Lanka Financial Services forUnderserved Sett lements
L F S U S
Lanka Financial Services for Underserved Settlements
MISSIONCreating an effective partnership to reach underserved communities
with affordable finance for healthy, clean and beautiful housing.
VISIONMaking low income settlers bankable by uplifting their dignity and living standards.
Community - MFI
Donor Programme
MFI - Community
Loan Programme
LFSUS
Bridging the Gap Between
Formal Market
&
Informal Market
Sustainability
Upgrading
Security of Tenure
Finance Literacy
Living
e
LFSUS
Bridging the Gap BetweenFFFFinance Literacyeracy
LLivingvingi
MFI - Community
Loan Programme
Formal Marketrketrke
&
Informal Market
LLLLivinvi
ket
ngng
Notice of Meeting
Chairman’s Review
Chief Executive Officer’s Review
Board of Directors
Corporate Governance Report
Corporate Information
Operational Highlights
Financial Highlights
Independent Auditor’s Report
Statement of Financial Activities
Balance Sheet
Statement of Changes in Accumulated Fund
Cash Flow Statement
Notes to the Financial Statements
LFSUS Annual Report 2011
1
CONTENTS
LANKA FINANCIAL SERVICES FOR UNDERSERVED SETTLEMENTS
NOTICE OF MEETING
NOTICE is hereby given that the Annual General Meeting of Lanka Financial Services for Underserved Settlements will
be held at the Registered Office, No. 32A, Horton Place, Colombo 7 on Tuesday, 6th December 2011 at 3.00 p.m.
AGENDA
1. To receive and consider the Statement of Accounts for the year ended 31st March 2011 with the
Report of the Auditors thereon.
2. To re-elect Ms. R. M. Indumathi Rathnayake and Mr. M. Faleel Ahamadh Mubarak who retires by
rotation at the Annual General Meeting as a Director.
3. To re-appoint Messrs. Wijeyeratne and Company as Auditors and authorize the Directors to
determine their remuneration.
4. To transact any other business of which due notice has been given.
By Order of the Board
PROFESSIONAL ASSIGNMENTS & SECRETARIAL
SERVICES (PVT) LTD
SECRETARIES
23rd September 2011
NOTES !A member is entitled to appoint a proxy and vote instead of himself and a proxy need not be a member of
the company.
!A Form of Proxy is enclosed for this purpose. The instrument appointing a proxy must be deposited at the
Registered Office, No. 32A, Horton Place, Colombo 7 not less than twenty four hours before the time
fixed for the meeting.
Professional Assignments and Secretarial Services (Pvt) Ltd.PASS
157 A/1, Kynsey Road
P.O. Box 191, Colombo 8, Sri Lanka.
Phone : (94) 11-2693148/2683312/
2678256/7
Fax : (94) 11-2693839
E mail : [email protected]
Web : www.wijeyeratne.com
Reg No : P V 229
LFSUS Annual Report 2011
2
CHAIRMAN’S REVIEWIt is indeed a great pleasure to present the Annual Report of
Lanka Financial Services for Underserved Settlements
(LFSUS) covering performance during our third year of
operations. LFSUS is an unique organization, working
collaboratively with UN-HABITAT and the Government of
Sri Lanka to provide low income settlers access to financial
services from national and international banks, to improve
their living conditions and to alleviate social problems such as
unsafe, unclean and overcrowded housing.
Our results for this year have been most encouraging with the
progressive increase in the level of funding. At this point in
time we are happily positioned to put the invaluable
experience gained from previous projects to maximum use
and get closer to our goal of first, providing low income
settlers a home, the elusive dream of many in general and our
target groups in particular and then, spare no effort in making
them bankable too. We are proud to be a part of an initiative
spearheaded by UN-HABITAT and the Sri Lankan government
to make ‘cities without slums’. This year, we conducted three
projects in Deniyaya, Nawalapitiya and Kaduwela. Naturally,
we were compelled to work very hard to make these
successful, providing 250 families with considerable
assistance with a total project value of Rs. 27,620,000.00. We
also have seven other projects in the pipeline which are due to
be launched in the near future.
The other key area that LFSUS will be concentrating on this
year is direct lending, in order to attract a broader range of
investors and improve the living conditions of workers in the
estate sector. Our experience over the past two years
confirms that we can confidently begin managing the lending
process ourselves and open up easier and increased access to
funding for community members. The strong relationships
forged with community organizations remain an on-going
process that plays a significant role in continuing to deliver
low cost, quality housing. We are exteremely confident that
our projects present new and beneficial avenues of
investment. In this view, we cordially invite all investors to
regard our track record as a positive indication of just how
effective of our projects are and the potential these present, as
an outlay. We believe that the attraction of the broadest
cross-section of investors to our projects will be beneficial to
community members in more ways than one. The increased
investment will also increase the overall level of available
funding and more importantly, provide opportunities to
exchange new and constructive ideas, create new
opportunities and implement a new mechanism in additional
funding.
I take this opportunity to thank everyone involved in making
our projects not only possible, but in driving these forward.
Our grateful thanks go out to our partners, the Board of
Directors and LFSUS staff. It is a privilege to work with such
dedicated, hard-working and efficient personnel and
unhesitatingly acknowledge that without them, none of our
accomplishments both past and present would have been
possible and this augurs well for the future.
Chandula AbeywickremaChairman
LFSUS Annual Report 2011
3
With the completion of the UNH-SUF programme, the year
under review proved to be a challenging task in anchoring
towards the vision of LFSUS independently. However the
passion and dedication of the Board of Directors and the
Secretariat Team enabled LFSUS to move forward, setting up
strategies to advance beyond the existing funding for future
years.
Outcomes of our existing projects have attested to be
imposingly serving as outstanding initiatives taken up by
LFSUS with the completion of houses forming as apposite
shelter for the underprivileged. The effect has made women
and children feel the real sense of security within tenure,
along with new home base income generating projects
serving as a remarkable achievement of the programme. All
projects have also maintained consistent repayments by
community members with 100% recovery without any claims
on the guarantees issued. We have continued to build strong
relationships with our partners, ensuring stability by
continued support for our organization as well as to
community members. The Deniyaya Low Income Housing
project, Estate Workers Housing project in Kataboola Estate in
Nawalapitiya and the Women’s Bank project in Kaduwela
have been the focal point of operations during the year.
