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Additionally, “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. BUSINESS Provides financial services, including credit, inter-branch transfer and deposit products to rural and urban clients including farmers, small businesses and households LOCATION Cambodia SECTOR Microfinance 2017 PROFIT US 27.35 million (8% annual growth) (Source: 2017 Annual Report) TYPE Private # EMPLOYEES 4,000 (Source: 2017 Annual Report) # TOTAL FLEET 156 branches (Source: 2017 Annual Report) IFC ASSESSMENT DATE March 2014 Amret Co. is a leading microfinance institution in charters with terms of reference to guide the decision-making Cambodia serving micro, small and medium enterprises and process. The composition of the Board required some low-to-middle‐income populations with a focus on rural areas, diversification and recruitment of independent members with agriculture and district and provincial cities. Amret was strong commercial banking acumen and a deep knowledge of launched in 1991, and obtained a license to operate as a the local market. Additionally, Amret was looking to improve deposit-taking MFI in 2009. Today, it provides a wide range of the way it handled related party transactions and establish loan and deposit services to Cambodia women, farmers, small clear policies to protect minority shareholders and eliminate businesses, and households across 25 provinces and 197 conflicts of interest. operating districts. As one of the top three MFIs in Cambodia, with a nationwide WHAT DID THEY CHANGE? presence across 197 districts, Amret provides financial products, including solidarity credits, individual credits, SME In March 2014, IFC evaluated Amret’s governance capabilities. loans, savings accounts and term deposits, to more than Even prior to IFC’s involvement, Amret’s board and executive 400,000 clients through 156 branches, with more than US leadership demonstrated their strong commitment and 350 million in outstanding deposits and more than US 668 adherence to good governance beyond compliance with local million in outstanding loans by 2017. regulations. The IFC evaluation aimed at helping Amret further enhance the board’s e ectiveness, optimize management Its goal is to provide a wide-range of tailored financial controls, improve disclosure policies and practices, and develop solutions for low income people, including micro, small and provisions on shareholder’s rights. medium enterprises, in order to improve the living standards of the population and contribute to the economic and social Management advanced on its already impressionable CG development of Cambodia. Amret is a subsidiary of Advans SA, improvement program by reinforcing governance practices a global network of microfinance institutions across 9 and raising the bar to align with international standards. countries. Advans supports Amret in refining its governance Authorities were better clarified between the Board and practices and improving its organizational e ciency. Since Management. Prior to IFC’s assessment, Amret established an 2013, Amret has pioneered loan products in the AgriFin and Audit Committee, chaired by an independent director who was Fintech space. It rolled out mobile financial services and was nominated by minority shareholders, which met 4 times awarded grant funding from the UN Capital Development annually to review internal and external audit functions and Fund to expand women’s financial inclusion through digital ensure compliance with local laws. Additionally, more finance. Over the years, Amret has adapted its strategy to independent directors with commercial banking, risk minimize risk through concentrating its lending activities on management, and local market experience were recruited to areas less a ected by over-indebtedness, which has in turn improve the Board’s composition and e ectiveness of the helped maintain a good loan portfolio quality and improved committees. The company also went above and beyond to profitability. strengthen its internal control and risk management systems with the establishment of a Risk Oversight Committee which oversees four management committees that assess credit, WHY CHANGE? operational, strategy, and asset & liability risks. Amret was committed to the principles of good governance as Furthermore, the Board codified its CG policies, developed demonstrated by the strong risk and control frameworks that remuneration and evaluation procedures, and made an e ort were embedded in the organization prior to IFC’s assessment. to eliminate conflicts of interest with respect to related party The Board was engaged in the stewardship of the company transactions and procurement practices with technical which contributed to a strong management structure across vendors. With a strong CG foundation, Amret was a the organization. In addition, the company was in compliance benchmark for other financial institutions in Cambodia and with applicable regulations for MFIs in Cambodia. Although perceived as more transparent and investor-friendly. This Directors were engaged in setting strategy, there was not a culminated in receiving A- ratings from international rating formal authority matrix or formally documented board agencies including MicroFinanza and MicroRate. Mr. Claude Falgon, Chairman of the Board “From the beginning, the Directors had a deep sense of the importance of good governance and for the Board to function well. As the Board became more focused on stewardship and strategic decision-making, they recognized the need to diversify its composition and bring in experienced independent directors capable of defending the interests of the company in order to create value for shareholders, and not just protect their interests.” SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Commitment to Corporate Undertake a Corporate Governance Launched a Corporate Governance Governance Improvement Program to address improvement program to resolve recent governance concerns, governance concerns with respect to incorporating at least the high priority Conflicts of Interest and Related Party recommendations in this report. Transactions. Develop a formal Corporate Developed formally documented board Governance Manual for the company, charters and established a CG manual in including board charters. line with best international practices. Board E ectiveness Composition: Recommend board seat Composition: Revised the Board appointments by IFC and FMO along Composition to ensure one-third of the with at least 2 independents to achieve seven directors were independents with minority/independent board majority diverse, local expertise in modern, vs. controlling shareholders. commercial banking, risk, and Expertise/Independence: Add/replace accounting. an independent member with someone Appointed additional independent that possesses commercial banking directors with local banking experience experience and ideally is a Cambodian for a total of 3 out of 7 independent national. directors on the Board with relevant commercial banking acumen and a Structures: better understand of the local Nomination & Remuneration: environment. Formalize development of the Nomination and Remuneration Structures: Established a Governance Committee, chaired by an independent and HR Committee, chaired by an member to help with management independent member. succession and development issues and also create space between the CEO and Committees: Chairman. Risk: Revised the risk management