VisionFund Lanka Annual Review 2015

LANKA

Annual Review 2015/16

FRUITS

OF OUR

LABOUR Annual Review 2015/16

We are VisionFund, the microfinance arm of World Vision; one of the world’s largest relief, development and advocacy organisations. Our work empowers people to grow successful businesses which enable children to gain improved health and education. VisonFund works in over 30 countries and has been operating in Sri Lanka since 2004. Working with World Vision on a common goal to alleviate poverty in rural areas, we are committed to long-term change which will unlock potential for future generations.

VisionFund was converted to a limited liability company in October 2012, and is part of a global network of microfinance institutions owned by VisionFund International. This review covers the activities and performance of VisionFund Lanka Limited for the period 01st April 2015 - 31st March 2016

VisionFund Lanka | Annual Review 2015/16

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OUR

VISION Our vision for every child, life in all its fullness; Our prayer for every heart, the will to make it so

OUR

MISSION We believe in brighter futures for children Empowering families to create income and jobs Unlocking economic potential for communities to thrive We are VisionFund Financial Empowerment from World Vision

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VisionFund Lanka | Annual Review 2015/16

MESSAGE FROM SCOTT BROWN President and CEO VisionFund International

In 2015, VisionFund’s global network of more than 30 microfinance institutions (MFIs) impacted the lives of nearly four million children – as our clients received small loans, they used new-found profits for the benefit of their families. As businesses grew, parents were able to afford to send children to school, put nutritious meals on the table and take better care of their families’ health. Together, World Vision and VisionFund are changing the face of poverty and helping children experience life in all its fullness.

Despite shocks to the global economy this year, including material foreign exchange swings impacting most countries and companies, VisionFund Lanka has not only seen growth, but is improving its financial performance and importantly, its positive impact on clients and their children. I congratulate all of our staff for their dedication and resilience, and for never taking their eyes off their clients. VisionFund Lanka ended the financial year with a portfolio of Rs. 2.81Bn, which represents an increase by 90%.

It has been able to extend services to even more rural communities, and now serves over 76,000 borrowers in Sri Lanka, with approximately 94,000 children being positively impacted.

I also want to pause and recognise VisionFund Lanka for its integrated work with World Vision Lanka.

Our network of MFIs continue to lead the industry in social performance reporting whilst expanding the use of the Progress Out of Poverty Index to target the right clients and measure their progress over time. The impact that increased family incomes have on children is also being tracked through the use of World Vision’s ‘Child Well-Being Outcomes.’

VisionFund Lanka is now tracking children's health costs and sufficient drinking water as part of its Child Well-Being measurement.

VisionFund Lanka | Annual Review 2015/16

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Whilst we see much progress, the job of providing financial access to millions of people in rural areas has challenged us to think differently. We have been developing new digital models to lower costs while still providing personalised services. In addition, our rural footprint requires us to innovate in agricultural lending. Finally, our research into global disaster insurance is industry leading and may someday provide greater protection to smallholder farmers against uncontrolled events. As you can see, listening to our clients’ needs and providing products that they value is high on our agenda.

We aspire to be the most trusted and admired global microfinance network. VisionFund’s commitment to integrate with the development work of World Vision provides a unique advantage that is unmatched throughout the industry. Thank you for your ongoing support of this vital work and we hope that you will continue to join us on our mission to bring life in all its fullness for children in Sri Lanka.

Sincerely,

SCOTT BROWN PRESIDENT AND CEO VISIONFUND INTERNATIONAL

MESSAGE FROM CHANDULA ABEYWICKREMA Board Chairman VisionFund Lanka

VisionFund Lanka (VFL) has reported another outstanding year in its commitment to serve the children of the country. This Financial Year has been an especially rewarding one, as VFL has shown remarkable growth across all indicators. Through its services spanning over a decade, VFL has made a lasting difference in the lives of many communities, enabling them to rise above poverty with dignity and self-empowerment. VFL has emboldened impoverished entrepreneurs to build up their businesses and create better futures for their children.

VFL was able to expand its services to Rideegama, Dambulla, Vavuniya and Horowupotana, increasing our branch network to 28. We are now present in 19 of Sri Lanka’s 25 districts. This year we served over 76,000 clients – an increase of nearly 22,000 clients over last year and impacted over 94,000 children. Some of their stories will be shared with you in the following pages.

VFL’s gross revenue was Rs. 808.7 Million representing an overall growth of 92% from the previous year. VFL increased its loan portfolio from Rs. 1.47 Billion in 2014 to Rs. 2.81 Billion and was once again operationally and financially sustainable with a net profit of Rs. 56.8 Million during this period.

Our work is geared towards the wellbeing of children.

To measure the impact that VFL has on the progress of communities, we have comprehensive impact indicators that track the socio-economic trajectory of our borrowers. The Child Wellbeing Objectives (CWBO) reported that 99% of our clients have been able to improve their children’s lives, in some manner, through a VFL loan. 99% of our borrowers are women; this is due to the empirical evidence proving that the empowerment of women leads to direct benefits on the status of children.

VisionFund Lanka works closely with World Vision Lanka (WVL), to bring about holistic development to communities. The WVL Area Development Programmes work with vulnerable, impoverished segments of society, guiding them towards a better quality of life and working

alongside them to create sustainable livelihoods.

VisionFund Lanka complements these initiatives and provides microfinance to the entrepreneurial poor to build their small businesses.

As we conclude this financial year, a special word of gratitude to our stakeholders especially our clients, the communities and government for their continued partnership. Our achievements would not have been possible without their unwavering support.

Our thanks are also due to VisionFund International (VFI) and the World Vision funding offices, especially World Vision Australia and Canada for their willing and continued support to VisionFund Lanka. We would also like to thank our banking partners and funding agencies who have extended their continued support to VFL’s work. We also remember with appreciation our Board of Directors for their guidance and the Executive Director and staff at VisionFund Lanka for their dedicated efforts during the period.

Sincerely,

CHANDULA ABEYWICKREMA BOARD CHAIRMAN VisionFund Lanka

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VisionFund Lanka | Annual Review 2015/16

MESSAGE FROM SAMUEL JEBARATNAM Executive Director and CEO VisionFund Lanka

cultivate sustainable means of income generation, which ultimately lead to a better quality of life for the next generation.

81% of the Sri Lankan population live in rural areas, with agriculture being the major employer, fueling many other sub sectors. A majority of people living under the National Poverty Line also live in villages, where access to reliable financial services is weak, contributing to the continued cycle of destitution.

Therefore, 80% of VFL operations take place in the rural sector, with 77% of our portfolio dedicated to agriculture and business loans.

We work hard to not only fulfill the credit needs of our borrowers, but also to increase their financial literacy while reducing their vulnerability to economic pitfalls. Our goal is to assist our borrowers to grow their businesses and become economically viable citizens who will one day be able to access the formal financial sector.

‘…Let him labour, doing honest work with his own hands, so that he may have something to share with anyone in need.’

- (Ephisians 4;28)

To provide brighter futures for all children, irrespective of race or religion, across geographical boundaries is a mission that VisionFund Lanka (VFL) is strongly committed to serving. For over a decade we have worked tirelessly to build a sturdy foundation. We have been able to establish ourselves as a reliable, ethical organisation dedicated to helping clients achieve long-term economic stability.

As one of the strongest players in the industry, VFL takes great pride in leading the way in up-to-date, standardised services that look at poverty alleviation in a holistic manner, encouraging families to

VisionFund Lanka | Annual Review 2015/16

We began to sow our first seeds in 2004, with just 2 branches in Thanamalwila and Batticaloa supported by 6 staff members. Today our total staff strength stands at 321, spread over a network of 21 branches and 7 sub branches. VFL’s strength lies in its work force. Our staff are dedicated and committed to making the empowerment of families a reality.

VFL loan officers are looked upon as leaders in the communities that they serve, guiding families to create brighter futures for their children.

The projects undertaken by VFL have impacted the lives of over 94,000 children. Over 121,000 jobs were created including that of our 76,633

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borrowers. The innovative ‘embedded education’ method that was piloted through VFL, met with great success, with the programme expected to be replicated throughout the VisionFund network.

VFL follows the client protection principles set by the Smart campaign, which is a global effort to unite microfinance leaders around a common goal; to keep clients as the driving force of the industry. We are working towards applying for the 'Smart' certification in the next financial year.

Economic Landscape The fiscal landscape in which VFL has been operating in, in the past three years has been that of a slowed economic expansion from the rapid pace of the post-conflict boom. The economy grew by 4.8% in 2015, marginally lower than the 4.9% expansion a year earlier. Weak global demand and political change characterised the year, as did an expansive fiscal policy following Presidential elections in January and parliamentary contests in August that established a coalition government.

Investment faltered as the market was more observant and less buoyant.

There were cuts in capital spending and temporary suspension of selected large investment projects.

Agriculture, a sector that microfinance clients are heavily invested in recovered from the adverse weather of the last financial year, to expand by 5.5%, taking up 7.9% of the GDP. The boost in agriculture was fueled mainly by the significant growth in rice at 23.3% and vegetables at 24.9%. The fishing subsector, another sector VFL clients

engage in, failed to do well, contracting by -2.7%, with lower production from inland fishing as well as marine fishing. Efforts were taken to fulfill the conditions laid down by the European Union (EU), in order to get the ban lifted on fish exports from Sri Lanka to the EU, which affected Sri Lanka’s overall fisheries exports in 2015. In contrast, animal production activities grew in 2015, with the increase in milk production, owing to favorable producer prices for raw milk and increased capacity for milk factories.

After much exertion, the Microfinance Act was approved by the government.

The new bill brings the microfinance industry under the purview of the government, thereby formalising and introducing client protective measures as well as legally expanding the services provided by microfinance organisations to include savings and remittance as well.

Profitability VisionFund Lanka recorded a pre-tax profit of Rs. 140.5Mn, which exceeded the previous year's pre-tax profit by Rs. 51.4Mn. Loans increased from Rs. 1.47Bn to Rs. 2.81Bn, yielding a financial revenue of Rs. 808.7Mn, an increase of over 92%. Despite as increase of 49% in operational expenses and staff administration, the 92% growth in revenue insured an increased PAT of Rs. 56.8Mn for the FY. The number of borrowers increased to 76,633, displaying a 41% growth against 2015. The enhanced efficiency of the loan officers’ management of the higher number of clients is in evidence as the caseload per officer rose to 419.

Staff VFL has taken on more staff to complement the growth of the organisation. The staff count rose to 321, with the opening of four new branches. VFL staff closely identify with their duty to provide better

opportunities for the children of our clients, and work tirelessly to meet this end. As a means of motivating and building fellowship among staff, the first ever family regional retreats were held for each of the six regions. These retreats enabled the families of our staff to also acquaint themselves with the work VFL engages in, promoting further work life balance.

This year too, the annual staff survey ‘Our Voice’ was carried out. The survey assesses staff dynamics such as satisfaction and engagement while providing feedback on management practices and system methodologies.

Staff retention has been above the industry average of 13.04% this year as well.

Integration with World Vision The cohesive approach to poverty reduction taken by World Vision enables VisionFund to be a part of a truly transformative and impactful journey.

Communities are provided with not only the finances but also the knowledge and training to overcome economic hardships. Through the combined efforts of World Vision Lanka (WVL) and VFL, families are able to become self-sufficient and to provide for the next generation through sustainable means of income.

VFL has been collaborating with WVL on the sustainable dairy farming project PROFEED, which has been implemented in the Central and North Western Regions to great success. RIWASH the Rural Integrated Water, Sanitation and Hygiene project has been implemented in the Nuwara Eliya area together with WVL to assist the plantation community.

Together with WVL, VFL piloted ARISE and IMAGE, two Small and Growing Business Loans in the North-Western and Western Regions to help guide businesses that have surpassed the micro level and are ready to step up their game, but have not yet reached the financial viability needed to approach the formal financial sector.

I thank the members of our Board and VisionFund International for their guidance and stewardship, readily given to us at all times. I would also like to commend the past and present VisionFund staff, who have been and continue to be the heart and soul of the organisation, whose dedication and commitment is an inspiration. I would be remiss in my duties if I do not extend my heartfelt gratitude to our former Board Chairman Mr. Suresh Bartlett and former Executive Director Mr. Prince Nayagam, for their tireless efforts and charismatic leadership which has enabled VFL to reach unprecedented heights in the growing Sri Lankan microfinance industry.

We would not be able to see the fruition of our work if not for our generous donors from around the globe who believe in what we do and provide us with the backing we need, to make real changes in our communities. Special mention must be made of World Vision Australia and Canada along with all our partners and lending agencies that have stood by us and continue to support our ventures.

VFL aims to reach more than 200,000 borrowers, positively impacting the lives of over 300,000 children in poor communities by 2019. From the moment in 2004 when VFL first sowed its seeds, to this moment today, when we stand proud and strong, as a reliable, ethical organisation that the poor of Sri Lanka can depend on, we look towards a promising future where economic independence and sustainable development is made a reality for all families around the country.

SAMUEL JEBARATNAM EXECUTIVE DIRECTOR AND CEO VisionFund Lanka

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VisionFund Lanka | Annual Review 2015/16

IMPACT Highlights To

tal L Por oan tfol io

LKR 2.81 Bn

75,869 Fem

Ac Bortive row er

s

VisionFund Lanka | Annual Review 2015/16

10

wers

76,633

Borro

ale

(99%)

94,714 Ch Imp ildren acte d

GLOBAL Highlights

TOTAL PORTFOLIO AFRICA

ASIA

LATIN AMERICA

TOTAL $500 Mn

%)

EASTERN EUROPE

N

$176 Mn

$164 Mn

( TS

E

AL

IE CL

M

$103 Mn

FE

$57 Mn

0%

CHILDREN IMPACTED

LATIN AMERICA 305,000

LATIN AMERICA 71% AFRICA 61% EASTERN EUROPE 39%

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EASTERN EUROPE 275,000

ASIA 92%

AVERAGE 73%

TOTAL 1,343,000

# OF LOANS DISBURSED

ASIA 569,000 AFRICA 392,000

AFRICA 1,469,000

TOTAL 3,890,000

LATIN AMERICA 227,000 EASTERN EUROPE 155,000 ASIA 1,841,000

Facts and figures as of 30th September 2015 and reference fiscal year 2015 data in US Dollars

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VisionFund Lanka | Annual Review 2015/16

BOARD OF DIRECTORS

Sulochana Ganeshwaran Director

Mr Samuel Jebaratnam Executive Director

Felicia Adhihetty Director

Ms. Ganeshwaran was appointed to the VFL board in 2014. She has been the Finance Director of World Vision Lanka since May 2014. She is a Fellow of the Chartered Institute of Management Accountants, and a CGMA. She possesses extensive experience at a senior level in Corporate Finance and Strategic Managment in the Shipping and Logistics industry. She also serves as a guest lecturer at the University of Colombo (Economics faculty), the CINEC Campus Malabe and for the Chartered Ship Brokers’ UK examinations.

