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CHAMROEUN MICROFINANCE LIMITED

FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011


FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011

CONTENTSPages

STATEMENT OF THE BOARD OF DIRECTORS 1 � 4

INDEPENDENT AUDITOR�S REPORT 5 � 6

FINANCIAL STATEMENTS

Balance sheet 7

Income statement 8

Statement of changes in shareholders� equity 9

Cash flows statement 10

Notes to the financial statements 11 � 48

APPENDIX 1: NOTES ON COMPLIANCE WITH THE CENTRAL BANK�S PRAKAS* i � vii

* This Appendix does not form part of the audited financial statements


BALANCE SHEETAS AT 31 DECEMBER 2011

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2011 2010

Notes Riel �000 Riel �000

ASSETS

Cash on hand 4 23,773 8,658

Balances with the Central Bank 5 118,618 -

Balances with banks 6 3,771,423 793,264

Loans and advances to customers 7 12,973,728 6,791,044

Other assets 8 530,570 343,793

Property and equipment 9 203,465 53,802

Intangible assets 10 5,620 14,482

TOTAL ASSETS 17,627,197 8,005,043

LIABILITIES AND SHAREHOLDERS� EQUITY

LIABILITIES

Compulsory savings from customers 11 3,523,506 1,737,905

Borrowings 12 8,977,400 3,109,545

Amount due to shareholder 13 - 494,534

Deferred grant income - 26,140

Accruals and other liabilities 14 2,006,327 76,158

Current income tax liabilities 15 (a) 205,487 112,110

Total Liabilities 14,712,720 5,556,392

SHAREHOLDERS� EQUITY

Share capital 16 1,912,750 1,912,750

Retained earnings 1,001,727 535,901

Total Shareholders� Equity 2,914,477 2,448,651

TOTAL LIABILITIES AND SHAREHOLDERS�EQUITY 17,627,197 8,005,043

The accompanying notes on pages 11 to 48 form an integral part of these financial statements.


INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2011

8

2011 2010


Interest income 17 4,440,507 2,076,790

Interest expense 18 (479,224) (90,779)

Net interest income 3,961,283 1,986,011

Grant income 19 153,928 258,744

Other operating income 20 466,469 404,161

Operating income 4,581,680 2,648,916

Commission expenses (2,255) (1,107)

Personnel expenses 21 (2,407,498) (1,265,073)

Operating and other expenses 22 (1,503,242) (711,763)

Provision for bad and doubtful loans 7 (447) (1,097)

Operating profit before income tax 668,238 669,876

Income tax expense 15 (202,412) (133,975)

Net profit for the year 465,826 535,901



STATEMENT OF CHANGES IN SHAREHOLDERS� EQUITYFOR THE YEAR ENDED 31 DECEMBER 2011

9

Share Retained

capital earnings Total

Riel �000 Riel �000 Riel �000

Balance as at 1 January 2010 1,057,970 - 1,057,970

Additional capital injection 854,780 - 854,780

Net profit for the year - 535,901 535,901

Balance as at 31 December 2010 1,912,750 535,901 2,448,651

Balance as at 1 January 2011 1,912,750 535,901 2,448,651

Net profit for the year - 465,826 465,826

Balance as at 31 December 2011 1,912,750 1,001,727 2,914,477



CASH FLOWS STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2011

10

2011 2010


Cash flows from operating activities

Net cash used in operating activities 23 (3,900,029) (2,520,659)

Cash flows from investing activities

Purchases of property and equipment 9 (236,439) (54,523)

Purchases of intangible assets 10 - (7,336)

Proceeds from disposal of property and equipment 612 3,668

Net cash used in investing activities (235,827) (58,191)

Cash flows from financing activities

Proceeds from borrowings 7,727,890 2,449,373

Repayments of borrowings (1,860,035) (502,192)

Repayments to shareholders (494,534) 494,534

Proceeds from additional capital - 854,780

Net cash generated from financing activities 5,373,321 3,296,495

Net increase in cash and cash equivalents 1,237,465 717,645

Cash and cash equivalents at the beginning of theyear 801,922 84,277

Cash and cash equivalents at end of the year 24 2,039,387 801,922



NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011

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1 BACKGROUND INFORMATION

On 03 July 2006, Entrepreneurs du Monde (�EdM�), an international French NGO, signed aMemorandum of Understanding with the Ministry of Foreign Affairs of Cambodia to establisha programme called �Chamroeun Microfinance Service� (�the Programme�) to play a vital rolein providing financial services and non financial services that provide supporting to financialservices supporting families in urban depressed areas in Phnom Penh city. On 25 June2007, EdM obtained a cooperation letter from Phnom Penh Municipality to allow theProgramme to operate its activities in Phnom Penh.

The Programme obtained a certificate from the Ministry of Commerce as a limited liabilitycompany hereunder referred to as Chamroeun Microfinance Limited (�the Company�) underregistration number Co. 5613/09E, dated 02 February 2009. In March 2009, the Companyreceived a Certificate for Registration as a Rural Credit Operator from the National Bank ofCambodia (�the Central Bank�). On 03 August 2011, the Company received a license fromthe Central Bank which allows the Company to conduct business as a MicrofinanceInstitution.

The Company as a micro-finance institution continues to be primarily an urban-based creditand savings institution with twelve main branches, three district offices, nine satellites officesand a head office in Phnom Penh. The Company�s corporate focus is to provide reliable andaffordable access to financial services to poor micro-entrepreneurs in urban areas and in thevicinity of Phnom Penh and provinces.

The Company�s head office is at No. 42D, Street 320, Boeung Keng Kang III, Chamkar Morn,Phnom Penh, the Kingdom of Cambodia.

The financial statements were approved for issue by the Board of Directors on 27 April 2011.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of these financial statementsare set out below. These policies have been consistently applied to all the years presented,unless otherwise stated.

2.1 Basis of preparation

The financial statements have been prepared in accordance with the guidelines issued bythe Central Bank and Cambodian Accounting Standards (�CAS�). In applying CAS, thecompany also applies CFRS 7: Financial Instruments: Disclosures.

The accounting principles applied may differ from generally accepted accounting principlesadopted in other countries and jurisdictions. The accompanying financial statements aretherefore not intended to present the financial position, financial performance and cash flowsin accordance with jurisdictions other than the Kingdom of Cambodia. Consequently, thesefinancial statements are only addressed to those who are informed about Cambodianaccounting principles, procedures and practices.

The financial statements have been prepared under historical cost convention.



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2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1 Basis of preparation (continued)

The preparation of financial statements in accordance with Cambodian AccountingStandards requires the use of estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date of financialstatements and the reported amounts of revenues and expenses during the reporting period.Although these estimates are based on management�s best knowledge of current event andactions, actual results ultimately may differ from those estimates. The areas involving ahigher degree of judgment or complexity, or areas where assumptions and estimates aresignificant to the financial statements are disclosed in Note 3.

2.2 New accounting standards and interpretations

(a) New standards, amendments to existing standards and interpretations effective in theyear 2011

There were no standards, amendments to existing standards and interpretations whichbecame effective in the financial year ended 31 December 2011.

(b) Standards and amendments to existing standards issued but not yet effective

On 28 August 2009, the National Accounting Council of the Ministry of Economy and Financeannounced the adoption of Cambodian International Financial Reporting Standards(�CIFRS�) which are based on all standards published by International Accounting StandardBoard including other interpretation and amendment that may occur in any circumstances toeach standard by adding �Cambodian�. Public accountable entities shall prepare theirfinancial statements in accordance with CIFRS for accounting period beginning on or after 1January 2012.

