easycred georgia. financial statement 2010

7/29/2019 EasyCred Georgia. Financial Statement 2010

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Microfinance Organization

Easycred Georgia LLC

Financial Statements

for the year ended 31 December 2010


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Contents

Independent auditors report ........................................................................................................................ 3Statement of comprehensive income ........................................................................................................... 4

Statement of financial position .................................................................................................................... 5

Statement of cash flows ............................................................................................................................... 6

Statement of changes in equity .................................................................................................................... 7

Notes to the financial statements ................................................................ .................................................. 8


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Tbilisi Branch of KPMG CIS Limited

3rd Floor, Besiki Business Center

4, Besiki str .,

Tbilisi, 0108,

Georgia

Telephone +995 (32) 935695

Fax +995 (32) 982276

Internet www.kpmg.ge

Tbilisi Branch of KPMG CIS Limited, a branch incorporated under the Laws ofGeorgia, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG

network of independent member firms affiliated with KPMG InternationalCooperative (KPMG International), a Swiss entity.

Independent Auditors Report

To the Management Board

Microfinance Organization Easycred Georgia LLC

We have audited the accompanying financial statements of Microfinance Organization Easycred

Georgia LLC (the Company), which comprise the statement of financial position as at31 December 2010, and the statements of comprehensive income, changes in equity and cash flows

for the year then ended, and notes, comprising a summary of significant accounting policies and

other explanatory information.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial Reporting Standards, and for such internal control as

management determines is necessary to enable the preparation of financial statements that are free

from material misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with International Standards on Auditing. Those standards

require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditors judgment,including the assessment of the risks of material misstatement of the financial statements, whether

due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the entitys preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entitys internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the financial

statements.

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

for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position

of the Company as at 31 December 2010, and its financial performance and its cash flows for the

year then ended in accordance with International Financial Reporting Standards.

Tbilisi Branch of KPMG CIS Limited

11 July 2011


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Statement of Comprehensive Income for the year ended 31 December 2010

The statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the financial

statements.

4

Notes

2010

GEL000

21 November 2008

(date of incorporation)

to 31 December 2009GEL000

Interest income 4 1,664 277

Interest expense 4 (207) (11)

Net interest income 1,457 266

Fee and commission income 5 178 100

Fee and commission expense (10) (18)

Net fee and commission income 168 82

Net foreign exchange income 103 30

Operating income 1,728 378

Impairment losses 6 (141) -

Personnel expenses 7 (351) (56)

Other general administrative expenses 8 (178) (83)

Profit before income tax 1,058 239

Income tax expense 9 (159) (40)

Profit and total comprehensive income for the period 899 199

The financial statements as set out on pages 4 to 34 were approved by the Management Board on

11 July 2011 and were signed on its behalf by:

_____________________________ __________________________

Kakhaber Kakhiani Maia KvelidzeChief Executive Officer Chief Accountant


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Statement of Financial Position as at 31 December 2010

The statement of financial position is to be read in conjunction with the notes to, and forming part of, the financial

statements.

5

Notes

2010

GEL000

2009

GEL000

ASSETS

Cash and cash equivalents 10 165 147

Loans to customers 11 4,676 2,810

Property, equipment and intangible assets 12 527 548

Deferred tax asset 9 17 -

Other assets 13 145 9

Total assets 5,530 3,514

LIABILITIES

Loans and borrowings 14 1,932 929

Income tax payable 144 35

Deferred tax liability 9 - 5

Other liabilities 15 43 33

Total liabilities 2,119 1,002

EQUITY

Charter capital 16 2,313 2,313

Retained earnings 1,098 199

Total equity 3,411 2,512

Total liabilities and equity 5,530 3,514


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Statement of Cash Flows for the year ended 31 December 2010

The statement of cash flows is to be read in conjunction with the notes to, and forming part of, the financial statements.

6

Notes

2010

GEL000

21 November 2008

(incorporation date)

to 31 December 2009

GEL000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit for the period 899 199

Adjustments for:

Impairment losses 141 -

Net foreign exchange income (103) (30)

Depreciation and amortisation 47 26

Interest income (1,664) (277)

Interest expense 207 11

Fee and commission income (178) (100)

Fee and commission expense 10 18

Income tax expense 159 40

Increase in operating assets

Loans to customers (1,799) (2,734)

Other assets (136) (9)

Increase in operating liabilities

Other liabilities 10 33

Interest and fees and commissions received 1,737 331

Interest and fees and commissions paid (217) (29)

Income tax paid (72) -

Cash flows used in operations (959) (2,521)

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment (26) (574)

Cash flows used in investing activities (26) (574)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of charter capital - 2,313

Proceeds from borrowings 1,003 929Cash flows provided by financing activities 1,003 3,242

Net increase in cash and cash equivalents 18 147

Cash and cash equivalents as at the beginning of the period 147 -

Cash and cash equivalents as at the end of the period 10 165 147


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Statement of Changes in Equity for the year ended 31 December 2010

The statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the financial

statements.

7

Charter capital Retained earnings Total equity

GEL000 GEL000 GEL000

Balance as at 21 November 2008 - - -

Total comprehensive income

Profit for the period - 199 199

Total comprehensive income for the period - 199 199

Transactions with owners, recorded directly in equity

Increase in charter capital 2,313 - 2,313

Total transactions with owners 2,313 - 2,313

Balance as at 31 December 2009 2,313 199 2,512

Balance as at 1 January 2010 2,313 199 2,512

Total comprehensive incomeProfit for the period - 899 899

Total comprehensive income for the period - 899 899

Balance as at 31 December 2010 2,313 1,098 3,411


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Notes to, and forming part of, the financial statements for the year ended 31 December 2010

8

1 Background

(a)

Organisation and operations

Microfinance Organization Easycred Georgia LLC (the Company) was established on21 November 2008 to provide sustainable lending services to those individual entrepreneurs who

are not able to access credit facilities through the conventional banking system. The Company helps

in the development of the economy of Georgia by providing credit to very small entrepreneurs to

grow their businesses and improve their economic situation.