LFSUS, like any other non-profit organization, faced many
challenges during the past year, but the preventive measures
taken helped to manage and reduce the risks involved. Loans
were encouraged to be given out at commercial interest rates
at all times to support the recipients with their commercial
ventures, partnering with existing community organizations
aspiring not to make the low income dependable on a
nonexistent system. Hence, the high interest rates imposed by
the MFIs were monitored and subjected to conditions created
by LFSUS. Repayments at times remain a compromised
speculation due to the nature of certain income generating
activities, yet in terms of loan repayment, this sector proved to
be far more efficient and committed than the commercial and
corporate sector recipients taken to account the immense
vicissitude of interest rates which occurred within the
commercial sector. The ground operating partners have been
able to manage and maintain the unchanged interest rate
during the past years. LFSUS is committed to strengthen its
risk management strategy through which it aims to identify
and manage the risks and thus reduce, if not completely avoid
the adverse effects.
LFSUS intends to introduce financial products through banks
and other financial institutes to the marginalized and the
underserved, categorized as the “unendorsed” by many main
stream financial institutes with the aim to bridge the gap
which is indeed a vital requirement among the low-income
communities in the society. This would open new doors of
prospects which will spawn them into new avenues through
housing finance, opening the massive pathways of
opportunities, by way of providing a gateway to develop their
business and create service. LFSUS will continue to conduit
the gap between the formal and the informal sectors in the
country, empowering the low income communities by
providing opportunities to access housing finance for a secure
sustainable development.
Our donors, international partners, Government Ministries,
local authorities, other stakeholders and the communities we
serve, continued to support our efforts. Such efforts help
vitalize our own endeavors and our sincere appreciation goes
out to them.
As I continue to visit our programmes, I am encouraged to see
the work of our staff who contribute towards the success of
the projects incalculably. It has not been easy to invent the
wheel if not for their commitment which is worthy of not only
praise but my deep appreciation. My gratitude to our
Chairman and Board Members who continue to remain keenly
involved in all our efforts with their invaluable strength and
influence, thus making the LFSUS vision of changing the lives
of many underprivileged and deprived, a reality.
Ayanthi Gurusinghe
Chief Executive Officer
CHIEF EXECUTIVE OFFICER’S REVIEW
LFSUS Annual Report 2011
4
BOARD OF DIRECTORS
LFSUS Annual Report 2011
5
Mr. Chandula Abeywickrema (Chairman)
Mr. Abeywickrema is the Deputy General Manager (Marketing and Retail Banking) of Hatton National Bank (HNB). He
counts over 25 years of experience in the financial industry. He is also the Chairman of Banking with the Poor Network
(BWTP) and Splendor Media and a Member of the Executive Advisory Board of Youth Save Consortium, USA and
Advisory Committee of Marketing Cents International, USA. He was also appointed as an independent Non-Executive
Director of Thaneakea Phum (Cambodia) Ltd., and a Team Leader of the Policy Advocacy Committee for Financial
Inclusion of the Bankers’ Association. He graduated from the University of Kelaniya, Sri Lanka with a Bachelor of
Commerce (Special) Degree.
Mr. D. Surasinghe (Director)
Mr. Surasinghe is the Senior Secretary of the Ministry of Local Government and Provincial Councils. He completed his
Diploma in Local Government Administration at the Postgraduate Institute of Management, Sri Lanka and the Diploma
in Training and Development for the Public Sector at the University of Manchester, UK. He has served as a Divisional
Secretary in several divisions in the Puttlam District.
Mr. Romesh Croos Moraes (Director)
Mr. Moraes has been a Director of James Finlay & Co. (Colombo) Ltd., since 1990. He has been with Group
International Tea Marketing Operations for over 25 years and is currently a Marketing Consultant for the Sri Lanka Tea
Board. He is also a member of the Chartered Institute of Marketing, UK and a visiting lecturer at the Postgraduate
Institute of Management, University of Sri Jayawardenepura.
Dr. Padma Ratnayake (Director)
Dr. Ratnayake is the Executive Director of South Asia Partnership, Sri Lanka (SAPSRI). Her career began as a teacher
and she later worked for the Commonwealth Foundation while based in India. Dr. Ratnayake was a Senior Lecturer at
the Commonwealth Foundation and the Sri Lanka Foundation Institute. She holds a Bachelor’s Degree in General Arts
and a Postgraduate Diploma in Education. She also possesses a Masters Degree in Philosophy and a Doctorate in
Sociology.
BOARD OF DIRECTORS
LFSUS Annual Report 2011
6
Mrs. K. V. Rupa Manel Silva (Director)
Mrs. Silva has been the Chairperson of Women’s Bank since 1998. Mrs. Silva has won awards for her talents and
creativity. She represented Asia at the World Labour Day Programme conducted by UN-ILO in Geneva where she won
an award for Women’s Creativity in Rural Life by presenting a story based on her biography.
Mr. M. F. A. Mubarak (Director)
Mr. M. F. Ahamadh Mubarak is the Deputy Director of the Department of National Planning of the Ministry of Finance
and Planning. He graduated from the University of Colombo with a Bachelor’s Degree in Business Administration. He
also holds a Master’s Degree in International Co-operation Policy from the Ritsumeikan Asia Pacific University in Japan
and a Postgraduate Diploma in Development Economics from the University of Colombo.
Mrs. R. M. Indumathi Rathnayake (Director)
Mrs. Rathnayake is the Additional Secretary (Administration) of the Ministry of Defence, Sri Lanka. She graduated from
the University of Sri Jayawardenepura, Sri Lanka with a Bachelor’s Degree in Commerce (Hons.). She has also
completed her Postgraduate Diploma in Public Management, Master of Public Administration and Master of Public
Management at the Sri Lanka Institute of Development Administration, Colombo. In addition, she is the President of the
Welfare Society and Vice President of the Seva Wanitha Unit of the Ministry of Defence, Sri Lanka.
