BANK OF TANZANIA HOUSING FINANCE PROJECT UNDER INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA) CREDIT N0.4712-TA AND 5590-TZ PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 Table of Contents Page Report of Project Management 1-9 Statement of Project Management's Responsibilities 10 Declaration of Finance Management Specialist 11 Independent Auditors' Report 12-14 Financial Statements: Statement of Comprehensive Income 15 Statement of Financial Position 16 Statement of Changes in Accumulated Fund 17 Statement of Cash Flows 18 Notes to the Financial Statement 19-48 BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 GLOSSARY OF TERMS Acronym Description HFP Housing Finance Project HMFF Housing Microfinance Fund IDA International Development Association FSSP Financial Sector Support Project FIRST Financial Sector Reform and Strengthening Initiative TMRC Tanzania Mortgage Refinance Company NHC National Housing Corporation NHBRA National Housing Building and Research Agency PML Primary Mortgage Lenders MLHHSD Ministry of Lands, Housing and Human Settlements Developments MOF Ministry of Finance PIU Project Implementation Unit PCC Project Coordinating Committee SRA Spread Reduction Account MFI Microfinance Institutions URT United Republic of Tanzania BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 PROJECT INFORMATION Name of the Project: Housing Finance Project (H FP) Borrower: United Republic of Tanzania (URT) through the Ministry of Finance Funder: World Bank through the International Development Association Co-funder: United Republic of Tanzania (URT) Project Implementing Agent: Bank of Tanzania (BOT) Project Beneficiaries: Tanzania Mortgage Refinance Company Limited (TMRC), Watumishi Housing Company Limited (WHC), National Housing Corporation (NHC), National Housing Building and Research Agency (NHBRA), Ministry of Lands, Housing and Human Settlements Developments (MLHHSD). Auditors: Controller and Auditor General (CAG). BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 REPORT OF PROJECT MANAGEMENT 1. INTRODUCTION The Project Implementing Agent (the BOT) presents this report together with the audited financial statements for the year ended 30 June 2018, which disclose the state of financial affairs of the Housing Finance Project (HFP). During the year, the BOT continued to implement the project in accordance with Subsidiary Loan Agreement between the Government of Tanzania through the Ministry of Finance and Planning and the BOT which was signed on 29th May 2015. Both main and intermediate objectives of the project are well provided in the Project Finance Agreement between the United Republic of Tanzania and the World Bank which was signed on 12th March 2015. PROJECT ESTABLISHMENT HFP was established in March 2010 when the Government signed a USD 40 million Credit Agreement with the International Development Association (IDA) for the Housing Finance Project (HFP) and mandated the Bank of Tanzania (BOT) to be an implementing agent. The Government contribution (in kind) to the project was valued at USD 2.0 million. Originally, the HFP was a five-year project with expected closing date of 31 March 2015.This was extended for two years to 31 March 2017. Parallel to this, on 12 March 2015, the Government signed a USD 60.0 million Credit Agreement with the International Development Association (IDA) for the HFP Additional Financing (HFP-AF), mainly with a view of enhancing the scope of the original project. The HFP-AF expired on 31 March 2018 and was extended up to 28th June 2019. The HFP builds on analytical work carried out by the BOT and the Government with the support of the Financial Sector Support Project (FSSP) particularly under the financial markets and long-term development finance components. It has also benefited from reports by the Urban Institute, which were funded by the Financial Sector Reform and Strengthening Initiative (FIRST). This work provided an initial feasibility assessment for the creation of a mortgage liquidity facility in Tanzania. PROJECT'S OBJECTIVES The objective of HFP is to create and develop a sustainable, market-based mortgage through the provision of medium and long-term liquidity to mortgage lenders. The Project combines demand, using a mix of mortgage and housing-microfinance instruments, with supply stimulation, using technical assistance, promoting the use of low cost building materials and technologies as a way to make housing more affordable. The Project's intermediary objectives are to; (i) improve access to long-term housing finance progressively mobilized through the domestic capital market; (ii) develop access to medium-term affordable housing micro-finance; and (iii) support the development of a private developer industry and promoting the use of low cost building materials and technologies as a way to make housing more affordable. BAN!< OF 'f ANZAN!A · HOUSING FINANCE PROJt:CT PROJECT FINANCIAL REPORT FOR iHE YEAR ENDED 30 .JUNE 2018 ,... 2. PROJECT STATUTE AND PRINCIPAL ACTIVITIES HFP operates in the United Republic of Tanzania i.e. Mainland and Zanzibar and is owned by the Govemment of United .republic of Tanzania. The Bank of Tanzania implements the Project under agency agreeme;it with the Government. ihe Project has the following ccmponents: (i) Component I • Development of t:,e Mortgage Market · (USO 73.8 miilion - USD 33.0 million frcm the Parent project and USO 40.8 mi!lion under the Additional Financing). This component seaks to develop the mortgage market by creating a mortgage liquidity facility namely, Tanzania Mortgage Refinar.ce Company (TMRC) for providi~;g Ieng-term loans to primary mortga~e !enders. Under this component, funds are loaned to TMRC for provision of liquidity to primary mortgaga landers at its Jwn risk. TMRC is a private limited company established with the help of the HFP and is mainly owned by commercial ban~s. TMRC's iending operations were beir1g financed by 1he IDA credit but the instit•Jtion has start&d i$SUing bo11d_$,for. its fur.ding n6eds c1longside the IDA credit. (fi)' Component II· Developm~nt ~f Housing Mi~rofir.a:ice - {USO 20.5 million - USO 5.0 million fr8m tl11~ parent project and USO 15.5 million under the additional financing). This compommt seeks to address hous:ng finance needs of !ow-income population ihraugh housing microfin,rnce. A rlousii-19 rAicmfinance Fund (HMFF) was established to provide loans of up to 5 years m· longer to low income households. HMFF started with a se'3d i::apital frorn HFP and is op&n to oUier d0nor funds. Und&r thi3 component, regulatory reforms and capacity building to eligible Microfinance lnstitutio;1s (Mfls) to foster safe lending practices were envisaged. (iii) Component Ill - Expansion of Affordable Housir.g Supply· (USO 5.7 million - USO 2.0 million from the Parent project and USO 3.7 miiiion under the Add[tional Financing). Activities under this componant aim at supporting the· dGveloprnent of a private developer industry. They inc!ude conducting a baseline housing market study to identify the gaps and con~traints facing the housing market, improving the capacity of the National Housing Corroration (i~HC) to cleiiver serviced iand for housing development, improving capacity· cf banks to provide real estate development finance and pror.:oting the use of !ow cost building materials and technologies as a way i0 -iilake housing rr.c,re affordable. · · 3., RESOURCES AND STRENGTHS · Resources and strengths that facilitate the ~.,roject in achieving its strategic objectives i8clude financial and humm~ resourc8s, partn;;rships and proper profect governance structure. In terms of human capital, the Project bas p81rnanant stf.lff who are qualified a~d cormniUed to the pi"Oject implementption. Furthei", the Project is rn,a_instrearned in the 130T govem2nce and internal control sys~ems wl1ich is an additionai strength for the project management. The Pr::iject _has a ~,trong governance struc:ure th:::it inc!ude the Streelii'!g Committee (SC) chaired by ~he Permanent Secratary Treasury'. This BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 REPORT OF PROJECT MANAGEMENT (CONTINUED) 3. RESOURCES AND STRENGTHS (CONTINUED) Committee reviews overall project policies and results. The other committee is Project Coordinating Committee (PCC) chaired by the Director of Strategic Planning and Performance Review (DSPR) of the BOT. This Committee is a main decision-making body of the Project. Moreover, there is a Project Administration Team (PAT) comprising a mix of project staff and BOT employees who are responsible for the day-to-day operations of the Project. The Project collaborates with the World Bank in monitoring and reporting results, budget management, cash forecasts, and on technical assistance to enable the Project achieve its objectives. Other partners include the Government through its beneficiary ministries, its agents and other private institutions that access loans and/or technical assistance from the Project. 