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ANNUALREPORT2 0 1 6

ANNUAL REPORT2 0 1 6

OUTREACH | SUSTAINABIL ITY | IMPACT | TRANSPARENCY

FMFB focuses on increasing outreach in the pro-poor geographical and market segments.

ContentsTable of

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Annual Report 2016

01

CorporateInformation

Page 06

03

OurManagement

Page 14

05

Chairman’sMessage

Page 18

07

Mission,Core Values

Page 22

09

2016The Year in Focus

Page 26

11

FinancialReport

Page 48

02

Board ofDirectors

Page 08

04

Quote of His Highness,Prince Karim Aga Khan

Page 17

06

President’sMessage

Page 20

08

Highlights

Page 24

10

SuccessStories

Page 40

12

FMFBFootprint

Page 90

The First MicroFinanceBank LimitedEnabling Individulas

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Annual Report 2016

InformationCorporate


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Annual Report 2016

Board of Directors

Board Committees

Rayomond KotwalSobia ChughtaiJesse Culain FrippMaya Inayat IsmailMaria Christine LargeyAbrar Ahmed MirHironobu TakahashiAliya YusufAmir Masood Khan

Audit CommitteeMaria Christine LargeySobia ChughtaiMaya Inayat Ismail

Human Resource CommitteeRayomond KotwalMaya Inayat IsmailAliya Yusuf

Jesse Culain FrippSobia ChughtaiAbrar Ahmed Mir

Abrar Ahmed MirJesse Culain FrippMaria Christine Largey

Khawaja & KamalAttorneys At Law

Ernst & Young Ford Rhodes Sidat HyderChartered Accountants

www.fmfb.com.pk

Adnan Zafar

Risk Committee

Financial Inclusion and Innovation Committee

Legal Advisor

Auditor

Chief Financial Officer & Company Secretary

ChairmanDirectorDirectorDirectorDirectorDirectorDirectorDirectorPresident & CEO

ChairpersonMemberMember

ChairmanMemberMember




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Annual Report 2016

Standing (Left to Right): Mr. Hironobu Takahashi, Ms. Sobia Chughtai, Ms. Maya Inayat Ismail, Mr. Abrar A. Mir.Sitting (Left to Right): Mr. Amir Masood Khan, Ms. Aliya Yusuf, Mr. Rayomond Kotwal, Ms. Maria C. Largey, Mr. Jesse C. Fripp.


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Annual Report 2016

DirectorsBoard of


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Annual Report 2016

DirectorsBoard of


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Annual Report 2016

Rayomond Kotwal has over 30 years of experience. He has worked in senior Finance roles with United Bank Limited, NIB Bank Limited, Citibank NA, Citi Cards Canada Inc. and ICI Pakistan Limited. Mr. Kotwal is currently the Chief Financial Officer of Habib Bank Limited. Mr. Kotwal holds a Masters in Business Administration (Finance) from the Institute of Business Administration, Karachi and a BS and MS in Electrical Engineering from the Massachusetts Institute of Technology, Cambridge Massachusetts.

In addition to FMFB, Mr. Kotwal is a Director of Habib Allied Holdings Limited, UK, Sindh Engro Coal Mining Company and Engro Powergen Thar (Pvt) Limited. He also serves as a Director and Honorary Treasurer of the Pakistan Parkinsons Society, a non-profit organization.

RAYOMOND KOTWAL Chairman

Sobia Chughtai is an experienced professional with more than 22 years of experience in the financial sector. She has worked with Habib Bank Limited, Al Faysal Investment Bank Limited and Fauji Fertilizer Company. She has served as the Regional Corporate Banking Head-HBL for 10 years. Currently, Ms. Chughtai is the Senior Credit Officer- Corporate Risk with Habib Bank Limited. Ms. Chughtai holds a Masters in Business Administration from the Lahore University of Management Sciences (Pakistan), and a B.Sc Electrical Engineering from the University of Engineering and Technology, Lahore (Pakistan). She has attended several local and international courses and seminars.

SOBIA CHUGHTAI Director

Jesse C. Fripp has over 20 years of experience in strategic leadership and governance, financial services delivery, capital strategy and fundraising, and human and organizational development. Currently, Mr. Fripp is the General Manager of the Aga Khan Agency for Microfinance. Past experience includes Enclude Ltd, ShoreBank International, Bearing Point Emerging Markets, and Global Communities/Vitas Finance. Mr. Fripp has built and led inclusive finance institutions, corporate consulting business lines, commercial microfinance and digital financial services business lines, and multiple merger, acquisition, and business transformation initiatives in more than two dozen emerging markets around the world. Mr. Fripp holds a Masters in Public Management with concentration in International Economic Development from University of Maryland (USA).

JESSE C. FRIPP Director

Maya I. Ismail has over 16 years of experience in the financial services sector, with Habib Bank Limited, The First MicroFinanceBank Ltd., and Global Securities Pakistan Ltd. Currently Ms. Ismail is the Head of Strategic Investments at Habib Bank Limited (HBL). She has extensive experience in the monitoring of Financial Services institutions, managing strategic partnerships and strategy formulation. Ms. Ismail holds a Bachelor of Arts (Economics and International Relations) from Smith College, Northampton (USA) and is an Accredited Mediator from the Center for Effective Dispute Resolution, UK.

Ms. Ismail is Trustee of the Aga Khan Ismailia Charitable Trust and the AAS Trust.

MAYA INAYAT ISMAIL Director


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Annual Report 2016

DirectorsBoard of


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Annual Report 2016

Maria C. Largey has over 15 years of varied experience in the financial sector, with CDC Group Plc, Agora Microfinance Partners LLP, Opportunity International, and J.P Morgan Asset Management. She is currently the Investment Director with the CDC Group Plc, where she is leading CDC’s direct equity investments in financial institutions in Africa and Asia. Ms. Largey’s core competencies include structuring investments and designing and implementing fund raising strategies. Ms. Largey holds a Bachelor of Science (Biological Sciences) from the University of California, Santa Barbara (USA).

In addition to FMFB, Ms. Largey is also a Chairperson of Green Shoots Foundation, Chair of Governance Committee of the Advans Group, and a Director in Catalyst Microfinance Investors.

MARIA C. LARGEY Director

Abrar A. Mir has diversified professional experience of over 23 years with United Bank Limited, National Commercial Bank (Jeddah), Citibank N.A, Cupola Investment Ltd (Dubai), and ICI Pakistan Limited. At United Bank Limited, he was instrumental in conceiving and developing UBL Omni – mobile and branchless banking business, convincing the Government of Pakistan and multiple donor agencies to digitize payments i.e. Flood Relief Program (Watan cards), World Food Program, and Benazir Income Support Program (BISP). Mr. Mir led the Bank to win GSMA Global Mobile Award 2012 for “Best Use of Mobile in Emergency or Humanitarian Situations”, as well as “Best Internet Banking for Consumers – 2014” award by Global Finance. Currently, Mr. Mir is the Chief Innovation & Financial Inclusion Officer at the Habib Bank Limited. He has been a speaker at various international and local forums organized by Bill & Melinda Gates Foundation, GSMA, EBRD, UNDP, FI 2020 by Accion, CGAP, Asobancaria Colombia, DFID, SEEP and State Bank of Pakistan. Mr. Mir holds a Masters in Business Administration from Illinois Institute of Technology, Chicago (USA) and a B.E Electronics Engineering from the College of Electrical and Mechanical Engineering, Pakistan. He has also completed a course in “Strategic Leadership in Inclusive Finance” from the Harvard Business School (USA).

ABRAR A. MIR Director

Hironobu Takahashi is an experienced professional with over 33 years of experience; with 28 years in financial sector. He has worked with RBS Securities Japan Limited, BNP Paribas Securities Japan Limited, Shinsei Bank Ltd., SMBC Nikko Securities Inc., and The Nippon Credit Bank Ltd. Currently, Mr. Takahashi is the Senior Assistant Director in Private Sector Partnership and Finance Department at the Japan International Cooperation Agency (JICA). Mr. Takahashi holds a Bachelor of Economics from the Keio University, Tokyo (Japan).

HIRONOBU TAKAHASHI Director

Aliya Yusuf is a Partner of the law firm, Orr, Dignam& Co. She has extensive experience in a wide range of corporate, financial and commercial matters and focuses on mergers and acquisitions and project work particularly in the energy and natural resources sector. Ms. Yusuf is ranked as a leading lawyer in Chambers Asia Pacific Guide and in the Legal 500 Asia Pacific and in Asia law Profiles 2016. She holds a B.A (Hons) from Cambridge University (UK), and is a Barrister-at-Law from Gray’s Inn.

Ms. Yusuf’s current Directorships include Engro Powergen Qadirpur Limited (listed) and Colgate Palmolive (Pakistan) Limited (listed).

ALIYA YUSUF Director


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Annual Report 2016

AMIR MASOOD KHANPresident & CEO

ADNAN ZAFARChief Financial Officer & Company Secretary

ALI RAZA ANJUMChief Operating Officer

MUHAMMAD IMRAN RAOHead, Banking Operations

AYESHA BAIGHead, Product, Communications & Research

ZEHRA KHALIKDINAHead, Risk Management

SADIQ SHAHBAZ ALIHead, Information Technology

CHAUDHARY IHSAN MEHMOODHead, Compliance

WAJID ALIHead, Human Resources

NAWROZ MOHAMMAD ALIHead, Internal Audit

SOHAIL MALIKHead, Digital Financial Services & Financial Inclusion

ManagementOur


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Annual Report 2016

“If our animosities are born out of fear, then confident generosity is born out of hope. One of the central lessons I have learned after a half century of working in the developing world is that the replacement of fear by hope is probably the single most powerful trampoline of progress.”

His Highness, Prince Karim Aga KhanSpeech at Tutzing Evangelical Academy upon Receiving the “Tolerance” Award, Germany

May 20, 2006


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Annual Report 2016

MessageChairman’s


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Annual Report 2016

This year, The First MicroFinanceBank Ltd. (FMFB) increased its focus on customers, talent acquisition and technology deployment in order to better serve its customers. These are areas that will drive stronger growth and will enable the Bank to play a pivotal role in supporting financial inclusion in Pakistan.

FMFB’s strategy – well executed by a strong management team and more than 1,500 employees, contributed to consistent growth in client outreach and earnings – reaching a loan portfolio of PKR 8.2 billion and a Balance Sheet footing of PKR 16.9 billion. The Bank has been able to expand its outreach to a diverse set of clients – including agri and livestock farmers, micro enterprises, pensioners and women.

In 2016, Habib Bank Ltd (HBL), the leading commercial bank in Pakistan, acquired a majority shareholding in FMFB; this will enable HBL to more directly contribute to increasing financial inclusion in the country. The Board’s ambition for FMFB is to become the leading microfinance bank in Pakistan, reaching out to all segments of society in all corners of Pakistan, with a suite of affordable and convenient financial solutions.

A global revolution is happening in the banking sector with innovation in branchless banking and digital financial services. Pakistan is ranked third in the world in terms of branchless banking penetration and transactions and this presents us with an excellent opportunity.With FMFB’s sound strategy and strong leadership, I have every confidence that FMFB will continue to build on its successes and transform to become the leading digital Microfinance Bank in the country, while remaining respectful to the needs of the vulnerable segments in Pakistan and improving their quality of life by its offering.

I would like to place on record, the Board’s appreciation to the past Chairman, Mr. Akbarali Pesnani, who retired this year after a 7-year term, for his leadership. I would like to convey our appreciation to the management team and all the staff of FMFB who bring commitment and enthusiasm to work each day – enriching their communities and helping our more than 500,000 customers. I would also like to convey our gratitude to the State Bank of Pakistan for its continued support. We thank our shareholders for their confidence in us, which helps fuel the momentum towards an ever brighter future.

Rayomond KotwalChairman


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Annual Report 2016

MessageCEO’s


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Annual Report 2016

Message

It is an honor to present the 15th Annual Report of The First MicroFinanceBank Ltd (FMFB).

Our journey, which started in 2002, from the transformation of the Credit and Saving program of the Aga Khan Rural Support Programme and a mere branch network at 19 locations, has expanded to 159 locations by the end of 2016. Over these 14 years, FMFB has expanded with a wide range of products and services, focusing on diverse market segments in rural and urban areas of the country. We entered into unchartered territories to reach poor-concentrated geographical segments, introduced flexible and client centric financial solutions, and pioneered the first-ever alternate delivery channel in Pakistan. Our clients have won accolades at Citi-PPAF Micro Entrepreneurship Awards successively since the award was launched in 2006.

2016 was a positive year at FMFB- we surpassed our own benchmarks of operational and financial performance of past years, and effectively managed a significant transition of the core banking system to Oracle Flexcube. We remained active in reaching out to new locations and designing specialized products, with the ultimate aim to play our part in increasing financial inclusion in Pakistan and enhancing the access of FMFB’s financial services to the marginalized segments all over Pakistan. Equal focus was maintained on strengthening the bank’s organizational core and its human capital through talent acquisition and capacity building.

During the year 2016, FMFB was able to increase its microfinance loans by nearly 48% to PKR 8.2 billion and serve more than 220,000 active microfinance borrowers. The deposit book increased by 27% to PKR 12.2 billion, and we have more than 458,000 depositors. We have achieved profit after tax of PKR 316 million, Return on Equity (ROE) of 11% and Return on Assets (ROA) of 2.3%. In 2016, a major milestone was the equity investment of PKR 2 billion by Habib Bank Limited (HBL), the largest commercial bank in Pakistan. With this investment, HBL has acquired 50.5% shareholding of the FMFB.

