fianal report fmfb

INTERNSHIP REPORT(1st Draft)

The First MicroFinance Bank Ltd.

Specialization: Human Resource Management

Submitted to: Chairman Department of Business Administration

Submitted by:

Name: Adeel Ahmed ShakreeRoll No: W586224Reg: 07-PBK-0042

Mailing Address: C/O Madina Photo Copy House43- B Shan Arcade Barkat Market New Garden Town, Lahore.

Contact: 0346-44525425Date of Submission: 01-September-2013

ALLAMA IQBAL OPEN UNIVERSITY - ISLAMABAD

1

First of all, In the name of Allah the most merciful who blessed me to learn and gain

knowledge. He is the beneficent, gracious to all mankind, who has given me power,

abilities and blessed me to complete all works in my whole life. After that I would like to

extend gratitude to Management of Allama Iqbal Open University, Islamabad (Lahore

Campus) and my class fellows who helped me in understanding the various aspects of our

study and my supervisors who afforded me the opportunity to intern at The First

MicroFinance Bank Ltd.

Secondly, I would like to thank Mr. Habib Ullah Shakree (Brother) who pushed me up to

continue my studies for the Masters Degree. During this course till last semester, he

helped me a lot for my studies and assignments.

Allah will bless all of the angels (Tutors, Class Fellows, Friends & Colleagues) for their

assistance and help during my course study.

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Acknowledgements

Acknowledgements

1- History of Organization …………………. 4

2- Nature of Organization …………………. 5

3- Business Volume …………………. 6

4- Product Line …………………. 7

5- Overall Detail Structure …………………. 24

6- Departments …………………. 28

7- Role of Managers …………………. 34

8- Funds Management …………………. 47

9- Data Analysis …………………. 53

10- Competitors …………………. 75

11- Recommendations & Suggestions …………………. 77

12- References …………………. 80

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Table of ContentsTable of Contents

Poverty has been steadily rising in Pakistan; the provision of financial services to

the poor is an important component of the government’s poverty alleviation program.

The Aga Khan Rural Support Programmer’s (AKRSP) highly successful micro credit and

saving’s initiative has been serving some of the country’s poorest populations since 1982.

Since 1990, the AKDN was trying to institutionalize this program; however there was no

regulatory ordinance under which the entity could be created. Perseverance paid off and a

new ordinance was promulgated in October 2001 to promote the provision of the

Microfinance by private sector institutions. It is in this context that the Aga Khan

Development Network has established The First MicroFinance Bank Ltd as a way

forward to provide an array of financial services to the neglected segments of society

across Pakistan by expanding the scope and product range of a micro-credit program.

The Bank has been established as a non-listed public limited company under the

provisions of the Companies Ordinance (1984) in November 2001 and licensed as a

MicroFinance institution under the provisions of the MicroFinance Institutions ordinance

2001 in January 2002. The principal sponsors and shareholders are the Aga Khan Rural

Support Programme (AKRSP) and the Aga Khan Fund for Economic Development

(AKFED). The initial paid-up capital of Rs. 500 million has now increased to Rs. 660

million, after IFC (a member of the World Bank Group) has invested Rs. 160 million and

become a partner. The authorized Capital is Rs. 1.0 billion to allow for growth.

The Bank will reach out to disadvantaged populations throughout the country not

currently able to access financial services in rural and urban areas. The Bank aims to

serve these people with dignity and respect. Specific emphasis on vulnerable groups,

women in particular, is a governing principle of the institution. To ensure its

sustainability, the Bank aims to fully cover its inflation-adjusted costs with its revenues

and will lend to individuals and through them to groups. Savings will be mobilised from

individuals, groups and institutions.

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Brief History of OrganizationBrief History of Organization

In order to maintain its vision The First MicroFinance Bank is committed to:

To improve the living standards and promote the concept of micro-credit and

other financial services for underserved, neglected groups, particularly women.

Be an institution to promote habit of savings amongst the under privileged and

optimize return on their resources.

Be a bank, which adopts best practices in all its endeavors.

Treat each employee fairly and with mutual respect. The Bank does not tolerate

discrimination of any kind and encourages all managers and supervisors to

involve employees in the creativity process. If problems arise, the facts should be

analyzed to determine ways to avoid similar problems in the future.

Foster an open door policy, which encourages interaction, discussions and ideas

to improve the work environment, thus increase our productivity.

Deliver competitive, impeccable service to our customers.

Make “Do it Right The First Time” Bank commitment as a team will assure

continued growth and prosperity.

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Nature of Organization

Nature of Organization

Last five year Business volume of the organization is mention below:-

2004 2005 2006 2007 2008

Investment 101,542,689 149,771,763 75,352,555 545,684,356 549,214,503

Deposit 392,000,000 469,000,000 651,000,000 925,000,000 2,036,000,000

Revenue 5,951,946 721,470 19,440,098 -27,788,819 -106,593,219

Advances 677,656,815 758,358,057 674,215,332 1,193,609,274 2,067,750,648

Annual Report The First Micro Finance Bank ltd 2004





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Business Volume of OrganizationBusiness Volume of Organization

Source Source

Deposit Product

The objectives of The First MircoFinanceBank Ltd (FMFB) are to encourage the

habit of savings amongst the poor people by deposits mobilization. It is the important

tools to graduate the poor people out of the poverty trap. Staff should give proper

attention to service the customer satisfactorily. If the customer is not satisfied with the

service, it will create a negative image for the bank. In the light of the fact that deposits is

one of the most important components of our business, operational procedures are well

elaborated, clearly defined and correctly applied so as avoid any operational error which

may lead to any false commitment. Realizing the importance of building assets for the

poor through encouraging saving, The First MicroFinanceBank was the first to introduce

saving accounts along with credit and life insurance service for the poor in Pakistan. Any

individual can open a deposit account with FMFB for Rs. 5 only and maintain the

account without any minimum balance. The Bank offers competitive market based rate of

return. Deposit product which bank offers are as:-

First Gharana Bachat Account

First Current Account

First Term Deposit Account

First Micro Cash Maximiser Account

First Bachat Tanzeem

First Gharana Bachat Account

Gharana Bachat Account is PLS Saving account and this account is offered only

individual customer. This account is open Rs.5/- The interest rate which bank offer on

Gharana Bachat Account is mention below:-

Up to Rs 25,000 6%

Rs 25,000 to Rs.1, 000,000 4%

Rs 1,000,000 to Rs.5, 000,000 6%

Over Rs 5,000,000 6.50%

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Product LineProduct Line

First Current Account

First Current Account is offered only individual customer. This account is open Rs.5/-.

This account has many special feature.

First Term Deposit Account

Term Deposit Account is offered with a minimum investment of Rs. 5,000. The interest

rate which bank offer on First Term Deposit Account is mention below:-

1 Month 7%

3 Month 8%

6 Month 8.75%

1 Year 9.75%

First Micro Cash Maximiser Account

The interest rate which bank offer on Micro Cash Maximiser Account is mention

below:-

Rs 25,000 to Rs.1, 000,000 3%

Rs 1,000,000 to Rs.5, 000,000 4%

Over Rs 5,000,000 5%

To enable the poor to effectively capitalise on economic opportunities to allow

access to basic social services and facilitate capital formation through entrepreneurial

activities. FMFB offers a range of targeted loan product catering to the diverse financial

needs of the poor in the mountainous and plain rural areas, as well as urban centres of

Pakistan. Micro credit for economic activities ranging from farm and nonfarm based

activities, manufacturing and trade services are offered to micro entrepreneurs, with

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Loan ProductLoan Product

special emphasis on the vulnerable poor, especially women. Cognisant of the needs and

dynamics of micro businesses, FMFB has adopted cash flow based lending methodology

that takes into account both the amount and frequency of the borrowers cash flow to

determine the repayment schedule. All loans are insured by and insurance company in

case of the death or permanent disability of the borrower. No tangible collateral is

secured from the borrower. The products which offer the bank are as:-

First Karubari Sarmaya

Urban Group Financial Services

Village Group Financial Services

Micro-Enterprise Finance

Low Salary Employee Loan

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First Karubari Sarmaya

The First MicroFinanceBank Ltd is a licensed microfinance institution regulated

by the State Bank of Pakistan. Its primary objective is to deliver financial services to the

poor for income generating activities and employment creation at gross root level. It has

been recognized that there is a mass level of poverty exists in urban areas which have not

yet been effectively served through financial services. This clientele base live in slums,

kachiabadies and basties. Having varied and specialized skills for income generating

activities and easily accessible markets there is a great need for convenient and accessible

financial services for these population. FMFB is planning to intervene in these areas

through a structured group lending methodology, a modified form of the urban group

lending approach used in Pakistan to reach a large number of population. The objective is

to achieve outreach to a maximum number of poor people by providing them access to

loan services with minimum volatility based on a sound loan portfolio. Loan policies area

formulated to support the Bank’s business strategies. Providing loan services is an

integral part of the business development. Loan processes and management should be

geared towards avoiding losses, but at the same time it should ensure efficiency both in

terms of response time and client needs. In order to provide loans to micro businesses in

the Urban Areas of the country this new loan product has been designed. The main

objective of the product is to provide access to financial services to the poor segment in

major population centers in Pakistan. To provide platform to the disadvantaged

community to enable linkage development, education and capacity building of group

members.

