SME DEVELOPMENT FINANCE CORPORATION LIMITED For the period from 17 th January 2019 to 31 st December 2019 Report No: FIN-2020-14(E) 09 th June 2020
SME DEVELOPMENT FINANCE
CORPORATION LIMITED
For the period from 17th January 2019 to
31st December 2019
Report No: FIN-2020-14(E) 09th June 2020
Contents
Auditor General’s Report…………………………………………………………………... 1
Statement of Comprehensive Income .................................................................................... 3
Statement of Financial Position ............................................................................................. 4
Statement of Changes in Equity ............................................................................................. 5
Statement of Cash Flows ........................................................................................................ 6
Notes to the Financial Statements .................................................................................. 7 - 36
Auditor General’s Office | Ghaazee Building | Ameer Ahmed Magu | Male’, Republic of Maldives
+960 332 3939 | [email protected] | www.audit.gov.mv
c
Page 1 of 36
AUDITOR GENERAL’S REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF SME DEVELOPMENT FINANCE CORPORATION LIMITED
Opinion
We have audited the financial statements of SME Development Finance Corporation Limited (“the
Corporation”) which comprise the statement of financial position as at 31st December 2019, the
statement of comprehensive income, the statement of cash flows, statement of changes in equity for the
year then ended, and the notes to the financial statements, which include a summary of significant
accounting policies and other explanatory information set out in pages 7 to 36.
In our opinion, the accompanying financial statements give a true and fair view of the financial position
of the Corporation as at 31st December 2019 and its financial performance and its cash flows for the year
then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the financial statements section of our report. We are independent of the Corporation in accordance
with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the
IESBA Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Responsibilities of management and those charged with governance for the Financial Statements
Management is responsible for the preparation of the financial statements in accordance with
International Financial Reporting Standards (IFRS), and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Corporation’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Corporation or to
cease operations, or has no realistic alternative but to do so.
The Board of Directors are responsible for overseeing the Corporation’s financial reporting process.
Auditor General’s Office | Ghaazee Building | Ameer Ahmed Magu | Male’, Republic of Maldives
+960 332 3939 | [email protected] | www.audit.gov.mv
Page 2 of 36
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these interim financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Corporation’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Corporation’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Corporation to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
09th June 2020
Hassan Ziyath
Auditor General
Page 3 of 36
SME DEVELOPMENT FINANCE CORPORATION LIMITED
STATEMENT OF COMPREHENSIVE INCOME
For the period from17 January 2019 to 31 December 2019
(All amounts are in MVR unless otherwise indicated)
Notes
Period
17 January to
31 December
2019
Interest income 5 4,244,797
Interest expense -
Net interest income 4,244,797
Fee and commission income 6 1,731,917
Fee and commission expense -
Net fees & commission income 1,731,917
Total operating income 5,976,714
Credit impairment (charge)/reversal 8 (1,199,501)
Net operating income 4,777,213
Personnel costs 7 3,636,021
Other operating expenses 9 2,001,060
Total expenses 5,637,081
Net profit/ (loss) before tax (859,868)
Taxation -
Net profit/ (loss) for the year (859,868)
Earnings per share (0.03)
The accounting policies and notes on pages 7 to 36 are an integral part of these financial statements.
Page 4 of 36
SME DEVELOPMENT FINANCE CORPORATION LIMITED
STATEMENT OF FINANCIAL POSITON
As at 31 December 2019
(All amounts are in MVR unless otherwise indicated)
Notes 2019
ASSETS
Cash and short-term funds 10 7,664,073
Financial assets at amortised cost 11 153,326,446
Loans & advances to customers 12 100,701,005
Property, plant and equipment 13 1,510,866
Intangible assets 14 20,577
Other assets 15 1,774,310
Total Assets 264,997,276
LIABILITIES
Other liabilities 16 857,144
Deferred tax liabilities -
Total liabilities 857,144
EQUITY
Share capital 17 265,000,000
Retained earnings (859,868)
Other reserves -
Total equity 264,140,132
Total equity and liabilities 264,997,276
Commitments and contingencies 21 90,775,449
The notes pages 7 to 36 are an integral part of these financial statements.
These financial statements were approved by the Board of directors and authorised for issue on 04
June 2020 and signed on its behalf by;
Ahmed Zeenad Yooshau Saeed
Managing Director Audit Committee Chairman
Page 5 of 36
SME DEVELOPMENT FINANCE CORPORATION LIMITED
STATEMENT OF CHANGES IN EQUITY
For the period from17 January 2019 to 31 December 2019
(All amounts are in MVR unless otherwise indicated)
Notes
Share
Capital
Reserves
Retained
Earnings Total (MVR)
Balance as at 17 January 2019 -
-
- -
Net Profit for the year ended - - (859,868) (859,868)
Additions 17
265,000,000
-
-
265,000,000
Transfer to reserves - - - -
Balance as at 31 December 2019 265,000,000 - (859,868) 264,140,132
The notes pages 7 to 36 are an integral part of these financial statements.
