Pakistan Microfinance Network Annual Report 2012 - Headbumped Studio by Headbumped Studio

ANNUAL REPORT

2012

FINANCIAL SERVICES FOR ALL.

The Pakistan Microfinance Network is an association of retail microfinance providers. Our vision is to extend the frontiers of formal financial services to all and mission is to support the sector, especially retail microfinance institutions to enhance scale, quality, diversity and sustainability in order to achieve inclusive financial services. Pakistan Microfinance Network – Annual Report: 2012

Copyright c 2013 Pakistan Microfinance Network 117, Street 66, F-11/4, Islamabad, Pakistan Telephone: +92 51 2292231 / 2292270 Fax: +92 51 2292230 www.pmn.org.pk

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All rights reserved. The data in this report have been carefully compiled and are believed to be accurate. Such accuracy is not however guaranteed. No porƟon of this publicaƟon may be reproduced in any format or by any means including electronically or mechanically, by photocopying, recording or by any informaƟon storage or retrieval system, or by any form or manner whatsoever, without prior wriƩen consent of the author and publisher of the publicaƟon. Disclaimer: Neither Pakistan Microfinance Network (PMN) nor PMN’s funders accept responsibility for the validity of the informaƟon presented or consequences resulƟng from its use by third parƟes.

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PAKISTAN MICROFINANCE NETWORK

ANNUAL REPORT

2012

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Table of Contents

I ACRONYMS 1

III

MESSAGE FROM THE CHAIRMAN

MESSAGE FROM THE CEO

GET TO KNOW PMN

Our Members

Our Governance

THE YEAR IN REVIEW: 2012

15 PMN at

The Information Gateway

Networking

Institutional Strengthening: Training, Exchanges & Academic Linkages

24 Income and

25 Cash Flow

Expenditure Statement

Statement

Promoting Transparency

17 FUTURE DIRECTIONS

Statement of Changes in Funds and Reserve

BOARD OF DIRECTORS

Our Team

Building an Enabling Environment for Microfinance

FINANCIAL STATEMENTS: 2012

Notes to the Financial Statements

Our Work

Our Events

Balance Sheet

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ACRONYMS A B C

AGM

Annual General Meeting

BISP

Benazir Income Support Programme

BWTP

Banking with the Poor Network

NIBAF

National Institute of Banking and Finance

NGO

Non-Government Organization

NUST

National University of Science and Technology

PMN

Pakistan Microfinance Network

CIB

Credit Information Bureau

PMR

Pakistan Microfinance Review

CLIS

Crop Loan Insurance Scheme

PPAF

Pakistan Poverty Alleviation Fund

DFID

Department for International Development

RSP

Rural Support Programme

FIPED

Financial Inclusion for Private Enterprise Development

SAMN

South Asian Microfinance Network

SAM

School of Applied Microfinance

SBP

State Bank of Pakistan

SECP

Securities and Exchange Commission of Pakistan

SEEP

Small Enterprise Education and Promotion

Social Performance

SPTF

Social Performance Task Force

UBL

United Bank Limited

The World Bank

GIS

HVC

i M

Geographical Information System

Hybrid Value Chain

IFC

International Finance Corporation

MFB

Microfinance Bank

MFCG

Microfinance Consultative Group

MFG-P

Microfinance Group-Pakistan

MF-CIB

Microfinance Credit Information Bureau

MFI

Microfinance Institution

MFP

Microfinance Provider

MIX

Microfinance Information Exchange, Inc.

MoF

Ministry of Finance

MNOs

Mobile Network Operators

U W

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

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Message from our Chairman The Board of Directors is pleased to present the audited annual accounts of the Pakistan Microfinance Network (PMN) for the Year 2012.

its previous success and add value to the microfinance landscape not only in Pakistan, but internationally. Some key milestones for the year included:

Since its inception, PMN has come a long way and has a number of achievements to its name. It is now recognized locally and internationally as a cutting edge organization, and a representative body of the microfinance sector in Pakistan. It has strong linkages locally and globally, and has formed important strategic alliances with leading organizations in the field of financial inclusion such as the SEEP Network, Smart Campaign, SPTF, BWTP, Microfinance Transparency, MIX and CGAP. It also has a close relationship with donors working in this field such as The World Bank (WB), ADB, UK-AID, KfW and IFC. On the domestic front, PMN is now represented on nearly all important forums and committees relating to microfinance and financial inclusion. PMN also prides itself on its relationships at the policy level with organizations like the State Bank of Pakistan, SECP, Ministry of Finance and also the PPAF. All this remains possible only because of the commitment and support of PMN’s members, who generously contribute to the Network’s work in terms of their time, information and data, and intellectual capital.

PMN with support from State Bank of Pakistan, Department for International Development - UK, Pakistan Poverty Alleviation Fund and International Finance Corporation initiated the national roll out of the Microfinance Credit Information Bureau.

2012 was a busy and active year, as the Network continued to build upon

PMN undertook several projects with international organizations such as The World Bank (project on financial literacy for BISP), International Growth Centre (research on the moneylender in agriculture value chains) and ACTED (project on linkages with MFPs for trainees of vocational training programs). PMN secured funding from State Bank of Pakistan and the Pakistan Poverty Alleviation Fund, and partnered with Micro Finance Transparency and the Smart Campaign to work on pricing transparency and client protection in the sector. PMN was also awarded a project by Microfinance Centre, Poland to promote the Universal Standards on Social Performance Management in Pakistan. PMN has become a key stakeholder for consultations on financial inclusion and microfinance for policymakers in Pakistan. We are part of various forums formed by the Ministry of Finance and Pakistan Poverty Alleviation Fund from time to time. This year, PMN actively participated in State Bank of Pakistan’s Micro Finance Consultative Group and Working Group on Housing Microfinance, the Securities and Exchange Commission of Pakistan’s Micro Insurance Task Force. PMN also initiated a process for broadening the regulatory framework for microfinance and approached the SECP with regards to developing a framework for non-bank MFIs. As a result, a task force led by Chairman SECP has been set up for which PMN is serving as the

secretariat. In addition, PMN pursued the agenda of establishment of a risk mitigation fund for the sector. In 2012, with support from State Bank of Pakistan (SBP) and Pakistan Poverty Alleviation Fund (PPAF), PMN conducted the first ever international session on Pakistan’s microfinance sector held during SEEP’s Annual Conference in Washington DC where Pakistan’s Ambassador to the US acted as chief guest. This year, too, the Network was especially focused on pursuing its sustainability. I am thus pleased to report that, under the guidance of the Board, the Network closed the year with equity of PKR 60 million on December 2012, up from PKR 38 million on December 2011. The Network has put together this Annual Report 2012 to provide readers with an overview of the PMN’s activities during the past year and highlight the key milestones achieved by PMN and its members. Accounts for the year ended December 31, 2012: A summary of the operations is as under: Total income from all sources Governance & Management Capacity Building Enabling Environment Information Hub

PKR 165.9 million PKR 19.5 million PKR 11.8 million PKR 68.6 million PKR 27.3 million

Position of fund balances is as follows: Unrestricted Fund

PKR 58 million

To conclude, I would like to thank the PMN staff for their hard work, commitment and contribution towards the success of the Network. I would also like to appreciate the support and guidance of my fellow directors over the past year and look forward to an even more exciting and challenging 2013. On behalf of the Board,

Dr. Rashid Bajwa Chairperson Board of Directors

Pakistan Microfinance Network – Annual Report 2012

III

Leadership is about trust and confidence. It is about having a vision and steering the course, it is to lead and not to follow. Leadership sets a longer term framework and focuses on end objectives by having a strong team around it, with contingencies to cater to the headwinds. - Anonymous

Message from the CEO My dear members and management team, it is indeed a pleasure for me to share with you some successes that the industry has been able to achieve over the last year. Interestingly some of these relate to demand side interventions, with profound effects that will help manage risks and promote sustainable growth in the industry. The launch of National Financial Literacy Program by SBP in partnership with PPAF, PBA and PMN will lead to increased knowledge and financial capability of our current and prospective clients; scaling up of the credit bureau from its initial pilot in Lahore is another collaborative effort of SBP, PPAF and PMN to ensure that this reduces over indebtedness and builds a credit profile over the longish term for the clients thus acting as future collateral for our vulnerable but productive poor clients; a clear movement towards responsible finance is seen with PPAF launching of the seal of excellence and PMN collaborating with SBP and PPAF to start client protection monitoring and pricing transparency initiatives in close partnership with global players like Smart campaign and MF Transparency respectively. These are some of the initiatives that have already generated another round of recognition for Pakistan as the microfinance destination globally, to see its innovation and make investments. It is important to reiterate over here that none of this is possible without the complete buy in of our members and it is important for us to acknowledge their foresightedness in understanding

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the importance of all these initiatives for the long term sustainable growth of the industry. Let me turn around and look at the supply side innovations, the disinvestment of KhushhaliBank and its purchase at a premium by a consortium of leading investors from within and abroad, finalization of deal between KASHF MFB and FINCA international, operational license for Advans Microfinance Bank â&#x20AC;&#x201C; a Greenfield investment from Europe signals bullish sentiments in the industry in times when foreign investment in the real sector has been on the decline. Similarly the establishment of SAFCO Support Fund and corporatization of CWCD as Wasil Foundation are leading to strengthening of the non-bank MFI segment. Synergies between mobile network operators (MNOs), MFBs and MFIs in providing financial services through the branchless banking platforms, interaction of insurance companies and MFPs to provide insurance services at the BoP, establishment of links between MFPs and cash transfer programBISP is a very clear indication of strength and confidence in the industry that is willing to transcend boundaries and provide diversified and accessible financial services. 2012 was the first year when the industry showed a surplus based on its 2011 results and we expect 2012 to reestablish this trend with industry expecting approximately a billion rupees of surplus. This is a clear indication of industry coming of age and establishing a case for future capital inflows, albeit the profits were on the back of readjustment in pricing. Thus going forward there is a clear case for industry focusing on building efficiency and managing costs. On to the macro framework, this is the 3rd consecutive year when the Economist Intelligence Unit has ranked Pakistan at amongst the top 3 in terms of our policy environment and the first time when we were ranked at number 3 in terms of the overall business environment. The coordination between SBP, PPAF and PMN has been instrumental in the success of the industry. SECP has formed a working group on micro insurance that is expected to come up with a framework that allows diversity of business models and development of the MI market, also with

support and backing from SBP and PPAF PMN after getting approval from its members approached SECP to oversee regulation of Non-Bank MFIs, this initiative is now being led by SECP and a high powered steering committee under SECP chairman leadership is engaged in addressing this area that will provide necessary support for mainstreaming NGO MFIs in the financial inclusion space. Going forward, we are also involved in the process of developing a framework for promoting micro housing, building synergies for impact and value chain investment, understanding the S of the SME sector, mapping the missing middle and interacting with donors for future flows that provides risk hedging and innovation. Discussions are also in progress for an initiative that provides funding flows to the industry for increasing penetration which is quite low. All this leads me to be very positive and bullish, but we need to keep an eye on the external environment as well - this being an election year, it is important that we focus on establishing links with the new government and re strengthening relationships with our clients. Regarding PMN, it is indeed a matter of pride for all of us that PMN has been in the forefront in all the above initiatives and has established very strong links with SBP, PPAF and SECP in addition with donors like DFID, KFW, and The World Bank etc. PMN is also finalizing an equity grant deal with PPAF and IFAD and projects to raise its equity grant to Rs.150M by the end of 2013 to ensure its long term viability. PMN board has approved its next four year business plan and an elaborate fund raising strategy has been put in place in collaboration with Shorebank International. On the governance side our committees are independent, with internal audit function operational and recently board allowing three independent directorsâ&#x20AC;&#x2122; positions. Management has been strengthened with the induction of an experienced COO and establishment of a system of control and reward through preparation of KPIs for the entire management team and induction of an annual bonus system. At the end I would like to thank my members, Board of Directors and donors for their support to the PMN. I would also like to thank the management team that worked hard to achieve most of the objectives set in 2012.