4. PROJECT PERFORMANCE AND ACHIEVEMENTS The following are the major achievements of the Project since it started in March 2010: (i) Component I · Development of the Mortgage Market Under this component, establishment of Tanzania Mortgage Refinance Company (TMRC) for provision of liquidity to Primary Mortgage Lenders (PMLs) was envisaged. TMRC was incorporated in January 2010 as a Private Limited Company. Currently TMRC has twelve 1 (12) shareholding commercial banks and three2 (3) non-banking institutions. TMRC commenced its operations in January 2011 and receives loan funds from HFP for providing liquidity finance to enable Primary Mortgage Lenders (PM Ls) refinance and pre-finance their mortgage portfolios. As at 30 June 2018, a total of TZS 87.1 Billion (USD 38.2 Million) had been disbursed to TMRC to facilitate refinancing and pre-financing of mortgages portfolios. TMRC is also expected to raise funds from other sources including issuing bonds to address sustainability of its funding needs. The mortgage market in Tanzania has grown rapidly in recent years both in terms of number of loans and balances outstanding. HFP has played a critical role in supporting this market's growth. The mortgage market continued to grow steadily since the inception of the HFP. The number of financial institutions offering mortgage finance products reached 33 compared to only 8 banks in 201 Oprior to the establishment of HFP. This increase has brought increased competition in the market. Outstanding mortgage debt stood at TZS 331.49 billion as at 30 June 2018 up from TZS 130.55 billion in 2010. Current average mortgage debt size is TZS 81.62 million equivalents to around USD 35,704. Tanzania Mortgage Refinance Company (TMRC) is now extending financing to non-member banks as well as its member banks. Mortgage loans tenors have increased from 5 - 10 years in 2010 to 15 - 25 years to date. Furthermore, the first Mortgage Finance Company in Tanzania formed by partnership between Bank M, IFC, HDFC (India) and other investors has been licensed. Mortgage loans interest rates have decreased from the range of 22% - 24% in 2010 to 15% - 19%. It is anticipated that more real estate developers will respond with great interest to opportunities in the Tanzania housing market. 1 Azania, BOA, DCB, CRDB, Exim, TIB, I&M, NBC, BancABC, NMB, PBZ and NIC 2 Shelter Afrique, NHC and M Mortgage Finance 3 BANK OF TANZANIA · HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 REPORT OF PROJECT MANAGEMENT (CONTINUED) 4. PROJECT PERFORMANCE AND ACHIEVEMENTS (CONTINUED) (ii) Under Component II • Development of Housing Microfinance This component seeks to address housing finance needs of low-income population which could not be served under traditional mortgage. A stLidy was undertaken in year 2012 to assess the potential to develop housing microfinance product, examine and set up a Housing Microfinance Fund (HMFF) that could provide loans for up to 5 years or longer. A seed capital of USO 18.0 million was set aside; it was formally established in April 2014 through public finance (Housing Micro Finance Fund Establishment) order 2014 issued by the Minister for Finance. Further, a five-year Agency Agreement between the Ministry of Finance and the Bank of Tanzania (BOT) was signed in May 2014 that mandated BOT to implement the Fund. As at 30 June 2018 funds disbursed under the HMFF amounted to TZS 13.9 billion. (USO 6.1 million) to facilitate those financial institutions to provide microloans for housing purposes to their customers . (iii) Under Component Ill · Expansion of Affordable Housing Supply Activities under this component aim at supporting the development of a private and public developer industry. The activities undertaken under this component included conducting a baseline housing market study to identify the gaps and constraints facing the housing market; improving capacity of banks to provide real estate developer finance; improving the capacity of the National Housing Corporation (NHC) and Watumishi Housing company Limited(WHC) to deliver serviced land for housing development; improving the capacity of National Housing Building and Research Agency (NHBRA) to develop and promote affordable housing products and promoting the use of low cost construction technologies as a means to make housing more affordable. Activities which were supported under the project relating to the Ministry of Lands, Housing and Human Settlements Development include Establishing Legal and Regulatory Framework for Enhancing Operational Efficiency and Effectiveness of Real Estate Business in Tanzania and Setting of Housing lnforniation Center .. Notable milestone under this component include procurement of equipment for planning and designing studio for the NHC to enable the institution undertake its operations in a more efficient manner; financing cf various capacity building programmes for staff from TMRC, MLHHSD, MOF, NHBRA, NHC and BOT in a bid to enhance the capacity of the institutions to discharge their respective mandates on development of housing and housing finance; procurement of motor vehicle for NHBRA to assist the institution to disseminate low cost building technologies in various regions in Tanzania; technical assistance for effective issuance of bonds by TMRC; acquisition of TMRC mortgage refinance core system for performing its operations; development of capacity building programs for the mortgage market in Tanzania; review of NHBRA operations on the development and promotion of affordable housing products; supply of computers and electronic equipment to NHBRA aiming at enhancing the agency's capacity in discharging the mandate of carrying out research, develop and promote use of low-cost building materials and technologies so that the majority of low-income earners can have access to affordable housing; housing market study to establish reliable data on Tanzania's housing market; and enhancing operational efficiency and effectiveness of the real estate business in Tanzania. On-going activities include training and capacity building on HMFF; setting-up a Housing 4 BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 Information Centre at the Ministry of Lands; and establishment of Guidelines and Standards for low income housing. 