our motto “empowering you“ - safaricom sacco€¦ · our motto “empowering you ... spheres...

OUR MOTTO“Empowering you“

OUR VISIONTo be the financial partner of choice

OUR MISSIONWe transform our members’ lives through provision of affordable

innovative and accessible Financial Service.

OUR CORE VALUESCustomer Focus; Integrity; Reliability; Innovation

Notice of Annual General Meeting....................................................3

Society Information............................................................................4

Safaricom Sacco Board.................................................................... 5

Safaricom Sacco Staff ..................................................................... 6

Corporate Governance.....................................................................7

Minutes of 16th Annual General Meeting...........................................8

Chairman’s Statement....................................................................... 16

CEO’s Statement............................................................................... 18

Treasurer’s Statement.........................................................................19

Committee Reports............................................................................23

Annual Financial Report.....................................................................39

TABLE OF CONTENT

Notice is hereby given on 24th January 2018 to all members of Safaricom Sacco Society Limited, that the Annual General Meeting for the year ended 31st December 2017 will be held on Saturday 17th February 2018 at All African Churches – Desmond Tutu Hall. The meeting will start at 10.00am to 1.00pm

The agenda shall be:

1. Confirmation of agenda2. Review and confirmation of the 2017 Annual General

Meeting minutes3. Report from the Chairman4. Remarks from the Chief Guest5. Report from the treasurer6. Presentation of the 2018-2019 Budget7. Report from the Supervisory Committee 8. Ammendment of Bylaws9. Presentation of the 2017 Audited Financial Statements10. Disposal of surplus for the year 201711. Appointment of Auditors12. Resolutions13. Elections14. AOB

Connie KhayundiHon. Secretary

SOCIETY INFORMATION

BOARD MEMBERS The following served during the year 1 Collins Ogutu Chairman2 Josephine Ndambuki Vice Chairman3 Johnstone Kamunde Treasurer4 Connie Khayundi Hon.Secretary5 Felix Gakuru Director6 Samuel Karanu Director7 David Mwangi Director8 Jack Kiche Director From 18th February 20179 Bernadette Mutune Director From 18th February 201710 Leonard Okoth Director To 18th February 201711 Selina Kemama Director To 18th February 2017

SUPERVISORY 1 Alex Okoth Chairman2 Boniface Muthoka Secretary3 Patrick Nduati Member From 18th February 2017 4 Bernadette Mutune ChairPerson To 18th February 2017

MANAGEMENT 1 Dr. George Ochiri Chief Executive Officer2 Collins Odongo Finance Manager3 Emily Ogeta Business Development Manager4 James Gathuku Internal Auditor5 Peninah Kimani Human Resource Manager6 Kelvin Ebole ICT Manager7 Philbert Kasuku Credit Manager

REGISTERED OFFICE SAFARICOM CARE CENTER HOUSE, WAIYAKI WAY P.0 BOX 2392 -00606 NAIROBI AUDITORS PKF Kenya BANKERS Co-operative Bank of Kenya Ltd Westlands Branch, Nairobi NIC Bank Limited Westlands Branch,Nairobi Commercial Bank of Africa Westlands Branch,Nairobi

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Safaricom Sacco Ltd Annual Report 2017 Safaricom Sacco Ltd Annual Report 20176

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Safaricom Sacco Ltd Annual Report 2017 7

SAFARICOM SACCO LTDBOARD AND COMMITTEE MEETINGS ATTENDANCE

No. Names jan feb mar apr may jun july aug sep oct nov dec Total

1 Selina Kemama 1 1 0 0 0 0 0 0 0 0 0 0 2

2 Leonard Okoth 1 1 0 0 0 0 0 0 0 0 0 0 2

3 Johnstone Kamunde 1 1 1 1 1 1 1 1 0 0 1 1 10

4 Connie Khayundi 1 1 1 1 1 1 1 1 1 1 1 0 11

5 Jack Kiche 0 0 1 1 1 0 1 0 1 1 1 0 7

6 Felix Gakuru 1 1 1 1 1 1 1 1 1 1 1 1 12

7 Collins Ogutu 1 1 1 1 1 1 1 1 1 1 1 1 12

8 Samuel Karanu 1 1 1 1 1 1 1 1 1 1 1 1 12

9 David Mwangi 1 1 1 1 1 1 1 1 1 1 1 1 12

3 Bernadette Mutune 0 0 1 1 1 1 0 1 1 1 1 1 9

10 Josephine Ndambuki 1 1 1 1 1 1 1 1 1 1 1 1 12

11 George Ochiri 1 1 1 1 1 1 1 1 1 1 1 1 12

FINANCE AND ADMIN

1 Collins Ogutu 1 1 1 1 1 1 1 1 1 1 1 1 12


3 Johnstone Kamunde 1 0 1 1 1 1 1 1 1 0 1 1 10

4 Connie Khayundi 1 1 1 1 1 1 0 1 1 1 1 0 10

AUDIT

2 Leonard Okoth 1 1 0 0 0 0 0 0 0 0 0 0 2

3 Samuel Karanu 1 1 1 1 0 1 1 1 1 1 1 1 11

4 David Mwangi 1 1 1 1 0 1 1 1 1 1 1 1 11

5 Jack Kiche 0 0 1 1 1 1 1 0 1 1 1 1 9

SUPERVISORY


2 Boniface Muthoka 1 1 1 0 1 1 1 0 1 1 1 1 10

3 Patrick Nduati 0 0 1 0 1 1 1 0 1 1 1 1 8

4 Alex Okoth 1 1 1 0 1 1 1 0 1 1 1 1 10

BUSINESS DEVELOPMENT COMMITTEE

1 Selina Kemama 1 1 0 0 0 0 0 0 0 0 0 0 2

2 Collins Ogutu 1 1 1 1 1 1 1 1 1 1 1 1 12


4 David Mwangi 0 0 1 1 1 1 1 1 1 1 1 1 10

6 Felix Gakuru 1 1 1 1 1 1 1 1 1 1 1 1 12

CREDIT COMMITTEE

1 Samuel Karanu 1 1 1 1 1 1 1 1 1 1 1 1 12

2 Felix Gakuru 1 1 1 1 1 1 1 1 1 1 1 1 12


4 David Mwangi 1 1 0 0 0 0 0 0 0 0 0 0 2

Corporate Governance


Present:1. Sacco members2. Sacco regional champions3. Sacco Board 4. Supervisory Committee5. Nominations Committee6. Sacco Auditors for Year 20167. Invited Guests

Min 1/18/2/2017: PreliminariesUpon confirmation of quorum, the meeting was called to order by Master of Ceremony at 10:39 am after which Selina Kemama led the AGM in an opening prayer.

Min 2/18/2/2017: Confirmation of meeting’s agendaThe secretary read the agenda of the meeting as follows:1. Confirmation of agenda2. Review and confirmation of the 2016 Annual General Meeting minutes3. Report from the Chairman4. Remarks from the Chief Guest5. Report from the treasurer6. Presentation of the 2017-2018 Budget7. Report from the Supervisory Committee8. Presentation of the 2016 Audited Financial Statements9. Disposal of surplus for the year 201610. Appointment of Auditors11. Resolutions12. Elections13. AOBThe agenda was adopted as proposed by Edwin Kamara and seconded by Peter Mwalili.

Min 3/18/2/2017: Review and adoption of the 2016 AGM minutesThe secretary took members through the minutes of the previous AGM held on 18th February 2016.There were no noted corrections in the minutes.Accordingly, the minutes were then adopted as proposed by George Ochido and seconded by Hilda Jima.

Min 4/18/2/2017: Matters arising from previous minutesThere were no noted matters arising.Minutes were therefore adopted for filing by John-Bosco Mulei and seconded by Michael Borino.

Min 5/18/2/2017: Chairman’s ReportThe Chairman Mr. Collins Ogutu welcomed the members and guest to the 16th Safaricom Sacco AGM. He further elucidated that Safaricom Sacco and the whole country at large had challenges in the year 2016, but was quick to commend the Sacco for its steadfast resilience and staying on course in regards to the strategic plan, despite the many challenges it faced.

Mr. Ogutu additionally restated that Safaricom Sacco still has plans to be among the best ten Sacco’s in Kenya.

In his report, he testified that the Sacco had made strides and done so well in innovation through Msacco product. He also reported that the system audit exercise that was conducted in 2016 marked yet another colossal milestone for the Sacco.

In regards to the office block, the chair alluded that the journey is still on and the respective processes are taking shape. In that regard, he reiterated that the process and negotiations are underway for acquiring the 2nd plot by end of the 1st half of 2017.

On governance issues, the chair’s report conveyed that all the board members had undergone

MINUTES OF SAFARICOM SACCO DURING THE 16TH ANNUAL GENERAL MEETING HELD ON SATURDAY 18TH FEBRUARY 2017 AT ALL AFRICA CONFERENCE OF

CHURCHES (DESMOND TUTU CONFERENCE CENTRE) – WAIYAKI WAY, WESTLANDS.


a dynamic governance training that is geared towards enhancing management, service and capacity development to steer the Sacco’s agendas and goals.Finally, the chairman’s report was proposed by Charles Oyari and seconded by Peter Nyamai.

Reactions to the chairman’s report:Firstly, Peter Mugo reacted about the office block. He sighted that Westlands offices have many unoccupied offices that may come to the aid of the Sacco in regards to office acquisition. Secondly, Fauzia Mwanzia fronted an inquiry wanting to know how much the adjacent plot would cost.

In the efforts to amicably respond to the above concerns, the chair pointed out that the office block would be a commercial property where some of the offices will be used by Safaricom Sacco employees and other unoccupied offices either rented or sold out. To achieve that, share capital was being used as seed capital for the acquisition and possible adjustments to standard. In regards to the plot inquiry, Mr Ogutu confirmed that the 1st plot had been completely paid for, thus moving the achievement closer to being realised. He finally encouraged members to continue buying shares so as to be an active part of the Sacco development agenda as well as steer the Sacco towards its sustainability objectives.

On the other hand, Julius Oteng put in a word of encouragement by fostering that the board ought to do a feasibility study to ascertain that the investments as well as any development poised strategies are well informed and viable. In reacting to that, the chair clarified that the Sacco’s current decisions are controlled by an earlier feasibility done and bound by the guidelines of stakeholders’ consultative strategies and best practises.

Chairman’s reactions were confirmed by Henry Nyangor and seconded by Franklin Kioko.

Min 6/18/2/2017: Acknowledgement and brief remarks by the invited guestsThe CEO acknowledged invited guests that were present and offered a summative appreciation to the entire Sacco team for the tremendous work and development stature witnessed over time.

Further, the following Guests made brief remarks:Peter Kiragu – Co-operative Bank of KenyaMr. Kiragu acclaimed Safaricom Sacco for its growth which was allied to good governance and sound leadership. This has been replicated in the Banking industry, recognising contribution of Safaricom Sacco and the CEO being recognised as the CEO of the year 2016. He appreciated the chair for encouraging innovation in Safaricom Sacco citing that with current competition, it’s through technological advancement that is exuded through innovation that milestones of product improvement are realised. He further sighted that Co-operative bank will support the Sacco in all spheres including success and challenging times.

Arnold Munene – KUSCCO Nairobi Region HeadAs a representative of the KUSCCO CEO - George Ototo, Mr Munene praised Safaricom Sacco for being a fast-growing Sacco and was quick to confirm that the Sacco was supporting KUSCCO products.

He affirmed that the two entities will continue having mutual working modalities and added that KUSCCO will carry-on its supporting mantra to Safaricom Sacco as and when required to.

In addition, Mr. Munene commended Safaricom Sacco for having worked hard that one member of the board sits as a delegate on the board of KUSCCO.

He also said that Safaricom Sacco is thriving in all the 7 principles of Co-operative.He urged members to save wisely, borrow affordably and grow.

Min 7/18/2/2017: Treasurer’s ReportThe treasurer Mr. Johnstone Kamunde gave his report with the following highlights:Firstly, the financial sector had challenges in 2016. Bank rates rose and the Sacco was impacted but he quickly mitigated against this by paying off the bank facility it had.Secondly, there was an upward trend in financial performance for the Sacco. Affirmed strategies were on track and finances were well managed. He pointed that, Safaricom Sacco was an equal player in the industry and that the Sacco was a going concern. He urged members to support the board when they (Board) bring up products to improve revenue generation. On monetary matters,

MINUTES OF SAFARICOM SACCO


he was quick to report that Sacco expenses had reduced by 14% whereas Interest in deposits had increased by 32%. Share capital and share deposits on the other side increased by 34%.Thirdly, financial ratios were in line with SASRA regulations apart from the Institutional Capital, which the board was keen to ensure it meets the required threshold.

Finally, Mr. Kamunde pleaded with members to honor their obligations when they take up loans to reduce defaulting. On guarantors’ plight, he urged guarantors to track and know homes/residences of those they guarantee to ensure security.

The treasurer’s report was proposed for approval by Jack Kiche and seconded by Martin Biketi.

Reactions to Auditors and Treasurer’s ReportTo start with, Jack Kiche thanked the treasurer for the good work done. He asked him to look at the Non-performing loans closely as they can easily affect the Sacco’s performance.

Additionally, Harry Osoro inquired why the Sacco was borrowing from Banks. On the other hand, Robert Njuguna wanted clarification on institutional capital.

The treasurer in the quest to reply confirmed that factors influencing institutional capital are total assets. As the Sacco grows, total assets also increase. Besides, he sort to explain that institutional capital are non-withdrawable reserves. He said that though the total assets are growing every year, returns to members are also integral in Sacco business. Members were urged to allow the board to come up with means and ways to retain more reserves.

On non-performing loans, the treasurer explained that classification by SASRA required that all loans are provided for. He urged guarantors to assist in following up for the payments. He also informed members present that some of the defaulters had been handed over to the Co-operative tribunal. The Sacco was also utilising CRB listing and checks. The board is also involved in debt collection.

Additionally, John Orutwa advised that in relation to Institutional Capital, the Sacco should make sure that they adhere to SASRA requirements. He also advised that recovering monies from guarantors should be done as the last option during loan recovery process. He pleaded with members to honour their obligations when the take up loans.

The treasurer explained that borrowing is as a result of partnership positions.On Sacco-Bank relations, Charles Wanjohi pointed out that the Sacco ought to be careful and deal with tier 1 banks. He asked the board to make sure that risk assessment is done and maintain good relations with the banks. The treasurer explained that monies in NIC and Spire Banks were purely for operational purposes.

Further, Edwin Kamar noted improvement in borrowings by members. He suggested that there should be improvement in creating demand for deposits. In response, the treasurer agreed on the same and said the board will change approach on encouraging members to be active in mobilising member deposits.

Treasurer’s reactions were adopted by Rebecca Achia and seconded by Patrick Nduati.Presentation of the Budget 2017-2018

Treasurer presented the Budget, which included an Operating Revenue Budget of Kshs. 590M for 2017 and Kshs. 784M for 2018. In addition, a Capital Expenditure Budget of Kshs. 660M for 2017 and Kshs. 400M for 2018 was pronounced.

Budget was approved by John Orutwa and seconded by John-Bosco Mulei.

Reactions to budget proposals: -In reactions, John-Bosco Mulei noted that the administration expenses were escalating. Additionally, Lemmy Amanda noted an issue with values on the MS application, an issue that ought to be amended. Also, Joseph Alando inquired to know why the Sacco was making provision on building. In response, the board advised that building was a long-term investment and very imperative on the boards agenda.

Jack Kiche requested that performance against 2016 budget should have been shown in the books



for a clear understanding, an aspect that the office retorted that it will share feedback with Jack at the earliest time possible. Finally, Charles Ndegwa recommended that the board should track office space and make sure they provide value for money to the members.Budget proposal reactions were proposed for approval by Elias Mbogo and seconded by Nicholas Muthuri.

