financial instrumentsand deferred tax assets.

Deposits from customersDebt securities in issueOther borrowed fundsOther liabilities

Segment Analysis (continued)

(d) Information about reportable segment profit or loss, assets and liabilities (continued)

HDFC’s activities expose it to a variety of financial risks and those activities involve theanalysis, evaluation, acceptance and management of some degree of risk or combination ofrisks. Taking risk is core to the financial business, and the operational risks are an inevitableconsequence of being in business. HDFC’s aim is therefore to achieve an appropriate balancebetween risk and return and minimise potential adverse effects on HDFC’s financialperformance.

External revenues:- Interest / profit share- Fee and commission income- Other operating income

Interest expense / profit shareProvision for loan impairmentDepreciation and amortisationAdministrative and other operating expensesBusiness profit tax


31 December 2018



29 Financial risk management (continued)

29.1 Credit risk

29.1.1 Credit risk measurement

Loans and advances ( including loan commitments)

29.1.2 Expected credit loss measurement

41

HDFC’s risk management policies are designed to identify and analyse these risks, to setappropriate risk limits and controls, and to monitor the risks and adherence to limits by means ofreliable and up-to-date information systems. HDFC regularly reviews its risk managementpolicies and systems to reflect changes in markets, products and emerging best practice.

Risk management is carried out by HDFC under policies approved by the Board of Directors.HDFC identifies and evaluates financial risks in close co-operation with the HDFC's operatingunit. The Board provides written principles for overall risk management, as well as writtenpolicies covering specific areas, such as credit risk and liquidity risk. In addition, internal auditis responsible for the independent review of risk management and the control environment. Themost important types of risk are credit risk, liquidity risk, market risk and other operational risk.Market risk includes currency risk and interest rate risks.

HDFC takes on exposure to credit risk, which is the risk that a counterparty will cause afinancial loss for HDFC by failing to discharge an obligation. Credit risk is the most importantrisk for HDFC’s business; management therefore carefully manages its exposure to credit risk.Credit exposures arise principally in lending activities that lead to loans and advances. There isalso credit risk in off-balance sheet financial instruments, such as loan commitments.

Credit policies were formulated covering HDFC's credit activities and establishment ofindividual limits of authority for initiating, reviewing and approving credit.

A credit Committee comprising the Managing Director, Operations Director, Head of Finance,Senior Manager Credit, Senior Manager Islamic Finance and Senior Manager IT meets regularlyto discuss credit proposals in line with credit policies. The credit Committee also reviews non-performing assets, documentation and other credit related issues.

The estimation of credit exposure for risk management purpose is complex and requires the useof models, as the exposure varies with changes in market conditions, expected cash flows andthe passage of time. The assessment of credit risk of a portfolio of assets entails furtherestimations as to the likelihood of defaults occurring, of the associated loss ratios and of defaultcorrelations between counterparties. HDFC measures credit risk using Probability of Default(PD), Exposure at Default (EAD) and Loss Given Default (LGD). This is similar to the approachused for purposes of measuring Expected Credit Loss (ECL) under IFRS 9.

IFRS 9 outlines a 'three-stage' model for impairment based on change in credit quality sinceinitial recognition as summarised below:


31 December 2018



29.1 Credit risk (continued)

29.1.2 Expected credit loss measurement (continued)

29.1.2.1 Significant increase in credit risk

29.1.2.2 Definition of default and credit-impaired assets

42

• A financial instrument that is not credit-impaired on initial recognition is classified in 'Stage 1'and has its credit risk continuously monitored by HDFC.

• If a significant increase in credit risk ('SICR') since initial recognition is identified, thefinancial instrument is moved to 'Stage 2' but is not yet deemed to be credit-impaired. Pleaserefer to note 29.1.2.1 for a description of how HDFC determines when a significant increase incredit risk has occured.

The following diagram summarises the impairment requirements under IFRS 9:

Change in credit quality since initial recognitionStage 1 Stage 2 Stage 3

(Initial recognition) (Significant increase in credit risk since the initial recognition)

(credit impaired assets)

• If the financial instrument is credit-impaired, the financial instrument is then moved to 'Stage3'. Please refer to note 29.1.2.2 description of how HDFC defines credit-impaired and default.

• Financial instruments in stage 1 have their ECL measured at an amount equal to the proportionof lifetime expected credit losses that result from default events possible within the next 12months. Instruments in Stage 2 or 3 have their ECL measured based on expected credit losses ona lifetime basis. Please refer to note 29.1.2.3 for a description of inputs, assumptions andestimation techniques used in measuring the ECL.

• A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should considerforward-looking information. Note 29.1.2.4 includes an explanation of how HDFC hasincorporated this in its ECL models.

Further explanation is also provided of how HDFC determines appropriate grouping when ECLis measured on a collective basis ( refer note 29.1.2.5).

The key judgements and assumptions adopted by HDFC in addressing the requirements of thestandard are discussed below:

HDFC considers loans and receivables have experienced significant increase in credit risk whenthe arrears are past due for more than 30 days.

HDFC defines a financial instrument as in default, which is fully aligned with the definition ofcredit-impaired when the borrower is more than 120 days past due states on its contractualpayments.

12 months expected credit losses

Lifetime expected credit losses Lifetime expected credit losses


31 December 2018




29.1.2.2 Definition of default and credit-impaired assets (continued)

43

29.1.2.3 Measuring the ECL - Explanation of inputs, assumptions and estimationtechniques

LGDs are determined based on the factors which impact the recoveries made post default.Historical LGD is used for facilities outside Male'. Since there were no adequate history ofdefault in Male' facilities, LGD is computed based on the projected collateral values, historicaldiscounts to market/ book values to forced sales, time to repossession and recovery costobserved. When arriving the present value of cash flows after default, HDFC applies 50% and75% haircut to the market value of the collateral to estimate force sale values for the facilitiesless than 12 months in arrears and 24 months in arrears respectively. Force sales values are thendeducted from EAD to arrive LGD.

The default definition has been applied consistently to model the Probability of Default (PD),Exposure at Default (EAD) and Loss Given Default (LGD) throughout HDFC’s expected losscalculations.

90 days default presumption is rebutted considering historical behaviour. Over 120 days is takenas default considering significant number of facilities that were over 120 days remained in over120 days bucket. This rebuttal will be monitored and reviewed by credit department on an annual basis to ensure it is appropriate.

The Expected Credit Loss (ECL) is measured on either a 12-month (12M) or lifetime basisdepending on whether a significant increase in credit risk has occurred since the initialrecognition on whether an asset is considered to be credit-impaired. Expected credit losses arethe discounted product of the Probability of Default(PD), Exposure at Default(EAD), and LossGiven Default(LGD), defined as follows:

The PD represents the likelihood of a borrower defaulting on its financial obligation ( as per"Definition of default and credit-impaired" above), either over the next 12 months (12 MN PD),or over the remaining lifetime (Life time PD ) of the obligation. PIT PD ( Point-in-timeProbablity of Default) is calculated using duration or hazard rate approach (Makov chainapproach) and TTC PD (Through-the-Cycle Probablity of Default) is derived from averageempirical matrix from 2012 to 2017.

EAD is based on the amounts HDFC expects to be owed at the time of default, over the next 12months (12M EAD) or over the remaining lifetime (Lifetime EAD). For example, for a revolvingcommitment, HDFC includes the current drawn balance plus any further amount that is expectedto be drawn up to the current contractual limit by the time of default, should it occur.


31 December 2018




29.1.2.4 Forward looking information incorporated in ECL models

Sensitivity analysis

44

The ECL is determined by projecting the PD, LGD and EAD for each future year and for eachindividual exposure or collective segment. These three components are multiplied together andadjusted for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an earliermonth). This effectively calculates an ECL for each future year, which is then discounted back to the reporting date and summed. The discount rate used in the ECL calculation is the originaleffective interest rate or an approximation thereof.

The Lifetime PD is developed by applying a maturity profile to the current 12M PD. Thematurity profile looks at how defaults develop on a portfolio from the point of initial recognitionthroughout the lifetime of the loans. The maturity profile is based on historical observed data and is assumed to be the same across all assets. This is supported by historical analysis.

The 12-month and lifetime EADs are determined based on the expected payment profile, whichvaries by the product type. For amortising loans, this is based on the contractual repaymentsowed by the borrower over a 12 month or lifetime basis. For the loan commitments, the EAD ispredicted by taking current drawn balance and adding a " credit conversion factor" which allowsfor the expected drawdown of the remaining limit by the time of default.