The following Cambodian International Accounting Standards (�CIAS�) or CIFRS andamendments to existing standards, which have been published are relevant and mandatoryfor the Company for accounting periods beginning on or after 1 January 2012, but have notbeen early adopted by the Company:

CIAS 1 (Amendment), �Financial statement presentation� regarding othercomprehensive Income

The main change resulting from these amendments is a requirement for entities togroup items presented in �other comprehensive income� (OCI) on the basis of whetherthey are potentially reclassifiable to profit or loss subsequently (reclassificationadjustments). The amendments do not address which items are presented in OCI. Thisis not expected to have a material impact on the Company�s financial statements.



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2.2 New accounting standards and interpretations (continued)

(b) Standards and amendments to existing standards issued but not yet effective (continued)

CIAS 19 and amendment, �Employee benefits�

The objective of this standard is to prescribe the accounting and disclosurerequirements for employee benefits. The Standard requires an entity to recognise: (a)a liability when an employee has provided service in exchange for employee benefits tobe paid in the future; and (b) an expense when the entity consumes the economicbenefit arising from service provided by an employee in exchange for employeebenefits.

A subsequent amendment to the standard is to eliminate the corridor approach andcalculate finance costs on a net funding basis. This is not expected to have a materialimpact on the Company�s financial statements.

CIAS 24 (Revised), �Related Party Disclosures�

CIAS 24 was revised by (a) simplifying the definition of a related party, clarifying itsintended meaning and eliminating inconsistencies from the definition; and (b) providinga partial exemption from the disclosure requirements for government-related entities.This is not expected to have a material impact on the Company�s financial statements.

CIAS 32, �Financial Instruments: Presentation�

The objective of this standard is to establish the principles for presenting financialinstruments as liabilities or equity and for offsetting financial assets and financialliabilities. It applies to the classification of financial instruments, from the perspective ofthe issuer, into financial assets, financial liabilities and equity instruments as well asclassification of the related interest, dividends, losses and gains. This is not expectedto have a material impact on the Company�s financial statements.

CIAS 38 (Amendment), 'Intangible Assets'

The revised standard provides clarification in respect of fair value measurement of anintangible asset acquired in business combination and it permits the grouping ofintangible assets as a single asset if the individual assets have similar useful economiclives. The amendment will not have a material impact on the Company�s financialstatements.



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CIAS 39, �Financial Instruments: Recognition and Measurement�

The standard establishes principles for recognising and measuring financial assets,financial liabilities and some contracts to buy or sell non-financial items. Adoption ofCIAS 39 will result in the following revisions to the accounting policies on financialinstruments:

Loans to customersLoans to customers are currently stated in the balance sheet at outstanding principal,less any amounts written off and provision for loan losses. Under CIAS 39, loans andreceivables are initially recognised at fair value - which is the cash consideration tooriginate or purchase the loan including any transaction costs and are subsequentlymeasured at amortised cost using the effective interest rate method.

Impairment of financial assetsThe Company currently follows the mandatory credit classification and provisioning asrequired by Prakas No. B7-02-186 dated 13 September 2002 issued by the CentralBank, as disclosed in note 2.7 to the financial statements. CIAS 39 requires theCompany to assess at each reporting date whether there is objective evidence that afinancial asset or group of financial assets is impaired, either on an individual orcollective assessment basis. Impairment loss is measured as the difference betweenan asset�s carrying amount and present value of estimated future cash flows (excludingfuture credit losses that have not been incurred) discounted at the asset�s originaleffective interest rate. For the purposes of collective impairment assessment, assetsare grouped on the basis of similar credit risk characteristics.

Compulsory savings from customersThe Company currently measures compulsory savings from customers at the depositamount. CIAS 39 requires financial liabilities (which include compulsory savings fromcustomers) to be measured at amortised cost.

Interest income and interest expenseThe Company currently recognises interest income and expense on an accrual basis atcontractual rates, except where serious doubt exists as to the collectability, in whichcase interest is suspended until it is realised on a cash basis. CIAS 39 requires interestincome and expense for all interest-bearing financial instruments to be recognisedusing the effective interest method. In respect of a financial asset or a group of similarfinancial assets which are impaired, interest income is to be recognised at the interestrate used in discounting future cash flows for the purpose of measuring the impairmentloss.



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CIFRS 7 (Amendment), �Financial Instruments - Disclosures�

The revised standard requires enhanced disclosures in respect of fair valuemeasurement and liquidity risk. In particular, the amendment requires disclosure of fairvalues by fair value measurement hierarchy as follows:

- Level 1 - Quoted prices (unadjusted) in active markets for identical assets orliabilities;

- Level 2 - Inputs, other than quoted prices included within Level 1, that areobservable for an asset or liability, either directly or indirectly; and

- Level 3 - Inputs for an asset or liability that are not based on observable marketdata.

The standard also emphasises the interaction between quantitative and qualitativedisclosures about the nature and extent of risks associated with financial instruments.

CIFRS 9, �Financial instruments�

CIFRS 9 is the first standard issued as part of a wider project to replace CIAS 39.CIFRS 9 retains but simplifies the mixed measurement model and establishes twoprimary measurement categories for financial assets: amortised cost and fair value.The basis of classification depends on the entity�s business model and the contractualcash flow characteristics of the financial asset. The guidance in CIAS 39 on impairmentof financial assets and hedge accounting continues to apply. The Company is yet toassess CIFRS9�s full impact on financial statements.

CIFRS 13, �Fair value measurement�

CIFRS 13 aims to improve consistency and reduce complexity by providing a precisedefinition of fair value and a single source of fair value measurement and disclosurerequirements for use across CIFRSs. The requirements, which are largely alignedbetween CIFRSs and US GAAP, do not extend the use of fair value accounting butprovide guidance on how it should be applied where its use is already required orpermitted by other standards within IFRSs or US GAAP. This is not expected to have amaterial impact on the Company�s financial statements.



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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Other than the improvements and amendments to existing standards as set out above, theother published standards, amendments and interpretations to existing standards, which areapplicable for accounting periods beginning on or after 1 January 2011, are not relevant tothe Company�s operations.

(c) Early adoption of standards

During the period, the Company did not early-adopt any new or amended standardsprescribed in Note 2.2 (b).

2.3 Basis of aggregation

The financial statements include the financial statements of the Company�s head office andits branches within Cambodia. On aggregation of balances, all significant inter-branchbalances and transactions are eliminated in full.

2.4 Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currencyof the primary economic environment in which the Company operates (�the functionalcurrency�). The Company maintains its accounting records and its financial statements inKhmer Riel (�Riel�), the Company�s functional currency. The functional currency is Rielbecause of the significant influence of the Riel on its operations. The financial statements arepresented in Riel, which is the Company�s functional and presentation currency.

(ii) Transactions and balances

Transactions in currencies other than Riel, the functional and presentation currency aretranslated into Riel at the exchange rates prevailing at the dates of transactions. Foreignexchange gains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rate of monetary assets and liabilities denominated incurrencies other than Riel, are recognised in the income statement.

2.5 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash onhand; demand deposits; and short-term highly liquid investments with maturities of 90 daysor less from the date of acquisition that are readily convertible to known amounts of cash andsubject to an insignificant risk of changes in value.



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2.6 Loans to customers

Loans to customers are stated in the balance sheet at the amount of principal outstandingless any amounts written off and provision for doubtful loans to reflect the estimatedrecoverable amount.

The adequacy of the provision for bad and doubtful loans is evaluated monthly bymanagement. The provision for doubtful loans charged to expense is based on themanagement�s judgment of the amount necessary to maintain the provision balance at alevel adequate to absorb losses.