Syed Mohsin Ahmed Chief Executive Officer

OUR Esteemed board of directors

CHAIRPERSON Dr. Rashid Bajwa Chief Executive Officer, National Rural Support Programme (NRSP)

VICE CHAIRPERSON Mr. Ghalib Nishtar President and CEO, KhushhaliBank Limited (KBL)

DIRECTORS Mr. Amir Khan President and CEO, First Microfinance Bank (FMFB)

Mr. Anwar Rashid Executive Director, Orangi Charitable Trust (OCT)

Mr. Muhammad Farid ur Rahman Country Manager, BRAC-Pakistan

Mr. Mosharrof Hossain CEO, ASA-Pakistan

Mr. Mudassar Aqil President and CEO, Kashf Microfinance Bank (KMFB)

Mr. Munawar Suleman President and CEO, Pak-Oman Microfinance Bank (POMFB)

Mr. Suleman G. Abro CEO, Sindh Agricultural & Forestry Workers’ Cooperative Organization (SAFWCO)

Syed Nadeem Hussain President and CEO, Tameer Microfinance Bank (TMFB)

Ms. Tabinda Jaffery CEO, ASASAH

Pakistan Microfinance Network – Annual Report 2012

‘’The Pakistan Microfinance Network really stands out for its vision and proactive stance on putting clients first. It has been a pioneer and innovator in raising its members’ awareness about the value of client protection and social performance management. The Network has taken a pragmatic approach to promoting continued improvements in practices by developing tools, promoting sector-wide credit information sharing and client recourse systems, and consistently working to raise the bar on responsible microfinance in Pakistan and around the world’’ Katharine W. McKee Senior Advisor CGAP

GET TO KNOW PMN

THE YEAR IN REVIEW: 2012

FUTURE DIRECTIONS

FINANCIAL STATEMENTS: 2012

GET TO KNOW PMN The Pakistan Microfinance Network (PMN or ‘the Network’), the national association for retail players in the microfinance industry, traces it’s beginning as an informal group by industry practitioners in 1997, under the name Microfinance Group-Pakistan [MFG-P]. At the time, the group was focused on coordinating dialogue and peer learning opportunities. Over time, with the increase in the nature and level of activities, and membership, the setup was registered with the Securities and Exchange Commission [SECP] in April 2001 under Section 42 of the Companies Ordinance. It has since been known as the Pakistan Microfinance Network.

Vision Frontiers of Formal Financial Services reach out to all

Mission Focus on a wider agenda

Transition PMN’s focus from microfinance to the broader financial inclusion agenda

Create an enabling environment

Support the financial sector, especially retail financial service providers, to enhance their scale, quality, diversity and sustainability in order to achieve inclusive financial services

Pakistan Microfinance Network – Annual Report 2012

GET TO KNOW PMN

Our Stakeholders The Network’s strength currently includes 30 retail microfinance providers [MFPs] that collectively account for over 98% of the total microfinance outreach in Pakistan. Over the years the financial inclusion landscape has grown diverse and so has microfinance. This diversity of institutions is also evident within PMN’s membership, which includes 8 Microfinance Banks (MFB), 9 Microfinance Institutions (MFI), 5 Rural Support Programs (RSP) and 8 other types of providers (see EXHIBIT 1 for a list of our current members).

Our Governance Structure PMN’s members lie at the heart of the organization’s governance. As membership has grown PMN has transitioned to a flexible governance structure (see EXHIBIT 2), with an 11 member Board providing the necessary oversight and strategic guidance to the management. This Board is elected by the General Body and is thus truly a communal envoy of the sector. The Board is supported by two sub-committees: the Policy Committee and the Audit Committee.1

EXHIBIT 2: Governance Structure

In 2012, PMN successfully conducted one AGM, three Board meetings, two Audit

Committee Meetings and two Policy Committee Meetings.

Board of Directors

Members of the General Body

Affiliates of the PMN

EXHIBIT 1: PMN’s Members (March 2013)

Microfinance Banks (MFBs) Microfinance Bank licensed and prudentially regulated by the State Bank of Pakistan to exclusively service microfinance market

Microfinance Institutions (MFIs) Microfinance Institution providing specialized microfinance services

Rural Support Programmes (RSPs) Rural Support Programme running microfinance operations as part of a multi-dimensional rural development programme

Others Organizations running microfinance operations as part of a multi-dimensional service program

1 This was previously designated as Finance Committee

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Our Stakeholders Our Governance Structure Our Team Our Work

Kashf Microfinance Bank Ltd. (KMFB) Khushhali Bank Ltd. (KBL) Apna Microfinance Bank Ltd. (AMFB) Pak-Oman Microfinance Bank (POMFB) Rozgar Microfinance Bank Ltd. (RMFB) Tameer Microfinance Bank (TMFB) NRSP Microfinance Bank The First Microfinance Bank Ltd. (FMFB)

Akhuwat ASA Pakistan Asasah Wasil Foundation Community Support Concern (CSC) Development Action for Mobilization and Emancipation (DAMEN) Kashf Foundation Orangi Charitable Trust (OCT) Sindh Agricultural and Forestry Workers’ Cooperative Organization (SAFWCO)

National Rural Support Programme (NRSP) Punjab Rural Support Programme (PRSP) Sarhad Rural Support Programme (SRSP) Sindh Rural Support Organization (SRSO) Thardeep Rural Development Programme (TRDP)

BRAC- Pakistan Jinnah Welfare Society (JWS) ORIX Leasing Pakistan Ltd. (OLP) Rural Community Development Society (RCDS) Sungi Development Foundation Ghazi BarothaTaraqiati Idara (GBTI) Farmers Friend Organization The Punjab Provincial Cooperative Bank Ltd. (PPCBL)

Our Stakeholders Our Governance Structure Our Team Our Work

GET TO KNOW PMN

THE YEAR IN REVIEW: 2012

FUTURE DIRECTIONS

FINANCIAL STATEMENTS: 2012

OUR TEAM The Network has a horizontal and lean structure, designed to let the organization to be flexible and evolve with the needs of its members. The PMN team currently comprises eight full time staff, supported by the Administrator, an Accountant and associate positions working to support the analysts. In 2012,

our team worked hard to overcome challenges, accomplish its goals and meet the expectations of the various stakeholders (see EXHIBIT 3 for the PMN organogram). The team is steering in the Network’s strategic direction by the Board of

Directors as well as a number of working groups, task forces and committees (see EXHIBIT 4). These help define the direction in new initiatives and bring member buy-in into the Network’s activities. This year, three new working groups were created: the HR WG, MFB Risk WG and the MFI WG.

EXHIBIT 3: PMN’s Organogram General Body

Audit Committee

Policy Committee

Board of Directors

Chief Executive Officer

Chief Operating Officer

Research Analyst

Financial Analyst

Social Analyst

Communications Analyst

Technology Analyst

Research Associate

Finance Associate

Social Associate

Communications Associate

Technology Associates

Finance Manager

Administrator

Accounts Manager

Office Boy

EXHIBIT 4: PMN’s Various Groups and Committees Committees • Audit Committee • Policy Committee • Technology Committee

Task Forces • MF-CIB Task Force

Working Groups • Islamic Microfinance Working Group • SP Working Group • Technology Working Group • HR Working Group • MFB Risk Management Working Group • MFI Working Group

Others • Training Interview Panel • PMR Editorial Board

Pakistan Microfinance Network – Annual Report 2012

GET TO KNOW PMN

Our Stakeholders Our Governance Structure Our Team Our Work

The PMN Team

Technology Team

Research Team

SOCIAL TEAM

The Technology Team concentrates primarily in the areas of Credit Informaion Bureau and Technology Initiatives. It is responsible for initiating and establishing the Pilot Microfinance Credit Information Bureau and has played a fundamental role in ensuring its success. Currently, it is involved in ensuring that this initiative is smoothly and efficiently taken to the national level. In addition, it is responsible for various technology initiatives for the sector i.e. branchless banking, Management information System, Geographical Information Systems (GIS), development of interactive softwares and promoting data standardization besides managing the internal network and support systems of PMN.

The research team at PMN handles the knowledge management function of the network. A large part of the teamâ&#x20AC;&#x2122;s efforts are concentrated on publishing research studies and MicroNotes about the microfinance sector in Pakistan, on topics of specific importance to both Microfinance Providers and clients. In addition, the research team is working towards the initiation of an impact assessment study of Microfinance in Pakistan. As part of its knowledge management function, the research team also collaborates on external projects with a financial inclusion component. The research team is also involved with various Microfinance policy initiatives.

The Social Responsibility function at PMN spearheads activities in responsible finance considered as vital for microfinance in Pakistan today. A number of initiatives are in place within this overarching function. These include the client protection and social performance functions.

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Within client protection, since the beginning of 2013, the PMN has been engaged in the following activities: â&#x20AC;˘ Smart assessments of all PMN members over a period of three years, in collaboration with the Smart Campaign at the Centre of Financial Inclusion at Accion International

Our Stakeholders Our Governance Structure Our Team Our Work

GET TO KNOW PMN

• Pricing data collection for work on pricing transparency in collaboration with MicroFinance Transparency. In addition to this, a print based campaign around client rights and responsibilities was carried out via the branch network of member MFPs in the second half of 2012.

THE YEAR IN REVIEW: 2012

FUTURE DIRECTIONS

involved in facilitating the sector to become financial sound for long term sustainability. This is being achieved by developing linkages among various microfinance providers and commercial banks, as well as, working closely with its stakeholders and donors to project and analyze the future funding requirements of the sector.

Similarly, various activities have been carried out within the social performance initiatives, including: • Partnership in the global awareness raising campaign of the Social Performance Task Force (SPTF) for the Universal Standards for Social Performance Management (USSPM). • Participation in a Ford Foundation and MicroFinance Centre Poland USSPM Implementation project, within which PMN is working with 15 of its members to strengthen implementation to certain areas of the Standards until mid-2014. • Data collection and validation for MiX Market on social performance indicators from all member MFPs.

FINANCE and Accounts Team Finance and Accounts team is responsible for looking after and providing accurate and timely information regarding the Company's financial affairs. Inclose collaboration with other departments, the team aims to deliver a bestin-class finance and accounts service. To achieve this, the team looks after:

FINANCIAL STATEMENTS: 2012

COMMUNICATIONS Team The communications team is responsible for overseeing primarily the communications and public relations work at the PMN. The team manages the capacity building initiative which includes creating and maintaining linkages with different academic institutions and organizing trainings and workshops for the member MFPs. The team is also involved in the management of PMN’s events. In addition, the communications team is also responsible to provide input on development and implementation of PMN’s own brand equity. The team also oversees the organization’s human resource functions.

• Book keeping for receipt and payments • Financial accounting and reporting • Internal & external audit functions • Management of cash, fixed assets, pension scheme and investments

FINANCE Team The Finance team comprises of a Financial Analyst and a Finance associate. The team is primarily involved in the publication of two reports every year pertaining to the sector; Pakistan Microfinance Review (PMR), a yearly publication and MicroWatch, a quarterly publication. In addition to issuing the aforementioned reports, the finance team is also actively

• Administration of the budgets and project grants • Secretarial matters such as agenda and minutes for the statutory and other meetings • Liaison with the tax and legal consultants

Pakistan Microfinance Network – Annual Report 2012

GET TO KNOW PMN

Our Stakeholders Our Governance Structure Our Team Our Work

Our WORK As a sector representative, PMN works intimately with a variety of stakeholders in order to support provision of financial services to the under-served segments of the country. The overarching purpose of

the Network is to support retail microfinance providers by strengthening them institutionally, and work towards ensuring an enabling environment for the microfinance sector in the country. Our activities,

though overlapping in terms of their impact and scope, are broadly classified into three areas:

Information Hub A primary objective of the PMN, serving as the information hub, is an area that the PMN pursues in its effort to establish itself as the information/knowledge touch point for the industry. Under this umbrella objective, there are various fronts which fit the activities addressed: work on financial and social transparency, promotion of international best practices, research work and dissemination of the same, hold events and roundtable discussion, and data collection and analysis.

Enabling Environment The PMN has come a long way since its first efforts in 1999 aimed at working with relevant policy makers/regulators, in particular with the Ministry of Finance, SBP and SECP to improve the policy environment for microfinance in Pakistan. Since then it has established its credibility as a practitionerâ&#x20AC;&#x2122;s network (representing diversified membership constituting MFBs, RSPs and NGO MFIs) resulting in policy makers and donors becoming more receptive to its views. The Network represents the sector at domestic and international forums and aims at building strategic partnerships with local and international stakeholders. It also focuses on creating and maintaining liaisons with private and public sector outfits to leverage expertise for various industry support infrastructure such as the Credit Bureau, and Consumer Protection Code.