Page 6 of 36
SME DEVELOPMENT FINANCE CORPORATION LIMITED
STATEMENT OF CASH FLOWS
For the period from17 January 2019 to 31 December 2019
(All amounts are in MVR unless otherwise indicated)
Notes
Period
17 January to
31 December
2019
Cash flows from operating activities
Profit/ (loss) before Tax (859,868)
Depreciation on property,plant and equipment 13 132,024
Amortization of intangible assets 14 7,914
Taxes paid -
Increase/ (decrease) in mandatory deposits with MMA -
Increase in other Assets (1,774,310)
Increase in other liabilities 857,144
(Gain)/ loss on disposal of non-current assets -
Cash flows generated from operating profits before changes in operating
assets and liabilities (1,637,096)
Changes in operating assets and liabilities
(Increase)/ decrease in loans and advances 12 (100,701,005)
(Increase)/ decrease in financial assets 11 (153,326,446)
Net cash (used in)/ generated from operating activities (254,027,451)
Cash flows from investing activities
(Purchase)/ sale of property, plant and equipment 13 (1,642,890)
(Purchase)/ sale of intangible assets 14 (28,491)
Net cash (used in)/from investing activities (1,671,381)
Cash flows from financing activities
Proceeds from issue of capital 265,000,000
Net cash (used in)/from financing activities 265,000,000
Net increase/(decrease) in cash and cash equivalents 7,664,073
Cash and cash equivalents at the beginning of the period -
Cash and cash equivalents at the end of the period 7,664,073
The notes pages 7 to 36 are an integral part of these financial statements.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 7 of 36
1. Reporting entity
SME Development Finance Corporation Limited (“the Corporation”) is a government owned
limited liability company incorporated on 17th January 2019 (Reg No: C00592019) under the
Presidential Decree and domiciled in the Republic of Maldives. The registered office of the
Corporation is H. Pamelia Building, Male’, Republic of Maldives.
The Corporation is a specialized financial institution providing financial products and ancillary
services to micro, small and medium enterprises (MSMEs) and entrepreneurial start-ups with the
primary purpose of easing access to finance for MSMEs. The corporation was given financing
business licence by Maldives Monetary Authority (MMA) to conduct financing business in
Maldives on 28th February 2019 (Licence No: 01/FB/2019).
2. Basis of preparation
2.1 Statement of compliance
The financial reports of the Corporation, which comprises of the Statement of Financial Position,
Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows
and the supporting Notes to the Financial Statements have been prepared and presented in
accordance with International Financial Reporting Standards (IFRS).
2.2 Basis of measurement
The financial statements have been prepared under the historical cost convention except for the
financial instruments that are measured at fair value.
2.3 Functional and presentation currency
The financial statements are presented in Maldivian Rufiyaa, which is the Corporations’ functional
currency. Except otherwise stated, all financial information is presented in Maldivian Rufiyaa.
2.4 Materiality and aggregation
In compliance with IAS 1- Presentation of Financial Statements, each material class of similar
items is presented separately in the financial statements. Items of dissimilar nature or functions are
also presented separately unless they are immaterial.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 8 of 36
Financial assets and financial liabilities are offset and the net amount is reported in the statement
of financial position only when there is a legally enforceable right to offset the recognized amounts
and there is an intention to settle on a net basis, or to realize the assets and settle the liability
simultaneously. Income and expenses are not offset in the statement of comprehensive income
unless required or permitted by accounting standards.
3. Critical accounting estimates, assumptions and judgements
The preparation of financial statements requires the use of accounting estimates which, by
definition, will seldom equal the actual results. Management also needs to exercise judgement in
applying the Corporation’s accounting policies.
This note provides an overview of the areas that involve a higher degree of judgement or
complexity, and major sources of estimation uncertainty that have a significant risk of resulting in
a material adjustment within the next financial year. Detailed information about each of these
estimates and judgements is included in the related notes together with information about the basis
of calculation for each affected line item in the financial statements.
3.1 Going concern
The Board assessed the Corporation’s ability to continue as a going concern and are satisfied that
it has the resources to continue in business for the foreseeable future. Furthermore, the Board is
not aware of any material uncertainties that may cast significant doubt upon the Corporation’s
ability to continue as a going concern and it does not intend either to liquidate or to cease operations
of the corporation. Therefore, the financial statements are prepared on the going concern basis.
3.2 Commitments and contingencies
All discernible risks are accounted for in determining the amount of all known liabilities.
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain
future events or present obligations where the transfer of economic benefit is not probable or
cannot be reliably measured. Contingent liabilities are not recognized in the Statement of Financial
Position but are disclosed unless they are remote.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 9 of 36
3.3 Depreciation of property, plant and equipment
The Corporation reviews the residual values, useful lives and methods of depreciation of property,
plant and equipment and intangible assets at each reporting date. Judgment of the management is
exercised in the estimation of these values, rates, methods and hence they are subject to
uncertainty.
3.4 Impairment of property, plant and equipment and intangible assets
The Corporation assesses the impairment of property, plant and equipment and intangible assets
whenever events or changes in circumstances indicate that the carrying value may not be
recoverable or otherwise as required by accounting standards.
4. Significant accounting policies
The significant accounting policies set out below are adopted in the preparation of these financial
statements
4.1 Financial assets and liabilities
Measurement methods
Ammortised cost and effective interest rate
The amortised cost is the amount at which the financial asset or financial liability is measured at
initial recognition minus the principle repayments, plus or minus the cumulative amortisation
using effective interest rate method of any difference between that initial amount and the maturity
amount and, for financial assets, adjusted for any loss allowance.
Effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial asset or financial liability to the gross carrying amount
of a financial asset (i.e. its amortised cost before any impairment allowance) or to the amortised
cost of a financial liability. The calculation does not consider expected credit losses and the
immaterial transaction cost amounts such as the loan processing fees.
When the Corporation revises the estimates of future cash flows, the carrying amount of the
respective financial assets or financial liability is adjusted to reflect the new estimate discounted
using the original effective interest rate. Any changes are recognised in profit or loss.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 10 of 36
Interest income
Interest income is calculated by applying the effective interest rate to the gross carrying amount of
financial assets, except for the financial assets that have subsequently become credit-impaired, for
which interest revenue is calculated by applying the effective interest rate to their amortised cost.