2.7 Provision for bad and doubtful loans

The Company follows the mandatory credit classification and provisioning as required byPrakas B7-02-186 dated 13 September 2002 for licensed micro financial institutions. ThePrakas requires microfinance institutions to classify their loan portfolio into the following fourclasses and ensure that the minimum mandatory level of specific provisioning is provided:

Classification Number of days past due ProvisionShort term loans (less than one year):Standard 0 - 30 days 0%Substandard 31 - 60 days 10%Doubtful 61 - 90 days 30%Loss Over 90 days 100%

Long term loan (more than one year):Standard 0 - 30 days 0%Substandard 31 - 180 days 10%Doubtful 181 - 360 days 30%Loss Over 360 days 100%

The provision is calculated as a percentage of the loans outstanding at the time the loan isclassified and is charged as expense in the income statement.

Loans are written off when there is no realistic prospect of recovery. Recovery of previouslywritten-off loans to customers is recognised in the income statement.



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2.8 Property and equipment

Items of property and equipment are recorded at cost less accumulated depreciation and anyaccumulated impairment losses. Historical cost includes expenditure that is directlyattributable to bringing the assets to the location and condition necessary for it to be capableof operating in the manner intended by management.

Subsequent costs are included in the asset�s carrying amount or recognised as a separateasset, as appropriate, only when it is probable that future economic benefits associated withthe item will flow to the Company and the cost of the item can be measured reliably. Thecarrying amount of the replaced part is derecognised. All other repairs and maintenance arecharged to the income statement during the financial year in which they are incurred.

Depreciation of property and equipment is charged to the income statement on a decliningbalance method at the following annual rates:

Motor vehicles 25%

Equipment 25%Furniture and fixtures 25%Computers 50%

The assets� residual values and useful lives are reviewed, and adjusted prospectively ifappropriate, if there is an indication of a significant change since the last reporting date.

An asset�s carrying amount is written down immediately to its recoverable amount if theasset�s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carryingamount and are recognised in the income statement.

2.9 Intangible assets

Intangible assets, which comprise acquired computer software licenses (mainly MB Winsoftware for loan and deposit modules) and related costs, are stated at cost lessaccumulated amortisation and impairment loss. Acquired computer software licenses arecapitalised on the basis of the cost incurred to acquire the specific software and bring it touse. Intangible assets are amortised on a straight-line basis at the rate of 25% per annum.

Costs associated with maintaining computer software are recognised as an expense whenincurred.



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2.10 Impairment of non-financial assets

Assets that are subject to amortisation or depreciation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which the asset�s carryingamount exceeds its recoverable amount. The recoverable amount is the higher of an asset�sfair value less costs to sell and value in use.

Any impairment loss is charged to income statement in the year in which it arises. Reversalof impairment loss is recognised in the income statement to the extent that the asset�scarrying amount does not exceed the carrying amount that would have been determined, netof depreciation and amortisation, had no impairment loss been recognised.

2.11 Borrowings

Borrowings are stated at the amount of the principal outstanding.

2.12 Provisions

A provision is recognised in the balance sheet when the Company has a legal or constructiveobligation as a result of a past event, and it is probable that an outflow of economic benefitswill be required to settle the obligation; and the amount has been reliably estimated.

When there are a number of similar obligations, the likelihood that an outflow will be requiredin settlement is determined by considering the class of obligations as a whole. A provision isrecognised even if the likelihood of an outflow with respect to any one item included in thesame class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required tosettle the obligation using a pre-tax rate that reflects current market assessments of the timevalue of money and the risks specific to the obligation. The increase in the provision due topassage of time is recognised as interest expense.



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2.13 Income tax

The current income tax, recognised in the income statement, is calculated on the basis of thetax laws enacted or substantively enacted at the balance sheet date in the Kingdom ofCambodia where the Company operates and generates taxable income.

Deferred income tax is provided using the liability method, on temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts in the financialstatements. Deferred income tax is determined using tax rates (and laws) that have beenenacted or substantially enacted by the balance sheet date and are expected to apply whenthe related deferred income tax asset is realised or the deferred income tax liability is settled.Deferred tax assets and liabilities are offset if there is a legally enforceable right to offsetcurrent tax liabilities and assets, and they related to income taxes levied by the same taxauthority on the same taxable entity.

Deferred income tax assets are recognised only to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can be utilised.Deferred tax assets are reviewed at each reporting date and are reduced to the extent that itis no longer probable that the related tax benefit will be realised.

2.14 Interest income and expense recognition

Interest income earned on loans is recognised on an accrual basis taking into considerationthe principal amount of loans outstanding. When a loan becomes non-performing, therecording of interest as income is suspended until it is realised on a cash basis.

Interest expenses on deposits from customers and borrowings are recognised in the incomestatement on an accrual basis.

2.15 Fee and commission income

Fee and commission income is recognised on an accrual basis when the service has beenprovided. Fee and commission income comprise income received from loan processing feeswhich are recognised as income when loan is disbursed.

2.16 Grants

Grants are recognised as income in the income statement when received and conditionsattached to the grants were fulfilled.

2.17 Operating leases

Operating leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made under operatingleases (net of any incentives received from the lessor) are charged to the income statementon a straight-line basis over the period of the lease.



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3 CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGEMENTS

Estimates, assumptions and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to bereasonable under the circumstances. The Company makes estimates, assumptions andjudgements concerning the future. The resulting accounting estimates will, by definition,seldom equal the related actual results. The estimates, assumptions and judgements thathave a significant risk of causing a material adjustment to the carrying amounts of assets andliabilities within the next financial year are discussed below.

a) Taxation

Taxes are calculated on the basis of current interpretation of the tax regulations. However,these regulations are subject to periodic variation and the ultimate determination of taxexpense will be made following inspection by the tax authorities.

Where the final tax outcome of these matters is different from the amounts that were initiallyrecorded, such differences will impact the tax provisions in the period in which suchdetermination is made.

(b) Impairment losses on loans to customers

The Company follows the credit classification and provisioning in accordance with PrakasNo. B7-02-186 dated 13 September 2002 on the classification and provisioning for bad anddoubtful debts for licensed microfinance institutions. The Central Bank requires microfinanceinstitutions to classify their loan portfolios into four classes and ensure that the minimummandatory level of specific provision is made depending on the classification concerned andregardless of the assets (except for cash) pledged as collateral. For the purpose of loanclassification, it requires to take into account the borrower�s historical payment experienceand financial condition.



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4 CASH ON HAND

2011Riel �000

2010Riel �000

Head office 12,189 793Branches 11,584 7,865

23,773 8,658

5. BALANCES WITH THE CENTRAL BANK

2011Riel �000

2010Riel �000

Current accounts 1,000 -Statutory capital deposit (i) 117,618 -

118,618 -

(i) Statutory capital depositIn compliance with Prakas B7-06-209 dated 13 September 2006 on the LicensedMicrofinance Institutions, the Company is required to maintain a statutory capital deposit withthe Central Bank of 5% of registered capital. This deposit is refundable should the Companyvoluntarily liquidate and have no deposit liabilities.

(ii) Interest ratesThe statutory capital deposit in Riel earns interest ranging at 0.5% of refinancing rate set bythe Central Bank. The interest payment is settled semi-annually.

6. BALANCES WITH BANKS

2011 2010Riel �000 Riel �000

Current accounts 1,892,084 708,648

Savings accounts 122,530 84,616

Term deposits 1,756,809 -

3,771,423 793,264

Interest rates (per annum):

2011 2010

Savings accounts 1.25% 1.25%

Term deposits 6.00% -



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7 LOANS AND ADVANCES TO CUSTOMERS

All loans and advances to customers presented below are of fixed terms.