5. PROJECT GOVERNANCE The Steering Committee is the governing organ of the Project. The Permanent Secretary to the Treasury has the mandate to appoint members of the Steering Committee, all of whom must be Tanzanians. The following members served as members of the Steering Committee during the year: S/N Name Institution Position at the Position of the Steering Institution Committee Mr. Doto James Ministry of Finance and Permanent Secretary to Chairperson Planning the Treasury 2 Dr. Khatibu Kazungu Ministry of Finance Deputy Permanent Member Secretary 3 Dr. Moses Kusiluka Ministi)I of Lands, Acting Permanent Member Housing and Human Secretary Settlements Development 4 Mr. Seif S. Seif Ministry of Finance and Representative of the Member Planning of Zanzibar Principal Secretary 5 Prof. Benno J. Ndulu Bank of Tanzania Governor Member upto January 2018 6 Prof.F Florens D. A. M. Bank of Tanzania Governor Member from February 2018 Luoga to date 6 Dr. Yamungu Bank of Tanzania Deputy Member Kayandabila Governor.Economic and Financial Policies 7 Dr. Bernard Kibesse Bank of Tanzania Deputy Governor , Member Financial Stability and Deepening 8 Mr. Francis Mwakapalila Ministry of Finance and Accountant General Member Planning 9 Mr. Mgonya Benedicto Ministry of Finance and Commissioner for Policy Member Planning Analysis 10 Mr. Shaft Mrutu Bank Of Tanzania Director of Strategic Secretary Planning and Performance Review Two committees assist the Project Streeling Committee in discharging of its functions namely Project Coordinating Committee (PCC) and Project Implementation Unit (PIU). The Executive Office of the Bank of Tanzania appoints members of the two committees, all whom must be Tanzanians. Members of PCC who served during the year are as follows: SIN Name Institution Position at the Institution Position in the Committee Mr. Shaft Mrutu Bank of Tanzariia Director of Strntegic Planning Chairperson and Performance Review 2 Mr. Oscar Mgaya Tanzania Mortgage Refinance Chief Executive Officer Member Company Limited {TMRC) 3 Dr. Fred Msemwa Watumishi Housing Company Chief Executive Officer Member Limited 5 BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 4 Mr. Alexander Bank of Tanzania Director Financial Market MP,mber Ng'winamila 5 Mr. Johnson Nyella Bank ofTanzania Director of the Economic Member Policy and Research 6 Mr. Kened Nyoni Bank of Tanzania Director Banking Supervision Member 7 Dr. Matiko Samson National Housing and Building Chief Executive Officer Member Research Agency 8 Mr. Yusto E. Tongola Bank of Tanzania Secretary to the Board Member 9 Mr. Pius Tesha Ministry of Land, Housing and Ag. Director of Housing Member Human Settlement 10 Victor Tarimu Bank of Tanzania Manager Technical Assistance Secretary coordination Members of the Project Implementation Unit who served during the year as follows: 5/N Name Institution Designation Position 1 Mr. Victor Tarimu Bank of Tanzania Manager Technical Assistance Chairperson Coordination 2 Mr. Damas Mugashe Bank of Financial Management Specialist Member Tanzania/Housing Finance Project 3 Mr. Ayoub Nga'hasha Bank of Procurement Management Member Tanzania/Housing Specialist Finance Project 4 Mr. Baraka Munisi Bank of Mortgage Finance Specialist Member Tanzania/housing Finance Project 5 Mr. Albert Mkenda Bank of Tanzania Head of Project Management Unit Secretary 6 Mr. Deogratias Mnyamani Bank of Tanzania Principal Financial Analyst Member 5. MEETINGS During the year ended 30th June 2018, the Steering Committee held the first meeting on the 11th August 2017 at the Ministry of Finance Offices in Dar es Salaam.This was to deliberate and make follow up on the meeting of May 2017 which took place in Dodoma. The second meeting was held on the 22nd September 2017 to discuss on the extension of the HFP-Additional Financing since the closure date 1Nas 31st March 2018. Moreover, in the same meeting a task force was formed to prepare the regulations of the Housing Microfinance Fund. Or. the other hand , the Project Coordinating Committee had three meetings which were held on 24th November 2017, 51 h December, 2017 and February, 2018 to deliberate on the progress of tho project, clear consultancy reports and approve terms of references for various consultancies. Furthermore, the World Bank Implementation Support Mission meetings were held in November 2017 and May 2018 whereby discussions on project extension, progress and implimentation status were conducted, involving relevant stakeholders. The PIU participated in these meetings, and it meets once every month to deliberate on project implementation. 6 BANK OF TANZANIA · HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 6. RELATIONSHIP WITH STAKEHOLDERS AND PARTNERS Management of the Project recognize the importance of stakeholders and partners in order to fulfil its objectives. The Project key stakeholders include the Government, its Ministries and agencies, · Tanzania Mortgage Refinance Company Limited, Financial Institutions borrowing under the Housing Microfinance Fund, the World Bank, other financial institutions, public and employees. The Project is committed to deliver value for money to its stakeholders and partners through fulfilling its objectives. Accordingly, the Project was involved in the following initiatives aiming at creating value for money to stakeholders and partners: (a) Public awareness iniatives; The project participated in the two trade fairs Sabasaba and Nanenane with an intention of creating awareness to the public on the benefits which can derived from mortgages offered by banks and financial institutions in Tanzania as well as the availability of the housing micro lending opportunities which targets Tanzanians living in lower income bracket. (b) Dissemination of mortgage literacy materials: The project through a consultant named Tanzania Real Estate Settlement and Tittle Assurance Company Limited (TRESTA) continued disseminating mortgage literacy materials to the public as well as running awareness campaigns on various media. The dissemination were also done through the trade fairs, through workshops and seminars. The dissemination exercise started July 2016 and continue through the year. (c) Training and capacity building for mortgage market in Tanzania: During the year, three capacity building programs to various financial institutions on the subject of mortgage were undertaken. The The Bank of Tanzania through its Training Institute in collaboration with TMRC, Tanzania Institute of Bankers (TIOB) and internal trainers who were trained by the Project for that purpose conducted these programme jointly. On the other hand, Housing Microfinance Fund beneficiaries were trained by the Consultant M/s HLB Mekonsult on housng microfinance product development and underwriting from dunng the year. (d) Project staff participated in different meet!ngs for the purpose of creating awareness and informing different stakeholders of the project objectives, progress and implementation. The meetings were held at the National Economic Empowerment Council of Tanzania (NEEC), and Reform Cordination Unit (RCU). (e) The project progress reports were shared with different stakeholders during World Bank supervision visits. 8. CASH FLOW PROJECTIONS Due to the nature of the Project activities, cash projections are based on the approved budget and work plans. Most of cash in flows are from the World Bank during the lifetime of the Project. A small part of the cash flow is from the interest income from loans extended to TMRC and other financial institutions borrowing under HMFF, together with income generated from investments in Treasury bills and bonds. MANAGEMENT The Bank of Tanzania implements the Project based on the Subsidiary Loan Agreements signed with the Ministry of Finance and Project Agreement between the World Bank and BOT. The agreements give BOT 7 BANK OF TANZANIA · HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 the mandate to implement the Project by mainstreaming it in its operations and internal control mechanisms. 