Urban Group Financial Services

The FirstMicroFinance Bank designed its intervention for the urban areas of

Pakistan. Urban Group Financial Service meet the need of the poor population, this

product provide sources of funds for areas specific productive investments, i.e.

investment that yield competitive returns that commensurate with risk. Urban Group

Financial Services (UGFS) provide access to financial services to the poorest segment in

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major population centres and to provide a platform to the disadvantages community to

enable linkage development, education and capacity building of group members.

Village Group Financial Services

Rural areas account for 112 MM people an estimated 68% of Pakistan’s

population according to World Bank report 2004-05 34 MM people in rural areas are

poor. Although as reported, the real agriculture GDP per capita rose by 7.4% between

2001-02 and 2004-05.This is the major reason that bank introduce Village Group

Financial Service product. This product is designed for rural area. The villagers are

engaged mostly in economic activities related to agriculture and livestock, generating a

major portion of their income from these two sectors. Financing is required to finance

input and stock holding period, processing, packaging and marketing of the non farm

sector. FMFB offer financial services to development of social and human capital people

need financing to meet lump sum housing, educational and health related expense.

Micro-Enterprise Finance

Micro Enterprise Finance is a credit product. This product is offered those people who

did not want to make a group of 15-25 members. The special feature of this product is its

group size. Micro Enterprise Finance is running in rural and as well as urban area.

Low Salary Employee Loan

Low Salary Employee Loan is offered to the employee of government, semi government

and private employee. Those employees can get the facility of low salary employee loan

those salary is less than the taxable limit.

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Business Development Services

Based on its vision, FMFB has institutionalized Business Development Services (BDS)

as an integral part of its operations. The BDS activities focus on developing

entrepreneurial capacities and providing opportunities for capital formation to the chronic

poor segment, which in turn will make them bankable. Undertaking an intra-enterprise

approach, FMFB currently offers market-driven intensive business start up and

management trainings coupled with mentoring services to facilitate business set up and

growth.

Account Opening Procedure and Types of Accounts

Account Opening

To open an account in FMFB should know the customer. For this purpose the conditions

given, staff should fulfill “Know Your Customer” be approved by the concerned Branch

Manager or the Officer authorized by FMFB in this regard. To open an account branch

operation Incharge fulfill these requirements:-

Account Opening Procedure

A customer desiring to open an account in the Bank shall submit in the

prescribed form an application for opening an account.

The customer must be introduced as required. The introduce must be person

holding an account holder of another bank then his signature should be

verified by the authorized official of that bank.

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Non Financial ProductNon Financial Product

The account opening forms should be completed by the person himself or with

the assistance of any other officer of the bank.

The account opening form should be complete.

Copy of CNIC or a copy of Passport should attach with the accounts opening

form.

The signed copy of the terms and conditions governing should attach with the

accounts opening form.

In two different places, the specimen signature cards should signed to ensure

the identical signature by the account holder.

Please check the all “Types of accounts and documentation”. The list of

documents required for different types of accounts.

Know Your Customers

The “Know Your Customer” policy of FMFB is primarily to identity

customers who are involved in any kind of illegal activity including money

laundering.

FMFB shall open accounts only of persons known to the staff of the Bank or

introduced to the Bank by an existing account holder or by another Bank.

State Bank of Pakistan and the Government of Pakistan require that Banks

ascertain customer’s status and their source of income before opening an

account.

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First impression on our customer has a long lasting effect. As an account is

opened, welcome the customer with a smile to the FMFB family. Do

introduce yourself to him and encourage him to introduce himself to you and

tell you about his business place and about his profession or business activity.

These above notes will be keep with account opening form for record.

Specimen Signature Card

This is obtaining to verify the signature of the account holder.

It should be kept serially numbers and locked in fireproof steel cabinets.

On SSC, two signatures are should be from the customer.

The signature obtained on the card is duly admitted by the officer concerned

for scanning into the computer and customer’s record.

Minimum Balance

No prescribed minimum balance requirements for maintaining a PLS savings Account or

a Current Account. The minimum balance for Micro Cash Maximizer Account has been

fixed at Rs: 500,000/- and profit on the balance is calculated on daily product basis.

Account Number

Each customer shall be allotted a system generated distinctive account

number, which should be quoted in all correspondence with the bank relating

to the account.

The account number allotted should also be noted on the account opening

form and the specimen signature card.

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Deposit Slip and Depositing Money

After completion of the formalities, a deposit slip is issued to the customer for

depositing initial cash deposit is completed.

The depositor is then directed to the cashier who receives cash and writes the

amount received on the deposit slip and puts his full signature.

On the back of the deposit slip the denominations of notes received are to be

noted by the cashier.

The amount received is then input into the eRapid application against the

concerned customer’s account.

The cashier puts a cash received stamp on the deposit slip after the AMO has

initialed it. The customer’s copy is then returned to the concerned depositor.

Letter of Thanks

A letter of thanks is sent of all new account holders and the introducer.

Office copy of the letter should be attached with account opening form for

record.

Filing an account opening Form

The account opening forms, specimen signature cards, know you customer

information, CNIC and other relevant documents are pasted in numerical

order which are kept as permanent record.

These files are kept in fireproof steel cabinets because these forms are basic

documents of the contract with the customer.

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Types of Accounts offered by The First Micro Finance Bank Ltd

Individual or Personal Account

Definition:

This account is for the personal use of customer only one-person can holds this account

for its personal use.

Documents Required

1. Account opening Form should be completed with all the respects.

2. This account is open on the name of person on the prescribed account opening form.

3. The form should be completed.

4. Kinship detail should be completed.

5. Title of account should be written with the correct spelling.

6. Complete and sign the specimen signature cards.

7. Copy of the CNIC of the account holder is should attached with the account opening

documents

8. ‘Original seen’ stamp should be affixed on the copy of CNIC, and verification should

be done by the concerned staff.

9. Complete account documentation checklist.

Joint Account

Definition:

Account in the name of more than one person is known as “Joint Account”. It is used

either for business or for any other purpose.

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Documents Required:

1. Account opening form should be completed.

2. The form is to be completed in all respects by all the persons.

3. Ensure that survivorship details are fully completed.

4. The title of account should be written with the correct spelling.

5. Ensure that the account opening forms and specimen signature cards must clearly

express the account operating instruction, i.e. whether the account is be operated by

either or survivor or operated jointly.

6. Complete and sign the specimen signature cards.


documents


be done by the concerned staff


Minors Account

Documents Required

1. Those who are under 18 years old are treated as minors. The Branch Manager must

first approve all such accounts.


3. The legal guardian must be identified first on all documents.

4. The operation of account must be marked as “for” or “on” behalf of the name of

minor and signed by the guardian.

5. The form is to be completed in all respect.

6. Ensure that minor detail are fully completed.

7. Completed and signed specimen signature cards.

8. Photocopy of the CNIC of the guardian.

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be done by the concerned staff

10. Photocopy of Form “B” of the minor.


Account of Illiterate Person

Definition:

The person who can’t sign or their handwriting is not firm, are treated as illiterate or

semi-illiterate people.

Documents Required


2. Three passport size photographs of such account holder are obtained and attached

with the account opening form.

3. To avoid the photograph being mixed up with some other account, the name of

the account holder and the account number should also appear in the

photograph itself.

4. Whenever he wants to draw money or give any instruction to the Bank in respect

of his account, he would personally come to the Bank or any other

designated place, sign the withdrawal or mandate in the presence of

officer of the branch where he maintains, his account, and get his

signature attested by such officer.

5. This account is opened in the name of the person on the prescribed account

opening form.

6. Ensure that kinship details are fully completed.

7. Completed thumb impression (Specimen Signature) cards.

8. Copy of the CNIC of the account holder is should attached with the account

opening documents

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9. ‘Original seen’ stamp should be affixed on the copy of CNIC, and verification

should be done by the concerned staff.

10. Obtain a letter indemnifying bank in case of fraud/forgery in the account.

Account of Proprietorship

Definition

Firms owned by individual proprietors are called proprietary firms.

Documents Required


2. Only current deposit accounts are opened for proprietary firms.

3. In such cases where a person is sole proprietor of a firm, he/she write the name of

the firm in the prescribed column of the firm.