2011 2010

Riel �000 Riel �000

Chamroeun loans 4,419,722 3,332,441

Entrepreneur loans 6,115,585 2,990,801

Social emergency loans 1,766 1,053

Developing loans 2,134,438 367,000

Staff loans 308,021 111,288

12,979,532 6,802,583

Provision for bad and doubtful loans- Specific provision (5,804) (11,539)

(5,804) (11,539)

12,973,728 6,791,044

The movements in provision for bad and doubtful loans to customers are as follows:

2011 2010


At the beginning of year 11,539 16,487

Provision for bad and doubtful loans 447 1,097

Loans written off during the year (6,182) (6,045)

At the end of year 5,804 11,539

The loans (gross) to customers are analysed as follows:

(a) By maturity:

2011 2010


No later than1 month 120,519 71,045

Later than 1 month and no later than 3 months 1,109,190 604,945

Later than 3 months and no later than 12 months 11,514,347 6,082,852

Later than 12 months 235,476 43,741

12,979,532 6,802,583



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7 LOANS AND ADVANCES TO CUSTOMERS (continued)

(b) By currency:

2011 2010


Khmer Riel 12,979,532 6,802,583

12,979,532 6,802,583

(c) By economic sector:

2011 2010


Agriculture 1,998,299 390,768

Trade and commerce 7,217,232 4,356,296

Services 1,666,835 1,175,400

Transportation 1,191,284 302,639

Construction 286,954 110,761

Household/family 58,833 26,632

Other categories 560,095 440,087

12,979,532 6,802,583

(d) By relationship:2011 2010


External customers 12,671,511 6,691,295Management loans 109,580 24,025Staff loans 198,441 87,263

12,979,532 6,802,583

(e) By interest rate (per annum):

2011 2010

% %

Staff loans 9.6% - 12% 18%

External customers

Entrepreneur loan 39% - 42% 42%

Chamroeun loans 45% - 48% 48%

Social emergency loans 24% 24%

Developing loans 30% - 36% 48%



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7 LOANS AND ADVANCES TO CUSTOMERS (continued)

(f) By location:

2011 2010


Phnom Penh 4,691,509 4,311,838

Kandal 3,116,512 647,104

Battambang 1,047,620 608,806

Siem Reap 1,043,147 583,402

Kampong Cham 1,095,633 540,145

Banteay Meanchey 774,383 -

Kompong Chhang 93,788 -

Kompong Speu 407,890 -

Kompong Thom 401,029 -

Head Office 308,021 111,288

12,979,532 6,802,583

(g) By performance:

2011 2010


Staff loans - -

External customers

Standard Loans 12,973,067 6,788,784

Sub-Standard Loans 734 2,346

Doubtful Loans - 212

Loss Loans 5,731 11,241

12,979,532 6,802,583

8 OTHER ASSETS

2011 2010


Accrued interest receivable 310,446 157,703

Prepayments and deposits 220,124 186,090

530,570 343,793



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9 PROPERTY AND EQUIPMENT

MotorVehicles

OfficeSupplies &Furniture

ComputerHardware Total

Riel �000 Riel �000 Riel �000 Riel �000

At 1 January 2010

Cost 18,462 17,004 77,789 113,255

Accumulated depreciation (10,649) (7,751) (60,627) (79,027)

Net book amount 7,813 9,253 17,162 34,228

Year ended 31 December 2010

Opening net book amount 7,813 9,253 17,162 34,228

Additions - 8,858 45,665 54,523

Disposals - net (3,900) - - (3,900)

Depreciation charge (1,816) (3,350) (25,883) (31,049)

Closing net book amount 2,097 14,761 36,944 53,802

At 31 December 2010

Cost 6,894 25,862 123,454 156,210


Net book amount 2,097 14,761 36,944 53,802


Opening net book amount 2,097 14,761 36,944 53,802

Additions 138,580 22,907 74,952 236,439

Disposals - net (1,692) - - (1,692)

Depreciation charge (34,535) (6,827) (43,722) (85,084)

Closing net book amount 104,450 30,841 68,174 203,465

At 31 December 2011

Cost 138,583 48,769 198,406 385,758


Net book amount 104,450 30,841 68,174 203,465



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10 INTANGIBLE ASSETS

SoftwareLicense Total


At 1 January 2010

Cost 63,939 63,939

Accumulated depreciation (42,294) (42,294)

Net book amount 21,645 21,645


Opening net book amount 21,645 21,645

Additions 7,336 7,336

Amortisation charge (14,499) (14,499)

Closing net book amount 14,482 14,482

At 31 December 2010

Cost 71,275 71,275

Accumulated amortisation (56,793) (56,793)



Opening net book amount 14,482 14,482

Amortisation charge (8,862) (8,862)

Closing net book amount 5,620 5,620

At 31 December 2011

Cost 71,275 71,275

Accumulated amortisation (65,655) (65,655)




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11 COMPULSORY SAVINGS FROM CUSTOMERS

2011 2010


Loan Capital Build Up (LCBU) 1,684,530 630,263

Capital Build Up (CBU) 1,838,976 1,107,642

3,523,506 1,737,905

The deposits - Loan Capital Build Up (�LCBU�) are compulsory as required by the Companyfor loan disbursements and bear no interest. These LCBU savings are refunded at the end ofthe loan cycle. Customers are required to pay 15% in addition to each of their loan principalsettlement as this LCBU.

The deposits - Capital Build Up (�CBU�) are compulsory and not yet refunded to customers atthe end of the loan cycle and bear interest at rates ranging from 2 % to 4.5% (2010: 2% to4.5%) per annum. The Company has taken steps to return all CBU savings to customersgradually.

12 BORROWINGS

2011 2010


Grameen Credit Agricole Microfinance Foundation 2,468,160 585,200

Foreign Trade Bank 1,760,000 -ResponsAbility 1,756,965 808,500

Entrepreneurs Du Monde 1,373,576 1,077,976

Whole Planet Foundation (***) 822,000 -Babyloan 528,949 368,369

Microfinance Solidaire 215,440 215,600

Microfinance for Mothers 52,310 53,900

8,977,400 3,109,545

*** Under borrowing agreement between Whole Planet Foundation (�WPF�) and theCompany, WPF agreed to provide in Riel the borrowing facility equivalent to US$500,000 fora period of three years from 2011 to 2013 to support the Company�s expansion of thedeveloping group loans in its seven branches in Phnom Penh and the branches withinKampong Cham. The Company withdrew US$200,000 during the year. The remaining facilitywill be utilised as specified in the agreement at US$150,000 equally in 2012 and 2013.



29

12 BORROWINGS (continued)

All borrowings are unsecured and bear fixed interest rates ranging from 0% to 12% (2010:0% to 12%) per annum.

The borrowings by maturity are analysed as follows:

2011 2010


No later than 1 year 3,822,099 422,269

Later than 1 year and no later than 5 years 5,155,301 808,500

Later than 5 years - 1,878,776

8,977,400 3,109,545

13 AMOUNT DUE TO SHAREHOLDER

2011 2010


EdM - Current account - 494,534

- 494,534

The amount was payable to EdM and had no fixed term of payment. This payable was fullysettled during the year.

14 ACCRUALS AND OTHER LIABILITIES

2011 2010


Advance capital received from shareholder * 1,597,171 -

Interest payable 140,041 46,170

Withholding tax payable 121,958 10,817

Provision for 13th month bonus 78,574 18,456

Accrued incentive 66,520 -

Other payables 2,063 715

2,006,327 76,158

* This advance from shareholder was to increase the Company�s share capital and subject tothe Central Bank�s approval. The Company has not received the approval by 31 December2011 and as of the date of this report.