Initial recognition and measurement
Financial assets and financial liabilities are recognised when the Corporation becomes a party to
the contractual provisions of the instrument. The Corporation initially recognises loans and
advances on the date on which they are originated. All other financial instruments are recognised
on the trade date, which is the date on which the Corporation becomes a party to the contractual
provisions of the instrument .
At initial recognition, the Corporation measures a financial asset or financial liability at its fair
value plus or minus, in the case of a financial asset or financial liability not at fair value through
profit or loss, transaction costs that are incremental and directly attributable to the acquisition or
issue of the financial asset or financial liability, such as fees and commissions.
When the fair value of financial assets and liabilities differs from the transaction price on initial
recognition, the entity recognises the difference as follows:
(a) When the fair value is evidenced by a quoted price in an active market for an identical asset or
liability (i.e. a Level 1 input) or based on a valuation technique that uses only data from
observable markets, the difference is recognised as a gain or loss.
(b) In all other cases, the difference is deferred and the timing of recognition of deferred day one
profit or loss is determined individually. It is either amortised over the life of the instrument,
deferred until the instrument's fair value can be determined using market observable inputs, or
realised through settlement.
Fair value measurement
'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date in the principal or in its
absence, the most advantageous market to which the corporation has access at that date. The fair
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 11 of 36
value of a liability reflects its non-performance risk. When one is available, the Corporation
measures the fair value of an instrument using the quoted price in an active market for that
instrument. A market is regarded as active if transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no
quoted price in an active market, then the corporation uses valuation techniques that maximise the
use of relevant observable inputs and minimise the use of unobservable inputs. The chosen
valuation technique incorporates all the factors that market participants would take into account in
pricing a transaction.
4.1.1 Financial assets
i. Classification and subsequent measurement
From a classification and measurement perspective, the IFRS 9 - Financial Instruments, requires
all financial assets, except equity instruments and derivatives, to be assessed based on a
combination of the Corporation’s business model for managing the assets and the instruments’
contractual cash flow characteristics. The Corporation has adopted IFRS 9 - Financial Instruments,
and classifies all its debt instruments as measured at amortised cost.
The classification requirements for debt instruments are described below:
Debt instruments
Debt instruments are those instruments that meet the definition of a financial liability from the
issuer's perspective, such as loans, government and corporate bonds.
Classification and subsequent measurement of debt instruments depend on:
(a) The Corporations's business model for managing the asset; and
(b) The cash flow characteristics of the asset.
Amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is
not designated as at FVTPL:
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 12 of 36
- It is held with a business model whose objective is to hold assets to collect contractual cash
flows; and
- Its contractual terms give rise on specified dates to cash flows that are solely payments of
principal and interest ('SPPI').
The carrying amount of these assets is adjusted by any expected credit loss allowance recognised
and measured as described in note 12. Interest income from these financial assets is included in
'Interest and similar income' using the effective interest rate method.
Business model assessment
The business model reflects how the Corporation manages the assets in order to generate cash
flows. The Corporation’s objective is solely to collect the contractual cash flows from the assets.
Factors considered by the Corporation in determining the business model for a group of assets
include past experience on how the cash flows for these assets were collected, how the asset's
performance is evaluated and reported to key management personnel, how risks are assessed and
managed
Assessment whether contractual cash flows are solely payments of principal and interest
(SPPI)
Where the business model is to hold assets to collect contractual cash flows, the Corporation
assesses whether the financial instruments' cash flows represent solely payments of principal and
interest (the `SPPI test'). In making this assessment, the Corporation considers whether the
contractual cash flows are consistent with a basic lending arrangement i.e. interest includes only
consideration for the time value of money, credit risk, other basic lending risks and a profit margin
that is consistent with a basic lending arrangement. Where the contractual terms introduce
exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related
financial asset is classified and measured at fair value through profit or loss.
The Corporation reclassifies debt investments when and only when its business model for
managing those assets changes. The reclassification takes place from the start of the first reporting
period following the change. Such changes are expected to be very infrequent and none occurred
during the period.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 13 of 36
ii. Impairment
Identification and measurement of imparment
The Corporation measures and recognizes the provision for financing based on guidelines given
by the Maldives Monetary Authority (MMA) Prudential Regulations on Asset Classification,
Provisioning and Suspension of Interest (Regulation No.2015/R-168), instead of IFRS 9 due to the
various challenges that the Corporation faces to determine the provision under the expected credit
loss model of IFRS 9. The Corporation however, believes that the MMA regulation of Asset
Classification, Provisoning and Suspension of Interest Policy aligns with IFRS 9 as it is also a
forward-looking policy which requires provisons to be created upon recognition of the financial
assets. This model ensures that the provision created is based on the expected credit losses instead
of historical losses. It is a unique model that serves as a stepping stone for a newly established
institution such as the Coporation, to accumulate the data required for expected credit loss
estimation. However, The Corporation inetends to adopt the expected credit loss model approach
to estimation of provisions in the next financial year and become fully compliant with IFRS 9.
General financing loss provision requirement
A general provision on the total unimpaired financing portfolio is established to conservatively
cover any unforeseen losses in the lending (financing) portfolio at the reporting date, but which
have not been specifically identified as such. As per Prudential Regulations, a general financing
loss provision not less than 0.5% based on performing advances and 3% on advances classified as
special mention is established.
De-recognistion of impairment provision
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized (such as the debtor
regularizing financing repayment), the previously recognized impairment loss is reversed by
adjusting the allowance account. Amounts recovered from fully impaired financing receivable are
recognized as income on a cash basis.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 14 of 36
Impairment of available-for-sale investment
At each reporting date an assessment is made whether there is any objective evidence of
impairment in the value of Available-for-sale Financial Assets. Impairment losses are recognized
if and only if there is objective evidence of impairment as a result of one or more events that
occurred after initial recognition of financial asset (a loss event) and that loss event (or events) has
an impact on the estimated future cash flows of the financial asset that can be reliably measured.