Mr. Jebaratnam was appointed the Executive Director/CEO of VFL in September 2015.

Previously he served as a Senior Deputy General Manager of Seylan Bank PLC. He had an illustrious career at the helm of banking, spanning over 36 years, holding various senior management positions for over two decades.

He is a Fellow of the Institute of Bankers, holds a Postgraduate Executive Diploma in Bank Management, an MBA from the University of Jayawardenapura and is a recipient of the prestigious Achievers Award from the PIM Alumni.

Ms. Adhihetty was appointed to the VFL board in 2014. She is also the Founder and Managing Director of B-Connected (Pvt) Ltd, an event management company. B-Connected also supports INGOs, NGOs and leading corporate organisations with HR and administration functions. Ms Adhihetty is a Board Member of the Sri Lanka Association of Professional Conference, Exhibitions and Event Management (SLAPCEO). She is also a Member of the resource training panel of the Sri Lanka Convention Bureau, Tourism Development Authority.

Michael Spingler Director Mr. Spingler is the VFI Regional Director for Asia and joined the VFL Board in 2012.

He is a microfinance specialist with nearly 20 years of development experience providing strategic advisory, technical assistance and capacity strengthening services to organisations in over 13 countries. He has also worked with TPC, a large Cambodian MFI, as the Chairman of the Board, Interim COO, and CEO.

Shanti Gnanapragasam Director Ms. Gnanapragasam joined the VFL Board in 2012. She currently serves as the Chief Credit Officer/Vice President Credit at the National Development Bank (NDB).

She served as the Chief Risk Officer at Hatton National Bank (HNB). She has extensive experience in Treasury and Risk Management and has previously held the positions of Group Treasurer of Hayleys PLC, Deputy Head of Treasury at People’s Bank and Director Treasury of American Express Bank Ltd.

Savithri Thevanesam Director

Chandula Abeywickrema Board Chairman

Dr. Dhanan Senathirajah Director

Mr. Chandula Abeywickrema was appointed as the Board Chairman for the VFL Board in August 2015. He currently serves as the Consultant - Strategy and Marketing for National Savings Bank (NSB). He was formerly the CEO/MD of CCC Solutions (Pvt.) Ltd. prior to which he was the Deputy General Manager – Marketing & Retail Banking at HNB. He also serves as the Chairman of Banking With the Poor Network (BWTP), as well Chairman of Lanka Financial Services for Under-served Settlements (LFSUS).

He has extensive experience in marketing and microfinance.

Dr. Dhanan Senathirajah was appointed to the Board of VFL in 2011. He is currently the Vice President and Head of Finance & Planning at the National Development Bank (NDB) PLC. He is a Fellow Member of the Chartered Institute of Management Accountants, United Kingdom and is an Attorney-at-law. He also holds a Doctorate in Missions from the St. Andrew’s Theological University, India. He counts over 33 years’ experience in Finance, Accounting and Management.

Ms. Thevanesam was appointed to the VFL Board in 2015. She is a Management Consultant specialising in Strategic Business Planning, with over 25 years of experience in the field. She has consulted for PricewaterhouseCoopers Sri Lanka, Corporate Consulting Group Pvt Ltd and Econsult Pvt Ltd. She was also on the Presidential Task Force for Disaster Management. She was General Secretary of FOCUS, an organisation that nurtures Christian students in the universities of Sri Lanka, and is presently on their Council as well as that of the Colombo Theological Seminary (CTS). She is also a goodwill ambassador for World Vision.

SENIOR MANAGEMENT TEAM Prince Fernando Head of Operations Prince has over 5 years’ experience in Sales & Marketing and has been with VisionFund for over 8 years. He holds a BSc Special degree in Business Administration from the University of Sri Jayawardenapura and Diploma in Microfinance from the Institute of Bankers of Sri Lanka.

Melvil Perera Internal Audit Manager Melvil has over 17 years’ experience in Audit and Finance, both locally and internationally. He is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and the Institute of Certified Management Accountants of Sri Lanka. He holds a Masters in Financial Economics from the University of Colombo and a BSc Honours degree in Physical Science from the University of Kelaniya.

Priveen Joseph Risk & Compliance Manager Priveen has over 11 years’ experience in the banking sector and over 8 years’ experience in WV ADP finance. He has also worked in the microfinance sphere for nearly 4 years. His academic qualifications include a Diploma in Banking and Diploma in Microfinance.

Sevvandi Abeysinghe Manager Human Resources Sevvandi has been with VisionFund since 2008 and has 9 years’ experience in Human Resource Management. She holds a Bachelor’s degree in Human Resource Management from the University of Sri Jayawardenapura, and a Master’s degree in Business Studies from the University of Colombo.

Rizanth Francis Business Development and Administration Manager Rizanth has nearly 6 years’ experience in Logistics and Administration, locally and overseas, which includes 2 years in WV’s Tsunami Response. He also has 7 years’ collective experience in Risk & Compliance as well as microfinance.

He holds a BSc degree in Business Administration.

Viraj Cooray IT Manager Viraj has been with VisionFund since 2005 and has over 15 years’ experience in the IT sector. He also has experience as an Analyst Programmer with Visual Basic and Oracle. He holds a NIBM Diploma in System Analysis & Design.

Sujith De Silva Finance Manager Sujith has over 13 years’ experience in the finance sector in the fields of manufacturing, import & export and trading, with over 7 years at senior management level. He holds a BSc Special Degree in Business Administration from the University of Sri Jayewardanepura, and is a Certified Member of the Institute of Certified Management Accountants of Australia.

Malintha De Silva Chief Financial Officer Malintha has over 10 years’ experience in the banking sector, covering the retail and corporate sectors. He also has experience in Business Process Re-engineering Projects, and has carried out several centralisation initiatives during his banking career. He is a Member of the Chartered Institute of Management Accountants UK, and holds a BSc degree in Economics & Management from the University of London.

CORPORATE GOVERNANCE Board of Directors

Board Sub Committees

The Board is at the helm of VFL, entrusted with the responsibility of selecting and appointing key senior management personnel and establishing Corporate Policies. It also agrees upon remuneration standards and active internal controls, the implementation of which is monitored through the Board Sub Committees: Governance, Leadership and Nominating Committee and Audit and Risk Committee.

Governance, Leadership and Nominating Committee

The Board consists of Banking, Finance and Corporate sector personnel and is made up of a total of seven members excluding the Executive Director, who acts as the ex-officio member of the Board. Mr Suresh Bartlett retired as the Board Chairman in August 2015. Mr Prince Nayagam who had been the VFL Executive Director since January 2007, retired from the organisation on 1st October 2015. Their leadership and guidance enabled VFL to transform into a forerunner in the field. The Board wishes to express its gratitude and appreciation for their leadership, direction and support which proved integral to the growth of the organisation.

Upon Mr Bartlett’s retirement, Mr Chandula Abeywickrema was appointed as the Board Chair on 26th August 2015. Mr Samuel Jebaratnam was appointed as CEO and Executive Director of VisionFund Lanka on 1st October 2015, upon the retirement of Mr Prince Nayagam.

During the year under review the Board met four times excluding the Annual General meeting which was held on 28th June 2016, and saw an overall attendance rate of 91% from members.

VisionFund Lanka | Annual Review 2015/16

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The committee approves the governance policy to be followed by the CEO and Management, reviews and approves the business plan and strategic direction of the organisation, ensures the succession plan of CEO and senior staff members and approves salary, compensation and incentive plans as proposed by the management and recommends processes of assessment of Board Committees and Directors including Board Chair. The committee is also assigned the task of reviewing the mandate, composition and membership of Board Committees on an annual basis, and recommends any changes to the Board, helping the management identify critical strategic issues facing the organisation and assisting in the analysis of alternative strategic options. The committee has three Board members, and convened four times this year Audit and Risk Committee The Audit & Risk Committee assists the Board in fulfilling its financial and compliance oversight responsibilities. The committee is expected to review VFL’s financial reports and other financial information; systems of internal controls and ethics policies established by the Management and the Board; and the auditing, accounting, financial, and risk and compliance reporting process. Consistent with this function, the Audit & Risk Committee fosters adherence to, and encourages continuous improvement of VFL’s policies, procedures and practices. The committee has four Board members, the CEO participates on invitation.

The committee convened four times this year.

ANNUAL REPORT OF THE DIRECTORS The Directors take pleasure in reporting as follows:-

State Of Affairs The Company earned a total income of Rs.808,731,282/= during the year of which Rs.678,223,023/= was interest on loans.

Staff costs and other administrative expenses amounted to Rs.220,249,454/= and Rs.176,821,326/= respectively. Provisioning for Loan Losses totaled to Rs.16,122,896/=. The Value Added Tax on financial services amounted to Rs.34,830,908/=. The Company has earned a net profit for the year, before tax, of Rs.105,683,926/= Income tax for the year was Rs.48,869,574/= which leaves a net profit after tax of Rs.56,814,352/= for this year. Other comprehensive expenses amounted to a gain of Rs.635,774/= which results in a total comprehensive income of Rs.57,450,126/=.

Accounts The Audited Accounts for the year ended 31st March 2016 and the Auditors Report thereon are in the hands of the members.

Dividends The Directors do not recommend a dividend for this year.

Reserves The net revenue for the year of Rs.57,450,126/= is retained and carried forward.

Ms. S. Ganeshwaran Mr. S. J. Jebaratnam (appointed on 1st October 2015) Ms. S. Thevanesam (appointed on 23rd October 2015)

- Director - Executive Director - Director

Consequent to the above changes, the Directors of the Company as at this date are:Mr. Chandula Abeywickrema Mr. Dhanan Senathirajah Mr. Michael Spingler Ms. Shanthi Gnanapragasam Ms. F.I.Adihetty Ms. S.Ganeshwaran Mr. S.J.Jebaratnam Ms. S.Thevanesam

- Chairman - Director - Director - Director - Director - Director - Executive Director - Director

In terms of Article 25.(3) of the Articles of Association of the Company, Directors, other than those representing VFL, VFI or WVL, shall hold office for an initial period of three years and shall be eligible for re-appointment for a further term of three years.

Directors who are employees representing VFL, VFI or WVL hold office by virtue of their employment and shall cease to hold office upon ceasing to be employees of the respective organisations.

In terms of the Articles of Association of the Company, the following two Directors resign on completing the initial three years and are eligible for re-appointment :Mr. Dhanan Senathirajah (appointed on 23rd August 2012) Mr. Chandula Abeywickrema (appointed on 23rd August 2012)

- Director - Director

The other Directors will continue in office.

Directors Interests Some of the Directors of the Company are also Directors or Employees of World Vision Lanka. A Director of the Company is also a Director of Visionfund Holdings (Pvt) Ltd of which the Company is a fully owned subsidiary. The interests of Directors in transactions of the Company are shown in Note 26 of the Accounts. The Directors have no other interests either direct or indirect in any contract or proposed contract with the Company.

Directors The Directors of the Company during the year were as follows:Mr. S. Suresh Bartlett - Chairman (resigned on 26th August 2015) Mr. Prince R. Nayagam - Executive Director (resigned on 1st October 2015) Mr. Dhanan Senathirajah - Director Mr. Chandula Abeywickrema - Director (appointed Chairman on 26th August 2015) Mr. Rajan N. Asirwatham - Director (resigned on 30th June 2015) Mr. Michael Spingler - Director Ms. Shanthi Gnanapragasam - Director Ms. F. I. Adihetty - Director

Directors Remuneration The Directors do not receive any remuneration from the Company in their capacity as Directors of the Company.

Auditors The Accounts for the year ended 31st March 2016 were audited by KPMG, Chartered Accountants. It was resolved that the Directors of the Company be and are hereby authorised to appoint the Auditors and to determine their remuneration.

Audit fees The Audit Fees payable to the Auditors for the year ended 31st March 2016 are shown in the accounts. No other fee is payable to the Auditors.

By order of the Board VISIONFUND LANKA LIMITED

DIRECTOR

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VisionFund Lanka | Annual Review 2015/16

MAP OF VFL NETWORK Jaffna

Area Development Programme (ADP) Completed ADP VFL Branch VFL Sub Branch

Kilinochchi

Vavuniya

Horowupotana

Anuradhapura Puttalam

Galgamuwa Dambulla Valaichchenai

Nikaweratiya

Batticaloa Katuneriya

Kaluwanchikudy Mahiyanganaya

Hatton Thirukkovil

Head Office Wellawaya Ratnapura

Embilipitiya Morawaka

Tissamaharama

4

Rs. 950,078

338

Rs. 30,936,926

WATER & SANITATION

EDUCATION

HOUSING

AGRICULTURE

BUSINESS

DAIRY

SMALL & GROWING BUSINESSES

36204

Rs. 108,281,139

Rs. 1,374,649,657

Rs. 1,282,562,851

Rs. 13,584,808

Rs. 2,300,000

Portfolio

39379 342 285

81

PRODUCT PORTFOLIO 19 Clients

VisionFund Lanka | Annual Review 2015/16

OPERATIONS REVIEW The finance year 2015/16 was marked by a dedication to increasing market share, geographical coverage and social performance with a commitment to strategise operational activities to augment productivity.

VisionFund Lanka’s operations are geared towards creating lasting social change. The micro credit facilities that we provide are designed to be socially viable and to have a ripple effect in the living conditions of the families of clients. 99% of our clients are women, as studies have clearly indicated that the economic empowerment of women leads to their family’s socio-economic development. 87% of our clients are from the rural area, therefore we have a basket of micro credit products that cater to their needs. In response to market sentiment VFL has also ventured into the Small and Growing Business

(SGB) Loan Sector, piloting a SGB loan product in selected areas during this FY. In keeping with VFL’s mission to create brighter futures for all children, operations have been expanded to further encompass World Vision Area Development Programmes (ADPs) and other rural areas as well. During the year under review, operations were expanded to Rideegama, Dambulla, Vavuniya and Horowupotana while the Nuwara Eliya sub branch was converted into a fully-fledged branch. VFL now operates with a total of 21 branches and 7 sub branches spread across the country, covering 19 of the 25 Districts.

VFL has in place stringent control measures on its product portfolio, and is required to maintain a majority scale of business/agri related monthly repayment loans and a stipulated percentage of agriculture balloon loans. SGB, Housing and Diary loans are provided through special projects.

