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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]

[email protected]

[email protected]

Web : www.wijeyeratne.com

Reg No : P V 229


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


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


4

BOARD OF DIRECTORS


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


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


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.


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.


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)


10

OPERATIONAL HIGHLIGHTS


11

2009

Kirulapona

35 HousesLKR 6 Million

Deniyaya

51 HousesLKR 5.53 Million

Nawalapitiya


Kaduwela


Nuwara Eliya -2


Hambantota - 2


2010

2011

Nuwara Eliya


Hambantota


Ratnapura




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



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



Partnerrtner : : Kahawatte Plantations PLC

(KWPL)

Locationcation : Nawalapitiya

Partner : Ruhunu Rural Women’s

Organization (RRWO)

Location : Hambantota – Weeraketiya

Value : Rs. 10,500,000.00


Beneficiaries : 38 Families

HTS

Partner : : Ruhunu Rural Women’s

Organization (RRWO)

Locationon Hambantota Weeraketiya



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



Partnerr : : Eksath Lanka Welfare Foundation

(ELWF)

Locationcation : Nuwara Eliya

Partner : Ruhunu Rural Women’s

Organization (RRWO)

Location : Hambantota

Value : Rs. 11,300,000.00



Partner : : Ruhunu Rural Women’s

Organization (RRWO)

Locationcation : Hambantota


FINANCIAL STATEMENTS

FINANCIAL HIGHLIGHTS


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


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


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

INDEPENDENT AUDITOR’S REPORT


19

STATEMENT OF FINANCIAL ACTIVITIES


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


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 ...............................


STATEMENT OF CHANGES IN ACCUMULATED FUND


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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


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


21


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


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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.


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.


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.


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.


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.


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.


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.


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.




29


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 -



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



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


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.


32


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]

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