4. The proprietor declares that he/she is the sole proprietor of the firm and

undertakes to inform the bank of any change in the constitution of the firm

in the following way: “I am the sole proprietor of M/s. as written

in the prescribed column of the Account Opening Form” and

undertake to inform the bank of any change in its constitution”.

The signature of the proprietor must be taken under the

declaration.

5. The signature of the proprietor is obtained in his/her personal capacity under this

declaration. It means that the proprietor will not sign over the stamp of the

firm declaring himself/herself as proprietor.

6. In case of death of the proprietor, any authority given to the manager ceases.

7. The account is opened in the name of the firm on the prescribed account opening

form.

8. The form should be completed in all the respects.

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9. The title of account should be written with the correct spelling.

10. Copy of the CNIC of the account holder is should attached with the account

opening documents



Account of Partnership Firm’s

Definition:

Partnership is the relation between person who has agreed to share the profit of the

business, carried on by all or by any of them acting for all. OR

The partner is the agent of the firm having powers to execute transactions for the purpose

of the business of the firm.

Documents Required:


2. The account should therefore, be closed and a new account in place thereof should

be opened with the remaining partners, after all the legal formalities are completed by

the remaining partners.

3. In case of retirement or admission of a new partner, the existing account should

be closed a new account in place thereof should be opened.

4. In case of death of a partner, the firm stands dissolved.

5. The names of all the partners along with any special instruction are mentioned or

written in the account opening form and the specimen signatures of all the partners

should be obtained.

6. Copy of the CNIC of all the partners should attached with the account opening

documents

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Account of Private/Public Limited Company’s

Documents Required:


2. Copy of CNIC of each director.

3. Copy of certificate in corporation.

4. Certified true copy of Memorandum and articles of association.

5. Copy of resolution of Board of Directors to open the account.

6. List containing names of directors

7. List of authorized signatories with specimen signature, clearly identifying account

operating requirements.

8. Copy of commencement of business, in case if a Public Limited Company.

9. The form should be completed in all respect.


documents



Account of Association, Societies and Clubs’

Documents Required


2. Copy of rules and regulation should be attached.

3. Copy of resolution of managing committee or governing body or executive council

regarding opening and conduct of the account.

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4. Certified list containing names, addresses and signatures of signatures of office

bearers.

5. Copy of the CNIC of the account holders should attached with the account opening

documents.

6. A resolution to the above effect shall be signed by both the outgoing and incoming

managing committee.

Account of Executors and Administrators

Definition of Executor

An executor is a person to whom the execution of a will is entrusted by the testator.

Definition of Administrator

An executor is the person who is appointed by the court to look after the estate of the

deceased who has left no will or has not named any person and the heirs are minor.

Documents Required:

1. The executor produces the will in a competent court and the court issues a “Letter of

Probate”

2. The letter issued by the court for administrator is called “Letter of Administrator”

3. Account of executor and administrators should only be opened with the prior

permission of COO from the Head Office.

4. All the administrator, if more that one shall sign or by all the executors to whom

probate has been granted for opening the account. The Letter of probate or letter of

administration shall be duly registered at the branch.

5. Clear instruction with the signatures of all the administrators or all the executors

should be obtained to determine as to which of the executors or administrators shall

operate the account.

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6. When such instructions are revoked by anyone of the executors or administrators,

further operations in the account shall be allowed only under the joint signatures of all

the executors and/or administrators.


documents



Account of FMFB Staff

Definition:

The account that is open for the staff or their spouse is called “Staff Account”

Documents Required

1. Such account must clearly be marked as “Staff Account”

2. In the system these account are to be held separately by unique identification.

3. The Branch Manager or authorized staff member should monitor these accounts

separately and investigate large and unusual transactions whenever necessary.

4. The form should be completed in all respects.


documents



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Organizational Structure:

Departments

Managers

Asst. Manager

Team Leaders

MicroFinance Officers

Branch Operations Incharge

Teller

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The First MicroFinace Bank Ltd.The First MicroFinace Bank Ltd.

PresidentPresident

Product

Product

FinanceFinance Business

Business

RMDRMD Audit

Audit

HRDHRD

Operations

Operations

AdminAdmin

The banking sector in Pakistan is highly regulated. As the Central Bank of the country,

the State Bank of Pakistan regulates the banking sector with full autonomy. In general,

State Bank of Pakistan is responsible for licensing, directing, supervising, controlling and

inspecting banks, and for exercising various monetary control policy measures. In

addition, the Securities and Exchange Commission of Pakistan also monitors the

operations of the listed banks in so far as they relate to public shareholding matters. The

banking sector in Pakistan consists of Commercial Banks, Islamic banking, Micro

Finance Banking and Specialized Banking Institutions

25

Overall Structure of Organization

Overall Structure of Organization

Baghbanpura branch located in Lahore, its start its operation in 2005 as a point of link

(POL) and upgraded in early 2008. Designation wise staff position of the Branch is as

under-

Ser Designation Strength

1. Branch Manager 01

2. Branch Operation In charge 01

3. Team Leader 01

4. Team Leader PPO 01

5. Customer Relation Ship Officer 01

6. Teller 01

7. Account Officer 01

8. Micro Finance Officer 08

Total 15

Business position of the branch is as under:-

2004 2005 2006 2007 2008

Deposit 0 0 0 0 44,210,200

Loan Disbursed 0 4,365,000 25,712,000 49,657,900 80,941,900

Loan

Outstanding

0 3,846,000 13,556,745 14,443,510 19,162,183

NPL 0 0 0 58,256 845,472

26

Structure of Dharampura Branch

Structure of Dharampura Branch






27

Source Source

Risk Management Department

Risk Management is a discipline at the core of every financial institution and

encompasses all the activities that affect its risk profile. It involves identification,

measurement, monitoring and controlling risk to ensure that:

The individual who take or manage clearly understand it.

The organization’s risk exposure is within the limits established by the

management.

Risk taking decisions are in line with business strategy and objectives set by the

management.

Risk taking decisions are explicit and clear.

Sufficient capital as a buffer is available to take risk.

The mission of risk management department is to develop strong culture of internal

control among FMFB staff and provide excellent services to clients by adopting a

systematic approach to identify measure, monitor and manage credit, FMFB is now able

to effectively highlight indentify and prioritize risks and further develop strategy to

measure and mitigate the prospective risks. This department is establish in 2006. The

goal of credit risk is to maximize Bank’s risk adjusted rate of return by maintaining credit

risk exposure within acceptable parameters. The Bank needs to manage the credit risk

inherent in the entire portfolio as well as the risk in group, individual credits or

transactions. The effective management of credit risks is a critical component of a

comprehensive approach to risk minimization so essential to long term success of any

banking institution. Being aware of the increasing risk with the rapid increase in credit

portfolio, the Bank established the Risk Management Department. RMD is mandated to

28

Review of Various DepartmentsReview of Various Departments

approve all decisions involving material risk which might negatively impact the Bank’s

profitability or ability to generate future profits.

Internal Audit & Compliance Department

Audit department play a key role in every organization. The audit department of

FMFB independently appraises activity within an organization for the review of

operations as a service to management. The Major role of FMFB audit department is as:-

To ensure compliance with the process and guidelines.

To add value to the process and system.

Offer advise at every stage of the implementation of the policy especially

compliance with the rule of the game, university and government contract

procedures, statutory deductions like taxes and approval limit.

Audit Rating Methodology

CLEAR evaluation addresses financial & operational functions being performed

at the branches/ units and the rating is summarized as follows:

Cash Collections, Deposits & Funds Transfers

Loans & Advances

Effective Internal Control

Account Openings & Related Procedures

Reporting, Accounting & Administration

Each of the above elements would be rated based on the marks awarded to the

functions/activities covered under the same and adequate risk weight age assigned to it.