The Company was registered by the National Bank of Georgia on 20 February 2009. The legal

address of the Company is 64 Mitskevich Street, Tbilisi, Georgia.

The Companys immediate and ultimate parent company is Laponeto Commmercial LLC and the

ultimate controlling party is Elena Papachristodoulou Psintrou.

As at 31 December 2010 and 2009 the Companys shareholders were as follows:

2010Ownership interest, %

2009Ownership interest, %

Laponeto Commmercial LLC 51.0% 51.0%

Laerti Zubadalashvili 25.0% 25.0%

Kakhaber Kakhiani 15.0% 15.0%

Nodar Daushvili 9.0% 9.0%

100.00% 100.00%

Related party transactions are detailed in note 20.

(b) Georgian business environment

Georgia is experiencing political and economic change that has affected, and may continue to

affect, the activities of enterprises operating in this environment. The conflict between Georgia and

the Russian Federation has created additional uncertainty. The Companys operations and assetscould be at risk as a result of negative changes in the political, economic or business environment

within Georgia and between Georgia and the Russian Federation. Consequently, operations in

Georgia involve risks that typically do not exist in other markets. In addition, the contraction in the

capital and credit markets and its impact on the economy of Georgia have further increased thelevel of economic uncertainty in the environment. These financial statements reflect managementsassessment of the impact of the Georgian business environment on the operations and the financial

position of the Company. The future business environment may differ from managementsassessment.


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2 Basis of preparation

(a) Statement of compliance

The accompanying financial statements are prepared in accordance with International Financial

Reporting Standards (IFRS).

(b) Basis of measurement

The financial statements are prepared on the historical cost basis.

(c)

Functional and presentation currency

The national currency of Georgia is the Georgian Lari (GEL), which is the Companys functionalcurrency and the currency in which these financial statements are presented.

Financial information presented in GEL is rounded to the nearest thousand.

(d) Use of estimates and judgments

Management makes a number of estimates and assumptions relating to the reporting of assets and

liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements

in conformity with IFRS. Actual results could differ from those estimates.

In particular, information about significant areas of estimation uncertainty and critical judgments in

applying accounting policies is described in note 11, loan impairment estimates.

3 Significant accounting policies

The accounting policies set out below are applied consistently to all periods presented in these

financial statements.

(a) Foreign currency

(i) Foreign currency transactionsTransactions in foreign currencies are translated to GEL at exchange rates at the dates of the

transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date

are retranslated to GEL at the exchange rate at that date. The foreign currency gain or loss on

monetary items is the difference between amortised cost in the functional currency at the beginning

of the period, adjusted for effective interest and payments during the period, and the amortised cost

in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary

assets and liabilities denominated in foreign currencies that are measured at fair value are

retranslated to GEL at the exchange rate at the date that the fair value is determined. Foreign

currency differences arising on retranslation are recognised in profit or loss. Non-monetary items

that are measured in terms of historical cost in a foreign currency are translated using the exchangerate at the date of the transaction.


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10

(b) Financial instruments

(i) ClassificationLoans and receivables are non-derivative financial assets with fixed or determinable payments that

are not quoted in an active market.

Cash and cash equivalents comprise cash balances, call deposits and highly liquid investments with

maturities at initial recognition of three months or less.

Loans and borrowings are non-derivative financial liabilities with fixed or determinable payments

that are not quoted in an active market.

(ii) RecognitionFinancial assets and liabilities are recognized in the statement of financial position when theCompany becomes a party to the contractual provisions of the instrument. All regular way

purchases of financial assets are accounted for at the settlement date.

(iii)MeasurementA financial asset or liability is initially measured at its fair value plus transaction costs that are

directly attributable to the acquisition or issue of the financial asset or liability. Subsequent to initial

recognition, financial assets are measured at amortized cost using the effective interest method.

All financial liabilities are measured at amortized cost.

The amortised cost of a financial asset or liability is the amount at which the financial asset or

liability is measured at initial recognition, minus principal repayments, plus or minus the

cumulative amortisation using the effective interest method of any difference between the initial

amount recognised and the maturity amount, minus any reduction for impairment. Premiums and

discounts, including initial transaction costs, are included in the carrying amount of the related

instrument and amortized based on the effective interest rate of the instrument.

(iv)Fair value measurement principlesFair value is the amount for which an asset could be exchanged, or a liability settled, between

knowledgeable, willing parties in an armss length transaction on the measurement date.

When available, the Company measures the fair value of an instrument using quoted prices in anactive market for that instrument. A market is regarded as active if quoted prices are readily and

regularly available and represent actual and regularly occurring market transactions on an armslength basis.

If a market for a financial instrument is not active, the Company establishes fair value using a

valuation technique. Valuation techniques include using recent arms length transactions betweenknowledgeable, willing parties (if available), reference to the current fair value of other instruments

that are substantially the same, discounted cash flow analyses and option pricing models. The

chosen valuation technique makes maximum use of market inputs, relies as little as possible on

estimates specific to the Company, incorporates all factors that market participants would consider

in setting a price, and is consistent with accepted economic methodologies for pricing financial

instruments. Inputs to valuation techniques reasonably represent market expectations and measuresof the risk-return factors inherent in the financial instrument.


