Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project (SMEA2F) Financial Statements and Independent Auditors’ Report Period from 15 September 2014 to 30 September 2015 Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project Contents Page Project information 1 Statement of management’s responsibilities 2 Independent Auditors’ Report 3-4 Statement of cash receipts and payments 5 Statement of designated bank account 6 Notes to the financial statements 7-11 Budget and actual payments 12-13 Project information Project Small and Medium Enterprise Access to Finance IDA H958-LA and IDA 5471-LA Funding agencies International Development Association (“IDA”) Duration 15 September 2014 to 30 June 2019 Implementing agency 1. Department of Small and Medium Enterprise Promotion (Technical) Ministry of Industry and Commerce (“MOIC”) 2. National Implementation Unit (“NIU”) (Fiduciary) Department of Planning and Cooperation (“DPC”) Ministry of Industry and Commerce (“MOIC”) Project director Mr. Somdy INMYXAI Director General of Department of Small and Medium Enterprise Promotion (“DOSMEP”) SME Access to Finance Project Director Ministry of Industry and Commerce Registered Office Ministry of Industry and Commerce Phonexay Road, P.O. Box 4107 Vientiane Capital, Lao PDR Auditors KPMG Lao Co., Ltd. 1 Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project Notes to the financial statements Period from 15 September 2014 to 30 September 2015 These notes form an integral part of, and should be read in conjunction with, the accompanying financial statements. 1. Principal activities The Small and Medium Enterprise Access to Finance Project (“the Project”) is supported by the International Development Association (“IDA”) of the World Bank under Contract Credit No.5471- LA and Grant No. H958-LA; (dated 14 August 2014), which is implemented by the Ministry of Industry and Commerce (“MoIC”) Lao PDR. The objective of the Project is to provide long-term funding sources for banks to provide long-term credit to Small and Medium Enterprises (“SMEs”). The project consists of the following parts: Part 1: Line of Credit Facility Provision of a line of credit facility to Participating Financial Institution (“PFI”) for extending long- term local currency loans to SMEs for the implementation of Specific investment sub-projects. Part 2: Risk Sharing Facility Provision of a risk sharing facility consisting of partial credit guarantees to Participating Financial Institutions covering potential losses in an eligible portfolio of loans extended to SMEs for the implementation of specific investment Sub-projects. Part 3: Technical Assistance 3.1 Provision of technical assistance to DOSMEP and other relevant agencies to strengthen their capacity to formulate and implement strategies, policies, investments and other activities related to the promotion of SMEs , and to implement, monitor and evaluate the project. 3.2 Provision of technical assistance to Participating Financial Institutions and other relevant financial institutions to improve their SME banking strategies, products and practices, including their compliance with environmental social due diligence and safeguard requirements. 3.3 Provision of technical assistance to SMEs to build their capacity in business development and administration and financial management. The main activities of the Project in the period are set out in the comparison of budget and actual expenditure. As at 30 September 2015 the Project had 06 individual consultants. 7 Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project Notes to the financial statements (continued) Period from 15 September 2014 to 30 September 2015 2. Summary of significant accounting policies The following significant accounting policies have been adopted by the Project in the preparation of these financial statements: a) Basis of financial statements preparation The financial statements of the Project consist of the statement of cash receipts and payments and statement of designated bank account, which is expressed in United States Dollars (“USD”), has been prepared in accordance with the cash modified basis of accounting. The accounting policies have been applied consistently throughout the period. b) Fixed assets All purchases of fixed assets are recorded as payments in the statement of cash receipts and payments upon acquisition. The Project maintains a Fixed Assets Register for control purposes. c) Cash Cash comprises cash on hand and balances with banks. d) Foreign exchange The Project maintains its accounting records in USD in accordance with the grant agreement. All cash is held in USD. Transactions in currencies other than USD during the period have been translated into USD at rates approximating those ruling at the transaction dates. All exchange differences are recorded in the statement of cash receipts and payments. e) Accounting reporting period The financial accounting year of the Government of the Lao PDR starts on 1 October to 30 September. f) Comparison of budget and actual payments The approved budget is developed on the same accounting basis, same classification basis and for the same period as for the financial statements. g) Receipt recognition Fund receipt from IDA is recognised as receipt when cash is credited to the project’s designated account. The IDA may make direct payments, at the Project’s request, directly to a third party for eligible expenditures. 