The corporation treats available for sale investments as impaired when there has been a significant
and prolonged decline in the fair value below its cost or where other objective evidence of
impairment exists. The determination of what is significant or prolonged requires considerable
judgment. The corporation determines significant generally as 20% or more and prolonged greater
than six months. If the available-for-sale financial asset is impaired, the difference between the
financial asset is acquisition cost (net of any principle repayment and amortization) and the current
fair value, less any previous impairment loss recognized in Statement of Comprehensive Income
is removed from other comprehensive income and recognized in the Statement of Comprehensive
Income.
Specific financing loss provision requirement
Specific provision for impairment of financing is recognized in accordance with Prudential
Regulations No.2015/R-168 by the Maldives Monetary Authority and provisions are made based
on the grading of the financing receivable exposure which is determined on the repayment history
of the individual loans.
LOAN CLASSIFICATION MATRIX
Repayment History
Financial Condition Strong Fair Unsatisfactory
Strong Pass Special Mention Substandard
Satisfactory Special Mention Substandard Substandard
Fair Substandard Substandard Doubtful
Marginal Substandard Doubtful Loss
Unsatisfactory Doubtful Loss Loss
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 15 of 36
Specific financing loss provision is made on the basis of continuous review of all advances to
customers, in accordance with the Prudential Regulation No.2015/R-168 on Asset Classification,
Provisioning and Suspension of Profit issued by the Maldives Monetary Authority on aged
classification of advances as follows:
MMA Minimum
Asset classification or grading Secured Portion Unsecured Portion
Pass or Acceptable 0.5% 0.5%
Special Mention 3% 3%
Substandard (90-179 days) 20% 20%
Doubtful (180-359 days) 25% 50%
Loss (360-719 days) 50% 100%
Loss (720 or more days) 100% 100%
Suspence of interest
(a) Transfer to non-accrual status
A loan or advance is placed on non-accrual if;
i) It is maintained on a cash basis due to deterioration in financial condition or the ability of
the borrower to repay the debt
ii) Full payment of principle and interest is not expected; or
iii) It is non performing unless it is both well secured and in the process of collection.
(b) Write-off of accrued interest
All interest which is accrued but not collected and still carried on the books are written off by the
end of the calendar quarter in which the loan is placed on non-accrual status.
Interest which has already been taken into income and capitalized by increasing the principal
amount of the loan is reversed and written off from the time the loan is placed on non-accrual
status.
(c) Cash basis of income recognition
If a loan is on non-accrual and timely collection of full principals is in doubt, then any cash
payments received are applied only to reduce the principal. However, if the balance left on the
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 16 of 36
books after a partial write off of principal is considered full collectible, then cash payments are
shown as interest income.
In order to assert that a loan is fully recoverable, it is to be supported by a properly documented
credit analysis, including an evaluation of the borrower’s historical repayment performance and
any other relevant factors.
(d) Restoration to accrual status
A loan which is on non-accrual status may only be restored to accrual status when;
i) No portion of principal or interest that is due remains unpaid (no arrears) and full repayment
of all remaining contractual principal and interest is expected
ii) When the loan becomes both well secured and in the process of collection
iii. Modification of loans
The Corporation sometimes renegotiates or otherwise modifies the contractual cash flows of loans
to customers. When this happens, the Corporation assesses whether or not the new terms are
substantially different to the original terms. The Corporation does this by considering, among
others, the following factors:
a) If the borrower is in financial difficulty, whether the modification merely reduces the
contractual cash flows to amounts the borrower is expected to be able to pay.
b) Significant extension of loan term when the borrower is not in financial difficulty.
c) Significant change in the interest rate.
d) Insertation of collateral, other security or credit enhancements that significantly affect the
credit risk associated with the loan.
If the terms are substantially different, The Corporation derecognises the original financial asset
and recognises a 'new' asset at fair value and recalculates a new effective interest rate for the asset.
The date of renegotiation is consequently considered to be the date of initial recognition for
impairment calculation purposes, including for the purpose of determining whether a significant
increase in credit risk has occurred. However, The Corporation also assesses whether the new
financial asset recognised is deemed to be credit-impaired at initial recognition, especially in
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 17 of 36
circumstances where the renegotiation was driven by the debtor being unable to make the
originally agreed payments. Differences in the carrying amount are also recognised in profit or
loss as a gain or loss on derecognition.
If the terms are not substantially different, the renegotiation or modification does not result in
derecognition, and the Corporation recalculates the gross carrying amount based on the revised
cash flows of the financial asset and recognises a modification gain or loss in profit or loss. The
new gross carrying amount is recalculated by discounting the modified cash flows at the original
effective interest rate.
iv. Derecognition other than on a modification
Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the
cash flows from the assets have expired, or when they have been transferred and either
(i) The Corporation transfers substantially all the risks and rewards of the ownership, or
(ii) The Corporation neither transfers nor retains substantially all the risk and rewards of
ownership and the Corporation has not retained the control.
v. Write-off
Financing and debt securities are written off (either partially or in full) when there is no reasonable
expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the
case when the Corporation determines that the borrower does not have assets or sources of income
that could generate sufficient cash flows to repay the amounts subject to the write-off. This
assessment is carried out at the individual asset level. Recoveries of amounts previously written
off are included in 'impairment losses on financial instruments' in the statement of Comprehensive
Income. Financial assets that are written off could still be subject to enforcement activities in order
to comply with the Corporation's procedures for recovery of amounts due.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 18 of 36
4.1.2 Financial liabilities
i. Classifiation and subsequent measurement
Financial liabilities are classified and subsequently measured at amortised cost.
ii. Derecognition
Financial liabilities are derecognised when they are extinguished (i.e. when the obligation
specified in the contract is discharged, cancelled or expired). The exchange between the
Corporation and its original lenders of debt instruments with substantially different terms, as well
as substantial modification of the terms of existing financial liabilities, are accounted for as an
extinguishment of the original financial liability and the recognition of a new financial liability.