Cash Collections, Deposits & Funds Transfers

The evaluation of cash & collection involves;

Cash receipt procedures;

Cash withdrawal procedures;

Safe/ vault operations;

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Safe keys maintenance;

Cash count;

Fund Transfers procedures

Loans & Advances

Loan is the most important function for the bank and has thus being given the

Maximum weight age in the rating methodology. This function deals with the issues of

and the rating is based on;

Framework for loan management

Lending Policies & Procedures

Loan analysis

Loan administration

Loan monitoring

Loan delinquency & loan collection

Loan Committees at branches

Physical verification of borrowers

Portfolio at Risk

Adherence to internal & external legislation

Effective Internal Control

An evaluation tells us whether MFI is profitable or not and is sustainable in the

long run. As an MFI efficiency determines the capacity for outreach and the quality of its

services. Special attention is paid on asset- liability management. It focuses on;

Proper system entries & updated stock register

Proper handling of cheque books

Adherence of cheque signing limits

Proper Bank Reconciliation Statements

Implementation of Interest on Head office account

Deduction of taxes from payments & submitted in govt treasury

30

Account Openings & Related Procedures

The CLEAR methodology also focuses on account openings since it’s a very

sensitive part of documentation .It checks whether the administration is abiding by the

rules and

Regulations. It keeps a track if the documentations are complete and account opening

Forms properly filled .The various activities include;

Adherence with Prudential Regulations

Account Opening forms properly filled with relevant information

SS cards completed and scanned

Deduction of Zakat according to prevailing laws

Deposit rates are correct & profit credited according to policy

Term Deposit forms completely filled & requirement of changes in Signatories

Account c closures marked properly in the system

Check details of dormant & inoperative account

Reporting, Accounting & Administration

Reporting & administration play a key role in the processing cycle. The various

activities

Include;

System generated reports in compliance with each other

Calculation of profits on deposit account & income on loan account

Accurate periodic reporting to Head office & SBP

System and server room access to authorized personal

Data backup procedures & virus detection measures

Security arrangement at the Branch & with the agency

Attendance record maintenance upto date.

31

The Administration Department is responsible for a wide range of administrative services

including property management, setup of new branches, cost-effective procurement of

goods and services, Logistic Support etc. Transformation of Administration Department

into a dynamic, professionally sound and time efficient Department capable to play

meaningful role in achieving FMFB‘s objectives by planning, direction and coordination

of Management according to maximum strategic use of human and material resources.

Services provide by Administration Department

Property management

Branch Setup

Procurement

Logistic Support

Maintenance

Logistic Support provide by Administration Department

Travel arrangements

Air ticket and hotel arrangement

Training Arrangement

On time and safe delivery of asset and other items

Process of expense claims

Supplier complains

32

Administration Department

Administration Department

President / CEO

Head of Department

Asst: Manager (Reporting) Asst: Manager (Operation)

Support Staff Team Leader(s)

Support Staff

34

Structure of Finance DepartmentStructure of Finance Department

Role of Chief Financial Officer (CFO)

Chief Financial Officer directly report to Chief Executive Officer and supervise

Executive Officer – Accounts and Executive Officer – Finance and Treasury. Chief

Financial Officer lead the process of execution of financial operations and

implementation of financial plans, accounting frameworks, and strategic information

systems to support the Bank’s business. The incumbent works at both the strategic and

operational levels, and strives to administer control frameworks through his supporting

organization. The incumbent is responsible to oversee regulatory affairs of the Bank as

well as implementation of internal controls for effective and efficient execution of

business plans approved by the Board of Directors.

Key Accountabilities

The key accountabilities of Chief Financial Officer are as:-

Financing and banking arrangements

Timely settlement of payments due

Optimisation of fund balances

Assets and liability management

Quality and timeliness of financial information

Implementation of strategic information system plans

Budgetary control

Compliance with Operating Policy Guidelines

Tax management and optimisation

Audit of accounts

35

Role of Financial ManagersRole of Financial Managers

Key Interfaces

There are two types of interfaces, which are mention below:-

External

Professional institutes for input on technical issues

Bankers for negotiating financing arrangements and banking services

State Bank of Pakistan for conduct of SBP audits and resolution of issues

raised

Auditors, tax advisors, professional values, and consultants for obtaining

professional advice

SECP for regulatory affairs

Internal

Directors for meeting their information requirements

President / CEO for financial strategy formulation, policy making and

operational decision making

All Heads of Departments for day to day coordination, resolution of cases

requiring senior level inputs, and discussions on new initiatives

Functions of Chief Financial Officer

Chief Financial Officer performs the following functions:-

Board Affairs

Offer comments relating to financial and regulatory implications on proposed

initiations and operational strategies presented for consideration by the Board.

Prepare briefs on the bank’s financial performance for presentation to the Board

and the senior management team.

36

Financial Strategies

Negotiate cost effective banking arrangements and secure timely flow of funds to

spending locations.

Monitor the bank’s budgetary performance, analyze significant variances, and

propose to the President / CEO ways and means for containing adverse cost

tendencies.

Secure value for money in all expenditures through curtailment of avoidable

outlays at the commitment stage, and restriction of payments

Accounting

Direct the recording of financial transactions in the books of account based on

generally accepted accounting principles.

Ensure the proper application of prescribed cut-off procedures, and

compilation of accounts of the Bank.

Coordinate the conduct of the annual and special audits of accounts of the Bank

System Controls

Provide and extend the vision for enhanced and strengthened systems for

financial management and control.

Establish and oversee operation of the prescribed framework for resource

budgeting and expenditure accounting at the bank.

37

Institute mechanisms for responsibility accounting and controls at activity

level.

Facilitate execution of the Bank’s Strategic Internal Audit Plan by the Internal

Audit Department, and promote the review, appraisal, and implementation of

internal audit recommendations

Team Building

Plan and oversee building and strengthening of institutional capacity for

implementing upgraded accounting, budgeting, and information systems.

Regulatory Affairs

Keep abreast of changes in legislation, rules, and regulations, including

impending modifications; dilate on their implications for the Bank, and

present outlines of strategies for mitigating their likely adverse impacts on the

Bank operations.

Coordinate the provision of financial information on the Bank’s affairs to

external agencies as authorized by the President / CEO.

Treasury Management

Negotiate banking arrangements designed to secure cost-effective access to

the full range of banking services.

Provide required guidelines for funds management and transfer of funds

between accounts to minimize non-earning floats.

38

Financial Accounting

Direct the operation of financial accounting systems at the Bank, review

periodic financial statements, and present commentaries on financial results to

the Chief Executive Officer.

Interpret for the benefit of the senior management team and supporting staff

the implications of generally accepted accounting standards and principles,

and regulatory requirements insofar as they impact operations of the Bank

Enforce the application of schedule of delegation of financial powers

approved by the Board.

Monitor the status of loan recoveries, initiate management action on potential

defaults, and propose provisioning to reflect the true state of receivables in the

books of account.

Budgetary Control

Lead and coordinate the annual planning and budgeting exercises for the

Bank.

Review monthly budgetary performance reports, highlight adverse trends in

spending, and circulate variances to the incurring Heads of Departments

soliciting reasons for adverse trends, and steps taken to remain within annual

budgeted levels.

Taxation

Minimize the Bank’s exposure to taxation through efficient tax planning,

advice from tax consultants, and compliance with reporting obligations.

Ensure the timely payment of all tax dues to avoid levy of penalties or surcharges

39

Reporting

Supervise the preparation, internal review, and timely submission of

regulatory returns to the State Bank of Pakistan, SECP, Registrar Joint Stock

Companies, and the tax authorities.

Executive Officer – Accounts

The Executive Officer – Accounts report to Chief Financial Officer and supervise

Assistant Accountants. The Executive Officer – Accounts performs the function of

financial management and accounting at the Bank. Key responsibilities assigned to the

incumbent include supervision of the accounting function, provision of functional

guidance to subordinates and ensuring that the books of accounts are maintained in

accordance with generally accepted accounting principles.


The key accountabilities of Executive Officer – Accounts are as:-

Timely settlement of payments

Quality and timeliness of financial information

Budgetary control


Audit of accounts

Key Interfaces


40

External

Bankers for negotiating settlement of transactions


related thereto.

External auditors for conduct of statutory audit.

Legal Advisors

Income Tax Department

Internal

Executive Officer – Finance and Treasury

All Heads of Departments for day to day coordination

Internal Auditors

Functions of Executive Officer – Accounts

Executive Officer – Accounts performs the following functions:-

Supervise up to date maintenance of books of accounts of the Bank with a

view to reflect, completely and accurately, all accounting transactions and

compilation of periodical financial statements.

Coordinate the annual budget preparation process for the Bank, and exercise

budgetary control throughout the financial year.

Enforce systems of internal checks and controls for protection of the Bank’s

fixed assets.

Ensure adherence to Bank’s prescribed accounting policies and procedures.

41

Liaise with external and internal auditors; ensure the provision of adequate

clarifications to their queries, follow up on audit reports, and institute controls

in areas where weaknesses are highlighted through audits conducted.

Liaise with tax consultants; ensure timely payment of income and other taxes

and filing of tax returns.

Keep abreast of pronouncements of regulatory and professional bodies

affecting the Bank’s financial management operations.

Manage the financial administration of the Bank’s Gratuity and Provident

Fund Schemes.

Scrutinize all vouchers for propriety and entries for coding before posting to

the General Ledger.

Review and approve periodic reconciliation statements between the General

Ledger and other subsidiary records.

Process suppliers’ bills and staff reimbursement requests in accordance with

contracted terms and Bank policy.

Oversee operations of all bank accounts of the Bank to secure effective cash

management and minimize non-earning floats.

