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2 9 MAR 2021 t (SASRA) p 0. Box 25059-00100. NAIROBI

UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED ■ CS/2375

ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS i

FOR THE YEAR ENDED 31 DECEMBER 2020 ?■

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* 4 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements W For the year ended 31 December 2020 CONTENTS PAGE

Society information 1

Corporate information - vision and mission statement 2

Who we are - our history 3-4

Chairman's report 5-8

Corporate governance report 9-15

Environmental and social responsibility 16

Report of the directors 17-18

Sacco financial and statistical information 19

Five year financial performance review 20

Sacco trend analysis 21-24

Statement of directors' responsibilities 25

Report of the independent auditor 26-29

Financial statements;

Consolidated statement of profit or loss and other comprehensive income 30

I Sacco statement of profit or loss and other comprehensive income 31 I Consolidated statement of financial position 32 Sacco statement of financial position 33

Consolidated statement of changes in equity 34-35

Sacco statement of changes in equity 36-37

Consolidated statement of cash flows 38

Sacco statement of cash flows 39

Notes 40-83

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H United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements V For the year ended 31 December 2020 SOCIETY INFORMATION

BOARD OF DIRECTORS ; CPA Bernard Koech - Chairman : Grace Wangeci - Vice Chairperson : Dr. Jack Onyisi - Honorary Secretary : Julius Kipkoech - Treasurer ; Peter Kingori - Director : Dickson Aduwo - Director : Jeremiah Ougo - Director : James Ouka - Director : CPA Gabriel Wanga - Director

SUPERVISORY COMMITTEE ; CPA Dominic Shikunyi - Chairperson ; CPA Charles Wambua - Secretary ; Fridah Karimi - Member

MANAGEMENT STAFF Chief Executive Officer (Resigned in ; CPA Jack Gudo * January 2021) Deputy CEO and Head of Finance & : CPA Esther Mailu Administration : CPA Joseph Muraguri - Head of Internal Audit : Moses Amolo - Head of Credit : Evelyn Olunja - Head of Marketing and Customer Care ; Silas Alumasa - Head of FOSA and Operations : Assumpta Pius - Acting Head of ICT

REGISTERED OFFICE United Nations Sacco Society Limited United Nations Complex UN Avenue. Gigiri P.O. Box 2210, 00621 NAIROBI

INDEPENDENT AUDITOR PKF Kenya LLP Certified Public Accountants P.O. Box 14077, 00800 NAIROBI

PRINCIPAL BANKERS KCB Group Pic Cooperative Bank of Kenya Limited UN Gigiri Branch Gigiri Branch PO Box 39402, 00623 PO Box 38764, 00600 NAIROBI NAIROBI

Citibank N.A. Kenya Upper Hill Branch P. O. Box 30711, 00100 NAIROBI

LEGAL ADVISORS Ombonya & Company Advocates 7"’ Floor, Harambee Co-operative Plaza P.O. Box 53781, 00200 NAIROBI

SUBSIDIARY ; Wanamataifa Investments Company Limited : NAIROBI

1 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annuai report and consolidated financial statements For the year ended 31 December 2020______u CORPORATE INFORMATION - VISION - MISSION STATEMENTS

OUR VISION

To be the financial solutions provider of choice.

OUR MISSION

To uplift the social-economic status of our membership by offering them quality, affordable and diversified financial services.

OUR VALUES

The United Nations Savings and Credit Co-operative Society Limited in its commitment to realise the vision and mission upholds the following core values:

Integrity by upholding the highest level of integrity in our dealings including acting in a transparent and professional manner;

- Accountability by being accountable to our members and the general public

Customer Focus by ensuring that the customer is at the centre of alt our work

- Teamwork by working as a team to deliver results and value to our members

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2 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 WHO WE ARE - OUR HISTORY

The United Nations Savings and Credit Co-operative Society Limited (the “Sacco") was founded in 1975 with the objective of providing a mechanism for United Nations ("UN”) employees in Kenya to save and borrow at a low cost in order to meet the employees’ socio-economic needs. The Sacco currently serves the staff and immediate family members of all UN and affiliate agencies all over the world.

UN Sacco is among the top 10 Tier 1 deposit taking Saccos in the country in terms of Asset base and was licensed by Sacco Societies Regulatory Authority (SASRA) in 2011. This license is renewable annually in the third quarter of the preceding year and the Licence for 2021 was renewed in December 2020 after a rigorous assessment by the regulator.