CLIENT GROWTH March 2011

March 2012

March 2013

March 2014

PORTFOLIO (LKR) March 2011

10,336

March 2012

16,010

March 2013

21,986

March 2014

36,563

March 2015

54,397

March 2016

VisionFund Lanka | Annual Review 2015/16

March 2015

76,633

20

March 2016

370 Mn 479 Mn 589 Mn 887 Mn 1477 Mn 2813 Mn

Loans for the Community VisionFund Lanka follows the group guarantee method to disburse loans. These groups are monitored by VFL’s Loan Officers. A group is made up of 3-5 members, while a cluster is made up of 8-10 groups.

Financial literacy is improved through a series of awareness programmes that are tailor-made to address issues relevant to the micro credit borrower. Cluster leaders are provided leadership training and educated on how best to work with communities. During the year special programmes are organised to felicitate the efforts of the cluster leaders. VFL’s client centric loans do not require collateral; as group members pledge to guarantee each other.

A branch overlooks the loan operations of a demarcated geographical area. A Loan Officer is in charge of a specified number of clusters, and conducts cluster meetings, assigns cluster leaders and collects repayments during meetings. Loan disbursements are made formally through tranfers to the borrower’s bank account. Borrowers are provided with insurance in the case of death/spouse’s death including funeral allowances alongside the loan.

Recoveries Recoveries are made on a monthly basis as opposed to bi-weekly. This client centric recovery process was introduced upon consideration of the income patterns

BRANCH GROWTH FY 12 FY 13 FY 14 FY 15 FY 16

3 Sub Branch

11 Branch

5 Sub Branch

13 Branch

13 Branch 10 Sub Branch 7 Sub Branch

A hotline number is provided to clients, in case of complaints. This transparent means of client complaints allows clients to lodge any dissatisfaction with services and allows VFL to immediately rectify the situation.

Integration with World Vision VFL operates in most of the World Vision ADP Areas. The ADPs provide a ready clientele that have already been trained in a trade/business and given initial assistance by World Vision. VFL moves in at the stage of poverty, where borrowers are able to meet their basic needs and are looking for access to more credit to expand their income sources. VFL guides these families from poor to transient poor, where they will become bankable entrepreneurs.

WVL and VFL together monitor the impact of projects in ADP areas.

With the approval of the Board, VFL has expanded its operations to include areas that are not covered

by WVL ADPs. This measure has been taken to expand VFL’s micro credit services to a wider geography enabling more communities to migrate out of poverty.

LOAN PORTFOLIO GROWTH

9 Branch

4 Sub Branch

of clients’ businesses, which yield monthly profits.

Monthly recoveries minimise pressure on clients, reduces overheads and allows Loan Officers to better manage their time and efforts.

21 Branch

90% 21

VisionFund Lanka | Annual Review 2015/16

OPERATIONAL AREAS VisionFund Lanka’s Operational Areas consist of 6 regions, demarcated according to the geographical presence of VFL’s 21 branches and 7 sub branches. Each region is supervised by a Regional Operations Manager, who overseas the branches that fall under his particular region.

VisionFund Lanka | Annual Review 2015/16

22

NORTH Branches Sub Branches No. of Borrowers Loan Portfolio- Rs. (M) PAR> 1 Day* Women Borrowers Children Impacted No. of Loan Officers

NORTH CENTRAL 3 1 11,241 392.16 0.09% 11,121 15,408 24

NORTH WESTERN Branches Sub Branches No. of Borrowers Loan Portfolio- Rs. (M) PAR> 1 Day* Women Borrowers Children Impacted No. of Loan Officers

5 1 16,159 628.90 1.23% 15,924 18,841 43

SOUTHERN Branches Sub Branches No. of Borrowers Loan Portfolio- Rs. (M) PAR> 1 Day* Women Borrowers Children Impacted No. of Loan Officers

3 3 14,275 627.94 0.75% 14,266 18,077 35

Branches Sub Branches No. of Borrowers Loan Portfolio- Rs. (M) PAR> 1 Day* Women Borrowers Children Impacted No. of Loan Officers

2 2 10,149 404.08 0.51% 10,120 10,830 23

EASTERN Branches Sub Branches No. of Borrowers Loan Portfolio- Rs. (M) PAR> 1 Day* Women Borrowers Children Impacted No. of Loan Officers

4 13,337 466.12 0.21% 13,201 16,964 29

CENTRAL Branches Sub Branches No. of Borrowers Loan Portfolio- Rs. (M) PAR> 1 Day* Women Borrowers Children Impacted No. of Loan Officers

4 11,472 294.08 1.67% 11,237 14,594 29

*PAR = Portfolio At Risk

23

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka has made remarkable strides in the microfinance industry in Sri Lanka. Combined with VFL’s close association with Word Vision and the international VisionFund network, VFL has strategically positioned itself as an ethical, client-centric MFI dedicated to its mission of creating better futures for all children.

VFL has undergone structural changes in the past to accommodate the growing scope of the organisation. After years of robust growth, in which the organisation has carved a firm foothold for itself, VFL is poised to increase its portfolio further, through geographical expansion and a wider product basket.

The Financial Year under review, continued in the positive trend VFL has been maintaining in the past, with the loan portfolio growing from Rs. 1.48 Bn to Rs. 2.81 Bn a 90% increase. VFL’s borrowers steadily grew from the 54,397 during the last financial year to 76,633 at the end of the current fiscal year. VFL conducted a client satisfaction survey to better understand the sentiments of borrowers, following which more client centric products were introduced to the market, attracting a wider clientele, while increasing VFL’s presence in the rural sector through the opening of four new branches. VFL continued to work closely with World Vision, extending its services to more Area Development Programmes (ADP’s), and increasing the availability of integrated products, such as RIWASH and PROFEED. In order to increase the scale of VFL's work, the organisation decided to make the shift from a Guarantee Company to a Limited Liability Company in 2012. This transference enabled VFL to provide improved financial services to those who would otherwise be unable to access it, and therefore would be denied an opportunity to break from a cycle of poverty.

In the period under consideration, conditions under which VFL operated on were unfavorable for business growth. The economy grew by 4.8% during 2015 in

VisionFund Lanka | Annual Review 2015/16

24

real terms, compared to 4.9% in 2014. Agriculture recovered from the adverse weather of the last fiscal year, to expand by 5.5%, taking up 7.9% of the GDP. The boost in agriculture was fueled mainly by the significant growth in rice at 23.3% and vegetable 24.9%.

The fishing sub sector failed to do well, contracting in -2.7%, with lower production from inland fishing as well as marine fishing. Efforts were taken to fulfill the conditions laid down by the European Union (EU), in order to get the ban lifted on fish exports from Sri Lanka to the EU, which affected Sri Lanka’s overall fisheries exports in 2015. In contrast, animal production activities grew in 2015, with the increase in milk production, owing to favorable producer prices for raw milk and increased capacity for milk factories.

Revenue and Cost Structure VFL reported an increase in gross revenue of 92%, recording an income of Rs. 808.7 Mn. Interest income comprised of 84% of the gross revenue. The interest expenses rose from that of the previous reporting period, due to the expansion of the portfolio being funded by borrowings. A profit before tax of Rs.140.5 Mn was realised, while profit after tax was Rs.56.8 Mn, resulting in a return on equity of 8%. The tax burden of VFL continued to be high and amounted to Rs. 83.7 Mn which is 10% of its revenue or 60% out of its PBT. With the need to expand services into new regions and the opening of four new branches, administration, staff and other expenses increased by 49%; however, the operating cost ratio decreased to 17% from 20% during the period.

Portfolio Composition Diverse loan products are offered, covering six industries: trade, services, production, agriculture, housing and education. In FY 2015/16, as in the past, loans disbursed for trade and agriculture held the significant share, representing 77% of gross portfolio.

Portfolio Quality Due to the rapid increase of organisations providing microfinance, over indebtedness has become a significant concern. While VFL adheres to strict screening and monitoring measures, the lack of reliable sources of information in client credit-history, makes VFL vulnerable to

PORTFOLIO MIX AS AT 31.03.2016

PORTFOLIO MIX AS AT 31.03.2015 1%

Housing

accessing clients who are already borrowers from other MFIs. Further, the slow rate of economic growth, reported this FY, due to the reduction of government driven projects, has impacted clients' incomes. In light of these, the PAR more than one day recorded an increase from 0.6% to 0.8%, while PAR over 30 days displayed an increase from 0.4% to 0.5%.

2%

4%

Education

1%

Housing

Education

25%

27%

Commerce/ Trade

Commerce/ Trade

6%

Service

6%

Service

50%

50%

Agriculture

16%

Agriculture

12%

Product/ Industry

Product/ Industry

FINANCIAL REVIEW 25

VisionFund Lanka | Annual Review 2015/16

PORTFOLIO 2013/14

LKR 887,702,252.00 48%

LKR 1,477,572,255.00 66%

2014/15

LKR 2,813,265,459.00 90%

2015/16

INTEREST INCOME 2013/14

2014/15

LKR 227,727,492.00 52%

LKR 351,794,587.00 54%

LKR 678,223,023.00 93%

2015/16

PROFIT 2013/14

2014/15

LKR 23,364,322.00

LKR 14,325,851.00

LKR 56,814,352.00

2015/16

VisionFund Lanka | Annual Review 2015/16

26

2014/15

KEY FINANCIAL HIGHLIGHTS

2015/16

421,209,439 LKR

Gross Income

808,731,282 LKR

96,220,575 LKR

Interest Expenses

255,022,772 LKR

141,417,473 LKR

Staff Cost

220,249,454 LKR

124,403,618 LKR

Administration Expenses

176,821,326 LKR

7,746,728 LKR

Loan Loss Provisions

16,122,896 LKR

51,421,043 LKR

PBT

140,514,834 LKR

14,325,851 LKR

PAT

56,814,352 LKR

2.5%

ROE

7.9%

1,477,572,255 LKR

Portfolio

2,813,265,459 LKR

105%

Operational Sustainability

112%

0.2%

Arrears > 1 day

0.3%

0.6%

Portfolio at risk > 1 day

0.8%

0.4%

Portfolio at risk > 30 days

0.5%

409

Caseload per officer

419

54,397 256

Number of clients Number of employees

76,633 27

321

VisionFund Lanka | Annual Review 2015/16

‘‘Everything we do is for our daughter. We want her to have the best we can offer’’ says Sahara (44). Sahara and her husband Anura have a steady stream of customers that come to get their bicycles fixed, from the garage they opened using VFL Loans.

VisionFund Lanka | Annual Review 2015/16

28

Report from the

Internal Audit Department During a time of rapid growth, it is all the more important to have strong internal checks and balances in place. After over a decade of hard work VFL has strategically positioned itself as a front-runner in the microfinance industry in Sri Lanka, and in this context, sustainable value creation is an area of prime focus.

As the organisation positions itself for expansion and stronger market penetration, internal controls must also be able to handle the scale and complexity of growth. The VFL Internal Audit Department (IAD) was established with the mission of creating a culture of self-regulation and transparency at all tiers of the organisation.

Authority

The Internal Audit Department principally assists VisionFund Lanka’s Board of Directors, Management and individual MFI Boards by employing integrated risk based auditing methods to provide:

Independence and Objectivity

²

Independent assurance of the adequacy, efficiency and effectiveness of internal control, risk management and compliance with laws, regulations and internal policies.

²

Independent and objective advice on operations, financial and social performance.

²

Information required for the management to carry out investigations into fraud. All work performed by the Internal Audit Department will take VisionFund Lanka’s vision, strategies, values, mission, policies and standards into consideration.

The VFI Audit Charter bestows the IAD the authority necessary to conduct audits, while defining the purpose, authority and responsibility of the Department’s activities. The Department is authorized to engage in independent audit programmes, risk assessments, and to coordinate audit efforts with external auditors. The Charter demarcates the Internal Auditor’s position within the organisation and allows unrestricted access for any matter within the Internal Auditor’s scope of responsibilities.

The IAD directly reports to the VisionFund Lanka Board. This reporting relationship is established to ensure independence, while maintaining appropriate coordination with other activities and management. The IAD has to report on a quarterly basis to the Audit Committee which is headed by members of the Board. The management staff are invited for these meetings where major audit findings and management responses are discussed.

The IAD stands to fulfill its duties with the cooperation of the staff and management, having completed 14 audits in the year under review.

29

VisionFund Lanka | Annual Review 2015/16

280

41

Male

Female

183

Loan Officers

138

Other Staff

Age Breakdown

173 Years

122 18-30

22 4 31-40

41-50

>50

PEOPLE & CULTURE The VisionFund Lanka staff is the backbone of the organisation. We have invested in a talented, hardworking group of people who believe in the Mission and Vision of the organisation. VFL has grown from 6 staff members who worked in two branches at our inception in 2004, to 321 men and women who are distributed around the country through a network of 21 branches and 7 sub branches today.

In the past few years the microfinance industry has grown in leaps and bounds. The market potential

VisionFund Lanka | Annual Review 2015/16

30

has been recognised nationally and in a very short time period, many new players have entered the industry. In this new environment of heightened competition, staff retention was seen as an industry wide concern. Yet we are happy to report that VFL has been able to meet this challenge head on, and have worked to motivate and develop our staff while providing them with competitive remuneration packages that are reflective

of industry standards.

321

TOTAL STAFF

Our Vision is to enrich the lives of every child, and to ensure that the

quality of life of the next generation is improved. The staff of VFL is deeply committed to this end result and have firm faith in the economic development that the VFL loans create for the families of these children.

VFL conducts a thorough and regular set of training programmes to enhance the skills of its workforce. Staff retreats are organised annually to increase motivation and connectivity. VFL tries to create an atmosphere of openness and discipline that resonates from the top down. This year the first ever staff-family retreat was organised to increase work-life balance and to acquaint the families of staff members with VFL's work.

During the period under review, the case load handled by a Loan Officer increased from 409 to 419. The Loan Officers showcasing the highest performance from each region were recognised and celebrated. The branches with the best performance have been felicitated and held as an example to the network. These branches were: Mahiyangana, Tissamaharama, Embilipitiya, Galenbindunuwewa and Anuradhapura.

57% of the VFL staff is made up of Loan Officers, of which 99% are male. The long distance travel on motorbike and rugged terrain covered to reach clients have been factors in the high numbers of male Loan Officers in the VFL ranks. The majority of operational and support staff are female. The staff turnover ratio for resignation was 13.04%.

Loan Officer Recruitment Orientation (LORO) In order to meet the demand for Loan Officers for the planned expansion of VFL, recruitment drives have been made more sophisticated. LORO introduced by VFI, has been adopted locally to improve the quality of potential candidates coming into VFL. During the period under review LORO was held in the North Western region and selected candidates are being trained under the supervision of senior Loan Officers.