29.1.2.3 Measuring the ECL - Explanation of inputs, assumptions and estimationtechniques (continued)

Forward-looking economic information is also included in determining the 12-month andlifetime PD, EAD and LGD. Refer note 29.1.2.4 for an explanation of forward-lookinginformation and its inclusion in ECL calculations.

The assessment of SICR and the calculation of ECL both incorporate forward-lookinginformation. HDFC has performed historical analysis and identified the key economic variablesimpacting credit risk and expected credit losses for the loan portfolio.

Forecasts of these economic variables (the “base economic scenario”) are obtained by HDFCfrom IMF and trading economic.com. The impact of these economic variables on the PD hasbeen determined by performing statistical regression analysis to macro economic variable withcredit index. Estimated credit indexes are determined by plugging forcasted macro economicvariables in the factor model developed in the regression analysis. Forcasted PDs are computedby shifting Through the Cycle (TTC) matrix using estimated credit index.

Set out below are the changes to the ECL as at 31 December 2018 that would result fromreasonably possible changes in the parameter from the actual assumption used in HDFC’seconomic variable assumption.


31 December 2018




29.1.2.4 Forward looking information incorporated in ECL models (continued)

Sensitivity analysis (continued)

-5% No change +5% MVR MVR MVR

Loss allowance as at 31 December 2018 26,891,804 26,209,891 25,760,901

29.1.2.5 Grouping of instruments for losses measured on a collective basis

29.1.3 Loss allowance

45

-Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencingsignificant increases (or decreases) of credit risk or becoming credit-impaired in the period, andthe consequent “step up” (or “step down”) between 12-month and Lifetime ECL; - Additional allowances for new financial instruments recognised during the period, as well asreleases for financial instruments de-recognised in the period;

-Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period,arising from regular refreshing of inputs to models;

-Impacts on the measurement of ECL due to changes made to models and assumptions;

-Discount unwind within ECL due to the passage of time, as ECL is measured on a present valuebasis;

GDP

For expected credit losses provision modelled on a collective basis, a grouping of exposures isperformed on the basis of shared risk characteristics, such that risk exposures within the groupare homogeneous. Both conventional and Amna assets are pooled together as primarily theproducts are same and considering the size of portfolio.

The loss allowance recognised in the period is impacted by a variety of factors, as describedbelow:

-Financial assets derecognised during the period and write-offs of allowances related to assetsthat were written off during the period.

The following table explain the changes in the loss allowance between the beginning and end ofthe annual period due to these factors:


31 December 2018




29.1.3 Loss allowance (continued)

Stage 1 Stage 2 Stage 312-month ECL Life time ECL Life time ECL Total

5,628,528 15,134,481 13,673,160 34,436,169

(131,658) 1,019,128 - 887,470

(13,833) - 485,038 471,205

432,292 (6,374,130) - (5,941,838)

42,549 - (1,406,896) (1,364,347)

266,562 22,957 - 289,519 Transfers:

- (1,761,006) 4,422,969 2,661,963

- 1,223,473 (3,665,565) (2,442,092)

(11,695) (166,271) (7,259) (185,225)Other movements (1,860,457) (982,783) 240,307 (2,602,933)

4,352,288 8,115,849 13,741,754 26,209,891

46

Transfer from Stage 1 to Stage 3



New financial assets originated

Transfers from stage 2 to stage 3

Transfer from stage 3 to stage 2

Loans and advances

Loss allowance as at 1 January 2018

Transfers:


The following table further explains changes in the gross carrying amount of the mortgageportfolio to help explain their significance to the changes in the loss allowance for the sameportfolio as discussed above:

Financial assets settled during the year

Loss allowance at 31 December 2018

The unwind of interest on Stage 3 financial assets is reported within 'Interest income' so thatinterest income recognised on the amortised cost ( after deducting the ECL allowance).

Significant changes in gross carrying amount of financial assets that contributed to changes inthe loss allowance were as follows:

Although the high volume of new mortgages loans originated during the period increased thegross carrying amount of the mortgage book by 14%, there were reductions in stage 2 and stage3 assets by 33.3% with a corresponding decrease in loss allowance amounting to MVR8,226,278.


31 December 2018




29.1.3 Loss allowance (continued)

Stage 1 Stage 2 Stage 312-month ECL Life time ECL Life time ECL Total

1,177,459,575 203,641,030 57,996,262 1,439,096,867

(17,855,063) 17,244,457 - (610,606)

(1,066,662) - 1,121,699 55,037

- (18,055,179) 18,372,293 317,114

- 20,779,728 (22,191,796) (1,412,068)

86,885,849 (90,843,561) - (3,957,712)

3,472,002 - (3,836,120) (364,118)

(23,005,747) (4,390,189) (1,551,986) (28,947,922)

237,933,703 173,117 - 238,106,820

5,317,486 (2,678,383) (1,333,928) 1,305,175

1,469,141,143 125,871,020 48,576,424 1,643,588,587

29.1.4 Write-off policy

29.1.5 Modification of financial assets

47

Loans and advances

Gross carrying amount as at 1 January 2018

Transfers:


New financial assets originatedOther movements

Gross carrying amount as at 31 December 2018

HDFC writes off financial assets, in whole or in part, when it has exhausted all practicalrecovery efforts and has concluded there is no reasonable expectation of recovery. Indicators thatthere is no reasonable expectation of recovery include (i) ceasing enforcement activity and (ii)where the HDFC’s recovery method is foreclosing on collateral and the value of the collateral issuch that there is no reasonable expectation of recovering in full.

HDFC sometimes modifies the terms of loans provided to customers due to commercialrenegotiations with a view to maximising recovery.

Transfer from Stage 1 to Stage 3Transfer from Stage 2 to Stage 3Transfer from Stage 3 to Stage 2Transfer from Stage 2 to Stage 1Transfer from Stage 3 to Stage 1Financial assets settled during the year


31 December 2018



29.1.5 Modification of financial assets (continued)

29.1.6 Risk limit control and mitigation policies

(a) Collateral

48

Such restructuring activities include extended payment term arrangements, payment holidays andpayment forgiveness. Restructuring policies and practices are based on indicators or criteriawhich, in the judgement of management, indicate that payment will most likely continue. Thesepolicies are kept under continuous review.

The risk of default of such assets after modification is assessed at the reporting date andcompared with the risk under the original terms at initial recognition, when the modification isnot substantial and so does not result in derecognition of the original asset. HDFC monitors thesubsequent performance of modified assets. HDFC may determine that the credit risk hassignificantly improved after restructuring, so that the assets are moved from Stage 3 or Stage 2(Lifetime ECL) to Stage 1 (12-month ECL). There was no modification during the year.

HDFC manages, limits and controls concentrations of credit risk wherever they are identified inparticular, to individual counterparties and groups, and to corporates. HDFC structures the levelsof credit risk it undertakes by placing limits on the amount of risk accepted in relation to oneborrower, or groups of borrowers, and to corporates. Such risks are monitored on a revolvingbasis and subject to an annual or more frequent review, when considered necessary.

Some other specific control and mitigation measures are outlined below.

HDFC employs a range of policies and practices to mitigate credit risk. The most traditional ofthese is the taking of security for the housing loans, which is a common practice. HDFCimplements guidelines on the acceptability of specific classes of collateral or credit riskmitigation. The principal collateral types for housing loans are mortgage over housing unit that isfinanced by HDFC.

HDFC’s policy is to sell the repossessed assets at the earliest possible opportunity and theHDFC’s policies regarding obtaining collateral have not significantly changed during thereporting period. There has been no significant change in the overall quality of the collateralheld by HDFC since the prior period.

HDFC closely monitors collateral held for financial assets considered to be credit-impaired, as itbecomes more likely that HDFC will take possession of collateral to mitigate potential creditlosses.