CORPORATE GOVERNANCE REPORT
LFSUS Annual Report 2011
7
LFSUS is a company limited by guarantee established under
Section 21 of the Companies Act in the year 2007 and is
established to mobilize resources for financing islandwide
affordable housing initiatives, to improve the living standards
of low income settlers, through the development of bankable
projects that promote affordable low income housing. It
currently operates independently as a Credit Enhancement
facility, encouraging both public and private sector
investments to support microfinance institutions.
Established through an MOU signed between United Nations
Human Settlements Programme (UN HABITAT) and the
Ministry of Urban Development in 2006, LFSUS provides
assistance to the Government to initiate actions to introduce
appropriate housing finance products.
The Directors during the year under review were:
1. Mr. Chandula Abeywickrema – Board Chairman
2. Mr. Romesh Croos Moraes – Board Director
3. Mr. D. Surasinghe – Board Director
4. Dr. Padma Ratnayake – Board Director
5. Mr. M. F. A. Mubarak – Board Director
6. Mrs. R. M. Indumathi Rathnayake – Board Director
7. Mrs. K. V. Rupa Manel Silva – Board Director
8. Mrs. A. Gurusinghe – Chief Executive Officer
Board Meetings: The Board Directors meet monthly. The
Chairman and the Chief Executive Officer play separate roles.
Matters relating to formulation and implementation of sound
business strategies, internal controls and risk management
are discussed at each meeting with updates on the execution
of the agreed strategy. Strategic decisions are made
collectively in directing and controlling business activities of
the company. The decisions made are referred to the Board
and decided by resolutions in writing. All Directors are
expected to attend the scheduled Board and Committee
meetings that are arranged well in advance. Directors are
provided with agendas, supporting papers and relevant
information for each meeting. They are expected to attend all
meetings except in instances of unavoidable circumstances.
Company Secretary: The company and all the Directors may
seek advice and services from Professional Assignments and
Secretarial Services (Pvt) Ltd. (PASS), who are qualified to act
as Secretaries as per the provisions of the Companies Act 07
of 2007. PASS assists the Board in ensuring that Board
procedures are followed and that relevant rules and
regulations are complied with and is present during every
Board Meeting.
Remuneration Procedure: The Board does not consist of
Executive Directors and thereby no remuneration is paid.
However, Non-Executive Directors are entitled to a Travelling
Allowance for each Sitting.
Financial Reporting: The Board of Directors undertake the
responsibilities for the preparation and presentation of
Financial Statements and these are prepared and presented in
accordance with the Sri Lanka Accounting Standards adopted
by The Institute of Chartered Accountants of Sri Lanka and
requirements of Companies Act No. 07 of 2007.
The Annual Report of the Board of Directors presents a
balanced and understandable assessment of the Company’s
financial position, performance and future prospects including
necessary declarations made by Directors.
Internal Control: The Company maintains a sound internal
control system to manage the UN HABITAT’s capital
contribution. The adequacy and effectiveness of the internal
controls are periodically reviewed by the Board.
Board Sub-Committees: Minutes of Board sub-committee
meetings are also tabled at the Board Meeting so that all
directors are kept informed of the discussions and
recommendations or decisions of sub-committees. In
accordance with corporate governance there are four (4)
appointed sub-committees in fields of Risk, Strategic
Development, Audit & Finance and Human Resources. The
committees meet every quarter to give directions to the
project.
Chairman: Dr. Padma Ratnayake
Members: Mrs. K. V. Rupa Manel Silva | Mr. D. Surasinghe
The Risk Committee assists the Board in fulfilling its overall responsibilities with regard to the risk appetite of the
Corporation, the risk management, compliance framework and the governance structure that supports it. The Committee
meets as frequently as necessary to fulfill its duties and responsibilities. A meeting of the Committee may be called by its
Chairman or any member. The Committee reports its activities to the Board of Directors on a regular basis and makes
such recommendations as it deems necessary or appropriate.
Responsibilities:
1. Learn about the actual risks and the control deficiencies in the organization.
2. Help the Board define the risk appetite of the organization.
3. Exercise overview of management’s responsibilities and review of the risk profile.
4. Monitor the effectiveness of risk management functions throughout the organization.
5. Review the strategies, policies, frameworks, models and procedures that lead to the identification,
measurement, reporting and mitigation of material risks.
6. Review issues raised by the internal audit that impact the risk management framework.
7. Fulfill its statutory and regulatory responsibilities. This is usually the most difficult task.
Chairman: Mr. Chandula Abeywickrema
Members: Mr. Romesh Croos Moraes | Mrs. R. M. Indumathi Rathnayake
The Strategic Sub-Committee develops and recommends the overall strategic direction for the enterprise, monitors
progress, reviews results as a basis for setting new strategies and recommends actions to the Board.
Responsibilities:
1. Establish a limited number of enterprise-wide strategic priorities that signal important targets or areas for the
Association to focus on.
2. Set measurable goals for each priority in order to track progress and assess effectiveness of resource utilization.
3. Assist leadership in formulating, advancing and communicating a vision for the future.
4. Report to the Board of Governors on recommendations about the plan as well as progress in reaching the goals
of the plan.
5. Periodically assess progress on goals and make adjustments as necessary given the circumstances.
6. Conduct an annual review of the strategic progress as a basis for setting new strategies.
LFSUS Annual Report 2011
8
Risk
Committee
Strategic
Committee
Human Resources
Committee
Audit & Finance
Committee
Risk Committee
Strategic Committee
Chairman: Mr. M. F. A. Mubarak
Members: Mrs. K. V. Rupa Manel Silva | Mr. D. Surasinghe
The Audit & Finance Committee is a committee of the Board and reports to the Board. The Audit & Finance Committee will
assist the authority in fulfilling its overall responsibilities. To perform his or her role effectively, each Committee member
will obtain an understanding of the detailed responsibilities of Committee membership as well as the authority in business,
operations and risks.
Responsibilities:
1. Ensuring good financial performance and the effectiveness of the financial reporting process.
2. Determining the scope of work, performance and independence of the internal audit.
3. Ratifying the engagement and dismissal by management of any chief internal audit executive.
4. Review the operation and implementation of the risk management framework.
5. The signoff of accounting policies.
6. Ensuring that the process for monitoring is compliant with laws and regulations and the Code of Financial
Practice.