Circulate workings of tax due on salaries to employees for confirming tax to

be deducted.

Oversee processing of payroll and ensure timely payment of salaries into

employees’ accounts.

42

Arrange timely payments to suppliers as contracted.

Ensure weekly deposit of all taxes deducted at source.

Supervise the periodic closing process and approve journal vouchers for

effecting period-end adjustments.

Supervise preparation of monthly management accounts and annual accounts

of the Bank.

Review monthly bank account reconciliation statements and follow up on

overdue reconciling items.

Supervise the retention of updated records of employee funds as provided in

their constitutions, expedite processing of requests for withdrawals, audit of

accounts and provision of year-end balances to members.

Role of Executive Officer – Finance and Treasury

Executive Officer – Finance and Treasury reports to Chief Financial Officer and

supervise Treasury Officer. The Executive Officer – Finance and Treasury manages the

Bank's portfolio of cash and investments in equity and fixed income securities. The

position holder is responsible for strategy formulation for enhancing portfolio value

consistent with the Board of Directors appetite for risk. The incumbent is responsible for

monitoring and control of liquidity at different levels of the organization consistent with

regulatory requirements

43


The key accountabilities of Executive Officer – Finance and Treasury are as:-

Financing and banking arrangements

Optimisation of fund balances

Assets and liability management

Quality of annual investment / disinvestment planning


Key Interfaces


External

Bankers for negotiating financing arrangements and banking services


raised

Internal

Executive Officer – Accounts for availability of financial record and its

validation.

All Heads of Departments for day to day coordination, resolution of matters

related to financial management and accounting and discussions on budgetary

performance.

44

Functions of Executive Officer – Finance and Treasury

Executive Officer – Finance and Treasury performs the following functions:-

Prepare the Bank’s annual investment and profit plans based on alternate sets

of assumptions and levels of resource mobilization.

Keep abreast of latest domestic developments in capital markets, accounting

regulations, and financial and valuation practices.

Within the framework approved by Asset and Liability Committee, negotiate

deals with external entities such as brokers and investee companies.

Secure timely and accurate recording of transactions relating to investment

activities of the Bank.

Project market behavior and execute day to day trading to yield trading

margins within the prescribed regulatory framework and the Bank's policies

on risk

Keep abreast of changes in legislation, rules, and regulations, including

impending modifications; dilate on their implications for the Bank, and

present outlines of strategies for mitigating their likely adverse impacts on the

Bank's operations.

Coordinate the provision of financial information on the Bank’s affairs to

external agencies as authorized by the Chief Financial Officer.

Operationally banking arrangements designed to secure cost-effective access

to the full range of banking services required by the Bank.

45

Review daily bank balances and direct the transfer of funds between accounts

to minimize non-earning floats.

Ensure compliance with regulatory requirements of SBP relating to liquidity

positions.

Update the Bank's annual investment plans for changes in basic assumptions

made at the time of original formulation.

Take short-term investment and disinvestment decisions within broad

parameters prescribed by the Asset and Liability Management Committee.

Prepare and report Weekly Portfolio Report to the Chief Financial Officer.

Participate in meetings of Asset and Liability Committee and apprise members

of possible scenarios for proposals under discussion.

Coordinate with regional offices and branches in formulation of projection of

fund requirements and resource generation through deposit mobilization.

Compile and finalize projections of deposit accumulation and lending volumes

for inclusion in the annual budget of the Bank.

Monitor the performance of branch offices in relation to projected targets in

the budget, and report significant variances to the Chief Financial Officer

Ensure compliance of investment / disinvestment proposals being executed

with rules, regulations and internal policies.

Evaluate the investment portfolio in accordance with requirements of SBP.

46

Continually strive to improve systems of Treasury operations within his

purview.

Reconcile balances in current accounts with SBP on daily basis.

Use of electronic data in decision making

Electronic data is used by the organization for decision making purpose. For example

branches generate report of all expenditure head through e rapid and compare it with

budget allocated to those head and then they easily found various report and take any

decision.

Software used by the organization

Three type of software use by the organization, which are mention below:-

1. Tomcat

2. E rapid

3. MIS

Reports produce for management use

Reports which produce by that software are as under:-

Daily statement of affair

Full statement of affair

Loan situation summary

Loan type wise breakup

Loan falling due listing

MFO productivity

Customer loan statement

Depositor statement

Loan provisioning summary

47

Transaction general summary

In the real world businesses can use a wide range of sources of funds to help finance their

trading activities. Not all of them are in cash; some take the form of assets that the

business can use. These can be used to improve cash flow in both the long and short term.

The main sources of fund of The First Micro Finance Bank are as under:-

Shareholders' Capital

Shareholders capital is the major source of fund, shareholders invest money in the hope

of capital growth, (that is the business makes profits, grows, makes more profits, so as the

business becomes bigger their investment will be worth), and dividend (the shareholders

share of the company’s profits). The main share holders of the bank are as:-

Aga Khan Rural Supporting Program 30,000,000

Aga Khan Agency for Microfinance 20,000,000

International Finance Corporation 16,000,000

Total 66,000,000

48

Source of FundsSource of Funds

Pattern of shareholding

No of shareholders From To Total shares held

5 1 100 50

1 101 30,000,000 30,000,000

1 30,000,001 50,000,000 20,000,000

1 50,000,051 66,000,050 16,000,000

8 66,000,050

Categories of shareholding

Particulars Number Shares held Percentage

Individual 1 10 0

Joint Stock Companies 1 50,000,040 73.76

Financial Institution 6 16,000,000 24.24

Total 8 66,000,050 100

49

Grants

Grant is another source of fund. Grants are provided by donors, multilateral grant aid

institutions, United Nations organizations and specialized agencies, international

financing institutions, international non-governmental organizations, the private sector,

foundations and charity organizations. The bank grant figures are quoted below:-

2004 2005 2006 2007 2008

Grant from Asian

Development Bank

8,190,575 16,162,590 16,500,000 16,500,000 16,500,000

Grant from United Nation

Development Program

0 5,886,579 12,904,974 21,331,449 21,449,812

Grant from Financial Sector

Strengthening Program

0 0 1,508,363 4,500,810 10,857,758

Grant from International

Labor Organization

4,157,109 0 0 1,873,811 5,915,161

Grant from Aga Khan Agency

from Microfinance

0 0 0 4,518,010 8,087,814

Total 12,347,684 22,049,169 30,913,337 48,724,080 62,810,545






50

Source Source

Generation of Fund

Bank generate fund from the following activities:-

Markup

The First Micro Finance Bank Ltd gives loan to the poor segment of society but earn

markup up to 22% Flat rate. This is the major source of fund generation, analysis of

markup earn is as under:-

2004 2005 2006 2007 2008

Markup on advances 23,957,703 44,689,579 122,937,730 233,855,623 443,284,100

Income on

investment in

Government

securities

41,644,961 12,803,538 9,810,925 11,292,978 23,091,808

Income from Term

Finance Certificate

0 0 0 8,963,588 21,989,389

Markup on reverse

repo transaction

5,401,300 17,452,069 2,147,206 5,070,113 5,469,804

Markup on deposit

account with

treasury and other

banks

5,468,423 36,690,468 70,860,834 56,601,334 31,960,825

Total 76,472,387 111,635,654 205,756,695 315,783,636 525,795,926

Fee, Commission and Brokerage

2004 2005 2006 2007 2008

Fee 1,654,243 2,286,983 10,064,292 25,300,156 58,580,669

Commission 224,442 311,861 1,379,898 2,184,239 4,067,538

51

Deposit

Bank generate fund from deposit, Analysis of bank last five years deposit figures are as:-

2004 2005 2006 2007 2008

Current Account 52,556,000 94,157,000 112,370,000 283,901,000 558,456,000

PLS Account 249,106,000 388,382,000 364,378,000 616,834,000 1,046,061,000

Term Deposit

Certificate

108,551,000 170,385,000 16,424,000 114,812,2000 1,706,150,000

Total 470,320,000 652,924,000 928,789,000 2,048,857,000 3,310,667,000

Investment in Government Securities

The bank generate fund from investment in governments securities, investment figure of

the last five years are as:-

2004 2005 2006 2007 2008

Income on investment in

Government Securities

41,644,961 12,803,538 9,810,925 11,292,978 21,031,837

Investment in Term Finance Certificate

The bank generate fund from investment in the shape of Term Finance Certificate, last

five year figures are as:-

2004 2005 2006 2007 2008

Term Finance Certificate 0 0 0 8,963,588 10,515,918

52

Allocation of fund is very important factor, if any organization doesn’t utilize their fund

into fruitful investment then suffer loss, The First Micro Finance Bank allocate their fund

into following activities:-

Advances

The major portion of fund allocate into advances, bank give loan to the society and earn

markup, this is very fruitful allocation, last five year figure of advances are mention

below:-

2004 2005 2006 2007 2008

No 18,589 27,932 51,888 104,484 207,874

Amount 468,974,208 650,718,783 1,009,684,000 1,714,931,000 3,226,316,000






53

Allocation of Funds

Allocation of Funds

Source Source

Data Analysis Data Analysis

Five Year Balance Sheet Analysis

2004 2005 2006 2007 2008

Assets

Cash and balances with SBP and NBP

42,566,937 58,655,064 75,435,651 198,325,188 332,676,173

Balance with other banks/NBFIs/MFBs

163,870,689 783,112,670 669,018,760 527,512,129 777,283,849

Lending to Financial Institution 600,000,000 - 47,730,500 72,959,550 -

Investments net of provisions 100,890,732 193,315,402 75,352,555 545,684,356 549,214,503