30

15. TAXATION

(a) Current income tax liabilities

2011 2010


Balance at beginning of year 112,110 -

Income tax expense 202,412 133,975

Income tax paid (109,035) (21,865)

Balance at end of year 205,487 112,110

(b) Income tax expense

2011 2010


Current income tax 242,247 133,975

Over provision in respect of prior year (39,835) -

202,412 133,975

Income tax reconciliation:

Profit before income tax 668,238 669,876

Income tax using statutory rate (20%) 133,648 133,975

Effect of:

Non-deductible expenses 108,599 -

Over provision in respect of prior year (39,835) -

202,412 133,975

In accordance with Cambodian tax laws, the Company has an obligation to pay corporateincome tax in the form of either Tax on Profit at the rate of 20% of taxable profit or minimumtax at 1% of turnover, whichever is higher.

(c) Other tax matters

The Company�s tax returns are subject to periodic examination by the General Department ofTaxation. Some areas of tax laws and regulations may be open to different interpretation;therefore, the tax amounts reported in the financial statements could be changed at a laterdate upon final determination by the General Department of Taxation.



31

16 SHARE CAPITAL

The details of shareholding are as follows:

EntrepreneursDu Monde

MicrofinanceSolidaire

HumbertGarreau de

Labarre Total

Riel �000 Riel �000 Riel �000 Riel �000

As at 1 January 2010 1,016,970 - 41,000 1,057,970

Additional paid-up capital 326,980 527,800 854,780

Total share capital as at 31December 2010 1,343,950 527,800 41,000 1,912,750

As at 1 January 2011 1,343,950 527,800 41,000 1,912,750

Total share capital as at 31December 2011 1,343,950 527,800 41,000 1,912,750

During the year, the shareholders� resolution was made to increase share capital from1,912,750 thousand riel to 3,599,900 thousand riel. However, it has not been approved bythe National Bank of Cambodia (�the Central Bank�) as of 31 December 2011 and as of thedate of this report.

Dec 2011 Dec 2010

% of Number of % of Number of

Shareholders ownership shares ownership shares

Entrepreneurs Du Monde 70% 26,879 70% 26,879

Microfinance Solidaire 28% 10,556 28% 10,556

Humbert Garreau de Labarre 2% 820 2% 820

100% 38,255 100% 38,255

17 INTEREST INCOME

2011 2010

Riel '000 Riel '000

Loans and advances to customers 4,407,782 2,075,595

Balances with banks 32,725 1,195

4,440,507 2,076,790



32

18 INTEREST EXPENSES

2011 2010

Riel '000 Riel '000

Borrowings 434,780 69,032

Compulsory savings from customers 44,444 21,747

479,224 90,779

19 GRANT INCOME

2011 2010

Riel '000 Riel '000

Grant income for investments 26,140 29,734

Grants income for operation (a) 127,788 229,010

153,928 258,744

(a) The amount represents the unconditional grant received from Grameen Credit AgricoleMicrofinance Foundation, Don Boule de Neige ("DBN") and Pour un Sourire d'Enfant("PSE").

20 OTHER OPERATING INCOME

2011 2010

Riel '000 Riel '000

Non-interest income (*) 534,069 308,287

Foreign exchange gains - 91,680

Other income 7,024 4,194

541,093 404,161

Foreign exchange losses (74,624) -

466,469 404,161

(*) Non-interest income includes sales of passbooks, loan processing fees and feesfrom training courses and others.



33

21. PERSONNEL EXPENSES

2011 2010

Riel '000 Riel '000

Salaries and wages 1,589,946 856,734

Vehicle related allowances 271,966 154,075

Bonuses 231,507 64,243

Incentives 139,830 122,210

Training expenses 58,040 22,222

Staff uniform 51,913 8,760

Staff insurance 22,245 25,827

Medical benefits 5,593 -

Other staff benefits 36,458 11,002

2,407,498 1,265,073

22 OPERATING AND OTHER EXPENSES

2011 2010

Riel '000 Riel '000

Occupancy expenses 413,340 259,085

Office expenses 350,258 213,225

Tax and other fee 189,140 19,468

Professional fee 150,261 35,506

Depreciation and amortisation 93,946 45,548

Travel and transportation expenses 71,889 40,814

Banking charge 56,409 23,709

Seminar and workshop 39,306 16,218

Fuel expenses 18,901 250

Other training expenses 17,413 14,475

Security expenses 13,067 251

Repair and maintenance expenses 2,948 -

Loss on disposal of fixed assets 1,080 232

Other general and admin expenses 85,284 42,982

1,503,242 711,763



34

23. NET CASH USED IN OPERATING ACTIVITIES

2011 2010Riel �000 Riel �000

Profit before income tax 668,238 669,876Adjustments for:Depreciation and amortisation 93,946 45,548Provision for bad and doubtful loans 447 1,097Loss on disposals of fixed assets 1,080 232

Interest income (4,440,507) (2,076,790)Interest expenses 479,224 90,779

(3,197,572) (1,269,258)

Changes in working capital:Statutory capital deposit (117,618) -Balances with banks (1,756,809) -Loans and advances to customers (6,183,131) (3,992,061)Other assets (32,327) (69,282)Compulsory savings from customers 1,785,601 908,084Accruals and other liabilities 1,836,298 6,642Deferred grant income (26,140) (29,733)

(7,691,698) (4,445,608)

Interest received 4,286,057 1,993,889Interest paid (385,353) (47,075)Income tax paid (109,035) (21,865)

Net cash generated used in operating activities (3,900,029) (2,520,659)

24 CASH AND CASH EQUIVALENTS

2011 2010


Cash on hand 23,773 8,658

Balances with the Central Bank - current accounts 1,000 -

Balances with banks matured not later than 3 months 2,014,614 793,264

2,039,387 801,922



35

25 COMMITMENTS

Lease commitments

The Company leases various offices (usually one year period) under cancellable operatinglease agreements. The Company is required to give one month�s notice for the nullification ofthese agreements. The lease expenses are charged to office rentals in the income statementduring the year.

26 RELATED PARTY TRANSACTIONS

a) Loans and advances to key management

2011 2010


Balance at beginning of year 24,025 10,029

Loans disbursed 480,280 39,700

Loan payments (394,725) (25,704)


Loans provided to management of the Company have two-year repayment term and bearinterest rates ranging between 9.6% to 12% per annum.

b) Balance with related parties

2011 2010


Amounts due to:

Grameen Credit Agricole (Note 12) 2,468,160 585,200

Entrepreneurs Du Monde (Note 12, 13 and 14) 1,767,465 1,572,510

Sophie Dulax 824,978 -

Microfinance Solidaire (Note 12 and 14) 480,933 215,600

Chamroeun Staff Association 118,150 -

5,659,686 2,373,310



36

26 RELATED PARTY TRANSACTIONS (continued)

c) Other transactions with related parties

2011 2010


Grant from Grameen Credit Agricole Microfinance Foundation 54,490 -

Rental income from Entrepreneurs Du Monde 5,687 4,205

Interest earned from loans and advances to key management 7,907 602


d) Key management compensations

2011 2010


Salaries and short-term benefits 887,487 272,333

27 FINANCIAL RISK MANAGEMENT

The Company�s activities expose it to a variety of financial risks: credit risk, market risk(including currency risk, interest rate risk and price risk), and liquidity risk. Taking risks is thecore of the financial business, and the operational risks are an inevitable consequence ofbeing in business.