If an exchange of debt instruments or modification of term is accounted for as an extinguishment,
any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the
exchange or modification is not accounted for as an extinguishment, any costs or fees incurred
adjust the carrying amount of the liability and are amortised over the remaining term of the
modified liability.
4.2 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary
economic environment in which the entity operates ('the functional currency'). These financial
statements are presented in (MVR) Maldivian Rufiyaa, which is the Corporation's functional and
presentation currency.
(b) Transaction and balances
Foreign currency transactions are translated into functional currency using the exchange rates
prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the income statement.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 19 of 36
4.3 Cash and cash equivalents
Cash and cash equivalents are items which are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value. Cash and cash equivalents include
all bank placements with original maturities of less than three months. Funds restricted for a period
of more than three months on origination are excluded from cash and cash equivalents. Cash and
cash equivalents are carried at amortised cost.
4.4 Offsetting and financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statements of
financial position if, and only if, there is currently enforceable legal right to offset the recognized
amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability
simultaneously. The legally enforceable right must not be contingent on the future events and must
be enforceable in the normal course of business and in the event of default, insolvency or
bankruptcy of the Corporation or the counter party.
4.5 Property, plant and equipment
All property, plant and equipment are stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the items
Subsequent costs are included in the asset's carrying amount or are recognised as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will
flow to the Corporation and the cost of the item can be measured reliably. All other repairs and
maintenance are charged to other operating expenses during the financial year in which they are
incurred.
Depreciation is calculated using the straight-line method to allocate their cost to their residual
values over their estimated useful lives, as follows:
Machinery and other equipment - 5 Years
Computer equipment - 5 Years
Furniture and fixtures - 10 Years
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 20 of 36
The charge for the depreciation commences from the date on which the assets are available for
use. The Corporation recognizes a full month of depreciation expense for an asset in the month of
acquisition, while no depreciation expense will be recorded in the month of the asset's disposal.
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each
reporting date. Assets that are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. An
asset’s carrying amount is written down immediately to its recoverable amount, if the asset’s
carrying amount is greater than its estimated recoverable amount. The recoverable amount is the
higher of the asset’s fair value less costs to sell and value in use.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These
are included in other operating income or other operating expenses, in the income statement.
4.6 Intangible assets
Costs associated with software are capitalised and amortised using the straight-line method over
estimated useful life of 3 years. The carrying amount of intangible asset is reviewed annually and
adjusted for permanent impairment where it is considered necessary.
The estimated useful life for the current period is as follow:
Softwares - 3 Years
4.7 Provision for liabilities and charges
Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount.
They are accrued when the Corporation has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the amount of the obligation can be
made.
4.8 Leases
The Corporation adopted IFRS 16 – Leases, which introduces a single, on-balance sheet lease
accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use
the underlying asset and a lease liability representing its obligation to make lease payments. There
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 21 of 36
are recognition exemptions for short-term leases and leases of low-value items. However, similar
to the previous standard lessors can continue to classify leases as finance or operating leases.
Lease liabilities are measured at the present value of the remaining lease payments. Right-of-use
assets are measured at an amount equivalent to the lease liability, adjusted by the amount of any
prepaid or accrued lease payments, and is presented as a separate line item in the statement of
financial position.
At the reporting date, there are no such leases to be classified and reported in the financial
statements.
4.9 Trade and other payables
Trade payables are accrued when the counterparty has performed its obligations under the contract
and are carried at amortised cost.
4.10 Share capital
Ordinary shares are classified as equity
4.11 Dividends
Dividends on ordinary shares are recognised in equity in the period in which they are approved by
the Corporation's shareholders.
4.12 Current and deferred business profit tax
The tax expenses for the period comprises current and deferred tax. Tax is recognised in the income
statement, except to the extent that it relates to items recognised directly in equity.
The current business profit tax charge is calculated on the basis of the tax laws enacted or
substantively enacted at the balance sheet date. Management periodically evaluates positions taken
in tax computation with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be
paid to the tax authorities.
The provisions for business profit tax is based on the elements of income and expenditure as
reported in the Financial Statements and computed in accordance with the provisions of the
Business Profit Tax Act.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 22 of 36
The Corporation is liable to business profit tax at rate of 15%, if the taxable profit of the year
exceeds MVR 500,000.
Deferred business profit tax is recognised, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. However deferred business profit tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable profit or loss. Deferred business profit
tax is determined using tax rates that have been enacted or substantially enacted by the balance
sheet date and are expected to apply when the related deferred business profit tax asset is realised
or the deferred business profit tax liability is settled.
Deferred business profit tax assets are recognised only to the extent that it is probable that future
taxable profit will be available against which the temporary difference can be utilised.
Deferred business profit tax assets and liabilities are offset when there is a legally enforceable right
to offset current tax assets against current tax liabilities and when the deferred business profit tax
assets and liabilities relate to business profit tax levied by the same taxation authority. Current tax
assets and tax liabilities are offset where the Corporation has a legally enforceable right to offset
and intend either to settle on a net basis, or to reduce the asset and settle the liability
simultaneously.
4.13 Fees, commissions and other income and expenses
Fees, commissions and other income and expenses items are generally recorded on an accrual basis
by reference to completion of the specific transaction assessed on the basis of the actual service
provided as a proportion of the total services to be provided.