7. In performing its duties, the Audit & Finance Committee will maintain effective working relationships with the
Board, management, and the internal and external auditors.
8. Review the Chief Executive remuneration, ensuring compliance with the Executive Remuneration Panel.
Chairman: Mr. Romesh Croos Moraes
Members: Mr. Chandula Abeywickrema | Dr. Padma Ratnayake
The Human Resources Committee shall review and approve the Company's compensation and benefit policies generally
including reviewing and approving any incentive-compensation plans and equity-based plans of the Company. The Human
Resources Committee shall report the results of such review and any action it takes with respect to the Company's
compensation and benefit policies to the Board. In addition to compensation and benefit policies, the Committee may also
consider and periodically review the Company's policies on diversity and values and such issues affecting employee
morale as the Committee deems appropriate.
Responsibilities:
1. Oversee the Company's compensation and benefit policies generally.
2. Evaluate executive officer performance and review the Company's management succession plan.
3. Oversee and set compensation for the Company's executive officers.
4. Review and discuss the Company's compensation discussion and analysis disclosure with the management and
provide a recommendation to the Board regarding its inclusion in the Company's annual proxy statement.
5. Prepare its report with information that the Securities and Exchange Commission rules require to be included
in the Company's annual proxy statement.
LFSUS Annual Report 2011
9
Audit & Finance Committee
Human Resources Committee
CORPORATE INFORMATION
NAME OF COMPANYLanka Financial Services for Underserved Settlements (LFSUS)
LEGAL FORMNot for Profit Company Limited by Guarantee registered
under Section 21 of the Companies Act
COMPANY REGISTRATION NUMBERGA2048
DATE OF INCORPORATION23rd November 2007
ADDRESSNo. 32A, Horton Place, Colombo 07, Sri Lanka.
AUDITORS Wijeyeratne and Company,
Chartered Accountants,
No. 157 A/1, Kynsey Road, P.O. Box 191,
Colombo 08,
Sri Lanka.
BANKERSNational Development Bank PLC Ltd.
No. 40, Nawam Mawatha,
Colombo 02,
Sri Lanka.
COMPANY SECRETARY AND ACCOUNTANTSProfessional Assignments & Secretarial Services (Pvt) Ltd.
No. 157 A/1, Kynsey Road, P.O. Box 191,
Colombo 08,
Sri Lanka.
PROJECT CONSULTANTSThe Employers’ Federation of Ceylon
Urban Finance Branch – United Nations Human Settlements Programme (UN-HABITAT)
LFSUS Annual Report 2011
10
OPERATIONAL HIGHLIGHTS
LFSUS Annual Report 2011
11
2009
Kirulapona
35 HousesLKR 6 Million
Deniyaya
51 HousesLKR 5.53 Million
Nawalapitiya
25 HousesLKR 10.5 Million
Kaduwela
175 HousesLKR 11.32 Million
Nuwara Eliya -2
132 HousesLKR 17.5 Million
Hambantota - 2
48 HousesLKR 11.2 Million
2010
2011
Nuwara Eliya
50 HousesLKR 5.5 Million
Hambantota
38 HousesLKR 10.5 Million
Ratnapura
30 HousesLKR 2.885 Million
OPERATIONAL HIGHLIGHTS
LFSUS Annual Report 2011
12
Partner : South Asia Partnership Sri Lanka
(SAPSRI)
Location : Kirulapona
Value : Rs. 6,000,000.00
Bank : HSBC
Beneficiaries : 35 Houses
HTS
Partnerr : South Asia Partnership Sri Lanka :
(SAPSRI)
Locationtion : Kirulapona
Partner : Ratnapura Low Income Settlement Improvement Trust (RLISIT)Location : RatnapuraValue : Rs. 2,885,000.00Bank : Regional Development BankBeneficiaries : 30 Houses
Partnerrtner : Ratnapura Low Income : Settlement Improvement Trust (RLISIT)
Partner : Eksath Lanka Welfare Foundation (ELWF)Location : Nuwara EliyaValue : Rs. 5,500,000.00Bank : Hatton National Bank PLCBeneficiaries : 50 Families
Partner : Eksath Lanka Welfare Foundation :
(ELWF)Locationcationtion : Nuwara Eliya
OPERATIONAL HIGHLIGHTS
LFSUS Annual Report 2011
13
Partner : Sewa Finance (SF)
Location : Deniyaya
Value : Rs. 5,530,000.00
Bank : Hatton National Bank PLC
Beneficiaries : 51 Families
Partner : : Sewa Finance (SF)
Locationtionon : Deniyaya
Valuelue : Rs 5,530,000.00
Partner : Kahawatte Plantations PLC
(KWPL)
Location : Nawalapitiya
Value : Rs. 10,500,000.00
Bank : Hatton National Bank PLC
Beneficiaries : 25 Houses
Partnerrtner : : Kahawatte Plantations PLC
(KWPL)
Locationcation : Nawalapitiya
Partner : Ruhunu Rural Women’s
Organization (RRWO)
Location : Hambantota – Weeraketiya
Value : Rs. 10,500,000.00
Bank : Hatton National Bank PLC
Beneficiaries : 38 Families
HTS
Partner : : Ruhunu Rural Women’s
Organization (RRWO)
Locationon Hambantota Weeraketiya
OPERATIONAL HIGHLIGHTS
LFSUS Annual Report 2011
14
Partner : Sri Lanka Women’s Development Services Cooperative Society Ltd. (Women’s Bank)Location : KaduwelaValue : Rs. 11,320,000.00Bank : National Development Bank PLCBeneficiaries : 175 Houses
HTS
Partnerr : Sri Lanka Women’s Development : Services Cooperative Society Ltd.