31 December 2018



29.1.6 Risk limit control and mitigation policies (continued)

Staff loans Amna Assets Total

1,252,647,891 6,613,752 384,326,944 1,643,588,587

1,252,647,891 6,613,752 384,326,944 1,643,588,587

As of 31 December 2017 Staff loans Amna Assets Total

1,137,133,718 5,663,292 296,299,857 1,439,096,867

1,137,133,718 5,663,292 296,299,857 1,439,096,867

Fair value of collateral

Carrying value of the assets


1,252,647,891 3,838,618,519 - -

6,613,752 17,486,292 - -

384,326,944 1,063,706,371

1,643,588,587 4,919,811,182 - -

As of 31 December 2017Fair value of collateral



1,137,133,718 3,483,952,673 - -

5,663,292 15,111,892 - -

296,299,857 704,644,372

1,439,096,867 4,203,708,937 - -

49

Loans collaterised by:- house propertyTotal loans and advances

Customer loansLoans collaterised by:- house property

Collateral information

As of 31 December 2018 Customer loans

Customer loansStaff loansAmna assetsTotal loans and advances

Over-collateralised assets Under-collateralised assets

Total loans and advances

The financial effect of collateral is presented by disclosing collateral values separately for (i)those assets where collateral and other credit enhancements are equal to or exceed carrying valueof the asset (over-collateralised assets) and (ii) those assets where collateral and other creditenhancements are less than the carrying value of the asset (“under-collateralised assets”). Theeffect of collateral is as follows:

As of 31 December 2018

Over-collateralised assets Under-collateralised assetsCarrying value of the assets


Customer loansStaff loansAmna AssetsTotal loans and advances


31 December 2018



29.1.6 Risk limit control and mitigation policies (continued)

(b) Credit-related commitments

29.1.7 Impairment and provisioning policies

29.1.8 Maximum exposure to credit risk before collateral held or other credit enhancements

29.1.9 Loans and advances

2018 2017

Neither past due nor impaired (less than 30 days) 1,467,845,678 1,175,930,073 Past due but not impaired (30-60 days) 38,242,556 109,413,873 Past due but not impaired (60-90 days) 50,990,753 68,397,115 Past due but not impaired (90-120 days) 32,449,908 27,299,855 Impaired (more than 120 days) 54,059,692 58,055,950 Gross loans and advances 1,643,588,587 1,439,096,867 Less: allowance for impairment (26,209,891) (28,581,369)Net loans and advances 1,617,378,696 1,410,515,498

50

Impairment provisions are recognised for financial reporting purposes based on expected creditlosses calculated based on historical default rates and forward looking information.

Maximum exposure before collateral equals to the net carrying value of all the assets in theStatement of financial position except cash and bank balances representing a worse case scenarioof credit risk exposure to HDFC at 31 December 2018 and 31 December 2017, without takingaccount of any collateral held.

Management is confident in its ability to continue to control and sustain minimal exposure ofcredit risk to the HDFC resulting from its loan portfolio and based on the following:

• All the housing loans are backed by collateral.

• 89.31 % of the loans and advances portfolio are considered to be neither past due nor impaired(31 December 2017: 81.71 %);

Commitments to extend credit represent unused portions of authorisations to extend credit in theform of loans. With respect to credit risk on commitments to extend credit, HDFC is potentiallyexposed to loss in an amount equal to the total unused commitments. However, the likely amountof loss is negligible than the total unused commitments, as most commitments to extend creditare contingent upon customers maintaining specific credit standards and since generally theseexposures are secured against adequate collateral. HDFC monitors the term to maturity of creditcommitments.

Loans and advances are summarised as follows:


31 December 2018



29.1.9 Loans and advances (continued)

Internal Ratings

Basis for grading (B/A)

Loans to customers

Loans to customers Percentage of total loans

MVR MVRA+ 1,467,845,678 1,175,930,073 100.00%A - - - A- - - - B+ - - - B - - - C - - -

1,467,845,678 1,175,930,073 100.00%

Male' Hulhumale' Outer atoll Total

Past due 30-60 days 10,923 19,307 8,012 38,243 Past due 60-90 days 17,127 29,115 4,748 50,991 Past due 90-120 days 3,311 28,303 836 32,450 Total 31,361 76,726 13,597 121,683

51


0.2% 100.00%0.2% to 0.5% -0.5% to 1% -

Further information of the impairment allowance for loans and advances to customers isprovided in Note 16.

During the period 31 December 2018, HDFC’s total value of loans and advances increased by14.21% (2017: 8.94%) as a result of new disbursement of the housing loans. In order tominimise the potential increase of credit risk exposure, the HDFC focused more on lendinghouse construction loans providing collateral and strong repayment capacity from employment,other business and rental income.

(a) Loans neither past due nor impaired

Currently HDFC does maintain an internal credit rating system for loans neither past due orimpaired. Internal rating is calculated by taking total receipts for the period (A) and total latepenalty for the period (B), an arriving at a percentage by dividing B by A, (i.e. B/A). Percentagesare graded as follows;


100%

(b) Loans and advances past due but not impaired

Loans and advances less than 120 days past due are not considered impaired, unless otherinformation is available to indicate the contrary. Gross amount of loans and advances by areas tocustomers that were past due but not impaired were as follows:

(Amount in MVR '000)Housing loan

31 December 2018

1% to 1.5% -1.5% to 2% -above 2% -


31 December 2018



29.1.9 Loans and advances (continued)


Past due 30-60 days 57,212 45,714 6,488 109,414 Past due 60-90 days 22,324 40,046 6,028 68,397 Past due 90-120 days 7,660 17,263 2,376 27,300 Total 87,196 103,023 14,892 205,111


19,627 29,510 4,923 54,060 Total 19,627 29,510 4,923 54,060


19,366 33,261 5,429 58,056 Total 19,366 33,261 5,429 58,056

29.1.10 Concentration of risks of financial assets with credit risk exposure

(a) Geographical sectors

2018 2017

Residential - Conventional 1,256,098,708 1,139,243,180 Residential - Islamic 384,326,943 296,299,857 Commercial 3,162,936 3,553,830 Grand total 1,643,588,587 1,439,096,867

52

(b) Loans and advances past due but not impaired (continued)

Housing loan 31 December 2018

Impaired loans

31 December 2017

Impaired loans

HDFC’s lending activities are limited to Maldives.

31 December 2017

Upon initial recognition of housing loan, the cost incurred to construct the house is taken as thefair value of the mortgaged house.

(c) Loans and advances impaired

The impaired loans and advances to customers is MVR 54,059,692 (as compared to on 31December 2017 when impaired loans and advances to customers were MVR 58,055,950).

The breakdown of the gross amount of impaired loans and advances by areas are as follows:

(Amount in MVR '000)

(b) Sectors

The following table breaks down HDFC's main credit exposure at their carrying amounts, ascategorised by the sectors of our counterparties.


31 December 2018



29.2

29.2.1

2018 2017AssetsCash and balances with other banks 97,915 147,593 Total assets 97,915 147,593

LiabilitiesBorrowings (8,296,367) (11,215,172) Total liabilities (8,296,367) (11,215,172)

Net on-balance sheet financial position (8,198,451) (11,067,579) Currency SWAP 8,218,891 11,084,841 Net 20,440 17,262

53

Foreign exchange risk

All the transactions except transactions carried out in local currency, Maldivian Rufiyaa (MVR),are carried out mainly in United States Dollars (US$) for which exchange rate was pegged.However, with effect from 10 April 2011, the government declared a managed float of thecurrency within a 20% band (1 US$ = MVR 10.28 to MVR 15.42). The Corporation takes onexposure to the effects of fluctuations in the prevailing foreign currency exchange rates on itsfinancial position and cash flows. The management has set up a policy to manage their foreignexchange risk against their functional currency, by entering into currency SWAP.

HDFC has borrowed from Netherlands Development Finance Company (FMO) and fromDeutsche Investitutions und Entwicklungs Gesellschaft MBH (DEG) in US$. The proceeds fromthese were sold to State Trading Organisation PLC (STO) for equivalent Rufiyaa at 1 US$ =MVR 15.42. HDFC has entered into three SWAP agreements with STO by which STO will sellequal amount of US$ to honour the US$ requirement of HDFC at the rate of 1 US$ = MVR15.42.

By virtue of the SWAP agreements, HDFC will be able to service the US$ loans obtained fromFMO and DEG. As at the reporting date, the outstanding balance in these two borrowingsamounts to US$ 8,296,367 (2017: US$ 11,215,172), against which the amounts of US$ to bepurchased from STO PLC is US$ 8,218,891 (2017: US$ 11,084,841).

The table below summarises HDFC's exposure to foreign currency exchange rate risk at the endof the reporting period.