Min 8/18/2/2017: Supervisory Committee ReportThe Chair of the Committee Madam Bernadette Mutune presented the Supervisory Committee Report for 2016 highlighting the key areas as below:-1. Shares2. Deposits3. Membership4. Land5. Books of accounts6. Product offering and uptake7. Loan portfolio8. Board charter9. Strategic plan10. Debt management11. Receipts12. Cash count.Madam Mutune confirmed that all raised reports, inquiries and interrogations have been answered with utmost integrity and transparency.

On loan and defaulters, she urged members to use the web portal and make required follow up’s.In regards to share drive, she reported that there was a target of Kshs. 1 Billion but the Sacco was behind schedule, thus encouraged members to take up share drive subscriptions.

On the benevolent funds kitty, the committee chair noted that only 700 members were patronising the product and urged members to take up this product. She reported that the product will be made compulsory and bands expanded for efficiency. The committee chair further alluded that the 3 years refund arrangement is unsustainable and urged the board to review this matter in a more sustainable manner.

Lots of land has been taken up according to assertion by the committee chair, a fact that she recommends to be mitigated by getting more affordable land. Additionally, to avoid encroachment on the Sacco land, fully serviced land will be offered in the future.

On ICT, she said that emails were being updated and members ought to check their portals and have their information updated accordingly. She suggested that members should to be trained on effective uptake and subsequent utilisation of business loans. Madam Mutune affirmed that with effective strategy adherence, she looks forward to the Sacco having a robust web portal, customer centric office and more visits to the common bonds.

In conclusion, there were no material issues. She urged the board to set the tone from the top to inspire the rest of the team.

The supervisory report was proposed for approval by Solomon Munza and seconded by Vincent Ruta.

Reactions to the Supervisory Committee Report: To start with, Vincent Ruta noted that some board members did not attend meetings regularly. He also noted that there was a huge difference in expenses, thus urged the board to share relevant expending information with the members.

Additionally, Peter Mugo shared that the decision on the office block not clearly handled.Charles Ndegwa reported that graphics on the web portal were very dull and needed adjustments. He further reiterated that construction of the office block would add value to the Sacco members.

In response, the CEO reported that the need for office block was still valid and on course. He also reported that 4 members are already building on Katani land.In regards to the Mortgage scheme, the CEO accounted that Safaricom Sacco abid but CBA took



up the business. Despite this, he was quick to pronounce that the Sacco will develop a product in the future that targets mortgaging.The CEO added that attendance in the AGM was okay. He further pointed out that as much as it was vital for board members it was understandable that their monthly attendance was affected as some new members were joining the Sacco board, while others retiring.

Additional reactions from Joe Alando suggested that for the benevolent scheme, all members of a family should be included at an extra cost. He also suggested on the attendance register, a (dash) “-“ instead of a “0” to be adopted.

In a rejoinder, Felix Gakuru explained that benevolent is a new product and changes will come in to make it better. Finally, supervisory report reactions were approved by Bernard Ndirangu and seconded by Collette Ongwen.

Min 9/18/2/2017: Presentation of Audited Accounts for the year 2016Mwangi Kamwara and associates presented the Audited reports, guiding the AGM through various accounts, explanations and notes to the accounts as outlined extensively in the Annual Report booklet.

The audited accounts were proposed for approval by Abednego Rotich and seconded by Eunice Karanja

Reactions to the Audited accounts:Firstly, Peter Gichangi advised that the auditor should also compare year on year to gain understanding. However, his concerns were quelled that the books would show ratio of expenses/ revenue in relation to the standards after each 2 years.

Secondly, Abednego sort to understand criteria of the ratios and it was explained that the same is clearly shown on page 20 of the provided booklet.

Thirdly, John-Bosco enquired about the liquidity ratio. In answering this he was informed that the auditor looks at the amount available at the end of the year. This is dynamic in terms of operation and within regulatory requirements.

Reactions to audited accounts were approved by Alain Van Hemelen and seconded by Patrick Mugo.

Min 10/18/2/2017: AGM Resolutions 2017• Pay dividends on share capital at 12%Proposed: Kenneth AludaSeconded: Naomi Waria

• Declaration and capitalisation of full dividendsProposed: Kenneth AludaSeconded: Naomi Waria

• Proposal to pay interest on deposits at 9%Proposed: Edwin KamarSeconded: Rhoda Kisenya

• Approval honoraria – Kshs. 1,474,286.00Proposed: Joe AlandoSeconded: Mackrine Abuka

• Staff bonuses – Kshs. 2,940,875.00Proposed: Anthony OdhiamboSeconded: Jack Kiche

• Borrowing powers to be maintained at Kshs. 600 millionProposed: Peter GichangiSeconded: Jackson Mulwa



• Electronic Voting to be explored for 2017 AGM Proposed: Gabriel KiokoSeconded: Michael Borino• Retain board indemnity at Kshs. 3 MillionProposed: Dennis KyalaSeconded: Jackson Mwanzia

As a result, Alphantus Bukaya fronted that statutory regulations should be followed to the letter.Additionally, Peter Gichangi referred members to the letter from SASRA.He further suggested that members should be given a full 9% and recover institution capital to be done in future.

Finally, Joe Alando requested to know when the dividends will be paid, whereby it was unanimously agreed that payments will be made from 1st week of March to mid-March, 2017.

Min 11/18/2/2017: 2017 AuditorIt was approved that PKF will be the 2017 auditor This was proposed by Jackson Mwanzia and seconded by Betty AndayaStaff of the year award was given to Zipporah Ngari

Min 12/18/2/2017: ElectionsElections were agreed to be conducted by the nominations committee.The Four Board members below were retiring on rotation and eligible for re-election into the Board:• Selina Kemama• Leonard Okoth• Johnston Kamunde• Bernadette MutuneTheir positions in the Board were thus declared vacant.

Selina Kemama stepped down citing commitments that would not enable her serve the Sacco effectively.

The table below shows the members that were nominated and seconded for election as Board members in each category:

Financial Skills1. Leonard Okoth2. Fauzia Kimathi3. Johnstone Kamunde4. Elias Mbogo5. Henry Kipchuma

People and product management skills1. John-Bosco Mulei2. Peter Mwalili3. Bernadette Mutune4. Oscar Omondi5. Peter Mugo6. Ben Njuguna7. Peter Gichangi8. Eunice Kibathi9. Paul Ooga10. Kephers Ombewa

General Management1. Jack Kiche2. Lilian Kagema3. Nicholas MwirigiOne candidate was elected from each category and therefore the three candidates declared winners will join the Board. They include;

1. Johnstone Kamunde – 253 Votes (Financial Skills)2. Jack Kiche – 265 Votes (General management Skills)



3. Bernadette Mutune – 268 Votes (People and product management skills)

Supervisory Committee ElectionsDue to the fact that Bernadette Mutune was due for retirement on rotation from the Supervisory Committee, and having been elected into the Board, she was not available for re-election, thus her position was declared vacant.

To fill that vacancy, Patrick Nduati was unanimously declared winner and joined the Supervisory Committee. Additionally, Boniface Muthoka was ratified by the board as he had been initially co-opted. Proposed by Joe Alando and seconded by Rhoda Kisenya

Min 13/18/2/2017: AOBsThere was no AOB that had been received as stipulated by the by laws on AGM.

Min 14/18/2/2017: ClosureThe AGM was closed by word of prayer from Augustine Limo at 15:55 Hours.Members and guests were then invited to a late lunch.

Signed:

Chair:....................................................... Date: 27 February 2017 Secretary: ............................................... Date: 27 February 2017 Member: ................................................ Date: 27 February 2017


Safaricom Sacco Ltd Annual Report 2017

Own House/Home Mulplier - 5 mes savings Commercial/Rental Units Mulplier - 4 mes savings

Own House/Home Mulplier 5 mes savings Commercial/Rental Units Mulplier 4 mes savings Own House/Home Mulplier 5 mes savings Commercial/Rental Units Mulplier 4 mes savings

Undeveloped Mulplier 4 mes savings 5 years repayment period

1. HOUSE BUYING

2. CONSTRUCTION FINANCING

3. EQUITY RELEASE/ FUNDS AGAINST OWNED PROPERTY

4. PLOT BUYING

FEA

TUR

ES

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PREAMBLEThe Board of Directors is pleased to present the annual report and financial statements for the year ending 31st December 2017. For the 6th year running, we have maintained our tradition of holding the AGM on the third Saturday of February, way ahead of the April 30th deadline as per the Saccos Act.

FINANCIAL PERFORMANCEOur pursuit to be in Top 10 Sacco’s in Kenya by assets, by 2018, is still in focus. Starting from position 56 in 2012, 43 in 2013, 34 in 2014 and 24 in 2015, our progressive improvement saw us in position 23 in 2016 as per the SASRA supervisory report of 2017. Consequently, as we climb towards the top, it gets steeper; however, we are optimistic we shall close - in to position 20, before breaking into the Large Tier DT Sacco’s in subsequent reports. To that end, I wish to congratulate all the members for the loyalty and support that has enabled such growth and glory to the Sacco while further enabling the Sacco attain Tier One as per SASRA Ranking with Assets at Kshs. 5.16 Billion.

With a difficult business environment in 2017 and appreciation of the International Financial Reporting Standards (IFRS -9), loans provision has increased from Kshs. 60M in 2016 to Kshs.170M; which further increases our expenses by 63%. Additionally, there was marginal growth in membership, an impressive growth in total assets, loans, deposits and revenue as per the table below:

Further details on financial performance shall be reported by the Treasurer and the Auditor.

STRATEGIC PLANOur 2014-2018 strategic plan is coming to an end later this year. A fair evaluation by Cooperative University Consultancy (ACTCS) in April 2017 established that we had achieved 69% in overall.

We scored best in Governance objective and least in Product and services as shown in Figure 1 below. However in the year 2018, we shall formulate a robust Strategic plan that shall guide us in the next five years.

STATEMENT BY THE CHAIRMAN, SAFARICOM SACCO LTD ON THE 17TH ANNUAL GENERAL MEETING HELD AT THE DESMOND TUTU CONFERENCE CENTER,

NAIROBI ON 17th FEBRUARY 2018

Item 2017 2016 2015 2016/17 % change

Going Forward

Total Assets (Kshs.) 5,156,358,095 4,158,736,501 3,224,119,317 24% Targeting at least 30% growth

Total Loans (Kshs.) 4,477,291,795 3,524,405,278 2,772,999,628 27% Targeting at least 40% growth

Total Deposits (Kshs.)

4,093,135,515 3,296,131,418 2,521,776,609 24% Targeting at least 40% growth

Revenue (Kshs.) 585,120,432 448,652,271 335,123,794 30% Targeting at least 40% growth

Provision for bad Loans (Kshs.)

170,157,680 60,412,013 35,141,150 182% PAR at < 1% of Total loans

Expenses/Revenue 34% 24% 27% 63% Targeting below 20%


ICT RiskThe Sacco has realized a steady growth in member base over the past few years, with this in mind, there has been a need to improve on the systems in place not only to sustain the current growth but also to be in line with the changing trends in technology. We plan to invest in a robust Core Sacco System that will allow us to achieve several milestones in seamless merging of member data self-service operations, single view between Sacco and customers and redefining the concept of ‘anywhere, anytime’ Sacco service. The stakes have never been higher when it comes to cyber security. With the steady growth and advancements in technology, Safaricom Sacco faces imminent threats on a daily basis on Cyber Security. Safaricom Sacco has invested heavily to ensure that the Sacco Systems and member accounts in return are safeguarded from such threats as may arise

SACCO OFFICE BLOCK PROJECTWe were to conclude acquisition of the neighbouring plot in the year but our neighbours have held on to what they have. However, we have reviewed the matter and are of the opinion that we dispose of the property and then acquire and develop another more premium one.

Despite that, the members investments are secure and shall continue earning dividends at 12% given we have invested the same in lucrative short term loans. The Board hereby assures the members that the need for office space remains valid and shall be solved urgently.

CORPORATE GOVERNANCEThis is the second year running when we conduct our Board elections through a nominations process. It is stringent, but aimed at compliance and harnessing the needed specific skills for the Board.

We are also introducing changes at senior staff level aimed at improving efficiency as well as putting in place a succession plan. We have introduced the office of a General Manager as from January 2018 in line with the envisaged structure to grow the Sacco.

CONCLUSIONIn conclusion, I would like to thank the Board, staff and all the members for working tirelessly in the year to achieve the strong results presented here today.

I also extend our gratitude to Safaricom Ltd for the continued support as well as other common bonds and the Champions. We look forward to another great performance in 2018.

Revenue (Kshs) 585,120,432 448,652,271 335,123,794

30%

Targeting at least 40% growth

Provision for bad Loans (Kshs)

170,157,680 60,412,013 35,141,150

182%

PAR at < 1% of Total loans

Expenses/Revenue 39% 24% 27% 63% Targeting below 20%

Further details on financial performance shall be reported by the Treasurer and the Auditor.

STRATEGIC PLAN

Our 2014-2018 strategic plan is coming to an end later this year. A fair evaluation by Cooperative University Consultancy (ACTCS) in April 2017 established that we had achieved 69% in overall. We scored best in Governance objective and least in Product and services as shown in Figure 1 below. However in the year 2018, we shall formulate a robust Strategic plan that shall guide us in the next five years.

ICT Risk

In February 2017, we had a great ICT innovation which was intended to simplify rebates payment. Members were to log on to our web portal and basically disburse their rebates. From the findings after use, the process was slower than manual in terms of successful

76% 77%

50%

68%

90%

69%

Human Resource ICT Product andservices

Savings andmembership

Governance Overall

Perc

enta

ge A

chie

vem

ent

OBJECTIVES IN FIVE CORE AREAS

SAFARICOM SACCO STRATEGIC PLAN REVIEW OF THEACHIEVEMENT OF THE ACTIONS AGREED IN 2016

STATEMENT BY THE CHAIRMAN

Collins OgutuChairman


PREAMBLEWe have finally bagged the coveted ‘Tier One Sacco status’ ranking by Sacco Societies Regulatory Authority (SASRA). We closed the year 2017 with total assets of Kshs. 5.16 Billion, placing us among the top 21 Saccos in Kenya with such achievement. In the effort to accommodate the fast growing deposits and demand for bigger loans, we increased the maximum loan sealing from Kshs. 10Million to 30Million, and as usual, members never disappoint, a member already borrowed Kshs. 24 Million among others! Additionally, it’s worth to note that we are also very proud of our members who continued to refer quality membership in the year. It would however be mean of us, if we did not share the big challenge of loan default at the backdrop of the new strict accounting reporting guideline on impairment of non-performing assets (IFRS9) which became operational on 9th January 2018.

SUCCESSION PLANNINGThe Sacco has grown in membership now standing at 11,233 In order to remain relevant in the fast changing business environment; the Sacco has implemented a robust Board Charter which introduced election of Board

members based on skills in addition to acceptance by the AGM through a nomination process. This method has attracted very experienced members in the 17th AGM elections agendum. We hope to maintain an energized and resourceful team at the Board, as we shift focus to the managing team at the secretariat. In the year 2018, we shall realign the organisational structure during the 2019 -2024 strategic planning to allow for smooth succession of senior offices. We shall also invest in grooming new talent to lead in the Sacco in light of the newly achieved TIER ONE SACCO status.

FORECAST FOR 2018With Safaricom Ltd expanding its operations in Thika and Eldoret towns, the Sacco shall be considering business viability and may expand to the stations as well. We are also monitoring the emerging mobile business platforms (m-commerce) and shall be expanding in this space as well in our continuous sustainability strategic approaches. After successfully paying rebates through the members’ web portal in 2017, we shall continue with this and other innovations emerging to fit in the dynamic technological scope as well as improving service to our members. On cyber security, the biggest threat to financial institutions in Kenya, we have formally contracted Safaricom Ltd to oversee and manage our cyber space on 24hour basis throughout the year.