(Women’s Bank)
Partner : Eksath Lanka Welfare Foundation
(ELWF)
Location : Nuwara Eliya
Value : Rs. 17,500,000.00
Bank : Hatton National Bank PLC
Beneficiaries : 132 Houses
Partnerr : : Eksath Lanka Welfare Foundation
(ELWF)
Locationcation : Nuwara Eliya
Partner : Ruhunu Rural Women’s
Organization (RRWO)
Location : Hambantota
Value : Rs. 11,300,000.00
Bank : Hatton National Bank PLC
Beneficiaries : 48 Houses
Partner : : Ruhunu Rural Women’s
Organization (RRWO)
Locationcation : Hambantota
FINANCIAL HIGHLIGHTS
LFSUS Annual Report 2011
16
2011 2010 %
Financial Results for the Year Rs. Rs. Change
Net Surplus before Tax 5,620,765.00 5,091,184.00 27.05
Net Surplus after Tax 4,179,461.00 5,075,294.00 24.31
Interest Income 7,171,524.00 5,575,703.00 17.48
Project Expenditure 11,023,697.00 3,663,795.00 183.43
Administration Expenses 5,788,259.00 2,021,772.00 165.22
Total Investment 110,650,000.00 44,054,555.00 151.17
Cash & Bank Balance 36,939,992.00 50,324,452.00 -26.6
Total Accumulated Fund 11,633,232.00 20,799,599.00 -33.83
Total Guaranteed Fund 14,773,275.00 21,200,000.00 -30.31
Total Credit Enhancement Fund 119,820,432.00 52,621,707.00 127.7
Net Surplus after Tax
Net Surplus before Tax
Profitability Interest Income
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
Interest Income
20102011200920102011
1000000
0
2000000
3000000
4000000
5000000
6000000
5,62
0,76
5.00
4,17
9,46
1.00
5,09
1,18
4.00
5,07
5,29
4.00
634,
559.
00
634,
559.
00
7,17
1,52
4.00
5, 5
75,7
03.0
0
LFSUS Annual Report 2011
17
Funding Position
Total Expenditure
Administration Expenses
Project Expenditure
0
2000000
4000000
6000000
8000000
10000000
12000000
20102011
Credit Enhancement Fund
Guaranteed Fund
Accumulated Fund
0
20000000
40000000
60000000
80000000
100000000
120000000
140000000
2011 2010
3,66
3,79
5.00
2,02
1,77
2.00
119,
820,
432.
00
20,7
99,5
99.0
0
52,6
21,7
07.0
0
21,2
00,0
00.0
0
14,7
73,2
74.0
0
11,0
23,6
97.0
0
5,78
8,25
9.00
11,6
33,2
32.0
0
LFSUS Annual Report 2011
18
509,
672.
00
612,
500.
00
612,
470.
00
631,
500.
00
CE Funds Under Lien
Assets Structure
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
9000000
2009 20102011
Nuwara Eliya Project
Hambantota Project
Ratnapura Project
Indibadda Project
Kuruniyawatte Project
Kirulapona Project
0
20000000
40000000
60000000
80000000
100000000
120000000
20102011
Cash and Bank Balances
Other Receivable
Investments
PPE110,
650,
000.
00
36,9
39,9
92.0
0
44,0
54,5
55.0
0
50,3
24,4
52.0
0
1,53
9,47
4.00
3,50
0,00
0.00
3,50
0,00
0.00
3,50
0,00
0.00
5,00
0,00
0.00
5,00
0,00
0.00
7,70
0,00
0.00
7,70
0,00
0.00
5,00
0,00
0.00 6,
500,
000.
00
1,73
3,79
9.70
8,00
0,00
0.00
STATEMENT OF FINANCIAL ACTIVITIES
LFSUS Annual Report 2011
20
For the Year ended 31 March 2011
Year Ended Year Ended
Note 31.03.2011 31.03.2010
Rs. Rs.
Incoming Resources 3 15,607,564 5,126,047
Project Expenditure 4 (11,023,697) (3,663,795)
Net Surplus on Projects 4,583,867 1,462,252
Other Income 5 7,228,357 5,575,703
Administrative Expenses (5,788,259) (2,021,771)
Management Fees (403,200) 75,000
Net Surplus before Tax 6 5,620,765 5,091,184
Income Tax Expenses (1,441,304) (15,890)
Net Surplus after Tax 4,179,461 5,075,294
The accounting policies and notes on pages 24 through 32 form an integral part of the financial statements.
BALANCE SHEET
LFSUS Annual Report 2011
21
As at 31 March 2011
Note 31.03.2011 31.03.2010
Rs. RsASSETS
Non Current Assets
Property, Plant & Equipment 7 509,672 612,470
Investments 8 110,650,000 44,054,555
111,159,672 44,667,025
Current Assets
Other Receivables 9 612,500 631,500
Cash & Bank Balances 10 36,939,992 50,324,452
37,552,492 50,955,952
Total Assets 148,712,164 95,622,977
FUNDING AND LIABILITIES
Accumulated Fund
Administration Fund 1,743,918 15,089,746
Retained Earnings 9,889,314 5,709,853
Total Accumulated Fund 11,633,232 20,799,599
Unamortized Guarantee Charge 129,166 -
Long Term Liabilities
Guaranteed Fund 11 14,773,275 21,200,000
Credit Enhancement Fund 12 119,820,432 52,621,707
134,593,707 73,821,707
Current Liabilities
Other Payable 13 1,607,594 559,519
Provision for Taxation 748,465 7,945
Bank Overdraft - 434,207
2,356,059 1,001,671
Total Funds and Liabilities 148,712,164 95,622,977
I certify that the financial statements comply with the requirements of the companies Act No. 07 of 2007
.....................................
Finance Manager
The Board of Directors is responsible for the preparation and presentation of these financial statements. Signed for and on behalf of the Board by,
Name of the Director Signature
Chandula Abeywickrema ...............................
Romesh Croos Moraes ...............................
The accounting policies and notes on pages 24 through 32 form an integral part of the financial statements.
STATEMENT OF CHANGES IN ACCUMULATED FUND
LFSUS Annual Report 2011
22
For the Year ended 31 March 2011
Administration Retained Total
Fund Earnings
Rs. Rs. Rs.