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The best evidence of the fair value of a financial instrument at initial recognition is the transaction

price, i.e., the fair value of the consideration given or received, unless the fair value of thatinstrument is evidenced by comparison with other observable current market transactions in the

same instrument (i.e., without modification or repackaging) or based on a valuation technique

whose variables include only data from observable markets. When transaction price provides the

best evidence of fair value at initial recognition, the financial instrument is initially measured at the

transaction price and any difference between this price and the value initially obtained from a

valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of

the instrument but not later than when the valuation is supported wholly by observable market data

or the transaction is closed out.

(v) Gains and losses on subsequent measurementFor financial assets and liabilities carried at amortized cost, a gain or loss is recognized in profit or

loss when the financial asset or liability is derecognized or impaired, and through the amortization

process.

(vi)DerecognitionThe Company derecognises a financial asset when the contractual rights to the cash flows from the

financial asset expire, or when it transfers the financial asset in a transaction in which substantially

all the risks and rewards of ownership of the financial asset are transferred or in which the

Company neither transfers nor retains substantially all the risks and rewards of ownership and it

does not retain control of the financial asset. Any interest in transferred financial assets that qualify

for derecognition that is created or retained by the Company is recognised as a separate asset orliability in the statement of financial position. The Company derecognises a financial liability when

its contractual obligations are discharged or cancelled or expire.

The Company writes off assets deemed to be uncollectible.

(vii)OffsettingFinancial assets and liabilities are offset and the net amount reported in the statement of financial

position when there is a legally enforceable right to set off the recognised amounts and there is an

intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

(c) Property, equipment and intangible assets

(i) Owned assetsItems of property, equipment and intangible assets are stated at cost less accumulated depreciation

and impairment losses.

Where an item of property and equipment comprises major components having different useful

lives, they are accounted for as separate items of property and equipment.

(ii) Leased assetsAll leases are operating leases and the leased assets are not recognized in the statement of financial

position.


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(iii)DepreciationDepreciation/amortisation is charged to profit or loss on a straight-line basis over the estimated

useful lives of the individual assets. Depreciation/amortisation commences on the date of

acquisition. Land is not depreciated.

The estimated useful lives are as follows:

- buildings 20 years

- intangible assets 5 years

- other 3 years

(d) Impairment

(i) Financial assets carried at amortized costFinancial assets carried at amortized cost consist principally of loans and other receivables (loans

and receivables). The Company reviews its loans and receivables to assess impairment on a regular

basis. A loan or receivable is impaired and impairment losses are incurred if, and only if, there is

objective evidence of impairment as a result of one or more events that occurred after the initial

recognition of the loan or receivable and that event (or events) has had an impact on the estimated

future cash flows of the loan that can be reliably estimated.

Objective evidence that financial assets are impaired can include default or delinquency by a

borrower, breach of loan covenants or conditions, restructuring of a loan or advance on terms that

the Company would not otherwise consider, indications that a borrower or issuer will enterbankruptcy, the disappearance of an active market for a security, deterioration in the value of

collateral, or other observable data relating to a group of assets such as adverse changes in the

payment status of borrowers in the group, or economic conditions that correlate with defaults in the

group.

The Company first assesses whether objective evidence of impairment exists individually for loans

and receivables that are individually significant, and individually or collectively for loans and

receivables that are not individually significant. If the Company determines that no objective

evidence of impairment exists for an individually assessed loan or receivable, whether significant or

not, it includes the loan in a group of loans and receivables with similar credit risk characteristics

and collectively assesses them for impairment. Loans and receivables that are individually assessed

for impairment and for which an impairment loss is or continues to be recognised are not includedin a collective assessment of impairment.

If there is objective evidence that an impairment loss on a loan or receivable has been incurred, the

amount of the loss is measured as the difference between the carrying amount of the loan or

receivable and the present value of estimated future cash flows including amounts recoverable from

guarantees and collateral discounted at the loan or receivables original effective interest rate.Contractual cash flows and historical loss experience adjusted on the basis of relevant observable

data that reflect current economic conditions provide the basis for estimating expected cash flows.

In some cases the observable data required to estimate the amount of an impairment loss on a loan

or receivable may be limited or no longer fully relevant to current circumstances. This may be the

case when a borrower is in financial difficulties and there is little available historical data relating to

similar borrowers. In such cases, the Company uses its experience and judgement to estimate theamount of any impairment loss.

All impairment losses in respect of loans and receivables are recognized in profit or loss and are


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only reversed if a subsequent increase in recoverable amount can be related objectively to an event

occurring after the impairment loss was recognised.

When a loan is uncollectable, it is written off against the related allowance for loan impairment.The Company writes off a loan balance (and any related allowances for loan losses) when

management determines that the loans are uncollectible and when all necessary steps to collect the

loan are completed.

(ii) Non financial assetsNon financial assets, other than deferred taxes, are assessed at each reporting date for any

indications of impairment. The recoverable amount of non financial assets is the greater of their fair

value less costs to sell and value in use. In assessing value in use, the estimated future cash flows

are discounted to their present value using a pre-tax discount rate that reflects current market

assessments of the time value of money and the risks specific to the asset. For an asset that does not

generate cash inflows largely independent of those from other assets, the recoverable amount isdetermined for the cash-generating unit to which the asset belongs. An impairment loss is

recognised when the carrying amount of an asset or its cash-generating unit exceeds its recoverable

amount.

All impairment losses in respect of non financial assets are recognized in profit or loss and reversed

only if there has been a change in the estimates used to determine the recoverable amount. Any

impairment loss reversed is only reversed to the extent that the assets carrying amount does notexceed the carrying amount that would have been determined, net of depreciation or amortisation, if

no impairment loss had been recognised.

(e) Charter capital

Charter capital is classified as equity.

Dividends are reflected as an appropriation of retained earnings in the period when they are

declared.