Carrying value

Riel '000 Riel '000

2011 2010

Financial assets

Cash on hand 23,773 8,658

Balances with the Central Bank 118,618 -

Balances with banks 3,771,423 793,264


Other assets 310,446 157,703

17,197,988 7,750,669

Financial liabilities

Compulsory savings from customers 3,523,506 1,737,905

Borrowings 8,977,400 3,109,545

Amount due to shareholder - 494,534

Accruals and other liabilities 1,884,369 65,341

14,385,275 5,407,325



37

27 FINANCIAL RISK MANAGEMENT (continued)

27.1 Credit risk

The Company takes on exposure to credit risk, which is the risk that counterparty will causea financial loss to the Company by failing to discharge an obligation. Credit risk is the mostimportant risk for the Company�s business. Credit exposures arise principally in lendingactivities that lead to loans to customers. Credit risks are managed and studied by the creditassessment team before loans are disbursed to customers.

The lending activities are guided by the Company�s credit policy to ensure that the overallobjectives in the area of lending are achieved; i.e., that the loan portfolio is strong andhealthy and credit risks are well diversified. The credit policy documents the lending policy,collateral policy, and credit approval processes and procedures implemented to ensurecompliance with the Central Bank�s guidelines.

(a) Credit risk measurement

The Company is exposed to credit risk primarily with respect to loans. Such risks aremonitored on a revolving basis and subject to annual follow-up visits. Exposure to credit riskis managed through regular analysis of the ability of borrowers and potential borrowers tomeet interest and capital repayment obligations and by changing these lending limits whereappropriate. Loans are also provided to those borrowers that are deemed profitable.

(b) Risk limit control and mitigation policies

The Company operates and provides loans to individual customers or group loans(developing loan) within the Kingdom of Cambodia. The Company manages limits andcontrols the concentration of credit risk whenever they are identified.

The Company employs a range of policies and practices to mitigate credit risk depending onthe credit products including co-signatures, witnesses, collateral, group liability, which iscommon practice.

(c) Maximum exposure to credit risk before collateral held or other credit enhancements

Management believes that the Company�s maximum exposure to credit risk is limited to thecarrying amount of loans less provisions for bad and doubtful loans.

2011 2010


Credit exposure relating to on-balance sheet assets:

Balances with banks 3,771,423 793,264


Other assets 310,446 157,703

17,055,597 7,742,011



38


27.1 Credit risk (continued)

(c) Maximum exposure to credit risk before collateral held or other credit enhancements(continued)

The above table represents a worst case scenario of credit risk exposure to the Company at31 December 2011 and 31 December 2010, without taking account of any collateral held orother credit enhancement attached. For on-balance sheet assets, the exposures set outabove are based on net carrying amounts.

As shown above, 76% of total maximum exposure is derived from loans to customers (2010:88%).

Management is confident in its ability to continue to control and sustain minimal exposure ofcredit risk to the Company resulting from its loans to customers on the following basis:

99% of the loans to customers are considered to be neither past due nor impaired(2010: 99%); andThe Company has introduced a strict selection process for granting loans to customers.

(d) Loans and advances to customers

Loans and advances to customers are summarised as follows:

2011 2010


Loans to customers neither past due nor impaired 12,972,767 6,787,032

Loans to customers past due but not impaired 300 1,752

Loans to customers individually impaired 6,465 13,799

Gross amount 12,979,532 6,802,583

Less: Specific provision for loan losses (5,804) (11,539)

Net loans and advances to customers 12,973,728 6,791,044

Specific provision is provided in accordance with its accounting policies and requirementfrom the Central Bank. Loan ageing analysis is the basis for the loan provisioning.

For the purpose of loan provisioning, the expected recovery from collateral (except cash) isnot taken into consideration in accordance with the Central Bank�s requirements. The totalprovision for bad and doubtful loans is Riel 5,804 thousand (2010: Riel 11,539 thousand),which represents the mandatory provision required by the Central Bank for loan losses.

(i) Loans and advances to customers neither past due nor impaired

Loans to customers not past due are not considered impaired, unless other information isavailable to indicate the contrary.



39


27.1 Credit risk (continued)

(d) Loans and advances to customers (continued)

(ii) Loans and advances to customers past due but not impaired

Loans to customers less than 30 days past due are not considered impaired, unless otherinformation is available to indicate the contrary. Gross amount loans to customers that werepast due but not impaired were as follows:

2011Riel �000

2010Riel �000

Past due up to 30 days 300 1,752

(*): Most of the customers� collaterals are in the form of land or house title receipts (which arenot official land title deeds), as the Company generally issues loans to low-incomehouseholds, particularly women in urban areas. The Company does not perform arevaluation of collateral either internally or externally. Since no legal official land title deedshave been obtained, management believes that the value of collateral is nil. Under theCentral Bank�s regulations, the value of collateral is not taken into account when determiningthe impairment of loans to customers.

(iii) Loans and advances to customers individually impaired

The classification and provisioning for bad and doubtful debts, loans to customers of 30 daysor more past due are considered impaired and the minimum level of specific provision forimpairment is made depending on the classification concerned, unless other information isavailable to indicate the contrary.

2011Riel �000

2010Riel �000

Past due 30-59 days 734 2,346Past due 60-89 days - 212Past due 90 days and more 5,731 11,241

6,465 13,799

Total outstanding loans 12,979,532 6,802,583

(iv) Loans and advances to customers renegotiated

There was no loan restructuring activity for the years ended 31 December 2011 and 2010.

CHAMROEUNMICROFINANCELIMITED

NOTESTOTHEFINANCIALSTATEMENTS

FORTHEYEARENDED31DECEMBER2011

40

27

FINANCIALRISKMANAGEMENT(continued)

27.1Creditrisk(continued)

(e)Concentrationoffinancialassetswithcreditriskexposure

(i)Geographicalsector

ThereisnoriskregardingthegeographicalsectorasallloansprovidedandallotherassetsarelocatedinCambodiaonly.

(ii)Industrysector

ThefollowingtablebreaksdowntheCompany�smaincreditexposureattheircarryingamounts,ascategorisedbytheindustrysectorsofthe

counterparties.

Agriculture

Tradeand

commerce

ServicesTransportationConstruction

Household

/family

Financial

institution

Other

categories

Total

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Asat31December2011

Balanceswithbanks

--

--

--

3,771,423

-3,771,423

Loansandadvancestocustomers

1,998,299

7,217,232

1,666,835

1,191,284

286,954

58,833

-560,095

12,979,532

Otherassets

--

--

--

-312,153

312,153

Totalassets

1,998,299

7,217,232

1,666,835

1,191,284

286,954

58,833

3,771,423

872,248

17,063,108

Asat31December2010

Balanceswithbanks

--

--

--

793,264

-793,264


390,768

4,356,296

1,175,400

302,639

110,761

26,632

-440,087

6,802,583

Otherassets

--

--

--

-157,703

157,703

Totalassets

390,768

4,356,296

1,175,400

302,639

110,761

26,632

793,264

597,790

7,753,550



41


27.2 Market risk

The Company takes on exposure to market risk, which is the risk that the fair value or futurecash flow of a financial instrument, will fluctuate because of changes in market prices. Marketrisk arises from open positions in interest rates, currency and equity products, all of whichare exposed to general and specific market movements and changes in the level of volatilityof market rates or prices such as interest rates, credit spreads, foreign exchange rates andequity prices.

The Company does not use derivative financial instruments such as foreign exchangecontract and interest rate swaps to hedge its risk exposure.

(i) Foreign exchange risk

The Company operates in Cambodia and transacts in Riel, US$ and Euro and is exposed tocurrency risks, primarily with respect to US$ and Euro. The exposure in foreign exchangerisk mainly arising from borrowings.

Foreign exchange risk arises from future commercial transactions and recognised assets andliabilities denominated in a currency that is not the Company�s functional currency.