Advances net of provisions 207,226,321 353,726,051 674,215,332 1,193,609,274 2,067,750,648

Operating fixed assets 16,789,269 17,615,370 68,820,532 169,202,301 195,984,338

Other assets 27,803,104 38,716,297 67,717,167 99,869,596 171,343,259

Deffered Tax Asset 5,661,558 7,000,000 1,898,058 - -

Total Assets 1,164,808,610 1,452,140,854 1,680,188,555 2,807,162,394 4,094,252,770

Liabilities

Deposits and other accounts 468,974,208 650,718,783 924,575,411 2,035,584,353 3,304,742,382

Borrowing - 95,883,500 - - 100,000,000

Subordinated debt - - - - -

Other liabilities 12,379,028 17,341,052 35,333,391 84,137,128 120,631,812

Deferred tax liabilities - - - - -

Total Liabilities 481,353,236 763,943,334 959,908,802 2,119,721,481 3,525,374,194

Net Asset 683,455,374 688,197,520 720,279,753 687,440,913 568,878,576

Represented by

54

Share Capital 660,000,500 660,000,500 660,000,500 660,000,500 660,000,500

Statutory and general reserves 2,793,914 2,938,212 8,040,156 8,040,156 8,040,156

Depositors Protection Fund - - 2,108,093 2,155,819 2,470,534

Unappropriated profit 10,477,178 11,018,280 30,150,582 2,361,763 (104,231,456)

673,271,592 673,956,992 700,299,331 672,558,238 566,279,734

(Deficit) / surplus on revaluation of assets

(64,991) 1,626 44,945 (1,677,272) (8,759,343)

Deferred grants 4,936,286 4,976,262 1,495,407 6,476,904 11,358,185

Revolving fund for micro credit 4,590,141 8,470,141 18,440,070 10,083,043 -

Depositors Protection Fund 722,346 792,499 - - -

683,455,374 688,197,520 720,279,753 687,440,913 568,878,576






55

Source Source

2,004 2,005 2,006 2,007 2,008

Markup/return /interest earned 66,963,931 110,304,282 205,756,695 315,783,636 525,795,926

Markup/return /interest expensed (7,919,766) (15,422,562) (39,346,562) (99,877,564) (165,468,186)

Net markup/interest income 59,044,165 94,881,720 166,410,133 215,906,072 360,327,740

Provision against non-performing

loans and advances 4,039,136 4,942,978 6,660,476 20,423,135 30,071,719

Provision for diminution in the value

of investments

- - - - -

Bad debts written off directly - - - - -

Net markup/interest income after

provisions

4,039,136 4,942,978 6,660,476 20,423,135 30,071,719

55,005,029 89,938,742 159,749,657 195,482,937 330,256,021

Non markup/non interest income

Fee, commission and brokerage

income 1,878,685 2,598,844 11,444,190 27,484,395 62,648,207

Dividend income - - - - -

Grant income net of related expenses - - 2,699,539 10,395,421 1,700,571

Gain on sale/redemption of securities 28,559,343 4,595,439 - 3,853,825 1,935,883

Unrealized gain on revaluation of held

for trading securities net - - - 2,738,046 -

Other income 5,461,817 15,380,990 675,937 1,195,059 3,159,631

Total non markup/not interest

income

34,021,160 19,976,429 3,375,476 18,182,351 6,796,085

90,904,874 112,514,015 174,569,323 241,149,683 399,700,313

56

Five Year Income Statement Analysis Five Year Income Statement Analysis

Non markup/non interest expenses

Administrative expenses 80,690,928 110,455,928 144,579,628 264,237,436 505,616,295

Other provisions / write off - - - - -

Other charges 80,000 76,000 - - -

Total non markup/not interest

expenses

80,770,928 110,531,928 144,579,628 264,237,436 505,616,295

10,133,946 1,982,087 29,989,695 (23,087,753) (105,915,982)

Extra ordinary / unusual items - - - - -

(Loss) / Profit before taxation 10,133,946 1,982,087 29,989,695 (23,087,753) (105,915,982)

Taxation – Current 8,350,000 2,635,617 5,200,000 1,737,506 -

- Prior year - - 271,856 1,365,502 677,237

- Deferred (4,168,000) (1,375,000) 5,077,741 1,898,058 -

4,182,000 1,260,617 10,549,597 5,001,066 677,237

(Loss) / Profit after taxation 5,951,946 721,470 19,440,098 (28,088,819) (106,593,219)

Contribution to depositor protection

fund 297,597 36,074 972,005 - -

(Loss) / Profit for the year after

contribution

5,654,349 685,397 18,468,093 (28,088,819) (106,593,219)

Unappropriated profit brought

forward 6,013,218 10,477,178 16,784,436 30,150,582 2,361,763

Profit available for appropriations 11,667,567 11,162,574 35,252,529 2,061,763 (104,231,456)

Appropriations

Transfer to statutory reserve 1,190,389 144,294 5,101,947 - -

Unappropriated profit carried

forward

10,477,178 11,018,280 30,150,582 2,061,763 (104,231,456)

(Loss)/earnings per share (Rupee) 0.09 0.01 0.29 (0.43) (1.62)

57






58

Source Source

1. Return on Assets (ROA)

This indicator measures how well the bank has used its total assets to generate returns by

calculating the net operating income before taxes to average assets. Return of Assets

(ROA) is calculated as follows:-

Return on Assets = Net Profit Before Tax x 100

Total Assets

Year 2004 2005 2006 2007 2008

Net Profit before

Tax

10,133,94

6

1,982,08

7

29,989,69

5

(23,087,75

3)

(105,915,98

2)

Total Assets

1,164,808,61

0

1,452,140,85

4

1,680,188,55

5

2,807,162,39

4

4,094,252,77

0

Return on Assets 0.87 0.14 1.78 (0.82) (2.59)

2. Return on Equity (ROE)

This indicator measures the rate of return on the average equity for the period by

calculating the net operating income after taxes to average equity. Return of Equity

(ROE) is calculated as follows:-

Return on Equity = Net Profit After Tax x 100

Total Equity

Year 2004 2005 2006 2007 2008

Net Profit after Tax

5,951,94

6

721,47

0

19,440,09

8

(28,088,81

9)

(106,593,21

9)

59

Ratio AnalysisRatio Analysis

Equity

673,271,59

2

673,956,99

2

700,299,33

1

672,558,23

8

566,279,73

4

Return on Equity 0.88 0.11 2.78 (4.18) (18.82)

3. Return on investment (ROI)

The ROI is the most important ratio of all. It is the percentage of return on funds invested

in the business by its owners. In short, this ratio tells the owner whether or not all the

effort put into the business has been worthwhile. Return of Investment (ROI) is

calculated as follows:-

Return on Investment = Net Profit After Tax x 100

Investment

Year 2004 2005 2006 2007 2008


5,951,94

6

721,47

0

19,440,09

8

(28,088,81

9)

(106,593,21

9)

Investment

100,890,73

2

193,315,40

2

75,352,55

5

545,684,35

6

549,214,50

3

Return on

Investment 5.90 0.37 25.80 (5.15) (19.41)

4. Return on Fix Assets

This measures how efficiently profits are being generated from the fix assets employed in

the business The Return on Assets Ratio is calculated as follows:

Return on Fix Assets = Net Profit Before Tax x 100

Fix Assets

60

Year 2004 2005 2006 2007 2008


5,951,94

6

721,47

0

19,440,09

8

(28,088,81

9)

(106,593,21

9)

Fixed Assets

16,789,26

9

17,615,37

0

68,820,53

2

169,202,30

1

195,984,33

8

Return on Fix

Assets 35.45 4.10 28.25 (16.60) (54.39)

5. Net Profit Margin

This indicator measures what percentage of operating revenue remains after all financial

expenses, loan loss provisioning expenses and operating expenses are paid by calculating

net operating income before taxes to operating revenue.