(f) Taxation

Income tax comprises current and deferred tax.

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates

enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect

of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of

assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognised for temporary differences on the initial recognition of assets or

liabilities in a transaction that is not a business combination and that affects neither accounting nor

taxable profit nor loss. Deferred tax is measured at the tax rates that are expected to be applied to

the temporary differences when they reverse, based on the laws that have been enacted or

substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits

will be available against which the temporary differences, unused tax losses and credits can be

utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax

benefit will be realised.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current

tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the

same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and


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assets on a net basis or their tax assets and liabilities will be realised simultaneously.

(g) Income and expense recognition

Interest income and expense are recognised in profit or loss using the effective interest method.

Loan origination fees, loan servicing fees and other fees that are considered to be integral to the

overall profitability of a loan, together with the related transaction costs, are deferred and amortized

to interest income over the estimated life of the financial instrument using the effective interest

method.

Other fees, commissions and other income and expense items are recognised in profit or loss when

the corresponding service is provided.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over

the term of the lease.

(h) New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective as at

31 December 2010, and are not applied in preparing these financial statements. Of these

pronouncements, potentially the following will have an impact on the financial position and

performance. The Company plans to adopt these pronouncements when they become effective.

Revised IAS 24 Related Party Disclosures (2009) introduces an exemption from the basicdisclosure requirements in relation to related party disclosures and outstanding balances,

including commitments, for government-related entities. Additionally, the standard has beenrevised to simplify some of the presentation guidance that was previously non-reciprocal. The

revised standard is to be applied retrospectively for annual periods beginning on or after 1

January 2011. The Company has not yet analyzed the likely impact of the new standard on its

financial position or performance.

IFRS 9 Financial Instruments will be effective for annual periods beginning on or after1 January 2013. The new standard is to be issued in phases and is intended ultimately to replace

International Financial Reporting Standard IAS 39 Financial Instruments:Recognition and

Measurement. The first phase of IFRS 9 was issued in November 2009 and relates to the

classification and measurement of financial assets. The second phase regarding classification

and measurement of financial liabilities was published in October 2010. The remaining parts of

the standard are expected to be issued during 2011. The Company recognises that the newstandard introduces many changes to the accounting for financial instruments and is likely to

have a significant impact on Companys financial statements. The impact of these changes willbe analysed during the course of the project as further phases of the standard are issued. The

Company does not intend to adopt this standard early.

Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. Allamendments, which result in accounting changes for presentation, recognition or measurement

purposes, will come into effect not earlier than 1 January 2011. The Company has not yet

analysed the likely impact of the improvements on its financial position or performance.


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4 Net interest income

2010

GEL000

21 November 2008

(incorporation date) to

31 December 2009GEL000

Interest income

Loans to customers 1,660 273

Placements with banks 4 4

Total interest income 1,664 277

Interest expenseloans and borrowings (207) (11)

Net interest income 1,457 266

5 Fee and commission income

2010

GEL000

21 November 2008


31 December 2009

GEL000

Settlement 177 89

Other 1 11

178 100

6 Impairment losses

2010

GEL000

21 November 2008



Loans to customers 141 -

7 Personnel expenses

2010

GEL000

21 November 2008



Employee compensation 351 56


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8 Other general administrative expenses

2010

GEL000

21 November 2008



Professional services 51 14

Depreciation and amortization 47 26

Communications and information services 15 7

Security 13 4

Advertising and marketing 5 6

Office supplies 4 2

Rent 2 4

Taxes other than income taxes - 3

Other 41 17

178 83

9 Income tax expense

2010

GEL000

21 November 2008



Current period expense

Current period 181 35

181 35

Deferred tax expense

Origination and reversal of temporary differences (22) 5

Total income tax expense 159 40

In 2010, the applicable tax rate for current and deferred tax is 15% (2009: 15%).

Reconciliation of effective tax rate:

2010

GEL000 %

21 November 2008(incorporation date) to

31 December 2009GEL000 %

Profit before income tax 1,058 100% 239 100%

Income tax at the applicable tax rate 159 15% 36 15%

Non-deductible expenses - - 4 2%

159 15% 40 17%


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(a) Deferred tax asset and liability

Temporary differences between the carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for taxation purposes give rise to net deferred tax assets andliabilitiesas at 31 December 2010 and 2009.

Movements in temporary differences during the year ended 31 December 2010 and period ended

31 December 2009 are presented as follows:

GEL000

Balance

1 January 2010

Recognized

in profit or loss

Balance

31 December 2010

Loans to customers - 21 21

Property, equipment and intangible assets (5) 1 (4)

(5) 22 17

GEL000

Balance

21 November 2008

Recognized

in profit or loss

Balance

31 December 2009

Property, equipment and intangible assets - (5) (5)

10 Cash and cash equivalents

Cash and cash equivalents as at 31 December as shown in the statement of cash flows are composed

of the following items:

2010

GEL000

2009

GEL000

Petty cash 148 125

Bank balances

Rated B - 7

Rated B+ 15 5

Unrated 2 -

Call deposits

Rated B - 9

Unrated - 1

Total cash and cash equivalents 165 147

The above ratings are per Fitch ratings.

None of cash and cash equivalents are impaired or past due.

The Companys exposure to interest rate risk and a sensitivity analysis for financial assets andliabilities are disclosed in note 17.


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11 Loans to customers2010

GEL000

2009

GEL000

Commercial loansloans to small businesses 600 1,375

Loans to individuals

Loans collateralized by real estate 3,725 973

Consumer loans 303 144

Auto loans 189 318

Total loans to to individuals 4,217 1,435

Gross loans to customers 4,817 2,810

Impairment allowance (141) -

Net loans to customers 4,676 2,810

As at 31 December 2010, interest accrued on impaired loans amount to GEL 82 thousand

(31 December 2009: nil).