Market risk

HDFC takes on exposure to market risk, which is the risk that the fair value or future cash flowsof a financial instrument will fluctuate because of changes in market prices. Market risks arisefrom open positions in interest rate and currency, all of which are exposed to general andspecific market movements and changes in the level of volatility of market rates or prices such asinterest rates, credit spreads and foreign exchange rates.

Non-trading portfolios primarily arise from the interest rate management of HDFC's housing andcost of funds. The market risks arising from non-trading activities are concentrated in HDFC’sAssets and Liabilities Management Committee (ALCO).

(Amount in USD)


31 December 2018



29.2.1

Amounts in MVR Impact on profit or loss

Impact on equity

Impact on profit or loss

Impact on equity

US Dollar strengthening by 10% 2,044 - 1,726 - US Dollar weakening by 10% (2,044) - (1,726) -

29.2.2

54

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interestrates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates.HDFC takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on cash flow risks. Interest margins mayincrease / decrease as a result of such changes but may reduce losses in the event that unexpected movements arise.

Foreign exchange risk (continued)

The following table presents sensitivities of profit or loss and equity to reasonably possible changes in exchange rates applied at the end of thereporting period relative to the functional currency of HDFC, with all other variables held constant.


Interest rate risk

The extent of the interest rate risk depends on the value and period of the maturity mismatch between interest bearing assets and liabilities andthe ability and speed of HDFC in re-pricing them. ALCO regularly reviews these gaps to ensure that they are within acceptable norms. HDFCregularly monitors the market behaviour and products are appropriately re-priced when necessary.

HDFC does not carry a trading portfolio or does not generally invest in stocks or shares other than Government treasury bills, for whichinvestments are generally less than 3 months and hold to collect. Therefore HDFC is not open to any price fluctuation risks.


31 December 2018



29.2.2

Up to1 month

(in MVR '000)AssetsCash and balances with banks 44,088 15,000 - - - 32,566 91,654 Financial assets at amortised cost - 29,976 - - - - 29,976 Loans and advances 13,455 30,359 166,764 398,410 1,008,390 - 1,617,378 Other assets - - - - - 7,356 7,356 Total financial assets 57,543 75,335 166,764 398,410 1,008,390 39,922 1,746,364

LiabilitiesDeposits from customers - - - - 74,061 8,362 82,423 Debt securities in issue 2,618 1,248 5,000 20,000 190,114 - 218,979 Other borrowed funds 1,250 19,470 149,320 436,075 31,750 - 637,865 Other liabilities - - - - - 288,021 288,021 Current tax liabilities - - - - - 8,371 8,371.27 Total financial liabilities 3,868 20,718 154,320 456,075 295,925 304,754 1,235,660 Total interest repricing gap 53,675 54,617 12,443 (57,665) 712,465 (264,832) 510,704

55

Interest rate risk (continued)

The table below summarises HDFC’s exposure to interest rate risks. It includes HDFC’s financial instruments at carrying amounts, categorisedby the earlier of contractual repricing or maturity dates.

Non- interest bearing

TotalAs at 31 December 2018 1-3 months 3-12 months 1-5 years Over 5 years


31 December 2018



29.2.2

Up to1 month

(in MVR '000)AssetsCash and balances with banks 41,800 67,000 - - - 26,726 135,526 Financial assets at amortised cost 29,960 - - - - - 29,960 Loans and advances 10,008 27,101 84,919 329,255 959,232 - 1,410,515

Other assets - - - - - 7,868 7,868 Total financial assets 81,768 94,101 84,919 329,255 959,232 34,594 1,583,869

LiabilitiesDeposits from customers - - - - 64,844 3,592 68,436 Debt securities in issue 8,955 18,848 10,000 111,602 - - 149,405 Other borrowed funds 16,444 45,597 142,777 392,001 76,042 - 672,861 Other liabilities - - - - - 227,933 227,933 Current tax liabilities - - - - - 7,813 7,813 Total financial liabilities 25,399 64,445 152,777 503,603 140,886 239,338 1,126,448 Total interest repricing gap 56,369 29,656 (67,858) (174,348) 818,346 (204,744) 457,421

30.2.256


As at 31 December 2017 1-3 months 3-12 months 1-5 years Over 5 years Non- interest bearing

Total

Additionally, HDFC is confident that it has sufficient interest margins to absorb any adverse impacts due to interest fluctuations on anyunmatched positions. Further HDFC has the option of changing the interest offered to customers per the sanction letters issued to thecustomers.



31 December 2018



29.2.2

(in MVR '000)1% increase 1% decrease 1% increase 1% decrease

Average for the year 7,755 (7,755) 6,622 (6,622)

29.3

29.3.1

57

HDFC’s liquidity management process, as carried out within HDFC and monitored by the senior management in HDFC, includes:


Exposure to Interest rate risk - Loans and advances

Sensitivity Analysis of Net interest income


Liquidity risk

Liquidity risk is the risk that HDFC is unable to meet its payment obligations associated with its financial liabilities when they fall due and toreplace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfil commitments tolend.

Liquidity risk management process

• Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of fundsas they mature or are borrowed by customers;• Maintaining a portfolio of deposits with bank and treasury bills that can easily be liquidated as protection against any unforeseen interruptionto cash flow; • Monitoring balance sheet liquidity ratios against internal requirements; and • Managing the concentration and profile of debt maturities.


31 December 2018



29.3.1

29.3.2

58

Liquidity risk management process (continued)

Monitoring and reporting take the form of cash flow measurement and projections for the next week and month respectively, as these are keyperiods for liquidity management. The starting point for those projections is an analysis of the contractual maturity of the financial liabilitiesand the expected collection date of the financial assets.

HDFC also monitors unmatched medium-term assets, the level and type of undrawn lending commitments and undrawn borrowings.

Funding approach

Sources of liquidity are regularly reviewed by the ALCO.


31 December 2018



29.3.3

As at 31 December 2018 Upto 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total Carrying amount

(in MVR '000)LiabilitiesDeposits - - 8,362 - 74,061 82,423 82,423 Debt securities in issue 2,756 1,475 14,307 78,696 256,727 353,961 218,979 Other borrowed funds 4,468 23,337 173,670 490,699 34,142 726,316 637,866 Other liabilities - - 59,413 - 228,608 288,021 288,021 Current tax liabilities - - 8,371 - - 8,371 8,371.27 Total liabilities 7,224 24,812 255,752 569,395 593,538 1,450,722 1,227,289

AssetsCash and balances with banks 76,654 15,000 - - - 91,654 91,654 Financial assets at amortised cost - 29,976 - - - 29,976 29,976 Loans and advances 28,839 61,027 303,097 1,069,349 1,919,623 3,381,935 1,617,378 Other assets 80 147 1,553.83 5,575 - 7,356 7,356 Total assets 105,572 106,150 304,651 1,074,925 1,919,623 3,510,920 1,746,364

Net 98,348 81,338 48,899 505,530 1,326,085 2,060,199 519,075

59

Non-derivative cash flows

The table below presents the cash flows payable by HDFC under non-derivative financial liabilities by remaining contractual maturities at thereporting date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas HDFC manages the inherent liquidityrisk based on expected undiscounted cash inflows.


31 December 2018



29.3.3

As at 31 December 2017 Upto 1 month 1-3 months 3-12 months 1-5 years Over 5 years Total Carrying amount

(in MVR '000)LiabilitiesDeposits - - 3,592 - 64,844 68,436 68,436 Debt securities in issue 9,036 19,182 10,208 111,602 - 150,028 149,405 Other borrowed funds 19,527 51,711 168,091 465,000 92,437 796,766 672,861 Other liabilities - - 55,570 - 172,364 227,934 227,934 Current tax liability - - 7,813 - - 7,813 7,813 Total liabilities 28,563 70,893 237,461 576,602 329,645 1,243,164 1,118,636

AssetsCash and balances with banks 68,526 67,000 - - - 135,526 135,526 Financial assets at amortised cost 29,960 - - - - 29,960 29,960 Loans and advances 16,325 32,651 146,928 783,618 1,959,044 2,938,566 1,410,515 Other assets - 825 224 4,330 2,489 7,868 7,868 Total assets 114,811 100,476 147,152 787,948 1,961,533 3,111,920 1,583,869

Net 86,248 29,583 (90,309) 211,346 1,631,888 1,868,756 465,233

60

Non-derivative cash flows (continued)

Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, deposits with banks, financial asset atamortised cost and housing loan repayment from customers. HDFC would also be able to meet unexpected net cash outflows by discountingtreasury bills, other investments and utilizing the undrawn borrowing facilities.