We have ventured into new segments with the intent to take forward our agenda of offering complete life cycle needs of our clients. In 2016, FMFB launched its “Banking on Education” vision which seeks to support the supply and demand side of the education sector. We were successful in getting the approval from the State Bank of Pakistan to support small private schools up to PKR 1 million. These have been remarkable

achievements, and I would like to congratulate the FMFB Bankers on this success.

Moving ahead in 2017, we expect to benefit from our growth focused operating model and HBL’s strategic steer, and take FMFB into the world of digital financial solutions to support financial inclusion in Pakistan. The new core banking system has set the base to take FMFB to the next generation. We intend to launch financial solutions such as debit cards, ATMs, Mobile Apps, e-wallets and digital credit – keeping in view the affordability and convenience of our clients. Along with this innovation, we intend to build our portfolio in the Very Small Enterprises (VSEs), to carve our future to become the leading Digital MFB in Pakistan.

We are also expecting increased competition in certain geographies and business segments. Notwithstanding increased competition, we remain well positioned and are making the necessary investments in people, processes and technology to deliver on the needs of new and existing customers throughout our continually expanding footprint. We have also been responsive to the changes in regulations and will continuously adapt to new standards, as and when required. We are confident that regulations have made us a stronger bank.

FMFB has a great foundation to continue to build from - we have a strong culture; we have a shared pride in our performance; we have a successful history; and our footprint is unique. Throughout FMFB, employees place great value on working together and they share a genuine desire to serve our customers. We are confident that our strategy is sound. By executing our strategy well, and making meaningful progress against our focus priorities, FMFB is in a good position to perform within the ranges of our medium-term performance objectives and create longer-term shareholder value.

In closing, I would like to thank our 500,000+ customers across the country for choosing FMFB as their financial solution provider. It is a privilege for us to serve our customers well. I also want to thank our shareholders and the Board of Directors for your confidence and continued support. I would like to recognize the efforts and direction of the State Bank of Pakistan in strengthening FMFB as an institution. And finally, I want to recognize all employees of the FMFB, who assist our customers to be financially better off. Together, our future is exceedingly bright.

Amir Masood KhanPresident & CEO


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Annual Report 2016

Mission

Core Values

To achieve this, FMFB delivers appropriate financial services as a tool to reduce poverty, diminish the vulnerability of poor populations and alleviate economic and social exclusion. Secondary objectives are sustainability for the institution and financial inclusion for the poor. FMFB will strive

to breakeven as quickly as possible and any surpluses, beyond a reasonable cushion against future shocks, will be reinvested into the business to provide better products and services, improve access, and ultimately lower interest rates.

To effect demonstrable, measurable and lasting improvement in

the quality of life of target populations in Pakistan.

Trust

Integrity

Respect

Professionalism


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Annual Report 2016

StrategicObjectives

Increase access to financial services for the poor population in urban and rural areas, especially women;

Safeguard permanence of services for the poor;

Monitor social indicators to maximize the positive impact on the quality of life for the poor;

Ensure good practices, integrity, ethical principles and highest standards of integrity in business conduct.

Outreach

Sustainability

Impact

Transparency


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Annual Report 2016

Highlights

NETWORK

CUMULATIVE LOAN DISBURSEMENT

CUMULATIVE BORROWERS

159

51.1

1.94

Locations (100 branches, 20 Permanent Booths and 39 Pakistan Post outlets)

Billion in PKR

Million

ACTIVE BORROWERS 220,627

OUTSTANDING LOAN PORTFOLIO 8.203

Billion in PKR

DEPOSIT BASE 12.2 Billion in PKR


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Annual Report 2016

RATIO OF FEMALE BORROWERS 35%

RATIO OF RURAL BORROWERS 65%

NUMBER OF DEPOSITORS 458,159

CREDIT RATING JCR-VIS A+/A-1

PROFIT AFTER TAX

TOTAL ASSETS

EQUITY

EARNING PER SHARE

316

16.8

3.8

1.44

Million in PKR

Billion in PKR

Billion in PKR

PKR


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Annual Report 2016


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Annual Report 2016

2016THE YEAR IN FOCUS

2016The Year in FocusBusiness Developments FMFB focuses on increasing outreach in the pro-poor geographical and market segments. The FMFB is amongst the very few microfinance banks (MFBs) in the country, having a unique operating environment - its operations spread over a diverse geographical area, ranging from the remote valleys in the most difficult mountainous terrain in the north, widely spread plain rural areas and densely populated slums in the urban centers in all the provinces of the country, including Gilgit-Baltistan-Chitral and Azad Kashmir. This geographical network spread highlights FMFB’s endeavor to reach to the unbanked population in Pakistan, regardless of ethnicity, gender and religious beliefs.

In 2016, FMFB’s network expanded to 159 locations with 100 full-service branches and 20 Permanent Booths. It also operates out of 39 Pakistan Post Sub Offices in 27 districts of Sindh and Punjab, under its first-ever unique branchless banking model in Pakistan. During the year, 8 Pakistan Post Sub-Offices were upgraded to status of Permanent Booth, while 5 new Pakistan Post Sub-Offices were established.

ASSET PORTFOLIO

Client centricity has been the prime focus while offering products and services at the FMFB. Financial solutions are designed around market segmentation, serving both economic and social needs of the particular segments. The current market segments are agriculture and livestock farmers, enterprises and fixed income clients.

FMFB offers a range of financial services i.e. short to medium term credit facilities, saving and deposit schemes, micro insurance, and fund transfer facilities. Loan facilities are available under solidarity group approach as well as on individual basis against a range of tangible and intangible

collaterals. In line with the regulations, FMFB offers a maximum loan size of PKR 150,000; it also offers loans up to PKR 500,000 for micro enterprises/very small enterprises (VSEs). During 2016, microfinance loan portfolio increased by nearly 48% to PKR 8.2 billion, and 25% to 220,627 active borrowers.

Working capital and medium-term fixed asset loan facilities are available for farming and agriculture activities, rearing and fattening of small livestock animals, purchase of dairy animals, commercial and home-based micro and small enterprises, and general purpose loans for housing improvement, health, education and other social dispensations. In 2016, almost 48% of the total outstanding portfolio is within the agriculture and livestock segments, which is also major economic mainstay of Pakistan’s economy. Loans to Fixed Income segment comprised 27% of the total asset portfolio.

In 2016, FMFB introduced modifications to its Agriculture Finance product to support farming clients under the State Bank of Pakistan’s (SBP) Small Farmers Credit Guarantee Scheme (CGSMF). This enabled FMFB to target unbanked marginalized farmers owning up to 10 acres to access working capital loans up to PKR 100,000. Total number of farmers financed under this scheme was 1,649 with loans amounting to PKR 116 million.

FMFB has been focusing on moving towards individual and higher ticket-size loans, especially within the enterprise segment. In 2016, 44% of its loan portfolio had an average ticket size of PKR 50,000 and above; while the loan size of 21% of the portfolio was above PKR 100,000. The average disbursement loan size was PKR 43,000. The ratio of installment loans was 48%. In terms of active borrowers, the ratio of male-female was 65:35, while in terms of portfolio amount, it was 74:26. FMFB has a strategic focus to target women clients; with at least 35% of its active clients being women.


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Annual Report 2016

Gilgit BaltistanBRANCHES 16 | PB 01

17

Khyber PakhtunkhwaBRANCHES 7 | PB 01

08

PunjabBRANCHES 44 | PB 17 | SO 25

86

SindhBRANCHES 32 | PB 01 | SO 14

47

BalochistanBRANCHES 01

01

Sindh

Balochistan

Punjab

KhyberPakhtunkhwa

Gilgit Baltistan

FMFB Province wiseLocations Coverage


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Annual Report 2016

170

2012 2013 2014

Active Borrowers (Excluding w/off)

2015 2016

220

270

THO

USA

ND

S

2012 2013 2014

Gross Loan Portfolio (Excluding w/off)

2015 2016

PKR.

MIL

LIO

N

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2012 2013 2014

Total Borrowers

2015 2016

THO

USA

ND

S

140

160

180

200

220

240

260


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Annual Report 2016

2012 2013 2014

Gross Loan Portfolio (Including w/off)

2015 2016

PKR.

MIL

LIO

N

4,000

6,000

8,000

10,000

Agri-Input Livestock Micro-Enterprise

% Portfolio Sector Share

Others

10%

5%

20%

15%

30%

25%

40%

35%

2010 2011 2012 2013 2014 2015 2016

Average Disbursment Loan Size (PKR. Thousand)

PKR.

TH

OU

SAN

DS

20

30

25

40

45

35


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Annual Report 2016

ROSHANZAR

FMFB launched microenterprise product (loans up to PKR 500,000) in 2014 under the brand name - Roshanzar. In 2016, Roshanzar was implemented in 68 locations on nationwide basis. The product contributed 6% to the asset portfolio, amounting to PKR 466 million.

FMFB intends to build a diversified loan portfolio

to become a prominent player in developing enterprises and supporting entrepreneurship of the very small enterprises (VSEs). Accordingly in 2016, FMFB commenced focusing on specific economic sub-sectors to undertake specialized financing under Roshanzar. The first intervention was the reactivation of its Low Cost Private School Initiative. The intervention was designed to offer integrated financial solutions comprising loans for the school, cash management and fee collection services, loans for school staff, insurance facilities for staff and students, and deposit accounts for staff and students. Total number of loans disbursed during 2016 under this new intervention was 7 amounting to PKR 1.95 million, with an average loan size of PKR

278,000. Subsequently learning from the market demand, FMFB obtained approval from the SBP to extend loans up to PKR 1 million to small private schools. The Private Institution Finance (PIF) product was hence developed and will be launched in 2017.

Another product variant to support very small enterprises developed during the year was Running Finance facility. This product is intended

to support enterprises with varying and temporary working capital needs.

In 2016, FMFB developed its vision - Banking on Education to support the education sector. With intent to support both the demand and supply side of education, FMFB developed a Student Finance product, which aims to finance tertiary educational costs – for Bachelors and Masters degree, as well as Technical and Vocational courses. The product, which is priced relatively lower than all other loan facilities offered by FMFB, has been designed to support clients to repay the loan with options during the study period, as well as extending beyond the study period.

2014 2015 2016

Roshanzar Borrowers

1,000

500

2,000

2,500

1,500

Banking on Education seeks to ensure that children and young people are equipped with the knowledge, skills and values to help them become contributing members of the society. By supporting educational institutions and students, FMFB-P aims to promote a continuous ladder of lifelong learning, starting from childhood and extending well into adulthood.


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Annual Report 2016

LIABILITY PORTFOLIO

FMFB offers a range of generic demand and time deposit products i.e. Current Account, Saving Account (PLS and Micro cash Maximiser), Asaan Account, and Term Deposit Receipt (TDR), and remittance, collection and online fund transfer services in its branches. Since its inception, FMFB has fully funded its asset portfolio from the deposits

that it has mobilized. Over the years, FMFB has developed a stable deposit base to fuel growth in its asset portfolio.

Liability products of the FMFB are targeted at multiple market segments – individuals, transactory and organizations. The FMFB focuses on both high net worth individuals and low income segments, women, professionals, private organizations and government departments, etc.

During 2016, there was a growth of 55% in number of depositors and 27% in the value of deposits. The average per client deposit was recorded at PKR 27,000. In 2016, the deposit book increased to PKR

12.2 billion, with 458,159 depositors.

In 2016, FMFB developed a Child Saving Account product to introduce saving habits and build financial discipline amongst children in Pakistan. This product has been launched along with the Low Cost School Initiative and the Private Institution Finance.

MICRO INSURANCE

FMFB offers credit-linked life insurance, health insurance, crop insurance, livestock insurance, and Bancassurance products.

Credit-linked Life Insurance is being offered free of cost to all borrowers to cover risk of life and permanent disability. Similarly, voluntary health insurance programs are accessible to clients and their families to meet emergent or planned in-hospital treatments. Long-term saving plans linked with life insurance for education, marriage and retirement needs are available under the Bancassurance product.

2012 2013 2014

Number of Depositors

2015 2016

THO

USA

ND

S

200

300

400

500

2012 2013 2014

Total Value of Deposit

2015 2016

PKR.

MIL

LIO

N

8,500

6,500

10.500

12,500

14,500


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Annual Report 2016

Crop insurance and livestock insurance plans are offered under the Government’s Crop Loan Insurance Scheme (CLIS) and Livestock Insurance Scheme for Borrowers (LISB). During 2016, SBP issued addendum to the CLIS and LISB, which were complied with by the FMFB.

Information Technology – New Horizons2016 was a year for change for FMFB with strengthening of its Systems Infrastructure - by fortification of security and networks, redundancy at core links; replacing old hardware; provision of secondary links, up-gradation of data links and renewing software and services. In order to host mission critical business applications, FMFB installed a new data centre at the Head Office with more capacity and tier a 3 level controlled environment. The network design was also upgraded to build more resilience.

During the year, FMFB successfully completed the implementation of the Core Banking System i.e. Oracle Flexcube. A total number of 174 locations including 159 business units (including 6 new locations) and 15 Area Offices were migrated and went live on Oracle Flexcube. The Oracle Flexcube provides a comprehensive, integrated, interoperable, and modular solution, which enables FMFB to manage evolving customer expectations.