Movements in the loan impairment allowance by classes of loans to customers for the year ended

31 December 2010 are as follows:

Commercial loansGEL000

Loans to individualsGEL000

TotalGEL000

Balance at the beginning of the year - - -

Net charge 20 121 141

Balance at the end of the year 20 121 141


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(a) Credit quality of loans to customers

The following table provides information on the credit quality of loans to customers as at

31 December 2010:

Gross loans

Impairment

allowance Net loans

Impairment

allowance togross loans,

GEL000 GEL000 GEL000 %

Commercial loans

Loans without individual signs of impairment 432 - 432 -

Impaired loans:

-overdue less than 90 days 101 - 101 -- overdue more than 90 days and less than 1 year 67 (20) 47 29.9%

Total impaired loans 168 (20) 148 11.9%

Total commercial loans 600 (20) 580 3.3%


Loans collateralized by real estate

- not overdue 3,128 - 3,128 -

- overdue less than 30 days 96 - 96 -

- overdue 30-89 days 176 (3) 173 1.7%

- overdue 90-179 days 68 (7) 61 10.3%

- overdue 180-360 days 257 (108) 149 42.0%

Total loans collateralizedby real estate 3,725 (118) 3,607 3.2%

Consumer loans

- not overdue 241 - 241 -


- overdue 30-89 days 37 (1) 36 2.7%

Total consumer loans 303 1 302 0.3%

Auto loans



- overdue 30-89 days 18 - 18 -

- overdue 180-360 days 4 (2) 2 50.0%

Total auto loans 189 (2) 187 1.1%

Total loans to individuals 4,217 (121) 4,096 2.9%

Total loans to customers 4,817 (141) 4,676 2.9%


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The following table provides information on the credit quality of the loans to customers portfolio as

at 31 December 2009:

Gross loans

Impairment

allowance Net loans

Impairment

allowance to

gross loans,

GEL000 GEL000 GEL000 %

Commercial loans

Loans without individual signs of impairment 1,291 - 1,291 -

Impaired loans:


Total impaired loans 84 - 84 -

Total commercial loans 1,375 - 1,375 -


Loans collateralized by real estate


Total loans collateralized by real estate 973 - 973 -

Consumer loans


- overdue 30-89 days 23 - 23 -

Total consumer loans 144 - 144 -

Auto loans


Total Auto loans 318 - 318 -

Total loans to individuals 1,435 - 1,435 -

Total loans to customers 2,810 - 2,810 -

(b) Key assumptions and judgments for estimating the loan impairment

(i) Commercial loansLoan impairment results from one or more events that occurred after the initial recognition of the

loan and that have an impact on the estimated future cash flows associated with the loan, and which

can be reliably estimated. Loans without individual signs of impairment do not have objectiveevidence of impairment that can be directly attributed to them.

The objective indicators of loan impairment include the following:

overdue payments under the loan agreement;

significant difficulties in the financial conditions of the borrower

The Company estimates loan impairment for commercial loans based on an analysis of the future

cash flows for impaired loans and based on its past loss experience for portfolios of loans for which

no indications of impairment has been identified.


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In determining the impairment allowance for commercial loans, management makes the following

key assumptions:

no historical loss rate for loans without individual signs of impairmentbased on the Companyspast loss experience;

a delay of 6 to 12 months in obtaining proceeds from the foreclosure of collateral for loans withindividual signs of impairment.

Changes in these estimates could affect the loan impairment provision. For example, to the extent

that the net present value of the estimated cash flows differs by minus one percent, the impairment

allowance on commercial loans as at 31 December 2010 would be GEL 6 thousand higher

(2009: GEL 14 thousand).

(ii) Loans to individualsThe Company estimates loan impairment for loans to individuals based on its past historical loss

experience on each type of loan. The significant assumptions used by management in determining

the impairment losses for loans to individuals include:

loss migration rates are constant and can be estimated based on the historic loss migrationpattern for the past 12 months for loans collateralised by real estate, auto loans and other

consumer loans.

loans to individuals overdue for more than 180 days are allocated 40%-50% probability of loss.

The significant assumptions used in determining the impairment losses for loans to individualsinclude the following loan loss rates:

Loans collateralized by real estate3.2% Consumer loans0.3% Auto loans1.1%

Changes in these estimates could effect the loan impairment provision. For example, to the extent

that the net present value of the estimated cash flows differs by minus three percent, the impairment

allowance on loans to individuals as at 31 December 2010 would be GEL 41 thousand higher

(2009: GEL 14 thousand).

(c) Analysis of collateral

The following table provides an analysis of loans to customers, net of impairment, by types of

collateral as at 31 December 2010:

2010

GEL000

% of loan

portfolio

2009

GEL000

% of loan

portfolio

Real estate 4,117 88% 2,400 85%

Motor vehicles 219 5% 275 10%

Gold and jewelry 203 4% 31 1%

No collateral 137 3% 104 4%

4,676 100% 2,810 100%

The amounts shown in the table above represent the carrying value of the loans, and do not

necessarily represent the fair value of the collateral.


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During the year ended 31 December 2010 the Company obtained assets with a value of

GEL 84 thousand by taking control of collateral securing commercial loans (2009: none)

(d) Industry and geographical analysis of the loan portfolio

Loans to customers were issued to customers in Georgia who operate in the following economic

sectors:

2010

GEL000

2009

GEL000

Loans to individuals 4,096 1,435

Trade 417 768

Service 125 456

Manufacturing 13 90

Agriculture 7 17

Other 18 44

4,676 2,810

(e) Significant credit exposures

As at 31 December 2010 and 31 December 2009 no individual loan balances exceed 10% of equity.