CONCLUSIONIn conclusion, I would like to thank the Board for the support exuded, staff for their diligence and members for their loyalty. I also would like to thank the apex bodies and other service providers for support in the quest to achieve our objectives. I wish each and every one of us a prosperous and empowered 2018.

STATEMENT BY THE CHIEF EXECUTIVE OFFICER, SAFARICOM SACCO LTD ON THE 17TH ANNUAL GENERAL MEETING HELD AT THE DESMOND TUTU CONFERENCE

CENTER, NAIROBI ON 17TH FEBRUARY, 2018.

Safaricom Sacco Team Building 2017At Lake Naivasha Sawela Lodge, 10th November 2017

Dr. George OchiriSafaricom Sacco CEO


STATEMENT BY THE TREASURER, SAFARICOM SACCO LTD ON THE 17TH ANNUAL GENERAL MEETING HELD AT THE ALL AFRICAN CHURCHES – DESMOND

TUTU HALL, NAIROBI ON 17TH FEBRUARY, 2018

We continued to deliver strong financial results in this year which demonstrates our commitment to the fulfilment of our vision and mission.

This is attributable to the targeted focus on our key stakeholders who are our members and strategic partners in order to remain attuned to their needs. As a result, this boosted our performance despite a difficult year that was 2017.

Financial environmentWe are announcing these results in the back drop of a challenging year following a prolonged electioneering period whose effect started in Q3 of 2017 running though to Q1 of 2018. In Q3 we had presidential and legislative elections scheduled for August 2017 which were later nullified in September by the Kenya’s Supreme Court, paving the way for another presidential election in October 2017. The atmosphere of political uncertainty and thereafter a disputed elections outcome greatly affected the economy with most sectors almost coming to their knees. The government, which is by far the largest player in the business ecosystem, withheld payments to small and medium enterprises leading to intense pressure in the financial sector of the economy. This led to an increased level of payment defaults and NPL in the financial industry.

Macroeconomic environmentOverall macroeconomic fundamentals were stable in 2017. Authorities pursued prudent monetary, fiscal, and exchange rate policies. The central bank retained the policy rate at 10% in order to manage inflation at the single-digit level. Fiscal policy was expansionary and focused on financing infrastructure mega-projects. Higher government spending, coupled with weaker revenue mobilization, increased the budget deficit to 8% and the public debt–to GDP ratio to 54%. Economic performance in 2017 was mixed. The drought and the presidential election crisis likely affected macroeconomic performance. December 2017 Annual Average Inflation was 7.8% with the 12-Month Inflation rate at 4.8% (Source CBK). The economy is projected to be stronger from 2018 onward.

Whereas the prospects for 2018-20 are broadly favorable, structural constraints and economic challenges still exist. The tightening of governance of financial institutions by CBK has seen several banks restructure and close branches to stay afloat with consumers bearing the blunt of economic slowdown leading to financial institutions reporting increase in provision for non-performing loans.

The SACCO has not been spared of this reality and this is also reflected in our books. The NPL of the SACCO remains a key focus for board and management going into the future. Members are encouraged to remain brother’s keeper as they guarantee each other in the true spirit of the cooperative movement.

Amidst all the above we had a fabulous year, with commendable and improved financial results as shown in the reports that follow.

Financial Performance Highlights

1. Revenues and ExpensesRevenues for the year 2017 were Kes 585 Million compared to Ksh 449 Million in 2016 representing 30 % growth. To finance this growth, the total expenses for the year rose to Kes 495 Million compared to 352 Million in the previous year this is a growth of only 40%.


3. Membership Deposit and share capital

a. MembershipThe focus has been on the retaining existing members and recruiting quality members, there was marginal growth of membership to close the members register with 11,233 up from 10,314 members in 2016, of which 9,655 are active while 1,578 are dormant.

b. Share CapitalThe share capital grew by 19% to close the year at Kshs.510Million up from Ksh 419Million the previous year. This is however way below the Ksh. 1 billion target set in our 2014 – 2018 strategic plan. We therefore urge all members to consider investing in Sacco shares in order to grow our Sacco

c. Member DepositsThe year 2017 showed an impressive growth in deposits by 24%, closing at Ksh 4.1 Billion up from Ksh 3.3 Billion at the

4. Members Rebates, Honorarium and Staff BonusThis year, the proposed interest on members’ deposit is Kshs.264 Million up from 204 Million in 2016 (an increase of 29% on distributable interest). This represents 50.4% of the total revenue and likewise, the proposed dividend on shares is Kshs. 52 Million up from Kshs.41.1Million in 2016.

In conclusion, • The board proposes dividend on share capital at 12%. • The Board also proposes interest on weighted deposits at the rate of 9%. • In recognition of the board’s contribution, the treasurer humbly requests members to approve an honorarium

of Ksh 1,714,284 to be shared by members of the Board and Supervisory Committee.• In addition, the Board proposes a staff bonus of Kshs 3,618,094 equivalent to one month’s salary to be distributed

to the Sacco staff based on their performance in the year.

STATEMENT BY THE TREASURER

Revenue and Expenses in Kshs. (000,000)

Total Revenue Total Expenses Interest Income

2015 2016 2017

Interest Expense

335

449

585

2015 2016 2017

2.521B

259M

419M510M

8710

MembershipShare CapitalDeposit

Deposit, Share Capital and Membership

10314 11233

3.296B

4.093B

192245

295328

440486

286

352

495


These are tabled before members for consideration and approval.

5. Regulatory Financial SoundnessThe SACCO has ensured adherence to the regulatory requirement is achieved as much as possible. Over the last 3 years, we have made tremendous strides in achieving key regulatory ratios per SASRA rules. However, one key ratio-Institutional Capital- has remained a big gaping risk. We are currently at 4% while the statutory minimum is 8%. As agreed in 2016 AGM the management is putting all effort to achieve the said ratio, this ratio is based on deposit and as the Sacco grows the amount required grows as well. We are still short of share capital target and this remains an important avenue for growth. Consequently, we propose that members consider a capitalization of all divided declared.

6. Borrowing PowersMembers had approved the maximum borrowing power of Kshs 600 Million. We wish to maintain the same level of borrowing power in the financial year 2018.

CS/9510 SAFARICOM SACCO OPERATING BUDGET YEAR 2018/2019


ACTUAL PROPOSED

REVENUE YEAR 2017 (KSHS) YEAR 2018 (KSHS) YEAR 2019 (KSHS)

Interest on loans and advances 568,718,692 801,279,744 929,484,503

Other interest income 6,021,703 9,401,538 12,901,538

Total interest 574,740,395 810,681,282 942,386,041

Less: Interest Expenses 295,798,241 399,515,969 439,467,565

Net Interest income 278,942,154 411,165,313 502,918,475

10,380,037 12,935,400 14,228,940

Other operating income 10,380,037 12,935,400 14,228,940

Total Income 289,322,191 424,100,713 517,147,415

EXPENSES

Financial expenses 109,745,667 103,127,382 113,440,120

Administration expenses 20,855,321 30,799,432 34,097,838

Personnel expenses 43,750,955 59,409,391 71,107,813

Governance expenses 14,115,954 15,133,525 16,305,699

Marketing expenses 2,333,455 13,028,033 14,982,238

Depreciation and Amortization 8,468,283 16,807,569 18,488,326

Total expenses 199,269,635 238,305,331 268,422,033

Net operating surplus 90,052,556 185,795,382 248,725,382

Less Tax Expenses 22,669,034 3,985,680 4,543,675

Net operating surplus 67,383,522 181,809,702 244,181,707



Approved by:

ChairmanDate: 18/01/2017

TreasurerDate: 18/01/2017

Hon secretaryDate: 18/01/2017

DESCRIPTION QTY

UNIT COST PROPOSED 2018

PROJECTED 2019

JUSTIFICATION PARTICULARS

Building of Office Block 1 900,000,000 600,000,000 300,000,000 To start construction(according to the lastest feasibility study

Computers-Laptops 8 85,000 680,000 700,000 Additional new staff to be recruited & replacements

Portable Projector 1 75,000 75,000 - Field presentations.

1TB external hard disk 5 12,000 60,000 70,000 Data back ups

Epson Dot Matrix Printer 1 45,000 45,000 - Backup Receipt Printer

NAV 2013 Additional licenses

4 403,747 1,614,987 - Additional NAV licenses to reduce license sharing

NAV Annual Maintenance Contract

1 850,000 850,000 850,000 AMC NAV

Microsoft Office 365 HRMIS

1 1,000,000 1,000,000 - (Sharepoint 365, Dynamics CRM, HRMIS, Business Intelligence, Document Management System)

Microsoft Office 365 CRM 1 3,000,000 3,000,000 - (Sharepoint 365, Dynamics CRM, HRMIS, Business Intelligence, Document Management System)

Microsoft Office 365 BI 1 1,500,000 1,500,000 - (Sharepoint 365, Dynamics CRM, HRMIS, Business Intelligence, Document Management System)

Microsoft Office 365 Sharepoint

1 1,500,000 1,500,000 - (Sharepoint 365, Dynamics CRM, HRMIS, Business Intelligence, Document Management System)

Microsoft Office 365 User Licencing

10 2,063 20,632 30,632 (Sharepoint 365, Dynamics CRM, HRMIS, Business Intelligence, Document Management System)

Microsoft Office Licences 30 35,000 1,050,000 1,100,000 (Sharepoint 365, Dynamics CRM, HRMIS, Business Intelligence, Document Management System)

Website Re-design 1 500,000 500,000 - Upgrading & Interactive web site

Safaricom Managed Security Services

12 132,000 1,584,000 1,584,000 Proactive Security monitoring and remediation

Offiste Cloud Backup 4 20,000 80,000 80,000 Additional resource for Sacco DB legal backup

Virtual Server Hosting 3 240,000 720,000 720,000 Active server hosting

Wimax Link 12 20,000 240,000 240,000 Internet connection, office use, MSACCO application.

Domain Renewal 1 10,000 10,000 10,000 Active Domain Renewal

System Upgrade (NAV\MSACCO)

1 15,000,000 15,000,000 Up grade to 2018 version

Total 629,529,619 305,384,632

CAPITAL EXPENDITURE BUDGET FOR YEAR 2018/9


In pursuant to our mission as a committee to develop and implement growth opportunities in the Sacco, this report highlights the key activities carried out in the year 2017 including but not limited to; Education and Trainings, Project Management, Member Management, Marketing and ICT.Being an election year, there was a lot of uncertainty in the business environments which slowed down the economy almost to a near standstill. Nevertheless, we were able to put in place strategies to allow the Sacco mitigate these challenges and deepen customer engagement, value addition and service delivery.

ICT INNOVATIONS In line with our objective of innovating and leveraging on ICT for service delivery, we pursued various projects for the society during the year under review. These projects were aimed at value addition to the existing mobile applications and Web portal features.

ATM Security managementWe now have additional features to the Customer Web Portal to allow members disable their ATM cards in case of loss or theft. This is in line with the Sacco’s move to always empower members to be able to embrace the DIY (Do It Yourself) capability. The self-service portal on its own with the additional features has allowed our members to be in direct control of their member accounts.

Web portalLast year members were able to self-allocate their rebates with an auto-payment to their FOSA accounts using the web portal. Although there were challenges in accessing the system, we managed to pay members in good time. Based on the experience, we expect to have a flawless process this year.

Technology Risk managementBeing cognizant of the increasing cyber security threats to financial organizations, we put in place a process to monitor the activities of the Sacco on a 24/7 basis. Through this investment, we want to ensure our core systems are secure and any threats are monitored on a near real-time basis.

B2B Solution In regards to development of our B2B solutions, we added key functions on the M-Sacco platform to enable members transfer money from FOSA accounts to other banks through our USSD (*346#) and our Safaricom Sacco App on Google Play Store. Members can directly credit their FOSA accounts from their bank accounts and transact anytime, anywhere as well as enjoy transacting above the minimum M-Pesa Limit of Kshs.140,000.

STATEMENT BY THE BUSINESS DEVELOPMENT COMMITTEE, SAFARICOM SACCO LTD ON THE 17TH ANNUAL GENERAL MEETING HELD AT DESMOND TUTU CONFERENCE

CENTER, NAIROBI ON 17TH FEBRUARY 2018


Products review and enhancementIn the quest to continue meeting our member needs, the committee conducted a comprehensive products review to ensure products are synchronized and comprehensive for the needs of the members. The committee added to the already existing portfolio three new products

Miradi LoanThis product was introduced in the month of July to cater for Real estate, Business, Construction and any other development projects with assets of high value. The minimum loan to be applied is Kshs.10 Million and maximum is Kshs. 30 Million.

Kona loanKONA Loan product was introduced mid this year (2017) on the mobile platform. Eligible members are now able to access loan after 3 months of saving with the Sacco up to a maximum of Kshs. 10,000 that is payable within a month.

Revised Hand of Comfort /Benevolent fundThis product was reviewed and expanded in our efforts to continuously meet our member’s needs. It is also worth noting that, the first beneficiaries of the benevolent fund got their refunds on the expiry of the three year term as promised. So far, 45 members are beneficiaries of this product.

SPECIAL PROJECTSOur continued support to our members in their wealth creation goals saw the Sacco facilitate four land acquisition projects. Our members have continued to request for more opportunities in this sector over the years. Within the year 2017, we increased the number of Land owners by 251 through investing in Katani and Joska Lands. We are happy to report that our members are moving towards value added projects. This year saw the first ever project with a perimeter wall, security house and main gate access. This set a good precedence for controlled development. Our aim is to meet the needs of all our members in different capacities by offering affordable investment opportunities.

MEMBER EDUCATIONWe are happy to spearhead the member education agenda. An educated member is a better investor; therefore our focus is to ensure that all members are aware of the opportunities to grow themselves in partnership with the Sacco. We also engage the general public, opinion leaders and the Sacco fraternity on the nature and benefits of co-operative movement. During the Year 2017, the committee engaged in a number of activities geared towards educating our members and potential members on the importance of the Sacco and the different product offering at their disposal. Some of the activities are elaborated below;

Safaricom Sacco Open DaysThis year’s open day took place in three regions namely: Safaricom JCC, HQ and Nokia. Members enjoyed great offers ranging from free Car-checks, discounted rates on phones and household purchases from our suppliers. The Sacco also offered financial clinic and Consolidation loan offer for a period of 2 months (Starting 21st July till 21st September 2017), that allowed members to borrow a maximum of five (5) times their savings.

STATEMENT BY THE BUSINESS DEVELOPMENT COMMITTEE

OPEN DAY 2017


REGIONAL TRAININGWe also extended our open day to the regions through regional training to corporate common bonds below. We visited and trained approximately 2,300 members based in Nairobi and the regions listed below.Table 1. Regional trainings

To this end, we would like to acknowledge the opening of Safaricom Call center in Eldoret. During the regional visits we realized that there is need to open a Sacco Office Branch in Eldoret to take care of the new business opportunity. Resultantly, we are happy to inform you that our Eldoret office is currently operational.

Experience sharing and Bench MarkingsThe Committee appreciates the need for continuous learning and knowledge sharing with Sacco industry players. In this light, the committee hosted Board members and Staff of Saphumula Sacco in Swaziland as well as Kenpipe, Chai and UN Sacco’s from Nairobi County. Our Board members were also hosted at Stima and Mhasibu Sacco’s. Both visits were important for exploring deeper relationships, collaboration and learning new ways of working to improve the organization’s performance.

CONCLUSIONIn conclusion, 2017 was a challenging yet exciting year for the committee. We believe that with the work we did, we were able to lay ground for even bigger growth in 2018. The Committee would like to take this opportunity to sincerely thank the entire membership and Stakeholders for giving us an opportunity to serve you. We look forward to greater growth and a better relationship as we strive to grow further in 2018.