Balance as at 01.04.2009 20,215,793 634,559 20,850,352
Funds transferred to Statement of (5,126,047) - (5,126,047)
Financial Activities
Net Surplus for the Period - 5,075,294 5,075,294
Balance as at 31 March 2010 15,089,746 5,709,853 20,799,599
Grants Received 2,261,736 - 2,261,736
Funds transferred to Statement of (15,607,564) - (15,607,564)
Financial Activities
Net Surplus for the Year - 4,179,461 4,179,461
Balance as at 31 March 2011 1,743,918 9,889,314 11,633,232
The accounting policies and notes on pages 24 through 32 form an integral part of the financial statements.
CASH FLOW STATEMENTFor the Year ended 31 March 2011
Note 31.03.2011 31.03.2010
Rs. Rs.
Cash flow from Project Activities
Net Surplus before Tax 5,620,765 5,091,184
Adjustments
Depreciation 242,338 130,616
Interest Income (7,171,524) (5,575,703)
Net Cash flow from/(Used in) Project Activities
before Working Capital Changes (1,308,421) (353,903)
Working Capital Changes
(Increase)/Decrease of Other Deposit 19,000 (331,500)
Increase/(Decrease) of Other Payables 1,048,075 274,519
Cash Flow Used in Project Activities (241,346) (410,884)
Tax Paid (700,784) (7,945)
Net Cash Used in Project Activities (942,130) (418,829)
Cash Flow from Investing Activities
Acquisition of Property, Plant & Equipment (139,540) (743,086)
Acquisition of Investment (66,595,445) (44,054,555)
Interest Received 7,171,524 5,575,703
Net Cash Used in Investing Activities (59,563,461) (39,221,938)
Cash Flow from Financing Activities
Credit Enhancement Fund 67,198,725 (300,000)
Administration Fund (13,345,828) (5,126,047)
Guarantee Fund (6,426,725) -
Unamortised Guarantee 129,166 -
Net Cash flow from/(Used in) Financing Activities 47,555,338 (5,426,047)
Net Change in Cash and Cash Equivalents (12,950,253) (45,066,814)
Cash and Cash Equivalents at the beginning of the period 49,890,245 94,957,059
Cash and Cash Equivalents at the end of the year (Note A) 36,939,992 49,890,245
Note A
Cash and Cash Equivalents Balances
Cash and Bank Balance 36,939,992 50,324,452
Bank Overdraft - (434,207)
Total Cash and Cash Equivalents for the purpose of Cash Flow Statement. 36,939,992 49,890,245
The accounting policies and notes on pages 24 through 32 form an integral part of the financial statements.
21
LFSUS Annual Report 2011
23
1.0 Corporate Information
1.1 General Information
1.2 Principal Activities and Nature of Operations
During the period, the principal activities of the company were as follows:
1.3 Date of Authorization of the Issue
2.0 Summary of Significant Accounting Policies
2.1 General Policies
NOTES TO THE FINANCIAL STATEMENTS
LFSUS Annual Report 2011
24
Lanka Financial Services for Underserved Settlements (Guarantee) Limited has been incorporated under the
Companies Act No. 07 of 2007 as a company limited by guarantee. In the event that the company is wound up, the
liability of members is limited to Rs. 100 per member. The Registered Office of the Company is located at No. 32A,
Horton Place, Colombo 07.
The Financial Statements of Lanka Financial Services for Underserved Settlements (Guarantee) Limited for the period
then ended 31st March 2011 were authorized for the issue in accordance with a resolution of the Board of Directors.
2.1.1 Basis of Preparation
The Balance Sheet, Statement of Financial Activities, Statement of Changes in Accumulated Fund and the Cash
Flows, together with the Accounting Policies and Notes to the Financial Statements as at 31st March 2011 and for
the period then ended comply with the Sri Lanka Statement of Recommended Practices for Not-for-Profit
Organizations issued by the Institute of Chartered Accountants of Sri Lanka.
These financial statements are presented in Sri Lankan Rupees (Rs.) and are prepared under the historical cost
convention in accordance with generally accepted accounting principles. No adjustment is made for inflationary
factors affecting these accounts.
a) To provide full, partial or other forms of guarantees to banks or other funding sources to secure lending to low
income earners or housing societies formed by such groups for the purpose of housing.
b) To provide full, partial or other forms of guarantees to banks or other funding sources to secure lending to
microfinance institutions, community-based organizations or such other similar institutions for the
purpose of housing finance for low income groups.
c) To facilitate low income earners to access housing finance directly or indirectly from banking sources.
d) To facilitate intermediaries such as microfinance institutions, community-based organizations or similar entities
to access funding for housing finance from banking or market-based sources.
e) To facilitate the exchange and sharing of information and experience in financing slum upgrading and
settlement development in co-operation with a wider advisory network of practitioners and policy makers.
LFSUS Annual Report 2011
25
2.2 Accounting for the Receipt and Utilization of Funds
2.1.2 Going Concern
The Management have made an assessment of the Company’s ability to continue as a going concern and they do not
intend either to liquidate or to cease the association’s activities in the foreseeable future.
2.1.3 Comparative Information
Previous years figures and phrases have been re-arranged wherever necessary to conform to the current year's
presentation.
2.1.4 Translation of Foreign Currency
All foreign currency transactions have been converted in to Sri Lanka Rupees, which is the reporting currency, at the
rates of exchange prevailing at the time that the transaction was effected. Money assets and liabilities as at the date
of the balance sheet are converted at the rates prevailing at the balance sheet date, and non-monetary assets and
liabilities are converted at the rates existing at the date that the value was determined. Any resulting exchange gain
or losses are reflected in the statement of financial activities, except for gains or losses relating to items adjusted
through the accumulated fund, which are reflected therein.
2.1.5 Subsequent Events
All material events occurring after the balance sheet date are considered and necessary adjustments or disclosures
have been made in these financial statements.
2.1.6 Taxation
(a) Current Taxes
Provision for taxation has been made on the basis of profit for the year and adjusted for taxation purposes in
accordance with the provision of the Inland Revenue Act No. 10 of 2006.
NOTES TO THE FINANCIAL STATEMENTS
2.2.1 Funds
(a) Designated Funds
Unrestricted funds designed by the management for a specific purpose are identified as designated funds.
The activities for which these funds may be used are identified in the financial statements.