(f) Loan maturities

The maturity of the loan portfolio is presented in note 17(d), which shows the remaining periodfrom the reporting date to the contractual maturity of the loans.


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12 Property, equipment and intangible assets

GEL000Land and

buildings Other Total

Cost

Balance at 1 January 2010 460 114 574

Additions - 26 26

Balance at 31 December 2010 460 140 600

Depreciation/amortisation

Balance at 1 January 2010 9 17 26

Depreciation and amortisation charge 12 35 47


Carrying amount

At 31 December 2010 439 88 527

GEL000

Land and

buildings Other Total

Cost

Balance at 21 November 2008 - - -

Additions 460 114 574At 31 December 2009 460 114 574

Depreciation/amortisation

Balance at 21 November 2008 - - -

Depreciation and amortisation charge 9 17 26


Carrying amount

At 31 December 2009 451 97 548

13 Other assets

2010

GEL000

2009

GEL000

Accounts receivable 9 5

Total other financial assets 9 5

Repossessed assets 84 -

Prepayments 46 4

Prepaid other taxes 4 -

Materials and supplies 2 -

Total other non-financial assets 136 4

Total other assets 145 9


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14 Loans and borrowings

This note provides information about the contractual terms of interest-bearing loans and

borrowings, which are measured at amortized cost. For more information about exposure to interest

rate, foreign currency and liquidity risk, see note 17.

2010

GEL000

2009

GEL000

Non-current liabilities

Unsecured loans from individuals 35 -

Secured bank loan - 87035 870

Current liabilities

Secured bank loans 1,818 -

Unsecured loans from individuals 79 59

1,897 59

1,932 929

(a) Terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:

31 December 2010 31 December 2009

GEL000 Currency

Nominal

interest rate

Year of

maturity

Face

value

Carrying

amount

Face

value

Carrying

amount

Secured bank loan USD 12.5% 2011 1,048 1,048 870 870

Secured bank loan EUR 12.5% 2011 770 770 - -

Unsecured loans from

individuals USD 8% 2011 71 71 59 59


individuals USD 18%-24% 2012 35 35 - -


individuals GEL 8% 2011 8 8 - -

1,932 1,932 929 929

15 Other liabilities

2010

GEL000

2009

GEL000

Accounts payable 2 3

Total other financial liabilities 2 3

Prepayments received 41 28

Other taxes payable - 2

Total other non-financial liabilities 41 30

Total other liabilities 43 33


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16 Equity

(a) Charter capital

Charter capital represents the nominal amount of capital in the founding documentation of the

Company.

(b) Dividends

In accordance with Georgian legislation the Companys distributable reserves are limited to thebalance of retained earnings as recorded in the Companys statutory financial statements preparedin accordance with IFRSs. As at 31 December 2010 the Company had retained earnings of

GEL 1,098 thousand (2009: GEL 199 thousand).

17 Risk management

Management of risk is fundamental to the microfinance business and is an essential element of the

Companys operations. The major risks faced by the Company are those related to market risk,

credit risk and liquidity risk.

(a) Risk management policies and procedures

The risk management policies aim to identify, analyse and manage the risks faced by the Company,to set appropriate risk limits and controls, and to continuously monitor risk levels and adherence to

limits. Risk management policies and procedures are reviewed regularly to reflect changes in

market conditions, products and services offered and emerging best practice.

The Supervisory Board has overall responsibility for the oversight of the risk management

framework, overseeing the management of key risks and reviewing its risk management policies

and procedures as well as approving significantly large exposures.

Management is responsible for monitoring and implementation of risk mitigation measures and

making sure that the Company operates within the established risk parameters. The Chief Executive

Officer (CEO) is responsible for the overall risk management and compliance functions, ensuring

the implementation of common principles and methods for identifying, measuring, managing andreporting both financial and non-financial risks. The CEO reports directly to the Supervisory Board.

(b) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in market prices. Market risk comprises currency risk, interest rate risk and

other price risks. Market risk arises from open positions in interest rate, currency and equity

financial instruments, which are exposed to general and specific market movements and changes in

the level of volatility of market prices.

The objective of market risk management is to manage and control market risk exposures withinacceptable parameters, whilst optimizing the return on risk.


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26

Overall authority for market risk is vested with management. Market risks are approved by

management.

(i) Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates. The Company is exposed to the effects of

fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.

Interest margins may increase as a result of such changes but may also reduce or create losses in the

event that unexpected movements occur.

Interest rate risk arises when the actual or forecasted assets of a given maturity period are either

greater or less than the actual or forecasted liabilities in that maturity period.

Management does not have a formal policy of determining how much of the Companys exposureshould be to fixed or variable rates. However, at the time of raising new loans or borrowings

management uses its judgment to decide whether it believes that a fixed or variable rate would be

more favorable to the Company over the expected period until maturity.

Profile

At the reporting date the interest rate profile of interest-bearing financial instruments was:

2010

GEL000

2009

GEL000

Fixed rate instruments

Financial assets 4,676 2,810

Financial liabilities (1,932) (929)

2,744 1,881

Average interest rates

The table below displays average effective interest rates for interest bearing assets and liabilities as

at 31 December 2010 and 2009. These interest rates are an approximation of the yields to maturity

of these assets and liabilities.

2010

Average effective interest rate, %

2009

Average effective interest rate, %

GEL USD EUR GEL USD EUR

Interest bearing assets

Call deposits - - - - 3% -

Loans to customers 30% 34% 31% 30% 37% -

Interest bearing liabilities

Loans and borrowings 8% 12% 13% - 12% -

The sensitivity of the Companys interest-bearing assets and liabilities to changes in interest raterepricing risk was not significant as at 31 December 2010 and 31 December 2009.