STATEMENT BY THE BUSINESS DEVELOPMENT COMMITTEE

REGION ATTENDANCE REGION ATTENDANCE

KISUMU 130 MOMBASA 170

BUNGOMA/ KAKAMEGA RETAIL 40 MERU 40

NYERI RETAIL 25 MAUA 25

NAROK 20 EMBU 35

MACHAKOS 20 NAIVASHA 20

NAKURU 40 KITUI 33

TURKANA -TULLOW 52 ELDORET 250

KISII 60 THIKA 70

KITENGELA 15 MALINDI 20

Felix GakuruSecretary

David MwangiMember

Josephine NdambukiChairperson


INTRODUCTION This committee draws its mandate from the corporate governance area of the Sacco. It is focused on evaluating the board of directors and examining the characteristics, skills and competencies that are needed in board candidates. As the Sacco grows, instituting sustainable good governance becomes critical. The Sacco Societies Act (CAP 490B), and the regulations made thereunder as read in the Co-operative Act (CAP 490) and rules and regulations provide for an elaborate governance structure for a deposit-taking organization, together with interplay with other statutory governance institutions.

Nomination of candidates for Elections in the 2018 AGMAs per our nomination policy, the committee analyzed and identified the skill gaps in the current board leadership. Consequently, Sacco members were invited to apply for various board positions, based on the skill gaps identified by the nomination committee. There were four categories, three in the main board and one in supervisory board. The categories were: Human Resources skills, Public Relations skills and General Management skills for the main Board. In line with our constitution that requires minimum representation of 1/3 by either gender, the Supervisory Board vacancy was reserved for the female gender.

Accordingly, vacancy advertisement was done on 3rd October 2017 which ran for one month to 8th November 2017. To affirm the information dissemination to eligible members, several reminders were done through SMS and mails. By close of the period, the committee had received a total of 17 applications, which were reviewed in line with the minimum qualification set by the Sacco nominations policy and guidelines. Thereafter, the candidates were invited for interviews and at the end of the process; we were able to clear 13 nominees that we are presenting to you today as follows.

Table of applicant Skills and Requirement

The four unsuccessful candidate were notified and no appeal was received.

BOARD EVALUATIONThe Nominations Committee developed a board evaluation tool which was then presented before the board for approval. Following that, recommendations were made and will be implemented this year (2018).

STATEMENT BY THE NOMINATIONS COMMITTEE, ON THE 17TH ANNUAL GENERAL MEETING HELD AT ALL AFRICAN CHURCHES – DESMOND TUTU HALL,

ON 17TH FEBRUARY 2018

Board Skills/Requirements No of applicants Cleared

Main Board Human Resource 2 2

Public Relations 4 3

General management skills 7 6

Supervisory Board 1/3 Rule Gender adherence 4 2


VOTINGDuring the AGM held on 18th Feb 2017, members mandated the Board to initiate the online voting process to enhance transparency. The Board went ahead and requested the ministry if there is any hindrance should the Sacco adopt the online voting to fulfill the members’ request. We are not able to achieve online voting for 2018, as consultation with the ministry has not been completed. Therefore once this is done, the Sacco will develop a tool for online voting which will be communicated appropriately.

IN CONCLUSIONConclusively, effective succession planning is very important for the long-term success of the Sacco. There is a clear and notable link between succession planning, strategy and the culture of the company in aiding effective implementation and sustainability, and the nomination committee plays a vital role in ensuring achievement of all these. On this backdrop, we intend to enhance good governance by maintaining a diverse range of skills and experiences that are able to provide constructive contribution to the management. Finally, we are looking forward to maintaining a good working relationship with the Board and the entire Sacco fraternity.

STATEMENT BY THE NOMINATIONS COMMITTEE

Kennedy Auka Phylis Mutua Mark LaviChairman Secretary Member


INTRODUCTION The function of the Audit Committee is to support the management and the Board by identifying, monitoring and reviewing of risks, control and governance processes that have been established in the Sacco pursuant to Board policies and frameworks. This is achieved by introducing an independent perspective and a process of constructive input and challenge, not to undermine the actions of the Board or management, but to help the Management and the Board be fully assured that the most cost-effective identification, control and governance processes are in place. The governance processes enhances the performance of the Sacco and the Audit Committee takes an independent view of these processes. In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible. This will ensure best reactions are taken in regard to risk mitigation and assure the directors and shareholders that the corporate accounting and reporting practices of the Cooperative are efficient. Accordingly, our Internal Audit function has been proactively working with management to navigate risks and provide assurance that existing internal controls and processes are in place and well optimized for effective risk mitigation.

Main Audit and Risk Activities in the YearThe committee provided resolutions/ proposals during the 2017 Audit as detailed in the various audit reports presented to the board through the Audit and Risk Committee. This work concentrated on ensuring that the Sacco is effectively managed as summarized in the table of highlights below;

Table of Highlights of the various audit reports and follow-ups

Thematic Area Committee Input Outcome

Governance • Organizing board retreat on corporate governance.

• Governance training for new board members.

• Ushirika Day Participation.• Participated in Champions of

Governance Award (COG).• Participated in the excellence in

financial reporting (FIRE) Awards.

• Enhanced board staff relation-ship.

• Certification of 3 directors.• Good membership attendance

during the Ushirika day. Position 3 in attendance.

STATEMENT BY THE AUDIT & RISK COMMITTEE, ON THE 17TH ANNUAL GENERAL MEETING HELD AT ALL AFRICAN CHURCHES – DESMOND TUTU HALL,



Policies and procedures • All departments have duly approved policies and procedural manuals

• To ensure we are in line with new development we recommended Review of some policy which is ongoing.

• Departmental Policies and pro-cedures in place.

• Review and approval to be through in 2018.

Routine Audits • The reports set out the individual and collective outcomes of the audit reviews undertaken in the year ended December 2017. It also provides an audit opinion of the control environment based on the audit undertaken.

• Great improvements in the following areas:-

• Cash management.• Data integrity.• System Reviews.• Governance Audits.

Cyber Attack • During the year there was an attempted attack in our server. The attack was not successful; however there was interruption of internet services for one week.

• Enhanced system security and 24hrs monitoring implemented.

Risk Management. • Policy and procedures were reviewed and risk framework in operation.

• Mitigation on high risk areas done for minimal losses in the Sacco.

Risk Assessment Table of Risk Management measures

Risk Description/Nature Responses

Regulatory Regulation on Institutional capital to be at 8% of the deposit, requiring us to grow the fund as the deposit grows.

Measures are in place to en-sure that the required rate is achieved in near future.

Economic conditions Inflation trends reduced the disposable income resulting to increased default.

Enhance recovery avenues to ensure timely collections.

Cyber security Cyber-attacks and penetration of our system.

24/7 monitoring of our servers to curb the attacks.

Delinquency Failure by members to honor their obliga-tions

Continuous auditing of delin-quency registers and follow up recoveries.

Political 2017 was an election year with prolonged campaign and election period. This had a great impact to businesses.

Adequate measures in places especially advancing business loans. Recovery expected in 2018.

Competition Increased competition from banks (cubing of interest rates) and other informal sectors.

Continuous review of our product to ensure members gets value from us.

STATEMENT BY THE AUDIT & RISK COMMITTEE


ConclusionsIn conclusion, we strongly believe that greater transparency about the audit committee’s role and responsibility is one way of increasing members’ confidence and an opportunity to communicate more clearly to members about audit committee’s related activities. To this end, we encourage all members to feel free to engage with us on any issues that should be addressed

David Mwangi Jack Kiche Samuel KaranuChairman Secretary Member

STATEMENT BY THE AUDIT & RISK COMMITTEE


STATEMENT BY THE FINANCE & ADMINISTRATION COMMITTEE The key objective of this committee is to maintain the Society’s financial stability through sound financial and manage-ment practices. In addition the Committee is responsible for implementing prudent Human Resource and Administra-tive practices as approved by the Board from time to time. The Committee is committed to the highest standards of accountability, accuracy, timeliness, professionalism and innovation in providing financial services to all our members and other stakeholders.

HUMAN RESOURCES AND ADMINISTRATIONOne of the most important assets in any business is Human Capital. The Committee is mandated to identify and nurture talent, enabling them to perform highly in this dynamic environment. In the course of the year, a number of changes occurred in line with our Strategic Plan 2014-2018, that enabled strengthening of the current team.

We separated with five employees; three resigned voluntarily from the SACCO and two were dismissed on disciplinary grounds. The Committee approved recruitment seeking to strike a balance between the desire to learn, personal attributes, academic and professional qualifications and got replacements for three permanent positions and three positions on contract.

STATEMENT BY THE FINANCE & ADMINISTRATION COMMITTEE, ON THE 17TH ANNUAL GENERAL MEETING HELD AT THE ALL AFRICAN CHURCHES – DESMOND TUTU HALL, ON 17TH FEBRUARY 2018

The key objective of the Finance and Administration Committee is to maintain the Society’s financial stability through implementation of Financial and Human Resource Management best practices. Accordingly, The Committee is responsible for the implementation of prudent Human Resource and Administrative practices as approved by the Board from time to time. The Committee is therefore committed to ensuring that the highest standards of accountability, accuracy, timeliness, professionalism and innovation in provision of financial services to all members and other stakeholders has been effectively delivered.

HUMAN RESOURCES AND ADMINISTRATION

Human capital is an essential part of the organization as it is critical in ensuring that the Sacco has achieved its set strategic goals. The Committee is therefore mandated to identify and nurture talent by enabling such employees to perform at their highest levels in the Society. As the year progressed, a number of changes occurred that were in line with the Sacco’s Strategic Plan 2014-2018, thus strengthening the current team disposition.

Additionally, as staff alignment process continued, 4 employees left the organization with two of them resigning voluntarily and the other two, on disciplinary basis. The Committee further authorized for the implementation of rigorous recruitment process through interviews, in order to attract and subsequently employ candidates who exhibited a balance in the desire to learn, personal attributes, academic and professional qualifications. This led to the replacement of three permanent employees and an addition of other three on contractual terms.

STAFF DEVELOPMENT

0

5

10

15

20

25

3028

52 3 2

29SUMMARY OF STAFF HEAD COUNT

2016 New staff Intern Resignation Dismissed 2017

STATEMENT BY THE FINANCE & ADMINISTRATION COMMITTEE, ON THE 17TH ANNUAL GENERAL MEETING HELD AT THE ALL AFRICAN CHURCHES –

DESMOND TUTU HALL, ON 17TH FEBRUARY 2018


STAFF DEVELOPMENTOur staff development policies, practices and procedures are keen on developing employee’s skills, knowledge and competence through training, attachments, coaching and mentoring at individual, departmental and organizational levels. In view of this, the Committee organized several resourceful training programs both internally and externally. All Sacco staff were trained on Written Communication skills through the British Council, while eight other staff were trained on Cash Management. In addition, the management pursued specialized trainings for five staff based on the 2017 Training Needs Asssesment.

The Committee also strived to maintain a learning and development culture by providing an opportunity for our staff to pursue further studies as well as by paying the annual membership subscription fees to professional bodies.

STAFF REWARD MANAGEMENTThe Committee recognized significant contributions and innovation and awarded the best performing employee in the category of Employee of the Year 2017. In the same breadth, we awarded consistency, hard work and personal attributes. One staff was also recognized for enhancing knowledge and skills that were relevant to the Sacco.

Our staff health being key and of value to us, we organized a staff-wellness campaign in September to create awareness on positive health behaviors and provide a supportive learning environment for change.

STAFF WELFAREThe Committee facilitated a staff team building in November with the theme; Rich Heritage; Bright Future, to cultivate cohesion and integration, team work and problem solving skills. We also facilitated other staff events ranging from celebration of one of our staff’s traditional wedding, staff birthdays, newborn showers and the End of Year party.The Committee wishes the Board of Directors, staff and members a fruitful Year 2018.

STATEMENT BY THE FINANCE & ADMINISTRATION COMMITTEE

Hon secretaryConnie khayundi

Johnstone KamundeTreasurer

Chairman Collins Ogutu

Vice Chairman Josephine Ndambuki


The Supervisory Committee is the Internal Audit Committee of the Society. Its role is complimentary to that of the Management Committee which is mandated to ensure that there is an effective control system within the Society.

It is required to meet at least once every three months. Additionally, it has several responsibilities towards the Society notably; conducting of an investigation into the affairs of the Society, auditing of the books of the society, making a report of the findings to be presented in the next Full Board meeting and finally, submission of the report findings to the Commissioner.

In the financial year ending December 31st 2017, The Committee diligently carried out this mandate and duly submitted reports covering but not restricted to the following areas;

Corporate GovernanceThe Committee has noted with satisfaction that The Board has continued to conduct the affairs of the Sacco through utmost integration of best practices as supported by the industry and beyond, thus improving the financial status of the organization. This has led to massive growth and placement of the Sacco in a capacity to access large-sized Deposit as per SASRA ratings, amounting to Assets worth Kshs. 5.16 Billion.

The Committee noted that the Board’s relentless dedication of its time and intellectual resources has consequently steered the organization to the current sustainable levels. Such success has also been attained by the Board being transparent, available and accountable for each action it undertakes. We have however recommended the need to have a Board performance evaluation process and strategic plan review tracker to improve its efficiency.

Financial StatementsThe Committee regularly scrutinized the financial reports of the organization to ascertain on their veracity and completeness. The committee also audited the monthly and quarterly management accounts and subsequently, forwarded recommendations in regard to key expenditure items which were not adequately disclosed. It is the opinion of the committee that the Board and the management ought to make use of financial statements, offering a true and fair view to be capable to facilitate reliable strategic decision making. The committee also made few recommendations regarding accrual and revenue recognition to ensure completeness of the management accounts reviewed.

The specific financial records examined included; finance and marketing expenses, bank reconciliation statements and cash count certificates. Though, the bank reconciliation process is quite satisfactory currently, the Committee proposed that it ought to be completely automated in order to increase its validity and reliability.

Office Block ProjectWhereas the take-off of this project was tied to the acquisition of an adjacent plot of land to facilitate access to the site and raising of adequate funds from the members, the Committee is of the opinion that decisions related to progressing of this dream project have been painfully slow. We have recommended that an alternative site be

STATEMENT BY THE SUPERVISORY COMMITTEE, ON THE 17TH ANNUAL GENERAL MEETING HELD AT THE ALL AFRICAN CHURCHES – DESMOND TUTU HALL,



identified and acquired to bring the project back on track with reasonable timelines, subject to members’ ratification.

StaffingThe importance of an adequate, skilled and well-motivated human resource team is very critical in overseeing the success of an organization, making it an aspect whose importance cannot be underestimated. Therefore, the zeal to recruit and retain such a workforce should be a priority to the Society, as high employee turnover would otherwise negatively impact any gains recorded.

In regard to this, the Committee reported concern over the resignation of two senior staff of the organization. Subsequently, it has been proposed that the Board must consciously strive to maintain a reasonable headcount that is capable of providing quality service to all the members dedicatedly.

Service to MembersOne of the key frustrations faced by the members of the Sacco as reported to the Committee during the year in question, was in regard to the slow response to emails and calls made to the organization. Accordingly, a full adoption of the already existing Customer Service Charter has been recommended in addition to the development of a measurement criterion to this charter.

The Committee is satisfied with the efforts made to improve members’ experience while using the enhanced portal and USSD [*346#] to access Sacco information and services, particularly the short-term loans. This was acknowledged as commendable effort and it was encouraged that more innovative aspects of making the portal more enjoyable to the members ought to be adopted.