Management monitors its foreign exchange risk against functional currency. However, theCompany does not hedge its foreign exchange risk exposure arising from future commercialtransactions and recognised assets and liabilities by using forward contracts.

The table below summarises the Company�s exposure to foreign currency exchange rate riskat 31 December 2011 and 31 December 2010. Included in the table are the Company�sfinancial instruments at carrying amount by currency in Riel equivalent.



42

27. FINANCIAL RISK MANAGEMENT (continued)

27.2 Market risk (continued)

(i) Foreign exchange risk (continued)

(KHR'000 equivalent)

KHR Euro US$ Total

31 December 2011

Assets

Cash on hand 23,773 - - 23,773

Balances with the Central Bank 118,618 - - 118,618

Balances with banks 2,000,283 - 1,771,140 3,771,423Loans and advances tocustomers 12,973,728 - - 12,973,728

Other assets 310,446 - - 310,446

Total financial assets 15,426,848 - 1,771,140 17,197,988

LiabilitiesCompulsory savings fromcustomers 3,523,506 - - 3,523,506

Borrowings 6,423,736 581,259 1,972,405 8,977,400

Accruals and other liability 1,884,369 - - 1,884,369

Total financial liabilities 11,831,611 581,259 1,972,405 14,385,275

Net asset position 3,595,237 (581,259) (201,265) 2,812,713

31 December 2010

Total financial assets 7,641,318 - 109,350 7,750,668

Total financial liabilities 3,914,786 1,471,578 20,961 5,407,325

Net asset position 3,726,532 (1,471,578) 88,389 2,343,343

(ii) Price risk

The Company is not exposed to securities price risk because it does not hold anyinvestments classified on the balance sheet either as available for sale or at fair valuethrough profit or loss. The Company currently does not have a policy to manage its price risk.



43

27. FINANCIAL RISK MANAGEMENT (continued)

27.2 Market risk (continued)

(iii) Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument willfluctuate because of changes in market interest rates. Fair value interest rate risk is the riskthat the value of a financial instrument will fluctuate because of changes in market interestrates. Interest margins may increase as a result of changes but may reduce losses in theevent that unexpected movements arise. The management of the Company at this stagedoes not have a policy to set limits on the level of mismatch of interest rate reprising that maybe undertaken; however, the management regularly monitors the mismatch.

The table below summarises the Company�s exposure to interest rate risks. It includes theCompany�s financial instruments at carrying amounts, categorised by the earlier ofcontractual re-pricing or maturity dates.

The interest rate risk exposure of financial assets and financial liabilities (in Riel� 000) are asfollows:




44

27.FINANCIALRISKMANAGEMENT(continued)

27.2Marketrisk(continued)

(iii)Interestraterisk(continued)

Lessthan

1monthto

3months

1yearto

Over

NonInterest

1month

3months

to1year

5years

5years

Bearing

Total

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Asat31December2011

Assets

Cashonhand

--

--

-23,773

23,773

BalanceswiththeCentralBank

--

--

-118,618

118,618

Balanceswithbanks

2,014,614

500,000

1,256,809

--

-3,771,423


120,519

1,108,456

11,508,616

235,476

-661

12,973,728

Otherassets

--

--

-310,446

310,446

Totalassets

2,135,133

1,608,456

12,765,425

235,476

-453,498

17,197,988

Liabilities

Compulsorysavingsfromcustomers

387,863

58,893

947,104

2,129,646

--

3,523,506

Borrowings

-1,045,265

822,000

6,528,877

-581,258

8,977,400

Accrualsandotherliabilities

--

--

-1,884,369

1,884,369

Totalliabilities

387,863

1,104,158

1,769,104

8,658,523

-2,465,627

14,385,275

Maturitygap

1,747,270

504,298

10,996,321

(8,423,047)

-(2,012,129)

2,812,713

Asat31December2010

Totalfinancialassets

94,101

666,504

6,082,852

43,741

-875,010

7,762,208

Totalfinancialliabilities

429,563

75,086

1,479,049

2,864,467

-559,160

5,407,325

Maturitygap

(335,462)

591,418

4,603,803

(2,820,726)

-315,850

2,354,883



45


27.3 Liquidity risk

Liquidity risk is the risk that the Company is unable to meet its payment obligationsassociated with its financial liabilities when they fall due and to replace funds when they arewithdrawn. The consequence may be the failure to meet obligations to repay depositors andfulfil commitments to lend.

(a) Liquidity risk management process

The management monitors balance sheet liquidity and manages the concentration andprofile of debt maturities. Monitoring and reporting takes the form of the reviewing of the dailycash position and projections for the next day, week and month, as these are key periods forliquidity management. The management monitors the amount of cash collected and theprojection of its disbursement.

(b) Non-derivative cash flows

The table on the following page presents the cash flows payable of the Company under non-derivative financial liabilities by remaining contractual maturities at the balance sheet date.The amounts disclosed in the table are the contractual undiscounted cash flows, whereas theCompany manages the inherent liquidity risk based on expected undiscounted cash flows.




46

27

FINANCIALRISKMANAGEMENT(continued)

27.3Liquidityrisk(continued)

(b)

Non-derivativecashflows(continued)

Lessthan

1to3

3to12

1to5

Over5

1month

months

months

years

years

Total

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Riel�000

Asat31December2011

Liabilities


387,863

58,893

947,104

2,129,646

-3,523,506

Borrowings

581,258

1,062,584

822,000

7,544,570

-10,010,412


1,739,275

145,094

--

-1,884,369


2,708,396

1,266,571

1,769,104

9,674,216

-15,418,287

Asat31December2010

Liabilities


6,579

75,086

670,549

985,691

-1,737,905

Borrowings

422,269

-987,421

2,076,724

-3,486,414

Amountduetoshareholder

494,534

--

--

494,534


18,456

--

--

18,456


941,838

75,086

1,657,970

3,062,415

-5,737,309



47


27.4 Fair value of financial assets and liabilities

(a) Financial instruments measured at fair value

The Company did not have financial instruments measured at fair value.

(b) Financial instruments not measured at fair value

As at the balance sheet date, the fair values of financial instruments of the Companyapproximate their carrying amounts.

The estimated fair values are based on the following methodologies and assumptions.

i. Balances with banks

Balances with banks include non-interest bearing current accounts, savings deposits andshort-term deposits. The fair value of balances with banks approximates the carryingamount.

ii. Loans and advances to customers

Loans and advances to customers are net of provision for doubtful and bad loans and theircarrying value approximates fair value. The provision for doubtful and bad loans is madeunder the requirements of the Central Bank�s Prakas.

iii. Deposit from customers and borrowings

The fair value of deposits from customers approximates the carrying amount. The fair valueof deposits from customers with no stated maturities which include non-interest bearingdeposits is the amount repayable on demand.

The fair value of fixed interest-bearing deposits and borrowings are not quoted in an activemarket. Their value approximates the carrying amount.

iv. Other assets and liabilities

The carrying amounts of other assets and liabilities are assumed to approximate their fairvalues as these are not materially sensitive to the shift in market interest.



48


27.5 Capital risk management

The Company�s objectives when managing capital, which is a broader concept than the�equity� on the face of the balance sheet, are:

To comply with the capital requirement set by the Central Bank;To safeguard the Company�s ability to continue as a going concern so that it cancontinue to provide a return for shareholders and benefits for other stakeholders; andTo maintain a strong capital base to support the development of the business.

The Central Bank requires all commercial banks and financial institutions to: i) adhere to theminimum capital requirement; ii) maintain net worth at least equal to the minimum capitalamount; and iii) comply with solvency and liquidity ratios.