Net Profit Margin is calculated as follows:

Net Profit Margin = Net Profit After Tax x 100

Interest Income

Year 2004 2005 2006 2007 2008

Net Profit after Tax 5,951,946 721,470 19,440,098 (28,088,819) (106,593,219)

Interest Income 59,044,165 94,881,720 166,410,133 215,906,072 360,327,740

Net Profit Margin 10.08 0.76 11.68 (13.01) (29.58)

61

6. Interest Income to Total Income

Interest Income to Total Income is calculated as follows:

Interest Income to Total Income = Total Income x 100

Interest Income

Year 2004 2005 2006 2007 2008

Total Income

90,904,87

4

112,514,01

5

174,569,32

3

241,149,68

3

399,700,31

3

Interest Income

59,044,16

5

94,881,72

0

166,410,13

3

215,906,07

2

360,327,74

0

Ratio 64.95 84.33 95.33 89.53 90.15

7. Earning Per Share (EPS)

Earnings Per Share is calculated as follows:

Earnings Per Share = Net Profit After Tax

No of Shares

Year 2004 2005 2006 2007 2008

Net Profit after Tax 5,951,946 721,470 19,440,098 (28,088,819) (106,593,219)

No. of Shares 66,000,050 66,000,050 66,000,050 66,000,050 66,000,050

Earnings Per

Share (EPS) 0.09 0.01 0.29 (0.43) (1.62)

62

8. Dividend Per Share (DPS)

Dividend Per Share is calculated as follows:

Dividend Per Share = Total Dividend

No of Shares

Year 2004 2005 2006 2007 2008

Total Dividend 0 0 0 0 0

No. of Shares

66,000,05

0

66,000,05

0

66,000,05

0

66,000,05

0

66,000,05

0

DPS - - - - -

9. Book Value Per Share

Book Value Per Share is calculated as follows:

Book Value Per Share = Total Equity

No of Shares

Year 2004 2005 2006 2007 2008

Equity 673,271,592 673,956,992 700,299,331 672,558,238 566,279,734

No. of Shares 66,000,050 66,000,050 66,000,050 66,000,050 66,000,050

Book Value Per

Share 10.20 10.21 10.61 10.19 8.58

63

10. Equity to Total Assets

Equity to total assets is a common measure used to analyze capital adequacy of a bank.

This figure is determined as follows:

Equity to Assets = Stockholders Equity x 100

Average Total Assets

Year 2004 2005 2006 2007 2008

Total Equity

673,271,59

2

673,956,99

2

700,299,33

1

672,558,23

8

566,279,73

4

Total Assets

1,164,808,61

0

1,452,140,85

4

1,680,188,55

5

2,807,162,39

4

4,094,252,77

0

Ratio 57.80 46.41 41.68 23.96 13.83

11. Current Ratio

The Current Ratio is one of the best known measures of financial strength. This figure is

determined as follows:

Current Ratio = Current Assets

Current Liability

Year 2004 2005 2006 2007 2008

Current Asset

1,114,554,67

9

1,388,809,18

7

1,541,752,79

8

2,538,090,49

7

3,726,925,17

3

Current Liability

468,974,20

8

746,602,28

3

924,575,41

1

2,035,584,35

3

3,404,742,38

2

Ratio 2.38 1.86 1.67 1.25 1.09

64

12. Quick Ratio

The Quick Ratio is calculated as follows:

Quick Ratio = Cash + Cash Equivalent + Invested Fund

Current Liability

Year 2004 2005 2006 2007 2008

Cash + Cash

Equivalent + Invested

fund 307,328,358 1,035,083,136 819,806,966 1,271,521,673 1,659,174,525

Current Liability 468,974,208 746,602,283 924,575,411 2,035,584,353 3,404,742,382

Ratio 0.66 1.39 0.89 0.62 0.49

13. Working Capital

Working Capital is calculated as follows:

Working Capital = Current Assets - Current Liability

Year 2004 2005 2006 2007 2008

Total Current Asset

1,114,554,67

9

1,388,809,18

7

1,541,752,79

8

2,538,090,49

7

3,726,925,17

3

Total Current

Liability

468,974,20

8

746,602,28

3

924,575,41

1

2,035,584,35

3

3,404,742,38

2

Ratio

645,580,47

1

642,206,90

4

617,177,38

7

502,506,14

4

322,182,79

1

65

14. Asset Turnover

Asset Turnover is calculated as follows:

Asset Turnover = Revenue x 100

Assets

Year 2004 2005 2006 2007 2008

Revenue

5,951,94

6

721,47

0

19,440,09

8

(28,088,81

9)

(106,593,21

9)

Assets

1,164,808,61

0

1,452,140,85

4

1,680,188,55

5

2,807,162,39

4

4,094,252,77

0

Ratio 0.51 0.05 1.16 (1.00) (2.60)

15. Debt Ratio

Debt Ratio is calculated as follows:

Debt Ratio = Total Debt x 100

Total Assets

Year 2004 2005 2006 2007 2008

Total Debt

4,600,40

0

9,365,40

0

5,496,00

0

25,051,00

0

27,020,80

0

Total Assets

1,164,808,61

0

1,452,140,85

4

1,680,188,55

5

2,807,162,39

4

4,094,252,77

0

Ratio 0.39 0.64 0.33 0.89 0.66

66

2004 2005 2006 2007 2008

Assets

Cash and balances with SBP and NBP 10

0 13

8 17

7

466 78

2

Balance with other banks/NBFIs/MFBs 10

0 47

8 40

8

322 47

4

Lending to Financial Institution 100 - 8 12 -

Investments net of provisions 10

0 19

2 7

5

541 54

4

Advances net of provisions 10

0 17

1 32

5

576 99

8

Operating fixed assets 10

0 10

5 41

0 1,

008 1,16

7

Other assets 10

0 13

9 24

4

359 61

6

Deffered Tax Asset 100 124 34 - -

Total Assets 10

0 12

5 14

4

241 35

1

Liabilities

Deposits and other accounts 10

0 13

9 19

7

434 70

5

Borrowing - - - - -


Other liabilities 10

0 14

0 28

5

680 97

4


Total Liabilities 10

0 15

9 19

9

440 73

2

Net Asset 10

0 10

1 10

5

101 8

3

67

Horizontal Analysis of Balance Sheet

Horizontal Analysis of Balance Sheet

Represented by

Share Capital 10

0 10

0 10

0

100 10

0

Statutory and general reserves 10

0 10

5 28

8

288 28

8

Depositors Protection Fund - - - - -

Unappropriated profit 10

0 10

5 28

8

23 (99

5)

10

0 10

0 10

4

100 8

4

(Deficit) / surplus on revaluation of assets 10

0 (

3) (6

9) 2,

581 13,47

8

Deferred grants 10

0 10

1 3

0

131 23

0

Revolving fund for micro credit 10

0 18

5 40

2

220 -

Depositors Protection Fund 10

0 11

0 - - -

10

0 10

1 10

5

101 8

3






68

Source Source

2,0

04

2,0

05

2,0

06

2,00

7

2,0

08

Markup/return /interest earned 1

00

1

65

3

07

47

2

7

85

Markup/return /interest expensed 1

00

1

95

4

97

1,26

1

2,0

89

Net markup/interest income 1

00

1

61

2

82

36

6

6

10

Provision against non-performing loans and

advances

1

00

1

22

1

65

50

6

7

45

Net markup/interest income after provisions 1

00

1

22

1

65

50

6

7

45

1

00

1

64

2

90

35

5

6

00


Fee, commission and brokerage income 1

00

1

38

6

09

1,46

3

3,3

35


Grant income net of related expenses - - - - -

Gain on sale/redemption of securities 100 16 - 13 7

Unrealized gain on revaluation of held for trading

securities net

- - - - -

Other income 100 282 12 22 58

Total non markup/not interest income 100 59 10 53 20

100 124 192 265 440

69

Horizontal Analysis of Income Statement

Horizontal Analysis of Income Statement


Administrative expenses 100 137 179 327 627


Other charges 100 95 - - -

Total non markup/not interest expenses

1

00

1

37

1

79

32

7

6

26

1

00

20

2

96

(22

8)

(1,04

5)


(Loss) / Profit before taxation

1

00

20

2

96

(22

8)

(1,04

5)

Taxation – Current 1

00

32

62

2

1

-

- Prior year - - - - -

- Deferred 1

00

33

(1

22)

(4

6) -

1

00

30

2

52

12

0

16

(Loss) / Profit after taxation 1

00

12

3

27

(47

2)

(1,79

1)

Contribution to depositor protection fund 1

00

12

3

27 - -

(Loss) / Profit for the year after contribution 1

00

12

3

27

(49

7)

(1,88

5)

Unappropriated profit brought forward 1

00

1

74

2

79

50

1

39

Profit available for appropriations 100 96 302 18 (893)