Remuneration, Recognition and Incentives The salary scheme was assessed and revised, taking into note feedback from staff and industry standards.

The incentive system rewards individuals who show exceptional performance for their efforts and dedication. Teams that have above-par performance are also rewarded. These staff members and branches

are commended at the Annual VFL Awards ceremony where all VFL staff gather to felicitate these high performers.

Our Voice Survey VisionFund conducts an annual staff engagement survey throughout its network of microfinance institutions. It clarifies and substantiates the impact of leadership, culture and ways of working on organisation performance, prompting regular dialogue on the health and performance of VFL. An outstanding 100% response rate showed that the survey has become a part of the fabric of VisionFund Lanka.

The 'Our Voice Survey' has shed light on new priority areas for the organisation, while highlighting areas that have responded the most to corrective measures.

Through the results of the period under review, the survey shows that VFL’s focus should be given to minimising operational procedures and improving work life balance. VFL has shown marked developments in the areas of remuneration, internal communication and rewards systems. The VFL work force has reported the greatest satisfaction with their understanding of the Goals and Vision of the organisation and its efforts to realise them.

Capacity Building Significant training and capacity building opportunities have been provided to staff at all levels. A succession planning programme provides training to staff identified as having potential to take up management positions in the future. A second-level leadership team comprising an increased number of Regional Operational Managers paves the way for career progression for those showing enhanced performance in the field, as well as offering support to teams.

VFL also conducts an on-the-job training programme for school-leavers, with pay, for which they receive a certificate, to give them an introduction to the microfinance sector, and increase the potential pool of talent to be recruited. They then have the option of either joining VFL as staff or using the certification they receive from the programme to serve the microfinance industry at another organisation.

31

VisionFund Lanka | Annual Review 2015/16

Branch Openings

EVENTS

Executive Director's Farewell

VisionFund Lanka | Annual Review 2015/16

32

Staff - Family Retreats

Sports Day

Christmas Party

LORO

33 Awards

VisionFund Lanka | Annual Review 2015/16

RISK MANAGEMENT VisionFund Lanka | Annual Review 2015/16

34

VisionFund Lanka has a sophisticated Risk Management Policy, that has been designed through years of experience in the field. At this strategic juncture, when the organisation is making strides to expand further, it is paramount to ensure that VFL works in a safe and secure environment well within the boundaries of its Risk Appetite. VFL is committed to safeguard and protect the children that it serves, and to mitigate against any risk to its reputation or that of World Vision. Risk management is an organisation wide activity and starts at the frontlines, and applies to all of VisionFund Lanka’s activities and decisions.

Classification of Risks The risks VisionFund Lanka faces have been categorised under Strategic, Financial, Operational and Social Performance Risks. The main risks identified under each of these categories are as follows.

Risk Types Strategic Risk

Approach to Risk Management Risk Management Framework (RMF) - Our approach to risk management is covered by the Risk Management Framework which is approved by the Board. The purpose of the framework is to provide a systematic approach to risk management throughout the organisation, by increasing risk awareness and allowing for the early warning of potential problems, primarily through governance and reporting.

Risk Appetite (RA) Statement - The amount of risk that VFL is willing to take in pursuit of its strategic goals is defined in the Risk Appetite Statement. The Risk Appetite threshold for reporting is identified and incorporated into the Risk Appetite Statement. These thresholds highlight to the management if the position is outside of its tolerable ranges, and if so to take corrective action. The thresholds are revised annually and approved by the VisionFund Lanka Board of Management.

The Asset and Liability Committee (ALCO) meets monthly to analyse the projected cash flow and funding requirements. They match the diversification of funding sources and deal with the inherent risks that come with that. It manages this by monitoring the capital ratios and the establishment of and compliance with policies relating to balance sheet management, including management of liquidity and capital adequacy.

Operational Risk

Social Performance Risk

VFL Board of Directors Audit & Risk Committee

Structure of Risk Management

Risk Register & Risk Heat Map - VisionFund Lanka maintains the Risk Register to systematically identify risks, assess and rate them, and then re-rate them in the light of any mitigating strategies or actions in line with RMF and RA. In the risk assessment process, visualisation of risks using a heat map presents a larger more holistic picture to share while making decisions about the likelihood and impact of entity-wide risks within the organisation.

Financial Risk

Risk Details 1. Governance Risk 2. Reputation Risk 3. Geographic Concentration Risk 4. Funding Risk 5. Business Growth Risk 6. External Risk: economic, natural disaster, political and social 1. Credit Risk 2. Liquidity Risk 3. Market Risk (Interest Rate and FX) 1. Transaction Risk 2. Fraud Risk 3. Legal Compliance and Regulatory Risk 4. People Risk 5. Tax Risk 6. Technology Risk 7. Product Development Risk (New and Old) 8. Security Risk 1. Mission Drift 2. Client Protection 3. Christian Identity 4. World Vision Integration

Asset & Liability Committee (ALCO)

Executive Director Risk & Compliance Manager

35

Risk & Compliance Coordinator

Risk & Compliance Officers

VisionFund Lanka | Annual Review 2015/16

READY FOR

MONTESSORI Natasha is 5 years old and lives in Negombo.

Her mother Lalani is on her 6th Loan Cycle.

Lalani uses the VFL loans to help her husband in his business. Natasha’s father, Rasika is a fisherman who takes a small boat to sea whenever the weather permits. They also own a salt water offshore fishing boat that goes out for months at a time.

Last year the weather had not favoured the fishing community, resulting in a reduced, infrequent income. It was also the year that Natasha had to start Montessori. Money was tight, and Lalani had been given a big list from school. She decided to take the ‘Sisudiriya’ Loan that was given by VFL. Sisudiriya is a Parallel Loan given by VFL to existing clients. The loan gives Rs 10,000 to be paid back at a nominal interest rate, through monthly instalments within a period of 1 year.

This loan can be taken at the beginning of the academic year, and must be used to fulfil the educational needs of the client’s children.

Through Sisudiriya, Lalani was able to buy Natasha her complete book-list and new shoes for her first day of Montessori.

VisionFund Lanka | Annual Review 2015/16

36

Natasha was able to get all her books and new shoes for Montessori

37

VisionFund Lanka | Annual Review 2015/16

SOCIAL

PERFORMANCE Client Education

Awards & Recognition

Over 58,000 clients were educated on ‘Responsible Borrowing’. Topics covered were: negative borrowing habits, timely repayments, smart investments and savings habits, etc.

VFL was recognised for the 'Best Demonstration of Integration' in the Asian Region, at VFI’s Global Leadership Conference held in Bangkok in March 2015.

Poverty Outreach VisionFund Lanka is a strong believer of the Progress out of Poverty Index (PPI) a poverty measurement tool within the network. It helps the MFI become quantitatively aware of the level of poverty of incoming clients: this information helps us ensure that we are reaching our intended clientele.

VFL gathers PPI data from all first time borrowers. PPI data continues to be collected during every other cycle from clients. As per the information recorded during the Financial Year 2015, 6% of VFL clients live below the National Poverty Level (earning less than 1 USD/Day). In 2012/13, 1.3 million people, which was 6.7% of the population were living in poverty. This was a 2.2% drop of the Poverty Head Count from 8.9% in 2009/10. The number of impoverished people living under the poverty line were highest in Ratnapura, Kurunegala, Galle and Batticaloa Districts.* VFL has extended its services to all these areas.

VisionFund Lanka | Annual Review 2015/16

38

*(Sri Lanka. Ministry of Policy Planning Economic Affairs, Child Youth and Cultural Affairs. Department of Census and Statistics. Poverty Indicators: household Income and Expenditure Survey – 2012/13. ISSN 1391 -4693 June, 2015. https://www.umuc.edu/library/libhow/mla_examples. cfm#reports)

Client Education This Financial Year VisionFund piloted a new model of client education through VFL. Compared to the older model this new method is simple, sustainable and easily replicable. This innovative new approach, called ‘Embedded Education’, was met with great success. It involves the following key components: ²

Identifying all points of contact an MFI has with clients.

²

Determining the key communication avenues

²

Embed simple education messages into various communication avenues.

²

Providing training on embedded education to loan officers

PRODUCTS & SERVICES WE SERVE THE POOR THROUGH PROVISION OF APPROPRIATE MICROFINANCE PRODUCTS AND SERVICES THAT MEET CLIENT NEEDS

SOCIAL IMPACT PRODUCTS VFL follows the solidarity group lending method. VFL has 2 major loan products for business and agriculture related purposes. The organisation also has two loan products that are identified as Parallel Loans to be granted along with the major loan products. These are for child education and housing improvements. VFL also has other loan products which are integrated project loans in collaboration with WVL.

Child Centered Loan Products Child Education Loan – Sisudiriya (Student Empowerment)

Integrated Projects PROFEED – Promoting farming enterprises in dairy This project promotes rural dairy farming enterprises.

WVL provides the technical know-how and skills development, equipping farmers with the knowledge to efficiently run a hygienic dairy farm. VFL steps in at this juncture to provide the financial support to purchase cattle or renovate/construct a cattle shed.

Phase I of the project was implemented successfully in the Northern region. Thereafter the project was replicated in three additional branches in the Northern and Central Provinces.

RIWASH - Rural integrated water, sanitation and hygiene BUILDING ROOFS FOR FAMILIES RIWASH is an integrated project with WVL, Watawala Plantations and VFL. The project aims to provide better living facilities for up-country plantation communities.

Watawala Plantation provides the land, while WVL builds the house and VFL provides a loan to put up a roof. To ensure that the repayment installments are not burdensome to clients an extended repayment period is given.

VFL found that parents find it increasingly difficult to suppply their children's educational needs as loans are sought to buy books, uniforms, shoes and to pay school fees. VFL decided to introduce a loan product with an affordable repayment mechanism, which will enable parents to fulfill their children’s requirements. This loan product is looked at as an incentive, for our existing clients.

SANITATION Clients are provided with a loan to purchase goods related to sanitation, thereby increasing access to instruments that enable plantation communities to maintain better sanitary standards.

Housing Improvement Loan – Sanasuma (Relief)

ARISE aims to strengthen businesses that have surpassed the micro level, but struggle to find a foothold as an established Small and Growing Business (SGB). ARISE is still in its pilot phase and is supported by World Vision Australia. The Project is being implemented in the North Western Region, with the support of WVL. WVL provides business training and facilitation services to clients, who are then given a SGB level loan for their businesses through VFL.

Housing improvement loans were found to be an urgent requirement, identified through the Client Saisfaction Survey that was carried out. Therefore with the objective of providing improved living conditions for the children of our clients; we introduced the ‘Sanasuma’ loan. This Parallel Loan acts as an incentive for our most loyal clients.

ARISE - Agriculture and rural investment social enterprise

39

VisionFund Lanka | Annual Review 2015/16

110

2014/15

2015/16

90%

80

99%

90

97%

100

85%

SOCIAL IMPACT INDICATORS

% OF FEMALE BORROWERS

70

2013/14

Avg in Country 2014 (Mix)

HOW CLIENTS RATED VFL

7%

CLIENT SATISFACTION The Survey findings show that 60% of the respondents are highly satisfied with VFL Products and Services, while 31% report that they are satisfied. 2% of the respondents were not satisfied with VFL services. We are working to improve and innovate our products to meet the expectations of these clients as well. 24% of respondents chose VFL over other MFI’s due to our Premium Products, while another 24% selected VFL due to the Parallel Loans.

Neutral

2%

Not Satisfied

31%

Satisfied

60% Highly Satisfied

Social Impact Report, 2015

CHILD WELL BEING OBJECTIVES [CWBO] VisionFund Lanka | Annual Review 2015/16

40

87%

% OF ADPS SERVED

0

2013/14

2014/15

82%

73%

71%

100

2015/16

Rural Borrowers

WHY CLIENTS CHOOSE VFL

CLIENT SATISFACTION ON DELIVERY

18%

No Collatarals

8%

Neutral

24%

Parallel Loans

11%

Not Satisfied

32%

Lower Interest

Satisfied

24% 23%

Convenient Repayment

58%

Premium Products

99%

"

2%

Highly Satisfied

of Clients report improvements in Children's lives through VFL Loans" 41

VisionFund Lanka | Annual Review 2015/16

"My brother and I go to school on my bicycle now" - Inoka (12) Mannar

VisionFund Lanka | Annual Review 2015/16

42

STEADY MONEY FOR THE

CHILDREN 12 year old Inoka goes to school a kilometer away from her home, at the edge of a village in Mannar. She points shyly at her new bicycle and says softly ‘My brother and I go to school on my bicycle now, and after school when I go for classes I take my bicycle’. Pathmanathan, her father was able to buy her the new bicycle, from the money he earned selling the milk from his cattle farm. He beams from behind his two children and says ‘She wants to be a Nun, but the small one, he wants to be a Doctor’.

Akilan is 7, and he like his sister is shy. Since the cattle farm has been doing well, Yogarani their mother, has been giving him a glass of milk every morning with his breakfast, which he dutifully gulps down.

Before Pathamanathan first took the PROFEED loan of Rs 50,000 in 2014, he had a daily milk production of 10 liters per day, which he sold for Rs 50 per Liter to a local middle man. Through PROFEED he has added on a cow and calf from his first loan and 3 cows from his second loan of Rs 100,000. His daily milk production now is 17 Liters per day, and with the guidance given under the World Vision PROFEED programme he directly sells his milk to the state milk corporation MILCO at a price of Rs. 60 per Liter.

Pathmanathan was also able to attend the ‘Start Your Business’ training that was given at the start of PROFEED. Through this he was able to make a business plan and was trained in basic book keeping. He was also exposed to hygienic cattle farming practices. One of the lessons he has learnt can be seen as you walk in to his garden, where his herd of 5 cows and 5 calves are sheltered. At no small expense Pathmanathan has invested in a cattle shed. Unlike many of the cattle farmers from his area, Pathmanathan believes that a cattle shed leads to a happy, healthy herd; which in turn leads to increased production. His farm is often visited by outsiders and first time farmers and viewed as the model farm of the area, a fact Pathmanathan shares with pride.

Before he took his first loan, Pathmanathan’s monthly income was approximately Rs 10,000. After the increase in his herd and the hygienic practices he followed in cattle-rearing, his monthly income has gone up by Rs. 15,000 to reach Rs. 25,000.

He hopes to increase this further by bringing his daily milk production to 25 Liters.

‘The income from cattle farming is steady, unlike that of paddy cultivation, where the money depends on good weather. One bad rain and you can starve for the next 6 months. As a family man it’s hard for me to depend only on the income from paddy. That’s why I really want to develop my cattle farm. It's steady money, and that’s good for my children.’ Pathmanathan tells us while patting Inoka's head.