31 December 2018



29.4

Capital 2018 2017159,375,000 159,375,000 341,400,374 285,967,217

15,000,000 17,136,480 515,775,374 462,478,697

515,775,374 462,478,697

849,425,314 728,435,996 849,425,314 728,435,996

61% 63%

61

HDFC’s capital as managed by its management comprises of share capital, retained earnings andreserves created by appropriations of retained earnings and current year earnings.

The risk-weighted assets are measured by means of a hierarchy of five risk weights classifiedaccording to the nature of – and reflecting an estimate of credit, market and other risks associatedwith each asset and counterparty, taking into account any eligible collateral or guarantees. Asimilar treatment is adopted for off-balance sheet exposure, with some adjustments to reflect themore contingent nature of the potential losses.

The table below summarises the composition of capital and the ratios of HDFC for the yearsended 31 December 2018 and 2017. HDFC complied with all of the externally imposed capitalrequirements to which they are subjected.

Share capital

Capital management

HDFC’s objectives when managing capital, which is a broader concept than the ‘equity’ on theface of Statement of financial position, are:

• To comply with the capital requirements set by the lenders; • To safeguard HDFC’s ability to continue as a going concern so that it can continue to providereturns for shareholders and benefits for other stakeholders; and • To maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are monitored daily by HDFC’s management,employing techniques based on the guidelines developed by the Basel I Committee, forsupervisory purposes.

Netherlands Development Finance Company and Deutsche Investitutions und EntwicklungsGesellschaft MBH require HDFC to maintain a ratio of total capital to the risk-weighted asset(the 'Basel ratio') at or above 12%.

Total risk-weighted

Basel ratio

The changes in the regulatory capital was mainly due to the profit earned during the year ended31 December 2018. The increase in risk-weighted assets reflects the expansion of the loanportfolio during year.

Retained earningsReserves Total qualifying Capital

Total capital

Risk-weighted assetsOn-balance sheet




30

As at 31 December 2018 Amortised cost Total

Financial assets Cash and cash equivalents 91,653,575 91,653,575

29,976,096 29,976,096 Loans and advances 1,617,378,696 1,617,378,696 Total assets 1,739,008,367 1,739,008,367

Amortised cost Total

Financial liabilitiesDebt securities in issue 218,979,337 218,979,337 Other borrowed funds 637,865,650 637,865,650 Deposits from customers 82,423,308 82,423,308 Total liabilities 939,268,295 939,268,295

As at 31 December 2017 Held-to-maturity

Loan and receivables

Total

Financial assets Cash and cash equivalents - 135,525,548 135,525,548 Financial assets held to maturity

29,959,834 - 29,959,834

Loans and advances - 1,410,515,498 1,410,515,498 Total assets 29,959,834 1,546,041,046 1,576,000,880

Other liabilities Total

Financial liabilitiesDebt securities in issue 149,404,938 149,404,938 Other borrowed funds 672,860,514 672,860,514 Deposits from customers 68,435,976 68,435,976 Total liabilities 890,701,428 890,701,428

62

31 December 2018

Analysis of financial instruments by measurement basis

Financial assets at amortised cost


31 December 2018


31 Fair value of financial instruments

Carrying amount

Assets carried at amortised costCash and cash equivalents 91,653,575 91,653,575 135,525,548 135,525,548

Financial asset at amortised cost 29,976,096 29,976,096 29,959,834 29,959,834 1,617,378,696 1,617,378,696 1,410,515,498 1,410,515,498

1,739,008,367 1,739,008,367 1,576,000,880 1,576,000,880

Liabilities carried at amortised costDeposits from customers 82,423,308 82,423,308 68,435,976 68,435,976

Debt securities in issue 218,979,337 218,979,337 149,404,938 149,404,938

Other borrowed funds 637,865,650 637,865,650 672,860,514 672,860,514

939,268,295 939,268,295 890,701,428 890,701,428

63

Loans and advances to customers

The fair value of financial assets and liabilities, together with the carrying amount shown in the statement of financial position, are as follows:

As at 31 December 2017Carrying amount Fair value Fair value

As at 31 December 2018


31 December 2018



32 Contingencies

(b) Contingent assets

33 Commitments

(a) Capital commitments

(b) Loan commitments

2018 2017

Undisbursed loans and other facilities 265,061,285 231,385,456

(c) Operating lease commitments

2018 2017

Not later than one year 1,032,000 905,000 Later than one year and not later than five years 3,683,000 4,320,000 More than five years - 1,905,000

4,715,000 7,130,000

34 Related party transactions

Key management compensation2018 2017

2,543,594 1,027,198

35 Events after the reporting period

64

Executive management salaries

No significant events have occurred since the reporting date, which would require adjustments to, ordisclosure in, the financial statements.

(a) Contingent liabilities

There were no material contingent liabilities recognized at the reporting date.

There were no material contingent assets recognized at the reporting date.

There were no material capital commitments as at the reporting date.

Annex: 6

Extract of the Corporate

Governance Code



EXTRACTOF THE CORPORATE GOVERNANCE CODE

General principles

The policy requires that the directors and management comply with the following

general principles:

i) Conduct all affairs adhering to the highest standards of ethics, transparency,

accountability, honesty and integrity.

ii) Provide accurate, fair, timely full and meaningful disclosures in the periodic reports

to be filed by HDFC with the stakeholders and regulatory agencies.

iii) Timely disclosure of conflicts and potential conflicts of interest that the directors or

management may have in the discharge of their duties and responsibilities on

corporate governance.

iv) Prevent the misuse of misapplication of HDFC’s assets and resources.

v) Comply with applicable laws, rules and regulations.

The Capital Market Development Authority (CMDA, which was established in 2006), is the

prime mover of promoting corporate governance in the Maldives. HDFC is also bound by

Capital Market Development Authority’s Corporate Code on Corporate Governance.

However, the benchmarks established by the shareholders’ agreement upon privatization of

HDFC are far reaching and cover all the essential features of the Maldives’ approach to

corporate governance. CMDA has a vision and framework that recognises the shareholder’s

rights and ownership functions, the role of stakeholders, disclosure and transparency

standards and critical duties and responsibilities of the Board.

HDFC has implemented Governance as stipulated by the Article II of the Shareholders

Agreement of July 2008 in the following manner.

Board Composition

(a) The number of Directors comprising the Board shall not be more than seven (7). Each

Initial Shareholder holding Shares or Share Equivalents representing at least five per cent

(5%) of all Shares then outstanding on an as-converted basis shall have the right to nominate

one (1) Director and one (1) Alternate Director who shall be elected to the Board, except for

the Sponsor who shall have the right to nominate two (2) Directors who shall be elected to the

Board. The Managing Director will have a seat on the Board without any voting right. Within

the earlier of (i) one year from the date of this Agreement; or (ii) the occurrence of an IPO, the

Initial Shareholders shall elect to the Board one (1) Independent Director and one (1)

Alternate Independent Director. The Alternate Directors shall be invited to, and may be

present at, any Board meeting provided that an Alternate Director shall only be allowed to

vote while acting in the absence of the Director who appointed him/her.

(b) After the date of this Agreement the Board shall constitute such Committees (the

"Committees") as required by Applicable Law or as the Board sees fit, including an audit

committee (the "Audit Committee") which shall be comprised at least by two (2) of the three

(3) Directors appointed by the International Investors. Any financial audit of the Company

shall be approved by the Audit Committee.

THE BOARD OF DIRECTORS

The Board of Directors is the highest decision making body of the Bank and comprises Independent,

Non-Independent and Non-Executive Directors. The Board comprise of 5 nominee directors from the

shareholders; where the Government of Maldives, with 2 directors; Asian Development Bank;

International Finance Corporation and HDFC Investments Ltd (India) represented by one nominee

director.

As per the shareholder’s agreement, the Chairman to the Board of Directors is appointed on rotation

for one year term. The Managing Director sits on the Board as and ex officio responsible for policy

implementation and to oversee day-to-day operations of the Company.

HDFC’s Board members possess skill and experience and proven track records in housing finance

and business administration and other diverse fields including banking, finance, business and

technical.