Keeping in view of the growing needs for a fast reliable data link at the branch level, all the plain area locations of the FMFB were transformed to the digital fibre optic/radio media. The data links at the Gilgit, Baltistan and Chitral regions were also upgraded with the required bandwidth. The network component at the branch level has been upgraded with the implementation of identified recommendations.

In 2016, the IT Service Desk was launched to provide a central point for raising incidents related to provision of IT services at the bank level. This service desk will help improve the responsiveness of the IT services. Further, the IT Policy was reviewed and updated keeping in view of the new regulations.

With the implementation of the new Core Banking System, banking operational processes were revisited and re-engineered as per system functionality. A Central Processing Unit was established and extensive trainings were implemented for the staff.

Risk Management FrameworkRisk is an integral part of financial services.

Therefore, it is vital for any financial institution, including microfinance institutions (MFIs) to have effective risk management in place to identify positive opportunities as well as to avoid negative threats. In order to adopt best industry practices and a more focused approach, Risk Management, Compliance and Credit functions were trifurcated into three independent departments during 2016. Accordingly, Risk Management Framework within FMFB covers three main domains i.e. Credit, Operational and Market Risk. The framework is comprehensive enough to capture all risks and has flexibility to accommodate any change in business activities. Main activity under each domain is to identify, assess, manage and mitigate, and monitor and report the risks.

During the year, Operational Risk Unit was strengthened to manage key existing and emerging operational risks, maintain repository of Operational Loss Database, manage Central Fraud and Forgery Unit, and undertake environmental risk management and Business Continuity Management. Further, Area Risk Managers (ARMs) have been placed at Area level to monitor operational and credit risks at branch level through routine and surprise branch visits.

With the implementation of Oracle Flexcube, unique dashboards for all areas of risk reporting will be developed to monitor the asset quality on real time basis without human intervention.

Compliance FrameworkDuring 2016, with the Board’s focus on promotion of compliance culture and emphasis on development and implementation of the Compliance Framework, an independent Compliance Department was established in FMFB. The key function of the department is to ensure effective compliance relating to SBP Prudential Regulations, relevant provisions of existing laws and regulations, guidelines for Know-Your-Customer (KYC), anti-money laundering laws (AML) and regulations, timely submission of accurate data/returns to regulator and other agencies, and monitoring and reporting of suspicious transactions. During the year, KYC/AML policy along with detailed procedures were developed and implemented, as well as learning sessions on the same for the staff throughout the bank.

Human Capital DevelopmentsThe Human Resource Function focuses on introducing new initiatives in order to boost employee morale and to improve the working environment at the FMFB. FMFB’s commitment to


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Annual Report 2016

human resource is reflected in the initiatives it took during 2016. Performance based reward system was introduced with service awards for employees with 5 and 10 years experience with the FMFB. Birthday bash celebrations were organized. Online performance appraisal system was deployed on Pan Bank basis along with an online recruitment module. Social goals of the FMFB were integrated into the performance targets of all employees of the Bank. Four Townhall Meetings were organized in different locations - Sukkur, Hyderabad, Multan and Bahawalpur. During the year, Career Aspiration Drive was launched, wherein employees were encouraged to focus on their career development.

FMFB’s strong emphasis on training and development was evidenced by setting up of Learning and Development Centers in Lahore and Ranipur, and 45,514 training hours. During the year, total number of trainees was 1,892. Training on the new Core Banking System was held on nation-wide basis. Other programs included refresher training for Loan Officers, Credit Officers and Banking Operation Staff, training on compliance requirements, and customized training for Branch Managers. A Train the Trainer Program on “How to Conduct Enquiry” was also implemented during 2016.

It is empirical that core values support the mission and shape the culture in any organization. In this regard living the Core Values concept was launched and initial roll out with senior management was implemented. The cultural sessions drive will be steered across the FMFB in the year 2017 with an aim to inculcate a strong culture.

Total employees by the year end were 1,541.

Service Quality FrameworkFMFB is committed to achieve and maintain professional superiority in customers’ service quality, build customer-centric business models and ensure that consumer grievances are dealt promptly, impartially, transparently and fairly at all times. FMFB believes customer dissatisfaction may severely damage its image and reputation.

Hence, to improve FMFB’s service standards and provide its valued customers with superior services, the Service Quality Framework focuses on:

• Promoting a culture in the FMFB that values customer experience. FMFB realizes that customer satisfaction is key factor to drive its vision, mission and growth;

• Facilitating fair and efficient resolution of customer grievances to foster confidence in the FMFB’s products and services;

• Embedding Code of Business Conduct in all processes and practices of the FMFB.

To implement this focus, a Service Quality Unit was established during 2016 with mandate to improve service quality and complaint management practices at bank level.

A client attrition survey was undertaken in 2016 and feedback obtained on branch-wise and product-wise basis was used to make improvements in processes.

COMPLAINT MANAGEMENT

To improve service standards, FMFB recognizes the right of its customers to lodge complaints and considers these as a constructive feedback about its products, services and processes. A centralized Complaint Management Unit (CMU) has been constituted under the Service Quality Unit to receive complaints from customers and aggrieved parties through different channels. Resolving and responding is in accordance with best practices and regulatory requirements. In order to comply with SBP guidelines on Consumer Grievance Handling Mechanism, Complaint Handling procedures were revised during 2016.

During 2016, a total number of 38 complaints were received directly by the CMU; the average resolution time of the complaints was 07 working days.

Financial Consumer Protection FrameworkFMFB has a Financial Consumer Protection (FCP) Framework that aims to set minimum standards that clients should expect to receive when doing business with the Bank; this enables it to deliver financial services that are safe, transparent, fair, offer good value for money, and are likely to generate benefits and positive quality of life changes for its clients.

During 2016, FMFB implemented an action plan to ensure that FCP Essential Practices are being followed. As part of the implementation activities, FMFB updated its process manuals, undertook an initiative to educate and create awareness among clients about their rights and responsibilities through educational materials (IEC), and designed an enhanced Financial Literacy initiative, and reviewed policies and agreements with a view to protecting the privacy of its clients. In addition, FMFB launched a new complaints management policy and restructured the complaints management process to make the complaints mechanism more effective and easier for clients to use.


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Financial LiteracyAs part of its mission FMFB aims to undertake responsible financing i.e. build sound practices that protect its customers and reduce financial risks. Without knowledge of basic financial concepts, customers are not equipped to make informed financial decisions that are in their own self-interest. Even when customers have knowledge of basic financial concepts, they cannot make informed financial decisions without appropriate disclosure and transparent practices related to product and service offerings.

In order to educate customers and improve disclosures, FMFB had developed Financial Literacy Booklets in urdu language in 2014 as a first step in introducing basic financial concepts to its customers. In 2016, FMFB further enhanced the basic financial literacy program by informing the customers about their rights and obligations, product features and cost, main loan terms and conditions, creating awareness of FMFB’s complaint mechanism, and delivering important financial consumer protection messages. However, since a large segment of FMFB’s customer base has literacy challenges, FMFB re-designed its approach to deliver financial education. In 2016, extensive secondary research was undertaken to understand international best practices – in terms of content and delivery mechanisms. Accordingly, the financial education material is being developed into animated infomercials, so that the education messages are conveyed easily, conveniently, cost effectively, in local languages, and have better

recall for the intended audience. These infomercials will be launched in 2017.

Internal AuditThe Internal Audit function at the FMFB is responsible to evaluate the efficiency and effectiveness of internal controls, reports on special assignments/investigations, compliance of the FMFB’s policies and other applicable regulatory procedures. The Audit Team provides recommendations to the management to strengthen the internal control framework by highlighting improvements in the processes and plug in the loop holes that exist in the policies and procedures.

Social GoalsIn order to achieve its mission, FMFB has formulated a set of 9 social goals in 2016, with annual targets for a 5-year period. The social goals were approved by the Board and have been integrated in the annual objectives of the employees.

During the year, a director in the FMFB Board has been designated as the Social Champion, with the prime responsibility to monitor the achievement of the pre-set annual targets against each social goal, and present the status to the Board on periodic basis. The CEO of FMFB is responsible for ensuring the achievement of the social goals.

The 9 social goals are:

1. The members of the Board of Directors are


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Annual Report 2016

committed to the social mission of FMFB;2. Target specific client segments and offer client

centric products;3. Improve access to social needs by offering

client centric financial solutions;4. Reduce barriers to financial inclusion for

clients;5. Foster green environment friendly

opportunities;

6. Clients understand their financial rights and obligations when dealing with the FMFB;

7. Monitor employee satisfaction and maintain employee turnover;

8. Employee Compensation levels are at least the national minimum wage;

9. FMFB’s clients have positive and sustainable improvement in quality of life (QOL) indicators.


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Annual Report 2016

Student Finance product has been specifically designed to meet the educational expenses of low income households. Under this product, a series of small loans are provided with each academic session (annual or semester) to support degree courses of Bachelor and Master programs, or certificate/diploma courses at Technical and Vocational centers – to enable aspiring students from the vulnerable segments to fulfill their dreams and become an earning member of their households. The loan repayment can be structured under varying options, wherein students can also contribute after completion of their study.


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Annual Report 2016

Private Institution Finance supports the supply side of the education sector by offering a package of financial services to small schools, tuition centers, and technical and vocational training centers. Loans up to a maximum amount of PKR 1 million are available for meeting capital and operational expenses of the institution. Along with this, other available services are fee collection, staff salary disbursements, saving and health insurance facilities for students’ and staff’s families, child saving accounts, staff loans, and financial education for students. With this product, FMFB aims to improve the enrollment levels in the country, quality of education and employability of the youth.

PRIVATE INSTITUTION FINANCE


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SUCCESSSTORIES

Shakoor AliCarrying Forward the Family Tradition in a New Manner

Shakoor Ali, a 49 year old man, is a resident of Muhalla Bontopa, Shigar in Baltistan. Shakoor owns a workshop where a precious stone, Zeher Mohra, is processed and crafted into crockery, jewelry and decoration pieces; and these pieces are then sent for sale to two of his display centers. His monthly sales exceed PKR 250,000. His business provides employment to 6 employees on permanent basis. During the extraction/mining season, he hires 10 additional daily wage workers.

Shakoor inherited the business of mining and processing Zeher Mohra from his father. The family enterprise offered very little income since Shakoor’s father relied heavily on traditional methods. After his father’s demise, Shakoor became the sole breadwinner for 9 dependents in his family including 5 children, wife, mother, and his siblings. Shakoor did not feel burdened by this responsibility; instead he was motivated to handle the business in a better way and improve the lifestyle of his family.

He enrolled and participated in the training for stone processing and its marketing held by Aga Khan Rural Support Programme (AKRSP) at the marble industry in Rawalpindi. Thereafter, he took similar training at Lok Virsa in Islamabad. Equipped with the improved skill set and marketing know-

how, Shakoor approached the FMFB for his first loan of PKR 30,000 in 2005 to meet his working capital requirement. He had plans to hire extra labor during the mining season to extract larger quantities of the stone. With more raw materials at hand, Shakoor planned to have more inventories to sell. Due to weather conditions in the area, mining of Zeher Mohra can be only be carried out for 10-20 days every year and Shakoor utilized the loan to hire extra labor and get larger quantities of the raw material.

As a next step, Shakoor focused on improving his workshop and adding new equipment to it through financial support from FMFB. Over the years, Shakoor received larger loans from FMFB and added 3 machines to his workshop and hired 6 employees to help him cut, shape, and polish the stones. With confidence in improved craftsmanship, Shakoor also ventured to open up his own display center in Shigar, mainly to stop selling through middlemen to improve his profit margins. Encouraged by the response and business growth, Shakoor opened up the second display center in Skardu.

Shakoor’s success in business has had a lasting impact on his and his family’s standard of living.


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The income generated from his venture enabled him to build a new house for his family. He was able to provide quality education to his two sisters and five children - all of them are studying in English-medium private schools. They are also able to access better health facilities.

Shakoor is an intelligent businessman, who was able to optimally utilize the financial support from FMFB to expand his business and improve the quality of life of his entire family. His current loan size is PKR 200,000. His business acumen was recognized at the 10th Citi-PPAF Microentrepreneurship Awards where he was the Runner Up in National Entrepreneur category. Shakoor plans to expand his business by opening up display areas in other locations in Baltistan to attract tourists.


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Annual Report 2016

MarinaNothing Succeeds like Success

Marina, a 45 year old female from Dunyor, Gilgit, is single handedly running successful businesses of tailoring, making and selling handicrafts and livestock rearing. Her monthly revenue exceeds PKR 40,000. She has 10 employees in her three businesses.

Marina had learnt the skill of tailoring and preparing handicrafts at a young age, but had not considered it turning into an income earning source. However, when her husband failed to earn sufficient income to support her and their three children, Marina took the initiative to start earning for her family. She started giving lessons to females on making handicrafts as well as provided tailoring services. Marina came to know about the financial services offered by FMFB from her Village Organization, and she decided to expand her business. She took her first loan of PKR 20,000 in July 2005. She bought an electric sewing machine and a manual sewing machine, as well as chairs from that money to expand her tailoring business.

Over time, Marina expanded her vocational training center and started making handicrafts in the center. To generate more income, she started selling the handicraft merchandize made by the students in her vocational center in the

local market in Dunyor. Marina is in her ninth loan cycle with FMFB, and her loan size has gradually increased from PKR 20,000 to PKR 150,000, indicating the rise in her revenues and cashflows. With a combination of savings and loans, she also started raising livestock; now she has over 50 small livestock animals.