4.14 Staff costs and related contributions
Wages, salaries, contributions to the Maldives Government pension funds, paid annual leave and
sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated
services are rendered by the employees of the Corporation. The Corporation has no legal or
constructive obligation to make pension or similar benefit payments beyond the payments to the
statutory defined contribution scheme.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 23 of 36
4.15 Segment reporting
The corporation operated under one segment and offered only conventional loan products during
the reporting period.
5. Net interest income
Interest income
Period 17
January to 31
December
2019
Loans and advances to customers 1,770,531
Financial assets at ammortised cost (Note 5.1) 2,474,266
Funds placed in banks -
4,244,797
Interest Expenses
Other borrowed funds -
Net Interest Income 4,244,797
5.1 Interest Income – Financial assets at ammortised cost
Period 17
January to 31
December
2019
Interest income from investment in government securities 2,474,266
2,474,266
The interest income from investment in government securities include interest income from
treasury bills.
6. Fees and commission income
Period 17
January to 31
December
2019
Loan processing fees 1,731,917
Other fees -
1,731,917
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 24 of 36
7. Personnel costs
Period 17
January to 31
December
2019
Staff salaries and allowances 2,395,517
Ramadan allowance and bonuses 35,800
Board remunerations and fees 922,010
Employee pension contributions 282,695
3,636,021
8. Credit impairment of loans and receivables
Period 17
January to 31
December
2019
Credit impairment charge for the year (Note 12) 1,199,501
1,199,501
9. Other operating expenses
Period 17
January to 31
December
2019
Depreciation (Note 13) 139,938
Marketing and promotion expense 197,547
Repairs and maintenance expense 192,921
Printing and stationery 189,616
Rent expense 540,000
Annual license & registration fees 142,739
Staff training and development 26,497
Travel expenses 24,457
Sundry expenses 51,339
Utilities 160,198
CIB fees 241,650
Bank charges and fines 4,158
Management consultancy fees 90,000
2,001,060
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 25 of 36
10. Cash and short-term funds
2019
Cash on hand 961
Balances at bank 7,663,112
7,664,073
As at the year ended 31 December 2019, the corporation maintained all its bank balances at Bank
of Maldives.
11. Financial assets at amortised cost
2019
Investment in in treasury bills 153,326,446
153,326,446
As at the year ended 31 December 2019, a total of MVR 84,772,392 and MVR 68,554,054 were
invested in Treasury bills which will mature on 06 January 2020 and 13 April 2020 and carry an
interest rate of 3.5% and 4.23% respectively.
12. Loans and advances to customers
2019
Loans to customers 101,900,506
Loans and advances before allowance 101,900,506
Less: Provisions for credit impairment (Note 12.1) (1,199,501)
Loans and advances net of allowance 100,701,005
12.1 Movement in provisions for credit impairment is as follows:
2019
Balance at the begining of the period -
Credit impairment charge for the year 1,199,501
Balance at the end of the period 1,199,501
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 26 of 36
13. Property, plant and equipment
Cost Machinery
and Equip
Computer
Equipment
Furniture
and Fittings 2019
Balance at the begining of the period - - - -
Additions during the period 52,096 1,020,211 570,583 1,642,890
Disposals during the period - - - -
Balance at the end of the period 52,096 1,020,211 570,583 1,642,890
Accumulated Depreciation 2019
Balance at beginning of the period - - - -
Depreciation charge for the period 6,342 97,060 28,621 132,024
Depreciation on disposals - - - -
Balance at the end of the period 6,342 97,060 28,621 132,024
Net Book Value at the end of the period 45,754 923,151 541,961 1,510,866
The Corporation did not dispose of any assets as at the reporting date.
14. Intangible assets
Software 2019
Opening Net book value -
Additions during the period 28,491
Disposals during the period -
Balance at the end of the period 28,491
Accumulated depreciation
Balance at beginning of the period -
Depreciation for the period 7,914
Depreciation on disposals -
Balance at the end of the period 7,914
Net Book Value at the end of the period 20,577
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 27 of 36
15. Other assets
2019
Deposits receivable 181,330
Prepaid expenses 90,000
Discount receivables on Gov. T-bills 798,526
Other receivables 704,454
1,774,310
16. Other liabilities
2019
Deposits from customers 157,815
Corporate credit card 5,365
Accrued and account payables 340,506
Ministry of fisheries and agriculture fund 353,458
857,144
Deposits from customers
Deposits from customers are held as a contingency during the grace period to mitigate the risk of
default. As at the reporting date, no policy has been implemented to award an interest over the
deposits.
Ministry of fisheries and agriculture fund
The Corporation was appointed to manage, inspect and administer a loan Scheme fund of an
amount of Three Million Rufiyaa for financing the “Kan’dufalhuge Nafa” (A.Dh. Mahibadhoo Ice
Plant) Loan Program, the purpose of which is to promote and facilitate Fisheries development
isheries communities. The Corporation receives an administrative fee of 1% of the outstanding
principle of the loan balance payable on an annual basis.
The Corporation did not seek any additional debt funding as at the reporting date.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 28 of 36
17. Share capital
Number of Shares Ordinary
Shares
As at 31 December 2019 26,500,000 265,000,000
26,500,000 265,000,000
Authorised share capital comprises of MVR 1,000,000,000 (100 million shares @ 10/share).
The total paid up number of ordinary shares as at 31 December 2019 was 26,500,000 with a par
value of MVR 10 per share.
The Corporation is owned by the Government of Maldives with a majority shareholding of 85%
and shares of the three City Councils, i.e. Male’ City, Fuvahmulah City and Addu City with each
council holding 5% shareholding respectively
18. Risk management
Risk management is an ongoing process of identification, measurement and monitoring, and is
subject to risk limits and internal controls as outlined in the Corporation’s risk management policy.