Two directors of the Board are women.

Role of the Board and the Chairperson

HDFC Board is responsible for establishing the Company’s polices and strategies and for regular

monitoring the effectiveness of the management and performance of the Company in carrying out the

policies and strategies. HDFC Board is headed by the Chairperson, who ensures that the Board fulfils

its obligations under the Articles of Associations, Memorandum of Association and under the relevant

laws and regulations, through effective leadership and guidance to the Board and the Company. The

Board is accountable to the shareholders for overseeing the management and performance of the

Company, and is responsible for the Company’s overall strategy and governance

Changes in Directorship and Company Secretary

During the Year 2018 Ms. Aminath Seena Musthafa, was appointed on 10 April 2018 as the nominee

director (GOM and Mr. Mohamed Zuhair was appointed as the alternate director (GOM).

HDFC AUDIT COMMITTEE

Mr. Conrad D’Souza (HDFC Invest. Ltd. India) Chairman/Member

Mr. Mohamed Mauroof Jameel (GOM) Member

Mr. Nihal Senanayake Welikala (IFC) Member

NOMINATION AND REMUNERATION COMMITTEE

Mr. Mohamed Mauroof Jameel (GOM) Chairman/Member

Mr. Gaurav Agarwal (IFC) Member

Mr. Conrad D’Souza (HDFC Investments Ltd India) Member

CREDIT RISK MANAGEMENT COMMITTEE

Mr. Nihal Senanayake Welikala (IFC) Chairman/Member

Mr. Mohamed Mauroof Jameel (GOM) Member

Mr. Gaurav Agrawal (ADB) Member

Exercise of Rights

The Initial Shareholders agree to vote their Shares and to take all other action as may be reasonably

necessary to ensure compliance with and to fully and effectually implement the provisions of this

Agreement, including the provisions in Section 2.01(a) (Board Composition) relating to the election of

the Directors and Alternate Directors, as promptly as reasonably possible.

Removal/Resignation of Directors/Alternate Directors

Any Initial Shareholder may require the removal of the Director or Alternate Director or, in the case of

the Sponsor, Directors or Alternate Directors, nominated by any of them at any time and shall be

entitled, subject to Section 2.01 (Board Composition), to nominate another Person as its Director or

Alternate Director in place of any such Director or Alternate Director so removed, and the other Initial

Shareholders shall exercise their rights in such manner so as to cause the election of that Director or

Alternate Director as aforesaid. In the event of the resignation, retirement or vacation of office of a

Director or Alternate Director appointed by any Initial Shareholder, such Initial Shareholder shall be

entitled, subject to Section 2.01 (Board Composition), to nominate another person as its Director or

Alternate Director in place of such Director or Alternate Director and each of the other Initial

Shareholders shall exercise their rights in such manner so as to cause such election.

Remuneration of directors

For the year ended 31 December 2018, total aggregate compensation to the Board of directors was

approximately MVR 791,165 (includes remuneration and travel). As of the date of this Prospectus

none of the Board directors and none of the senior management staff at HDFC Plc., for at least the

past five years has had any conviction in relation to fraudulent offences; has held any executive

function in the form of a Senior Manager or member of the Administrative Management or any

company at the time of or preceding any bankruptcy, receivership or liquidation; or has been subject

to any official public incrimination and /or sanction by way of any statutory or regulatory authority

(including designated professional body) nor has even been disqualifies by a court from acting as a

member of the administrative, management or supervisory bodies of a company or from acting in the

management or conduct of the affairs of a company.

Chairman

The Board shall appoint one of the Directors as Chairman of the Board (the "Chairman"). The

Chairman shall be appointed for periods of 1 year, in rotation, and shall preside at all meetings of the

Board or any Committees where he is a member and at all General Meetings. The Chairman shall

not have a casting or second vote at any meeting of the Board or any committee in the event of an

equality of votes.

The board resolved the Chairman could hold office up to one year.

Meetings of the Board

(a) The Board shall meet at least once every two months subject to an annual schedule (The Board

resolved to change the annual schedule to meet once in every three months), with confirmation

of the date of the next Board meeting

(b) at the previous Board meeting. Meetings of the Board shall be in Male, Republic of Maldives or

at such other place as may be reasonably determined by the Board of Directors.

(c) Written notice of each meeting of the Board or a committee shall be given to each Director and

it’s alternate, if any, at the address notified from time to time by such Director and its alternate,

at least fifteen (15) days in advance of such meeting, unless otherwise agreed in writing by such

Director or its alternate.

(d) An agenda setting out in detail the items of business proposed to be transacted at a meeting of

the Board or committee together with necessary information and supporting documents shall be

circulated to each of the Directors and their respective alternate directors and their respective

alternates at least fifteen (15) days prior to the date of the relevant meeting.

(e) The Company shall indemnify its Directors to the maximum extent permitted under Applicable

Law. The reasonable costs incurred by a non-employee Director in attending a meeting of the

Board or committee or a General Meeting (including the reasonable costs of travel and

attendance of the Directors appointed by the International Investors) shall be reimbursed by the

Company

Quorum at Board Meetings

(a) The quorum for a meeting of the Board, duly convened and held, shall be a majority of the

Directors, which majority shall include at least two (2) Directors appointed by the International

Investors. Subject to Section 2.09(b) below, all actions taken by the Board shall require the

approval of a majority of the Directors present at the relevant Board meeting.

(b) In the absence of a valid quorum at a meeting of the Board, duly convened, the meeting shall be

adjourned to the same time and place not earlier than ten (10) days but no later than twenty-one

(21) days thereafter as the Chairman may determine. The quorum requirements as set out in

Section 2.06(a) above shall also be applicable at such adjourned meeting of the Board.

(c) Any Director shall be entitled to participate in a meeting of the Board in which he or she is not

physically present, by telephone or video conference or similar electronic means which allows all

the Directors to communicate simultaneously and the Chairman of such meeting shall record

such Director's observations in the minutes of such meeting.

Resolution by Circulation or Written Consent

No resolution shall be deemed to have been duly passed by the Board or a committee by circulation

or written consent, unless the resolution has been circulated in draft, together with the information

required to make a fully-informed good faith decision with respect to such resolution and appropriate

documents required to evidence passage of such resolution, if any, to all Directors or to all members

of the committee, and to all other Directors or members at their usual address, and has been

unanimously approved in writing by such of them as are entitled to vote on the resolution.

Any such resolution may consist of several documents in like form, each signed by one (1) or more of

the Directors. The expressions “in writing” and “signed” include approval by telex, cable, telegram,

wireless or facsimile transmission.

General Meetings

(a) Not less than thirty (30) days prior written notice of all General Meetings shall be given to the

shareholders of the Company at their respective addresses notified by them to the Company in

writing.

(b) An agenda setting out the business proposed to be transacted at a General Meeting shall be

circulated by the Company to each shareholder at least fifteen (15) days prior to the date of the

General Meeting. No business shall be transacted at any General Meeting duly convened and

held other than that specified in the notice without the prior consent of shareholders holding a

majority of the Shares then outstanding.

(c) The Board shall provide the Company's previous Financial Year's audited financial statements to

all shareholders at least thirty (30) days before the AGM is held to approve and adopt such

audited financial statements.

(d) The quorum for a General Meeting shall be shareholders holding a majority of the Shares then

outstanding. Subject to Section 2.09 (a) below, all actions taken at a General Meeting shall

require the approval of the Initial Shareholders holding a majority of the Shares then outstanding.

(e) In the absence of a valid quorum at a General Meeting, duly convened and held, the

meeting shall be adjourned to the same time or place not earlier than ten (10) days but no

later than twenty-one (21) days thereafter as the Chairman may determine.

The AGM was held duly on 18 May 2019 at Champa Central Hotel.