However, despite the good strides made in enhancing the service delivery levels to our esteemed members, there has been dissatisfaction expressed in regard to the Mobile App which has been termed to be quite unstable. It was further elaborated that the app is mainly unstable over the weekends an aspect made worse by slow pace of resolution to the same shortcoming. The key source of this limitation has been cited to the fact that the app is a vendor product shared amongst a number of Saccos with ours included. Therefore, in case there is an occurrence of a downtime, it affects the entire network and will have to wait for the vendor to resolve the respective issue as per their own timelines, thus worsening the situation.

Member Empowerment As the Sacco continually empowers the members with a wide range of products and services it offers, it has also facilitated a number of land purchases in several places in the country notably; Joska, Kisumu and Naivasha. This has therefore improved the sustainability of their members’ general well-being and that of their families.

Due to the high uptake of the land and securing of the land loans, the Sacco is encouraged to facilitate the land sourcing and purchasing for its members.

Membership and Delinquency The Committee examined membership perspectives and noted a positive increase in overall Society member enrollment. However, an equal increase in dormant members was also noted. Accordingly, it was recommended that members’ register ought to be scrutinized in order to ease identification and subsequent reaching out to inactive members.

It was also noted that there has been an increase in defaulted loans an aspect negatively affecting the organizational earnings and ultimately, the rebates and dividends available to members. In regard to this, it was recommended that a raft of measures to mitigate this malaise ought to be adopted including a stringent appraisal process and a reasonable guarantor policy.

Conclusion.As we mark the final year of our current 5-year Strategic Plan, it is instructive to note that the Society has made concrete strides in meeting the objectives embedded in the Plan. The Committee wishes to remind the Board that no effort should be spared in ensuring that the Society maintains the “Tier One” status, and management of members’ valuable resources.

STATEMENT BY THE SUPERVISORY COMMITTEE

Patrick NduatiMember

Boniface MuthokaSecretary

Alex OkothChairman


IntroductionThe Credit committee worked diligently to maintain the Sacco tagline ‘Empowering you’ and therefore wishes to take this opportunity and congratulate the entire membership for the continued patronization of our credit products and services during the year 2017.We have noted that despite the hard economic times coupled with political unrest that was associated with the General elections, the SACCO’s loan book continued to grow substantially.

We also commend the entire membership and staff for contributing to the achievement of Tier One as per SASRA ranking (2017) with an asset book of Kshs. 5.16 Billion. Our report covers loan disbursement within the year 2017 in comparison with 2015 and 2016, loan default management and new credit products as detailed below:

Loan DisbursementsIn the year 2017, there was an increased trend in loan disbursement. A total of Kshs.s. 3.91B was issued in the year 2017 as compared to Kshs.s. 2.94B that was issued in 2016. This represents a yearly growth rate of 33%.

Similarly, there was a significant increase in the number of approved loan applications from a total of 8,649 applications in the year 2016 to 11,992 applications in the year 2017 this represented a growth rate of 39%. Consequently, our loan book grew from Kshs.s. 3.5B in 2016 to Kshs.s. 4.6B in 2017.Comparison of 2015, 2016 & 2017

STATEMENT BY THE CREDIT COMMITTEE, ON THE 17TH ANNUAL GENERAL MEETING HELD AT ALL AFRICAN CHURCHES – DESMOND TUTU HALL,


2

September

241,223,153.00 301,721,935.00 589,827,414.00

769 822 1323

October

263,894,012.00 314,190,740.26 268,212,403.00

725 749 843

November

123,894,919.00 257,202,094.60 206,896,925.00

502 679 954

December

178,956,673.00 249,647,085.00 312,078,335.00

719 1156 1413

TOTAL

2,438,642,413.00 2,941,883,179.60 3,911,414,929.32

7,463 8,649 11,992

Fig 1.1- Total loan disbursement - A

Fig 1.2- Disbursements per product:

Comparison of 2015, 2016 & 2017

2015 2016 2017

2.4B

2.9B

3.9B

Disbursements

47%

19%

11%

6%

6%

4% 3%

1%3%

DEVELOPMENT

CONSOLIDATION

COLLEGE LOAN

MIRADI

SUPER PREMIUM

LAND LOAN

FOSAEMERGENCYADVANCE

OTHERS

2

September

241,223,153.00 301,721,935.00 589,827,414.00

769 822 1323

October

263,894,012.00 314,190,740.26 268,212,403.00

725 749 843

November

123,894,919.00 257,202,094.60 206,896,925.00

502 679 954

December

178,956,673.00 249,647,085.00 312,078,335.00

719 1156 1413

TOTAL

2,438,642,413.00 2,941,883,179.60 3,911,414,929.32

7,463 8,649 11,992

Fig 1.1- Total loan disbursement - A

Fig 1.2- Disbursements per product:

Comparison of 2015, 2016 & 2017

2015 2016 2017

2.4B

2.9B

3.9B

Disbursements

47%

19%

11%

6%

6%

4% 3%

1%3%

DEVELOPMENT

CONSOLIDATION

COLLEGE LOAN

MIRADI

SUPER PREMIUM

LAND LOAN

FOSAEMERGENCYADVANCE

OTHERS

Fig 1.1- Total loan disbursement - A Fig 1.2- Disbursements per product:


STATEMENT BY THE CREDIT COMMITTEE

Delinquency Management:

Loan default and Provisioning for Non-Performing Loans:

Our Portfolio at Risk increased from Kshs.s. 226M in the year 2016 to Kshs.s. 253.9M in the year 2017. This translates to 5.4% of the Total loan book consequently, there was an increased provisioning for Non-performing loans from Kshs.s. 60M in the year 2016 to Kshs.s. 170.1M in the year 2017.

Measures put in place to curb loan defaultDuring the year, the SACCO through the credit department put in various interventions to curb and control loan default;Transferring defaulter loans to guarantors- In keeping with the dictates of the SACCO Credit policy, we transferred a significant amount of loans to guarantors. Total defaulter loans moved to guarantors increased from Kshs.15.8M in year 2016 to Kshs. 22.8M in the year 2017

Disposing of assets- The SACCO assisted members who had acquired assets through us but were unable to meet the loan repayment. We sold two cars and two parcels of land of which the proceeds of Kshs. 3,518,710 were used to offset the loans hence reducing default. We are reviewing the collateral policy so as to have a clear framework on disposing assets that are owned by members but not acquired through the SACCO. Engaging External debt collectors- Throughout the year, we continued to engage the services of external debt collectors to assist us in tracing defaulters and ensuring recoveries. We are already seeing positive results whereby members businesses and current employer details have been located and serious commitments to pay adhered to.

Month 2015 2016 2017 No. of applications

2015 2016 2017

January 200,477,295.00 237,292,166.28 261,196,023.00 674 688 1023

February 168,475,083.00 172,958,740.80 202,542,664.52 542 683 708

March 149,135,695.00 193,423,133.15 238,103,748.00 456 599 773

April 165,635,955.00 295,055,265.15 230,954,072.00 654 787 927

May 154,308,879.00 192,538,635.00 228,748,585.00 508 552 795

June 271,953,372.00 234,207,585.11 290,141,143.00 568 540 843

July 240,501,232.00 212,800,245.75 331,568,732.80 638 572 963

August 280,186,145.00 280,845,553.50 751,144,884.00 708 822 1427

September 241,223,153.00 301,721,935.00 589,827,414.00 769 822 1323

October 263,894,012.00 314,190,740.26 268,212,403.00 725 749 843

November 123,894,919.00 257,202,094.60 206,896,925.00 502 679 954

December 178,956,673.00 249,647,085.00 312,078,335.00 719 1156 1413

TOTAL 2,438,642,413.00 2,941,883,179.60 3,911,414,929.32 7,463 8,649 11,992

Table1.1 Loans Monthly disbursement schedule: 2015-2017


CRB listing- The SACCO in abiding by the Credit Reference Bureau Regulations 2013, submitted names of defaulters for listing with Metropol CRB. In total 127 defaulters were listed in the year 2017. We would like to urge our members to ensure they meet their loan obligations promptly so as to enable us to keep the default rate at par with the industry acceptable standards. Furthermore, we urge guarantors to continuously monitor loans guaranteed and take defaulters to task. Our overall expectation as the Committee in liaison with the Credit department is to maintain the loan default rate within the recommended industry standards.

Introduction of New Credit productsAs we engaged members through the year, we received a number of suggestions that were considered hence creation of two new products within the second quarter of the year 2017.

The Sacco is continually improving on the products its offers in tandem with the mobile lending market. Therefore to further support our Rununu salary advance mobile loan product, we introduced Kona Advance which is tailored to serve all members and further compete with the likes of Mshwari, KCB-Mpesa, Tala and Branch mobile loans. It is available on the Mobile app or USSD *346#. This loan meets the short term needs of the members and allows repayment within 30 days at 5% one off interest.

To cater for our top savers who have crossed the Kshs. 10 Million mark, we introduced Miradi loan that allows a maximum loan limit of Kshs. 30M. With favorable interest of 1% p.m. and longer repayment period of up to 60 months, members can now complete their development projects with the assets being the collateral.

To assist members who had exhausted their borrowing powers, the SACCO ran a two month loan consolidation period between July and September 2017, where members were allowed to consolidate all their loan facilities at X5 deposit multiplier. This enabled members to restructure their facilities and achieve a convenient repayment plan. Furthermore, we also allowed quick fixes to help boost member deposits.

Table 1.2- New credit products

ConclusionThe committee would like to take this chance to sincerely thank you, the entire membership for giving us an opportunity to serve you. We look forward to empowering you more financially throughout 2018.

Loan Product No. of applicants Loan Amount (Kshs.)

Kona Advance 1971 15,787,770

Miradi Loan 19 250,504,000

STATEMENT BY THE CREDIT COMMITTEE

Felix GakuruSecretary

Bernadette MutuneMember

Samuel KaranuChairman


2017 2016

Numbers Numbers

Membership Active 9,655 8,354

Dormant 1,578 1,960

Total 11,233 10,314

Financial 2017 2016

Kshs. Kshs.

Total assets 5,156,558,095 4,158,736,501

Total member deposits 4,093,135,515 3,296,131,419

External borrowing 4,595,984 9,066,666

Loans and advances to members 4,477,291,785 3,524,405,278

Investments 82,523,180 67,397,636

Core capital 726,458,117 609,984,424

Investment capital 509,794,751 419,221,147

Institutional capital 216,663,366 190,763,277

Total revenue 585,120,432 448,652,272

Total interest income 485,614,220 439,755,984

Interest on members deposit 264,188,430 244,934,120

Total expenses 495,067,876 352,402,691

Statutory reserve 59,109,334 45,632,630

Appropriation account 51,976,758 52,406,815

Loan loss reserve 39,531,813 33,584,422

% %

Capital adequacy ratios

Core capital/Total assets 14% 13%

Minimum ratio 10% 10%

Core capital/Total deposits 18% 17%

Minimum ratio 8% 8%

Institutional capital/Total assets 4% 3%

Minimum ratio 8% 8%

Liquidity ratio

Liquid assets/Total deposits & Short-term

liabilities

31% 43%

Minimum ratio 15% 15%

Operating efficiency/ loan quality ratios

Administrative expenses /Total

revenue

34% 24%

Total expenses /Total revenue

85% 79%

Interest to members deposits/Total

revenue

45% 55%

Interest rate on members' deposits

9% 9%

Dividend rate on members share

capital

12% 12%

Total delinquent loans/Gross loan

portfolio

4% 2%

STATISTICAL INFORMATION


REPORT OF THE DIRECTORS The directors submitted their annual report together with the audited financial statements for the year ended 31 December 2017 which presented the society’s state of affairs.

In accordance with Section 42 of the Sixth Schedule of the Companies Act, 2015, Transitional and Savings Provisions, this report has been prepared in accordance with Section 157 of the repealed Companies Act, as if that repeal had not taken effect. INCORPORATION The society was incorporated in Kenya under the Co-operative Societies Act, Cap 490 and is domiciled in Kenya. It was registered as a Sacco under the Sacco Societies Act with effect from 12 March 2001. PRINCIPAL ACTIVITIES The principal activity of the society has remained offering of both saving opportunities, provision of loans and cash advances to its members.

INVESTMENT SHARES The issued and paid up share capital of the society was increased during the year from Kshs. 419,922,147 to Kshs. 509,794,751 DIVIDENDS AND INTEREST The directors have recommended payment of 12% (2016: 12%) as dividend on shares and further proposed 9% (2016: 9%) interest on BOSA deposits. BOARD OF DIRECTORS The directors who have been in office throughout the finnacial year to the date of presentation of this report are shown on page 1. By Order Of the Board

Signature…………………..................…………… date: 12th February, 2018 Vice Chairperson

RESULTS 2017 (Kshs.) 2016 (Kshs.)

Profit before tax 90,052,556 96,249,581

Income tax expense (22,669,034) (2,937,452)

Profit for the year 67,383,522 93,312,129

Interest on members’ deposits 295,798,241 244,941,315

REPORT OF THE DIRECTORS


The Sacco Societies Act No. 14 of 2008 requires the directors to prepare financial statements for each financial year which offer a true and fair view of the state of affairs of the society as at the end of the respective period. This particularly ensures a true and fair representation of the profits and losses realised. It also requires the directors to ensure that the society keeps proper accounting records that are sufficient to show and explain the transactions of the society. These transactions are required to be disclosed with reasonable accuracy to offer a true financial position of the society and in compliance to the International Financial Reporting Standards and the requirements of the Sacco Societies Act.

The directors are also responsible for safeguarding the assets of the society and for taking reasonable steps for the prevention and detection of fraud and any other irregularities. The directors take responsibility for overseeing the preparation and fair presentation of financial statements in accordance with the International Financial Reporting Standards and in the manner required by the Sacco Societies Act.

They also accept responsibility for: i. Designing, implementation and maintenance of necessary internal controls which determine effective preparation of financial statements that are free from material misstatement, whether due to fraud or error ii. Selection and application of appropriate accounting policies iii. Making of accounting estimates and judgements that are reasonable in the respective circumstances. The directors are of the opinion that the financial statements must offer a true and fair view of the financial position of the society as at 31 December 2017. Additionally, they also believe that the reports must depict the ideal society’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Sacco Societies Act No. 14 of 2008. In preparation of these financial statements, the directors have assessed the society’s ability to continue as a going concern. Nothing has come to the attention of the directors to indicate that the society will not remain a going concern for at least the next twelve months from the date of this statement. The directors acknowledge that the independent audit of the financial statements does not relieve them of their responsibilities. So far as each of the directors is aware, there is no relevant audit information which the auditor is unaware of.

Accordingly, each of the directors has taken all the steps necessary to be fully enlightened of any relevant audit information and to establish that the auditor is equally in possession of the same information.

Approved by the board of directors on 12th February 2018 and signed on its behalf by: Chairman........................................................................

Treasurer..........................................................................

Board member...............................................................

STATEMENT OF DIRECTORS’ RESPONSIBILITIES


Opinion as at 31st December, 2017 We have audited the financial statements of Safaricom Savings and Credit Co-operative Society Limited (the society) set out on pages 9 to 40. These statements comprise of the statement of financial position as at 31 December 2017, the statement of profit and loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and notes to the financial statements including a summary of significant accounting policies. In our opinion, the accompanying financial statements give a true and fair view of the society’s financial position as at 31 December 2017, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and the Sacco Societies Act. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the society in accordance with the International Ethics Standards

Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), together with the ethical requirements that are relevant to our audit of the financial statements in Kenya, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Loan impairment provisions The directors exercise significant judgement in classification of loans and advances to customers into the various credit grades as described in note 19(b) to the financial statements as well as the level of impairment provisions necessary for each grade of loan which is based on the society’s past experience and reference to the regulatory guidelines and industry standards.