43

VisionFund Lanka | Annual Review 2015/16

LANKA

INTEGRATION

The cohesive efforts of VisionFund (VF) and World Vision (WV) in a community, creates holistic and sustainable socio-economic transformations.

World Vision’s Area Development Programmes (ADPs) commit to a community for approximately 15 years, during which time they facilitate better access to education, economic development, health and nutrition and water and sanitation initiatives within that area. The programmes also address cross-cutting themes of gender, environment, disaster risk reduction, disability, HIV/Aids, child protection, conflict sensitivity and governance. Communities are encouraged to take ownership of programmes and form interdependent relationships with local governments and other stakeholders in order to better address their needs. World Vision guides communities from stages of destitution to those free of poverty.

VisionFund enters an ADP as the microfinance partner of World Vision, to assist in graduating Province Northern Eastern Central Western Southern Uva North-western North-central TOTAL

communities from that of 'Poor' to 'Transient Poor'.

VisionFund provides micro credit, for clients without collateral, so they can grow their small businesses.

VisionFund Lanka (VFL) remains in ADPs even after WV phases out. This integrated approach builds a community's capacity to progress sustainably.

At the heart of all work done by World Vision and VisionFund is our shared commitment to create brighter futures for all children.

ADP Coverage VFL operates in 36 of the 44 ADPs. 5 ADPs are still in the seed phase and as such are not ready for VFL to become active. VFL hopes to begin work in these ADPs in the future. There are 19 VFL branches active in Worls Vision Lanka's (WVL) ADPs, with a portfolio of 6.3 Mn USD, through which the lives of over 20,000 children has been impacted.

VFL hopes to bring under its umbrella more rural businesses within the WVL ADPs, thereby increasing the income of families and the quality of life for the children living in these areas.

Borrowers

Children

2,564 6,847 1,681 492 140 1,801 2,534 1,229 17,288

3,694 8,740 2,572 509 126 2,077 3,038 1,002 21,758

*only active ADPs are represented in the table above

Loan Portfolio LKR 131,055,000 318,317,872 82,061,420 300,538 11,006,000 76,516,515 145,714,000 59,275,000 824,246,345

Loan Portfolio 1 $ = LKR 130 1,008,115 2,448,599 631,242 2,312 84,662 588,589 1,120,877 455,962 6,340,357

ECONOMIC LADDER

45

VisionFund Lanka | Annual Review 2015/16

A LIGHT IN THE

DARKNESS In a small village named Karuwelabadhagama, loosely translated as 'dark village', lives Nilanka. Karuwelabadhagama is only accessible through a dirt track and is about a 30 minute drive from the town of Puttalam.

Nilanka is busy inside her grocery shop, while her husband is loading up their truck with water canisters. Behind her colourful shop is a cement block machine, where two employees are turning out cement building blocks. A little to the left is their small home, still in the process of being completed.

‘We wanted to use all our money on building up our business, we wanted to focus on our house only after we had brought the business up’ Nilanka says. Her husband Upulsilva adds ‘We can now fulfill all our children’s wants, we can send them to good schools and make sure they eat well, our income is steady from the shop’.

Nilanka and Upulsilva are parents of four.

The eldest, 13 year old Pabodhini, is a boarder at one of the best girls' schools in Puttlam. ‘She wants to be a doctor and is very good at her studies, it is an extra expense, but we want to do what we can’ Nilanka says. Aruni, their second, a budding artist has said she does not want to leave her parents and goes to the village school with her brother Bathiya who has his heart set on becoming a musician. 2 year old Pasindu, is their youngest and his current interests lie in climbing trees.

Nilanka first heard of VisionFund Lanka from World Vision, when they provided water lines to the village. They approached VisionFund Lanka and were given a special opportunity to obtain a larger first-time loan of Rs 100,000. From this loan the couple bought a tractor which they hired out to

VisionFund Lanka | Annual Review 2015/16

46

their neighbors to work the land. While her husband was away with the tractor Nilanka realised she could do much from home to supplement their income. She used the second loan of Rs 150,000 to purchase phone recharge cards. She sold these to the people in her village and the adjoining villages. From the third loan they opened and stocked a small grocery shop. By the time they were on their fourth loan cycle, Nilanka, her husband and their small family were ready to invest in land. They bought a plot to cultivate coconuts, the crop that was most suitable for the arid climate of Puttalam.

From loan number 5 they restocked the shop while making necessary improvements.

Looking to upgrade their home from a thatched hut to a more stable building, they realized that they had to travel far to obtain the necessary cement blocks. Furthermore they noticed that many of their neighbours and residents of adjoining villages faced the same problem. Putting their dreams of making developments on their home on hold, the entrepreneurial pair saw a business opportunity. They used the 6th loan from VFL to buy a cement block machine and employed two villagers to work the machine. They also sold the tractor and bought a small truck to run a delivery service.

Its not all about business though; the couple dug a tube well on their land and allow the villagers to benefit from this facility at no cost. ‘We really want to construct our house well and buy a bigger vehicle to transport the cement blocks. We want our children to have better lives and more opportunities’ Nilanka says as she busies herself inside the shop.

"We can now fulfill all our children’s needs" - Nilanka Puttalam

47

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka | Annual Review 2015/16

48

FINANCIAL

STATEMENTS AS AT 31ST MARCH 2016

VisionFund Lanka Limited

49

VisionFund Lanka | Annual Review 2015/16

KMPG (Chartered Accountants) 32A, Sir Mohamed Macan Markar Mawatha, P.O. Box. 186,

Colombo 00300,

Sri Lanka.

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF VISIONFUND LANKA LIMITED. Report on the Financial Statements We have audited the accompanying financial statements of VisionFund Lanka Limited, (“the Company”), which comprise the statement of financial position as at March 31, 2016, and statements of profit or loss and other comprehensive income, changes in equity and, cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board’s Responsibility for the Financial Statements The Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Tel Fax

Internet

: +94 - 11 542 6426 : +94 - 11 244 5872 +94 - 11 244 6058 +94 - 11 254 1249 +94 - 11 230 7345 : www.lk.kpmg.com

and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Company as at March 31, 2016, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory Requirements As required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following:

Auditors’ Responsibility

a) The basis of opinion and scope and limitations of the audit are as stated above

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

b) In our opinion we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company and the financial statements of the Company, comply with the requirements of section 151 of the Companies Act.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true

KPMG, a Sri Lankan partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

CHARTERED ACCOUNTANTS Colombo 24 June 2016

M.R. Mihular FCA T.J.S. Rajakarier FCA Ms. S.M.B. Jayasekara ACA G.A.U. Karunaratne FCA R.H. Rajan ACA Principals - S.R.I. Perera FCMA(UK), LLB,

P.Y.S. Perera FCA W.W.J.C. Perera FCA W.K.D.C. Abeyrathne FCA R.M.D.B. Rajapakse FCA Attorney-at-Law, H.S. Goonewardena ACA

C.P. Jayatilake FCA Ms. S. Joseph FCA S.T.D.L. Perera FCA Ms. B.K.D.T.N. Rodrigo FCA

VisionFund Lanka Limited

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 March 2016

Note

2016 Rs.

2015 Rs.

INCOME Interest income

678,223,023

351,794,587

Less: Interest expense

5

(255,022,772)

(96,220,577)

NET INTEREST INCOME

423,200,251

255,574,010

Other income Impairment for loans and other losses

6

130,508,259

69,414,852

11

(16,122,896)

(7,746,728)

537,585,614

317,242,134

NET OPERATING INCOME Staff cost

(220,249,454)

(141,417,473)

Administrative and other expenses

(176,821,326)

(124,403,618)

140,514,834

51,421,043

Value added tax on financial services

(34,830,908)

(17,815,507)

PROFIT BEFORE TAXATION

105,683,926

33,605,536

(48,869,574)

(19,279,685)

56,814,352

14,325,851

PROFIT BEFORE INCOME TAX AND VALUE ADDED TAX ON FINANCIAL SERVICES

Income tax expense

7

8

PROFIT FOR THE YEAR Other Comprehensive Income/(Expense) Defined benefit obligation actuarial gain/(loss)

883,019

(835,989)

Deferred tax on actuarial (gain)/ loss

(247,245)

234,077

Other comprehensive Income/(Expense) for the year, net of tax

635,774

(601,912)

57,450,126

13,723,939

Total Comprehensive Income/(Expense) for the year

19

These financial statements are to be read in conjunction with the related notes which form a part of these financial statements set out on pages 55 to 82.

VisionFund Lanka | Annual Review 2015/16

52

2015 Rs.

ASSETS Cash and cash equivalents

9

53,104,985

55,460,434

10

12,478,914

6,084,105

Loans and receivables

11

2,798,958,888

1,473,460,694

Amounts due from related parties

13

4,717,515

10,559,070

Property, plant and equipment

12

63,589,019

45,200,251

Deferred tax assets

14

3,267,923

2,240,538

Other assets

15

Placements with banks

TOTAL ASSETS

35,167,895

26,100,762

2,971,285,139

1,619,105,854

2,162,314,831

939,486,847

VisionFund Lanka Limited

2016 Rs.

STATEMENT OF FINANCIAL POSITION As at 31 March 2016

Note

LIABILITIES Loans and borrowings

16

Non interest bearing advances

17

12,429,862

7,499,862

Other liabilities

18

36,029,058

14,352,563

Employee benefits

19

14,921,197

13,648,628

39,666,287

3,507,541

2,265,361,235

978,495,441

572,289,340

572,289,340

Income tax payable

EQUITY Stated capital

20

Share application money

20

7,917,460

-

Other components of equity

21

29,479,014

29,479,014

Retained earnings Total Equity Total Equity and Liabilities

96,238,090

38,842,059

705,923,904

640,610,413

2,971,285,139

1,619,105,854

These financial statements are to be read in conjunction with the related notes which form a part of these financial statements set out on pages 55 to 82.

I certify that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No 07 of 2007. ................................................

Chief FInancial Officer The Board of Directors is responsible for the preparation and presentation of the financial statements.

Approved and signed for and on behalf of the Board of Directors. ................................................ ................................................

Director Director 24 June 2016 Colombo

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VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2016

Share Stated application Capital money Rs. Rs. Balance as at 1 April 2014

Other Components of Equity Rs.

Retained Earnings

Total Equity

Rs.

Rs.

455,732,180

-

29,479,014

25,668,150

510,879,344

-

-

-

14,325,851

14,325,851

Actuarial loss on defined benefit obligation

-

-

-

(835,989)

(835,989)

Deferred tax attributable to actuarial loss

-

-

-

234,077

234,077

Total comprehensive income

-

-

-

13,723,939

13,723,939

116,557,160

-

-

-

116,557,160

Total comprehensive income Profit Other comprehensive income

Transactions with owners of the Company Issue of ordinary shares

-

-

-

(550,030)

(550,030)

Total contributions and distributions

Stamp duty on share issue

116,557,160

-

-

(550,030)

116,007,130

Balance as at 31 March 2015

572,289,340

-

29,479,014

38,842,059

640,610,413

Balance as at 1 April 2015

572,289,340

-

29,479,014

38,842,059

640,610,413

Profit

-

-

-

56,814,352

56,814,352

Actuarial loss on defined benefit obligation

-

-

-

883,019

883,019

Deferred tax attributable to actuarial loss

-

-

-

(247,245)

(247,245)

Total comprehensive income

-

-

-

57,450,126

57,450,126

Total comprehensive income

Transactions with owners of the Company Pre paid share application money Balance as at 31 March 2016

-

7,917,460

-

(54,095)

7,863,365

572,289,340

7,917,460

29,479,014

96,238,090

705,923,904

These financial statements are to be read in conjunction with the related notes which form a part of these financial statements set out on pages 55 to 82.

VisionFund Lanka | Annual Review 2015/16

54

105,683,926

33,605,536

14,459,009

6,352,321

Value added tax on financial services

34,830,908

17,815,507

(Profit)/loss on disposal of property, plant and equipment

(4,550,455)

882,878

Cash flows from operating activities Profit before Tax Adjustments for; Depreciation

Employee benefits Impairment on loans and receivables Provision on other receivables Interest paid Operating profit before working capital changes

4,000,768

3,541,582

16,122,896

7,746,728

-

3,406,349

568,225

761,998

171,115,277

74,112,899

VisionFund Lanka Limited

2015 Rs.

STATEMENT OF CASH FLOWS For the year ended 31 March 2016

2016 Rs.

Changes in working capital (Increase in) Placements with other banks (Increase in) loans and advances (Increase in) amount due from related parties (Increase in) other receivables Increase/decrease in other payables Cash generated from/(used in) operations Interest paid Gratuity paid

(6,394,809)

(352,873)

(1,341,621,090)

(598,985,774)

5,841,555

(4,783,459)

(9,067,133)

(13,545,452)

41,479,178

1,146,822

(1,138,647,022)

(542,407,837)

(568,225)

(761,998)

(1,845,180)

(355,070)

Value added tax paid

(32,054,524)

(22,753,549)

Income tax paid

(13,985,458)

(24,280,614)

(1,187,100,409)

(590,559,068)

(33,035,119)

(30,943,279)

Net cash inflow (used in)/from operating activities Cash flows from investing activities Purchase of property and equipment Proceeds from sale of property, plant and equipment Net cash flow used in investing activities

4,737,797

110,500

(28,297,322)

(30,832,779)

Cash flows from Financing Activities Borrowings during the year

1,729,908,293

582,849,862

Repayment of borrowings

(524,781,471)

(91,756,599)

Proceeds from share issue

7,917,460

116,555,160

Share issue expenses paid

-

(550,030)

1,213,044,282

607,098,393

Net cash flow used in financing activities

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VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

STATEMENT OF CASH FLOWS For the year ended 31 March 2016

Net Increase/ (decrease) in cash and cash equivalents

(2,353,450)

(14,293,454)

Cash and cash equivalents at the beginning of the year

55,460,434

69,753,888

Cash and cash equivalents at the end of the year

53,106,984

55,460,434

Cash in hand

2,665,378

1,377,094

Cash at Bank

50,426,293

54,083,340

Call Deposits

13,314

-

53,104,985

55,460,434

Analysis of Cash and cash equivalents

These financial statements are to be read in conjunction with the related notes which form a part of these financial statements set out on pages 55 to 82.

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56

1.1. General

VisionFund Lanka Limited is a limited liability Company incorporated and domiciled in Sri Lanka.

The registered office of the Company is located at 619/8, Dr. Danister De Silva Mawatha, Colombo 09 and principal place of business is located at no.120A, 2nd Floor, Dharmapala Mawatha, Colombo 07.