9. FUTURE PROJECT PLANS The Project is scheduled to end on 28 June 2019. The focus of the Project during the remaining time will be on the following: (a) Ensuring TMRC's funding sustainability by providing support to enable the institution raise long-term funding from the capital market; (b) Ensuring sustainability of HMFF by striving to recover time lost due to various challenges experienced by the Project. This will involve expediting issuance of loans to eligible financial institutions during the remaining period of the Project, so that HMFF can generate sufficient resources to enable it to operate sustainably after the Project completion. Sustainabi!ity of the HMFF will include exploring and accessing alternative and reliable fund mechanisms to enable the Fund operate independent of the Project; and (c) Completion of the ongoing assignment of setting-up of a Housing Information Centre at the Ministry of Lands, Housing and Human Settlements Developments. 10. FINANCIAL PERFOMANCE FOR THE YEAR a. Financial Results The performance of the project is measured by the extent to which set objectives are achieved in the course of implementing activities in line with Project Finance Agreement. In the course of implemting the Project's activities, a total income of USO 7.2 million. (2017: USO 5.2 million) was generated. The income was attributable to Government's contribution, amortization of deferred loan from IDA, interests generated from loans to TMRC and HMFF, and investments in Treasury Bonds and Treasury Bills. b. Financial Position The financial position of the project is set out in the Statement of Financial position of the Project. During the year total assets of the projects increased by USO 8.6 million (2017: USD18.3 million). Major increase was attributable to increase in loan advances, investment in government securities and receivables. 11. RISK MANAGEMENT AND INTERNAL CONTROL BOT accepts final responsibility for risk mc:1nagement and internal controls systems of the Project. It is the responsibility of management to ensure that adequate internal financial and operational control systems are developed and maintained on an ongoing basis in order to provide reasonable assurance regarding: (a) The effectiveness and efficiency of operations; (b) The safeguarding of the Projects funds; (c) Compliance with applicable laws, regulations and the World Bank funding protocol; (d) The reliability of accounting records; (e) Meeting project objectives under normal as well as adverse conditions; and (Q Responsible behavior towards all stakeholders. 8 BANK OF TANZANIA · HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 12. SIGNIFICANT PREJUDICIAL MATTERS During the year ended 30 June 2018 there were no significant prejudicial matters to report. 13. AUDITORS The Controller and Auditor General (CAG) is the statutory auditor of the Bank of Tanzania and related Projects. The Controller and Auditor General conducted audit for the financial year ended 30 June 2018. ;2.,Lv- 1;2~ ~O/ NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 2. INCOME (CONTINUED) 2.3 Interest income earned on loans to TMRC & HMFF Interest earned on loan to TMRC and HMFF during the year ending 30 June 2018 was US$ 3,752,560 (2017: US$ 3,082,561). (i) Interest income from TMRC Interest earned on loans extended to TMRC is paid quarterly. Previously, interest rates differed per loan depending on the rate of treasury bills at the time of extending the loan to TMRC. However, during the year, which ended 30 June 2018, interest rate was fixed at 10 percent. Below is the table detailing eligible interest income from TMRC for the year ending 30 June 2018. Loan Period to Beneficiary Interest Date of Interest amount Interest amount SIN Amount (TZS) tenor Maturity Date charge Institution Rate disbursemer.t (TZS) FY 2018 (TZS) FY 2017 (years) interest Azania Bank loan 1 2,500,000,000 8.90% 5.1 15-Nov-11 14-Nov-16 1.00 0 83,513,6~9 Azania Bank loan 1 2 Roll over 2,500,000,000 10.00% 2.0 14-Nov-16 14-Nov-18 1.00 250,000,000 156,164,384 3 Azania Bank loan 2 1,700,000,000 14.86% 3.0 1-May-12 30-Apr-15 1.00 0 Azania Bank Loan 2 4 Rollover 1,700,000,000 10.0% 5.1 1-May-15 30-Apr-20 1.00 170,000,000 170,000,000 5 Azania Bank Loan 3 2,500,000,000 10.0% 3.0 27-Jun-13 26-Jun-16 1.00 0 Azania Bank loan 3 6 Rollover 2,500,000,000 10.00% 3.0 28-Jun-16 27-Jun-19 1.00 250,000,000 250,000,000 7 Azania Bank Loan 4 2,500,000,000 10.01% 3.0 31-Jul-13 30-Jul-16 1.00 0 20,568,493 Azania Bankk loan 4- 8 extension 2,500,000,000 10.01% 0.5 30-Jul-16 30-Jan-17 1.00 0 126,153,425 Azania Bank loan 4- 9 Roll Over 2,500,000,000 10.01% 3.0 30-Jan-17 29-Jan-20 1.00 250,250,000 103,528,082 10 Bank of Africa loan I 2,750,000,000 10.00% 3.0 27-Jun-13 26-Jun-16 1.00 0 Bank of Africa loan I 11 Rollover 2,750,000,000 10.00% 3.0 28-Jun-16 27-Jun-19 1.00 275,000,000 275,000,000 Bank Of Africa Loan 12 2 3,000,000,000 10.00% 2.5 8-Sep-14 7-Mar-17 1.00 0 205,479,452 Bank of Africa loan 2 13 roll over 3,000,000,000 10.00% 3.0 7-Mar-17 6-Mar-20 1.00 300,000,000 94,520,548 14 DCB loan I 10.01% 30-Aug-13 28-Feb-15 0 0 ?R hANK OF TAN~ANIA · HOUSING ~INANCE PROJE:tT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) Loan Period to Interest amount Beneficiary Interest Date of Interest amount SIN Amount (TZS) tenor Maturity Date charge Institution Rate disbursement (TZS) FY 2018 (TZS) FY 2017 (years) interest 1,500,000,000 1.5 1.00 15 DCB loan I rollover 1,500,000,000 10.00% 2.0 1-Mar-15 28-Feb-17 1.00 0 99,863,014 DCB loan 1 , 2nd roll 16 over 1,500,000,000. 10.00% 2.0 28-Mar-17 29-Mar-19 1.00 150,000,000 38,630,137 17 Exim Bank Loan 1 3,000,000,000 10.00% 3.0 30-Aug-13 29-Aug-16 1.00 0 49,315,068 Exim Bank Loan 1- 18 Extension 3,000,000,000 10.00% 0.8 29-Aug-16 29-May-17 1.00 0 224,383,562 Exim Bank loan 1 - 19 Roll over 1,000,000,000 10.00% 1.0 29-May-17 28-May-18 1.00 90,000,000 8,767,123 Exim Bank loan 1 - 20 Roll over 2 1,000,000,000 7.50% 1.0 28-May-18 27-May-19 0.09 7,500,000 0 21 CRDB Bank Loan 1 5,000,000,000 10.00% 3.0 31-Mar-14 30-Mar-17 1.00 0 373,972,603 GROB Loan 1 Roll 22 over 5,000,000,000 10.00% 3.0 30-Mar-17 29-Mar-20 1.00 500,000,000 126,027,397 23 GROB Bank Loan 2 5,000,000,000 10.00% 3.0 26-Sep-14 25-Sep-17 1.00 120,000,000 500,000,000 24 GROB Bank Loan 2 5,000,000,000 10.00% 5.1 25-Sep-17 24-Sep-22 0.76 380,000,000 0 25 CRDB Bank loan 3 7,000,000,000 10.00% 3.0 4-Jun-15 3-Jun-18 1.00 646,301,370 700,000,000 26 GROB Bank loan 3 7,000,.000,000 10.00% 5.1 3-Jun-18 4-Juri-23 0.07 52,500,000 0 27 Bank ABC 1,400,000,000 10.00% 3.0 15-Jul-14 14-Jul-17 1.00 5,600,000 140,000,000 28 Bank ABC Roll over 1,400,000,000 10.00% 2.0 14-Jul-17 13-Jul-19 0.96 134,400,000 0 29 I & M Loari 1 3,250,000,000 10.00% 3.0 14-Aug-14 13-Aug-17 1.00 32,500,000 325,000,000 30 I & M Loan 1 3,250,000,000 10.00% 1.0 ~ 3-Aug-17 12-Aug-18 0.88 292,500,000 0 31 Azania Bank Loan 5 2,800,000,000 10.00% 3.0 7-0ct-15 6-0ct-18 1.00 280,000,000 280,000,000 32 NBC Bank loan 1 2,000,000,000 13.07% 3.0 16-Mar-16 15-Mar-19 1.00 261,400,000 261,400,000 ?Q hANK OF TAN~ANIA · HOUSING ~INANCE PROJE:tT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED} Loan Period to Beneficiary Interest Date of Interest amount Interest amount S/N Amount (TZS) tenor Maturity Date charge Institution Rate disbursement (TZS) FY 2018 (TZS) FY 2017 (years) interest 33 Bank of Africa loan 3 5,000,000,000 10.00% 3.0 5-Jul-16 4-Jul-19 1.00 500,000,000 493,150,685 34 DCB Loan 2 2,000,000,000 10.00% 3.0 15-Jui-16 14-Jul-19 1.00 200,000,000 191,780,822 35 Barclays Bank Loan 1 5,000,000,000 10.00% 2.7 1-Nov-16 15-Jul-19 1.00 500,000,000 330,136,986 36 NMB loan 1 1,700,000,000 10.00% 4.1 1-Nov-16 30-0ct-20 1.00 170,000,000 112,246,576 37 CBA Loan 1 3,000,000,000 10.00% 3.0 13-Apr-17 26-Mar-20 1.00 300,000,000 64,109,589 38 KGB Loan 1 5,000,000,000 10.00% 3.0 14-Apr-17 23-Mar-20 1.00 500,000,000 105,479,452 39 FNB Loan 1 2,500,000,000 10.00% 5.1 15-Jun-17 14-Jun-22 1.00 250,000,000 10,273,973 GROB Loan 4 10.00% 3 22-Sep-17 21-Sep-20 40 8,000,000,000 615,890,411 PBZ loan 1 10.00% 3 19-0ct-17 18-0ct-20 41 3,000,000,000 208,767,123 Banc ABC Loan 2 10.00% 3 2-Jan-18 1-Jan-21 42 4,000,000,000 196,164,384 NMB loan 2 10.00% 3 2-Jan-18 1-Jan-21 43 4,000,000,000 196,164,384 Total 136,200,000,000 Expected interest