(b) Where grants are received for use in an identified project or activity, such are held in a restricted fund account
and transferred to the Statement of Financial Activities account to match with expenses incurred in respect of that
identified project. Unutilized funds are held in their respective fund accounts and included under Accumulated
Fund in the Balance Sheet until such time as they are required.
LFSUS Annual Report 2011
26
2.2.2 Grants and Subsidies
Grants and subsidies are recognized in the financial statements at the fair value. When the grant or subsidy relates to
an expense, it is recognized as income over the period necessary to match it with the cost, which it is intended to
compensate for on a systematic basis.
Grants and subsidies related to assets are generally deferred in the balance sheet and credited to the statement of
financial activities over the useful life of the asset.
In the case of grants received to fund an entire project or activity, which includes the purchases of assets charged with
the project costs to the statement of financial activities, the grant value is recognized as income in the same period as
the cost of the asset is charged to the Statement of Financial Activities. On conclusion of the project, in the event that
the asset is not handed over to the beneficiary or returned to the original donor, the cost of the assets is included in the
a memorandum inventory of Property, Plant & Equipment identified as such in the financial statements.
2.3 Valuation of Assets and their Bases of Measurement 2.3.1 Receivables
Receivables are stated as the amounts they are estimated to realize net of provisions or bad and doubtful debts.
2.3.2 Cash and Cash Equivalents
Cash and Cash Equivalents are defined as cash in hand, demand deposits, short term investments readily convertible
to identified amounts of cash and which are not subject to any significant risk of change in value.
For the purpose of the Cash Flow statement, cash and cash equivalents consist of cash in hand and bank deposits,
net of outstanding bank overdrafts and investments with short maturity i.e. three months or less from the date of
acquisition are also treated as cash equivalents.
NOTES TO THE FINANCIAL STATEMENTS
Funds collected through a fund-raising activity for any specific or defined purpose are also included under this
category.
Where approved grant expenditure exceeds the income received and there is certainty that the balance will be
received, such amount is recognized through debtors in the balance sheet.
The activities for which these restricted funds may and are being used for are identified in the Notes to the
Financial Statements.
(c) Investment income and other gains realized from funds available under each of the categories are allocated to
the appropriate funds unless the relevant agreement or minute provided otherwise.
LFSUS Annual Report 2011
27
2.3.3 Property, Plant & Equipment
(a) Cost
Property, Plant & Equipment is recorded at cost less accumulated depreciation and less any impairment
in value.
(b) Depreciation
The provision for depreciation is calculated by using the straight line method on the Cost of all Property,
Plant & Equipment in order to write off such amounts over the following estimated useful lives by equal
installments.
Computer Peripherals Over 3 years
Furniture & Fittings Over 4 years
Office Equipment Over 4 years
2.3.4 Leases
(a) Finance Leases
(b) Operating Leases
Leases where, the lessor effectively retains substantially all of the risk and benefits of ownership over the term
of the lease are classified as operating leases. Rentals paid under operating leases are recognized as an expense
in the Statement of Financial Activities on a straight-line basis over the term of the lease.
2.4 Liabilities and Provisions
2.4.1 Payables Liabilities for amounts payable, which are normally settled on 30-90 day terms, are carried at cost.
NOTES TO THE FINANCIAL STATEMENTS
Property, Plant & Equipment on finance leases, which effectively transfer to the company substantially all of the
risk and benefits incidental to ownership of the lease items, are capitalized and disclosed as Finance Lease at
their cash price and depreciated over the period the association is expected to benefit from the use of the lease
assets.
The corresponding principal amount that is payable to the lessor is shown as a liability. Lease payments are
apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of
interest on the outstanding balance of the liability. The interest payable over the period of the lease is transferred
to an interest in a suspense account. The interest element of the rental obligation pertaining to each financial
year is charged to the Statement of Financial Activities over the period of the lease.
LFSUS Annual Report 2011
28
Income realized from the Administration fund is recognized in the Statement of Financial Activities only when
there is certainty that all of the conditions for receipt of funds have been complied with and the relevant expenditure
that it is expected to compensate has been incurred and charged to the Statement of Financial Activities. Unutilized
funds are carried forward as such in the Balance Sheet.
Gifts and donations received in kind are recognized at valuation at the time that they are distributed to
beneficiaries, or if received for resale with proceeds being used for the purpose of the company at the point of such
sale. Items not sold or distributed are inventorised but not recognized in the financial statements.
All other income is recognized when the association is legally entitled to use of such funds and the amount can
be quantified. This would include income receivable through fund raising activities and donations.
2.4.2 Provisions
Provisions are recognized when the company has a present legal obligation as a result of a past event, where 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. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time, value of money and, where appropriate, the risks specific to the liability.
2.5 Statement of Financial Activities
2.5.1 Income Recognition
(a) Incoming Resources
(b) Revenue
Interest earned is recognized on cash basis.
2.5.2 Expenditure Recognition
(a) Expenses in carrying out the projects and the other activities of the company are recognized in the Statement
of Financial Activity during the period in which they are incurred. Other expenses incurred in administrating and
running the company and restoring and maintaining the Property, Plant & Equipment to perform at expected
levels are accounted for on an accrual basis and charged to the Statement of Financial Activities.
(b) For the purpose of presentation of the Income Statement, the Directors are of the opinion that the nature of
function of expenses method fairly presents the elements of the company’s performance, and hence such
a presentation method is adopted.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
LFSUS Annual Report 2011
29
For the Year ended 31 March 2011
31.03.2011 31.03.2010 Rs. Rs.