Supermajority Matters

(a) The Company shall not take the following decisions and actions without the affirmative vote of all

Initial Shareholders, provided that after the occurrence of an IPO, the following decisions and actions

shall require the affirmative vote of the Initial Shareholders holding at least seventy-five per cent

(75%) of the Shares then outstanding:

(i) amend or repeal in any manner the Charter of the Company or any Key

Subsidiary;

(ii) change the designations, powers, rights, preferences or privileges, or the

qualifications, limitations or restrictions of the Shares or Share Equivalents;

(iii) create, authorize or issue any Shares, Share Equivalents or other equity

security (other than as required by the Subscription Agreement or this

Agreement);

(iv) authorize or undertake any Trade Sale or Liquidation Event, or any public

offering of Shares or Share Equivalents of the Company or any Key

Subsidiary;

(v) authorize or undertake any reduction of capital or any redemption or buyback

of Shares or Share Equivalents;

(vi) deregister or delist the Company, or any of its listed shares or Share

Equivalents;

(vii) change the primary business of the Company or commence a new line of

business not contemplated in the Charter;

(viii) change the composition of the Board or the number of Directors;

(ix) appoint or remove the Independent Director;

(x) approve any lending operation below market pricing;

(xi) (A) enter into any agreement, arrangement or transaction with any Related

Party of the Company or the Sponsor, or (B) any agreement that is not on an

arm’s length basis including, the Technical Services Agreement and any

secondment agreements with HDFC Investments Ltd ; or

(xii) any decision or action set forth in paragraph (b) of this Section 2.09

submitted to the General Meeting by the Board.

(b) The following decisions and actions shall not be taken and/or implemented by the Company

or, where applicable, any of its Key Subsidiaries, whether by the Board or any Committee thereof at

any meeting of the Board or a Committee thereof or by resolution by circulation with respect to any of

the following matters, without the approval of all the Directors appointed by the Initial Shareholders:

(i) create, authorize or issue any Shares, Share Equivalents or other equity

security (other than as required by the Subscription Agreement or this

Agreement);

(ii) enter into any strategic alliance, joint venture or acquisition or undertaking,

compromises or settlements with creditors and investors;

(iii) enter into any agreement, arrangement or transaction with any Related Party

of the Company or the Sponsor, the Managing Director or any Key

Employees;

(iv) approve or amend the annual Business Plan or the Company's dividend

policy;

(v) change the composition of the Board or modify the terms of appointment of

the Directors;

(vi) appoint, remove or replace the Auditors and internal auditors or change the

Financial Year of the Company;

(vii) determine of the remuneration of Key Employees and profit sharing scheme

for employees of the Company;

(viii) determine the accounting policies of the Company and any changes thereto;

(ix) determine the timing and the terms of a Company Offering;

(x) purchase or sell Shares, debentures, bonds in other companies or

businesses;

(xi) relocate the main office of the Company or Operations outside the Country;

(xii) issue any guarantee or indemnity to any third party exceeding such limits as

the Board may determine from time to time;

(xiii) enter or amend any existing collaboration/business agreements of any kind

(other than agreements in the ordinary course of business involving an

amount up to two hundred fifty thousand Dollars ($250,000) equivalent);

(xiv) approve the annual accounts of the Company or its Key Subsidiaries;

(xv) establish any Committee or subcommittee of the Board, decide their

composition, the delegation of powers to such Committee or subcommittee

and any changes thereto;

(xvi) form a Subsidiary or acquire or invest in one or more corporations,

partnerships, associations or other business organizations or similar Persons;

or

(xvii) directly or indirectly declare, authorize or make any Distribution on any

Shares or Share Equivalents (or shares or share equivalents of any Key

Subsidiary)] inconsistent with a dividend policy previously approved by the

Board of Directors.

(c) The designation or removal of the Managing Director shall be approved by a simple majority

of the Directors, which majority shall include at least two (2) Directors nominated by the

International Investors.

Information Rights

(a) The Company shall furnish to the Initial Shareholders the following information:

(i) Within ninety (90) days after the end of each Financial Year, annual financial

statements (a balance sheet as of the end of such Financial Year and the

related statements of income, stockholders’ equity and cash flows for the

Financial Year then ended) for the Company on a consolidated basis and for

each of its Key Subsidiaries, audited in accordance with the Accounting

Standards and certified by the Auditors, along with a consolidating statement

prepared by the Auditors, and a copy of all management letters delivered by

the Auditor;

(ii) Within forty-five (45) days after the end of each quarter of each Financial

Year, quarterly financial statements (a balance sheet as of the end of such

quarter and the related statements of income, stockholders’ equity and cash

flows for the quarter then ended) for the Company on a consolidated basis

and for each of its Key Subsidiaries, prepared in accordance with the

Accounting Standards;

(iii) No later than forty-five (45) days before commencement of each Financial

Year, the proposed annual Business Plan;

(iv) A copy of the letter from the Company to the Auditors, in the form of

Schedule 1, irrevocably authorizing the Auditors (whose fees and expenses

shall be for the account of the Company) to communicate directly with any of

the Initial Shareholders at any time regarding the Company's financial

statements (both audited and unaudited), accounts and operations; and

(v) A copy of a similar letter sent by the Company to any new Auditors no later

than thirty (30) days after any change in Auditors;

(b) Following the IPO, the Initial Shareholders may, by notice to the Company, elect not to

receive any of the information described in Section 2.10(a). In this case, the Company shall

provide each of the Initial Shareholders with copies of all information publicly disclosed and/or

filed, so long as such information complies with the rules and regulations of any securities

exchange or automated quotation system on which the securities are listed and any

Applicable Law.

(c) The Company shall promptly provide to each Initial Shareholder such information as any

Initial Shareholder from time to time requests with regard to any material developments in or

affecting the Company's business.

(d) Upon any Initial Shareholder's request, and with reasonable prior notice to the Company, the

Company shall permit representatives of such Initial Shareholder or the CAO (in the case of

IFC), during normal office hours, to:

(i) visit any of the sites and premises where the business of the Company

or its Subsidiaries is conducted;

(ii) inspect any of the sites, facilities, plants and equipment of the

Company or its Subsidiaries;

(iii) have access to the books of account and all records of the Company

and its Subsidiaries; and

(iv) have access to those employees, agents, contractors and

subcontractors of the Company and its Subsidiaries who have or may

have knowledge of matters with respect to which such Initial

Shareholder seeks information;

Policy Covenants

(a) Environmental. The Company and its Key Subsidiaries shall, and the Sponsor hereby

agrees to cause the Company and its Key Subsidiaries to:

(i) comply with the Safeguards Policies;

(ii) periodically review the form of the annual monitoring report and advise ADB

as to whether revision of the form is necessary or appropriate in light of

changes to the Operations, or in light of environmental or social risks

identified by the Environmental Management System; and revise the form of

the annual monitoring report as agreed with ADB;

(iii) use all reasonable efforts to ensure the continuing operation of the

Environmental Management System to assess and manage the social and

environmental performance of the Operations and to comply with the

Safeguard Policies;

(iv) within ninety (90) days after the end of each Financial Year, deliver to ADB

an annual monitoring report, in form satisfactory to ADB, consistent with the

requirements of this Agreement confirming compliance the social and

environmental covenants of this Agreement or, as the case may be,

identifying any non-compliance or failure, and the actions being taken to

remedy any such deficiency; and

(v) within three (3) days after its occurrence, notify ADB of any social, labor,

health and safety, security or environmental incident, accident or

circumstance having, or which could reasonably be expected to have, any

material impact on the implementation or operation of the Operations in

compliance with the Safeguard Policies or a Material Adverse Effect,

specifying in each case the nature of the incident, accident, or circumstance

and the impact or effect arising or likely to arise therefrom, and the measures

the Company is taking or plans to take to address them and to prevent any

future similar event; and keep ADB informed of the on-going implementation

of those measures.

(b)Sanctionable Practices

Each of the parties to this Agreement (other than the International Investors) hereby agrees that no

party shall engage in (and no party hereto shall authorize or permit any Affiliate or any other Person

acting on its behalf to engage in) with respect to any transaction contemplated by this Agreement or

the Company’s business and operations, any Sanctionable Practice. Each of the parties to this

Agreement (other than the International Investors) further covenants that should any of the ADB or

IFC notify the Company or the Sponsor of its concern that there has been a violation of the provisions

of this paragraph, the Company and the Sponsor shall cooperate in good faith with it and its

representatives in determining whether such a violation has occurred, and shall respond promptly and

in reasonable detail to any notice from ADB or IFC, and shall furnish documentary support for such

response upon ADB's or IFC's request.