Marina wants to expand her business by buying more machines. This will not only increase the capacity of her vocational training center, but would also increase productivity and scale of her handicraft business. Presently, Marina sells her handicrafts in the local markets to meet the local ceremonial needs. However, she wants to expand her business in the neighboring market of Gilgit, given that there is more tourism activity and diversified clientele in the town area. She sees this as an opportunity to not only increase her income, but also to provide more employment opportunities for her trained female students.

The increased household income enabled Marina to improve her family’s standards of living. She built a pakka house for her family. She previously lived in a mud house (kaccha). The new house has proper bathroom and kitchen. She contributed financially towards marriages of her brother-in-law


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and sister-in-law. She also bought a car for her husband. She ensured her children got good education- her daughters have completed their bachelor degrees, while her son is being trained as a Chef in Karachi.

Marina’s will to bring positive change in the lives of the people that mattered most to her, was the driving force that made her strive for success. Her determination, as well as her business acumen was the key to her success. She made the most of what she had and through hard work and her astuteness changed the fortunes of her family.

Marina was declared Runner Up in the Regional Entrepreneur category (Gilgit-Baltistan region) at the 10th Citi-PPAF Microentrepreneurship Awards and honored for her hard work and determination.


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Sakina BibiShaping up her Destiny

Sakina Bibi is a strong-willed 47 year old female of Village Chinpa in Shigar, Baltistan. She is successfully running a vocational center and a ladies shop. Her monthly revenue is PKR 120,000 and she has five employees to help her in managing these two businesses.

Sakina had to shoulder the responsibility of her four children after the demise of her husband. She did not have any help from her family, which not only abandoned her along with her children but also deprived her of her rightful share in her husband’s ancestral property. Determined not to let the future of her children succumb to this adversity, Sakina actively began to seek opportunities for generating an income. She enrolled in a vocational training program of Aga Khan Rural Support Programme (AKRSP) where she received training in stitching and embroidery as well as learnt the basics of running an enterprise. After the training, she began to provide tailoring services to generate income for her children. Gradually, she bought more machines and opened up a vocational center using a donation from AKRSP. She had 20 students in her first session. She kept the fee to a minimal PKR 50 only as her intention was to let maximum number of women benefit from her center. As the number of students started to increase, Sakina approached

the FMFB for her first loan to invest in her vocational center to expand the business.

As Sakina steadily built up her business, she also opened up a ladies shop. To date, she has trained more than 1,500 females. Out of these, around 300 women have set up their own income generating activities pertaining to the skills learnt at her center. These women typically work from their homes, and contribute to their household income. The vocational training center also provides a platform for the women in the community to gather around and discuss various issues.

Sakina is a strong advocate of women empowerment in her area. She is the President of an NGO named Al-Shehbaz Women Organization Markunja, which is registered under Voluntary Social Welfare Agencies (Registration and Control) Ordinance 1961. The NGO seeks funds from various donor agencies to work for awareness of female rights and empowerment in the area.

Her proactive approach to change her life made all the difference. She took charge of her situation and fought against all the odds to work for a secure future of her family. Sakina’s children are studying in private schools and two of her


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Annual Report 2016

daughters have already completed their undergraduate degrees. She renovated her house to add two bedrooms, a kitchen and a bathroom.

As an accolade to Sakina’s efforts, 10th Citi-PPAF Microentrepreneurship Awards gave her the 1st Position in Regional Entrepreneur category (Gilgit-Baltistan region). Sakina’s current loan size is PKR 30,000. She has plans to continue working for the welfare of the women in her area.


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Annual Report 2016

FINANCIALREPORT

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OFTHE FIRST MICROFINANCEBANK LIMITED

We have audited the annexed balance sheet of the First MicroFinanceBank Limited (the FMFB) as at 31 December 2016 and the related profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the FMFB’s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984, Microfinance Institutions Ordinance, 2001 and the directives issued by the State Bank of Pakistan. Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:

a. In our opinion, proper books of account have been kept by the FMFB as required by the Companies Ordinance, 1984;

b. In our opinion:

i. the balance sheet and profit and loss account and statement of comprehensive income together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, the Microfinance Institutions Ordinance, 2001 and the directives issued by the State Bank of Pakistan, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied;

ii. The expenditure incurred during the year was for the purpose of the FMFB’s business; and

iii. The business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the FMFB.

c. In our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and give the information required by the Companies Ordinance, 1984, the Microfinance Institutions Ordinance, 2001 and the directives issued by the State Bank of Pakistan, in the manner so required and respectively give a true and fair view of the state of the FMFB’s affairs as at 31 December 2016 and of the profit, its comprehensive income, cash flows and changes in equity for the year then ended; and

d. In our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the FMFB and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.

Chartered AccountantsAudit Engagement Partner: Sajjad Hussain GillDate: 16 March 2017Place: Islamabad


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2016 2015

NOTE RUPEES ‘000 RUPEES ‘000

ASSETS

Cash and balances with SBP and NBP 7 840,523 622,106

Balances with other Banks/NBFIs/MFBs 8 811,977 1,045,644

Lending to Financial Institutions - -

Investments - Net of Provisions 9 5,931,703 4,029,765

Advances - Net of Provisions 10 8,183,228 5,525,612

Operating fixed assets 11 496,359 382,967

Other assets 12 580,788 533,557

Deferred tax asset 13 33,653 47,686

Total assets 16,878,231 12,187,337

LIABILITIES

Deposits and other accounts 14 12,237,466 9,661,088

Borrowings 15 297,820 645,576

Subordinated debt - -

Other liabilities 16 512,441 336,267

Deferred tax liabilities - -

Total liabilities 13,047,727 10,642,931

NET ASSETS 3,830,504 1,544,406

REPRESENTED BY:

Share capital 17 2,730,811 1,351,501

Share premium 620,690 -

Statutory & general reserves 189,569 126,317

Depositors' Protection Fund 55,014 36,716

Accumulated profit 231,578 1,081

3,827,662 1,515,615

Surplus on revaluation of assets 18 1,248 26,015

Deferred grants 19 1,594 2,776

Total Capital 3,830,504 1,544,406

MEMORANDUM / OFF-BALANCE SHEET ITEMS 20

The annexed notes from 1 to 42 form an integral part of these financial statements.

BALANCE SHEETAS AT DECEMBER 31, 2016

President / Chief Executive Chairman Director Director


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Annual Report 2016

2016 2015


Mark-up/Return/Interest Earned 21 2,480,263 1,972,947

Mark-up/Return/Interest Expensed 22 (580,886) (595,485)

Net Mark-up/Interest Income 1,899,377 1,377,462

Provision against non - performing loans and advances (31,624) (96,968)

Recovery against written off advances 16,012 24,146

Provision for diminution in the value of investments - -

Bad debts written off directly - -

(15,612) (72,822)

Net Mark-up/ Interest Income after provisions 1,883,765 1,304,640

NON MARK-UP/ NON INTEREST INCOME

Fee, commission and brokerage income 23 158,770 123,898

Dividend income - -

Amortization of deferred grant 24 1,182 1,762

Other income 25 10,609 6,812

Total non-markup/non interest income 170,561 132,472

2,054,326 1,437,112

NON MARK-UP/ NON INTEREST EXPENSES

Administrative expenses 26 (1,559,937) (1,050,301)

Grant related expenses (1,182) (1,762)

Other provisions/write offs - -

Other charges 27 (1,392) (40)

Total non-markup/non interest expenses (1,562,511) (1,052,103)

491,815 385,009

Extra ordinary/unusual items - -

PROFIT BEFORE TAXATION 491,815 385,009

Taxation - Current 28 (155,566) (60,748)

- Prior years (5,957) -

- Deferred (14,033) (12,546)

(175,556) (73,294)

Profit after taxation 316,259 311,715

Accumulated profit / (loss) brought forward 8,272 (223,972)

Profit before appropriation 324,531 87,743

APPROPRIATIONS:

Transfer to:

Statutory reserve (63,252) (62,343)

Capital reserve - -

Contribution to Depositors' Protection Fund:

5% of Profit after tax (15,813) (15,586)

Interest on Investment (2,485) (1,542)

Revenue reserve - -

Dividend - -

(81,550) (79,471)

Accumulated profit carried forward 242,981 8,272

Earning per share (Rupee) 34 1.44 2.31


PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED DECEMBER 31, 2016



2016 2015


Profit after taxation 316,259 311,715

Other comprehensive income

Other comprehensive income not to be reclassified to profit or loss account in subsequent periods:

Actuarial loss on defined benefit obligation 29.4 (6,104) (7,858)

Related tax impact 1,892 3,624

(4,212) (4,234)

Comprehensive income transferred to equity 312,047 307,481

Components of comprehensive income not reflected in equity

Surplus on revaluation of available for sale investments 9.4 (24,767) 1,270

(24,767) 1,270


STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED DECEMBER 31, 2016


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Annual Report 2016

Share Capital

Share premium account

Statutory & General Reserves

Depositors’ Protection

Fund Accumulated (Loss) /Profit Total

RUPEES ‘000

Balance at 1 January 2015 1,351,501 - 63,974 19,588 (226,929) 1,208,134

Total Comprehensive Income

Profit for the year - - - - 311,715 311,715

Other comprehensive income - - - - (4,234) (4,234)

- - - - 307,481 307,481

Interest earned on investment of fund - - - 1,542 (1,542) -

Contribution for the year - - 62,343 15,586 (77,929) -

Balance at 31 December 2015 1,351,501 - 126,317 36,716 1,081 1,515,615

137,931,035 shares, having face value of Rs. 10 each, issued during the year at a premium of Rs. 4.5 each 1,379,310 620,690 - - - 2,000,000

Total Comprehensive Income

Profit for the year - - - - 316,259 316,259

Other comprehensive income - - - - (4,212) (4,212)

- - - - 312,047 312,047

Interest earned on investment of fund - - - 2,485 (2,485) -

Contribution for the year - - 63,252 15,813 (79,065) -

Balance at 31 December 2016 2,730,811 620,690 189,569 55,014 231,578 3,827,662


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED DECEMBER 31, 2016



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2016 2015


CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 491,815 385,009

Adjustments for non-cash charges

Depreciation of property and equipment 93,766 60,615

Amortization of intangible assets 10,934 3,687

Provision against non performing loans and advances 31,624 96,968

Gain on disposal of operating fixed assets (2,490) (1,250)

Amortization of deferred grant (1,182) (1,762)

Gain on sale of investment (18) (434)

Revaluation loss / (income) on held for trading investments 60 (235)

Amortization of premium on investments - 462

Amortization of discount on investments (74,577) (77,598)

Provision for gratuity 23,969 15,385

82,086 95,838

573,901 480,847

(Increase) / decrease in operating assets

Advances (2,689,240) (1,205,889)

Accrued interest on term deposit receipts (176,216) (37,445)

Other Assets (excluding advance taxation) (117,883) (48,242)

(2,983,339) (1,291,576)

Increase / (decrease) in operating liabilities

Deposits and other accounts 2,576,378 911,187

Borrowings from financial institutions (347,756) 363,443

Other Liabilities (excluding gratuity) 178,287 (75,432)

2,406,909 1,199,198

Cash inflows / (outflow) from operations (2,529) 388,469

Gratuity paid (32,187) (9,354)

Grants received - net of returned - 295

Income tax paid (90,876) (62,796)

Net cash inflow / (outflow) from operating activities (125,592) 316,614

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in held to maturity securities (1,312,907) (2,921,674)

Investment in available for sale securities (2,476,962) (522,461)

Investment in held for trading securities (94,313) (394,576)

Refund of principal on available for sale securities - 22,488

Proceeds from sale/redemption of held to maturity securities 2,357,070 1,800,000

Proceeds from sale/redemption of available for sale securities 1,350,000 1,379,146

Proceeds from sale/redemption of held for trading securities 94,331 396,365

Investments in operating fixed assets (218,676) (242,297)

Sale proceeds of property and equipment disposed 3,074 1,995

Net cash outflow from investing activities (298,383) (481,014)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of shares 2,000,000 -

Net cash inflow from financing activities 2,000,000 -

Net increase / (decrease) in cash and cash equivalents 1,576,025 (164,400)

Cash and cash equivalents at the beginning of the year 2,017,750 2,182,150

Cash and cash equivalents at the end of the year 36 3,593,775 2,017,750


CASH FLOW STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2016


1. STATUS AND NATURE OF BUSINESS

The First MicroFinanceBank Limited (FMFB) was incorporated in The Islamic Republic of Pakistan on 5 November, 2001 as a public limited company under the Companies Ordinance, 1984. The FMFB received the certificate of commencement of business on 14 February 2002. FMFB’s principal business is to provide microfinance services to the poor and under served segment of the society as envisaged under the Microfinance Institutions Ordinance, 2001. FMFB has 159 (2015:151) business locations comprising of 120 (2015: 109) branches/point of links/Permanent Booths (PBs), 39 (2015: 42) Pakistan Post Office (PPO) sub offices in operation with registered office at 16-17 Floor Habib Bank Tower, Blue Area, Islamabad, Pakistan and is licensed to operate nationwide. During the year, FMFB issued 137,931,035 shares to Habib Bank Limited (HBL) at a premium of Rs. 4.5 per share on face value resulting in HBL acquiring 50.51% controlling interest in FMFB effective 20 May, 2016.