3. INCOMING RESOURCES
Administration Fund 15,607,564 5,126,047
4. PROJECT EXPENDITURE
Site Visit Expenses 64,763 14,116
Project Development Activities 154,365 153,487
Workshop and Seminar Expenses 341,540 282,051
Guarantee Expenses 38,353 51,569
Legal Expenses 20,000 129,920
Foreign Travel 1,722,605 -
Staff Salaries EPF ETF 4,250,674 971,922
Overtime 48,422 4,565
Allowance 634,784 11,743
Board Meeting Allowance 63,000 101,100
EFC Expenses 34,608 31,148
Committee Meeting Expenses 38,424 2,586
Audit Fees 31,279 21,124
Financial Experts - 30,000
Professional Documentation Fees - 12,097
Telephone & Internet Expenses 78,033 63,957
Domestic Transport 24,369 33,377
Electricity 136,470 68,753
Water 42,670 12,351
Fuel Expenses 239,648 39,602
Janitorial & Equipment H/P 139,322 355,200
Postage 9,644 6,163
Printing & Stationery 97,848 73,720
Advertising 12,419 34,004
Newspaper & Periodical 12,411 228
Office Expenses 6,942 3,382
Annual Report Expenses 585,954 291,000
Company Secretary Expenses 53,729 29,476
Donation - 360
Rent 720,000 528,000
Vehicle Hiring Expenses 684,000 159,000
Depreciation Computers 100,972 62,283
Depreciation Furniture 37,867 14,804
Depreciation Office Equipment 6,562 1,281
Sundry Expenses 17,218 27,250
Office Equipment Maintenance 33,226 -
NOTES TO THE FINANCIAL STATEMENTS
LFSUS Annual Report 2011
30
Bank Charges 15,818 4,890
Debit Tax 93,184 37,286
Ex-Gratia Payment 138,499 -
Entertainment Allowance 1,714 -
Vehicle & Maintenance 862 -
Complimentary 12,224 -
Insurance Expenses 159,275 -
Website Drafting Expenses 60,000 -
Building Maintenance 60,000 -
11,023,697 3,663,795
31.03.2011 31.03.2010
Rs. Rs.
5. OTHER INCOME
Interest Received 7,171,524 5,575,703
Guarantee Charge - Hambantota 36,000 -
Guarantee Charge - Nuwara Eliya 20,833 -
7,228,357 5,575,703
6. NET SURPLUS BEFORE TAX
The following items have been charged in arriving Net Surplus.
Professional Documentation Fees - 20,160
Audit Fees 52,132 35,208
Bank Charges 26,363 8,150
Board Meeting Allowances 105,000 168,500
Financial Experts - 50,000
Company Secretary Charges 89,548 49,127
Legal Expenses 20,000 129,917
Depreciation 242,337 130,616
Staff Salaries 7,084,457 1,619,871
LFSUS Annual Report 2011
NOTES TO THE FINANCIAL STATEMENTS
31
7. Property, Plant & Equipment Computer Furniture & Office Total Peripherals Fittings Equipment Rs. Rs. Rs. Rs. Cost Balance as at 01.04.2010 486,800 236,868 19,418 743,086 Additions 23,040 17,000 99,500 139,540
Balance as at 31.03.2011 509,840 253,868 118,918 882,626
Depreciation Balance as at 01.04.2010 103,806 24,674 2,136 130,616 Charge for the Year 168,287 63,113 10,938 242,338
Balance as at 31.03.2011 272,093 87,787 13,074 372,954
Net Book Value
As at 31.03.2011 237,747 166,081 105,844 509,672
As at 31.03.2010 382,994 212,194 17,282 612,470
For the Year ended 31 March 2011 31.03.2011 31.03.2010 Rs. Rs.8. Investment Fixed Deposit 110,650,000 44,054,555
9 Other Receivables Mr. Rajakarier 600,250 620,250 Refundable Deposit 12,250 11,250 612,500 631,500
10 CASH & CASH EQUIVALENTS Cash at Bank - NDB Lien Account 3,273,274 22,907,920 -NDB 8629 Account 20,847,738 12,340,158 -NDB 462 Account 12,480,756 14,997,758 -HNB Savings Account 36,000 - -NDB 18955 Current Account 221,499 - -Petty Cash 80,725 78,616 36,939,992 50,324,452
11 GUARANTEED FUND Opening Balance 21,200,000 12,700,000 Fund Transferred from UN - Credit Enhancement Fund 11,500,000 8,800,000 Deposit - (300,000) Amount Transferred to UN - Credit Enhancement Fund (17,926,725) - 14,773,275 21,200,000
For the Year ended 31 March 2011
31.03.2011 31.03.2010
Rs. Rs.
12 CREDIT ENHANCEMENT FUND
Balance as at 31 March 2010 52,621,707 61,421,707
Grant Received 60,772,000 -
Transfer from Guarantee Fund 17,926,725 -
Transfer to Guaranteed Fund (11,500,000) (8,800,000)
119,820,432 52,621,707
13 OTHER PAYABLES
Accrued Expenses 1,567,594 112,648
Salary Payables - 446,871
Audit Fee Payable 40,000 -
1,607,594 559,519
14 CAPITAL COMMITMENTS
Lanka Financial Services for Underserved Settlements have the following commitments as at 31 March 2011:
a. A guarantee of Rs. 1,539,474 securing a Rs. 4,500,000 loan issued by Hong Kong and Shanghai
Banking Corporation (HSBC) to South Asia Partnership, Sri Lanka (SAPSRI) (Guarantee Bond Number- G090263)
b. A guarantee of Rs. 1,733,799 securing a Rs. 2,855,000 loan issued by Sabaragamuwa Development Bank
(SDB) for 30 Low Income families in Ratnapura, Kanadola. (Guarantee Bond Number- LG092759)
c. A guarantee of Rs. 8,000,000 securing a Rs. 10,500,000 loan issued by Hatton National Bank to Ruhunu
Rural Women Organization (Fixed Deposit No. 086030015955)
d. A guarantee of Rs. 3,500,000 securing a Rs. 5,500,000 loan issued by Hatton National Bank to Eksath
Lanka Welfare Foundation (Fixed Deposit No. 028030019571)
15 DIRECTOR'S INTEREST IN CONTRACTS
There is no direct or indirect interest in Contracts of the Directors with the organization.
16 POST BALANCE SHEET EVENTS
There have been no material events occurring after the Balance Sheet date that require adjustments to or
disclosure in the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
32
LFSUS Annual Report 2011
Lanka Financial Services forUnderserved Sett lements
L F S U S
No. 32A, Horton Place, Colombo 07, Sri Lanka.
Tel: +94 112695915 | Fax: +94 112695915 | Web: www.lfsus.org | E mail: [email protected]