The Corporation’s most significant risk exposures are considered to be in the areas of credit risk,
liquidity risk, market risk and operational risk. The impact of other risks such as reputational risk,
compliance risk and legal risk are also monitored carefully along with external risks such as
changes in the political, regulatory and economic environment. During the year, the Corporation
has exposure to the following risks from its use of financial instruments:
a. Credit risk
b. Liquidity risk
c. Market risk
d. Operational risk
Risk management objectives, policies and process
The primary objective or risk management is to forecast and assess the future uncertainty of the
future in order to make the best possible decision in the present, in order to protect the
Corporation’s stability and financial strength. The Corporation’s risk management policies are
established to identify and analyze risks facing the corporation, to set appropriate risk limits and
controls, and to monitor adherence to these limits and controls. All risk management policies are
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 29 of 36
reviewed regularly to address and reflect, changes in market conditions, portfolio or products and
services offered by the Corporation as well as prevailing regulatory requirements.
The Corporation's Board of Directors has overall responsibility for the establishment and oversight
of the Corporation's risk management framework. The Corporation's risk management policies are
established to identify and analyze the risks faced by the Corporation, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. The risk management policies and
systems are reviewed regularly to reflect changes in market conditions and the Corporation's
activities. The Corporation, through its training and management standards and procedures, aims
to develop a disciplined and constructive control environment in which all employees understand
their roles and obligations.
The Audit Committee oversees how management monitors compliance with the Corporation's risk
management policies and procedures and reviews the adequacy of the risk management
framework in relation to the risks faced by the Corporation. The corporations Audit Committee is
assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc
reviews of risk management controls and procedures, the results of which are reported to the Audit
Committee.
Board audit committee
During the year, the board risk management committee was not established, however this function
was absorbed into the duties of the Board Audit Committee. The Board Audit committee reviews
the effectiveness of the Corporation’s risk management framework related to the identification,
measurement, monitoring and controlling of risks. The committee also reviews and monitors the
integrity of the Corporation’s financial statements and financial reporting process and its systems
of internal accounting and financial controls. In addition, the committee reviews and challenges
where necessary the consistency of, and any changes to, accounting policies. The committee
reviews the compliance of the Corporation with legal and regulatory requirements including its
disclosure requirements, controls and procedures. Furthermore, the committee reviews the
engagement of the external auditors and the evaluation of the independence, objectivity and
performance of the external auditors.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 30 of 36
Board credit committee
The Board of Directors has delegated the responsibility for the oversight of credit risk to the Board
Credit Committee up to a specific level and the Committee's responsibilities include reviewing
and approving credit proposals in line with the Corporation's approved authority thresholds.
Asset and liability management committee
The Asset and Liability Management Committee is responsible for ensuring the Corporation
manages its liquidity in the most productive and prudent manner in compliance with the its Risk
Management Policy. The Committee reviews key risks such as liquidity risk, interest rate risk,
currency risk and market risk.
Management credit committee
The Management Credit Committee is a credit approving committee with responsibilities
delegated up to a specific level and the Committee's responsibilities include reviewing and
approving credit proposals in line with the Corporations's approved authority thresholds.
Credit risk
Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial
instrument fails to meet its contractual obligations and arises principally from the Corporation’s
financing to customers and investment in securities. For risk management reporting purposes, the
Corporation considers and consolidates all elements of credit risk exposure (such as individual
obligor default risk, country and sector risk).
The market risk in respect of changes in value in trading assets arising from changes in market
prices applied to securities and specific assets included in trading assets is managed as a
component of market risk. The Corporation’s exposure to credit risk is influenced mainly by the
individual characteristics of each customer. There is no concentration of credit risk geographically.
The Corporation’s credit risk management process broadly encompasses the following:
(a) Loan origination and risk appraisal comprising initial screening and credit appraisal are
conducted for all loan proposals.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 31 of 36
(b) Clear guidelines and policies have been established for loan approvals within delegated credit
approval authorities.
(c) Loan Administration department ensures that the origination and disbursement of credit is
made only after stipulated conditions have been met and relevant security documents obtained
in order to protect the Corporation's rights as lender.
(d) Timely portfolio reviews are performed pertaining to inherent and evolving risk. Additionally,
responsibilities for monitoring and tracking any early warning signals pertaining to a
deterioration in the financial health of borrowers have been assigned to the respective business
units who are also responsible for identifying and managing any customers who need special
attention or close monitoring.
(e) Non-performing loans and receivables are managed effectively by monitoring the value of the
applicable collateral and liaising with the customer until all legal recovery matters are
finalized.
Concentration of credit risk
The Corporation reviews the on regular basis its concentration of credit granted in each of the
products offered. The diversification was made to ensure that an acceptable level of risk in line
with the risk appetite of the Corporation is maintained. The diversification decision is made at the
Asset and Liability Management Committee, where it sets targets and present strategies to the
Management and optimising the diversification. All departments of the Corporation are advised
on the strategic decisions taken in diversification of the portfolio and to report to Asset and
Liability Management Committee the trends of applications for credit facilities accordingly. The
Corporation monitors concentration of credit risk by industry and by whether the customer is a
business customer or an individual customer. An analysis of concentrations of credit risk from
financing and advances to customers and financing commitments and financial guarantees issued
are shown below:
Sector Gross Financing
Agriculture 2,400,000 2%
Commerce 39,140,363 38%
Construction 7,834,396 8%
Fishing 8,800,620 9%
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 32 of 36
Information technology 695,178 1%
Manufacturing 5,304,696 5%
Tourism 30,577,935 30%
Transport 7,147,317 7%
Grand Total 101,900,506
Liquidity risk
Liquidity risk is defined as the risk that the Corporation will encounter difficulty in meeting
obligations associated with financial liabilities that are settled by delivering cash or another
financial asset. Liquidity risk arises because of the possibility that the corporation might be unable
to meet its payment obligations when they fall due under both normal and stress circumstances.