2. BASIS OF PRESENTATION

These financial statements have been presented in accordance with the Banking Supervision Department (BSD) circular number 11 dated 30 December, 2003 issued by the State Bank of Pakistan (“SBP”).

3. STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Ordinance, 1984, the requirements of the Companies Ordinance, 1984, the Micro Finance Institutions Ordinance, 2001, and the directives issued by the Securities and Exchange Commission of Pakistan (SECP) and SBP. Wherever, the requirements of the Companies Ordinance, 1984, the Microfinance Institutions Ordinance, 2001, or directives issued by the SECP and the SBP differ with the requirements of IFRS, the requirements of the Companies Ordinance, 1984, the Microfinance Institutions Ordinance, 2001, or the requirements of the said directives prevail.

These financial statements also comply with the disclosure guidelines for financial reporting by Microfinance Institutions which are voluntary norms recommended by the Consultative Group to Assist the Poor (CGAP) and the members of the Small Enterprise Education and Promotion Network (SEEP).

SBP vide BSD Circular Letter No.10, dated 26 August, 2002 has deferred the applicability of International Accounting Standard (IAS) 39, “Financial Instruments: Recognition and Measurement” and IAS 40, “Investment Property” for banking companies and microfinance banks till further instructions. Accordingly, the requirements of these standards have not been considered in the preparation of these financial statements. However, investments have been measured in accordance with the Prudential Regulations (the Regulations) of SBP and presented in accordance with the requirements of SBP BSD circular number 11 dated 30 December, 2003. Further, the SECP vide its S.R.O No. 411 (I)/ 2008 dated 28 April, 2008 has deferred the applicability of International Financial Reporting Standard (IFRS) 7 “Financial Instruments Disclosure”, which is applicable for annual periods beginning on or after 01 July, 2009, till further instructions.

4. BASIS OF MEASUREMENT

These financial statements have been prepared under the historical cost basis except obligation under employee retirement benefit plan which is measured at present value and investments available for sale and held for trading which are measured at fair value.

4.1 FUNCTIONAL AND PRESENTATION CURRENCY

These financial statements are presented in Pakistan Rupees (PKR), which is FMFB’s functional currency. All financial information presented in PKR has been rounded off to the nearest thousand PKR, unless otherwise stated.

NOTES TO THE FINANCIAL STATEMENTSAS AT DECEMBER 31, 2016


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5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

5.1 CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise of cash in hand, balances with treasury banks and balances with other banks and investments having a maturity of three months or less from the date of acquisition.

5.2 BORROWING FROM/LENDING TO FINANCIAL INSTITUTIONS

Assets sold with a simultaneous commitment to repurchase at a specified future date (repos) continue to be recognized in the balance sheet and are measured in accordance with the accounting policies for investment securities. The counter party liability for consideration received is included in borrowings from financial institutions. The difference between sale and repurchase price is treated as mark-up/return/interest expense over the period of the transaction. Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognized as investments in the balance sheet. Amounts paid under these agreements are included in lending to financial institutions. The difference between the purchase and the resale price is treated as mark-up/return/interest income over the period of the transaction.

5.3 INVESTMENT

All purchases and sales of investments are recognized using settlement date accounting. The settlement date is the date on which investments are delivered to the FMFB. All investments are derecognized when the right to receive economic benefits from the investments has expired or has been transferred and FMFB has transferred substantially all the risks and rewards of ownership.

Investments of FMFB are classified into the following categories:

(a) HELD FOR TRADING

These investments are held for a maximum period of 90 days and acquired principally for the purpose of generating profit from short-term fluctuations in price or dealer’s margin. These are marked to market based on quoted market prices and the surplus/(deficit) arising from changes in the fair value of securities classified as held for trading is taken to profit and loss account. Unquoted securities are valued at cost less impairment, if any.

(b) HELD TO MATURITY

Investments with a fixed maturity, where management has both the intent and the ability to hold to maturity, are classified as held to maturity. Subsequent to initial recognition at cost, these investments are measured at amortized cost, less provision for impairment in value, if any. Amortized cost is calculated using the effective interest rate method. Profit on held to maturity investments is recognized on a time proportion basis taking into account the effective yield on the investments.

Premium or discount on acquisition of held to maturity investments is amortized through the profit and loss account over the remaining period till maturity.

(c) AVAILABLE-FOR-SALE

Investments which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available for sale. Available-for-sale investments are initially recognized at cost and subsequently measured at fair value. Profit on available-for-sale investments is recognized on a time proportion basis taking into account the effective yield on the investments.

The surplus/(deficit) arising on revaluation of available for sale investments is presented in the balance sheet below equity. The surplus/(deficit) arising on these investments is taken to the profit and loss account when actually realized upon disposal.

5.4 ADVANCES

These are stated net of provision for non-performing advances, if any. The outstanding principal of the advances, payments against which are overdue for 30 days or more are classified as non-performing and divided into following four categories:


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Annual Report 2016


(a) OTHER ASSETS ESPECIALLY MENTIONED:

These are advances in arrears (payments/instalments overdue) for 30 days or more but less than 60 days.

(b) SUBSTANDARD:


(c) DOUBTFUL:


(d) LOSS:

These are advances in arrears (payments/instalments overdue) for 180 days or more.

In accordance with the requirements of the Regulations, FMFB maintains a specific provision for potential loan losses for all non-performing advances as follows:

(i) OTHER ASSETS ESPECIALLY MENTIONED

Nil

(ii) SUBSTANDARD 25% of outstanding principal net of cash collateral and gold collateral (ornaments and bullion) realizable without recourse to a court of law

(iii) DOUBTFUL 50% of outstanding principal net of cash collateral and gold collateral (ornaments and bullion) realizable without recourse to a court of law

(iv) LOSS 100% of outstanding principal net of cash collateral and gold collateral (ornaments and bullion) realizable without recourse to a court of law

In addition to the above, a general provision is made equivalent to 1% (2015: 1%) of the net outstanding balance (advances net of specific provisions and loans secured against gold or other cash collateral with appropriate margin).

General and specific provisions are charged to the profit and loss account in the period in which they occur.

Non-performing advances are written off one month after the loan is classified as “Loss”. However, FMFB continues its efforts for the recovery of the written off balances.

5.5 OPERATING FIXED ASSETS

(a) CAPITAL WORK-IN-PROGRESS

Capital work-in-progress is stated at cost less impairment losses, if any.

(b) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditure that is directly attributable to the acquisition of the asset.

Depreciation is charged on the straight line method at rates specified in note 11.2 to the financial statements, so as to write off the cost of assets over their estimated useful lives. A full month’s depreciation is charged in the month of addition, while no depreciation is charged in the month of deletion.

Subsequent costs are included in the assets carrying amount when it is probable that the future economic benefits associated with the item will flow to FMFB and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All the other repair and maintenance expenditure is recognized in profit and loss account as incurred.


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Annual Report 2016


Gain or losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amounts of fixed asset. Gains are recognized within “other income” while losses are recognized in administrative expenses in the profit and loss account.

(c) INTANGIBLE ASSETS

An intangible asset is recognized if it is probable that the future economic benefits that are attributable to the asset will flow to FMFB and that the cost of such asset can also be measured reliably. These are stated at cost less accumulated amortization and impairment losses, if any.

Intangible assets comprise of computer Core Banking System and software and related applications. Intangible assets are amortized over their estimated useful lives at the rates specified in note 11.3 to the financial statements. Subsequent expenditure is capitalized only when it increases the future economic benefit embodied in the specific asset to which it relates. All other expenditure is recognized in the profit and loss account as incurred.

5.6 DEPOSITS

Deposits are initially recorded at the amount of proceeds received. Mark-up accrued on deposits, if any, is recognized separately as part of other liabilities and is charged to the profit and loss account over the deposit period.

5.7 TAXATION

Income tax expense comprises of current and deferred tax. Income tax expense is recognized in the profit or loss account except to the extent that it relates to items recognized directly in equity or below equity/ other comprehensive income in which case it is recognized in equity or below equity/ other comprehensive income.

FMFB takes into account the current income tax law and decisions taken by appellate authorities. Instances where FMFB’s view differs from the view taken by the income tax department at the assessment stage and where FMFB considers that its view on items of material nature is in accordance with law, the amounts are shown as contingent liabilities.

(a) CURRENT

Current tax is the tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, taking into account tax credits, rebates and tax losses, if any, and any adjustment to tax payable in respect of previous years.

(b) DEFERRED

Deferred tax is accounted for on all major temporary differences between the carrying amounts of items for financial reporting purposes and their taxation base. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax asset is reduced to the extent that it is no longer probable that the related tax benefit will be realized. At each balance sheet date, FMFB reassesses the carrying amount of deferred tax asset.

Deferred tax asset and liability is calculated at the rate that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

5.8 STAFF RETIREMENT BENEFITS

Salaries, wages and benefits are accrued in the period in which the associated services are rendered by employees of FMFB. The main features of the schemes operated by FMFB for its employees are as follows:

(a) DEFINED BENEFIT PLAN

FMFB operates an approved defined benefit gratuity fund for all employees with a qualifying service period of five years. Eligible employees are entitled to one month’s basic salary for each completed year of service upon retirement. An annual provision has been made on the basis of an actuarial valuation to cover obligations under the scheme for all employees eligible for gratuity benefits.


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Annual Report 2016


(b) DEFINED CONTRIBUTION PLAN

FMFB operates a defined contribution provident fund scheme for its eligible employees. Contributions are made by FMFB and its employees in accordance with rules of the fund.

5.9 RESERVES

(a) STATUTORY RESERVE

FMFB is required to maintain a statutory reserve to which an appropriation equivalent to 20% of its annual profit after tax is made till such time the reserve fund equals the paid-up capital of FMFB and, thereafter, an appropriation of a sum not less than 5% of its annual profit after taxes in accordance with statutory requirements under the Microfinance Institutions Ordinance, 2001.

(b) DEPOSITORS’ PROTECTION FUND

FMFB contributes 5% of its annual profit after tax along with related income on investment (net of related tax) to the Depositors’ Protection Fund, as required under the Microfinance Institutions Ordinance, 2001

5.10 PROVISIONS

A provision is recognized when, and only when, FMFB has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

5.11 GRANTS

Income from grants is recognized according to the related terms and conditions. Income related to grants for the funding of projects and programs is recognized as the expenditure is incurred on projects and programs.

The grants which involve funding for fixed assets are deferred and amortized to the profit and loss account when the related fixed asset is depreciated/amortized. Other grants are recognized as income in the year of receipt.

5.12 FOREIGN CURRENCY TRANSACTIONS

The financial statements are presented in Pakistan Rupee, which is FMFB’s functional currency. Transactions in foreign currencies are translated into Pakistan Rupee at the exchange rate prevailing on the date of the transaction.

5.13 OPERATING LEASES

Operating lease rentals are recorded in the profit and loss account on a time proportion basis over the term of the lease arrangements.

5.14 REVENUE RECOGNITION

(a) MARK-UP/ INTEREST INCOME ON ADVANCES

Mark-up/ interest income on advances is recognized on an accrual/time proportion basis using the effective interest method at FMFB’s prevailing interest rates for the loan products. Mark-up/interest income on advances is collected with loan installments alongwith additional service charge accrued due to late payment, if any. Mark-up/interest income/additional service charge is accrued till the date when advances become over due by 30 days. Mark-up/interest income/additional service charge accrued on advances over due by 30 days or more is reversed and credited to suspense account. Subsequently, Mark-up/interest income/additional service charge recoverable on non-performing advances is recognized on receipt basis in accordance with the requirements of the Prudential Regulations.


60

Annual Report 2016


(b) INCOME FROM INVESTMENTS

Mark-up/return on investments is a recognized using the effective interest rate method. Where debt securities are purchased at a premium or discount, the related premium or discount is amortized through the profit and loss account over the remaining period of maturity.

(c) DIVIDEND INCOME

Dividend income is recognized when FMFB’s right to receive the dividend is established.

(d) FEE, COMMISSION AND BROKERAGE INCOME

Fee, commission and brokerage income is recognized when the related services are rendered.

(e) INCOME FROM LENDING TO FINANCIAL INSTITUTIONS

The income on reverse repo transactions arising from the difference between the sale and repurchase price is recognized using the effective yield method.

(f) INCOME FROM INTER BANK DEPOSITS

Income from inter bank deposits in saving accounts is recognized in the profit and loss account as it accrues using the effective interest method.

5.15 FINANCIAL INSTRUMENTS

Financial assets and liabilities are recognized when FMFB becomes a party to the contractual provisions of the instrument. These are derecognized when FMFB ceases to be the party to the contractual provisions of the instrument.

All financial assets and liabilities are initially measured at cost which is the fair value of the consideration given and received, respectively. These financial assets and liabilities are subsequently measured at fair value, amortized cost or historical cost, as the case may be.

(a) FINANCIAL ASSETS

Financial assets are Cash and Balances with SBP and NBP, Balances With Other Banks/NBFIs/MFBs, lending to financial institutions, investments, advances and other receivables. Advances are stated at their nominal value as reduced by appropriate provisions against non-performing advances, while other financial assets excluding investments are stated at cost. Investments classified as available for sale and held for trading are valued at year end prices and investments classified as held to maturity are stated at amortized cost.