structure to comprise a Risk Oversight Committees: Appoint an independent Committee and four management director with commercial banking subcommittees responsible for credit, experience to chair the Risk Oversight operational, strategy, and asset & Committee. liability management. Succession Planning: Develop a Succession Planning: Under the Succession Plan for the Chairman of the oversight of the Nomination and Board to ensure ongoing sustainability Remuneration Committee, ensure that of the Bank over the long-term. proper succession is available and ready for the Board and Committees’ Chairs, Structure: Ensure proper dedication of as well as key management executives. time by the board to discuss more SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Board E ectiveness forward-looking strategic issues versus Structure: The Board and Committees spending too much time on financials established formal working procedures and internal management issues. and met as needed to play a more proactive role with regard to Roles: Should better clarify authorities stewardship and strategic planning. between the board and management. Recruited Chief Risk O cer with international experience to establish a Evaluation: Develop an annual Board strong Risk Division sta ed with trained Evaluation process to help identify risk managers. areas for continuous improvement. Roles: Developed formal board charters and policies that clarified the roles and expectations of the Board and its Committees. Delineated the authority of the Board versus management. Evaluation: Conducted self-evaluation of its CG practices on a regular basis and developed action plans when needed. Management Control HR Function: Strengthen HR function HR Function: Developed and to slow down turnover at the implemented management evaluation management level and better retain and remuneration policies overseen by qualified talent. the HR Committee. Disclosure and Transparency Public Disclosures and RPTs: Improve Public Disclosures and RPTs: disclosure of significant related party Improved the way the company handles transactions, particularly with Horus. and discloses Related Party Transactions and developed a policy to Financial Reporting: Should ensure all formally disclose reports that were International Accounting Standards are transparently shared with shareholders. included in financial reports. Financial Reporting: Audit Committee tasked with selecting the external auditors and given authority to monitor and oversee their work. Shareholder and Stakeholder Shareholder Protection: Revise the Shareholder Protection: Revised parts Relations company Articles by: a) Revising the of the Company’s Articles to help the board composition language that is board manage the relationship currently based on graduated between shareholders, and removed shareholder percentage; and b) content that favored the controlling Removing the specific mention of shareholder. Edited the language of the Horus as a technical assistance board composition that was based on provider. graduated shareholder percentage. Conflicts of Interest: Develop a formal Conflicts of Interest: Put in place a Related Party Transaction policy stronger, formal process for managing requiring proper disclosure, Related Party Transactions and arms-length test, recusal by conflicted Conflicts of Interest and ensured parties, and approval by a majority of associated policies were understood non-conflicted directors . and adopted across the institution. IMPACT REPORT AMRET REPORTED THE FOLLOWING IMPACTS FOUR YEARS AFTER EMBARKING ON THE CHANGES: Access to Capital With respect to raising capital over the last 3-4 years, changes in corporate governance have contributed significantly to helping Amret raise approximately US 200 million in debt. Profitability In the long term, better risk management resulting from the establishment of functional internal control systems has resulted in the lowest portfolio at risk value (PAR30 stood at 0.40%) among all MFIs in Cambodia (the average PAR is 1.4%). Amret has maintained good but reasonable levels of profitability thanks to an improvement in governance and organizational e ciency. This enables the company to reinvest profits in developing institutional strength while o ering satisfactory returns on equity to its shareholders. Reputation Amret has established a strong reputation in the market because of its public commitment to governance and transparency. This translated into greater overall investor confidence. The result has been the development of an extraordinarily solid company that has been awarded good ratings by international rating agencies such as: “Alpha-“ by US-based MicroRate, in 2014, and “A-“ by Italy based MicroFinanza for two consecutive years in 2015 and 2016, with stable outlooks. Organizational E ciency By enhancing its CG, Amret has established sound internal controls and risk management capabilities which positively impacted organizational e ectiveness. The diversification of the Board and establishment of functional Committees has improved communications with management and empowered them to more e ectively monitor and mitigate operational and strategic issues before they become problematic. Sustainability The A- credit rating awarded to Amret reflects the company’s capacity to manage and contain risk events should they arise. These internal control mechanisms, coupled with stable fundamentals and intelligent client protection systems, have created a perception that Amret has high long term sustainability and creditworthiness. Board Stewardship & Decision-Making The Board’s composition was restructured by replacing 4 directors with a majority of qualified, independent practitioners with experience in the local and regional financial sectors. This diversification, combined with the establishment of functional committees, enabled Directors to have deeper, more productive strategic discussions while designating authority to directors and management where appropriate. Risk Management & Control Amret’s risk management and internal control capabilities were vastly improved with a focus on safeguarding capital and optimizing the risk/return ratio. The development of an enterprise wide risk management system enabled the company to scale appropriately within its risk tolerance while maintaining compliance with local regulatory policies. IMPACT REPORT IMPACT SCORECARD Access to Capital Profitability Reputation Organizational E ciency Sustainability Board Stewardship & Decision-Making Risk Management & Control Negligible Minor Moderate Strong Substantial Value of financing facilitated: CG enhancements have played a major part in the securitizationof roughly US 100-200 million since IFC’s CG assessment Contact Us: About IFC Corporate Governance Group Chris Razook Corporate Governance Lead The Group brings together sta from investment and advisory operations into a +852-2509-8512 single, global team. This unified team advises on all aspects of corporate crazook@ifc.org governance and o ers targeted client services in areas such as increasing board e ectiveness, improving the control environment, and family businesses Leyal Savas governance. The Group also helps support corporate governance improvements Program Manager and reform e orts in emerging markets and developing countries, while +84-8-3823-5266 leveraging and integrating knowledge tools, expertise, and networks at the global lsavas@ifc.org and regional levels. ifc.org/corporategovernance