Because of the significance of these judgements and the quantum of loans and advances, the audit of loan impairment provisions is a key audit matter. Further details of the loans and advances balances and impairment provisions are included in note 7 to the financial statements. Our audit procedures included testing the model used by the directors in classifying loans and advances into their respective credit grades which included understanding the classification criteria and reviewing this for consistency with the society and industry experience. We tested a sample of loans and advances (including loans that had not been identified by management as impaired) to form our own assessment as to whether and indicators of impairment were present. For a sample of impaired loans we tested the extraction of data used in the models, the estimation of the future expected cash flows from the members based on historic industry experience including realisation of collateral held which primarily represented current deposits which we tested against records of member deposits and recalculated the impairment provisions. We further tested the calculation of the loan loss reserve on a portfolio classification basis under the regulations issued by Sacco Societies Regulatory Authority (SASRA). Information technology control environment The Society is highly dependent on information systems and controls over access rights to such systems are critical and therefore represent a key audit matter. We tested the design and implementation of the Society’s controls around the information technology environment and operating effectiveness for controls that were critical to databases within the scope of our audit and the financial reporting process. Where our procedures identified deficiencies, we assessed the design and implementation of any controls that mitigated the identified risks and extended the scope of our tests of operating effectiveness of controls and/or substantive audit procedures. Other Information The directors are responsible for the other information. The other information comprises the report of the director and financial and statistical information which we obtained prior to the date of this auditor’s report, and board of the directors report, supervisory committee report, sustainability report and corporate social investment, report which are expected to be made available to us after that date.

REPORT OF THE INDEPENDENT AUDITOR


Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the board of the directors report, supervisory committee report , sustainabilty report and corporate social investment report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of directors for the financial statements The directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with IFRSs and the requirements of the Sacco Societies Act, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the society’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the society or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,

design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the society’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the society’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the society to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.




We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner responsible for the audit resulting in this independent auditor’s report is CPA Chaudhry Mohamed Asif - P/No. 2059.

Certified Public Accountants Nairobi


Notes 2017 (Kshs.) 2016 (Kshs.)

Revenue *As restated

Interest income: Interest on loans and advances

2 (a) 479,592,517 435,263,553

Other interest income 2 (b) 6,021,703 4,492,431


Interest expenses 2 (c) (295,798,241) (244,941,315)

Net interest income 189,815,979 194,814,669

Net income from member land transactions

2 (d) 89,126,175

Other operating income 2 (e) 10,380,037 8,896,288

Impairment charge on loans and advances

3 (a) (109,745,667) (25,270,863)

Governance expenses 3 (b) (14,115,954) (12,511,000)

Personnel expenses 3 (c) (43,750,955) (39,265,893)

Administrative expenses 3 (d) (20,855,321) (19,306,462)

Other operating expenses

3 (e) (8,468,283) (8,640,454)

Marketing expenses 3 (f) (2,333,455) (2,466,704)


Income tax expense 4 (a) (22,669,034) (2,937,452)

Profit for the year 67,383,522 93,312,129

Other comprehensive income:

Items that may be reclassified subsequently

Fair value loss on available for sale financial

assets 8 488,865 11,645,257

Total comprehensive income

67,872,387 104,957,386

Dividend:

Proposed final dividend for the year

17 (v) 51,785,837 41,972,300

STATEMENT OF COMPREHENSIVE INCOME


As at 31 December

2017 (Kshs.) 2016 (Kshs.) 2015 (Kshs.)

Notes *As restated *As restated

ASSETS

Cash and bank balances 5 228,465,522 274,481,945 135,360,053

Receivables and prepayments 6 67,949,399 46,599,356 56,020,964

Loans and advances to members 7 4,477,291,785 3,524,405,278 2,772,999,628

Financial assets 8 82,523,180 67,397,636 55,341,427

Inventory 9 108,806,170 47,023,801 -

Property and equipment 10 188,715,204 194,705,251 200,641,269

Intangible assets 11 2,806,835 4,123,234 3,755,976

Total assets 5,156,558,096 4,158,736,502 3,224,119,317

LIABILITIES

Other payables 12 48,742,216 38,007,372 12,604,499

Interest due to members 13 264,188,430 204,908,502 158,863,058

Withrawable deposits 14 499,376,853 455,508,270 338,144,849

Member deposits 14 3,593,758,662 2,840,623,149 2,183,631,760

Borrowings 15 4,595,984 9,066,666 165,652,114

Tax payable 19,437,834 638,119 8,783

4,430,099,979 3,548,752,077 2,858,905,063

FINANCED BY

Share capital 16 509,794,751 419,221,147 259,136,143

Statutory reserve 17(i) 59,109,334 45,632,630 26,970,204

Fair value reserve 17(ii) 14,259,623 13,770,757 2,125,500

Appropriation account 17(iii) 51,976,758 52,406,815 53,313,835

Loan loss reserve 17(iv) 39,531,813 33,584,422 -

Dividend account 17(v) 51,785,837 41,972,300 20,272,220

726,458,117 609,984,424 365,214,254

Total liabilities and capital 5,156,558,096 4,158,736,502 3,224,119,317

The financial statements on pages 9 to 40 were approved and authorised for issue by the board of directors on 12th February 2018 and were signed on its behalf by:

CHAIRMAN.................................. BOARD MEMBER................................... BOARD MEMBER .................................

STATEMENT OF FINANCIAL POSITION


NO

TEIN

VEST

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609

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17

STATEMENT OF CHANGES IN EQUITY


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609,

984,

426

STATEMENT OF CHANGES IN EQUITY


Notes 2017 (Kshs.) 2016 (Kshs.)

Cash flows from operating activities

Interest income 2 (a) 479,592,517 435,263,553

Other interest income 2 (b) 6,021,703 4,492,431

Other operating income 2 (d) 10,380,037 8,896,288

Net income from member land transactions

2 (e) 89,126,175 -

Interest payments 13 (204,908,502) (165,700,000)

Payment to employees and suppliers

(125,147,710) (119,632,708)

Net cash from operating activities

255,064,220 163,319,564

(Decrease) in operating assets

Loans and advances to members

7 (1,123,044,186) (776,676,513)

Increase in operating liabilities

Members savings 14 797,004,096 774,354,810

Net cash from/(used in) operating activities before income taxes

(70,975,870) 160,997,861

Income tax paid 4 (b) (3,869,319) (2,290,550)

Net cash from/(used in) operating activities

(74,845,189) 158,707,311

Cash paid for purchase of property and equipment

10 (740,329) (654,240)

Cash paid for purchase of intangible assets

11 75,151 (1,747,563)

Purchase of investments and securities

8 (34,636,678) (28,033,334)

Proceeds from disposals of financial assets

8 20,000,000 27,622,382

Net cash used in investing activities

(15,301,856) (2,812,755)

Financing activities

Proceeds from shares issue 16 90,573,604 160,085,004

Repayments of borrowings (4,470,682) (156,585,448)

Dividend paid 17(v) (41,972,300) (20,272,220)

Net cash from financing activities

44,130,622 (16,772,664)

Movement in cash and cash equivalents

Increase/(decrease) in cash and cash equivalents

(46,016,423) 139,121,892

Cash and cash equivalents at start of year

274,481,945 135,360,053

Cash and cash equivalents as at end of the year

5 228,465,522 274,481,945

STATEMENT OF CASH FLOWS


ACCOUNTING POLICIES

ACCOUNTING POLICIES 1. Significant accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. a) Basis of preparation The financial statements have been prepared under the historical cost convention, except as indicated otherwise below and are in accordance with International Financial Reporting Standards (IFRS). The historical cost convention is generally based on the fair value of the consideration given in exchange of assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the society takes into account the characteristics of the asset or liability if market participants would take those characteristics into when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. In addition, for financial reporting purposes, fair value measurements are categorised into level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: 1. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can

access at the measurement date; 2. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the

asset or liability, either directly or indirectly; and 3. Level 3 inputs are unobservable inputs for the asset or liability. Going concern The financial performance of the society is set out in the director’s report and in the statement of profit or loss and the other comprehensive income. The financial position of the society is set out in the statement of financial position. Disclosures in respect of risk management are set out in note 19. Based on the financial performance and position of the society and its risk management policies, the directors are of the opinion that the society is well placed to continue in business for the foreseeable future and as a result the financial statements are prepared on a going concern basis. New and amended standards adopted by the society A number of new and revised Standards and Interpretations have been adopted in the current year. Their adoption has had no material impact on the amounts reported in these financial statements. New standards, amendments and interpretations issued but not effective At the date of authorisation of these financial statements the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective for the year presented: • Amendment to IAS 28 ‘Investments in Associates and Joint Ventures’ (Annual Improvements to IFRSs 2014–2017

Cycle, issued in December 2017) - The amendment, applicable to annual periods beginning on or after 1 January 2018, clarifies that exemption from applying the equity method is available separately for each associate or joint venture at initial recognition.

• Amendments to IAS 40 ‘Transfers of Investment Property’ (issued in December 2017) that are effective for annual

periods beginning on or after 1 January 2018, clarify that transfers to or from investment property should be made when, and only when, there is evidence that a change in use of property has occurred.

• Amendments issued in January 2017 to IAS 12 ‘Income Taxes’ that are effective for annual periods beginning on or after 1 January 2017 clarify that unrealised losses on debt instruments that are carried at fair value give rise to a deductible temporary difference on which deferred tax arises where they are carried as cost for tax purposes.

• Amendments issued in June 2016 to IFRS 2 ‘Share - based Payment’ which are effective for annual periods beginning on or after 1 January 2018 clarify the effects of vesting conditions on cash settled schemes, treatment of net settled schemes and modifications for equity settled schemes.


• Amendments to IFRS 4 titled Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’ (issued in

September 2017) that are effective for annual periods beginning on or after 1 January 2018, include a temporary exemption from IFRS 9 for insurers that meet specified criteria and an option for insurers to apply the overlay approach to designated financial.

• IFRS 9 ‘Financial Instruments’ (Issued in July 2014) will replace IAS 39 and will be effective for annual periods beginning on or after 1 January 2018.It contains requirements for the classification and measurement of financial assets and financial liabilities, impairment, hedge accounting and de-recognition. IFRS 9 requires all recognised financial assets to be subsequently measured at amortised cost or fair value (through profit or loss or through comprehensive income), depending on their classification by reference to the business model within which they are held and their contractual cash flow characteristics. In respect of financial liabilities, the most significant effect of IFRS 9 where the fair value option is taken will be in respect of the amount of change in fair value of a financial liability designated as at fair value through profit or loss that is at is attributable to changes in the credit risk of that liability is recognised in other comprehensive income (rather than in profit or loss), unless this creates an accounting mismatch.

• In respect of impairment of financial assets, IFRS 9 introduces an “expected credit loss” model based on the

concept of providing for expected losses at inception of a contract. In respect of hedge accounting, IFRS 9 introduces a substantial overhaul allowing financial statements to better reflect how risk management activities are undertaken when hedging financial and non-financial risks.

• IFRS 15 ‘Revenue from Contracts with Customers’ (issued in May 2014) effective for annual periods beginning on or after 1 January 2018, replaces IAS 11 ‘Construction Contracts’, IAS 18 ‘Revenue’ and their interpretations (SIC-31 and IFRS 13,15 and 18).It establishes a single and comprehensive framework for revenue recognition based on a five-step model to be applied to all contracts with customers, enhanced disclosures, and new or improved guidance.

• IFRS 16 ‘Leases’ (issued in January 2016) effective for annual periods beginning on or after 1st January 2019, replaces IAS 17 ‘Leases’, IFRS 4 ‘Determining whether an Arrangement Contains a Lease’ and their interpretations (SIC-15 and SIC-27). IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions.

• IFRS 17 ‘Insurance Contracts’ (issued May 2017) effective for annual periods beginning on or after 1 January 2021

establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts.

• IFRS 22 ‘Foreign Currency Transactions and Advance Consideration’ (issued in December 2016) effective for annual

periods beginning on or after 1 January 2018, clarifies that the exchange rate to use in transactions that involve advance consideration paid or received in foreign currency is the one at the date of initial recognition of the non-monetary asset or liability. The directors expect that the future adoption of IFRS 9, IFRS 15 and IFRS 16 may have a material impact on the amounts reported. However, it is not practicable to provide a reliable estimate of the effects of the above until a detailed review has been completed. The directors do not expect that adoption of the other Standards and Interpretations will have a material impact on the financial statements in future periods. The entity plans to apply the changes above from their effective dates noted above.

b) Critical estimates and judgement In the application of the accounting policies, the directors are required to make the judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other relevant factors. Such estimates and assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively The directors have made the following assumptions that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Impairment losses on loans and advances The society reviews its loan portfolios to assess impairment on a regular basis. In determining whether an impairment loss should be recorded in profit or loss, the society makes judgements as to whether there is any observable data indicating an impairment trigger followed by measurable decrease in the estimated future cash flows from a portfolio of loans. This evidence may include observable data indicating that there has been an adverse change in the payment

ACCOUNTING POLICIES


status of borrowers, or national or local economic conditions that correlate with defaults on assets. The d i r e c t o r s use estimates based on historical loss experience, industry experience and regulatory guidance and objective evidence of impairment similar to those in the portfolio when scheduling future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Critical estimates have been made by the management in arriving at the discounted values of securities in order to arrive at the impairment charges for non-performing loans and advances. The values of securities are discounted using the International Financial Reporting Standards. International Accounting Standard 39 (IAS 39) on Financial Instruments: Recognition and Measurement’ is based on historical experience and other relevant factors.

Fair value of financial instruments The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, the fair values are estimated from observable data in respect of similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on appropriate assumptions. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of those that sourced them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own credit risk and counterparty risk), volatilities and correlations require management to make estimates. Useful lives of property and equipment and intangible assets Management reviews the useful lives and residual values of the items of property, plant and equipment on a regular basis. During the financial year, the directors determined no significant changes in the useful lives and residual values. c) Revenue recognition Interest income and expense The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the society estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Fee and commission income Fees and commission income, including account servicing fees and custody fees are generally recognised on an accrual basis when the service has been provided. Other income 1. Rental income is accrued by reference to time on a straight line basis over the lease term Dividend is recognised

when the right to recieve income is established. Dividend are reflected as a component of other operating income based on the underlying classification of the equity instrument.

2. Sale of land is recognised when the transaction is substantially complete with all risks and rewards having passed

from the company to the buyer. This generally occurs on issuance of documents passing rights of occupation when the only pending matters are formal issue of title by the lands offices of the country.

d) Property and equipment All property and equipment is initially recorded at cost and thereafter stated at historical cost less depreciation . Historical cost comprises expenditure initially incurred to bring the asset to its location and condition ready for its intended use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost can be reliably measured. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial year in which they are incurred.

ACCOUNTING POLICIES


Freehold land is not depreciated Depreciation is calculated using the reducing balance method to write down the cost of each asset to its residual value over its estimated useful life. The annual depreciation rates in use are:

The assets’ residual values and lives are reviewed, and adjusted if appropriate at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains or losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining operating profit. On disposal of a revalued asset, the amount in the revaluation reserve relating to that asset is transferred to retained earnings. e) Intangible assets Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a reducing basis over their estimated useful lives of - years. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the reducing balance method to write down the cost of each asset to its residual value over its estimated useful life. f) Financial instruments Financial assets and financial liabilities are recognised when the society becomes a party to the contractualprovisions of the instrument. Management determines all classification of financial instruments at initial recognition. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in profit or loss. The society’s financial assets fall into the following categories: Available-for-sale: financial assets that are held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rate. Such assets are classified as non-current assets except where the management intends to dispose the assets within 12 months of the reporting date. Subsequent to initial recognition, they are carried at fair value with gains or losses are recognised in other comprehensive income. Interest on available-for-sale securities is calculated using the effective interest method and is recognised in profit or loss as part of other income. Dividends on available-for-sale equity instruments are also recognised in profit or loss as part of other income when the society’s right to receive payments is established. Loans and receivables: financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are classified as current assets where maturities are within 12 months of the statement of financial position date. Subsequent to initial recognition, such assets are carried at amortised cost using the effective interest rate method. Changes in the carrying amount are recognised in profit or loss. Purchases and sales of financial assets are recognised on the trade date i.e. the date on which the society commits to purchase or sell the asset.