Earned in TZS 8,084,937,671 5,919,465,069 Loan matured before year end 31,450,000,000 Average Exchange rate 2,255.51 2,189.52 Loan balance as at yearend 104,750,000,000 Expected Interest Amount in USD 3,584,528 2,703,545 in bANK OF TANZ4NIA • HOUSING ~INANCE PROJE::CT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 2.3 Interest Income Earned on Loans to TMRC & HMFF (continued) (i) Interest income on loans to Housing Microfinance Fund (HMFF) Period End 30-Jun-18 Loan Period to Interest amount Beneficiary Interest Date of Interest amount S/N Amount (TZS) tenor Maturity Date charge (TZS) FY 2017 Institution Rate disbursement (TZS) FY 2018 (years) interest DCB Commercial Bank loan 1 1,000,000,000 10.00% 5.0 31-Jul-15 31-Jul-20 1.00 100,000,000 100,000,000 DCB Commercial 2 bank-Loan 2 2,000,000,000 10.00% 5.0 31-Mar-16 31-Mar-21 1.00 200,000,000 200,000,000 EFC Microfinance 3 bank loan 1 4,000,000,000 10.00% 5.1 19-Aug-16 18-Sep-21 1.00 400,000,000 345,205,479 Yetu Microfinance 4 Loan 1 2,000,000,000 10.00% 5.0 28-Jul-16 27-Jul-21 1.00 200,000,000 184,657,533 5 Mukoba loan1 1,000,000,000 10.00% 5.0 04-Jul-17 03-Jul-22 0.99 98,904,110 Yetu Microfinance 27-Sep-17 26-Sep-22 6 Loan 12 1,500,000,000 10.00% 5.0 0.76 113,424,658 Mkombozi bank 2,370,000,000 10.00% 10 20-Apr-18 19-Apr-28 7 loan 1 46,101,370 Total 11,500,000,000 Expected interest Earned in TZS 1,158,430,137 829,863,013 Loan matured before year end Average Exchange rate 2,255.51 2,189.52 Loan balance as at year end 11,500,000,000 Expected Interest Amount in USO 513,600 379,016 (ii) Total interest earned on loans to TMRC & HMFF 30.6.2018 30.6.20·17 USD USD Interest income from TMRC 3,584,528 2,703,545 Interest income on loans to Housing Microfinance Fund 513,600 379,016 Total interest earned on loans to TMRC & HMFF 4,098,128 3,082,561 11 hANK OF TAN~ANIA · HOUSING ~INANCE PROJE:tT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 2.4 interest earned on government securities (i) Treasury bonds Details Issue date Auction Face value - Income Maturity date Amortized cost value no amount 30.6.2018 30.6.2017 Restated income TZS TZS TZS TZS 5 year Bond 30-Apr-15 30-Apr-20 392 4,082,703,385 4,400,000,000 575,599,110 926,218,128 5 year Bond 27-Apr-16 20-Apr-21 416 2,277,738,854 2,696,000,000 366,040,134 484,120,963 10 year 15-Mar-18 15-Mar-28 472 19,774,187,918 21,813,600,000 Bond 774,215,114 Total income from treasury bonds 1,715,854,357 1,410,339,091 Exchange rate 2,255.51 2,188.52 US$ Equivalent 760,739 644,132 (ii) Treasury bills Portion of Portion of income income up to upto Details Issue date Maturity date Auction Cost value Amortized cost 30.6.2018 30.6. 2017 restated 365 Days -T-bills 7-0ct-15 6-0ct-16 938 1,893,178,701 2,176,120,000 75,451,013 182 Cays-T-bills 1-Dec-16 20-Jun-17 983 5,777,501,000 6,200,000,000 422,499,000 182 Days T-bills 29-Jun-17 28-Dec-17 968 11,976,999,868 12,388,714,000 407,189,801 4,524,331 Tota! Income from Treasury Bills 407,189,801 502,474,344 Exchange Rate 2,255.51 2,219.05 US$ Equivalent 180,531 229,491 1? ~ANK OF TAI\IZANIA · HOUSING ~INANCE PROJE:~T NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) Total income earned US$ 941,270 873,622 3. PROJECT EXPENDITURE Project expenditure is recognized on accrual basis. The tabie below shows the expenditure funded by IDA. Spread Reduction Account and Government of Tanzania (GOT) for the year ended 30 June 2018. All figures in US$ 30.06.2018 30.06.2017 Spread Spread Funded by Deduction Funded Funded by Deduction Funded Project expenditure IDA Account by GOT Total IDA Account by GOT Total Development of Mortgage Finance 265,704 105,930 371,633 104,903 251,560 356,463 Development of Housing Microfinance Fund 293,651 117,072 410,723 67,430 63,883 131,313 Expansion of affordable housing supply 1,038,535 6,080 1,044,615 296,226 6,675 302,901 Project management costs 229,965 7,005 91,526 328,495 415,535 143 8,557 424,235 Audit fees ____ 15,250 15,250 19,466 19,466 -- Total expenditure 1,843,105 7,005 320,607 2,170,716 903,560 143 330,675 1,234,378 4. SURPLUS Surplus is generated due to the interest earned from loans extended to TMRC and those of HMFF together with interest income generated from investment of funds from the SRA in Government papers. During the year, ending 30th June, 2018 income generated from investment was US$ 5,039,398 which was netted off by small project management expenditure of U$ 7,005 resulting into a surplus of US$ 5,032,393 This surplus was adjusted by the negative effects of foreign currency translations amounting to US$ 810,508 resulting to a net surplus of US$ 4,221,885 while the net cumulative surplus from the prior financial years was restated US$8,092,267 thus resulting to cumulative surplus of US$ 12,314,152. 5. EFFECTS OF FOREIGN CURRENCY TRANSLATIONS The Financii11 statements are presented in United States Dollar (US$). This is the currency agreed to be used by IDA and Government of Tanzania (GOT) in presenting the financial statements. Transactions in local currency during the year are translated at BOT average monthly exchange rates for the entire financial year. Monetary assets and liabilities are translated at the closing exchange rate on the balance sheet date. The resulting differences from conversion are taken to the Project statement of income and expenditure in the year in which they arise .. lt is worth to note that, realized gains or losses are related to cash and cash equivalent based transanctions while unrealized gains or losses are related to account payables and receivables ~~ BANK OF TANZANIA · HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) Summary of the effect of foreign currency translation 30.6.2017 30.6.2018 Restated USD USD Realized foreign currency exchange rate loss (273,715) (82,770) Unrealized foreign currency exchange rate loss (536,793) _(267,515) Total (810,508) (350,285) 6. FINANCIAL ASSETS Financial assets of the project are loans extended to TMRC for on lending purposes and those loans extended to eligible financial institutions under HMFF, bank balances and interest receivable from TMRC, HMFF loans and investments in Treasury bills and bonds. All financial assets are recognized at amortized cost using effective interest rate. 6.1 Bank balances The bank balances constitute HFP designated accounts of which the funds originate from IDA. It also constitute balances from Spread Reduction Account coming from interests generated from loans extended to TMRC to facilitate either re-financing or pre-financing of mortgage portfolios Primary Mortgage Lenders (PML) together with interest from loans extended to eligible Financial Institutions under the Housing Microfinance Fund. It is worth noting that impairment of cash and bank balances will happen when the project ends, unused cash, and bank balances will be returned to the World Bank. All figures in USO 30.06.2018 30.06.2017 HFP designated special account (228) 726,992 Spread Reduction Account 1,623,377 180,582 HMFF Fund 267,512 393,233 HFP ~Additional Financing Holding Account 697 50,549 HFP-Additional Financing-Special Account 9,818,993 14,794,477 Total 11,710,352 16,145,833 34 BANK OF TANZANIA· HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 6.1.1 Decrease /(Increase) in loans to TMRC and HMFF 30.6.2018 30.6.2017 TZS TZS New Loans to TMRC during the year 19,000,000,000 24,200,000,000.00 Return of loan from TMRC (2,000,000,000.00) New Leans to HMFF beneficiaries during the year 4,870,000,000 6,000,000,000.00 Total Change during the year in TZS 23,870,000,000 28,200,000,000.00 Exchange rate 2,277.71 2,219.05 Total USO equivalent 10,479,824.03 12,708,140.87 Total change during the year in US$ 10,479,824.03 12,708,140.87 6.1.2 Decrease/ (increase) in Government Treasury bonds/Bills 30.6.2017 30.6.2018 Restated TZS TZS Cash invested to buy new Treasury Bond/bills During the year 18,999,972,804 17,754,500,868 Cash received form