Capacity Building The PMN was the first institution in the country to engage in capacity building activities for the microfinance sector. Ever since the inception of the Network, this has been an important objective and PMN has remained focused on broadening the scope of capacity building, while at the same time evolving and targeting this function to better cater to the needs of the sector.

www.pmn.org.pk

THE YEAR IN REVIEW: 2012

FUTURE DIRECTIONS

FINANCIAL STATEMENTS: 2012

The Year in Review: 2012 Various milestones were achieved all through 2012. Progress was made on various fronts such as industry infrastructure, especially the Microfinance - Credit

Information Bureau (MF-CIB), networking and linkages, international positioning and knowledge management. From an institutional standpoint, PMN sustained

to look for diversified sources of funding, began engaging in sector level projects for revenue generation, strengthened its equity base and built strategic alliances.

Highlights From 2012 PMN with support from State Bank of Pakistan, Department for International Development - UK, Pakistan Poverty Alleviation Fund and International Finance Corporation has initiated the establishment of a national level Microfinance Credit Information Bureau. The Geographical Information System (GIS) based Decision Support System to identify and locate all MFP branches in Pakistan– called the MicroEYE – was launched. PMN CEO was nominated on SEEP’s Advisory Council and Global Task Force for Vision 2020. PMN Chair was selected as member of World Economic Forum. PMN has built an international repute for its knowledge management function and is recognized as the Information Hub of microfinance in Pakistan. PMN has become a key stakeholder for consultations on microfinance for policymakers in Pakistan. We are part of various forums formed by the Ministry of Finance and Pakistan Poverty Alleviation Fund from time to time. This year, PMN actively participated in State Bank of Pakistan’s Micro Finance Consultative Group and Working Group on Housing Microfinance, the Securities and Exchange Commission of Pakistan’s Micro Insurance Task Force. PMN also initiated a process for broadening the regulatory framework for microfinance and approached the SECP with regards to developing a framework for non-bank MFIs. As a result, a task force led by Chairman SECP has been set up for which PMN is serving as the secretariat. In addition, PMN pursued the agenda of establishment of a risk mitigation fund for the sector. First ever international session on Pakistan’s microfinance sector held during SEEP’s Annual Conference in Washington DC where Pakistan’s Ambassador to the US acted as chief guest.

Pakistan Microfinance Network – Annual Report 2012

THE YEAR IN REVIEW: 2012

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

The Information Gateway Acting as an information gateway and hub for microfinance in Pakistan is a key PMN objective. To achieve this broad objective, there are a variety of activities we undertake: work on financial and social transparency, promotion of international best practices, research work and dissemination of the same, and data management and scrutiny. These along with an online portal for the microfinance sector in Pakistan, ensure that the PMN has a strong online presence and efficiently meets the growing information needs of sector stakeholders. In addition to this, a number of publications are put out every year, strengthening the knowledge base of the industry and provide quality analysis of pertaining issues that the sector collectively faces.

• MicroWATCH Application: Outreach Analysis Portal The microfinance sector in Pakistan is evolving at a rapid pace with new entrants, new products and practices, and a growing client base. These changes have significant implications for MFPs, donors, and policy makers operating in an increasingly dynamic market. One of the challenges created by the increasing dynamism and competition is the need for up-to-date information on the sector. To meet this requirement the PMN

• MicroEye: Mapping Competition

• Microfinance Connect: Pakistan’s Microfinance Portal

Visit www.pmn.org.pk for access to our online world.

www.pmn.org.pk

The Pakistan Microfinance Review (PMR) is an annual assessment of the Microfinance Industry in Pakistan which highlights the overall macroeconomic situation in the country and its impact on the industry has taken digital form. With this database based on the audited financial of our member MFPs, you can view and review tables, graphs and charts of any indicator of microfinance of the MFPs. In 2012, the software was updated and is now being populated to bring it up to date. Visit www.pmronline.info

Our Online Presence

The idea of a microfinance web portal was derived out of the Network’s efforts to increase the usability and accessibility of information for industry players. Our dynamic website serves as a resource center for the local microfinance industry. It provides online access to news, events, research studies, publications, anecdotes, contacts and other items of relevance for the microfinance stakeholder community. This year, the website was revamped to improve content and navigation, and further improvements are underway to truly transform it into a portal for the sector.

• PMR Application: Industry Financials

has its quarterly bulletin of MicroWATCH data accessible through our interactive web-based application. This year, this software was also acquired by the Afghanistan Microfinance Association (AMA) from PMN. Also, PMN undertook a revamp of the software itself.

Visit http://www.microfinancepakistan.com/ap plication.html

MicroEYE is one of the most inclusive online tools on Microfinance in Pakistan that gives you a geographical visual of MF penetration based on your search query down to the Tehsil level. This tool shows the information of all microfinance branches on a map and their related statistics. Currently, 1100 branches are plotted and in the coming months, we aim to add other financial access points such as bank branches, ATMs and BB agents to the map. Visit www.microeye.pk

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

The WRITTEN WORD: PMN PMN releases a number of publications every year, ranging from research reports, comprehensive financial and social benchmarking analyses to short notes and periodic data updates. . Our flagship report is the Pakistan Microfinance Review (PMR), published annually and serves as the state of the sector report. MicroWATCH – our quarterly bulletin on outreach analysis is also a regular feature. Research projects and reports are undertaken on a needs basis under the guidance of our members and Board. The series of our MicroNOTES acts as a one-size-fits-all, as these briefs address any burning issue in the industry in a succinct and purposeful manner.

Research Rese Re sear arch ch in in 2012 2012 High quality research and documentation has become a trademark for PMN. This trend continued in 2012 as PMN put out a number of studies probing industry issues:: • Collateral Options for Microfinance Loans in Pakistan The fundamental balance that needs to be struck when considering what collateral to introduce in microfinance is that hat between the ideals of financial inclusion of the poor (deepening outreach) and riskk mitigation for the MFP. This study looked at the various collateral options currently available able and in use by Microfinance Providers (MFPs) in Pakistan. It comprised of an in depth assessment of the strengths and weaknesses of each type of collateral: group guarantee, personal guarantee, post-dated checks, promissory notes, gold, asset ownership documents, compulsory savings, asset leasing and livestock. Further more, the study explored and made

THE YEAR IN REVIEW: 2012

FUTURE DIRECTIONS

recommendations with regards to improving client screening, selection and monitoring procedures as well as addressing regulatory issues surrounding MFIs and the implications that both of these have for the search for alternative collateral. Findings were based on focus group discussions held with both middle management of MFPs and borrowers as well as face to face interviews with senior management of MFPs.

FINANCIAL STATEMENTS: 2012

• Who is the Arthi: A study of the Role of the Informal Moneylender in Punjab, Pakistan The informal money lender or middlemen (locally called the arti) arti ar ti)) continue cont co ntin inue u to play a pivotal ro role le in the agricul agriculture ultu ture supply chains ns in n

The full report can be accessed from: www.pmn.org.pk ww

• Are Pakistan’s Women Entrepreneurs being served by the MF Sector? PMN undertook this study for the World Bank. The study’s original purpose of the work was to determine whether women entrepreneurs have access to, and are using, microfinance loans as a source of finance for their businesses. However, the findings of the report go beyond the narrow objective of understanding whether microfinance providers (MFPs) are reaching Pakistan’s businesswomen. As the research unfolded, the evidence suggested that not only are women entrepreneurs not being served, but also that the outreach to women in general is potentially more limited than previously assumed and that the issues of consumer protection and responsible lending practices in Pakistan might ht merit further exploration. The conference edition of the report can be accessed at: http://documents.worldbank.org/curated/e n/2012/01/16837691/pakistans-women-en trepreneurs-being-served-microfinance-sec tor-conference-edition

Pakistan. These middlemen negotiate the initial prices between the farmers and the wholesalers. They remain a major source of credit to the small farmers (often at exorbitant interest rates) and also facilitate the flow of market information. They are thus a major component of the value chain but there is little mal information about who these formal middlemen are or what roles they

Pakistan Microfinance Network – Annual Report 2012

THE YEAR IN REVIEW: 2012

play. Understanding how they function and assessing the possibility of integrating them with the financial sector will be the main objective of the study. By acting as agents, these intermediaries could help overcome the challenges of high costs involved in borrower assessment, reduce information asymmetries between the farmer and the commercial banks and also provide value added services to the farmer that directly impacts his productivity and yield. Through interviews with arthis and their network (forward and backward linkages), this project aimed at a) mapping the network that the arthi works in i.e. his debtors, farmers that borrow from him (in kind or cash) and/or sell their produce to him, his buyers i.e. wholesalers or markets where he sells the produce, his financiers if any and suppliers of agricultural inputs (seed, fertilizer, pesticides) if any, etc. ; b) understanding their margins, portfolio risk, volume of business and range of services; and c) analyze whether this role can be enhanced and formalized to become integrated with the formal financial sector. The project was carried out in collaboration with the National Institute of Banking and Finance (NIBAF), a subsidiary of the State Bank of Pakistan and was funded through the International Growth Centre – Pakistan, a project of the DFID. The draft report is undergoing a round of final comments and should be available by mid-February for circulation.

MicroNotes in 2012 The Network plans to publish occasional papers on various issues that are pertinent to the sector under this series. PMN worked on three emerging aspects in the sector during the last year.

www.pmn.org.pk

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

• Islamic Microfinance Models and their viability in Pakistan This MicroNOTE reviews the existing literature that exists on models being implemented in Islamic microfinance and explores the possibilities of implementing such models in Pakistan. The note also focuses on the current models in practice in Pakistan and the possibilities of benefitting from it, since Pakistan is one of the most promising markets for Islamic Microfinance with nearly 98 percent of the population being Muslims.

actions with SBP, PPAF, commercial banks and MFPs are underway to find out challenges and solutions to address this gap. The paper also includes that in the coming next few years the growth in the microfinance industry in Pakistan will be a combination of increasing outreach and increasing loan sizes. The full NOTE can be accessed at: www.pmn.org.pk

• Sector Level Strategy for Managing Disaster Risk

The full NOTE can be accessed at: www.pmn.org.pk

• Funding Industry Growth-Going beyond Numbers Funding the Industry requirements is one of the most important areas that need to be focused on by the industry. To determine the funding needs of the MFIs segment a study was conducted in which over eight organizations took part based on their size, growth potential and capacity to expand further. This analysis has been dovetailed with the MFB data already available at SBP and consolidated in this paper to give a holistic picture of funding(especially debt) gap for the microfinance industry between 2012 to 2016. An attempt to go beyond the numbers was made in this paper by disaggregating the overall gap into three main segments, Debt, Deposit and Equity. This paper includes various sources to find funding gap over the next four years by adjusting for the availability of resources from existing sources and tried to come up with solutions at the Macro (policy and regulation), Meso (apex and network) and Micro (MFI and MFB) level. Inter-

Pakistan’s microfinance industry has grown, diversified, innovated and is now emerging as a mature sector on the global microfinance horizon. Despite the progress so far, there remains a huge upside potential in the market that is as yet untapped. As in other markets the sector is confronted by various risks, some endogenous to the sector while others exogenous. One such exogenous risk is that emanating from the now frequently occurring natural disasters and catastrophes. This paper takes a look at what has been the effect of recent disasters on the industry and then provides recommendations for managing this risk, especially in terms of managing it at the sector level through a risk mitigation fund. This NOTE was presented during the SBP’s Microfinance Consultative Group’s meeting in early 2013 and a sub-committee has been created to explore the possible models for such a sector level fund. The full NOTE can be accessed at: www.pmn.org.pk

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

THE YEAR IN REVIEW: 2012

FUTURE DIRECTIONS

FINANCIAL STATEMENTS: 2012

Promoting transparency Financial Transparency

continue to witness impressive uptake in deposit mobilization.

PMN has a long history of promoting financial transparency and performance benchmarking amongst the sector stakeholders. This year, as always the Pakistan Microfinance Review – our annual state of the sector report –provided in-depth analysis and data of all member MFPs.