The table below summarises the composition of regulatory capital:

2011 2010


Tier 1 Capital

Share capital 1,912,750 1,912,750

Retained earnings 1,001,727 535,901

2,914,477 2,448,651

Less:

Loans to related parties (109,580) (24,025)

Total regulatory capital 2,804,897 2,424,626

_________________________________________________________

APPENDIX: NOTES ON COMPLIANCE WITH THE CENTRAL BANK�S PRAKAS

_________________________________________________________

CHAMROEUN MICROFINANCE LIMITED UNAUDITED

COMPLIANCE WITH THE CENTRAL BANK PRAKASFOR THE YEAR ENDED 31 DECEMBER 2011

i

1. CAPITAL ADEQUACY RATIO (SOLVENCY RATIO), Prakas No. B7-07-133

A licensed micro-finance institution shall at all times maintain a capital adequacy ratio ofmore than 15%. As at 31 December 2011, the capital adequacy ratio of the Company was16.04% which was in compliance with this Prakas.

The capital adequacy ratio calculation is detailed in Schedule 1.

2. LIQUIDITY RATIO, Prakas No. B7-07-163

A licensed microfinance institution shall at all times maintain a liquidity ratio of at least 100%.As at 31 December 2011, the liquidity ratio of the Company was 851%.

The liquidity ratio calculation is detailed in Schedule 2.

3. NET OPEN POSITION IN FOREIGN CURRENCY, Prakas No B7-07-134

A licensed microfinance institution shall at all times maintain a net open position in foreigncurrencies in either any foreign currency or an overall net open position in all foreigncurrencies, whether long or short, which shall not exceed 20% of the Company�s net worth.As at 31 December 2011, the net open position in Euro was 20.72%. The Company was notin compliance with this Prakas at 31 December 2011.

The net open position calculation is detailed in Schedule 3.


COMPLIANCE WITH THE CENTRAL BANK PRAKASFOR THE YEAR ENDED 31 DECEMBER 2011

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4. LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIO,Prakas No. B702-186

Licensed micro-finance institutions shall classify their loan portfolios into the following fourclasses, depending on the financial situation of the borrower and the timeliness of principaland interest payments.

Loan term of one year or less

Standard: good financial condition and punctual payment of principal and interest.Sub-standard: some payments of principal and/or interest are overdue by 30 days ormore.Doubtful: some payments of principal and/or interest are overdue by 60 days or more.Loss: some payments of principal and/or interest are overdue by 90 days or more.

Loan term of more than one year

Standard: good financial condition and punctual payment of principal and interest.Sub-standard: some payments of principal and/or interest are overdue by 30 days ormore.Doubtful: some payments of principal and/or interest are overdue by 180 days ormore.Loss: some payments of principal and/or interest are overdue by 360 days or more.

Mandatory provisions on the loans classified as follows:

Sub-standard: 10% regardless of the collateral value except cash.Doubtful : 30% regardless of the collateral value except cash.Loss : 100%.

As at 31 December 2011, the mandatory provision provided by the Company was 5,804thousand riel which is in compliance with the Central Bank�s Prakas.

Loan classification, provision and delinquency ratio calculation are detailed in Schedule 4.


SCHEDULE 1NET WORTH AND SOLVENCY RATIO AS AT 31 DECEMBER 2010

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NET WORTH RATIO

Riel '000

I- Sub-total A : Items to be added

- Capital or endowment 1,912,750

- Reserve, other than revaluation reserves -

- Premium related to capital (share premiums) -

- Provision for general banking risks, with the prior agreement of the NBC -

- Retained earnings 535,901

- Audited net profit for the latest financial year 465,826

- Other items approved by the National Bank of Cambodia -

2,914,477

II- Sub-total B : Items to be deducted

- For shareholders, directors, managers and their next of kind

> Unpaid portion of capital -

> Advances, loans, security and the agreement of the personsconcerned as defined above 109,580

- Holding of own shares at their book value -

- Accumulated losses -

- Formation expenses -- Losses determined on dates other than the end of the annualaccounting period (including provisions to be made for doubtful debt andsecurities) -

109,580

III- Total C : BASE NET WORTH = A - B 2,804,897

IV- Sub-total D : Items to be added

- Revaluation reserves, with the prior agreement of the NBC -

- Subordinated debt, with the prior agreement of the NBC, up to 100% ofbase net worth -

- Other items, with the prior agreement of the NBC, could be included inthe calculation of net worth and shall not be more than base net worth -

-

V- Sub-total E : Items to be deducted

- Equity participation in banking and financial institutions -

- Other items -

-

VI- Total F: TOTAL NET WORTH = C + D � E 2,804,897


SCHEDULE 1NET WORTH AND SOLVENCY RATIO AS AT 31 DECEMBER 2011

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SOLVENCY RATIO

Riel' 000

I- Numerator (A)

Net worth 2,804,897

II- Denominator (B)

Assets (*)

Riel' 000 Weighting

- Cash 23,773 0% -

- Gold - 0% -

- Claims on the NBC 118,618 0% -

- Assets collateralized by deposits - 0% -

- Claims on sovereigns rated AAA to AA- - 0% -

- Claims on sovereigns rated A+ to A- - 20% -

- Claims on banks rated AAA to AA- - 20% -

- Claims on sovereigns rated BBB to BBB- - 50% -

- Claims on banks rated A+ to A- - 50% -

- All other assets 17,484,806 100% 17,484,806

17,627,197 17,484,806

III- Solvency ratio (A/B) 16.04%

(*): The denominator of the ratio shall comprise the aggregate of the assets (net amount afterdeduction of provision and depreciation) and off-balance sheet items, weighted to theirdegree of risk. It excludes the items which are deducted in calculating the net worthaccording to the provisions of the Prakas on the calculation of microfinance institutions� networth.


SCHEDULE 2LIQUIDITY RATIO AS AT 31 DECEMBER 2011

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Riel' 000

I- Numerator: LIQUID ASSETS (A)

Cash on hand 23,773

Balances with the Central Bank 118,618

Balances with banks 3,771,423

3,913,814

Less:

- Amounts owed to NBC -

- Amounts owed to other banks -

-

Net liquidity 3,913,814

Plus:

- Portion of loans maturing in less than one month 3,913,814

LIQUID ASSETS 3,913,814

II- Denominator: ADJUSTED AMOUNT OF DEPOSITS (B)

Riel' 000 %

Voluntary savings 1,838,976 25 459,744

III- LIQUIDITY RATIO (A/B) 851%


SCHEDULE 3NET OPEN POSITION AS AT 31 DECEMBER 2011

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Liabilities Net open NOP/

Currency Asset and capital position Net worth Limit

Riel' 000 Riel' 000 Riel' 000 % %

KHR 15,856,057 15,073,533 782,524 27.90% 20%

Euro - 581,259 (581,259) -20.72% 20%

US$ 1,771,140 1,972,405 (201,265) -7.18% 20%

Total 17,627,197 17,627,197 -

Net worth 2,804,897


SCHEDULE 4LOAN CLASSIFICATION, PROVISIONING, AND DELINQUENCY RATIOAS AT 31 DECEMBER 2011

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Specific

Amount Rate Provision

Riel' 000 % Riel' 000

Loan classification

1-Loans of one year or less

1-1 Standard 12,973,067 0% -

734 10% 73

30% -

5,731 100% 5,731

Sub-Total 1 12,979,532 5,804

2-Loans of more than one year

2-1 Standard - 0% -

10% -

30% -

100% -

Sub-Total 2 - -

Grand total 1+2 12,979,532 5,804

All loan past due > 30 days (A) 6,465

Loan outstanding (B) 12,979,532

Delinquency ratio (A/B) 0.05%

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