8 Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project Notes to the financial statements (continued) Period from 15 September 2014 to 30 September 2015 h) Payment recognition Payments incurred in the frame work of the Grant Agreement are recognised on the cash basis of accounting, i.e. when the payments are made. Categories of payments I. Consultants' Services, Non-Consultant services; Training and workshop, Incremental Operating Costs and Goods The reasonable costs of goods and non-consulting services required or the day to day coordination, administration and supervision of project, including leasing and/or routine repair and maintenance of vehicles, equipment, facilities and office premises, fuel, office supplies, utilities, consumables, communication expenses (including postage, telephone and internet costs), translation, printing and photocopying expenses, bank charges, publications and advertising expense, insurance, Project-related meeting expense, Project – related travel, subsistence and lodging expenses , and other administrative costs directly related to the project, but excluding salaries, bonuses, fee and honoraria or equivalent payments of members of the recipient’s civil service. II. Direct payments The IDA may make direct payments, at the Project’s request, directly to a third party for eligible expenditures. i) Advances Advances, for activities such as workshops, conferences, monitoring trips, are reimbursable to the project until expensed by the Implementing Agencies (“IA”). Advances are recognized as expenditure after the advance has been liquidated and the expenses reports are approved. Advances are requested by IA from the Project through formal advance request forms. 9 Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project Notes to the financial statements (continued) Period from 15 September 2014 to 30 September 2015 3. Receipts 15 September Reference No: Description 2014 to 30 September 2015 USD 01/A2F-GRA Funds transferred on 28 October 2014 500,000 02/A2F-GRA Funds transferred on 17 March 2015 500,000 03/A2F-GRA Funds transferred on 8 September 2015 21,393 1,021,393 4. Technical Assistance 15 September 2014 to 30 September 2015 USD Consultant services Environment and safeguards expert 24,610 International project advisor 12,405 National Consultant - Other 11,466 International procurement advisor 3,702 52,183 Training and workshop Conference, Convention, Meeting 8,203 DSA 255 8,458 Incremental operating cost Supplies 3,108 Other expenses 1,758 Advertisement 1,533 Communication 1,002 Fuel for office work 509 Printing and Copying 361 Books, Subscriptions, Reference 81 Bank Charges 75 8,427 Goods 3,740 72,808 10 Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project Notes to the financial statements (continued) Period from 15 September 2014 to 30 September 2015 5. Cash on hand and cash at bank 15 September 2014 to 30 September 2015 USD Designated bank account: Bank of Lao 921,361 Operating bank account: Lao Viet Bank 26,450 Petty cash 200 948,011 6. Corresponding figures There are no corresponding figures as this is the first set of financial statements produced by the Project since its establishment. 11 Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project Budget and actual payments Period from 15 September 2014 to 30 September 2015 (Appendix) This table represents the use of funds by component and detailed activities, as set out in the Project Appraisal Document (“PAD”), compared with the current budget. (*Financing Agreement dated 14 August 2014) Budget* Variance Project Appraisal Actual (Not audited) (Not audited) Document (“PAD”) Remaining 15 September 15 September 15 September budget as at 2014 to 30 2014 to 30 2014 to 30 30 September Cumulative September Cumulative September Cumulative Cumulative Total September 2015 to date 2015 to date 2015 to date to date budget 2015 Category (USD) (USD) (USD) (USD) (USD) (USD) (%) (USD) (USD) Part 1: Line of Credit Facility Line of Credit - - - - - - - 12,000,000 12,000,000 Total Part 1 - - - - - - - 12,000,000 12,000,000 Part 2: Risk Sharing Facility Risk Sharing Facility - - - - - - - 3,000,000 3,000,000 Total Part 2 - - - - - - - 3,000,000 3,000,000 Part 3: Technical Assistance 3.1 Technical Assistance to Department of Small and Medium Enterprise Promotion (“DOSMEP”) 72,808 72,808 - - (72,808) (72,808) - 5,000,000 4,927,192 3.2 Technical Assistance to Participating Financial Institution (“PFIs”) - - - - - - - Total Part 3 (note 4) 72,808 72,808 - - (72,808) (72,808) - 5,000,000 4,927,192 Total expenses 72,808 72,808 - - (72,808) (72,808) - 20,000,000 19,927,192 12 Ministry of Industry and Commerce Small and Medium Enterprise Access to Finance Project Budget and actual payments (continued) For period from 15 September 2014 to 30 September 2015 (Appendix) Analysis of variances between budget and actual payments (Not audited) Most activities were under spent during the period from 15 September 2014 to 30 September 2015. The project has been delayed in starting up, which involved the delay in procurement process of key consultants such as Procurement, Financial Management, Project Advisor, and Coordinator. As a result, during the reporting period there was no official work plan and budget set for the period and expenditures were only on the ad hoc activities that based on discussion with the World Bank. Therefore, the actual expenditure for the project of USD72,808 has been recorded without annual work plan. 13