Pakistan Microfinance Review (PMR) As the industry evolves and establishes a presence within the financial landscape of Pakistan, it becomes essential to observe and scrutinize progress in order to inform stakeholders on multiple levels. Highlights from this year’s PMR include: • The industry achieved sustainability despite the challenging macroeconomic environment and the damage done by natural disasters. Though the growth in outreach remained modest the microfinance banks

• Growth continued in branchless banking transactions and MFPs linked up to provide financial services to the microfinance clientage. • A number of investors expressed interest in exploring the market for potential investment due to the upgraded business environment. Mergers and acquisitions strengthened the capital base of the sector, especially MFBs.

Consumer Protection PMN was amongst the first networks globally to develop a code of conduct for client protection and get it endorsed by all its members in early 2009. Work in terms of the four areas of implementation of this code continued in 2012. i. Dissemination of client rights and responsibilities messages for

member branch displays completed. These included a set of six posters for each branch, as well as limited brochures around the same. PMN is also trying to solicit funds for a broader communications campaign around rights and responsibilities of microfinance clients employing various mass media channels. ii. A partnership agreement was signed with MFTransparency and a work plan for a Pricing Transparency Initiative for Pakistan was finalized. Work under this initiative will take place between March and August 2013. iii. A partnership agreement was signed with the Smart Campaign, and a work plan developed for carrying out client protection assessments of all member institutions during 2013 to 2015. iv. PMN is continuing advocacy for a sector level grievance redress mechanism and is trying to develop buy-in into a workable model.

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Pakistan Microfinance Network – Annual Report 2012

THE YEAR IN REVIEW: 2012

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

Building an Enabling Environment for Microfinance Social Transparency PMN along with five member MFPs received a recognition award from MiX early in 2012. A social performance (SP) strategy development was initiated by PMN during this period, in consultation with the PMN members’ social performance working group (SPWG). This medium term strategy will pursue a multi-faceted approach on building strong social performance management in the Pakistani microfinance industry, and encompass three broad areas on (i) awareness building of industry stakeholders, (ii) strengthening social data transparency and quality and (iii) implementation of SP at MFPs in Pakistan. This strategy development comes at a time when there is a global movement towards Universal Standards in Social Performance Management (USSPM – launched internationally in June 2012), with social performance becoming more and more important for global industry stakeholders like donors and investors. There is a need to ramp up efforts in SP by industry practitioners; therefore the PMN aims that the implementation of this strategy will help serve the industry holistically implement social performance management in their operations.

The Network has come a long way since its first efforts in 1999 aimed at working with relevant policy makers/regulators in improving the policy environment for microfinance in Pakistan. Since then it has established its credibility as a practitioner's network (representing diversified membership constituting MFBs, RSPs, and NGO MFIs) with government counterparts, policymakers, regulators, donors and other key players becoming more receptive to its views. To ensure a positive environment for microfinance, PMN also advocates with its members for adoption of best practices, commitment to transparency and promoting healthy competition. Highlights of our efforts in this direction in 2012 include:

Policy Advocacy One of the PMN core objectives is advocating for improved policy and regulatory framework for the microfinance sector in Pakistan. • An important breakthrough in terms of regulatory framework for MF in Pakistan came about when the SECP agreed to support the industry’s agenda for creating an oversight mechanism for non-bank MFPs. In this context, a task force has been created under the leadership of Chairman, SECP and comprising of key stakeholders such as SBP, PPAF, PMN and MFPs. The task force expects to complete its deliberations and make recommendations by mid-2013. • The Microfinance Consultative Group (MFCG) Sub-committee on Funding decided to estimate the sector wide funding needs and gauge the preparedness level of the industry for credit up-scaling. PMN facilitated the process by collecting information specially assessing the funding need of MFIs.

www.pmn.org.pk

• PMN played an active role on the microinsurance working group set up by the SECP to a) review and provide comments on the draft regulations for microinsurance in Pakistan b) develop a national strategy for development of MI in the country, and c) explore the possibility and recommend regulatory framework for creation of specialized microinsurance companies. • In context of the recent natural disasters that are regularly damaging the portfolios of MFPs and eroding gains made with clients, PMN continued to pursue the agenda of creation of a risk mitigation fund for the sector. It was thus decided in the SBP’s Microfinance Consultative Group’s meeting in early 2013 that a sub-committee be created to explore the possible models for such a sector level fund. PMN is a member of this sub-committee. • PMN has been in touch with FBR and met its chairman to raise issue of tax exemption and addressing certain tax anomalies affecting MFBs.

Liaison with Donors, Investors and International agencies The Network strives to consistently interact and build upon its networking with donors, government and international agencies. PMN values its relation-

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

ship with key stakeholders in the government, in particular with the State Bank of Pakistan [SBP], Securities and Exchange Commission of Pakistan [SECP] and Ministry of Finance [MoF]. Our interaction with SECP on regulations for non-bank MFPs and microinsurance was important in this regard. Engagement with SBP on various issues continued and PMN became a member of the SBP’s working group on housing microfinance during the year in addition to being a member of the MFCG and its sub-committees on funding and disaster risk mitigation. For the Network, interaction with key industry stakeholders including bilateral and multilateral donors is important not only to help secure funds for the sector but also to ensure that the right kinds of instruments are being made available to retail microfinance providers. To that end, PMN’s relationship with PPAF (the national apex) continued to be active during 2012 with the setting up of a coordination committee of the two organizations, which met periodically to discuss issues of mutual interest. In addition, PMN was engaged by PPAF to assist in its work on knowledge management and also co-host the first international microfinance summit (expected in July 2013). We consistently interact widely with donors such as UKAID and the World Bank through regular interaction with their review missions and otherwise. We also interact with IFC, KFW and ADB to share our views on sector level achievements and challenges. In addition, we have e ngaged with Accion International, ResponsAbility, and FINCA, regarding international investments in the sector. Moreover, linkages were developed with leading commercial banks such as National Bank of Pakistan, Habib Bank limited, United Bank Limited, MCB Bank, Barclays, Bank Al Habib, Silk

THE YEAR IN REVIEW: 2012

FUTURE DIRECTIONS

Bank, JS Bank and NIB Bank to promote the industry and assist in placement of funds in the sector.

Microfinance Credit Information Bureau Credit bureaus play a vital role in mitigating the challenges faced by microfinance sector ranging from information asymmetry, adverse selection, and moral hazard to over-indebtedness due to multiple borrowing. The credit information provided by the bureau helps financial institutions reduce risks, loan process time, costs and default rates. For borrowers, it leads to lower interest rates, making loans more affordable and more available. The delinquency crisis in Andhra Pradesh, India, in 2009 and Punjab, Pakistan, in 2008/9 proved that improved credit information about the borrowers could have helped in averting these disasters. Consequently, to address the above mentioned issues, a pilot MF-CIB was initiated for Pakistan market in 2010. PMN, with support of State Bank of Pakistan (SBP), Pakistan Poverty Alleviation Fund (PPAF), Department for international Development (DFID) and International Finance Corporation (IFC), launched the nation-wide rollout of the MF-CIB in June 2012. The objective of the project is to make MFPs “Bureau Ready and institutionalize MF-CIB in the microfinance eco system” by ensuring that MFPs are reporting their data on time and making enquiries on every loan application received. The year 2012 saw some major developments and milestones achieved in the nation-wide implementation of MF-CIB. A major achievement in the year was the collection of 2.2 million records which are currently being reconciled. On the other hand, NADRA verification of approximately 2.23 million records which would greatly increase the data integrity of the

FINANCIAL STATEMENTS: 2012

data repository. The consolidation of the NADRA verified data is in the process and would go live in 2013. In addition, most organizations who did not participate in the pilot have been signed up for the MF-CIB and their technical capacity vis-à-vis data reporting and inquiries is built by organizing trainings, workshops, dedicated CIB Coordinators and technical and financial support in MIS upgradation. In the first phase, the emphasis has been on the collection and verification of data to improve the data integrity as the quality of the credit report would ultimately depend on the reliability and consistency of the data in the repository. Also, in order to give exposure to its members regarding the functioning of Credit Bureaus, PMN organized two exposure visits to study the working of a mature bureau in Bolivia and South Korea called “InfoCred” and “NICE” respectively. Soon after data collection phase is over the next milestone is the institutionalization of the credit report. The PMN is working with MFPs to make them bureau ready and ensuring that their staff is able to analyze the report and make effective credit decisions. Thus to ensure appropriate project monitoring, all donors and PMN agreed to form a project steering committee which comprises representatives from SBP, PPAF, IFC, DFID and PMN policy committee. This committee is responsible to provide strategic input, oversight and policy level interventions for effective implementation of the national rollout of MF-CIB. With the implementation of MF-CIB it is certain that there will be significant developments of credit market discipline in the microfinance industry.

Pakistan Microfinance Network – Annual Report 2012

THE YEAR IN REVIEW: 2012

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

Our Events With the expansion in the scope of microfinance in Pakistan and the growth in the Network itself, demands on the communications and networking front have multiplied. PMN now organizes a wide range of events in any given year. These vary from small group meetings to international level seminars. Some of the major events organized in 2012 included: • Hybrid Value Chains for Pakistan –Stakeholder Workshops PMN had commissioned a scoping study to examine the potential for creating Hybrid Value Chains in Pakistan in 2011. HVCs are collaborations between businesses and citizen organizations which create income generating opportunities for both. After identifying the potential HVCs, PMN organized a number of workshops for each of these HVC stakeholders as well as workshops for the overall project stakeholders in 2012. • Launch of MicroEYE - the GIS based mapping of MFP Branches Due to pressures of competition and previous evidence of MFPs clustering their branches in the same locations, PMN initiated a GIS based mapping of all branches of its members across Pakistan. This software was launched in February, 2012 in Islamabad with support of Pakistan Poverty Alleviation Fund (PPAF).The event had an active participation of persons representing Department for International Development (DFID), PPAF and PMN members including microfinance banks, microfinance institutions, rural support programmes and other stakeholders. • Launch ceremony of the MF-CIB After successful completion of a two year pilot project for the Microfinance

www.pmn.org.pk

Credit Information Bureau PMN in collaboration with SBP, PPAF and DFID held the launch ceremony of the MF-CIB’s nationwide roll-out in June, 2012 in Karachi. Mr. Yaseen Anwar – Governor State Bank acted as the chief guest at the event. The ceremony was well attended by people representing State Bank of Pakistan, Department for International Development (DFID), Pakistan Poverty Alleviation Fund (PPAF), Commercial Banks and PMN members including microfinance banks, microfinance institutions, rural support programmes and other stakeholders. • Launch of the Pakistan Microfinance Review (PMR) 2011 PMN held the launching ceremony of the PMR 2011 - An Annual Assessment of the Microfinance Industry in Pakistan which highlights the overall macroeconomic situation in the country and its impact on the industry. A panel discussion was held on the performance of the industry in 2011 and the challenges & opportunities being faced by it. The panel was composed of the Editorial Board of PMR which includes representation from all the main stockholders of the industry. The panel included the representatives from SBP, KBL, NRSP, DFID and PPAF. The event had an active participation by persons representing State Bank of Pakistan, Department for International Development (DFID), PPAF, Commercial Banks and PMN members including microfinance banks, microfinance institutions, rural support programmes and other stakeholders. The event took place in October, 2012 in Islamabad. • MFI Members’ Meeting Some issues pertaining to MFI members had been gaining momentum in 2011 and 2012, such as challenges

with tax laws/authorities and regulations framework. .PMN initiated a discussion to thrash these out and define the role that different stakeholders can play in resolving them. A meeting for all MFI members was thus organized in Bhurban in October. During the meeting, there was near consensus that MFIs should be regulated and SECP could serve as the regulator and supervisor. The discussion also addressed issues surrounding the taxation, Mr. M. Sarwar Khawaja, senior retired civil servant belonging to Federal Revenue services presently working as a tax consultant to PMN and other important RSPNs, acted as the guest speaker and answered the queries related to taxation issues of MFIs. After a thorough discussion it was concluded that PMN has an important role to play in conducting research that can better inform the business expansion strategy of MFIs (topics highlighted by participants include research on larger loan sizes, disbursement methods down market and the mapping of value chains in different areas). It is also important that MFIs share their experiences with one another and that case studies be disseminated to enable better learning amongst MFIs. Participants highlighted the role that PMN can play in expediting the implementation of CIB and the positive role this can play in promoting business expansion up and down market. • Pakistan Session at the SEEP Annual Conference 2012 SBP, PPAF and PMN organized a session on emerging trends and opportunities in one of the most dynamic microfinance marketPakistan at the SEEP annual conference 2012 held in Washington DC. The session was carried out to highlight and discuss developments

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

THE YEAR IN REVIEW: 2012

FUTURE DIRECTIONS

FINANCIAL STATEMENTS: 2012

PMN At Networking in Pakistan’s microfinance sector at a global forum. Rich discussion on sector’s performance, recent trends, challenges and future directions from the perspective of regulators, practitioners, funders and donors was held to create greater interest in Pakistan’s sector. Her Excellency Ms. Sherry Rahman, Pakistan’s Ambassador to US acted as the chief guest in the event and asked the American business leaders to invest in microfinance and other promising areas to create economic opportunities for the people of Pakistan and help highlight the country’s potential as a pivot of regional growth. The event was attended by a mix of Pakistani and international microfinance experts, investors, donors and academics.