redemption of Treasury Bills during the year -12,388,714,000 -7,670,679,702 Coupon Cash Interest received on investment on Bonds during the year -651,412,800 -705,440,298 !ncome earned on investment on government security 2,123,044,158 1,912,813,435 Oerecognition of receivable 113,672,342 Total change during the year in TZS 8,082,890,162 11,404,866,645 Exchange rate 2,277.71 2,219.05 Total Change during the year in US$ 3,548,692 5,139,527 6.1.3 Decrease /(Increase) payable to the Government 30.6.2018 30.6.2017 Restated US$ US$ Amount received from the Government during the year to support project activities 7,534,149 15,977,549 Un used amount and returned back to the goverr.ment due to end of the Hcus!ng Finance -Parent Project -726,731 0 Balance available for utilization during the year 6,807,418 15,977,549 Less funds spent on Technical Assitance during the year (note 3) (1,843,105) (903,561) Total change duing the year 4,964,313 15,073,988 35 BANK OF TANZANIA · HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 6.2 Loan and advances (i) Loan to TMRC Loan to TMRC is another financial asset of the project and it is related to component 1 of the Housing Finance Project. Under this component, the funds are provided to TMRC for on-lending to primary mortgage lenders after analyzing the risks and obtaining adequate loan securities in the form of either existing mortgages, if the purpose of the loan is for re-financing, or government bonds if the loan is for pre-financing arrangements. The Bank assigns securities obtained by TMRC from financial institutions to the Bank of . Tanzania as securities for those particular loans extended to TMRC. Impairment will happen when there is objective evidence that the financial institution, which obtained a loan from TMRC, is under significant financial problems, or where there is default or delinquency in the payment of principal amount, or where a particular debenture, which used to cover the loan cannot realize the entire amount. 36 t } ) I BANK OF TANZANIA· HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 6.0. FINANCIAL ASSETS (CONTINUED) 6.2 Loan and advances (continued) (i) Loan to TMRC (continued) The following table is an analysis of loans issued to TMRC as at 30 June 2018 Ex pir y dat Ten Ten Ten e Expi Expi or or or lntere lntere on 2nd ry 3rd ry for for for lntere st rate st rate 1st Loa date Loa date 1st 2nd 3rd st rate for for Interest Loa Loa 1st loa n on n on Tenor rolle rolle rolle for 1st 2nd 3rd rate per Name of n n Loan n roll 2nd roll 3rd of d d d Rolled Rolled Rolled annum( '.he lssu Expi roll roll over loan over loan origin over over over oer oer over %) of the Loan amount(Tzs) Loan amount(Tzs) beneficia e ry ·over ov roll roll al Loa Loa Loa Loans Loa;is Loans original as f 30th June as of 30th June ry Bank date date date er date over data over loan ns ns ns (%) (%) (%) loan 2018 2017 14- 15- 14- 14- No Azania Nov Nov- Nov- v- Loan 1 -11 16 16 18 5 2 10 8.9 2,500,000,000 2,500,000,000 2- 1- 1- 30- Azania May May May- Apr 2 Loan 2 -12 -15 15 -20 3 5 10 14.86 1,700,000,000 1,700,0QO,OOO 7- 6- Azania Oct- Oct- 3 !oan 5 15 18 3 0 10 2,800,000,000 2,800,000,000 27- I 28- 27- 28- Ju Azania Jun- Jun- Jun- n- 4 Loan 3 13 16 16 19 3 3 10 2,500,000,000 2,500,000,000 30- 31- 30- 30- Ja 3Q- 29- Azania Jul- Jul- Jul- n- Jan- Jan- loan 4 13 16 16 17 17 20 3 1 10.01 2,500,QQO,OOO 2,500,00U,OOO 15 ! Bank 15- 14- 14- 13- ABC Jul- Jul- Jul- Jul 6 Loan 1 14 17 17 -19 3 2 10 1,400,000,000 1,400,000,000 Bank of 28- 27- 28- 27- Africa Jun- Jun- Jun- Ju i 7 Loan 1 13 16 16 n- 3 3 10 2,750,000,000 2,750,000,000 17 • • BANK OF TANZANIA· HOUSING FINANCE PROJECT t t ,~-- NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) Ex pir y I dat I Ten Ten Ten I e Expi Expi or or or lntere lntere I on 2nd ry 3rd ry for for for lntere st rate st rate 1st Loa date Loa date 1st 2nd 3rd st rate for for Interest Loa Loa 1st loa n on n on Tenor rolle rolle rolle for 1st 2nd 3rd rate per Name of n n Loan n roll 2nd roll 3rd of d d d Rolled Roiled Rolled annum( the lssu Expi roll roll over loan over loan origin over over over oer oer over %) of the Loan amount(Tzs) Loan amount{Tzs) beneficia e ry over JV roll roll al Loa Loa Loa Loans Loans Loans original as f 30th June as of 30th ,June ry Bank date date date er date over date over loan ns ns ns (%) (%) (%) loan 2018 2017 19 6- Bank of 8- 7- 7- Ma Africa Sep Mar- Mar- r- 8 loan 2 -14 17 17 20 2 3 10 10 3,000,000,000 3,000,000,000 Bank of 5- 4- Africa Jul- Jul- 9 loan 3 16 19 3 10 5,000,000,000 5,000,000,000 brclays 1- 15- 1 Bank Nov Jul- 0 Loan 1 -16 19 3 10 5,000,000,000 5,-000, 000, 000 13- 26- CSA Apr- Mar- Loan 1 i7 20 3 10 3,000,000,000 3,000,000,000 31- 31- 30- 30- Ma 1 CRDB Mar Mar- Mar- r- 2 loan 1 -14 17 1- I 20 3 3 10 5,000,000,000 . 5,000,000,000 24- 26- 25- 25- Se 1 CRDB Sep Sep- Sep- p- 3 loan 2 -14 17 17 22 3 5 10 5,000,000,000 5,000,000,000 5- 5- 4- 4- Ju 1 CRDB Jun- Jun- Jun- n- 4 loan 3 15 18 18 23 3 5 10 7,000,000,000 7,000,000,000 30- 28- 1- 28- 28- 27- 1 DCB Aug Feb- Mar- Fe Feb Feb- 5 Loan 1 -13 15 15 b- -17 19 1 2 2 10 10 1,500,000,000 1,500,000,000 ~ ) ; BANK OF TANZANIA· HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) i Ex i pir y I I dat Ten Ten Ten I I e Expi Expi or or or lntere lntere I on 2nd ry 3rd ry for for for lntere st rate st rate I 1st Loa date Loa date 1st 2nd 3rd st rate for for Interest Loa Loa 1st loa n on n on Tenor rolle rolle rolle for 1st 2nd 3rd rate per I Name of n n Loan n roll 2nd roll 3rd of d d d Rolled Rolled Rolled annum( the lssu Expi roll roll over loan over loan I beneficia e ry over origin over over over oer oer over %) of the Loan amount(Tzs) Loan amount(Tzs) I ov roll rol! ry Bank date date date er al Loa Loa Loa Loans Loans Loans original as f 30th June as of 30th June I date over date over loan ns ns ns (%) (%) (%) loan 2018 2017 17 15- 14- i 1 DCB Jul- Jul- 2,000,000,00 ' 6 Loan 2 16 19 3 10 2,000,000,000 0 29- Exim 30- 29- 29- Ma 29- 28- 28- 27- Bank Aug Aug- Aug- y- May May May May 7 Loan 1 -13 16 16 17 -17 -18 -18 -19 3 1 1 10 10 7.5 10 1,000,000,000 1,000,000,000 15- 14- 1 FNB Jun- Jun- s Loan 1 17 22 5 10 2,500,000,000 2,500,000,000 12- l&M 14- 13- 13- Au 1 Bank Aug Aug- Aug- g- 9 loan 1 -14 17 17 18 3 1 i 10 3,250,000,000 3,250,000,000 24- 23- I2 KCB May Mar- Io Loan 1 -17 20 3 10 5,000,000,000 5,000,000,000 16- 15- I 2 NBC Mar Mar- loan 1 -16 19 3 13.07 11 2,000,000,000 2,000,000,000 1- 30- I2 NMB Nov Oct- I2 loan 1 -'16 19 3 10 1,700,000,000 1,700,000,000 22- 21- I 2 CRDB Sep Sep- !3 Loan 4 -17 20 3 10 8,000,000,000 /2 PBZ loan 19- 18- .4 1 Oct- Oct- 3 10 3,000,000,000 1Q . ; BANK OF TANZANIA • HOUSING FINANCE PROJECT ) NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) Ex --1 r pir I y dat Ten Ten Ten I e Expi Expi or or or lntere lntere I on 2nd ry 3rd ry for for for lntere st rate st rate I 1st Loa date Loa date 1st 2nd 3rd st rate for for Interest Loa Loa 1st loa n on n on Tenor rolle rolle rolle for 1st 2nd 3rd rate per I I Name of n n Loai1 n rol! 2nd roll 3rd of d d d Rolled Roiled Rolled annum( the lssu Expi roll roli over loan over loan origin over over over. oer oer over %) of the Loan amount(Tzs) Loan am'Junt(Tzs) beneficia e ry over ov roll roll al Loa Loa Loa Loans Loans Loans original as f 30th June as of 30th J~ne ry Bank date date date er date over date over loan ns ns ns (%) (%) (%) loan 2018 2017 17 20 Banc 2- 1- 2 ABC Jan- Jan- 5 Loan 2 18 21 3 10 4,000,000,000 2- 1- 2 NMB Jan- Jan- 6 lean 2 18 21 3 10 4,000,000,000 Total Loan 3 87,100,000,000 68,100,000,000 Exchange rate 2,277.71 2,219.05 Equivalent in USO 38,240,159 30,688,808 Summary of TMRC and HMFF Loans 30.6.2018 30.6.2017 US$ US$ Loan to TMRC 38,240,159 30,688,808 Loans under HMFF 6,089,449 4,055,790 Total 44,329,608 34,744,598 .1.n BANK OF TANZANIA· HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 6.0. FINANCIAL ASSETS (CONTINUED) 6.2 Loan and advances (continued) (ii) Loans under Housing Microfinance Fund These loans are extended directly by BOT to eligible financial institutions with housing micro finance products. These loans relates to Component II of the project. The component seeks to address housing finance needs of low-income population through housing microfinance. A Housing Microfinance Fund (HMFF) has been established to provide loans for up to 5 years or longer to low income households. HMFF started with a seed capital from HFP and will be open to other sources of finance including the Government and donor partners. Under this component, regulatory reforms and capacity building to eligible Microfinance Institutions (MFls) to foster safe lending environment will take place. During the financial year, ended 30 June 2018 three loans amounting to TZS 4.9 billion had been extended from the HMFF resulting to the cumulative total of TZS 13.87 billion loans already extended to MFls. These loans are recorded in the statement of Financial Position at amotised costs. The loans have been secured by specific debentures backed by five years Treasury bond. Impairment will happen when there is objective evidence that the financial institution which obtained a loan from BOT is under significant financial problems and there could be default or delinquency in the payment of principal amount, or in the circumstances that a particular debenture which used to cover the loan cannot realize the entire amount and there is high probability that the said financial institution will be bankrupt. Below is the summary of the HMMF loans extended during the financial year ending 30 June 2018. Loan Loan Loan lnierest Loan amount(Tzs) amount(Tzs) for Issue Loan Expiry Tenor rate psr for year ending year ending June SIN Beneficiary date date (years) annum(%) June 201s· 2017' DCB Commecrcial Bank-Loan1 31-JlJL-15 31-Jul-20 5 10 1,000,000,000 1,000,000,000.00 ! DCB 31-Mar-16 31-Mar-21 10 2,000,000,000 Commecrcial 2,000,000,000.00 2 Bank-Loan 2 5 Yetu 28-Jul-16 6-Feb-21 Microfinance 3 Bank PIC 5 10 2,000,000,000 2,000,000,000.00 EFC Tanzania 19-Aug-16 18-Aug-21 4 Microfinance 5 10 4,000,QOO,OOO 4,000,000,000.00 5 Mukoba loan1 4-Jul-17 :3-Jul-22 5 10 1,000,000,000 Yetu Microfinance 27-Sep-17 26-Sep-22 6 Loan 12 5 10 1,500,000,000 Mkombozi bank ~_7_!o_an_1_ _ _2_0_-A~pr-18 ~r-28_ _ _ _ _-'-'10'---------1:....:.0____-=.!,2,:::..:37~0,~00::::0J..::,0.::.:00::..________ 41 BANK OF TANZANIA · HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) Loan Loan Loan Interest Loan amount(Tzsj amount(Tzs) for Issue Loan Expiry Tenor rate per for year ending year ending June S/N Beneficiary date date (years) annum(%) June 2018 2017 Total 13,870,000,000 9,000,000,000 Exchange rate 2,277.71 2,219.05 USO E uivalent 6,089,449 4,055,790 6.3 Interest income receivable (i) Interest income from loans to TMRC Interest income receivable related to interest earned from TMRC but not received during the financial year. Interest income is received on the due date. Interest that falls due at the end of the financial year but not received is treated as receivable. This financial asset is impaired if there is an objective evidence that the bank which obtained a loan from TMRC is under significant financial problems and there could be default or delinquency in the interest payment and the high probability that the said bank will be bankrupt. The table showing Interest receivable from TMRC as at 30 June 2018 30.06.2018 30.06.2017 Details TZS TZS Opening balance 810,843,600 386,731,546 Add: Interest earned during the year 8,084,937,671 5,919,465,068 Total interest receivable during the year 8,895, 78_-'-1-'-"'-,2'-=72'--__;c_J_6'-=-=30_:c.,6,L.:. . 19::. . : .6.L6.:. ,:. . .:.14 Less: Interest received during the year (7,770,545,411) (5,495,353,014) Interest Receivable 1,125,235,861 810,843,600 Exchange rate at the end of year 2,278 2,219 --- USD Equivalent 494,021 365,401 (ii) Interest income receivable from HMFF Loans Interest income attributable to these loans is receivable each quarter after the loan disbursament date to eligible Micro Finance Institution borrowing the funds from the Housing Microfinance Fund. Each interest income earned but not received at the end of the financial year is recognized as income and recorded as interest income receivable in the statement of financial position. Impairment will happen when there is objective evidence that the financial Institution which obtained a loan from BOT is under significant financial problems and there could be default or delinquency in the payment of the interest amount or in the circumstances that a particular debenture which used to cover the ioan and interest payments cannot realize the entire amount and there is high probability that the said financial institution is becoming bankrupt. 42 BANK OF TANZANIA· HOUSING FINANCE PROJECT NOTES TC THE PROJECT FINANCIAL STATEMENTS (CONTINUED) Below is the table summary of interest receivable from the HMFF loans for the financial year ended 30 June 2018. 30.06.2018 30.06.2017 TZS TZS Opening balance 98,904,090 16,712,328 Add: Interest earned during the year 1,158,430,137 829,863,013 Total Interest receivable during the year 1,257,334,227 846,575,341 Less: Interest received during the year (1,036,712,329) (747,671,251) Interest Receivable 220,621,698 98,904,090 Exchange rate at the end of year 2,277.71 2,219.05 USO Equivalent 96,861 44,571 (ii) Interest receivable from investments in Government Securities This interest income is attributed to the investment in Treasury Bills and Bonds. Interest on Treasury Bonds is paid every six months and those on Treasury Bills are paid at the end of the investment period. Apportionment is done to capture the interest income earned but not received at the end of the financial year. Income ;s recognized in the statement of Income and Expenditure during the financial year and receivable is recorded in the Statement of Financial Position at an effective interest rate translated at th9 end of the year exchange rate. Impairment is done when it is clear that the Government will fail to honor its obligation. Below is the table summarizing the Interest income receivable on Treasury bills and Treasury bonds. It is worth noting that, in the finance year 2016/2017 these receivables were recorded in the interest receivable from investment account. Howevere, from year 2017/2018 on wards all transanctions releating to interest receivable will be done in the respective investment accounts. 30.6.2017 Summary 30.6.2018 Restated TZS TZS Opening income receivable 201,960,000 504,940,425 Add: Interest earned 0 1,053,872,673 Total interest available during the year 201)960,QQQ_ 1,674,972,215 Less: Interest received during the year (201,960,000) (1,356,853,098) Balance receivable 0 201,960,000 Exchange rate ----- 2,277.71 ___ _1_d19.05 Equivalent in USD 0 ~--_91,012 ==---=----=---~-= 43 BANK OF TANZANIA · HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 6.0. FINANCIAL ASSETS (CONTINUED) 6.3 Interest income receivable (continued) (iii) Interest Receivable from Investments in Government Securities (continued) Table below is the summary of the total interests receivable from loans to TMRC, HMFF and from investments in Government securities. 