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27

Fair value sensitivity analysis for fixed rate instruments

The Company does not account for any fixed rate financial assets and liabilities at fair value

through profit or loss. Therefore a change in interest rates at the reporting date would not affect

profit and loss.

(ii) Currency riskThe Company has assets and liabilities denominated in several foreign currencies.

Currency risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates. Foreign currency risk arises when the actual

or forecasted assets in a foreign currency are either greater or less than the liabilities in that

currency. The Company does not hedge its exposure to currency risk.

The following table shows the foreign currency exposure structure of financial assets and liabilities

as at 31 December 2010:

GEL USD EUR Total

GEL000 GEL000 GEL000 GEL000

ASSETS

Cash and cash equivalents 16 87 62 165

Loans to customers 8 4,331 337 4,676

Other financial assets 2 7 - 9

Total assets 26 4,425 399 4,850

LIABILITIES

Loans and borrowings 8 1,154 770 1,932

Other financial liabilities 2 - - 2

Total liabilities 10 1,154 770 1,934

Net position as at 31 December 2010 16 3,271 (371) 2,916

The following table shows the currency structure of financial assets and liabilities as at

31 December 2009:

GEL USD EUR Total

GEL000 GEL000 GEL000 GEL000

ASSETS

Cash and cash equivalents 22 111 14 147

Loans to customers 46 2,764 - 2,810

Other financial assets 5 - - 5

Total assets 73 2,875 14 2,962

LIABILITIES

Loans and borrowings - 929 - 929

Other financial liabilities 3 - - 3

Total liabilities 3 929 - 932

Net position as at 31 December 2009 70 1,946 14 2,030


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A strengthening of the GEL, as indicated below, against the following currencies at 31 December

2010 and 2009 would have increased (decreased) profit or loss by the amounts shown below. This

analysis is on a net of tax basis and is based on foreign currency exchange rate variances that the

Company considered to be reasonably possible at the end of the reporting period. The analysisassumes that all other variables, in particular interest rates, remain constant.

2010 2009

Profit

or loss

GEL000

Profit

or loss

GEL000

10% appreciation of USD against GEL 278 165

10% appreciation of EUR against GEL (32) 1

A weakening of the GEL against the above currencies at 31 December 2010 and 2009 would have

had the equal but opposite effect on the above currencies to the amounts shown above, on the basisthat all other variables remain constant.

(c) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial

instrument fails to meet its contractual obligations. The Company has formal policies and

procedures for the management of credit exposures, including guidelines to limit portfolio

concentration and the establishment of a Credit Committee, which actively monitors credit risk. The

credit policy is reviewed and approved by the Supervisory Board.

The credit policy establishes:

procedures for review and approval of loan credit applications

methodology for the credit assessment of borrowers

methodology for the evaluation of collateral

Individual loan credit applications are originated by the relevant loan officers. Analysis reports are

based on a structured analysis focusing on the customers business and financial performance. TheCredit Committee reviews the loan credit application on the basis of submission by the loan

officers. The loan credit application and the report are then independently reviewed by the CEO.

The Company continuously monitors the performance of individual credit exposures and regularly

reassesses the creditworthiness of its customers. The review is based on the customers most recentfinancial information and other information submitted by the borrower, or otherwise obtained by

the Company.

The maximum exposure to credit risk is generally reflected in the carrying amounts of financial

assets on the statement of financial position. The impact of possible netting of assets and liabilities

to reduce potential credit exposure is not significant.


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The maximum exposure to credit risk from financial assets at the reporting date is as follows:

2010

GEL000

2009

GEL000

ASSETS

Loans to customers 4,676 2,810

Bank balances 17 12

Call deposits - 10

Other financial assets 9 5

Total maximum exposure 4,702 2,837

For the analysis of concentration of credit risk in respect of loans to customers refer to note 11.

(d) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations

associated with its financial liabilities that are settled by delivering cash or another financial asset.

Liquidity risk exists when the maturities of assets and liabilities do not match. The matching and or

controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to

liquidity management. It is unusual for micro finance organizations ever to be completely matched

since business transacted is often of an uncertain term and of different types. An unmatched

position potentially enhances profitability, but can also increase the risk of losses.

The Company maintains liquidity management with the objective of ensuring that funds will be

available at all times to honor all cash flow obligations as they become due. The liquidity policy isreviewed and approved by management.

The Company seeks to actively support a diversified and stable funding base comprising long-term

and short-term loans from banks and other financial institutions, accompanied by diversified

portfolios of highly liquid assets, in order to be able to respond quickly and smoothly to unforeseen

liquidity requirements.

The liquidity management practice includes the following:

projecting cash flows by major currencies and considering the level of liquid assets necessary inrelation thereto

maintaining a diverse range of funding sources managing the concentration and profile of debts

maintaining debt financing plans

maintaining liquidity and funding contingency plans

The following tables show the undiscounted cash flows on liabilities on the basis of their earliest

possible contractual maturity. The total gross outflow disclosed in the tables is the contractual,

undiscounted cash flow on the financial liability.