As a Network, our aim is to remain above the curve and bring home cutting edge information, tools and practices for which we take our networking efforts seriously. At both local and international levels, our objective is to showcase Pakistan’s microfinance sector and highlight the opportunities. In2012, PMN members, board and staff participated in various important forums. Some of these included: • PMN Chair participated in SPTF meeting this year and also met with IFC and World Bank in Washington. • PMN CEO presented to the Pakistan Goodwill Ambassador to the UN on Women Rights, Ms. Fiza Gillani on microfinance and peculiarities related to financial access for women. Also present were Ms. Shahnaz Wazir Ali, Adviser to the PMN and Qazi Azmat Isa, CEO PPAF. • PMN CEO participated in the 1st meeting of SEEP’s Advisory Council and interacted with SEEP’s team to` discuss further collaboration. • PMN CEO participated and spoke at the Global Network Summit on self-regulation and regulating non-deposit taking MFIs at the SEEP Annual General Meeting. • PMN Chair and CEO spoke at the Harvard Kennedy School forum on microfinance. • PMN CEO and COO participated at the SEEP Annual Conference held in DC. • PMN participated in the Child and Youth Finance International (CYFI) Regional Meeting 2012 for Asia and also in the Citi-FT Financial Education Summit 2012 in the Philippines. • PMN CEO interacted with MFIN CEO and SAMN ED to discuss the role SAMN can play for the South Asian industry, agreed to pursue SAMN

registration with SAARC and development of Financial Inclusion Principles for South Asia passed at the presidential forums of SAARC (ala G20 principles) • PMN entered into an agreement as part of its “Client Protection Initiative (CPI)”with SMART to carry out assessment of PMN members against consumer protection code and recommend areas for improvement. • PMN CEO spoke at the Shore Bank roundtable on Microfinance and financial inclusion. • PMN CEO met Global Impact Investment Network; PMN becomes a member of this network. • PMN CEO met Columbia university representatives on microfinance and opportunities for future collaborations in areas of MS project, research, employment and holding a Pakistan session at the university. • PMN CEO and COO met with Council of Equity Investors to discuss the way out for effectively engaging them to attract possible equity investment in Pakistan. • PMN and MF Transparency entered into a formal agreement under the Client Protection Initiative approved by SBP and PPAF to standardize pricing of the MFPs loan product using the globally recognized method of calculation APRs of Microfinance Providers carried out in more than 40 countries by MFT. • PMN Chair and CEO met with Dr. Shamshad Akhtar, Assistant Secretary-General for Economic and Social Affairs–United Nations (UN). PMN CEO offered full support for incorporating the financial inclusion targets in the revised Millennium Development Goals (MDGs).

Pakistan Microfinance Network – Annual Report 2012

THE YEAR IN REVIEW: 2012

The Information Gateway Promoting Transparency Building Enabling Environment for Microfinance Our Events PMN at Networking Institutional Strengthening: Trainings, Exchange & Academic Linkages

Institutional Strengthening: Trainings, Exchanges & Academic Linkages • PMN CEO met with MiX to discuss the existing partnership and agreed to work with its members to get a silver subscription for its members on the MiX. It was also agreed that the newly hired PMN staff will be trained by MiX on reporting for benchmarking to the MiX and putting out CPRs and PMR. • PMN CEO met Columbia University team and discussed possible collaborations of students in the Columbia University interested in doing their projects, researches and possible employment in the microfinance / financial inclusion space in Pakistan.

Exhibit 5: Snapshot of Trainings during 2011

Participants Trained

Type of Training

International Trainings 4

HBS – ACCION

3 1 2

(SAM) course Financial Inclusion for Private Enterprise Development (FIPED) course

Local Trainings 37 286 19 352

GIS Application for Branch Mapping – Google Mapping MF-CIB Institutional Clinics Treasury Management Training Total industry participants trained (approximate)

www.pmn.org.pk

The microfinance industry in Pakistan has massive potential, and a key element in tapping that potential is strengthening the capacity of retail institutions. We use various tools to achieve this goal such as trainings (local and international), exposure and exchange visits (local and international), and linkages with academic institutions.

Trainings An important component of the capacity building function, trainings is aimed at enhancing the capacity of the existing human resource with the MFPs. Our international trainings program cater to the senior management level, grooming for leadership qualities and offering a feel for global best practices in microfinance and learning’s through experience sharing. Whereas, our local trainings cater to front line staff, enhancing their human capital and ability to implement better industry practices on a day to day basis, to eventually feed into institutional strengthening through improved staff performance. EXHIBIT 5 provides a snapshot of the year’s trainings.

Exposure Visits: Microfinance Credit Bureaus To facilitate peer learning, PMN facilitated an exposure visit for PMN member representatives to familiarize them with the two most successful microfinance credit bureaus in InfoCred (Bolivia) & NICE (South Korea). The purpose of the visit was to expose its members to the working of full/mature Microfinance Credit Information Bureaus. InfoCred is a specialized microfinance bureau and was established in 2003. It offers a wide range of advance services Credit Report such as Shared Loan Portfolio Report, SMS Credit Report, Early Alert System, Credit Scoring, Credit Analyst, Virtual Address Verification and Village Banking Report. NICE is a mature bureau with its rich 23-year-long experience in credit rating and analysis. Nice has the

biggest credit information database and broadest know-how, excellent human resources and market recognition. It allows creditors to secure liquidity by more quickly collecting account receivables while helps the debtors to recover credit which in turn helps MFPs to have a healthier asset and ushers in a sound credit society. NICE has been doing business in core financial sectors but in last few years, it has been working with Microfinance Sector to provide its services. Nice is at the forefront of creating a healthy and transparent creditbased society.

Academic Linkages The PMN initiated its Academic Linkages Program which centers on building connections between academic institutions in the country and the microfinance sector. One of the reasons that this program has gained importance is that it allows the Network to expand its capacity building arm, and reorient itself from a strict focus on trainings to building new links for human resource development. While trainings focus on enhancing the ability of the existing staff of the MFPs, academic linkages allow for fresh and good quality human resource to be brought in to add to the existing pool of human capital in the industry. Trainings and academic linkages together provide solid ground for addressing the human resource gap in the industry as it moves towards growth and sustainability. We currently have strong relationships with the top five business schools: Lahore University of Management Sciences (LUMS), Institute of Business Administration (IBA), Institute of Business Management (IoBM), NUST Business School, and Institute of Management Sciences (IM Sciences) as well as National Institute of Banking and Finance (NIBAF). In addition, PMN is now also building linkages with top international universities such as Harvard University and Columbia University to attract students and faculty to do research on Pakistan’s MF sector.

FUTURE DIRECTIONS

FINANCIAL STATEMENTS: 2012

Future Directions Today, PMN is widely acknowledged as one of the leading microfinance networks in the world. We have been able to build this reputation by focusing on our core business, building a strong team, ensuring transparency in business practices, staying above the curve and engaging closely with all sector stakeholders. However, since PMN’s inception the microfinance landscape has evolved

Traditional Charity delivery Poverty alleviation channels & Grants based Unregulated

rocredit Mic

FINANCIA

L SERVICE

S FOR AL

Group lending

Network to continue providing valuable services to the membership base which lies at its heart. Although we will focus on our core strengths in knowledge management and enabling environment, there will be greater involvement beyond traditional microfinance stakeholders. PMN will build linkages of its members in areas of branchless banking, housing finance, cash transfer programs, value

Branchless Access to banking Sustainability finance Regulated

rofinance Mic

FINANCIA L.

PMN 2001 considerably and is much more complex and diverse. Thus is order to achieve its vision of ‘financial services for all’ and continue to play the role of a pathfinder for the microfinance sector, we need to look inward institutionally to see how we can continue to add maximum value and remain relevant to the financial inclusion agenda. Thus in 2012, a strategic planning exercise was undertaken by the PMN management and Board, and the PMN’s business plan for 2013-17 was developed. The plan envisions a broader agenda for PMN going forward while allowing the

L SERVICE

S FOR AL

Diverse lending models

build up its endowment, PMN is working on multiple fronts such as seeking equity grant from PPAF, raising project and equity grants from international funds/sources and also ploughing income from consulting assignments, training and membership fee into its endowment fund. We aim to cover between 75 – 80 percent of the Network’s core costs by the end of 2017 through Building Synergies: Telcos, Insurance, Value chains, impact investment

Funding Linkages: Commercial banks, Capital Markets

MFPs (also now entering lower end SMEs)

Cash transfer programs (NISP, CDCP)

Microfin ing cial Incluance k Removing n sio to Exclusions: Li Finan n Gender, Youth

PMN 2012

PMN 2017

chains, SME (especially the small enterprise segment), insurance and deepen its work on excluded segments such as women and youth. To achieve its goals, whilst maintaining its independence and impartiality, PMN is looking to become self-funding over the next four years, by enhancing existing revenue streams, and adding new ones. These will include grants from diverse sources, interest and investment income from unrestricted funds, membership and training fees and consulting assignments as per the approved framework. To

own sources. PMN’s objective will be to not just cover its operational costs but also sustain core activities that define the ethos of PMN and its existence, even in the absence of donor funding. Going forward, achievement of our institutional and sector objectives will continue to rely on member support, close engagement with key stakeholders and a strong management team. We aim to continue delivering cutting edge services, exceeding expectations and working closely with the sector for achieving the ambitious agenda of financial inclusion in Pakistan.

Pakistan Microfinance Network – Annual Report 2012

“PMN adds great value to microfinance in Pakistan. I’ve seen the institution grow and continuously challenge itself successfully to meet expectations of different stakeholders. The close coordination between SBP and PMN has allowed us to openly discuss industry’s challenges and find collective solutions.” Dr. Saeed Ahmed Director Agriculture Credit and Microfinance Department State Bank of Pakistan

FINANCIAL STATEMENTS: 2012

Financial Statements: 2012

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Financial Statements: 2012

ERNST &YOUNG

Ernst & Young Ford Rhodes Sidat Hyder Chartered Accountants Eagle Plaza 75-West, Fazlul-Haq Road Blue Area, P.O. Box 2388, Islamabad 44000, Pakistan Tel: +9251 287 0290-92 Fax: +9251 287 0293 www.ey.com

AUDITORS’ REPORT TO THE MEMBERS

We have audited the annexed balance sheet of PAKISTAN MICROFINANCE NETWORK (the Company) as at December 31, 2013 and the related income and expenditure statement, cash flow statement and statement of changes in funds and reserve together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. The financial statements of the Company for the year ended December 31, 2011 were audited by another firm of Chartered Accountants which expressed an unmodified opinion, dated April 12, 2012, on those financial statements. It is the responsibility of the Company’s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit, provides a reasonable basis for our opinion and, after due verification, we report that; (a)

in our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance, 1984;

(b)

in our opinion: (i)

the balance sheet and the income and expenditure statement together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are firther in accordance with accounting policies consistently applied;

(ii)

the expenditure incurred during the year was for the purpose of the Company’s business; and

(iii)

the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company;

Pakistan Microfinance Network – Annual Report 2012

Financial Statements: 2012

ERNST &YOUNG (c)

in our opinion and to the bet of our information and according to the explanations given to us, the balance sheet, income and expenditure statement, cash flow statement and statement of changes in funds and reserve together with the notes forming part thereof conform with the approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the Companyâ&#x20AC;&#x2122;s affairs as at December 31, 2012 and of the surplus, its cash flows and changes in funds and reserve for the year then ended; and

(d)

in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).