2016/2017 30.6.2018 Restated US$ US$ Interest income receivable from TMRC Loans 494,021 365,401 Interest income receivable from HMFF loans 96,861 44,571 Interest income receivable from government securities 0 91,012 Total 590,882 500,984 6.4 Investment in Government Securities Total amount of TZS 26,134,630,156 was recorded as investment in Government securities during the financial year which ended 30 June 2018. This is equivalent to to US$ 11,474,081 comparing to TZS 18.047,215,662 of 30 June 2017 equivalent of US$ 8,132,857. The increment in the investment is due to more investment in Treasury Bond of 10 years and revaluation of the two 5-year Treasury Bonds as indicated in the table below. The investment in treasury bonds are recognized in the statement of financial position at amortized cost. Below is a summary of cumulative investment as of 30th June 2018 (i) Investment in treasury bonds Amortized cost Amortized cost value as at Maturity Auction value as at 30.6.2017 Details Issue date date no 30.6.2018 Restated TZS TZS 5 year Bond 30-Apr-15 30-Apr-20 392 4,082,703,385 3,911,024,275 5 year Bond 27-Apr -16 20-Apri-21 416 2,277,738,854 2,159,191,520 10 year Bond 15-Mar-13 15-Mar-28 472 19,774,187,918 Total investment Treasury Bonds 26,134,630,156 6,070,215,794 Exchange rate 2,277.71 2,219.05 US$ Equivalent 11,474,081 2,735,502 44 BANK OF TANZANIA • HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) (ii) Investment in treasury bills Amortized cost Amortized as Maturity Auction as as at at 30.6.2017 Details Issue date date No 30.6.2018 restated cost cost TZS TZS 365 Days -T-bills 8-0ct-15 6 Oct-16 938 365 Days -T-bills 29-Jun-17 28-Dec-17 983 - - - 11,981,524,199 Total Investment in Treasury Bills 11,981,524,199 Exchange rate 2,219.05 US$ Equivale!1t 5,399,394 Total investment in Government securities 11,474,081 8,134,896 7. FINANCIAL LIABILITIES Project's financial liabilities are constituted by the cumulative amount of the loan from the government funded by IDA for the purpose of on lending to TMRC and other e!igible Firiancial Institutions under HMFF. Other payables were mainly provision for audit fees and accrued project expenses that are recognized at amortized cost in the statement of financial position. 7.1 Payable to the Government These are cumulative funds from the Government received by BOT for financing various eligible expenditure under the Project. These funds include, technical assistances for institutional capacity building, mortgage loans for TMRC and housing micro loans for financial institutions (Fis) borrowing under HMFF. Funds used for technical assistances are considered as a grant and are always amortized every year.However,funds spent as loans to TMRC and HMFF for eligible Fis will be repaid by BOT to the Government. Repayment arrangements are defined under schedule 3 of the financing agreements under Project number 4712-TA and 5590-TZ between IDA and URT as detailed beiow: [[E!tails-=~-~--~~~==---~---~ Proj_ecT_no4712-tA~~=---=~-~===-,Pr~ect-no 5590-TZ--~~=~ k yment period I On each May ·15 and November 15 On· each August 15 and~ L . Februa 15 Comm_e_n_c-ing-d--a-te_fo_r !15May 2020 to and including 15 15 August 2021 to andin15 I the first payment phase. I November 2029 at the rate of 1 February 2053 qt the rate of I 1 , I percent of the total credit. , 1.56~5 percent of the total / ~ ___j_Cr_~ed_,t_.__________ I ~Commencing date for 15 May 2030 to and including 15 I ,e second payment / November 2049 at the rate of 2 I . hase. ----"__percent of the total credit. __L----~-- J I BOT will follow the instructions given by the government for repayment of the cumulative payable amount from both projects as indicated below; 45 BANK OF TANZANIA· HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) 30.06.2017 30.06.2018 Restated US$ US$ Opening balance 51,378,734 36,712,454 Add funds from the Government during the year 7,534,149 15,977,549 Total funds during the year 59,912,883 52,690,003 Less funds spent on technical assistance during the year (1,843,105) (903,561) Less funds transferred to IDA (726,731) Less effect of exchange rate translation (567,526) (407,708) Total funds payable to the Government at the end of the year 55,775,521 51,378,734 7.2 Other payables Other payables relate to the audit fees for the financial year ended 30 June 2018, which has been approved by the World Bank and BOT and accrued expenses relating to fees and reimbursable to the Project management costs. 30.06.2018 30.06.2017 US$ US$ Audit fees 15,250 19,466 Accrued expenses 35,843 Total other payables 15,250 55,309 8. RELATED PARTY TRANSACTIONS There were no related party transactions during the year. 9. CONTINGENT LIABILITIES There were no contingent liabilities at the end of the reporting period. 10. CAPITAL COMMITMENTS There were no capital commitments at the end of the reporting period. 11. CHANGES WHICH RESULTED TO THE RESTATEMENTS OF THE AUDITED FIGURES OF 2016/2017 There have been necessesary changes which have resulted to reinstatement of some of tl1e audited figures of year 2016/2017. The reasons for changes have been highlighted below; • Bond re- revaluation because of the changes of the dates for the effective interest bookings and coupon rates repayments. Dates adopted in year 2016/2017 were a bit different from those of bond cirtficates confrmed by the financial Markets. This therefore resulted into an increase in bond 1 and bond 2 by TZS 66,358,551 and TZS 42,789,460 respectively and increase in Treasury Bills by TZS 4,524,331 . 46 BANK O!= TANZANIA · HOUSING FINANCE PROJ!:CT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) • The second reason has been to make prior year adjustment in the interest income receivable account by recognizing the amount into their respective investment accounts.This has resulted into adjusting the receivable account by TZs 116,159,117 as detailed below;. adjustment Recomputed (TZS) Recorded (TZS) Changes (TZS) bond 1 3,911,024,274.99 3,844,665,724.00 66,358,550.99 bond 2 2,159,191,520.00 2,116,402,060.00 42,789,460.00 t/bills 11,981,524,199.00 11,976,999,868.00 4,524,331.00 Total 18,051,739,993.99 113,672,341.99 Overstated income 2,486, 775.01 Total adjustment in the interest income receivable 116,159,117.00 • Changed of reported amount of the effect of foreign currency in year 2016/2017 due to the opening balance of payable to the Governmnet account restatement using closing exchange rate instead of initially used opening rate so as to comply with the standard requirement.This adjtsment brought an effect of reduction in the reported figure by US$ 407,723 Summary of the adjustments which resulted to the restatements in the Financial Statements and its notes as follows; 2016/2017 Audited 2016/2017 Details Financials Adjustment restated US$ US$ US$ Statement of Financial position Interest income receivable 553,330 -52,346 500,984 Investment in Government securities 8,083,670 51,226 8,134,896 Payable to Government 51,786,442 -407,708 51,378,734 Statement of comprehensive income Interest earned on government Securities 874,758 -1, 136 873,622 Effects of foreign currency translations -758,008 407,723 -350,285 Statement of change in accumulated fund Accumulated surplus 7,685,680 406,588 8,092,268 12. GOING CONCERN OF THE PROJECT The project is scheduled to close on the 28th June 20'19, this is in accordance to the Finance Agieement for extension of the project signed in March 2018 between the Government of Tanzania and the World Bank (IDA). However, this will not affect the project activities as the agreements exisiting between the Bank of Tanzania and loans beneficiaries e.g TMRC and other financiai institutions under HMFF extend beyond 28 June,2019. Under these cirmcutances it is expected the BOT to renew agency role with the government through the Minsitry of Finance to continue 47 BANK OF TANZANIA· HOUSING FINANCE PROJECT NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED) administer:ng all loans, interest expected from those loans, existing and new investment from Treasury bills and bonds and management ot statutory compliances including audits of the project funds so as to enable the project objectives realized. 13. EVENTS AFTER THE REPORTING PERIOD There were no events after the reporting period that had material impacts on the financial statements of the project. On the other hand, the financial statements are issued to the World Bank by 31 December 2018 and to the Minsitry of Finance after approval by the Board of Directors of the Bank of Tanzania. 48