(b) FINANCIAL LIABILITIES

Financial liabilities are classified according to the substance of the contractual arrangement entered into. Financial liabilities include deposit and other accounts, borrowings and other liabilities which are stated at their nominal value.

Any gain or loss on the recognition and de-recognition of the financial assets and liabilities is included in the profit and loss account for the period in which it arises.

5.16 OFF-SETTING

Financial assets and financial liabilities are only off-set and the net amount is reported in the financial statements when there is a legally enforceable right to set off the recognized amount and FMFB intends either to settle on a net basis or to realize the assets and to settle the liabilities simultaneously.

5.17 BORROWING COSTS

Mark up, interest and other charges on borrowings are charged to profit and loss account in the period in which they are incurred except to the extent that relate to qualifying assets in which case if these are directly attributable, then the amount is capitalized as a part of cost of qualifying assets.


61

Annual Report 2016


5.18 MARK-UP BEARING BORROWINGS

Mark-up bearing borrowings are recognized initially at cost being the fair value of consideration received, less attributable transaction costs. Subsequent to initial recognition, mark-up bearing borrowings are stated at original cost less subsequent repayments.

5.19 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURE RESULTING FROM ADOPTION OF STANDARDS, AMENDMENTS AND INTERPRETATIONS DURING THE YEAR

The accounting policies adopted in the preparation of these financial statements are consistent with those of the previous financial year except as described below:

New Standards, Interpretations and Amendments

The Company has adopted the following amendments in standards, which became effective for the current year:

IFRS 10Consolidated Financial Statements, IFRS 12; Disclosure of Interests in Other Entities and IAS 28 Investment in Associates and Joint Ventures - Investment Entities: Applying the Consolidation Exception (Amendment)

IFRS 11Joint Arrangements Accounting for Acquisition of Interest in Joint Operation (Amendment)

IAS 1Presentation of Financial Statements: Disclosure Initiative (Amendment)

IAS 16Property, Plant and Equipment and IAS 38 Intangible assets: Clarification of Acceptable Method of Depreciation and Amortization (Amendment)

IAS 16Property, Plant and Equipment and IAS 41 Agriculture: Bearer Plants (Amendment)

IAS 27Separate Financial Statements: Equity Method in Separate Financial Statements (Amendment)

The adoption of the above amendments did not have any effect on the financial statements.

Improvements to Accounting Standards Issued by the IASB in September 2014 (2012-2014 Cycle)

IFRS 5Non-Current Assets Held for Sale and Discontinued Operations (Change in method of disposal)

IFRS 7Financial Instruments: Disclosures (i. Servicing contracts, ii. Applicability of the amendments to IFRS 7 to condensed interim financial reporting)

IAS 19Employees Benefits (Assessment of market debt of high quality bonds)

IAS 34 Interim Financial Reporting

The adoption of the above amendments did not have any effect on the financial statements.

5.20 STANDARDS, INTERPRETATIONS AND AMENDMENTS TO APPROVED ACCOUNTING STANDARDS THAT ARE NOT YET EFFECTIVE

The following standards, amendments and interpretations with respect to the approved accounting standards as applicable in Pakistan would be effective from the dates mentioned below against the respective standard or interpretation:


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Annual Report 2016


Standard or Interpretation Effective date (annual periods Beginning on or after)

IFRS 2 Classification and Measurement of Share-based Payment Transactions (Amendment) 1 January, 2018

IFRS 10 Consolidated Financial Statements and IAS 28 Investment in Associates and Joint Ventures - Sale or Contribution of Assets be-tween an Investor and its Associate or Joint Venture (Amendment) Not yet finalized

IAS 7 Statement of Cash Flows (Amendments) Disclosure initiative 1 January, 2017

IAS 12 Income Taxes (amendments) Recognition of Deferred Tax Assets for unrecognized losses 1 January 2017

The above standards and amendments are not expected to have any material impact on the FMFB’s financial statements in the period of initial application.

Further, following new standards have been issued by IASB which are yet to be notified by the SECP for the purpose of applicability in Pakistan.

StandardIASB Effective date

(annual periods beginning on or after)

IFRS 9 – Financial Instruments: Classification and Measurement 1 January 2018

IFRS 14 – Regulatory Deferral Accounts 1 January 2016

IFRS 15 – Revenue from Contracts with Customers 1 January 2018

IFRS 16 – Leases 1 January 2019

6. SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with approved accounting standards as applicable in Pakistan, requires management to make judgments/estimates and associated assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. These judgments/estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the estimates about carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period, or in the period of the revision and future periods. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have significant effect on the amounts recognized in the financial statements relates to staff retirement and deferred tax asset recognition which are discussed in following paragraphs:

6.1 EMPLOYEE BENEFITS

Defined benefit plan is provided for eligible employees of FMFB. For defined benefit, a deferred liability is recognized in FMFB’s financial statements. The calculation of defined benefit plan requires assumptions to be made of future outcomes, the principal ones being in respect of increases in remuneration, expected long-term return on plan assets and the discount rate used to convert future cash flows to current values. The assumptions used may vary as they are determined by independent actuary. Calculations are sensitive to changes in the underlying adjustments.

6.2 DEFERRED TAX ASSET

Deferred tax asset is recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax asset that can be recognized, based upon the likely timing and the level of future taxable profits.


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Annual Report 2016


2016 2015


7. CASH AND BALANCES WITH SBP AND NBP

Cash in hand 177,901 146,840

Balance with State Bank of Pakistan 7.1 445,277 309,257

Balance with National Bank of Pakistan in

Current account - -

Deposit accounts 7.2 217,345 166,009

840,523 622,106

7.1. This balance maintained in current accounts with SBP to meet the Cash Reserve Requirement ("CRR").

7.2. These carry markup at the rate of 4% (2015: 4%) per annum.

2016 2015


8. BALANCES WITH OTHER BANKS/NBFIS/MFBS

In Pakistan

on current accounts 75,783 45,279

on deposit accounts 8.1, 8.2 736,194 1,000,365

811,977 1,045,644

8.1. These carry markup at rates ranging between 3.75% to 8% (2015: 4% to 9%) per annum.

8.2. These include balances held with Habib Bank Limited, a related party, amounting to Rs. 337,109 thousand (2015: Rs. 285,122 thousand).

2016 2015


9. INVESTMENTS - NET OF PROVISIONS

Held to Maturity

Federal Government securities

Pakistan Investment Bonds 9.1 262,921 657,870

Market Treasury Bills 9.2 283,444 174,906

546,365 832,776

Term Deposit Receipts (TDRs) 9.3 2,447,046 2,061,900

2,993,411 2,894,676

Available for Sale


Pakistan Investment Bonds 9.1 218,358 918,828

Market Treasury Bills 9.2 2,419,603 190,246

2,637,961 1,109,074


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Annual Report 2016


2016 2015


9.4 Particulars of surplus on revaluation of available for sale investments:

Opening balance 26,015 24,745

(loss) / gain transferred to revaluation of assets account below equity (24,767) 1,270

Closing balance 18 1,248 26,015

9.1. These represent three to ten year bonds carrying markup at rates ranging between 7.0% to 12.0% (2015: 9.6% to 12.0%) per annum, payable on a semi-annual basis, maturing in 2017-2019. This also includes a ten years bond and a three years bond held for the purposes of Depositors' Protection Fund carrying mark-up at the rate of 9.6% and 7.0% (2015: 9.6% and 11.25%) per annum respectively, maturing in 2017-2019.

9.2. These securities have an original maturity period of three months to one year with yields ranging between 5.28% to 6.25% (2015: 6.27% to 8.85%) per annum.

9.3. These represent TDRs with an original maturity of one month to one year carrying markup at rate ranging between 6.45% to 12.0% (2015: 6.65% to 10.0%) per annum, payable on maturity. It also include one month TDRs held with Habib Bank Limited, a related party, of Rs. 501,535 thousand carrying a markup 6.75% (2015: Nil).

10.1. This includes advances secured against gold collaterals and cash deposits amounting to Rs. 669,906 thousand (2015: Rs. 539,875 thousand) whereas the remaining advances except staff loans are secured by personal guarantees. Advances includes 585 (2015: 490) staff loans, aggregating to Rs. 71,222 thousand (2015: Rs. 52,151 thousand), carrying markup at rates ranging between 3% to 5% per annum (2015: 3% to 5% per annum). This includes loans outstanding of key management personnel of Rs. 11,040 thousand (2015: Rs. 4,624 thousand).

2016 2016 2015 2015

NOTE NUMBER RUPEES ‘000 NUMBER RUPEES ‘000

10. ADVANCES - NET OF PROVISIONS

Considered good 10.1 218,357 8,215,053 174,225 5,550,652

Considered doubtful 10.2 2,721 58,873 3,003 89,091

221,078 8,273,926 177,228 5,639,743

Less:

Specific provision 10.3 14,049 31,785

General provision

- Mandatory provision at the rate of 1% 10.3 75,187 50,992

- Provision for flood effected clients 10.4 - 31,354

- Additional provision 1,462 -

76,649 82,346

90,698 114,131

8,183,228 5,525,612

2016 2015

Held for Trading


Market Treasury Bills 9.2 299,083 -

299,083 -

Surplus on revaluation of available for sale investments 9.4 1,248 26,015

5,931,703 4,029,765


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Annual Report 2016


10.2. Particulars of non performing advances Following is the detail of advances which have been placed under non-performing status in accordance with note 5.4.

10.3. Particulars of provision against non performing advances

10.4. In 2015, general provision was maintained in respect of advances relating to calamity affected branches in Chitral region.

Amountoutstanding Secured loan

Amount to be provide

for

Required provision

percentageProvision required

Provision held

RUPEES ‘000 RUPEES ‘000 RUPEES ‘000 RUPEES ‘000 RUPEES ‘000

Classification

2016

Other Assets Especially Mentioned 29,015 2,054 26,961 0% - -

Sub-standard 10,657 736 9,921 25% 2,480 2,480

Doubtful 14,163 824 13,339 50% 6,669 6,669

Loss 5,038 138 4,900 100% 4,900 4,900

Total 58,873 3,752 55,121 14,049 14,049

2015

Other Assets Especially Mentioned 21,541 1,189 20,352 0% - -

Sub-standard 12,347 851 11,496 25% 2,874 2,874

Doubtful 52,001 521 51,480 50% 25,740 25,740

Loss 3,202 31 3,171 100% 3,171 3,171

Total 89,091 2,592 86,499 31,785 31,785

Specific2016

General2016

Total2016

Specific2015

General2015

Total2015

NOTE RUPEES ‘000 RUPEES ‘000 RUPEES ‘000 RUPEES ‘000 RUPEES ‘000 RUPEES ‘000

Opening balance 31,785 82,346 114,131 16,983 46,325 63,308

Charge for the year 37,321 (5,697) 31,624 60,947 36,021 96,968

Less: Amounts written off 10.5 55,057 - 55,057 46,145 - 46,145

(17,736) (5,697) (23,433) 14,802 36,021 50,823

Closing balance 14,049 76,649 90,698 31,785 82,346 114,131

2016 2015


10.5. Particulars of write offs

Against provisions 10.5.1 55,057 46,145

55,057 46,145


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Annual Report 2016


10.5.1. These represent non-performing advances, overdue for 210 days or more, which are written-off in accordance with the policy of FMFBL, as explained in note 5.4 to the financial statements.

10.5.2. There is no requirement for the borrowers to save and deposit any amount as a condition for the loan disbursement.

10.6. Portfolio quality report

FMFB’s main measure of loan delinquency is an aged portfolio-at-risk ratio. Loans are separated into classes depending on the number of days they are over-due. For each class of loan, the aggregated outstanding principal balance of such loan is divided by the aggregated outstanding principal balance of the gross loan portfolio before deducting allowance for non-performing advances. Loans are considered overdue if any payment has fallen due and remained unpaid. Loan payments are applied first to additional mark-up, interest due and then to installment of principal that is due but unpaid. The number of days of delay is based on the due date of the earliest loan instalment that has not been fully paid.

In 2016, 9 loan products (2015: 9 loan products) have been disbursed with tenures ranging from three months to three years (2015: 3 months to 3 years), in accordance with the needs of the borrowers. The staff loans have maturity up to 60 months (2015: 60 months). Loan repayments are scheduled on a bullet or instalment basis whereby principal and service charges are recovered on an instalment basis and/or on ma-turity as per the repayment schedule. Management estimates that the average term of its outstanding loan portfolio is 12.50 months (2015: 11.50 months) based on the remaining weighted average tenure of loans outstanding as at the balance sheet date.

Measures related to the classification of late payments are mentioned in note 5.4.

10.7 Current recovery ratio

Current recovery ratios are calculated on a monthly basis for management reporting purposes. The numerator of this ratio is cash received on account of principal during the reporting period (including prepayments and late payments). The denominator is total payments of principal amounts that fell due for the first time during the reporting period, as per the terms of the original loan contracts (regardless of any subsequent loan renegotiations). Loan delinquency is measured using the Non Performing Loans (NPL) ratio.

The Annual Loss Rate (loans written off during the year divided by average loan portfolio outstanding) for the year is 0.79% (2015: 0.91%).