Chartered Accountants Audit Engagement Partnerâ&#x20AC;&#x2122;s Name: Khayyam Mushir Date: 28 May 2013 Place: Islamabad

Ernst & Young Ford Rhodes Sidat Hyder Chartered Accountants

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Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

Balance Sheet as at December 31, 2012

Notes NON-CURRENT ASSETS Property and equipment Intangible assets Long-term loan and advances Long-term investments

799,746 927,244 2,743,406 5,028,642 9,499,038

27,034,947 3,102,165 450,371 4,884,550 824,516 2,403,327 23,858,602 41,948,131 104,506,609 128,961,892

9,734,189 2,078,331 605,928 3,577,505 150,760 3,226,816 5,999,862 17,982,653 43,356,044 52,855,082

59,494,526 819,086 60,313,612

38,275,153 (67,804) 38,207,349

35,019,496

11,550,097

33,628,784 68,648,280 128,961,892

3,097,636 14,647,733 52,855,082

9 10 11 12 13 14 15

TOTAL ASSETS FUNDS AND LIABILITIES Unrestricted funds Surplus/ (deficit) on remeasurement of available- for-sale investments NON-CURRENT LIABILITIES Deferred grants CURRENT LIABILITIES Accrued and other liabilities

2011 Rupees

1,325,873 2,288,646 21,678 20,819,086 24,455,283

5 6 7 8

CURRENT ASSETS Grant receivable Consultancy fee receivable Loans and advances Deposits and short-term prepayments Interest accrued Other receivables Short-term investments Cash and bank balances

2012 Rupees

The annexed notes, from 1 to 32, form an integral part of these financial statements.

Director

Chief Executive Officer

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

Income and Expenditure Statement For the year ended December 31, 2012

Notes INCOME Grant income Training fees Membership subscriptions and registration fees Consultancy income Other income EXPENDITURE Governance and Management Capacity Building Enabling Environment Information Hub

18 19 20 21

22 23 24 25 26 27

Consulting services Other expenses Bank charges SURPLUS FOR THE YEAR

2012 Rupees

135,370,639 3,478,035 5,845,300 17,474,295 3,749,295 165,917,564

68,477,834 3,946,708 3,450,000 5,865,387 1,521,564 83,261,493

19,573,108 11,815,191 68,616,255 27,324,275 127,328,829 14,941,017 2,353,110 75,235 21,219,373

15,244,482 10,734,285 20,351,420 20,501,598 66,831,785 4,164,835 2,147,552 58,895 10,058,426

The annexed notes, from 1 to 32, form an integral part of these financial statements.

Director

www.pmn.org.pk

2011 Rupees

Chief Executive Officer

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

CASH FLOW Statement For the year ended December 31, 2012

Notes CASH FLOW FROM OPERATING ACTIVITIES Surplus for the year Adjustments for non-cash and other items: Depreciation and amortization Provision against interest accrued Loss on disposal of fixed assets Liabilities written-back Provision for investment in TFC Current assets written-off Restricted funds recognized as income Profit on bank placements and investment income Working capital changes (Increase)/ decrease in current assets Consultancy fee receivable Loans and advances Deposits and short-term prepayments Other receivables (Increase)/ decrease in current assets Accrued and other liabilities Restricted funds received - net Long-term advances Net cash used in operating activities CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment Intangible assets acquired Sale proceeds on disposal of property and equipment Long-term advances Short-term investments Long-term investments Capital grants Investment income on bank deposits and investments Net cash generated from investing activities NET INCREASE IN CASH AND CASH EQUIVALENTS DURING THE YEAR CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

2012 Rupees

2011 Rupees

21,219,373

10,058,426

2,109,209 105,856 34,880 (1,129,489) 103,165 (135,370,639) (2,387,746) (136,534,764

1,030,878 229,411 499,700 387,563 (68,477,834) (1,377,417) (67,707,699)

(1,023,834) 146,509 (1,307,045) 823,489

(2,078,331) 847,507 401,456 3,065,770

30,878,613 29,517,732 139,752,598 112,060 54,066,999

(202,518) 2,033,884 67,099,316 11,483,927

(1,309,083) (118,819) 15,000 (16,497,464) (15,893,418) 3,702,263 (30,101,521) 23,965,478 17,982,653 41,948,131

(678,630) (780,287) (2,618,716) (807,999) 182,276 2,706,734 (1,996,622) 9,487,305 8,495,348 17,982,653

The annexed notes, from 1 to 32, form an integral part of these financial statements.

Director

Chief Executive Officer

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

Statement of changes in Funds and Reserve For the year ended December 31, 2012

Unrestricted Funds (Rupees) Balance as at January 1, 2011 Transfer from income and expenditure statement Loss on remeasurement to fair value of AFS investments Balance as at December 31, 2011 Transfer from income and expenditure statement Gain on sale of AFS investments transferred to the income and expenditure statement Surplus on remeasurement to fair value of AFS investments Balance as at December 31, 2012

(Deficit)/surplus on remeasurement of AFS investment (Rupees)

28,216,727 10,058,426 38,275,153 21,219,373

291,982 (359,786) (67,804) -

28,508,709 10,058,426 (359,786) 38,207,349 19,142,446

59,494,526

(371,412) 1,258,302 819,086

(371,412) 1,258,302 60,313,612

The annexed notes, from 1 to 32, form an integral part of these financial statements.

Director

www.pmn.org.pk

Total (Rupees)

Chief Executive Officer

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

Notes to the Financial statements For the year ended December 31, 2012

1. Legal Status and Operations Pakistan Microfinance Network (the Company), was incorporated on April 24, 2001 under section 42 of the Companies Ordinance, 1984 (the Ordinance) as a guarantee limited company. The mission of the Company is to enhance the scale, quality, diversity and sustainability of retail Microfinance Institutions (MFIs). The Company pursues this mission through achievement of following three primary objectives: (i) Enhancing the capacity of retail MFIs; (ii) Establishing the use of performance measures and promoting financial transparency in retail MFIs; and (iii) Creating an enabling policy environment for retail MFIs The registered office of the Company is situated at House #117, Street 66, F-11/4, Islamabad.

2. Statement of Compliance These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of the Accounting and Financial Reporting Standards for Medium-Sized Entities (MSEs) issued by the Institute of Chartered Accountants of Pakistan and provision of and directives issued under the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984, shall prevail.

3. Basis of Preparation The accompanying financial statements have been prepared under the ‘historical cost convention’ except for available-for-sale investments, which are stated at fair value.

4. Summary of Significant Accounting Policies 4.1 Significant accounting estimates and judgments The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Estimates and judgments are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. In the process of applying the Company’s accounting policies management has made the following estimate and judgment which is significant to the financial statements: Property and equipment and intangibles The Company reviews the appropriateness of the rate of depreciation and amortization, useful life and residual values used in the calculation of depreciation and amortization. Further, where applicable, an estimate of the recoverable amount of assets is made for possible impairment on an annual basis. In making these estimates, the Company uses the technical resources available with the Company. Any change in the estimates in the future might affect the carrying amount of the respective item of property and equipment or intangible assets, with a corresponding effect on the related depreciation charge/ amortization and impairment.

4.2 Property and equipment These are stated at cost less accumulated depreciation and impairment, if any. Cost comprise of acquisition and other directly attributable costs. Depreciation is charged to income applying the straight-line method whereby the cost of an asset is written-off over its estimated

Pakistan Microfinance Network – Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

useful life. The rates of depreciation are stated in note 5 to the financial statements. Full year's depreciation is charged on additions, whereas no depreciation is charged on assets disposed-off during the year. Useful lives are determined by the management based on the expected usage of assets, the expected physical wear and tear, technical and commercial obsolescence, legal and similar limits on the use of assets and other similar factors. The assetsâ&#x20AC;&#x2122; residual values, useful lives and methods are reviewed and adjusted, if appropriate, at each financial year end. The effect of any adjustment to residual values, useful lives and methods is recognised prospectively as a change of accounting estimate. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income and expenditure statement in the year the asset is derecognised. Normal repairs and maintenance costs are charged to the income and expenditure statement as and when incurred.

4.3 Intangible assets These are stated at cost less accumulated amortisation and impairment, if any. Cost comprise of acquisition and other directly attributable costs. Amortisation is provided for by applying the straight line method. Full year's amortization is charged on additions, whereas no amortization is charged on assets disposed-off during the year. The rate of amortisation, which is disclosed in note 6, is designed to write-off the cost of intangible assets over the estimated useful lives. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of intangible assets is the greater of net selling price and value in use. Gains and losses on disposal of intangible assets are charged to income.

4.4 Long-term Investments a) Held to maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when management has both the intent and the ability to hold these assets till maturity. These are initially recognized at fair value plus transaction costs, if any. After initial recognition, held-to-maturity investments are subsequently measured at amortized cost using the Effective Interest Rate (EIR) method. Gains and losses are recognized in the income and expenditure statement when the investments are derecognized, as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition, and fees or costs that are an integral part of the EIR. If the Company dispose-off , before their maturity, other than an insignificant amount of held-to-maturity financial assets, the whole category of financial assets are reclassified as available-for-sale. b) Available-for-sale investments Available-for-sale financial assets of the Company are non-derivative financial instruments that are either designated in this category or not classified in any of the other categories. Available-for-sale financial assets are carried at fair value.

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Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

These are initially recognized at fair value plus any transaction costs. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized directly in statement of changes in funds and reserves under “(Deficit)/surplus on remeasurement to fair value of available-for-sale investments reserve” until the investment is derecognized, at which time the cumulative gain or loss is recognized in the income and expenditure account as other income, or, in the case of impairment, the cumulative loss is reclassified to the income and expenditure statement and removed from the “(Deficit)/surplus on remeasurement to fair value of available-for-sale investments reserve”. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired, or the Company has transferred substantially all the risks and rewards of the asset.

4.5 Consultancy fee receivable These are recognized and carried at the original invoice amounts, being the fair value less an allowance for uncollectible amounts, if any. An estimate for doubtful debts is made when collection is no longer probable. Bad debts are written-off when identified.

4.6 Loans, advances and other receivables These are recognized at cost, which is the fair value of the consideration given. An assessment is made at each balance sheet date to determine whether there is an indication that a financial asset or a group of financial assets may be impaired. If such an indication exists, the estimated recoverable amount of that asset is determined and impairment loss is recognized for the difference between the recoverable amount and the carrying value.

4.7 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet, at cost. For the purpose of the cash flow statement, cash and cash equivalents comprise of cash in hand and bank balances.

4.8 Accrued and other liabilities Liabilities for accrued and other liabilities are carried at cost, which is the fair value of the consideration to be paid in future for goods and services received, whether or not billed to the Company.

4.9 Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of such obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

4.10 Staff retirement benefits Defined contribution plans The Company operates a defined contribution provident fund scheme for its permanent employees. Contributions to the fund are made by the Company and its employees in accordance with the rules of the fund. The rate of employer and employee contributions is 10% of the gross pay of permanent employees. The scheme is fully funded and is being managed by Muslim Commercial Bank Limited. The Company has also entered in to an arrangement with an insurance company, EFU Life Insurance Limited (EFU), in respect of a post employment benefit for its employees whereby premium is paid annually to EFU in respect of the scheme and charged to income. As per the scheme, EFU is required to pay, one gross salary for every year of service to permanent employees, upon completion of three years of service.

Pakistan Microfinance Network – Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

4.11 Taxation The income of the Company from voluntary contributions, investments and bank placements is exempt under clauses 59 and 60 of Part I of the Second Schedule to the Income Tax Ordinance, 2001. The provisions of section 113 of the Ordinance, relating to minimum tax, also does not apply to the Company owing to an exemption available to the Company under clause 11A of Part IV of the Second Schedule to the Income Tax Ordinance, 2001. Any other income is offered for tax, after deduction of expenses incurred by the Company. Based on the above, no tacable income arose during the year for provision of tax in the financial statements of the Company.