As at December 2020, the Sacco had a membership of over 6000 members from the initial membership of 123 who are both local and international staff of the United Nations and are spread across the globe from different nationalities. The Sacco runs a back office (BOSA) housed in Gigiri Square, second floor Wing A Nairobi as well as a front office (FOSA) which is situated within the UN-Gigiri Complex, UNSACCO Building. However, the FOSA office remained closed from March 25, 2020 for the remainder of the year following the advent of Covid 19 and closure of the UN Complex by the host landlord.

The operations of the Sacco are governed by the Co-operative Societies Act 2004 and its revised Act of 2012, the Sacco Societies Act 2008, Sacco Societies Regulatory Authority (SASRA) regulations 2010. Internally, the Sacco operations are guided by the member approved By-laws and internally drafted policies that guide the operation of the different facets of the organization. The affairs of the Sacco are directed by the Board of Directors (BOD) elected by members in the Annual General Meeting (AGM) while the Supervisory Committee performs oversight over the Board.

The Core Functions of the Sacco are: Deposit-taking, Disbursement of Loans and Investment. The regulator (SASRA) has stipulated the investment options which deposit taking Saccos can venture into and the board and management of the Sacco have complied with the set guidelines.

The members of the Sacco have different needs due to the international as well as multicultural combination of membership. The Board and management carefully study the membership to understand their varying needs after which the Board, through the secretariat, develops various products to meet the various needs under BOSA and FOSA. The back office offers long and short-term loan products whose purpose ranges from property acquisition, genera! personal development, and education as well as emergency needs. At the front office, the Sacco offers short to medium term loan products to cater for members unforeseen needs. The Sacco has also adopted technology and currently offers 2 loan products through the mobile phone (Quick cash and Dividend Advance).

The Sacco endeavours to concentrate on her core business and as part of value addition, the Sacco has partnered with other organisations to provide essential non-core but complimentary services for the benefit of the members. Such services include ATM’s, Mobile banking through the M-SACCO platform. Bankers Cheques and Mobile money Lending. Other partnerships include supply of water tanks, as well as partnership with financial institutions to facilitate remittance of funds from diaspora members.

SUSTAINABILITY STRATEGY

The operations of the Sacco are affected by both Macroeconomic and the micro economic environment since the Sacco does not operate in a vacuum.

Globally, the last three quarters of 2020 were affected by the Corona Virus Disease (Covid 19). The pandemic caused major disruptions in the global economy. According to a World Bank report, economic activity was negatively affected by many factors including and not limited to reduced personal interactions (whether out of personal decision or government restrictions and protocols), the uncertainty about the post pandemic environment which has influenced investment decisions and has also dealt a blow to international trade, and human capital investment due to closure of education facilities.

3 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 WHO WE ARE - OUR HISTORY (CONTINUED)

SUSTAINABILITY STRATEGY (CONTINUED)

Indeed, the pandemic is expected to slow down the growth of global economic output. Investments collapsed in 2020, in both emerging markets and developing economies. This notwithstanding, investment growth is expected to resume in 2021 but not enough to reverse the decline witnessed in 2020 with digital technology expected to be a major player towards this growth. In order to counter the investment headwind, the World Bank proposes the need for a major push to improve business environments, increase labour, increase flexibility in product markets, and strengthening of transparency and governance.

According to a World Bank report, Kenya’s economic growth averaged 5.7% in 2019, placing Kenya as one of the fastest growing economies in Sub-Saharan Africa. This economic expansion was facilitated by a stable macroeconomic environment, positive investor confidence and a resilient services sector. In 2020, this expansion was curtailed by both domestic and external demand and supply shocks. Apart from the widely publicised COVID-19 pandemic, Kenya was hit by locusts In the first months of 2020 and this has had an adverse effect on the food security and growth of the agriculture sector in the country. The economy is projected to start an upward trend in 2021. However, the growing public debt burden will put pressure on Kenya's credit ratings and minimize room for fiscal stimulus. Despite this anticipated challenge, the GDP is projected to grow by 5.0% in 2021 from 5.4% in 2019 (CBK) and 1% in 2020.

In 2019 at least 17 (27%) out of the 63 listed firms on the Nairobi Securities Exchange issued profit warnings. In 2020, Central Bank of Kenya reported that the 39 Commercial banks in Kenya had their profits reduce by Ksh.46 Billion and that the value of loans defaulted hit Ksh.423 Billion (14.1% of the 3 Trillion loan book from 12% in 2019). From the Ksh.423 Billion bad loans, the period between April to December 2020 accounts for Ksh.71.26 Billion. The escalated non-performing loan book saw 6 out of the 9 Tier 1 banks (Standard Chartered Bank, ABSA Bank, Diamond Trust Bank, Cooperative Bank, NCBA and l&M Bank) issue a profit warning.