2016 2016 2015 2015

AMOUNT RUPEES ‘000

PORTFOLIOAT RISK%

AMOUNT RUPEES ‘000

PORTFOLIO AT RISK%

Loans

Current and less than 30 days late 8,215,053 - 5,550,652 -

30-59 days late 29,015 0.35% 21,541 0.38%

60-89 days late 10,657 0.13% 12,347 0.22%

90-179 days late 14,163 0.17% 52,001 0.92%

180 days or more late 5,038 0.06% 3,202 0.06%

8,273,926 0.71% 5,639,743 1.58%

2016 2015

CURRENT RECOVERY RATIO IN %

Period

1st Quarter 110% 107%

2nd Quarter 108% 107%

3rd Quarter 111% 104%

4th Quarter 105% 105%

109% 106%


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Annual Report 2016


2016 2015


10.8. Portfolio by segment

Loan type

Agri input 1,112,801 809,409

Live stock 2,826,787 1,866,070

Micro-enterprise 2,068,972 1,578,053

Others 10.8.1 2,265,366 1,386,211

8,273,926 5,639,743

10.8.1. These include loans provided for general purposes.

11. OPERATING FIXED ASSETS

Capital work-in-progress 11.1 33,616 155,798

Property and equipment 11.2 358,099 218,888

Intangible assets 11.3 104,644 8,281

496,359 382,967

11.1. Capital work-in-progress

Advances to suppliers and contractors 33,616 29,936

Work in progress - Core Banking System - 125,862

33,616 155,798

11.1.1. Movement in the Capital work-in-progress is as follows:

Opening balance 155,798 25,137

Additions during the year 50,355 155,798

Transfers to:

- Property and equipments (67,824) (25,137)

- Intangible assets (104,713) -

(172,537) (25,137)

Closing balance 33,616 155,798


68

Annual Report 2016


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69

Annual Report 2016


CostAccumulated Depreciation Book value

SaleProceeds

Mode ofDisposal

Particulars of Buyers

RUPEES ‘000 RUPEES ‘000 RUPEES ‘000 RUPEES ‘000

Particulars

Fixture cost of Tiba Sultan POL 555 (151) 404 38 SaleM/s Madina Electronics

Furniture and fixtures, office equip-ment and computer equipment 1,003 (1,003) - 53 Sale

M/s Mohammadi Electronics & Engineering Company

Furniture and fixtures, office equip-ment and computer equipment 2,879 (2,858) 21 129 Sale

M/s Intellect Systems

Fixture cost of D.G Khan Branch 1,498 (1,498) - 23 Sale

M/s M Rehman Furniture

Fixture cost of Hyderabad Risala Road Branch 1,615 (1,615) - 60 Sale

M/s Geo Gillani

Furniture and fixtures, office equip-ment and computer equipment 1,804 (1,804) - 181 Sale

Mr. Munawar Ali

Total 2016 9,355 (8,930) 425 483

Total 2015 2,145 1,112 1,033 1,048

11.2.2. Details of fixed assets disposed off with the original cost or book value in excess of Rs. 1 million or Rs. 250 thousand, respectively, whichever is less is as under:

11.2.3. No fixed assets were sold to the Chief Executive or a director or an executive or a shareholders holding not less that ten percent of the voting shares of the FMFB or any related party.


70

Annual Report 2016


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71

Annual Report 2016


2016 2015


12. OTHER ASSETS

Accrued mark-up on:

- loans and advances 601,436 459,481

- non performing loans and advances transferred to suspense account (155,206) (146,901)

- investments and bank accounts 22,735 71,088

468,965 383,668

Advances to employees 1,898 1,968

Deposits 2,301 2,245

Prepayments 12.1 55,848 43,410

Taxes - net of provision 2,639 73,291

Other receivables 12.2 46,680 26,488

Stationery stock 2,457 2,487

580,788 533,557

2016 2015


13. DEFERRED TAX ASSET

Arising in respect of deductible temporary differences

Operating fixed asset 6,444 13,133

Provision against non-performing loans and advances 27,209 34,553

33,653 47,686

12.1. This includes prepayment rent amounting to Rs. 13,454 thousand (2015: Rs. 11,284 thousand) to Habib Bank Limited, a related party.

12.2. These includes an amount due from related parties, Jubilee General / Life Insurance, of Rs. 10,591 thousand (2015: Rs. 12,147 thousand); Aga Khan Agency for Microfinance, of Rs. 1,427 thousand (2015: of Rs. 1,021 thousand), FMFB Afganistan and Tajikistan of Rs.628 thousand (2015: Nil) and Habib Bank Limited of Rs. 3,648 thousand (2015: Nil).


72

Annual Report 2016


2016 2015


15. BORROWINGS

Borrowings under repurchase agreements 297,820 645,576

14.1. These include balances due to related parties of Rs. 907,605 thousand (2015: Rs. 666,679 thousand).

15.1. This represents borrowing, from a local financial institution, amounting to Rs. 296,955 thousand with maturity date of 16 January 2017 and carry mark-up rate of 6.25% per annum. It is secured against Market Treasury Bills having face value of Rs. 300,000 thousand.

2016 2016 2015 2015


14. DEPOSITS AND OTHER ACCOUNTS

Time liabilities

Fixed Deposits 8,376 6,307,133 8,067 5,325,504

Demand liabilities

Saving deposits 108,016 4,578,120 104,485 3,316,856

Current deposits 341,818 1,352,213 183,696 1,018,728

14.1 458,210 12,237,466 296,248 9,661,088

2016 2016 2015 2015


14.2. Particulars of deposits by ownership

Individual depositors 442,361 7,485,776 282,931 6,066,208

Institutional depositors

a) Corporations/Firms 15,556 2,275,036 13,231 2,653,596

b) Banks and financial institutions 293 2,476,654 86 941,284

458,210 12,237,466 296,248 9,661,088


73

Annual Report 2016


2016 2015


16. OTHER LIABILITIES

Accrued markup on deposits 16.1 235,439 210,686

Bills payable 31,464 47,263

Branch adjustment account 11,682 3,179

Accrued liabilities 16.2 206,274 50,658

Withholding tax payable 11,886 8,986

Retention money 3,477 1,213

Payable to defined benefit gratuity fund 29.3 12,150 14,263

Payable to defined contribution provident fund 69 19

512,441 336,267

2016 2015


17. SHARE CAPITAL

17.1. Authorized Share Capital

2016 2015

Numbers Numbers

350,000,000 350,000,000 3,500,000 3,500,000

Ordinary shares of Rs. 10 each

17.2. Issued, subscribed and paid-up capital

2016 2015

Numbers Numbers

273,081,115 135,150,080 17.3 2,730,811 1,351,501

Ordinary shares of Rs. 10 each fully paid in cash

16.1. These include accrued markup on deposits due with related parties of Rs. 9,972 thousand (2015: Rs. 7,061 thousand).

16.2. These include balances amounts due with related parties of Rs. 11,898 thousand (2015: Rs. 6,552 thousand).


74

Annual Report 2016


2016 2015


17.3 Share Capital of FMFB is held as under:

Habib Bank Limited ("HBL") 17.3.1 1,379,310 -

Aga Khan Agency for Microfinance ("AKAM") 571,500 571,500

Aga Khan Rural Support Programme ("AKRSP") 300,000 300,000

International Finance Corporation ("IFC") 240,000 240,000

Japan International Corporation Agency ("JICA") 240,000 240,000

Others 1 1

2,730,811 1,351,501

2016 2015


18. Surplus on Revaluation of Assets

Available-for-sale investments:

Government securities 9.4 1,248 26,015

17.3.1. During the year, 137,931,035 shares, having face value of Rs. 10 each, were issued in cash to HBL at a premium of Rs. 4.5 each.

2016

SBP CIDA SBP FICF Total


NOTE 19.1 19.2 19.3

19. DEFERRED GRANTS

Opening balance as at 1 January 2016 2,776 - - 2,776

Grants received during the year - - - -

Expenses incurred during the year - - - -

Amortization during the year 1,182 - - 1,182

Income transferred to profit and loss account 24 1,182 - - 1,182

Grant returned to the donor - - - -

Closing balance as at 31 December 2016 1,594 - - 1,594

Cumulative grants received till 31 December 2016 12,841 4,288 2,505


75

Annual Report 2016


2015

SBP CIDA SBP FICF Total

NOTE RUPEES ‘000 RUPEES ‘000 RUPEES ‘000 RUPEES ‘000

Opening balance as at 1 January 2015 3,958 302 - 4,260

Opening balance receivable as at 1 January 2015 - (17) (17)

Net balance payable / (receivable) as at 1 January 2015 6,090 - (17) 4,243

Grants received during the year - - 1,421 1,421

Expenses incurred during the year - 302 278 580

Amortization during the year 1,182 - - 1,182

Income transferred to profit and loss account 24 1,182 302 278 1,762

Grant written off during the year - - 1,126 1,126

Closing balance as at 31 December 2015 2,776 - - 2,776

Cumulative grants received till 31 December 2015 12,841 4,288 2,505

19.1. This represents grant under Financial Inclusion Program ("FIP") designed to develop capacity of the Microfinance Industry to enhance potential for growth and depth in outreach by improving human resource quality, improving quality of services and increasing the services available to potential client. This grant is approved for purchasing, installing and implementation of Oracle Financial and Human Resource Information System (HRIS).

19.2. This was grant from the Canadian International Development Agency (CIDA) for Independent Evaluation of Alternate Microcredit Delivery Channel - Pakistan Post Office Operation.

19.3. This was grant awarded by State Bank of Pakistan (SBP) to introduce the solar tube wells in the agriculture sector to support irrigation needs in collaboration with Nizam Energy (Pvt) Ltd.

20. MEMORANDUM / OFF - BALANCE SHEET ITEMS

20.1. Contingencies:

FMFB has filed tax returns up to tax year 2016, which are deemed assessed in terms of section 120(1) of the Income Tax Ordinance, 2001.

20.2. Commitments:

There were no commitments as at 31 December 2016 (2015: Nil)

2016 2015


21. MARK-UP/RETURN/INTEREST EARNED

Mark-up on advances 2,058,631 1,546,771

Income on investment in Government securities 186,481 258,922

Income from Term Deposit Receipts (TDRs) 176,216 114,053

Mark-up on deposit accounts with treasury and other banks 58,935 53,069

Income from Term Finance Certificates - net of premium - 132

2,480,263 1,972,947


76

Annual Report 2016


2016 2015


22. MARK-UP/RETURN/INTEREST EXPENSED

Deposits and other accounts 576,464 579,327

Borrowings 22.1 4,422 16,158

580,886 595,485

22.1. This represents mark-up expense on repo transactions during the year.

23. FEE, COMMISSION AND BROKERAGE INCOME

Fee 151,566 116,550

Commission 7,204 7,348

158,770 123,898

24. AMORTIZATION OF DEFERRED GRANT

Deferred grant income recognized in respect of :

- Operational expenses - 580

- Capital expenditure (amortization) 11.3.1 1,182 1,182

19 1,182 1,762

25. OTHER INCOME

Gain on disposal of operating fixed assets 2,490 1,250

Revaluation (loss) / gain on held for trading investments (60) 235

Gain on sale of investment 18 434

Others 8,161 4,893

10,609 6,812

26. ADMINISTRATIVE EXPENSES

Staff salaries and benefits 778,840 524,206

Contribution to defined contribution provident fund 32,741 25,430

Charge for defined benefit gratuity fund 23,969 15,385

Training and capacity building 32,620 9,320

Depreciation 11.2 93,766 60,615

Amortization of intangible assets 11.3 10,934 3,687

Travel and transportation 84,219 61,311

Rent, rates and taxes 92,983 81,220

Utilities 54,194 49,136

Printing, stationery and periodicals 36,764 22,414

Communications 38,161 23,808

Office security 61,909 47,524

Insurance 63,903 43,874

Repair and maintenance 30,702 23,656

Office supplies 23,831 18,195

Information technology supplies and software 34,805 8,881

Verification charges 15,582 10,672

Bank charges 14,912 10,154

Advertisement and business promotions 6,807 1,061

Legal and professional 21,723 8,289

Auditors' remuneration 26.1 2,377 1,946

Other expenses 5,377 1,279

1,561,119 1,052,063

Less: Grant related expense 24 (1,182) (1,762)

1,559,937 1,050,301


77

Annual Report 2016


2016 2015


26.1. Auditors' remuneration

Audit fee 1,099 999

Special certifications and other assurance services 255 340

Fee for half yearly review 160 145

Out of pocket expenses 864 462

2,377 1,946

27. OTHER CHARGES

Penalties imposed by the State Bank of Pakistan 1,392 40

28. TAXATION

28.1. Reconciliation of tax expense and accounting profit

Accounting profit before tax 491,815 385,009

Tax at the applicable rate of 31% (2015: 32%) 152,463 123,203

Prior year brought forward tax losses - (27,152)

Benefit of gross loss 14,850 -

Minimum tax and Alternate Corporate Tax paid in prior years - (52,194)

Relating to origination and reversal of temporary differences (15,018) 16,891

Others 3,271 -

155,566 60,748

29. DEFINED BENEFIT PLAN

29.1. General description

As mentioned in note 5.8, FMFB operates an approved defined benefit gratuity plan for all permanent employees with a qualifying service period of five years. Eligible employees are entitled to one month’s basic salary for each completed year of service upon retirement. An annual provision has been made on the basis of an actuarial valuation to cover obligations under the scheme for all eligible employees.