4.12 Foreign currency translation These financial statements are presented in Pak Rupees, which is the Companyâ&#x20AC;&#x2122;s functional and presentation currency. Foreign currency transactions during the year are recorded at the exchange rates approximating those ruling on the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange which approximate those prevailing on the balance sheet date. Gains and losses on translation are taken to income currently. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the dates when the fair value was determined.

4.13 Offsetting of financial assets and liabilities Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if the Company has a legally enforceable right to set-off the recognized amounts and intends either to settle these on a net basis or to realize the assets and settle the liabilities simultaneously.

4.14 Impairment Financial assets A financial asset is assessed at each balance sheet date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset. Non-financial assets The carrying values of non-financial assets are assessed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, then the recoverable amount of the non-financial assets is estimated. An impairment loss is recognised as an expense in the income and expenditure statement , for the amount by which the non-financial asset's carrying value exceeds its recoverable amount.

4.15 Income recognition Grant income Grants are recognised where there is reasonable assurance that the grant will received and all attached conditions will be complied with. Income related grants Grants of a non-capital nature are recognized as deferred income at the time of their receipt. Subsequently, these are recognized in the income and expenditure statement to the extent of expenditure incurred. Expenditure incurred against grants, against which grant funds have been committed but not received, is recognized directly in the income and expenditure statement and reflected as a receivable from donors. Capital grants Grants received for the purchase of fixed assets are initially recorded as deferred income upon receipt. Subsequently, these are recognized in the income and expenditure statement, on a systematic basis over the periods necessary to match them with the carrying value of the related assets.

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Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

Consultancy income and training fees These are recognized when the related service has been rendered. Registration and membership subscription fees These are recognized on accrual basis. Profit on bank deposits and investments Mark-up/ interest on bank deposits and return on investments is recognized using the effective interest rate method.

5. Property and Equipment

2012

Notes

Furniture and fittings Office equipment Computer equipment

5.1

Cost As at 01 Additions (Disposals) As at 31 January (Rupees) (Rupees) December (Rupees) (Rupees) 880,690

399,147

1,279,837

821,591

114,465

936,056

343,781

2,188,277

655,301

(326,012)

2,517,566

1,895,736

231,169

(276,132)

1,850,773

666,793

2,141,294

254,635

2,395,929

33.33

1,693,188

387,442

2,080,630

315,299

4,410,515

733,076

(276,132) 4,867,459

1,325,873

2011

5,210,261 1,309,083

Furniture and fittings Office equipment Computer equipment

Rate (%)

Written Down Accumulated Depreciation Value As at 01 Charge for (On As at 31 As at 31 January the year disposals) December December (Rupees) (Rupees) (Rupees) (Rupees) (Rupees)

(326,012) 6,193,332

854,010

26,680

880,690

782,855

38,736

821,591

59,099

2,098,837

89,440

2,188,277

1,712,232

183,504

1,895,736

292,541

2,141,294

33.33

1,693,188

448,106

- 4,410,515

799,746

1,578,784

562,510

4,531,631

678,630

- 5,210,261

1,348,172

345,016

3,843,259

567,256

5.1 This includes assets amounting to Rs. 37,000 purchased from the Company's own resources, rest of the operating fixed assets are puchased from capital grants as mentioned in note 16.1.

6. Intangible Assets

Notes

2012

GIS based support system MicroEye

5.1

Accounting software Staff Information Bureau Pakistan Microfinance Review

6.1

Cost As at 01 Additions (Disposals) As at 31 January (Rupees) (Rupees) December (Rupees) (Rupees) Rate (%) -

2,429,755

33.33

809,918

1,619,837

307,780

33.33

102,593

205,187

273,311

33.33

91,104

182,208

91,103

1,117,555

33.33

372,518

745,036

372,519

- 1,839,755

2,288,646

2011

1,390,866 2,737,535

Staff Information Bureau Pakistan Microfinance Review

Written Down Accumulated Depreciation Value As at 01 Charge for (On As at 31 As at 31 January the year disposals) December December (Rupees) (Rupees) (Rupees) (Rupees) (Rupees)

- 4,128,401

463,622 1,376,133

273,311

33.33

91,104

182,207

1,117,555

33.33

372,518

745,037

463,622

927,244

273,311 1,117,555

- 1,390,866

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

6.1 This represents a software deployed for the maintainance of financial information of various members of the Company.

7. Long-term Loan and Advances Notes

2012 Rupees

Loans: Loan to an employee - unsecured Current portion shown under current assets

2011 Rupees

126,690 (105,012) 21,678

238,750 (114,060) 124,690

21,678

2,429,755 188,961 2,618,716 2,743,406

Advances: GIS based decision support system Quick Books Premier 2011

8. Long-term Investments Notes Held-to-maturity: Pakistan Investment Bonds (PIB's) Current portion shown under current assets

2012 Rupees

8.1

Term Finance Certificates (TFC's) Current portion shown under current assets Provision for impairment

8.2

Regular Income Certificates (RIC's) Current portion shown under current assets

8.4

8.3

Available-for-sale: United Government Securities Fund (UGSF) United Islamic Income Fund (UIIF) MCB Pakistan Cash Management Fund (PCM) Surplus/ (deficit) on remeasurement of investment to fair value

8.5

2011 Rupees

982,942 (982,942) 552,200 (52,500) (499,700) 2,000,000 (2,000,000) -

1,974,626 (1,007,680) 966,946 961,666 (332,466) (499,700) 129,500 2,334,020 (334,020) 3,096,446

10,000,000 10,000,000 819,087 20,819,087 20,819,087

2,000,000 (67,804) 1,932,196 5,028,642

8.1 Details of investments in PIBs, issued by Pak Oman Investment Company Limited, are: Purchase date

Maturity date

Payment terms

â&#x20AC;&#x153;Profit rate (per annum)â&#x20AC;?

April 10, 2007

October 6, 2013

Semi annually

8.2 Details of investments in TFCs are: Issuer Pace Pakistan Limited Pak Arab Fertilizer Limited

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Purchase date

Payment terms

Profit rate (per annum)

Cost (Rupees)

February 15, 2008

Semi annually

Kibor + 2%

499,700

February 28, 2008

Semi annually

Kibor +1.5%

52,500

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

8.3 In consideration of the financial position of Pace Pakistan Limited, the outstanding amount of the investment in TFCs issued by Pace Pakistan Limited are deemed to be not recoverable.

8.4 These represent five year regular income certificates, issued under the National Savings Scheme of the National Bank of Pakistan. The Maturity dates of these certificates is February, 2013, and they carry mark-up at the rate of 9.54% per annum.

8.5 Details of investments in mutual funds are: Mutual funds UBL Government Securities Fund MCB Pakistan Cash Management Fund

No. of units

Cost

Fair value

104,130

10,000,000

10,491,744

205,986

10,000,000

10,327,342

During the year, the Company a realized gain of Rs. 371,412 upon sale of units of United Islamic Income Fund, which was transferred to the income and expenditure statement.

9. Consultancy Fee Receivable Notes Considered good - unsecured International Growth Centre World Bank

2012 Rupees 559,296 2,542,869 3,102,165

9.1

2011 Rupees 2,078,331 2,078,331

9.1 This represents receivable against income earned by the Company, on conducting research studies and publishing the related reports.

10 Loans and Advances Notes Loans Considered good Current portion of long-term loan Loan to Chief Executive Officer Loan to other employees Advances Considered good to employees to suppliers 10.1

2012 Rupees

2011 Rupees

105,012 76,746 8,000 189,758

114,060 114,060

235,613 25,000 450,371

91,868 400,000 605,928

10.1 These are intrest free, and are due on demand.

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

11. Deposits and Short-term Prepayments Notes Deposits Short-term prepayments Rent Insurance Others

11.1

2012 Rupees

2011 Rupees

260,500

270,500

2,050,984 1,719,916 853,150 4,624,050 4,884,550

1,252,350 1,348,565 706,090 3,307,005 3,577,505

11.1 These represent security deposits paid for rent and utilities etc.

12. Interest Accrued Notes Gross interest accrued Provision against interest accrued

12.1

2012 Rupees 930,372 (105,856) 824,516

2011 Rupees 150,760 150,760

12.1 Movement in the provision for doubtful interest accrued is as follows: Notes Balance as at January 01 Provision recorded during the year

2012 Rupees

2011 Rupees -

105,856 105,856

13. Other Receivables Notes Considered good: Membership fee Training fee Software usage fee Receivable from Provident fund Others Considered doubtful: Membership fee Provision against doubtful other receivables

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2012 Rupees

2011 Rupees

737,589 1,455,620 210,118 2,403,327

22,589 1,233,206 344,163 848,345 778,513 3,226,816

229,411 (229,411) 2,403,327

229,411 (229,411) 3,226,816

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

14. Short-term Investments Notes Held-to-maturity: Investment in related parties Term Deposit Receipts (TDRs) Current portion of long-term investment Pakistan Investment Bonds (PIBs) Term Finance Certificates (TFCs) Regular Income Certificates - RICs

14.1 8 8 8

2012 Rupees

2011 Rupees

20,823,160 982,942 52,500 2,000,000 3,035,442 23,858,602

4,325,696 344,163 1,007,680 332,466 334,020 1,674,166 5,999,862

2012 Rupees

2011 Rupees

6,000,000 4,832,160 10,000,000 20,832,160

4,325,696 4,325,696

14.1 Details of investments in TDRs in related party organizations are: Microfinance Banks

Maturity date

Tameer Microfinance Bank Tameer Microfinance Bank Khushhali Bank Limited

May 18, 2013 December 31, 2013 November 13, 2013

Mark-up (per annum) 12.5% 11.5% 11.25%

15. Cash and Bank Balances Notes Cash at banks in local currency Saving accounts Current account

15.1

2012 Rupees

2011 Rupees

41,948,131 41,948,131

12,822,233 5,160,420 17,982,653

15.1 This includes Rs. 2,296,623 not available for utilization by the Company and relates to money received from ACTED on behalf of the South Asian Microfinance Network. Saving accounts carry mark-up at rates ranging between 6% and 10.25% (2011: 5% to 12.5%) per annum.

16. Deferred Grants Notes Capital grants Restricted grants

16.1 16.2

2012 Rupees 3,584,919 31,434,577 35,019,496

2011 Rupees 4,345,706 7,204,391 11,550,097

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

16.1 Notes

2012 Rupees

Capital grants Balance as at January 1 Grants received during the year for: Property and equipment Intangible assets Advance for capital expenditure Transfers to the income and expenditure statement Depreciation and amortization for the year WDV of office equipment disposed off during the year 16.1.1

Balance as at December 31

2011 Rupees

4,345,706

1,298,951

1,272,083 118,819 1,390,902

678,630 780,287 2,618,716 4,077,633

(2,101,809) (49,880) (2,151,689) 3,584,919

(1,030,878) (1,030,878) 4,345,706

16.1.1 These represent written down value of property and equipment and intangible assets acquired by the Company from grants received.

16.2 DFID (Rupees) HVC

PPAF (Rupees)

Financial Inclusion Program: Institutional Strengthening Fund

Microfinance Credit Information Bureau MF-CIB

Citi Foundation (Rupees)

Project 2

Impact Assessment

SEEP Network (Rupees)

Consumer Protection Initiatives

IFC (Rupees)

Others [SAMN etc.] (Rupees)

TOTAL 2012 (Rupees)

TOTAL 2011 Restated (Rupees)

Balance as at January 1

(3,729,550)

1,952,381

(6,004,639)

2,511,606

1,265,397

692,983

782,024

(2,529,798)

648,606

Grants received during the year

17,641,547

24,683,415

73,164,736

19,792,169

599,825

4,635,927

140,517,618

67,099,316

Profit on bank placements

153,020

765,943

1,211,970

117,390

320,383

2,568,706

1,048,087

Amount transferred to accrued and other liabilities

(782,024)

Amount refunded to donor

(765,020)

14,065,017

27,401,739

74,376,706

13,904,920

2,831,989

1,265,397

527,788

4,635,927

- 139,009,482

68,796,009

(2,813,244) (12,246,795)

(612,434)

(3,811,416)

(3,015,474)

(158,935)

Expenditure: Governance and management

(19,573,108) (15,244,482)

Capacity building

(7,971,127)

(669,656)

(11,815,191) (10,734,285)

Enabling environment

(8,906,768) (31,799,717) (13,493,598) (12,199,326)

(8,000)

(2,208,846)

(68,616,255) (20,351,420)

(27,324,275) (20,501,598)

Information hub

(89,219)

(6,882,328)

(954,265)

(1,265,397)

(613,969)

(11,970,119) (24,647,548) (47,293,672) (14,804,288) (23,562,726)

(962,265)

(1,265,397)

(613,969)

(2,208,846)

(11,880,900)

(4,956,409)

(231,686)

(539,321)

- (127,328,830) (66,831,785)

Others: Capital expenditure

(1,274,452)

(116,450)

(1,390,902)

(3,895,357)

Grant receivable written-off

16,506

(2,094,898)

(2,200,000)

(170,222)

(1,425,000)

(5,890,120)

(615,171)

- deferred grant

1,479,739

27,083,034

1,869,724

1,002,081

31,434,577

7,204,391

- grant receivable

- (17,004,288) (9,774,256)

(256,403)

PMN Fees (Note 16.2.1) Balance as at December 31

www.pmn.org.pk

- (27,034,947) (9,734,189)

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

16.2.1 This represents PMN fee charged on an estimated basis, over and above the actual expenses incurred, for managing the projects, and is restricted to maximum budgeted amount.