ACCOUNTING POLICIES

ASSET RATE (%)

Land and buildings 2.5

Motor vehicles 25

Furniture and fittings 12.5

Office equipment 12.5

Computers 30


Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been transferred and the society has transferred substantially all risks and rewards of ownership. A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. Impairment of financial assets is recognised in the statement of comprehensive income under administrative expenses when there is objective evidence that the society will not be able to collect all amounts due per the original terms of the contract. Significant financial difficulties of the issuer, probability that the issuer will enter bankruptcy or financial reorganisation, default in payments and a prolonged decline in fair value of the asset are considered indicators that the asset is impaired. The amount of the impairment loss is calculated as the difference between the assets carrying amount and the present values of expected future cash flows, discounted at the financial instrument’s effective interest rate. Impairment losses are recognised in profit or loss. For available for sale assets cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. Subsequent recoveries of amounts previously written off/impaired are credited to profit or loss and for available for sale assets in other comprehensive income in the year in which they occur.

Gains and losses on disposal of assets whose changes in fair value were initially recognised in profit or loss are determined by reference to their carrying amount and are taken into account in determining operating profit/(loss). On disposal of assets whose changes in fair value were initially recognised in equity, the gains/losses are recycled to the statement of profit or loss. Any resultant surplus/deficit after the transfer of the gains/losses are transferred to retained earnings. Management classifies financial assets as follows: Quoted investments, managed funds, unit trust and unquoted shares are classified as ‘available-for-sale’ financial instruments. The fair values of quoted investments are based on current bid prices at the reporting date. Where fair values cannot be reliably measured (unquoted investments), the society establishes fair value by using valuation techniques or carries these investments at cost less provision for impairment. Cash in hand and balances with financial institutions, loan and advances, other receivables and tax recoverable are classified as loans and receivables and are carried at amortised cost. Financial liabilities The society’s financial liabilities which include creditors and accrual and borrowing and grants fall into the following categories: Financial liabilities measured at amortised cost : These include borrowings, other payables member deposits and other creditor and accruals. These are initially measured at fair value and subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised as interest expense in profit or loss under finance costs under the effective interest rate method. Borrowings are initially recognised at fair value, net of transaction costs incurred and are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised as interest expense in profit or loss under finance costs. Fees associated with the acquisition of borrowing facilities are recognised as transaction costs of the borrowing to the extent that it is probable that some or all of the facilities will be acquired. In this case the fees are deferred until the drawn down occurs. If it is not probable that some or all of the facilities will be acquired the fees are accounted for as prepayments under trade and other receivables and amortised over the period of the facility. All other borrowing costs are recognised in profit or loss in the year in which they are incurred. All financial liabilities are classified as current liabilities unless the society has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Financial liabilities are derecognised when, and only when, the society’s obligations are discharged, cancelled or expired.

ACCOUNTING POLICIES


Offsetting financial instruments Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a legally enforceable right to offset the amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. g) Inventories Inventories comprise land held for resale and is stated at the lower of cost and net realisable value. Cost is determined by the first-in-first-out (FIFO) basis and comprises all costs attributable to acquiring the properties. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. h) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested for impairment annually. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. i) Retirement benefit obligations Employee entitlements to gratuity are recognised when they accrue to employees. A gratuity payment of 10% of the basic annual salary is accrued to employees at the end of each successfully completed year period of service. The society and its employees contribute to the National Social Security Fund (NSSF), a statutory defined contribution scheme registered under the NSSF Act. The society’s contributions to the defined contribution scheme are charged to the statement of comprehensive income in the year to which they relate. j) Taxation Current tax is provided on the basis of the results for the year, as shown in the financial statements, adjusted in accordance with tax legislation applicable to the society.

In particular under section 19A (4) of the Income Tax Act, the society being a designated society that carries onbusiness as a Credit and Savings Co-operative Society, income tax only arises on interest income from non-members, rental income and any other income not arising from activities relating to advances or deposits from members.

Deferred income tax is provided, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability. Currently enacted tax rates are used to determine deferred income tax. Deferred income tax assets are recognized only to the extent that it is probable that the future taxable Surplus will be available against which temporary differences can be utilized. k) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. l) Investment shares Member interest are classified as equity where the entity has an unconditional right to refuse redemption of the members’ shares. Provisions in the Act, regulations or the Sacco by-laws impose unconditional prohibitions on the redemption of members’ shares.

ACCOUNTING POLICIES


m) Reserves Statutory reserve Transfers are made to the statutory reserve fund at a rate of 20 % of net operating surplus after tax in compliance with the provision of section 47 (1& 2) of the Co-operative Societies Act, Cap 490. This reserve is not distributable. Loan loss reserve Where impairment losses required by legislation or regulation exceed those calculated under International Financial Reporting Standards (IFRSs), the excess is recognised as a regulatory credit risk and accounted for as an appropriation of retained profits . This reserve is not distributable. Fair value reserve The fair value reserve arises on the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold, the portion of the reserve that relates to that financial asset, and is effectively realised, is recognised in profit or loss. Where a revalue financial asset is impaired, the portion of the reserve that relates to that financial asset is recognised in profit or loss.Gains and losses transferred from equity into statement of comprehensive income during the period are included in other gains and losses. The amounts in this reserve is not distributable.

Appropriation account This comprises retained earnings and is distributable. Dividends account Dividend is recognised as a liability by transferring funds from retained earnings to dividend account. Proposed dividends are disclosed as a separate component of equity. This reserve is distributable. n) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

ACCOUNTING POLICIES


NOTES TO THE FINANCIAL STATEMENTS

Revenue 2017 (Kshs.) 2016 (Kshs.)

Interest income on member loans and advances 479,592,517 435,263,553

Other interest income

Dividend income (KUSCCO and CIC Insurance) 1,820,002 1,750,175

Entrance and transfer fees 1,562,601 1,604,897

Interest from CIC units 9,752 855,296

Interest from KUSCCO 2,629,348 266,667

Interest from bank savings A/c - 15,396

6,021,703 4,492,431


Interest expenses

Interest on fixed deposits 31,394,102 27,703,855

Interest on member deposits 264,188,430 204,908,502

Borrowing costs 215,709 12,328,958

Total interest expense 295,798,241 244,941,315

Net interest income 189,815,979 194,814,669

Member land transactions

Sale of land 244,161,340 -

Cost of sale of land (155,035,165) -

Net income from member land transactions 89,126,175 -

Other operating income 10,380,037 8,896,288

Expenses

Impairment charge on loans and advances 109,745,667 25,270,863

Governance expenses (member related costs)

Committee training 787,200 904,670

Honoraria 1,714,284 1,474,286

Sitting allowances 2,730,693 2,672,381

Committee travelling 378,518 370,680

AGM expenses 2,966,400 2,636,920

Education & training expenses 1,800,948 960,000

Open day and ushirika celebrations 3,737,911 3,492,063

14,115,954 12,511,000

Staff costs

Salaries and wages 29,438,966 27,632,458

Other staff cost 12,006,322 9,420,609

Pension contribution 2,244,067 2,149,826

National Social Security Fund 61,600 63,000

43,750,955 39,265,893

Other administrative expenses

Software maintainance 4,305,397 3,066,615

SASRA FOSA licence fees 2,740,277 2,034,804

W/Off Receivables 282,225 1,600,196

Strategic plan review 1,798,850 1,523,042

Printing & stationary 976,357 1,275,078

General Insurance 676,293 671,512

Postage 642,609 452,560

General office expenses 588,047 416,590

Legal fee 60,000 414,333


Travelling expense 222,220 376,500

Consultancy fees 183,960 333,490

Audit fees 758,640 323,640

Security on C.I.T 154,747 154,747

Bulk SMS 60,000 120,000

Loan insurance 5,764,386 5,017,120

Bank charges 1,549,824 1,441,150

Telephone 91,489 85,085

20,855,321 19,306,462

Other operating expenses

Depreciation on property and equipment 6,789,212 6,590,257

Amortisation of intangible assets 1,316,400 1,380,305

Credit reference expenses 362,671 669,892

8,468,283 8,640,454

Marketing expenses

Advertisement and marketing expenses 2,283,455 2,375,904

Corporate Social responsibility 50,000 90,800

2,333,455 2,466,704

Tax 22,669,034 2,937,452

Current tax 22,669,034 2,937,452

The tax on the society’s operating profit before tax differsfrom the theoretical amount that would arise using thebasic tax rate as follows:

Reconciliation of the expense


Tax calculated at a tax rate of 30% 27,015,767 28,874,874

Tax effects of:

Expenses not deductible for tax purposes 144,027,968 102,178,994

Income not subject to tax (148,374,701) (128,116,416)

Tax charge 22,669,034 2,937,452

Tax recoverable

At start of year (638,119) 8,783

Income tax expense (22,669,034) (2,937,452)

Tax paid 3,869,319 2,290,550

At end of year (19,437,834) (638,119)

Cash and cash equivalents

Cash and cash equivalents at the end of the year comprise:-

Cash at bank and in hand 228,465,522 274,481,945


For the purpose of the statement cash flow, the year end cash and cash equivalents comprise is as above. The society’s cash and bank balances are held with a major Kenyan financial institution and, in so far as the directors are able to measure any credit risk to these assets, it is deemed to be limited. The carrying amounts of the society’s cash and cash equivalents are denominated in Kenya shilling.


In the opinion of the directors, the carrying amounts of receivables and prepayment approximate to their fair value. The directors are of the opinion that the society’s exposure is limited because the debt is widely held. The carrying amounts of the society’s trade and other receivables are denominated in Kenya Shillings (Shs.)


2017 (Kshs.) 2016 (Kshs.)

Cash in hand 3,864,763 12,768,385

Co-operative Bank of Kenya Limited 68,273,680 101,698,665

Commercial Bank of Africa Limited 21,462,415 32,943,280

NIC Bank Limited 113,752,735 80,683,956

Equatorial Commercial Bank Limited 4,098,780 4,104,940

M-PESA Paybill acccount 1,500,000 7,100,000

M-Pesa M-Sacco Accounts 15,513,149 35,182,719

228,465,522 274,481,945

a) Cash and cash equivalents

Loans and advances

At the start of the year 3,524,405,278 2,808,140,778

Net increase during the year 1,123,044,186 776,676,513

Impairment provisions for the year (170,157,680) (60,412,013)

At year end 4,477,291,785 3,524,405,278

Total provision as per statutory regulations

Impairment provision as per IFRS

Statutory loan loss reserve

Annual transfer to statutory loan loss reserve

Year end 31 December 2017

Loan and advances 209,689,493 170,157,680 39,531,813 5,947,391

Year end 31 December 2016

Loan and advances 93,996,435 60,412,013 33,584,422 33,584,422

Receivables and prepayments 2017 (Kshs.) 2016 (Kshs.)

Interest due on loans and advances 17,742,904 12,466,340

December check off receivables 39,484,100 27,659,587

Other debtors 4,200,969 2,958,262

KUSCCO claims 6,521,426 3,515,167

67,949,399 46,599,356

Movement in provisions for impairment of loans

At start of year 60,412,013 35,141,150

Impairment provisions for the year 109,745,667 25,270,863

At end of year 170,157,680 60,412,013

The provisions for impairment of loans include the following:-



2017 (Kshs.) 2016 (Kshs.)

Provision as per Statutory Regulations

0 Days (Performing - 1%) 41,571,105 33,584,422

1 - 30 Days (Watch - 5%) 5,021,999 3,808,147

31 - 180 Days (Substandard- 25%) 59,552,724 24,812,671

181- 360 Days (Doubtful - 50%) 48,143,836 19,170,285

Over 361 Days (Loss - 100%) 55,399,829 12,620,910

209,689,493 93,996,435

Provision as per IFRS

0 - 90 days performing - 3,808,147

91 - 180 - underperforming 15,886,105 24,812,671

Over 180 days - impaired 154,271,575 31,791,195

170,157,680 60,412,013

The society’s credit risk arises primarily from trade receivables. The directors are of the opinion that the society’s exposure is limited because the debt is widely held.

Insiders are deemed to be employees, members of supervisory committees and directors of the society. The following loans were granted to insiders: 2017 (Kshs.) 2016 (Kshs.)

Total loans advanced during the year 108,700,763 82,968,046

Total loans outstanding at the end of the year:

Loans to key management 17,506,391 11,124,057

Loans to supervisory committee members 4,877,780 3,089,991

Loans to directors 68,616,954 48,499,370

Loans to other employees 17,699,637 20,254,628

108,700,763 82,968,046

Financial assets

As previously stated 53,626,880 55,341,427

Prior adjustment on fair value gain 13,770,757 -

At start of year 67,397,637 55,341,427

Additions 34,636,678 28,033,334

Disposals (20,000,000) (27,622,382)

Fair value gain 488,865 11,645,257

At end of year Ordinary shares with KUSCO at cost

82,523,180 67,397,636

Unquoted

KUSCCO Limited - ordinary shares 22,451,444 21,664,448

KUSCCO Limited - special deposits 20,800,000 20,000,000

KUSCCO Limited - vijana savings 6,377,548 5,607,881

KUSCCO Limited - central finance programme 12,994,363 782,653

CIC unit trusts 334,254 324,501

African Alliance 321,599 263,046

Total investments 63,279,208 48,642,529

Quoted - held for sale

Safaricom Limited 11,341,668 10,852,803

Co-operative Insurance Society Limited 7,902,304 7,902,304

19,243,972 18,755,107

Income from available for sale financial assets 4,459,102 2,872,138


Level 1 (Kshs.) Level 2 (Kshs.) Level 3 (Kshs.) Total (Kshs.)

Year ended 31 December 2017

Available-for-sale 11,341,668 7,902,304 63,279,208 82,523,180


Available-for-sale 10,852,803 7,902,304 48,642,529 67,397,636

Market risk primarily arises from the changes in the market value and the financial stability of the respective quoted companies.

Management monitors the quality of financial assets by: discussion at the management and board meetings; reference to external historical information available; and discussions with the society’s investment advisors. None of the financial assets are considered to be impaired and are dominated in Kenya Shillings.

Unquoted investments are carried at cost. In the opinion of the Directors, cost is a fair representationon the fair value of such assets.


Land (Kshs.) Furniture and Fitting (Kshs.)

Office Equipments (Kshs.)

Computer and Accessories (Kshs.)

Total (Kshs.)


Cost

At start of year 204,306,361 1,044,384 1,896,020 2,738,094 209,984,859

Additions - - - 740,329 740,329

At end of year 204,306,361 1,044,384 1,896,020 3,478,423 210,725,188

Inventory 2017 (Kshs.) 2016 (Kshs.)

Land - Kisumu 20,500,234 -

Land - Naivasha 68,481,261 47,023,801

Land - Katani 1,046,267 -

Land - Joska 19,208,309 -

108,806,170 47,023,801

Inventory of land is held in respect of pending member transactions

The fair values of financial assets are categorised as follows based on the information set out on accounting policy

(a) There were no reclassification between the classes.


Intangible assets Software

2017 (Kshs.) 2016 (Kshs.)