29.2. Principal actuarial assumptions

The latest actuarial valuation of FMFB’s defined benefit plan based on the Projected Unit Credit Method was carried out as at 31 December 2016. Actuarial gains/(losses) arising during the year are recognized in Other Comprehensive Income (OCI) in accordance with IAS-19 (Revised 2011). The significant assumptions used in the valuation are as follows:

- Discount rate of 9.5% (2015: 10%) per annum- Expected increase in salary levels of 8.5% (2015: 8.50%) per annum- Expected return on plan assets of 9.5% (2015: 10%) per annum.


78

Annual Report 2016


2016 2015


29.3. Fair value of plan assets and present value of obligation under the scheme at the balance sheet date were as follows:

Present value of defined benefit obligation 29.5 134,433 102,238

Fair value of plan assets 29.6 (122,284) (87,975)

29.4 12,149 14,263

29.4. Movement in the liability recognized in the balance sheet:

Opening net liability 14,263 374

Expense for the year 29.7 23,969 15,385

Contributions made to the fund (32,187) (9,354)

Actuarial loss 6,104 7,858

Liability at end of the year 12,150 14,263

29.5. Movement in the present value of defined benefit obligation:

Present value of defined benefit obligation at beginning of the year 102,238 80,352

Current service cost 24,152 17,965

Interest cost 10,018 8,587

Benefits paid (4,107) (8,056)

Settlement gain - (2,097)

Actuarial loss 2,132 5,487

Present value of defined benefit obligation at end of the year 134,433 102,238

29.6. Movement in the fair value of plan assets:

Fair value of plan assets at beginning of the year 87,975 79,978

Interest income 10,201 9,070

Contributions made to the fund 32,187 9,354

Benefits paid (4,107) (8,056)

Actuarial loss (3,972) (2,371)

Fair value of plan assets at end of the year 29.9 122,284 87,975

29.7. Amount charged to defined benefit plan in the profit and loss account:

Current service cost 24,152 17,965

Interest cost on obligation 10,018 8,587

Interest income on plan assets (10,201) (9,070)

Settlement gain - (2,097)

26 23,969 15,385

29.8. Actual return on plan assets

The actual return earned on plan assets 6,229 6,699

29.9. Plan assets consists of the following assets:

Bank balances 76,688 10,538

Investments 45,596 77,437

122,284 87,975


79

Annual Report 2016


29.10. Sensitivity Analysis

Sensitivity analysis has been performed by varying one assumption keeping all other assumptions constant and calculating the impact on the present value of the defined benefit obligation under the various employee benefit scheme. The increase / (decrease) in the present value of defined benefit obligations (PVDBO) as a result of change in each assumption is summarized below:

29.11. Expected contribution to the plan

Based on actuarial advice, the management estimates that the charge in respect of defined benefit plan for the year ending 31 Decem-ber 2017 is Rs. 26,515 thousand.

2016 2015


Changes in PVDBO

Increase in discount rate by 1% (17,501) (12,878)

Decrease in discount rate by 1% 21,342 15,674

Increase in future increment in salary by 1% 21,696 16,280

Decrease in future increment in salary by 1% (18,062) (13,545)

Increase in Withdrawal Rate by 10% 406 236

Decrease in Withdrawal Rate by 10% (369) (243)

Increase in Mortality Rate by 10% (70) 81

Decrease in Mortality Rate by 10% 70 (82)

2016

Credit/salesBanking/ support Total

30. NUMBER OF EMPLOYEES

Permanent 1,259 247 1,506

Contractual 19 16 35

Total 1,278 263 1,541

2015

Permanent 1,062 255 1,317

Contractual 18 11 29

Total 1,080 266 1,346


80

Annual Report 2016


2016 2015

30.1. Average number of employees during the year 1,423 1,223

Un-audited 2016 Audited 2015


31. EMPLOYEES PROVIDENT FUND TRUST

Size of the Fund 351,989 272,089

Cost of investments made 326,014 256,812

Percentage of investments made 93% 94%

Fair value of investments 331,881 266,873

2016 2015

RUPEES ‘000 % RUPEES ‘000 %

Breakup of Investments is as follows:

Pakistan Investment Bonds 1,108 0% 78,290 29%

Mutual Funds 7,164 2% - -

Term Deposit Receipts 125,595 38% 167,771 63%

Balance with Banks 198,014 60% 20,812 8%

331,881 266,873

31.1. The figures for 2016 are based on the un-audited financial statements (2015: audited financial statements) of the Provident Fund. All the investments out of provident fund trust have been made in accordance with the provisions of Section 227 of the Companies Ordinance, 1984 and the rules formulated for that purpose.

32. NUMBER OF BRANCHES/POINT OF LINK UNITS/PERMANENT BOOTHS

At beginning of the year 109 100

Opened during the year 3 9

Upgraded during the year 8 -

At end of the year 120 109


81

Annual Report 2016


President/Chief Executive Executives

2016 2015 2016 2015


33. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

Managerial remuneration 11,235 11,235 116,249 101,681

Contribution to provident fund 1,124 1,124 10,684 8,492

Rent and house maintenance 4,494 4,494 46,500 40,672

Utilities 1,124 1,123 11,624 10,168

Medical 393 36 4,075 718

Others - 936 13,430 9,539

18,370 18,948 202,562 171,270

Numbers 1 1 103 116

33.1. Number of executives includes those who have worked partly or completely during the year and whose basic salary exceeds Rs. 500,000 (2015: Rs. 500,000) per year.

33.2. The President/Chief Executive Officer and certain other executives are also provided with free use of FMFB owned and maintained cars in accordance with their entitlement as per policy of FMFB.

33.3. No remuneration was paid to the directors of FMFB.

34.1. There is no dilutive effect on the basic earning per share of FMFB.

35. RELATED PARTY TRANSACTIONS

Related parties of FMFB comprise of its major shareholders, associates (including entities having directors in common with FMFB), directors, key management personnel and staff retirement funds.

Balances with related parties have been disclosed in the respective notes. Transaction with related parties, other than those disclosed in the elsewhere in the financial statements are summarized as follows:

2016 2015

34. EARNING PER SHARE (RUPEE)

Profit after taxation - Rupees in '000' 316,259 311,715

Weighted average number of ordinary shares - Numbers in '000' 219,944 135,150

Earning per share - Rupee 1.44 2.31

2016 2015

RUPEES ‘000 RUPEES ‘000

Related parties by virtue of major shareholders

Mark-up expense on deposits received and borrowings 10,872 20,186

Vehicle and offices' rentals 22,482 21,564

Profit received on deposits with related parties 6,437 8,426


82

Annual Report 2016


2016 2015


Related parties by virtue of common directorship

Mark-up expense on deposits received 5,863 16,591

Insurance expense 63,903 43,873

Meals and lodging expenses 404 -

Others

Contribution to defined contribution provident fund 32,741 25,430

Mark-up expense on deposits of key management personnel 19 21

FMFB has not extended any microfinance services to members of management, directors or parties related to them.

2016 2015


36. CASH AND CASH EQUIVALENTS

Cash and Balances with SBP and NBP 7 840,523 622,106

Balances With Other Banks/NBFIs/MFBs 8 811,977 1,045,644

Term deposit receipts (having tenure of three months or less) 1,941,275 350,000

3,593,775 2,017,750


83

Annual Report 2016


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84

Annual Report 2016


Inte

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85

Annual Report 2016


37.1. Concentration of credit risk:

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. FMFB’s credit risk is primarily attributable to its advances, lending to financial institutions and balances at banks. The credit risk on liquid funds is limited because the counter parties are banks with reasonably high credit ratings. FMFB has an effective loan disbursement and recovery monitoring system which allows it to evaluate borrowers credit worthiness and identify potential problem loans. A provision for potential loan losses is maintained as required by the Prudential Regulations. Maximum amount of financial assets which are subject to credit risk amount to Rs. 11,234,427 thousand (2015: Rs. 8,580,941 thousand).

37.2. Liquidity risk:

Liquidity risk is the risk that FMFB will encounter difficulty in raising funds to meet its net funding requirements. FMFB attempts to manage this risk by having adequate credit lines in place and maintaining sufficient liquidity at branch level to meet anticipated funding requirements.

37.3. Interest rate risk:

Interest rate risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market interest rate. FMFB’s interest rate exposure stems mainly from investing activities. This risk is managed by regular review of held-for-trading portfolio of government securities.

37.4. Fair value of financial instruments:

“Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability; or

• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by FMFB. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

FMFB uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

Fair value of available for sale and held for trading investments has been calculated based on market yields obtained from Mutual Funds Association of Pakistan (MUFAP) at year end. These investments are categorized in Level 2 category as per IFRS 13.

The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair value except for Held to Maturity investments which are recorded at amortized cost.”

37.5. Capital management:

The paid-up capital of FMFB is Rs. 2,730,811 thousand (2015: Rs. 1,351,501 thousand) which meets minimum paid-up capital (free of losses) requirement of Rs. 1,000,000 thousand (2015: Rs. 1,000,000 thousand) as specified in the Microfinance Institutions Ordinance, 2001. FMFB has Capital Adequacy Ratio (CAR) of 40% of its risk-weighted assets which is in compliance with the requirements of Prudential Regulations to maintain CAR of 15% of risk-weighted assets.


86

Annual Report 2016


Total 2016Up to one

month

Over one month up to six months

Over six months up to

one year Over one year


38. SCHEDULE OF MATURITY DISTRIBUTION OF MARKET RATE ASSETS AND LIABILITIES

31 December 2016

Assets

Interest/Mark up earning

- Cash and Balances with SBP and NBP 217,345 217,345 - - -

- Balances With Other Banks/NBFIs/MFBs 736,194 736,194 - - -

- Investments 5,931,703 1,823,224 3,085,413 843,844 179,222

- Advances 8,183,228 155,683 1,820,448 3,974,178 2,232,919

Non-Interest/Mark up earning



- Other Assets 580,788 447,643 42,047 88,983 2,115

- Deferred Tax 33,653 - - - -

- Operating Fixed Assets 496,359 - - - -

16,878,231 4,079,050 4,947,908 4,907,005 2,414,256

Liabilities

Interest/mark up bearing

- Large time deposits above Rs. 100,000 6,134,930 1,462,268 2,059,410 1,920,363 692,889

- Deposits and other accounts 4,750,323 4,599,317 73,322 57,058 20,626

- Borrowings 297,820 297,820 - - -

Non-Interest/mark up bearing

- Deposits and other accounts 1,352,213 1,352,213 - - -

- Other Liabilities 512,441 324,150 83,642 71,233 33,416

13,047,727 8,035,768 2,216,374 2,048,654 746,931

Net assets 3,830,504 (3,956,718) 2,731,534 2,858,351 1,667,325

Represented by :

Share Capital 2,730,811

Share premium 620,690

Statutory & General Reserves 189,569

Depositors protection fund 55,014

Accumulated profit 231,578

Surplus on revaluation of assets 1,248

Deferred grant 1,594

3,830,504


87

Annual Report 2016


Total 2015Up to one

month

Over one month up to six months

Over six months up to

one year Over one year


38. SCHEDULE OF MATURITY DISTRIBUTION OF MARKET RATE ASSETS AND LIABILITIES

31 December 2015

Assets

Interest/Mark up earning


- Balances With Other Banks/NBFIs/MFBs 1,000,365 1,000,365 - - -

- Investments 4,029,765 468,521 1,001,608 2,230,140 329,496

- Advances 5,525,612 207,953 1,868,771 2,574,798 874,090

Non-Interest/Mark up earning



- Other Assets 533,557 289,553 157,796 83,734 2,474

- Deferred Tax 47,686 - - - -

- Operating Fixed Assets 382,967 - - - -

12,187,337 2,633,777 3,028,175 4,888,672 1,206,060

Liabilities

Interest/mark up bearing

- Large time deposits above Rs. 100,000 5,110,921 774,898 2,284,344 1,141,664 910,015

- Deposits and other accounts 3,531,439 3,338,526 74,561 74,184 44,168

- Borrowings 645,576 645,576 - - -

Non-Interest/mark up bearing

- Deposits and other accounts 1,018,728 1,018,728 - - -

- Other Liabilities 336,267 164,832 91,247 30,782 49,406

10,642,931 5,942,560 2,450,152 1,246,630 1,003,589

Net assets 1,544,406 (3,308,783) 578,023 3,642,042 202,471

Represented by :

Share Capital 1,351,501

Statutory & General Reserves 126,317

Depositors' Protection Fund 36,716

Accumulated profit 1,081

Surplus on Revaluation of Assets 26,015

Deferred grant 2,776

1,544,406


88

Annual Report 2016


2016 2015


39. OPERATIONAL/NON-OPERATIONAL PROFIT / (LOSS)

Profit before taxation comprises of:

Operational profit 490,633 383,247

Grant income 1,182 1,762

491,815 385,009

40. CORRESPONDING FIGURES

Corresponding figures have been re-arranged and re-classified, where necessary, for more appropriate presentation.

41. GENERAL

Figures have been rounded off to the nearest thousand rupee unless otherwise stated.

42. DATE OF AUTHORIZATION FOR ISSUE

“These financial statements were authorized for issue by the Board of Directors of FMFB in their meeting held on 16 MAR 2017



89

Annual Report 2016

FMFBFOOTPRINT


90

Annual Report 2016

The First MicroFinanceBank Ltd.

16th& 17th Floors, Habib Bank Tower, Blue AreaIslamabad, Pakistan.

Ph. +92 51 282 4450 051 111 362 362 +92 51 282 1817 [email protected]. FAX. EMAIL.

www.fmfb.com.pk

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