The principal activity of the Company is to undertake, promote, develop and organise the micro finance activities among the beneficiaries. The Company’s immediate parent company is VisionFund Holdings (Private) Limited and ultimate parent is VisionFund International.

2.

BASIS OF PREPARATION

2.1. Statement of Compliance

The Financial Statements which comprises the statement of financial position, statement of profit and loss and other comprehensive income, statement of changes in equity and statement of cash flows have been prepared in accordance with the Sri Lanka Accounting Standards (SLFRSs/LKASs) promulgated by the Institute of Chartered Accountants of Sri Lanka (ICASL) and comply with the requirement of Companies Act No.07 of 2007.

The financial statements were authorised for issue by the Board of Directors on 24th June 2016.

VisionFund Lanka Limited

REPORTING ENTITY

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

1.

2.2. Responsibility for Financial Statements

The Board of Directors take responsibility for the preparation of these financial statements in accordance with companies Act No. 07 of 2007 and the Sri Lanka Accounting Standards.

2.3. Basis of Measurement

The Financial Statements have been prepared on the historical cost basis except for the following material item, which is measured on an alternative basis. ² The liability for defined benefit obligation is actuarially valued and recognized as the present value of defined benefit obligation

2.4. Functional and Presentation Currency

The Financial Statements are presented in Sri Lankan Rupees which is the Company’s functional currency. All amounts have been rounded to the nearest rupee, unless stated otherwise.

2.5. Use of Estimates and Judgments

In preparing these financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies of the Company and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively.

Information about assumptions and estimation uncertainty that have significant effect on the amounts recognized in the financial statements is provided in the following notes. ² Identification and assessment of impairment; key assumptions underlying recoverable amounts. ² Measurement of retirement benefit obligations; key actuarial assumptions. ² Recognition of deferred tax asset; availability of the future taxable profits against which deductible temporary differences can be used.

2.6. Materiality and Aggregation

Each material class of similar items is presented separately in the financial statements. Items of a dissimilar nature or function are presented separately unless they are immaterial as permitted by Sri Lanka Accounting Standard - “Framework for the Preparation and Presentation of Financial Statements”.

3.

SIGINIFICANT ACCOUNTING POLICIES

The Company has consistently applied the following accounting policies to all periods presented in these financial statements.

The comparative information has been reclassified where necessary to conform to the current year’s presentation.

3.1. Foreign currency 3.1.1. Foreign currency transactions

Transactions in foreign currencies are translated to Sri Lankan rupees at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to Sri Lankan Rupees at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss.

3.2

Statement of Financial Position

3.2.1. Financial instruments

The Company classifies non-derivative financial assets in to loans and receivables and nonderivative financial liabilities in to other financial liabilities.

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58

The Company initially recognizes loans and receivables and debt securities issued on the date when they are originated. All other financial assets and financial liabilities are initially recognized on the trade date.

The Company de-recognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such de-recognized financial assets that is created or retained by the Company is recognized as a separate asset or liability.

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

(a)

Non-derivative financial assets – Measurement

VisionFund Lanka Limited

Non-derivative financial assets and financial liabilities – Recognition and derecognition

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

(i)

² Loans and receivables These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. Loans and receivables comprise cash and cash equivalents and trade and other receivables, including related party receivables.

² Cash and cash equivalents Cash and cash equivalents comprise cash balances, with original maturities of three months or less. Bank overdrafts that are repayable on demand form an integral part of the Company’s cash management, are included as a component of cash and cash equivalents for the purpose of the statement of cash flow.

Statement of Cash Flows is prepared under the “indirect” method as per LKAS 07 Statement of Cash Flows.

² Due from Related Parties Dues from related parties are recognized at cost less allowances for bad and doubtful receivables.

(b)

Non-derivative financial liabilities – Measurement

Other non-derivative financial liabilities are initially recognized at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.

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VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

(ii)

Fair Value Measurement

SLFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transactions between market participants at the measurement date.

A fair value measurement requires an entity to determine all the following

1. The particular asset or liability that is the subject of the measurement

3. The principal (or most advantageous) market for the asset or liability.

2. For a non-financial asset, the valuation premise that is appropriate for the measurement (consistently with its highest and best use).

4. The valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the asset or liability and the level of the fair value hierarchy within which the inputs are categorized.

Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same-to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

When a price for an identical asset or liability is not observable, an entity measures fair value using another valuation technique that maximises the use of relevant observable inputs and minimises the use of unobservable inputs. Because fair value is a marketbased measurement, it is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. As a result, an entity’s intention to hold an asset or to settle or otherwise fulfill a liability is not relevant when measuring fair value

When an asset is acquired or a liability is assumed in an exchange transaction for that asset or liability, the transaction price is the price paid to acquire the asset or received to assume the liability (an entry price). In contrast, the fair value of the asset or liability is the price that would be received to sell the asset or paid to transfer the liability (an exit price).

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The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumption and other risks affecting the specific instrument. ² Level 1 - Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities; ² Level 2 - Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);and

VisionFund Lanka Limited

Determination of Fair values

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

² Level 3 - Fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs). (iii) Impairment (a)

Non-derivative financial assets

Financial assets not classified at fair value through profit or loss, are assessed at each reporting date to determine whether there is objective evidence of impairment.

Objective evidence that financial assets are impaired includes; - Default or delinquency by a debtor; - Indications that a debtor or issuer will enter bankruptcy; - Adverse changes in the payment status of borrowers or issuers - The disappearance of an active market for a security; or - Observable data indicating that there is a measurable decrease in the expected cash flows from a Company of financial assets.

Financial assets measured at amortized cost

The Company considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Company uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends.

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VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account. When the Company considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through the statement of profit or loss. (b)

Non-financial assets

The carrying amounts of the company's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated and impairment is recognized in the Statement of profit or loss and other Comprehensive Income.

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount.

3.2.2. Property Plant and Equipment (a)

Recognition and Measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.

If significant parts of an item of property plant and equipment have different useful lives, then they are accounted for as separate items (Major Components) of property, plant and equipment.

Any gains or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.

(b)

Subsequent expenditure

Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.

(c) Derecognition

The carrying amount of an item of Property, Plant & Equipment is derecognized on disposal.

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

VisionFund Lanka | Annual Review 2015/16

62

Depreciation is calculated to write off the cost of items of Property, Plant and Equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. The estimated useful lives of significant items of Property, Plant and Equipment are as follows; Asset Category Communication Equipment Furniture, Fixtures & Fittings Motor Vehicles Computers Electrical Equipment Office Equipment

Useful Life (Years) 5 5 5 5 5 5

Depreciation Rate (%) 20% 20% 20% 20% 20% 20%

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

(d) Depreciation

3.2.3. Other Assets

Other assets are recognized at cost.

3.2.4. Share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

3.2.5. Employee benefits

Defined contribution plan - Employees’ Provident Fund and Employees’ Trust Fund

All employees of the company are members of the Employee’s Provident Fund and Employees’ Trust Fund, to which their employer contributes 12% and 3% respectively of such employees’ basic wage or salary, cost of living and other similar allowances under the Provident Fund Act No.15 of 1958 as amended and Trust Fund Act No.46 of 1980. The company contribution is recognized as an expense in the Statement of profit or loss and Comprehensive Income as incurred.

Defined Benefit Plan – Gratuity

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.

The defined benefit is calculated by an independent actuary using Projected Unit Credit method as recommended by LKAS 19 "Employee Benefits" The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using the yield on government bonds at the reporting date and have maturity dates approximating to the terms of the Company's obligations.

The Company recognises actuarial gains and losses that arise in calculating the Company's obligation in respect of a plan in other comprehensive income.

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VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

The present value of the defined benefit obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of defined benefit obligations.

Provision has been made- for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19 "Employee Benefits".

However, under the Payment of Gratuity Act No.12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.

Short – term benefits

Short term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided.

3.2.6. Provisions

A provision is recognized in the statement of financial position when the Company has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and can be measured reliably.

3.2.7. Other Liabilities

Other liabilities are recorded at the cash value to be paid when settled.

3.3. Statement of Profit or Loss and Other Comprehensive Income 3.3.1. Revenue

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue and the associated costs incurred or to be incurred can be reliably measured. (i)

Interest Income

Interest income is recognised in profit and loss using the effective interest method.

The effective interest rate is the rate that exactly discounts the estimated future cash receipts or payments through the expected life of the financial asset (or, where appropriate, a shorter period) to the carrying amount of the financial asset. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

(ii)

Insurance Agency Fees

Agency fees received in respect of insurance is recognized on an accrual basis.

(iii) Gains and losses

Net gains and losses of a revenue nature arising from the disposal of property, plant and equipment and other non-current assets, including investments, are accounted for in the

VisionFund Lanka | Annual Review 2015/16

64

Other income is recognized on an accrual basis.

3.3.2. Expenditure Recognition (i)

Operating Expenses

All expenses incurred in day to day operations of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the statement of comprehensive income on accrual basis in arriving at the profit for the year. Provision has also been made for impairment of financial assets, all known liabilities and depreciation on property, plant and equipment.

VisionFund Lanka Limited

(iv) Other income

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

statement of comprehensive income, after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses.

3.3.3. Taxation

Income tax expense comprises current and deferred tax. Current and deferred taxes are recognized in profit and loss except to the extent that it relates to items recognized directly in equity or in other comprehensive income. (i)

Current Taxes

The provision for income tax is based on the elements of income and expenditures reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereon.

Current income tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustments to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted at the reporting date.

(ii)

Deferred Taxation

Deferred tax is recognized in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences and carry forward of unused tax losses / credits can be utilised.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

65

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

Deferred tax assets and deferred tax liabilities are offset if legally enforceable right exists to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority.

3.4. Related Party Transactions

Disclosure has been made in respect of the transactions in which one party has the ability to control or exercise significant influence over the financial and operating policies/decisions of the other, irrespective of whether a price is being charged or not.

3.5. Events after the Reporting Period

Events after the reporting period are those events favorable and un favorable, that occur between the end of the reporting period and the date when the financial statements are authorized for issue.

The materiality of the events occurring after the reporting period is considered and appropriate adjustments to or disclosures are made in the Financial Statements, where necessary.

4.

EFFECT OF ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

New Accounting Standards issued but not effective as at Reporting Date

The Institute of Chartered Accountants of Sri Lanka has issued the following new Sri Lanka Accounting Standards. However, these standards have not been applied in preparing these financial statements as at 31 March 2016.

The extent of the impact of these Standards to the Financial Statements has not been determined as at 31 March 2016. None of these are expected to have a significant impact on the company’s financial statements.

SLFRS 09 - Financial Instruments

The objective of this SLAS is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. This standard will be effective for financial periods beginning on or after 01 January 2018.

SLFRS 15 - Revenue from Contracts with Customers

SLFRS 15 establishes a comprehensive framework for determining revenue recognition by a 5 step model and will replace the existing LKAS 18 & LKAS 11.

SLFRS 15, will be applicable for the financial periods beginning on or after 1 January 2018.

VisionFund Lanka | Annual Review 2015/16

66

67

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

2016 Rs. 5

INCOME Interest income from loans

6

678,223,023

351,794,587

678,223,023

351,794,587

OTHER INCOME Fee and commission income

1,885,566

2,922,829

50,300,347

27,232,109

Interest on fixed and call deposits

4,618,605

2,948,907

Recoveries from written off loans

2,874,601

4,403,735

Insurance fees

Document fees

7

2015 Rs.

62,965,896

31,336,610

Profit on disposal of property, plant and equipment

4,550,455

-

Sundry income

3,312,789

570,662

130,508,259

69,414,852

124,390,782

88,680,036

22,659,673

16,155,216

PROFIT FROM OPERATIONS Profit from operations is stated after charging all the expenses including following; Personnel Costs Salaries Defined contribution plans Defined benefit plan (Note 19.1) Other staff costs Depreciation

8

INCOME TAX EXPENSE

8.1

AMOUNTS RECOGNIZED IN PROFIT OR LOSS

4,000,768

3,541,582

69,198,231

33,040,639

14,459,009

5,352,321

50,144,204

17,151,907

Current tax expenses Income tax for the year (Note 8.3) Income tax (over)/under provision

8,742

Deferred tax expenses Deferred tax charge / (reversal) for the year (Note 15.2)

8.2

(1,274,630)

2,119,036

48,869,574

19,279,685

AMOUNT RECOGNIZED IN OTHER COMPREHENSIVE INCOME Deferred tax charge / (reversal) on other comprehensive income

VisionFund Lanka | Annual Review 2015/16

68

247,245

(234,077)

247,245

(234,077)

105,683,926

33,605,536

RECONCILIATION BETWEEN THE ACCOUNTING PROFIT AND TAX EXPENSE Profit before tax Aggregate disallowable Expenses Aggregate allowable expenses Taxable Profit Income tax for the year - 28% (2015 - 28%)

83,880,533

42,091,346

(18,198,259)

(14,816,220)

171,366,200

60,880,662

47,982,536

17,046,585

Deemed dividend tax Total income tax

2,161,668

114,064

50,144,204

17,160,649

2016 % 8.4

Rs.

33,605,536

28%

29,591,499

28%

9,409,550

Disallowable expenses

22.22%

23,486,549

35.07%

11,785,577

Allowable expenses

-4.82%

(5,095,513)

-12.34%

(4,148,542)

2.05%

2,161,668

0.34%

114,064

47.45%

50,144,204

51.06%

17,160,649

Deemed dividend tax Total Income tax expenses

2016 Rs.

2015 Rs.

Cash in hand

2,665,378

1,377,094

Cash at bank

50,426,293

54,083,340

Call deposits

13,314

-

53,104,985

55,460,434

CASH AND CASH EQUIVALENTS

PLACEMENTS WITH BANKS Fixed deposits

11

%

105,683,926

Income tax using domestic tax rate

10

2015 Rs.

RECONCILIATION OF EFFECTIVE TAX RATE Profit before income tax

9

VisionFund Lanka Limited

2015 Rs.

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

8.3

2016 Rs.

12,478,914

6,084,105

12,478,914

6,084,105

2,813,265,459

1,477,572,255

(14,306,571)

(4,111,561)

2,798,958,888

1,473,460,694

LOANS AND RECEIVABLES Loans and Receivables at amortized cost Less: Impairment on loans and receivables (Note 11.1)

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VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

11.1

2016 Rs.

2015 Rs.

Balance as at 1 April

4,111,561

5,480,604

Charge for the year

16,122,896

7,746,728

(5,927,886)

(9,115,771)

14,306,571

4,111,561

IMPAIRMENT ON LOANS AND RECEIVABLES

Written off during the year Balance as at 31 March

No movable or immovable property pleged by customers against the loans taken from the Company.