(c)AML/CFT Covenants

The Company shall and the Sponsor agrees to cause the Company to institute, maintain and comply

with internal procedures and controls satisfactory to the International Investors, and following national

law and best international banking standards including the standards promulgated by the Basel

Committee on Banking Supervision and correspondent and private banking standards, including the

standards promulgated by the Basel Committee on Banking Supervision and the Wolfsburg

Standards, for the purpose of:

(i) preventing the Company or any of its respective Affiliates from being used for

Money Laundering, the Financing of Terrorism, fraud, or other corrupt or

illegal purposes or practices;

(ii) ensuring that (A) any financial institution with which the Company conducts

business or enters into any transaction, or through which the Company

transmits any funds, does not have correspondent banking relationships with

any Shell Bank; and (B) that the Company shall not conduct business or

enter into any transaction with, or transmit any funds through a Shell Bank;

and

(iii) ensuring that the Company will not enter into any transaction with, or for the

benefit of, any individuals or institutions named on lists of sanctioned

persons promulgated by the United Nations Security Council or its

committees resolutions in connection with money laundering or anti-

terrorism matters.

(d) AML/CFT Reporting Requirements

The Company shall and the Sponsor agrees to cause the Company to provide to each International

Investor with the following:

(i) a management letter and any other communication from its auditors

commenting, inter alia, on the adequacy of the Company's financial control

procedures, policies and controls for anti-money laundering and combating

the financing of terrorism, accounting systems and management information

system;

(ii) the annual report prepared by the AML Officer for the Company's senior

management concerning anti-money laundering, combating the financing of

terrorism and the AML/CFT Program and related matters; and

(iii) promptly upon becoming aware of (A) any litigation, administrative, regulatory

or criminal investigations or proceedings before any Authority or arbitral body

which has or may reasonably be expected to have a Material Adverse Effect,

(B) any litigation, administrative, regulatory or criminal investigations or

proceedings or freezing of assets by any Authority involving the Company or

its employees with regard to Money Laundering or Financing of Terrorism, or

(C) any violation of the provisions of paragraph (b) or (c) above, notify each

of the International Investors by facsimile of that event specifying the nature

of the action, litigation, investigation or proceedings and the steps the

Company is taking or proposes to take with respect thereto.

(f) Insurance

The Company shall obtain and maintain a directors and officer liability insurance for each of the

Directors appointed by the International Investors.

Affirmative Covenants

The Company hereby covenants and agrees to:

(a) undertake its business, activities and investments, and cause each of its

Subsidiaries to undertake their business, activities and investments, in

compliance with Applicable Law;

(b) obtain and maintain all applicable regulatory authorizations and otherwise

stay in compliance with Applicable Law;

(c) maintain adequate accounting, management, financial control, compliance

and risk management systems;

(d) create an Audit Committee, which shall report directly to the Board of

Directors;

(e) conduct its business in accordance with the Business Plan;

(f) not register any transfer of shares in contravention of the provisions of this

Agreement or its Charter;

(g) not engage in activities set out in the Prohibited Investment Activities List

attached hereto as Annex C;

(h) maintain appropriate insurance with financially sound and reputable insurers

for losses and/or damages that may occur with respect to its property and

business;

(i) provide each of the Initial Shareholders with full and equal access to its books

and records and cooperate, and cause its employees to cooperate, with any

Initial Shareholder desiring to undertake an inspection/audit of the Company;

and

(j) abide by best practices based on the recommendations of HDFC India as the

technical partner and which practices HDFC India may audit as appropriate.

ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING TERRORISM

The Company complies with the (Law no.10/2014) Prevention of Money Laundering and Financing of

Terrorism Act which was gazetted on 13th April 2014. The main objectives of the Act are as follows:

1. Provide for the prohibition and prevention of money laundering and financing of terrorism;

2. Provide for procedures and policies in respect of prevention of money laundering and

financing of terrorism and offences related thereto;

3. Provide and administer procedures in respect of prevention of money laundering and

financing of terrorism activities;

4. Provide for detection persons engaged in money laundering and financing of terrorism

activities, investigation of such matters, and actions against such persons;

5. Determine the roles and responsibilities of financial institutions and reporting entries, and the

regulatory and supervisory authorities of such institutions and entities, in respect of

prevention of money laundering and financing of terrorism;

6. Under the Prevention of Money Laundering and Financing of Terrorism Act of Maldives

(No.10/2014). HDFC has appointed Mr. Mohamed Nawaz Hassan, Manager as the AML

Officer who reports directly to MMA.

INFORMATION RIGHTS

Under the Right to Information Act of Maldives (No.01/2014) the Company has appointed Mr. Faisal

Haleem as the Information Officer. Each year he independently presents his report to the Information

Commission.

HUMAN RESOURCES DEVELOPMENT

HDFC consider our investments in our employees as a contribution towards building overall human

capital in the country. Human resources are a key element of HDFC’s business model and employees

are a direct stakeholder of the business. Therefore, we have continued to invest in the development of

our human capital since privatisation of the Company in 2008. We understand that our human capital

base is a competitive advantage in the market and our efforts have been aimed at an attitudinal

change towards a more customer centric mind-set from the rigid mind-set. To achieve this objective

we have developed a human resource development plan centred on training and skills development.

Our productivity is driven by our team. We value our employees and ensure roles and responsibilities

are assigned as per the interest and specialisation of each employee. This has created a strong

foundation of a dedicated and determined workforce. We focus mainly on providing financial strength,

health and security, work-life balance and personal development.

PROVIDING FINANCIAL STRENGTH

We provide financial assistance to all the staff to improve their living standards. As a responsible

lending institution, HDFC provides a range of financial assistance to all permanent employees. Such

assistance includes, home loans, personal loans, study loans and staff distress loans.

HEALTH AND SECURITY

We offer free medical insurance to our employees which gives them security and permanence to

continuously to give their best. In 2018, a medical insurance was provided through Amana Takaful

Maldives.

Apart from a Health Plan, a range of health and safety measures have been introduced to maintain a

hazard free office environment.

Provide safe drinking water to all staff

Promoting healthy housekeeping practices

We are a member of the State Pension Scheme, whereby the employer’s contribution of mandated

7% of the basic salary of each employee which provide as a security for them on their retirement.

TRAINING

The Company conducts regular training and development sessions for our workforce to develop them

as individuals and also prepare them to provide superior services to our customers in alignment with

are objectives. HDFC aims to build dedicated employees who work with passion and play a defining

role in accelerating the growth of the Company. During the year, training programs were designed

with both in-house and international training through conferences and seminars and workshop held in

Maldives and internationally.

OPTIMISING THE ENVIRONMENTAL IMPACT

HDFC continuously aims to reduce the impact on environment by optimizing the usage of

various resources. Though the nature of our business itself has a limited impact on

environment, we aim to minimize Carbon footprints by following various activities. There is

a focus on reduced resource usage and we have been able to reduce energy consumption

by using star rated appliances where possible and also through the replacement of lights

with LED lights. Monitoring resource usage, improved process efficiency, reduced waste

generation and disposal costs have also supported the cause. Furthermore, the Company’s

initiative on Digitization through (ENADOC) has led to minimize the space. Once the

ground work is done, Staff can access details in relation to customer loans on their desktop

without physically going through the files.

Annex: 7

MIRA Letter



This Tax Clearance Report shall be solely used for the purpose specified by the taxpayer in the Tax Clearance Application. The MIRA will not be held liable for the use of this documentfor any purpose/s other than which it has been issued for. All information relating to the dues and unfulfilled obligations of the taxpayer contained in this report is based on theinformation which is in the possession of the MIRA up to the date of issuance of this report. Therefore, payments which have not been realized or payments which are yet to be realizedthrough the payment collection facilities of the MIRA will not be reflected. Furthermore, due payments in relation to Work Visa and Industrial lease rent from inhabited islands are notincluded in this report.

C-0107/20061002685

ID/Registration No.TIN Taxpayer NameHousing Development Finance Corporation Plc

The Taxpayer has no dues

The Taxpayer has dues

The Taxpayer has no unfulfilled obligations

The Taxpayer has unfulfilled obligations

Remarks:

Disclaimer:

1002685/TC/DCS/2019/05Reference Number

Summary of Dues:

Tax Type Establishment Name Period(s) Currency Tax Fines

Summary of Installments/Deferments:

Tax Type Establishment Name Period(s) Currency Tax Fines

Signature:

02.07.2019

01.07.2019

Ali Naseer Ibrahim

Hassan Waheed

Date:

Date:

Signature:Authorized by:

Prepared by:

TAX CLEARANCE REPORT

c

Annex: 8

Rating Communication



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