Liquidity risk management
The Corporation's management reviews the asset and liability position of the Corporation on a
regular basis to ensure that there is no mismatch of assets and liabilities. The Corporation’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when they are due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Corporation’s reputation.
Monitoring and reporting take the form of cash flow measurement and projections on a regular
basis. The starting point for projections is an analysis of the contractual maturity of the financial
liabilities and the expected collection date of the financial assets.
Less than 3
months
3 to 12
months 1 to 5 years
Over 5
years Total
(MVR ‘000)
Financial assets
Cash 1 1
Balances at depository
Institutions 7,655 7,655
Debt securities 153,335 153,335
Accrued interest
Receivable 203 203
Loans and receivables to
customers 1,993 35,490 64,444 101,927
Other assets 555 181 736
Non-financial assets 1,604
161,749 1,993 35,671 64,444 265,461
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 33 of 36
Financial liabilities
Accounts payables 19 19
Miscellaneous liability
Items 63 152 353 568
Provision for losses 1,209
Accumulated
Depreciation 138
82 - 152 353 1,934
Maturity Gap 161,667 1,993 35,519 64,091 263,527
Cumulative Maturity Gap 161,667 163,660 199,179 263,270
Market risk
Market risk relates to the impact of fluctuations in market rates on the Corporation’s assets and
liabilities, or the risk that the fair value or future cash flows of financial instruments will fluctuate
due to changes in market variables such as interest rates, foreign exchange rates and equity prices.
The Corporation does not have a trading portfolio or quoted equity investments. Therefore, the
Corporation is not open to any equity price risk.
Operational risk
Operational risk is the loss resulting from inadequate or failed internal processes, people and
systems or from external events. The Corporation manages and controls operational risk by
identifying and controlling risks in all activities according to a set of pre-determined parameters
by applying appropriate management policies and procedures.
19. Capital management
The Corporation’s objectives when managing capital are:
To comply with the capital requirements under the Maldives Monetary Authority (MMA)
Prudential Regulation on Capital Adequacy
To safeguard the Corporation’s ability to continue as a going concern so that it can continue to
provide returns for shareholders and benefits for other stakeholders
To maintain a strong capital base to support the development of its business.
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 34 of 36
The regulatory capital is divided into two tiers:
Tier 1 Capital: Share capital, retained earnings and reserves created by appropriations of
retained earnings; and
Tier 2 Capital: Current year earnings, general provision and qualifying subordinated loan
capital.
Risk-weighted assets reflect an estimate of credit, market and other risks associated with each
asset and counterparty, considering any eligible collateral or guarantees as per Maldives Monetary
Authority Prudential Regulation on Capital Adequacy. A similar treatment is adopted for off-
balance sheet exposures, with some adjustments to reflect the more contingent nature of the
potential losses.
The table below summarizes the composition of regulatory capital and the capital adequacy ratios
of the Corporation for the year ended 31 December 2019.
2019
Tier 1 Capital
Share capital 265,000,000
Reserves -
Retained earnings -
Total qualifying Tier 1 capital 265,000,000
Tier 2 Capital
Current earnings (859,868)
General provision 1,014,488
Total qualifying Tier 2 capital 154,620
Total regulatory capital 265,154,620
Risk Weighted Assets
Loans and advances 100,701,005
Balances at banks 1,532,815
Non-financial assets net of depreciation 1,531,442
Other assets 1,774,310
On-balance sheet 105,539,572
Off-balance sheet 90,775,449
Total risk weighted assets 196,315,021
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 35 of 36
Tier 1 Capital Adequacy Ratio 134.99%
Total Capital Adequacy Ratio 135.07%
The Corporation complied with all Maldives Monetary Authority regulatory capital requirements
during the year.
20. Reserves
The Corporation did not maintain any reserves as at the reporting date.
21. Commitments
2019
Loan commitments
Undisbursed loans 90,775,449
90,775,449
22. Related party transactions
The Corporation has identified and disclosed personnel having authority and responsibility for
planning, directing and conrolling the activities of the Corporation as ''key management personnel''
in accordance with IAS 24 - Related party disclosure. Accordingly, the Board of Directors and
Managing Director have been identified as ''key management personnel''.
During the year end 31 December 2019, total remuneration paid to Directors including Managing
Director was MVR 922,010.
23. Events after the reporting period
No events have occurred since the reporting date which would require adjustment to figures in the
financial statement. However, Since the reporting date, there has been a global pandemic caused
by the spread of Covid-19 which is expected to significantly affect both the local and global
economies.
In response to Covid-19, the Corporation has decided to issue a moratorium on the outstanding
portfolio of the Corporation. The moratorium is applied to all loans disbursed up to and during the
moratorium period (The moratorium is applied to all sectors and customer segments). However,
SME DEVELOPMENT FINANCE CORPORATION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
For the period from17 January 2019 to 31 December 2019 All amounts are in MVR unless otherwise indicated
Page 36 of 36
all customers will have option to opt for payment. The moratorium period is effective from 1st
March 2020 for six months till 31st August 2020. The Interest rate of all disbursed loans is reduced
to 4% during the moratorium period. Further, the interest during the period will not be capitalized
in to loan amount outstanding.
No other circumstances have arisen since the reporting date which would require adjustments to,
or disclosure in, the financial statements.