70

Appropriations

Transfer to statutory reserve

10

0

1

2

42

9 - -

Unappropriated profit carried forward

10

0

10

5

28

8

2

0

(99

5)

(Loss)/earnings per share (Rupee)

10

0

1

2

32

7

(47

2)

(1,79

1)






71

Source Source

2004 2005 2006 2007 2008

Assets

Cash and balances with SBP and NBP

4 4

4

7

8

Balance with other banks/NBFIs/MFBs 1

4

54

40 1

9 1

9

Lending to Financial Institution 5

2 -

3

3

-

Investments net of provisions

9

13 4

19

13

Advances net of provisions 1

8

24

40 4

3 5

1

Operating fixed assets

1 1

4

6

5

Other assets

2 3

4

4

4

Deferred Tax Asset - - - - -

Total Assets 10

0 1

00 1

00 10

0 10

0

Liabilities

Deposits and other accounts 4

0

45

55 7

3 8

1

Borrowing - 7 - - 2


Other liabilities

1 1

2

3

3


Total Liabilities 4

1

53

57 7

6 8

6

Net Asset 5

9

47

43 2

4 1

4

72

Vertical Analysis of Balance Sheet Vertical Analysis of Balance Sheet

Represented by

Share Capital 5

7

45

39 2

4 1

6

Statutory and general reserves

0 0

0

0

0

Depositors Protection Fund- -

0

0

0

Unappropriated profit

1 1

2

0

(3)

5

8

46

42 2

4 1

4 (Deficit) / surplus on revaluation of assets

(0)

0

0

(0)

(0)

Deferred grants

0 0

0

0

0

Revolving fund for micro credit

0 1

1

0

-

Depositors Protection Fund

0 0

- - -

59

47

43

24

14






73

Source Source

2,004 2,005 2,006 2,007 2,008

Markup/return /interest earned 66 85 98 95 99

Markup/return /interest expensed (8) (12) (19) (30) (31)

Net markup/interest income 58 73 80 65 68

Provision against non-performing loans and

advances

4 4 3 6 6

Provision for diminution in the value of

investments

- - - - -

Bad debts written off directly - - - - -

Net markup/interest income after provisions 4 4 3 6 6

54 69 76 59 62


Fee, commission and brokerage income 2 2 5 8 12


Grant income net of related expenses - - 1 3 0

Gain on sale/redemption of securities 28 4 - 1 0

Unrealized gain on revaluation of held for trading

securities net

- - - 1 -

Other income 5 12 0 0 1

Total non markup/not interest income 34 15 2 5 1

90 86 83 72 75

74

Vertical Analysis of Income Statement

Vertical Analysis of Income Statement


Administrative expenses 80 85 69 79 95


Other charges 0 0 - - -

Total non markup/not interest expenses 80 85 69 79 95

10 2 14 (7) (20)


(Loss) / Profit before taxation 10 2 14 (7) (20)

Taxation – Current 8 2 2 1 -

- Prior year - - 0 0 0

- Deferred (4) (1) 2 1 -

4 1 5 1 0

(Loss) / Profit after taxation 6 1 9 (8) (20)

Contribution to depositor protection fund 0 0 0 - -

(Loss) / Profit for the year after contribution 6 1 9 (8) (20)

Unappropriated profit brought forward 6 8 8 9 0

Profit available for appropriations 12 9 17 1 (20)

Appropriations

Transfer to statutory reserve 1 0 2 - -

Unappropriated profit carried forward 10 8 14 1 (20)

(Loss)/earnings per share (Rupee) 0 0 0 (0) (0)

75

With reference to the competitors we analysis and compare the following:-

The First Micro Finance Bank Ltd (FMFB)

Khushali Bank Ltd

Development Action for Mobilization and Emancipation (DAMEN)

FMFB Khushali Bank DAMENCash and balances with SBP and NBP

332,676,173

87,610,488 71,654,262

Lending to financial institutions--

600,000,000

317,924,465

Investment 549,214,50

3 1,211,854,62

6 40,801,370

Advances 2,067,750,64

8 3,012,936,73

7 6,662,775

Fix Assets 195,984,33

8 157,587,12

9 21,943,056

Total Assets 4,094,252,77

0 6,685,742,41

2 459,300,928

Deposit 3,304,742,38

2 18,168,50

0 -

Borrowing 100,000,00

0 4,628,462,75

6 286,902,817

Total Liability 3,525,374,19

4 4,780,648,13

0 397,445,515

Net Asset 568,878,57

6 1,905,094,28

2 61,855,41

3

Profit (106,593,21

9) 102,762,55

8 16,572,112

76

Organizational Analysis with reference to

competitors

Organizational Analysis with reference to

competitors

Future Prospect of the organization

Future Prospect of the organization is mention below:-

Growth and Outreach of Loan Product

2009 2010 2011

No of Loans Disbursed 379,228 541,373 709,070

Amount of Loans Disbursed–Pkr ‘000’ 6,439,234 10,718,645 16,096,535

No of Outstanding Loans 332,159 474,023 659,398

Amount of Outstanding Loans–Pkr ‘000’ 4,263,132 7,129,531 11,724,500

No of Branches 92 98 108

No of PPOs 67 142 217

% of female borrowers 35% 38% 48%

Growth and Outreach of Deposit Product

2009 2010 2011

Amount of Deposits – Pkr in ‘000’ 6,343,641 8,679,040 11,693,130

Deposit Mix

Current 14% 14% 14%

PLS/MCM 23% 25% 26%

TDR 60% 56% 50%

Micro Savings 3% 4% 6%

Compulsory Savings 0% 1% 4%

Growth and Outreach of Branch Network

2009 2010 2011

No of Branches 92 98 108

77

Information Access

The Bank should provide information to all the present and potential customers relating

to the new products, services, some service’s fee structure and other matters, which are

likely to affect the customers. It should be made sure that all the customers have access

to this information. Conveying information is of no use, unless, there is some feedback

from the customers. The following measures are suggested to implement this suggestion.

Brochures, hand outs, pamphlets and other printed reports must be provided to

customers, which should provide all the information necessary to attract and

retain customers and to satisfy the customer’s need for more

Personal contacts with the customers can help in providing information to

customers. All the customers must be provided a chance to get the desired

information by personal contact with the Bank staff.

Complaint and suggestion box should be maintained at the door of the Bank

where the customers can point out drawbacks in the customer’s services and

put forward their suggestions on his improvement of the services quality of

the Bank.

Performance Audit

The financial audit of the bank is conducted on regular basis both as a surprise and

routine audit. However, the performance and system audits are completely ignored

which, otherwise, should have been a compulsory part of the auditing services of the

Bank. The immediate outcome of ignoring performance outcome is shortcoming in the

non-financial aspects of this organization such as customer relations, lack of necessary

facilities, motivation of employees, and the control of manager.

78

Recommendation and Suggestion Recommendation and Suggestion

In the light of the above facts it is suggested that the performance audit of the bank must

be carried out on both regular and surprise basis to keep the Bank competitive in the run

of for more customers, more deposits and high profitability.

Financial methodology

Banks need to acquire an appropriate financial methodology to service the micro-

enterprise sector – financial innovations that permit a cost-effective analysis of

creditworthiness, the monitoring of a large number of relatively poor clients, and the

adoption of effective collateral substitutes.

Cost-effectiveness

The First Micro Finance lending program is costly because of the small size of their

loans and because banks cannot operate them with their traditional mechanisms and

overhead structures, so I recommend that bank adopt cost effective strategy.

Micro-deposits

The First Micro Finance Bank relatively little about deposit mobilization methodologies

that reach the low income and micro-enterprise client. I recommend following activity for

deposit mobilization:-

Open Liquid passbook savings accounts and low minimum balances.

Depositories conveniently located

Real, positive interest rates on deposits

Incentive for saving such as lotteries.

Portfolio Diversification

The First Micro Finance Bank should diversify its portfolio into housing, health,

education, transport and security products.

79

Capital Market

The First Microfinance Bank is still in earlier stage of its development, and the financial

sustainability is also not satisfactory. In such situation, I recommend that bank raise funds

at economical cost either through debt or equity instruments of capital markets.

80

S.No Organization Source Year

1 The First MicroFinanceBank Ltd. Annual Report 2004





6 Khushali Bank Ltd. Annual Report 2008

7 DAMEN Annual Report 2008

This bank has not published its Annual report after 2008. You can confirm from the

Finance Department.

The First MicroFinance Bank Ltd.

17 Floor, HBL Tower, Blue Area

Islamabad.

81

ReferencesReferences

NoteNote

fianal report fmfb

Education

microfinance bank

world bank group

time bank commitment

aga khan fund

array of financial services

neglected groups

new ordinance

aga khan development