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The liquidity analysis for financial liabilities as at 31 December 2010 is as follows:

GEL000

Demand

and lessthan

1 month

From1 to 3

months

From3 to 6

months

From6 to 12

months

Morethan

1 year

Total

grossamountoutflow

Carrying

amount

Loans and borrowings 71 57 58 1,898 39 2,123 1,932

Other financial liabilities 2 - - - - 2 2

Total liabilities 73 57 58 1,898 39 2,125 1,934

The liquidity analysis for financial liabilities as at 31 December 2009 is as follows:

GEL000

Demand

and less

than

1 month

From

1 to 3

months

From

3 to 6

months

From

6 to 12

months

More

than

1 year

Total

gross

amount

outflow

Carrying

amount

Loans and borrowings - 28 28 116 956 1,128 929

Other financial liabilities 3 - - - - 3 3

Total liabilities 3 28 28 116 956 1,131 932


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31

The table below shows an analysis, by expected maturities, of the amounts recognised in the

statement of financial position as at 31 December 2010:

GEL000

Demand

and less

than1 month

From 1

to 3months

From 3 to

6 months

From 6

to 12months

More

than 1year

No

maturity Total

Cash and cash equivalents 165 - - - - - 165

Loans to customers 378 509 771 1,543 1,475 - 4,676

Property, equipment and

intangible assets - - - - - 527 527

Deferred tax asset - - - - - 17 17

Other assets 61 - - - - 84 145

Total assets 604 509 771 1,543 1,475 628 5,530

Loans and borrowings 71 - - 1,826 35 - 1,932

Income tax payable - 144 - - - - 144

Other liabilities 43 - - - - - 43

Total liabilities 114 144 - 1,826 35 - 2,119

Net position 490 365 771 (283) 1,440 628 3,411

The table below shows an analysis, by expected maturities, of the amounts recognised in the

statement of financial position as at 31 December 2009:

GEL000

Demand

and less

than

1 month

From 1

to

3 months

From 3 to

6 months

From 6

to 12

months

More

than 1

year

No

maturity Total

Cash and cash equivalents 147 - - - - - 147

Loans to customers 151 283 250 301 1,825 - 2,810

Property, equipment andintangible assets - - - - - 548 548

Other assets 4 5 - - - - 9

Total assets 302 288 250 301 1,825 548 3,514

Loans and borrowings - - 8 51 870 - 929

Income tax payable - 35 - - - - 35

Deferred tax liability - - - - - 5 5

Other liabilities 31 2 - - - - 33

Total liabilities 31 37 8 51 870 5 1,002

Net position 271 251 242 250 955 543 2,512

The amounts in the above maturity tables represent the carrying amounts of the assets and

liabilities as at the reporting date and do not include future interest payments.


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The key measure used by the Company for managing liquidity risk is the ratio of net liquid assets

to loans and borrowings. For this purpose net liquid assets include cash and cash equivalents andloans to customers with maturity period of up to one month. The reported ratios of net liquid

assets to loans and borrowings at the reporting date are as follows:

2010

GEL000

2009

GEL000

At 31 December 28% 32%

(e) Fair values versus carrying amounts

Management believes that the fair value of financial assets and liabilities approximates their

carrying amounts. The basis for determining fair values is disclosed in note 3(b).

18 Capital management

The Companys policy is to maintain a strong capital base so as to maintain investor, creditor andmarket confidence and to sustain future development of the business. Capital consists of charter

capital and retained earnings.

The debt to capital ratio at the end of the reporting period is as follows:

2010

GEL000

2009

GEL000

Total liabilities 2,119 1,002

Less cash and cash equivalents (165) (147)

Net debt 1,954 855

Total equity 3,411 2,512

Debt to capital ratio 57% 34%

There were no changes in the Companys approach to capital management during the period.

19 Contingencies

(a) Insurance

The Company does not have full coverage for its premises and equipment, business interruption,

or third party liability in respect of property or environmental damage arising from accidents on

its property or relating to operations. Until the Company obtains adequate insurance coverage,

there is a risk that the loss or destruction of certain assets could have a material adverse effect on

operations and financial position.


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(b) Taxation contingencies

The taxation system in Georgia is relatively new and is characterised by frequent changes in

legislation, official pronouncements and court decisions, which are sometimes unclear,

contradictory and subject to varying interpretation. In the event of a breach of tax legislation, no

liabilities for additional taxes, fines or penalties may be imposed by the tax authorities after six

years have passed since the end of the year in which the breach occurred.

These circumstances may create tax risks in Georgia that are more significant than in other

countries. Management believes that it has provided adequately for tax liabilities based on its

interpretations of applicable Georgian tax legislation, official pronouncements and court

decisions. However, the interpretations of the relevant authorities could differ and the effect on

these financial statements, if the authorities were successful in enforcing their interpretations,

could be significant.

20 Related party transactions

(a) Control relationships

The Companys immediate and ultimate parent company is Laponeto Commercial LLC. The partywith ultimate control over the Company is Elena Papachristodoulou Psintrou.

No publicly available financial statements are produced by the Companys parent company.

(b) Transactions with the Management Board

Total remuneration included in personnel expenses (see note 7) is as follows:

2010

GEL000

21 November 2008

(date of incorporation)

to 31 December 2009GEL000

Employee compensation 191 27

The outstanding balances and average interest rates as at 31 December for transactions with themembers of the Management Board are as follows:

2010

GEL000

Average

interest rate,%

2009

GEL000

Average

interest rate,%

Statement of financial position

ASSETS

Loans to customers 4 20% 8 20 %

Amounts included in profit or loss in relation to transactions with the members of the

Management Board are as follows:


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2010

GEL000

21 November 2008 (date

of incorporation)

to 31 December 2009

GEL000

rofit or loss

Interest income 1 -

Interest expense - 1

21 Events after the reporting period

On 23 February 2011 the following decisions were made by the owners of the Company regarding

distribution of retained earnings:

pay dividends of GEL 199 thousand from the profit for the period ended 31 December 2009;

from the profit for the year ended 31 December 2010 transfer GEL 900 thousand to the chartercapital of the Company with a corresponding increase in the ownership percentage of owners

in proportion to their holdings as at the date of decision.

In 2011, up to the issue date of these financial statements, dividends of GEL 128 thousand were

paid to owners of the Company.

easycred georgia. financial statement 2010

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