17. Accrued and Other Liabilities Notes

2012 Rupees 30,376,685 3,214,257 5,517 31,000 1,325 33,628,784

Accrued expenses Payable to Agency for Technical Cooperation and Development Income tax withheld Provident fund payable Other liabilities

2011 Rupees 2,624,868 209,949 262,819 3,097,636

18. Grant Income Notes Restricted funds recognized as income Restricted Grants Department for International Development (DFID) State Bank of Pakistan - Hybrid Value Chain - Financial Inclusion Programme - Institutional Strengthening Fund - Innovation and challenge fund - Microfinance Credit Information Bureau Pakistan Poverty Alleviation Fund (PPAF) - Hybrid Value Chain - Nationwide Microfinance Credit Information Bureau - Project 1 - Grant under IFAD-PRISM Knowledge Management and Policy Dialogue Component Citi Foundation - Impact assessment - Consumer protection - Flood initiative SEEP Network Bearing Point International Finance Corporation Others

18.1 18.2

2012 Rupees

2011 Rupees

11,970,119 24,647,548 47,293,672

3,729,550 36,057,266 1,269,793 -

18.4

14,804,288 -

4,000,000 6,870,382

18.5

23,562,726

6,004,639

18.6 18.7

962,265 1,265,397 613,969 2,208,846 127,328,830

2,412,594 1,599,170 2,339,772 2,311,514 89,697 147,408 66,831,785

18.3

18.8 18.9

Capital grants Amortization of deferred grant

16.1

2,151,689 129,480,519

1,030,878 67,862,663

Unrestricted income PMN Fees

16.2

5,890,120 135,370,639

615,171 68,477,834

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

18.1 Grant from DFID under the agreement "Study on Hybrid Value Chains in Pakistan" is for an aggregate amount of GBP 50 million, out of which Rs. 19.975 million were allocated to the Company. The grant was for a period from October 2011 to March 2012 with the objective of supporting the Company's study on Hybrid Value Chain in Pakistan.

18.2 This grant from DFID, under the agreement "Financial Inclusion Program-Institutional Strengthening Fund", is for an aggregate amount of Rs. 133 million. The grant is managed by and routed through the State Bank of Pakistan (SBP) on behalf of DFID. The grant is for a period of four years from July 2009 to June 2013 and its main objective is to improve the access of poor and marginalised groups to financial services offered by micro, small and medium enterprises in Pakistan.

18.3 Grant from DFID under the agreement "Nationwide Microfinance Credit Information Bureau (MF-CIB)" is for an aggregate amount of Rs. 213.863 million. The grant is for a period of three years from April 2012 to March 2015. The main objective of the grant is to establish nationwide centralized database to store all past and present credit transactions of all microfinance borrowers, to minimize the instances of over-indebtedness, bring financial discipline in microfinance sector, and to improve loan portfolio quality of MFPs.

18.4 Grant from PPAF under the agreement "National Rollout of MF-CIB" is for aggregate amount of Rs. 40 million. The grant is for a period from October 2012 to September 2013. The main objective of the grant is to support national rollout of MF-CIB.

18.5 Grant from PPAF under the agreement "Grant under IFAD-PRISM Knowledge Management and Policy Dialogue Component" is for an aggregate amount of Rs. 38,303,957. The grant is for a period of twenty one months from October 2011 to June 2013. The main objective of the grant is to provide support to microfinance sector in the form of publications, conducting conferences, workshops and trainings and upscaling CIB, Staff bureau and Social performance inititive.

18.6 Grant from Citi Foundation under the agreement "Impact Assessment" is for an aggregate amount of US$ 60,000 (equivalent to Rs. 4,924,200) . The grant is for the period from June 2011 to June 2013. The purpose of the grant is to conduct workshops and seminars on consumer protection.

18.7 Grant from Citi Foundation under the agreement "Consumer Protection" is for aggregate amount of US$ 35,000 (equivalent to Rs. 2,980,200) . The grant is for the period from September 2010 to June 2012. The purpose of the grant is to conduct workshops and seminars on consumer protection.

18.8 Grant from SEEP is for an amount of US$ 40,000 (equivalent to Rs. 3,405,600) for the procurement of local consultants to provide capacity building support.

18.9 Grant from International Finance Corporation under the agreement for the integration of microfinance providers into a Pakistan Credit Bureau in Pakistan is for an aggregate amount of USD 100,000. The grant is for the period March 2012 to September 2013.

19 Training Fees Notes International visits / Exposure visits Boulder microfinance training Social performance task force meetings Harvard training course School of Applied MF Investment readiness training Risk management training Financial institutions for private enterprise development 19.1

www.pmn.org.pk

2012 Rupees 952,158 629,038 366,745 690,291 227,988 611,815 3,478,035

2011 Rupees 864,257 1,091,723 146,609 1,365,696 187,423 72,000 219,000 3,946,708

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

19.1 This represents training fee earned on account of arranging trainings for various member organizations.

20. Consultancy Income Notes International Growth Centre - Study "Understanding the informal money lender’s role in the agriculture supply chain” World Bank "Tackling Financial Exclusion of Women Entrepreneurs in Pakistan Initiative” "Financial Inclusion and Literacy Outcomes of Cash Transfers through the Banking System in Pakistan”

2012 Rupees

2011 Rupees

559,296

4,200,656

5,865,387

12,714,343 17,474,295

5,865,387

21. Other Income Notes Income from financial assets Profit on bank placements Investment income Income from investments in related parties Interest income earned on TDRs with associated companies Income from non-financial assets Liabilities written-back Interest income on loan to employees Others

21.1

2012 Rupees

2011 Rupees

512,618 763,589 1,276,207

510,484 466,752 977,236

1,111,539

427,233

1,129,489 232,060 1,361,549 3,749,295

91,209 25,886 117,095 1,521,564

21.1 This represents certain long-outstanding liabilities written back during the year.

Pakistan Microfinance Network – Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

22. Governance and Management Notes Salaries and benefits Staff training Rent and utilities Meetings and conferences Communication Legal and professional Office supplies Publications and printing Repair and maintenance Entertainment Traveling Audit fee Internal audit fee Insurance Others

21.1

2012 Rupees

2011 Rupees

6,704,501 1,904,993 2,720,393 1,728,781 648,524 1,851,134 839,038 219,252 1,432,770 68,069 389,884 375,000 165,750 421,003 104,016 19,573,108

6,825,530 1,449,270 1,878,326 749,008 659,823 1,643,082 391,964 299,000 767,583 80,375 188,316 235,000 77,205 15,244,482

2012 Rupees

2011 Rupees

11,815,191 11,815,191

9,971,211 500,254 262,820 10,734,285

2012 Rupees

2011 Rupees

49,858,454 9,999,617 4,031,373 2,370,039 2,356,772 68,616,255

6,407,738 7,145,292 4,438,638 2,141,567 218,185 20,351,420

23. Capacity Building Notes Specialized/staff trainings Local exposure visit Linkages with academia

24. Enabling Environment Notes Credit bureau International networking visits Communication initiative Seminars and consultative group meetings Technology initiative

www.pmn.org.pk

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

25. Information Hub Notes Research Social performance measures and consumer protection Roundtables Pakistan microfinance review publication and dissemination Knowledge management (microwatch, micronote etc.) Mapping of branches

2012 Rupees

2011 Rupees

15,719,949 5,265,764 1,572,233 3,821,967 937,415 6,947 27,324,275

11,119,642 2,669,876 2,270,571 2,969,225 954,525 517,759 20,501,598

2012 Rupees

2011 Rupees

26. Consulting Services Notes

12,541,361 933,423 1,466,233 14,941,017

Research expenditure Salary and benefits Others

3,755,083 20,856 388,896 4,164,835

27. Other Expenses Notes

2012 Rupees

5 6

Depreciation Amortization of intangible assets Current assets written-off Provision against interest accrued Provision against other receivables Provision for impairment of investments Loss on disposal of fixed assets

2011 Rupees

733,076 1,376,133 103,165 105,856 34,880 2,353,110

12.1 8

567,256 463,622 387,563 229,411 499,700 2,147,552

28. Remuneration Of Chief Executive Officer And Other Executives The aggregate amounts charged in the financial statements for remuneration, including benefits, to the chief executive officer and executives are as follows: Executives

Chief Executive Officer 2012 Rupees Managerial remuneration Contribution to Bonus for the year Provident fund Contribution in respect of gratuity Other benefits Number of person(s)

5,101,293 1,050,000 336,000 300,000 234,000 7,021,293 1

2011 Rupees 4,352,400 290,160 400,000 224,429 5,266,989 1

2012 Rupees 16,315,829 1,214,104 743,532 1,149,724 710,245 20,133,434 16

2011 Rupees 10,182,727 527,527 1,327,697 676,602 12,714,553 14

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

29. Related Party Transactions The related parties of the Company comprise its directors, key management personnel and members. Transactions and balances with related parties, except remuneration and benefits to key management personnel, which are seperately disclosed in note 28 to the financial statements, are as follows:

29.1 Notes Transactions during the year: Transactions with the Members Income - Training fee income - Membership and registration fee income - Interest income earned on TDRs Expenses - Expenses incurred on training Transactions with the Staff retirement benefits plans Payments - Provident fund contribution - Premium to EFU Receipts - Provident fund contribution

2012 Rupees

2011 Rupees

3,478,035 5,845,300 1,111,539

3,946,708 3,450,000 427,233

11,815,191

10,584,805

2,128,064 1,449,724

1,635,374 1,727,697

848,345

29.2 Notes Balances as at year end with: Members Assets - Training fee receivable - Membership fee receivable - Short term investment - Accrued investment income Key management personnel Assets - Receivable from CEO - Loan to Chief Executive Officer

www.pmn.org.pk

2012 Rupees

2011 Rupees

1,455,620 967,000 20,823,160 619,521

864,257 262,000 4,325,696 5,452

125,297 76,746

125,297 -

Balance Sheet Income and Expenditure Statement Cash Flow Statement Statement of Changes in Funds and Reserve Notes to the Financial Statements

Financial Statements: 2012

30. Re-arrangement and Reclassification Corresponding figures have been re-arranged and re-classified where necessary for better presentation and disclosure. Significant re-arrangements and re-classifications are as follows: From

Pak Rupees

Grant receivable (under other receivable) Grant receivable (under other receivable) Grant receivable (under other receivable) Grant income Consultancy income Information hub

Grant receivable (on the face of balance sheet) Receivable from Provident fund (under other receivable) Consultancy receivable (on the face of balance sheet) Consultancy income Grant income Consulting services

9,734,189 848,345 2,078,331 4,164,835 615,171 3,755,083

31. Date of Authorization 28, May, 2013 These financial statements were authorized for issue by the Board of Directors of the Company on ____________________________

32. General The amounts presented in these financial statements have been rounded-off to the nearest Pak Rupee.

Director

Chief Executive Officer

Pakistan Microfinance Network â&#x20AC;&#x201C; Annual Report 2012

ALLIANCES South Asian Microfinance Network

Banking With The Poor Network Asiaâ&#x20AC;&#x2122;s regional microfinance network

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