11.2

IMPAIRMENT ON LOANS AND RECEIVABLES Individually impaired

-

-

Collectively impaired

14,306,571

4,111,561

14,306,571

4,111,561

VisionFund Lanka | Annual Review 2015/16

70

Communication Equipment

Furniture and Fittings

Motor Vehicles

Computers

Electrical Equipment

Office Equipment

Total

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Balance as at 1 April 2014

4,035,176

7,409,819

10,033,610

19,420,340

3,305,770

1,962,981

46,167,696

Additions

2,113,496

3,544,298

601,480

23,471,670

706,025

506,310

30,943,279

Disposals

-

(30,501)

(135,000)

-

(42,487)

-

(207,988)

Cost

(Write off)/write back

(372,327)

(222,145)

(378,498)

(5,969,911)

608,838

(581,198)

(6,915,241)

Balance as at 31 March 2015

5,776,345

10,701,471

10,121,592

36,922,099

4,578,146

1,888,093

69,987,746

Balance as at 1 April 2015

5,776,345

10,701,471

10,121,592

36,922,099

4,578,146

1,888,093

69,987,746

Additions

2,422,176

5,734,676

15,409,150

7,249,626

1,768,399

451,092

33,035,119

Disposals

-

(138,850)

(305,001)

-

-

-

(443,851)

Transfers

459,734

(16,566)

-

(303,505)

(87,645)

(52,018)

-

8,658,255

16,280,731

25,225,741

43,868,220

6,258,900

2,287,167

102,579,014

2,678,285

5,251,158

1,797,132

11,676,228

1,985,136

1,177,086

24,565,025

572,678

972,614

1,893,896

2,286,101

469,308

157,724

6,352,321

-

(30,501)

(135,000)

-

(41,308)

-

(206,809)

Balance as at 31 March 2016

VisionFund Lanka Limited

PROPERTY, PLANT AND EQUIPMENT

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

12.

Accumulated Depreciation Balance as at 1 April 2014 Charge for the year On disposals (Write off)/write back

(440,126)

(371,857)

(426,622)

(4,779,811)

335,623

(240,249)

(5,923,042)

Balance as at 31 March 2015

2,810,837

5,821,414

3,129,406

9,182,518

2,748,759

1,094,561

24,787,495

Balance as at 1 April 2015

2,810,837

5,821,414

3,129,406

9,182,518

2,748,759

1,094,561

24,787,495

950,699

1,934,263

3,239,660

7,371,466

693,947

268,974

14,459,009

(155,412)

Charge for the year On disposals Transfers Balance as at 31 March 2016

-

(101,097)

459,734

(16,566)

-

-

-

(256,509)

(303,505)

(87,645)

(52,018)

-

4,221,270

7,638,014

6,213,654

16,250,479

3,355,061

1,311,517

38,989,995

4,436,985

8,642,717

19,012,087

27,617,741

2,903,839

975,650

63,589,019

2,965,508

4,880,057

6,992,186

27,739,581

1,829,387

793,532

45,200,251

Carrying amounts Balance as at 31 March 2016 Balance as at 31 March 2015

71

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

2016 Rs. 13

AMOUNTS DUE FROM RELATED PARTIES Amounts due from related parties (Note 13.1)

13.1

14

4,717,515

10,559,070

4,717,515

10,559,070

AMOUNTS DUE FROM RELATED PARTIES

RELATIONSHIP

World Vision Lanka

Affiliates

1,421,495

8,448,839

VisionFund International

Ultimate Parent

3,296,020

2,110,231

4,717,515

10,559,070

Balance as at 1 April

2,240,538

4,125,497

Recognized in profit or loss (Note 14.2)

1,274,630

(2,119,036)

Recognized in other comprehensive income (Note 14.2)

(247,245)

234,077

3,267,923

2,240,538

4,915,853

2,831,735

247,245

-

5,163,098

2,831,735

DEFERRED TAX ASSET

Balance as at 31 March

14.1

2015 Rs.

THE DEFERRED TAX ASSET IS ATTRIBUTABLE TO THE FOLLOWING: Deferred Tax Liability Capital Allowances for tax purpose Actuarial Gain Deferred Tax Assets Actuarial loss Collective impairment on receivables Defined benefit plans Net Deferred Tax Asset

-

234,077

4,005,840

1,151,237

4,425,181

3,686,959

8,431,021

5,072,273

3,267,923

2,240,538

Other Comprehensive Income

Profit or Loss

14.2

2016 Rs.

2015 Rs.

2016 Rs.

2015 Rs.

2,084,118

2,035,178

-

-

-

(1,251,844)

247,245

(234,077)

(2,854,603)

1,075,501

-

-

DEFERRED TAX CHARGE/(REVERSAL) Deferred Tax Liability Capital allowances for tax purpose Actuarial gain Deferred Tax Assets Collective impairment on receivables Defined benefit plans

VisionFund Lanka | Annual Review 2015/16

72

(504,145)

260,201

-

-

(1,274,630)

2,119,036

247,245

(234,077)

Charge to OCI

Balance 31 March 2016

2,240,538

1,274,630

(247,245)

3,267,922

MOVEMENT IN DEFERRED TAX BALANCE DURING THE YEAR Balance 31 March 2016

A deferred tax asset has been recognised in respect of the unused tax losses to the extent that it is probable that future taxable profit will be available agaisnt which the unused tax losses can be used.

15

OTHER ASSETS Advances, deposits and prepayments

30,904,889

Other Receivables

16

17,564,592

4,263,006

8,536,170

35,167,895

26,100,762

2,127,704,782

927,507,960

LOANS AND BORROWINGS Interest bearing loans and borrowings Interest Payable

34,610,049

11,978,887

2,162,314,831

939,486,847

VisionFund Lanka Limited

Charge to profit or loss

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

14.3

Balance 31 March 2015

Change in Classification During the year, the Company has modified the classification of interest payable on loans and borrowings which was classified under "other liabilities" to "loans and borrowings" in order to reflect more appropriate presentation of loans and borrowings as at year end. Comparative amount in the statement of financial position was reclassified for consistency which resulted in Rs.11,978,887 being reclassified from "Other liability" to "loans and borrowings". This classification did not have any effect on the statement of profit or loss and other comprehensive income.

16.1 INTEREST BEARING BORROWINGS 2016 Amount Payable within 1 year

Amount Payable after 1 year

Total

2015 Amount Payable within 1 year

Amount Payable after 1 year

Total

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

-

871,157,960

871,157,960

96,763,000

255,394,960

352,157,960

Hatton National Bank PLC

350,000,000

-

350,000,000

241,250,000

-

241,250,000

Blue Orchard

136,023,874

213,037,500

349,061,374

65,050,000

65,050,000

130,100,000 104,000,000

Vision Fund International

Grameen Credit Agricole

60,047,620

90,071,428

150,119,048

29,714,286

74,285,714

OIKO Credit

50,000,000

150,000,000

200,000,000

-

-

-

-

140,700,000

140,700,000

-

-

-

33,333,200

33,333,200

66,666,400

33,333,332

66,666,668

100,000,000

629,404,694

1,498,300,088

2,127,704,782

466,110,618

461,397,342

927,507,960

Responsaibility National Development Bank

73

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

16.2 TERMS AND CONDITIONS Balance as at 2016

Balance as at 2015

Rs.

Rs.

VisionFund International

-

VisionFund International

-

Terms of Repayment

Interest rate

24,960,000

Payable before 30th Jun 2015

10.50%

65,800,000

Payable before 30th Jun 2015

13.50%

VisionFund International

96,763,000

96,763,000

Payable before 28th Feb 2017

14.00%

VisionFund International

65,500,000

65,500,000

Payable before 30th Nov 2015

17%

VisionFund International

34,500,000

34,500,000

Payable before 30th Dec 2017

16%

VisionFund International

-

64,634,960

Payable before 30th Nov 2015

16%

VisionFund International

128,000,000

-

Payable before 28th Apr 2017

14.50%

VisionFund International

155,394,960

-

Payable before 30th Jun 2017

15%

VisionFund International

129,000,000

-

Payable before 30th Jun 2017

15%

VisionFund International

129,000,000

-

Payable before 31st Jul 2017

15%

VisionFund International

133,000,000

-

Payable before 31st Aug 2017

15.50%

Hatton National Bank PLC

-

12,500,000

Within period of 12 months

11.91%

Hatton National Bank PLC

-

42,500,000

Within period of 12 months

11.91%

Hatton National Bank PLC

-

37,500,000

Within period of 12 months

10.53%

Hatton National Bank PLC

-

18,750,000

Within period of 12 months

10.48%

Hatton National Bank PLC

-

100,000,000

Within period of 12 months

10.48%

Hatton National Bank PLC

-

30,000,000

Within period of 12 months

11.10%

Hatton National Bank PLC

150,000,000

-

Within period of 12 months

12.37%

Hatton National Bank PLC

12.81%

200,000,000

-

Within period of 12 months

Blue Orchard

65,011,374

130,100,000

Payable before 29th Aug 2016

14%

Blue Orchard

140,700,000

-

Payable before 30th Mar 2018

15%

Blue Orchard

143,350,000

-

Payable before 14th Jun 2018

15%

OIKO Credit

200,000,000

-

Payable before 31st Dec 2018

15%

Responsibility

140,700,000

-

Payable before 25th Sept 2017

15.85%

Grameen Credit Agricole

74,285,714

104,000,000

Payable before 15th Jun 2018

14.2%

Grameen Credit Agricole

75,833,333

-

Payable before 15th Jun 2018

14.2%

66,666,401

100,000,000

Payable before 20th Feb 2018

13.5%

2,127,704,782

927,507,960

Repayments

Balance as at 31 March 2016

National Development Bank

There are no assets pledged as securities for liabilities.

17

NON INTEREST BEARING BORROWINGS

Balance as at 1 April 2015 World Vision Lanka

VisionFund Lanka | Annual Review 2015/16

74

Loans Obtained

7,499,862

4,930,000

-

12,429,862

7,499,862

4,930,000

-

12,429,862

36,029,058

14,352,563

36,029,058

14,352,563

OTHER LIABILITIES Accrued liabilities

19

2015 Rs.

EMPLOYEE BENEFITS Defined benefit obligation Movement in the present value of the employee benefits Employee benefits as at 1 April

13,648,628

9,626,127

Current service cost

2,635,905

962,613

Interest charge for the year

1,364,863

2,578,969

Actuarial (Gain) / Loss

(883,019)

835,989

Payments during the Year

(1,845,180)

(355,070)

Balance as at 31 March

14,921,197

13,648,628

VisionFund Lanka Limited

18

2016 Rs.

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

17.1 World Vision Lanka channels Area Development Programme and other support office raised funding to facilitate short term funding requirements of VisionFund Lanka Limited in the form of advances. Interest is not charged on theses advances and payments are made on demand.

Expense recognized in profit or loss Current service cost

2,635,905

962,613

Interest cost

1,364,863

2,578,969

4,000,768

3,541,582

(883,019)

835,989

(883,019)

835,989

Recognised in other comprehensive income Actuarial (gain) / loss

The provision for defined obligation of the Company was actuarially valued by Messrs Actuarial and Management Consultants (Private) Limited Assumptions Principal assumptions used were as follows at the reporting date: Future salary increases Discount rate The average life expectancy of an individual is considered as retiriment at age Total number of permenent employees of the company as at 31 March

5% and 10%

5% and 10%

11%

10%

60 Years

57 Years

185

150

19.1 The Company has deposited a sum of Rs. 12, 478,914/- ( 2015 - Rs.6,084,105/-) in a fixed deposit at Seylan Bank PLC as at 31st March 2016.The depsoit is available only to pay off gratuity obligation that may arise in the future.However, the externally funded amount does not meet the definition of a plan asset. This deposit has been classified under "Placements with banks".

75

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

19.2 Sensitivity Analysis

The Following demonstrates the sensitivity to a reasonable possible change in the key assumptions employed with all other variables held constant in the employee benefit liability measurement.

The sensitivity of the statement of profit or loss and other comprehensive income and the statement of financial position is the effect of the assumed changes in discount rate and salary increment rate as depicted below.

Effect on statement of profit or loss and other comprehensive income

2015

Increase

Increase

Decrease

Rs.

Rs.

Rs.

Rs.

Discount rate (Change by 1%)

12,830,822

(14,577,567)

(12,830,822)

14,577,567

Salary increment rate (Change by 1%)

14,633,536

(12,769,449)

14,633,536

(12,769,449)

Effect on statement of profit or loss and other comprehensive income

2016

20

Decrease

Effect on Net defined benefit liability

Effect on Net defined benefit liability

Increase

Decrease

Increase

Decrease

Rs.

Rs.

Rs.

Rs.

Discount rate (Change by 1%)

14,238,925

(15,672,252)

(14,238,925)

15,672,252

Salary increment rate (Change by 1%)

15,711,232

(14,194,465)

15,711,232

(14,194,465)

2016 Rs.

2015 Rs.

572,289,340

455,732,180

STATED CAPITAL Balance as at 1 April Shares issued during the year Balance as at 31 March Number of shares issued

-

116,557,160

572,289,340

572,289,340

57,228,934

57,228,734

share application money consists of the ordinary shares subscribed and paid for 791,746 ordinary shares amounting to Rs. 7,917,460 as at 31 March 2016.

21

OTHER COMPONENTS OF EQUITY Contribution received from World Vision Lanka

VisionFund Lanka | Annual Review 2015/16

76

29,479,014

29,479,014

29,479,014

29,479,014

VisionFund Lanka Limited

22

CONTINGENT LIABILITIES

There were no material contingent Liabilities as at the reporting date which require adjustments to or disclosure in the Financial Statements.

23

COMMITMENTS AND CONTINGENCIES

There were no capital commitments and/or contingencies as at the reporting date.

24

EVENTS AFTER THE REPORTING DATE

No circumstances have arisen since the reporting date which would require adjustments to or disclosure in the financial statements.

25

COMPARATIVE INFORMATION

Comparative information has not been restated.

26

RELATED PARTY DISCLOSURE

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

21.1 Contribution received from World Vision Lanka was allocated to Area Development projects in 2012/13 to assist the communities.

26.1 Transactions with Related Parties

Name of the Company

Nature of Interest

Nature of Transaction

Affiliate

2015

2016

2015

Rs.

Rs.

Rs.

Rs.