Cost

At start of year 9,019,998 7,272,435

Additions 75,151 1,747,563

9,095,149 9,019,998

Amortisation

At start of year 4,896,764 3,516,459

Amortization charge 1,391,550 1,380,305

At end of year 6,288,314 4,896,764

Net book value 2,806,835 4,123,234

Other payables

Sundry creditors 32,029,902 24,464,211

Other payables 8,643,988 4,784,062

Accrual 5,759,629 4,594,961

Benevolent fund 2,308,697 4,164,138

Total payables 48,742,216 38,007,372

Depreciation

At start of year 12,197,394 625,517 994,208 1,462,489 15,279,608

Charge for the year 6,098,741 58,421 113,818 459,396 6,730,376

At end of year 18,296,135 683,938 1,108,026 1,921,885 22,009,984

Net book values 186,010,226 360,446 787,994 1,556,538 188,715,204

Cost

At start of year 204,306,361 1,044,384 1,896,020 2,083,854 209,330,619

Additions - - - 654,240 654,240

At end of year 204,306,361 1,044,384 1,896,020 2,738,094 209,984,859

Depreciation

At start of year 6,098,697 561,085 873,463 1,156,106 8,689,351

Charge for the year 6,098,697 64,432 120,745 306,383 6,590,257

At end of year 12,197,394 625,517 994,208 1,462,489 15,279,608

Net book values 192,108,967 418,867 901,812 1,275,605 194,705,251

In the opinion of the directors, the carrying amounts of trade and other payables approximate to their fair value. The carrying amounts of the society’s cash and cash equivalents are denominated in the Kenya Shillings (Kshs).



Interest due to members

At the start of the year 204,908,502 165,700,000

Provisions for the year 264,188,430 204,908,502

Payments during the year (204,908,502) (165,700,000)

At end of year 264,188,430 204,908,502

Deposits 2017 (Kshs.) 2016 (Kshs.)

Member deposits

At start of year 2,840,623,149 2,183,631,760

Net additional deposits during the year 753,135,513 656,991,389

Total 3,593,758,662 2,840,623,149

Withdrawable

At start of year 455,508,270 338,144,849

Net additional deposits during the year 43,868,583 117,363,421

499,376,853 455,508,270

Total member savings 4,093,135,515 3,296,131,419

There are no members holding more than 25% of total members deposits.

Borrowings

Bank loans 4,595,984 9,066,666

4,595,984 9,066,666

The borrowing are repayable as follows:

On demand and within one year 4,595,984 4,470,682

In the second year - 4,595,984

4,595,984 9,066,666

2017 (%) 2016 (%)

Weighted average effective interest rates at the year end were:

Bank loan 9.96 9.96

2017 (Kshs.) 2016 (Kshs.)

Investment shares

At start of year 419,221,147 259,136,143

contribution during the year 90,573,604 160,085,004

At end of year 509,794,751 419,221,147

Reserves

Included in the members balances are the following reserves which are as a result of statutory requirements:-

Statutory reserve 59,109,334 45,632,630

Fair value reserve 14,259,623 13,770,757

The interest rates on the bank loans and bank overdrafts are reviewed periodically by the banks in line with market rates and thus expose the society to cash flow interest rate risk. In the opinion of the directors, it is impracticable to assign fair values to the society’s liabilities due to inability to forecast interest rate and foreign exchange rate changes.



During the year, proposed dividend for 2016 of 12% of investment shares (2015: 12%) amounting to a total of Shs. 41,972,300(2015: Shs. 20,272,220) was paid. The total proposed dividend for the year is 12% of investment shares (2016:12 %) amounting to a total of Shs. 51,785,837(2015: Shs. 41,972,300).

Appropriation account 51,976,758 52,406,815

Loan loss reserve 39,531,813 33,584,422

Dividends account 51,785,837 41,972,300

Related party transactions 2017 (Kshs.) 2016 (Kshs.)

Insider deposits

Total deposits and savings outstanding at end of year:

Due to key management 5,129,289 3,162,648

Due to supervisory committee members 2,555,969 1,040,749

Due to directors 26,077,567 18,782,135

Due to other employees 5,855,105 6,362,399

Total deposits and savings 39,617,931 29,347,931

Key management personnel remuneration

Post employment benefits 1,418,509 1,149,149

1,418,509 1,149,149

Risk management objectives and policies Financial risk management The society’s activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk), credit risk and liquidity risk. The society’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the society’s financial performance. Risk management is carried out by the risk sub-committees under policies approved by the directors.

The risk sub-committee identifies, evaluates and manage financial risks in close co-operation with various departmental heads. The directors provides written principles for overall risk management, as well as written policies covering specific areas, such as liquidity risk, interest rate risk, credit risk, and investment of excess liquidity. The sub-committee reports to the directors on all aspects of risks including nature of risks, measures instituted to mitigate risk exposures etc. (a) Market risk

Interest rate riskThe society’s exposure to interest rate risk arises from borrowings and financial assets. Loan and advances and members deposits are fixed interest securities and therefore not susceptible to market interest rate changes. Financial assets and liabilities advanced and obtained at different rates expose the society to interest rate risk. Financial assets and liabilities obtained at fixed rates expose the society to fair value interest rate risk, except where the instruments are carried at amortised costs. The society maintains adequate ratios of borrowings when compared to total borrowings in fixed interest rates. The table below summarises the effect on post-tax profit had interest rates been 1 percentage point higher, with all other variables held constant. If the interest rates were lower by 1 percentage point, the effect would have been the opposite.


2017 (Kshs.) 2016 (Kshs.)

Effect on profit increase 1,328,712 1,363,703


Price risk The society is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The society does not actively trade these investments. The society’s investments in equity of other entities are publicly traded and included in the Nairobi Stock Exchange (NSE). The table below summarises the impact of increases of the NSE on the society’s post-tax profit for the year. The analysis is based on the assumption that the equity indexes had increased by 5% with all other variables held constant and all the society’s equity instruments moved according to the historical correlation with the index. Impact on other

comprehensive income

Index 2017 (Kshs.) 2016 (Kshs.)

NSE 673,539 656,429

b) Credit risk Credit risk is the risk of suffering financial loss, should any of the society’s member fail to fulfil their contractualobligations to the society. Credit risk arises mainly from member’s loans and advances. The society is also exposed to other credit risks arising from investments in debt securities and other exposures arising from its trading activities (‘trading exposures’), including non-equity trading portfolio assets, derivatives and settlement balances with market counterparties and reverse repurchase loans. Credit risk is the single largest risk for the society’s business; the directors therefore carefully manage the exposure to credit risk. The credit risk management and control are centralised in a credit risk committee, which reports to the board of directors and head of each business unit regularly. i) Credit risk measurement The Society takes on exposure to credit risk which is the risk of financial loss to the Society if a member or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the society’s loans and advances to members and other banks and investment securities. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral against loans and advances in the form of registered securities over assets and guarantees from members. Credit risk in the society, is also managed through a framework of policies and procedures. Origination and approval roles are segregated. To aid credit managers in portfolio management, regular internal risk management reports contain information on key environmental and economic trends across major portfolios, portfolio delinquency and loan impairment performance as well as information on migration across credit grades and other trends. Expected loss is the long-run average credit loss across a range of typical economic conditions. It is used in the delegation of credit approval authority and must be calculated for every transaction to determine the appropriate level of approval. To assist risk officers in monitoring the portfolio, various internal risk management reports are available on a regular basis, providing individual counterparty, counterparty society and portfolio exposure information, the status of accounts showing signs of weakness or financial deterioration and updates on credit markets.The society’ grading systems is based on the basic principles issued by the regulatory authority SASRA. In addition to nominal aggregate exposure, expected loss is used in the assessment of individual exposures and for portfolio analysis.

The credit grades within society are based on a probability of default. The society structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to the nature and type of loans. The society grades its loans into five categories on the basis of the following criteria;



(1) Performing loans, being loans which are well documented and performing according to contractual terms; (2) Watch loans, being loans whose principal or interest have remained un-paid for one day to thirty days or where one instalment is outstanding; (3) Substandard loans, being loans not adequately protected by the current repayment capacity and the principal or interest have remained un-paid between thirty-one to one eighty days or where two to six instalments have remained outstanding;

(4) Doubtful loans, being loans not adequately protected by the current repayment capacity and the principal or interest have remained un-paid between one hundred and eighty one to three hundred and sixty days or where seven to twelve instalments have remained outstanding; and (5) Loss loans, being loans which are considered uncollectible or of such little value that their continued recognition as receivable assets is not warranted, not adequately protected and have remained un-paid for more than three hundred and sixty days or where more than twelve instalments have remained outstanding. ii) Problem credit management and provisioning Across all its loan portfolios, the Society employs a disciplined approach to impairment allowances evaluation, with prompt identification of problem loans being a key risk management objective.

The Society maintains both collective and specific impairment allowances for credit losses, the sum of which is sufficient to reduce the book value of credit assets to their estimated realisable value. A primary indicator of potential impairment is delinquency. However, not all delinquent loans (particularly those in the early stage of delinquency) will be impaired. An account is considered to be delinquent when payment is not received on the due date. Accounts that are overdue by more than 30 days are considered delinquent. For delinquency reporting purposes, the society follows industry standards, measuring delinquency as of 1, 30, 180, 360 and above 361 days past due. Accounts that are overdue by more than 30 days are closely monitored and subject to specific collection processes. Specific impairment allowances reduce the aggregate carrying value of credit assets where there is specific evidence of deterioration in credit quality. In line with regulatory guidelines, a collective allowance is maintained to cover potential impairment in the existing portfolio that cannot be associated with specific credit. These allowances are reviewed and updated on a regularly basis. The process used for recognising the impairment provisions is are generally raised at the difference between the outstanding amount of the loan and the present value of the estimated future cash flows which includes the realisation of collateral except where the collateral value is typically realised in less than 12 months then the loan impairment is calculated using the forced sale value of the collateral without further discounting. In certain cases involving bankruptcy, fraud and death, the loss recognition process is accelerated. The society writes off loans and advances net of any related allowances for impairment losses when it determines that the loans are uncollectable and securities unrealisable. This determination is reached after accessing objective evidence or occurrence of significant changes in the borrower or issuer’s financial position such that they are no longer able to repay the obligation, or that proceeds from the sale of collateral will not be sufficient to pay back the entire exposure.

This is done after exhausting all other means including litigation. Loans and advances that are neither past due nor impaired The society classifies loans and advances under this category if they are up to date and in line with their contractual agreements such loans would have demonstrated the meeting of their financial and non-financial conditions and the borrowers would have proven capacity to repay the loans. These exposures will normally be maintained largely within approved facility programs and with no depiction of impairment or distress signs. These exposures are categorised as normal accounts (category 1) in line with internal guidelines and those issued by regulators where applicable. A collective provision on the total outstanding balances is made and appropriated from revenue reserves to statutory credit risk reserves.



Past due but not impaired This category includes exposures that are between 1 – 120 days past due, where losses may have been incurred but have not been identified. These exposures are graded as category 2 and part of Category 3 that are re-instated to category 2 based on recoveries post period end in line with internal guidelines and those issued by SASRA. Impaired loans and advances Impaired loans and advances are those which the society determines that it is probable that it will be unable to collect all principal and interest due according to the terms of the loan securities agreement(s). These loans are graded between categories contractual 3 (120-180 days), 4 (181-360 days) and 5 (over 360 days) using the society’s internal credit rating system. These clients, under guidelines issued by the SASRA and experience in the regions we operate in, are termed as non-performing loans. The society establishes a specific allowance for impairment losses that represents the estimate of losses that will be incurred in its loan portfolio. Such allowances are charged to profit and loss. Concentration of risks of financial assets with credit risk exposure

The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the society based on the guidelines provided by the SASRA. .

(c) Liquidity risk Cash flow forecasting is performed by the finance department monthly by monitoring the society’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the society does not breach borrowing limits on any of its borrowing facilities.

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the society’s management maintains flexibility in funding by maintaining availability under committed credit lines.

Year ended 31 December

2017 (Kshs.) 2016 (Kshs.)

Neither past due nor impaired 4,157,110,548 3,358,442,187

Past due but not impaired 223,800,178 76,162,940

Individually impaired 375,645,549 150,212,164

Total loans (net of suspended interest) 4,756,556,275 3,584,817,291

Less: allowance for impairment (170,157,680) (60,412,013)

4,586,398,595 3,524,405,278


Year ended 31 December

2017 (Kshs.) 2016 (Kshs.)

Advances 8,367,549 11,830,052

Asset financing 506,122,700 184,589,103

Consumables 2,722,987 58,350,280

Individuals 4,130,235,686 3,330,110,478

4,647,448,922 3,584,879,913


Current to 1 year Kshs. 1 to 5 years Kshs.

Year ended 31 December 2017 11,830,052

Other payables 48,742,216 - 48,742,216

Interest due to members 264,188,430 - 264,188,4300

Member deposits 499,376,853 3,593,758,662 4,093,135,515

Borrowings 4,595,984 - 4,595,984

816,903,483 3,593,758,662 4,410,662,145


Other payables 38,007,372 - 38,007,370

Interest due to members 204,908,502 - 204,908,502

Member deposits 455,508,270 2,840,623,149 455,508,270

Borrowings 4,470,682 4,595,984 9,066,666

702,894,824 2,845,219,133 707,490,808

Capital management Internally imposed capital requirements The society manages its capital to ensure that it will be able to continue as a going concern while maximising the return to members through the optimisation of the debt and equity balance. The capital structure of the society consists of net debt calculated as sum of total borrowings and member’s deposit (as shown in the statement of financial position) less cash and cash equivalents and equity (comprising investment shares, reserves and appropriation account). The directors reviews the capital structure on a semi-annual basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. In order to maintain the capital structure, the society may adjust the amounts of dividends paid to members or sell assets to reduce debt. The society’s overall strategy remain unchanged from 2016. The debt-to-capital ratios at 31 December 2017 and 2016 were as follows:

2017 (Kshs.) 2016 (Kshs.)

Total borrowings (Note 16) 4,595,984 9,066,666

Total members deposits 4,093,135,515 3,296,131,419

4,097,731,499 3,305,198,085

Total cash and bank balances 228,465,522 274,481,945

Net debt 3,869,265,977 3,030,716,140

Total equity 726,458,117 609,984,424

Gearing ratio 5.3:1 5:1 Externally imposed capital requirements The Sacco Societies Act No. 14 of 2008 has established certain guidelines for the management of capital and working capital for deposit taking Sacco’s. • core capital of not less than ten million shillings; • core capital of not less than ten percent of total assets; • institutional capital of not less than eight percent of total assets; and • core capital of not less than eight percent of total deposits. • maintain fifteen percent of its savings deposits and short term liabilities in liquid assets.



2017 (Kshs.) 2016 (Kshs.)

The ratios at 31 December 2017 and 2016 were as follows:

Core capital of not less that Shs 10 millionAs per statement of financial position 726,458,117 609,984,424

2017 (%) 2016 (%)Core capital of not less than 10% of total assets;

As per statement of financial position 14% 15%

Prior year adjustments Comparative amounts relating to the financial year ended 31 December 2017 have been restated to reflect changes in classification and retrospective changes to accounting policies in compliance with International Financial Reporting Standards. The primary restatements were as follows:

2017 (Kshs.) 2016 (Kshs.)

Fair value gain on available for sale assets 13,770,758 -

Reclassification of unclaimed funds to liabilities (3,044,891) (3,440,891)

Reversal of overprovision of interest on deposits 16,937,852 (6,836,942)

Transfer to statutory reserve 4,075,688 1,046,722

Transfer to loan loss reserve 33,584,422 5,947,391

The restatements above increased appropriation reserves for the year ended 31 December 2016 by an amount of Kshs.13,885,316 decreased the revenue reserve by Kshs. 10,277,833, increased statutory reserve by Kshs. 4,075,688 and increased fair value reserve by Kshs.13,770,758 and increased loan loss reserve by Kshs. 33,584,422 Incorporation Safaricom Savings and Credit Co-operative Society Limited is registered in Kenya under the Sacco Societies Act as Savings and Credit Co-operative Society and is domiciled in Kenya. Presentation currency The financial statements are presented in Kenya Shillings (Kshs.)


Safaricom Sacco Ltd Annual Report 2017

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