According to the Central Bank of Kenya, the annual inflation rate (the percentage change in the annual average consumer price index (CPI) of the corresponding month) as at December 31st, 2020 was 5.41% from 5.2%% in December 2019. This therefore implies the cost of living has gone up relative to the previous year.

Deposit taking Saccos (DT- Saccos) shrugged off Covid 19 effects to record a 12% growth in assets contrary to Kenya’s and the world’s economic growth. The Chief Executive Officer of SASRA in a Sacco Leaders Forum in February 2021 reported that deposits of the 176 DT Saccos totalled to Ksh.431.1 Billion being a 13.1% growth from Ksh.380.4 Billion registered in 2019. Gross loans rose 12.1% to Ksh.474.7 Billion compared to Ksh.419.6 Billion in 2019.

UN Sacco has performed well relative to both budget and previous years as well as the strategic plan in most of the key strategic items and taking into consideration both the macro and micro economic environment. The revenue for 2020 increased by 6% from 2019 while deposits increased by 10% and Asset base by 10% (Ksh. 14 Billion). A key outstanding parameter is the reduction in non-performing loans even when the trend globally is an increase. The Sacco has been vigilant in analysing her risk exposure and does not anticipate an adverse performance occasioned by both macro and microenvironment factors in the short run but is keenly monitoring the funding of UN agencies, as a reduction in funding of UN agencies could lead to an increase in loan delinquency.

4 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 CHAIRMAN'S REPORT

Dear Honourable members I’m pleased to present to you the 2020 annual report and accounts for your society. Despite the challenges faced in 2020, the society remained resilient which enabled it to post a sturdy performance.

Overview; 2020 started with a prediction and hope of recovery from 2.9% economic growth estimated by International Monetary Fund (IMF). By March 2020, Covid 19 which was earlier viewed as a Chinese outbreak became a worldwide pandemic. By April 2020 there was a great iockdown by most economies and trade was constrained with businesses having to adopt a virtual way of meeting and information technology became the greatest resource for any business to survive. The World Health Organization (WHO) issued alerts and what was later to be dabbed as "Covid Protocols", which was quickly adopted by different world economies. According to the Economic Outlook update issued by IMF in June 2020, global growth was projected to be at a -4,9%. As the year came to a close and with the recent vaccine approvals, there are hopes of a turnaround in the pandemic later in 2021, even though there are still renewed waves and new variants of the virus posing a great concern to this outlook. This notwithstanding and amidst exceptional uncertainty, the IMF projects, a growth of 5.5% in 2021 and 4.2% in 2022 for the global economy. In November 2020, the World Bank group issued an economic overview of 'Kenya in 2020’.According to this overview, Kenya’s economy had been hit hard by COVID-19, severely affecting incomes and jobs due to the containment measures imposed on the citizens in response to the Covid-19 pandemic. Service industry had been worst hit with tourism almost grinding to a halt. The pandemic increased poverty by 4 % (an additional 2 million poor people) due to serious impacts on livelihoods caused by sharp decreases in incomes and employment. In line with this, the unemployment rate doubled to 10.4% in the second quarter as measured by the KNBS Quarterly Labour Force Survey. The government issued tax relief measures by reducing the highest Pay as You Earn bracket to 25% from 30% but this was countered by the increasing health cost which insurance companies shied away from taking. Real Gross Domestic Product (RGDP) contracted by 1% in 2020 compared to a growth of 5.4% in 2019. The Central Bank maintained a robust monetary policy with a stable indicative interest rate, active support to the Kenyan Shilling through market interventions during the year and a strong management of inflationary pressure. The Cooperative sub-sector was not spared by the pandemic in 2020, as it draws its membership from the general population. According to Cytonn investments report some companies sent employees on unpaid leave, others effected pay-cuts while some businesses either recorded losses or were completely shut down. The adherence to Covid-19 protocols witnessed the deferment of many DT-Sacco Annual Genera! and Delegates Meetings by Saccos who had not held their meetings by the time Kenya announced the lockdown. UN Sacco was not spared this either. On the positive front, Saccos learnt to trigger into action their Business Continuity Plans; there was increased use of online services and a heightened need for enhanced risk management. The Sacco sub-sector defied the economic challenges resulting from Covid 15 to record a 12% growth in assets compared to the same period of 2019.Gross loans also increased by 12.1% to Ksh.474.7billion in 2020 from Ksh.419.6 Billion in 2019. Total deposits held by deposit taking Saccos also increased by 13.3% to Ksh. 431.1Billion in 2020 from Ksh. 380.4 Billion in 2019. Non-performing loans in September 2020 comprised of 6.49% of the loan book compared to 6.14 % in September 2019. UN Sacco continued to feel the pressure arising out of the global Covid-19 pandemic. The first challenge to the Sacco was the closure of the FOSA office which is situated in the UN Complex after direction from the landlord, UNON. The office remained closed from March 25th, 2020 for the rest of the year and all FOSA business was transacted from the Gigiri square office except for handling of cash. In response to the pandemic and the needs of the members, the board put up initiatives to support the members which included enhancement of the quick cash loan form a maximum amount of Ksh 60,000 to Ksh. 100,000 and increase of the repayment period from one month to 3 months, case by case rescheduling of loan repayments and release of the Development Loan product which is issued at a lower rate of 11 % and does not require guarantors.