5,874,840

13,347,524

1,421,495

8,448,839

Settlement of amount receivable from related parties

(12,902,184)

(6,942,037)

Non interest bearing borrowings

4,930,000

7,499,862

12,429,862

7,499,862

-

(41,756,599)

9,630,005

7,724,887

3,296,020

2,098,861

Settlements of amount receivables during the year

(8,432,846)

(9,346,917)

Interest Bearing borrowings

674,394,960

-

871,157,960

352,157,960

(155,394,960)

-

-

(179,516)

-

-

Repayments of non interest bearing borrowings Expense incurred on behalf of the Company Vision Fund International

Ultimate Parent

Repayments of interest bearing borrowings VisionFund Lanka (Guarantee) Limited

Affiliate

Balance outstanding as at 31st March

2016

Expense incurred on behalf of the Company World Vision Lanka

Transaction Value for the year ended 31st March

Written off receivable from related parties

77

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

26.2 Transactions with Key Management Personnel

According to LKAS 24 'Related Party Disclosure', Key Management Personnel, are those having authority and responsibility and responsibility for planning, derecting and controlling the activities of the entity. Accordingly, the board of Directors (including Executive and Non-executive Directors) have been classified as Key Managment Personnel of the Company. Following transactions have with the Key Management Personnel during the year.

Compensation of key management personnel during the year is as follows.

Short term employment benefit

27

2016

2015

Rs.

Rs.

3,994,676

4,201,250

3,994,676

4,201,250

FINANCIAL RISK MANAGEMENT

27.1 Overview

The Company has exposure to the following risks from its use of financial instruments: ² Credit Risk ² Liquidity Risk ² Operational Risk ² Market Risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risks, and the Company’s management of capital.

27.2 Risk Management Framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board discharges its governance responsibility through the Audit Committee.

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

The Company has Asset and Liability Committee (ALCO) which focus on specialized risk areas that support the Senior Management in its monthly meetings.

Risk Management policies and systems are reviewed to reflect the changes in market conditions, products and services offered. The Company through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Company's Audit Committee is responsible for monitoring compliance with the Company's risk management policies and procedures, and for reviewing the risk management framework in relation to the risks faced by the Company. The Company's Audit Committee is assisted in theses functions by the internal audit. Internal audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are are reported to the Audit Committee.

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78

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

27.3 Credit Risk Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligations, and this principally arises from the Company’s loans and receivables from customers.

Management of the credit risk includes the following elements: ² Formulating credit policies in consultation with business units covering credit assessments, risk grading and reporting, documentary and legal proceeding and compliance with regulatory and statutory requirements. ² Establishing the authorization structure for the approval and renewal of credit facilities ² Limiting concentration of exposures to the counterparties ² Reviewing compliance through regular audits by internal audit.

Exposure to Credit Risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows; 2016 Cash and cash equivalents Placements with banks Loans and receivables

Rs. 55,460,434

12,478,914

6,084,105 1,477,572,255

4,717,515

10,559,070

35,167,895

26,100,762

2,918,734,768

1,575,776,626

Other assets

Rs. 53,104,985 2,813,265,459

Amounts due from related parties

2015

Credit Quality by Class of Financial Assets The Company maintains the credit quality of financial assets using number of rental/installment arrears. The table below shows the credit quality by number of rentals/installments arrears for all financial assets exposed to credit risk. The amounts presented are gross receivable amounts.

Carrying Value

0-3 Months

4-6 Months

More than 6 Months

Rs.

Rs.

Rs.

Rs.

2,813,265,459

2,806,896,873

6,368,586

-

4,717,515

3,296,020

1,421,495

2,817,982,974

2,810,192,893

7,790,081

1,477,572,255

1,474,684,856

2,852,402

34,997

10,559,070

2,110,231

-

8,448,839

1,488,131,325

1,476,795,087

2,852,402

8,483,836

31 March 2016 Loans and Advances Amounts Due from Related Parties

-

31 March 2015 Loans and Advances Amounts Due from Related Parties

The movement in the allowance for impairment in respect of loans and receivables during the year has been given in the note 11.1.

79

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

Analysis of Impairment on Loans and Receivables based on the Aging Categories Collective Impairment

0-3 Months

4-6 Months

More than 6 Months

Rs.

Rs.

Rs.

Rs.

14,306,571

9,022,179

5,284,391

-

14,306,571

9,022,179

5,284,391

-

4,111,561

2,359,360

1,418,493

333,708

4,111,561

2,359,360

1,418,493

333,708

31 March 2016 Impairment on loans and receivables

31 March 2015 Impairment on loans and receivables

Analysis of Fair Value of Collateral held against Loans & Receivables

The Company does not obtains any movable and immovable property as collateral against lending.

The following table shows the maximum exposure to credit risk by class of financial asset and the value of financial assets which are not covered by the collateral.

Maximum Exposure to Credit Risk

Total Collateral

Net Exposure

Rs.

Rs.

Rs.

2,813,265,459

-

2,813,265,459

4,717,515

-

4,717,515

2,817,982,974

-

2,817,982,974

1,477,572,255

-

1,477,572,255

31 March 2016 Loans and Advances Amounts Due from Related Parties

31 March 2016 Loans and Advances Amounts Due from Related Parties

10,559,070

-

10,559,070

1,488,131,325

-

1,488,131,325

27.4 Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due under any circumstances. To limit this risk, management has adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis The Company has committed lines of credit that it can access to meet liquidity needs.

The Company defines liquid assets for the purposes of the liquidity ratio as cash balances and short-term deposits.

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80

The table below summaries the maturity profile of the undiscounted cash flows of the Company’s financial assets and liabilities as at 31 March 2016.

Description

Carrying Amount

Less than 3 Months

3-12 Months

1 to 5 Years

Over 5 Years

Rs.

Rs.

Rs.

Rs.

Rs.

53,104,985

53,104,985

-

-

-

31 March 2016 Financial Assets Cash and Cash Equivalent Placements with banks Loans and Advances Amounts Due from Related Parties Other Assets

12,478,914

12,478,914

-

-

2,813,265,459

2,806,896,873

6,368,586

-

-

4,717,515

3,296,020

1,421,495

-

-

35,167,895

35,167,895

-

-

-

2,918,734,768

2,910,944,687

7,790,081

-

-

2,162,314,831

447,967,158

312,810,583

1 ,401,537,090

-

VisionFund Lanka Limited

Maturity Analysis for Financial Assets and Liabilities

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

Financial Liabilities Loans and Borrowings Other Liabilities

36,029,058

36,029,058

-

-

-

2,198,343,889

483,996,216

312,810,583

1,401,537,090

-

Maturity Analysis for Financial Assets and Liabilities

The table below summaries the maturity profile of the undiscounted cash flows of the Company’s financial assets and liabilities as at 31 March 2015.

Description

Carrying Amount

Less than 3 Months

3-12 Months

1 to 5 Years

Over 5 Years

Rs.

Rs.

Rs.

Rs.

Rs.

55,460,434

55,460,434

-

-

-

6,084,105

-

6,084,105

-

-

1,477,572,255

59,861,427

452,191,874

965,518,954

-

31 March 2015 Financial Assets Cash and Cash Equivalent Placements with banks Loans and Advances Amounts Due from Related Parties

10,559,070

2,110,231

8,448,839

-

-

Other Assets

26,100,762

26,100,762

-

-

-

1,575,776,626

143,532,854

466,724,818

965,518,954

-

Financial Liabilities Amounts Due to Related Parties Loans and Borrowings Other Liabilities

-

-

-

-

-

939,486,847

271,373,847

341,250,000

326,863,000

-

14,352,563

3,463,507

10,889,056

-

-

953,839,410

274,837,354

352,139,056

326,863,000

-

81

VisionFund Lanka | Annual Review 2015/16

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

27.5 Operational Risk

Operational risk is the risk of loss arising from fraud, systems failure, human error or external events. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Company cannot expect to eliminate all operational risks, but it should manage these risks through a control framework and by monitoring and responding to potential risks and management of operational risk in the following areas. ² Requirements for appropriate segregation of duties, including the independent authorization of transactions ² Requirements for the periodic assessment of operational risk faced, and the adequacy of controls and procedures to address the risks identified ² Requirements for the reconciliation and monitoring of the transactions ² Compliance with regulatory and other legal requirements ² Documentation of controls and procedures ² Requirements for the reporting of operational losses and proposed remedial actions. ² Development of contingency plans ² Training and professional development ² Ethical and business standard, and ² Risk mitigation, including insurance where this is effective

Compliance with Company’s standards is supported by a programme of periodic reviews undertaken by Internal Audit.

The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the senior management of the Company and Audit Committee. Audit Committee takes corrective actions to overcome any deficiencies identified.

27.6 Market Risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices.

Interest Rate Risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of the financial instruments.

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82

3-12 Months

1-5 Years

More than 5 Years

Non Rate Sensitive

Total

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

50,439,607

-

-

-

2,665,378

53,104,985

Financial Assets Cash and Cash Equivalent Placements with banks Loans and Advances Amounts Due from Related Parties Other Assets

12,478,914

-

-

-

-

12,478,914

2,806,896,873

6,368,586

-

-

-

2,813,265,459

3,296,020

1,421,495

-

-

-

4,717,515

-

-

-

-

35,167,895

35,167,895

2,873,111,414

7,790,081

-

-

37,833,273

2,918,734,768

Loans and Borrowings

447,967,158

312,810,583

1,401,537,090

-

-

2,162,314,831

Total undiscounted Liabilities

447,967,158

312,810,583

1,401,537,090

-

-

2,162,314,831

2,425,144,256

(305,020,502)

(1,401,537,090)

-

37,833,273

756,419,937

Total undiscounted Assets

VisionFund Lanka Limited

Less than 3 Months

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

The following table exhibits the gap between the interest-earning financial assets and financial liabilities of the Company as at 31 March 2016:

Financial Liabilities

Interest Rate Sensitivity

83

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VisionFund Lanka | Annual Review 2015/16

84

FAIR VALUES OF FINANCIAL INSTRUMENTS

-

2,210,773,751

-

12,429,862 36,029,058

-

Other Liabilities

2,162,314,831

Non Interest Bearing Advance

Loans and Borrowings

Financial Liabilities

2,891,949,283

2,904,428,197

4,717,515 35,167,895

4,717,515 35,167,895

2,798,958,888

Other Assets

2,798,958,888

-

53,104,985

Amounts Due from Related Parties

Loans and Advances

53,104,985 12,478,914

Cash and Cash Equivalent

Rs.

Rs.

Placements with banks

Financial Assets

Loans and Receivables

Carrying Amount

2016

-

-

-

-

12,478,914

-

-

-

12,478,914

-

Rs.

Held to Maturity

2,210,773,751

36,029,058

12,429,862

2,162,314,831

-

-

-

-

-

-

Rs.

Other Financial Liabilities

961,339,272

14,352,563

7,499,862

939,486,847

1,571,665,065

26,100,762

10,559,070

1,473,460,694

6,084,105

55,460,434

Rs.

Carrying Amount

-

-

-

-

1,565,580,960

26,100,762

10,559,070

1,473,460,694

-

55,460,434

Rs.

Loans and Receivables

2015

-

-

-

-

6,084,105

6,084,105

-

Rs.

Held to Maturity

961,339,272

14,352,563

7,499,862

939,486,847

-

-

-

-

-

-

Rs.

Other Financial Liabilities

The company does not anticipate the fair value to be significantly different to their carrying values and considers the impact as not material for the disclosure.

28.1 Accounting Classifications and Measurement of Fair Values

28

VisionFund Lanka Limited

NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

85

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VisionFund Lanka | Annual Review 2015/16

86

GLOSSARY OF TERMS Return on Assets :

Net Income after Taxes and Before Donations divided by Average Total Assets

Return on Equity:

Net Income after Taxes and Before Donations divided by Average Total Equity

Operational Sustainability:

Total Operating and Non-operating Revenue divided by Total Operating and Nonoperating Expenses plus Provision for Loan Impairment

Financial Sustainability:

Total Operating and Non-operating Revenue divided by Total Expenses (including Loan Impairment) adjusted for inflation, subsidized cost of funds and in-kind subsidy

Cost per Unit of Money Lent:

Total Operating Expenses divided by Total Value of Loans disbursed during the period

Client Turnover:

Number of Active clients at the beginning of the period plus number of New clients during the period less number of Active clients at the end of the period divided by Average number of Active clients

PAR> 30 day:

Value of outstanding balance of loans that have payments in arrears > 30 days Loan loss rate: The percentage of the Average Gross Portfolio that has been removed from the portfolio balance

Average Gross Loan Portfolio:

Average of Loans at the beginning of the period and Loans at the end of the period

Operating Expense Ratio:

Annualized Operating Expenses divided by Average Gross Loan Portfolio

Caseload:

Active Borrowers per Loan Officer

Credit Risk Coverage:

Impairment Loss Allowance divided by Portfolio at Risk > 90 days

Average Loan Size Disbursed:

Value of loans disbursed divided by the number of separate borrowers receiving loans

Return on Capital Employed:

Post-tax Profit divided by Average Capital Employed

PAR> 1 day:

Value of outstanding balance of loans that have payment in arrears > 1 day

87

VisionFund Lanka | Annual Review 2015/16

CORPORATE INFORMATION Registered Company Name: VisionFund Lanka Limited Legal Form: Limited Liability Company incorporated on 23.08.2012 Company Registration No: PB 5059 Company Secretary: Corporate Management (Private) Ltd Board of Directors: Chandula Abeywickrema (Chairman) Samuel Jebaratnam (Executive Director) Dhanan Senathirajah Michael Spingler Shanti Gnanapragasam Felicia Adhihetty Sulochana Ganeshwaran Savithri Thevanesam Board Governance, Leadership and Nominating Committee: Chandula Abeywickrema Michael Spingler Samuel Jebaratnam

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88

Audit and Risk Committee: Dhanan Senathirajah Shanti Gnanapragasam Sulochana Ganeshwaran Savithri Thevanesam Auditors: KPMG Chartered Accountants 32 A, Sir Mohammed Macan Markar Mawatha, Colombo 03, Sri Lanka.

Bankers: Bank of Ceylon Hatton National Bank People’s Bank Seylan Bank NDB Bank Registered office of the company: 619/8, Dr. Danister De Silva Mawatha, Colombo 09, Sri Lanka.

Head Office: 2nd Floor, 120 A, Dharmapala Mawatha, Colombo 07, Sri Lanka P: +94 (11) 2671790 F: +94 (11) 2671773

LANKA VISIONFUND LANKA LIMITED 2ND FLOOR, 120A, DHARMAPALA MAWATHA, COLOMBO 07, SRI LANKA. P + 94 11 2671790 F + 94 11 2671773 www.visionfundsrilanka.org

COVER Jesmita holds up the cattle feed her father Bernard has laboured to grow to feed the cows he bought through VFL loans.

Jemita now gets a glass of fresh milk every day.