5 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consoiidated financiai statements For the year ended 31 December 2020 CHAIRMAN'S REPORT (CONTINUED)

Overview:

Despite the challenge of the pandemic, the Sacco remained resilient and recorded a growth of 9% in total assets and 10% in deposits. Non-performing loan book was 2.76% of the loan book which is 3.76% points below the industry average. There was a constrained growth in loan book mainly due to reduced contract terms, uncertainty surrounding employment contracts and minimal growth in disposable income. These challenges saw a number of members withdraw membership citing financial reorganization while others have offset their loans with deposits reducing the members ability to borrow. Based on the performance of the Sacco in 2020, the Board has proposed payment of Ksh. 1.091 billion in interest on deposits and dividends {interest on deposit of 10% and dividend on shares of 12% compared to 10% and 13% respectively in 2019).

Performance:

It is my pleasure to inform our honourable members that our overall performance in 2020 demonstrates growth across most of the key strategic plan indicators.

A summary of the key performance indicators is set out below:

1. A 6% growth in total revenue to Ksh 1.61 billion in 2020 from Ksh 1.52 billion in 2019 2. Total administration and operating expenses (excludes financial assets impairment) reduced by 12% (Ksh.35 Million) to Ksh 246 million from Ksh 281 million in 2019. 3. Total assets grew by 10% to Ksh 14.08 billion from Ksh 12.84 billion in 2019. 4. Growth in member deposits by 10% to Ksh 10.7 billion from Ksh 9.6 billion in 2019. 5. A Reduction of 0.7% in our loan portfolio to Ksh 8.24 billion up from Ksh 8.30 billion in 2019. 6. A 5.1% growth in share capital to Ksh 985 million from Ksh 937 million in 2019. 7. The Sacco made a total revenue of Ksh.1.612 Billion out of which Ksh. 1.091 Billion (68%) has been paid back to the members in form of interest on deposits and dividend on share capital. An additional Ksh.124 Million (7.7%) inform of Statutory reserves also reverted to the members. Below is a complete picture of the revenue distribution.

A summary of the key performance indicators is set out below:

2020 revenue distribution 0.053998728 0.076904478

0.153028536

0.041806388

• Members (Dividend & interest) • Tax

■ Admin and other expenses ■ Members (Reserves) ■ Asset impairment

The pandemic put pressure on the finances of some of our members. As a result, several members withdrew their membership citing financial reorganization, retirement and relocation among other factors. As a result, our total membership reduced by 468 members to 6321 members at the close of 2020. This notwithstanding, the Sacco recruited at least 280 new members.

6 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 CHAIRMAN'S REPORT (CONTINUED)

Staff welfare: All board strategies, policies and directives are implemented by the Chief Executive Officer through the team of employees. Cognisant of this, the board views and treats staff as a key asset to the Sacco. To ensure staff matters are safeguarded, the Board has put in place comprehensive policies on staff matters which ensure uniformity and equity in handling of staff matters. The policies set out the recruitment processes, promotion and growth processes, staff benefits, rights and privileges, workplace safety, working hours, medical support, interdepartmental transfers, staff insurance, appraisal processes, training, corrective measures and separation processes among others. Staff engagement contracts are in line with the policies. Recruitment is done through external consultants and the Sacco has continued to attract and retain talented and motivated staff. The Sacco carries out biannual staff appraisals in order to ensure all weaknesses are addressed and staff helped to improve on their weaknesses by taking timeiy corrective measures. The board has further ensured the welfare of the employees is taken care of by taking out insurance covers for accident, work injury, last expenses and also medical cover. The Sacco does not ordinarily employ temporary staff. However, where there is a short-term pressing need, the Sacco hires staff on defined short-term contracts. In 2020, there were 3 such contracts (3 months each) to help in member recruitment and retention. In order to support new graduates, the Sacco also offers internship to fresh graduates for a maximum period of 6 months. The Board is keen on the safety of staff. In 2020 there were no reported workplace incidences impacting staff safety and the Sacco is grateful to God that none of the staff was lost through the deadly Covid-19 pandemic

Strategy and way forward: The Board of Directors and Management continue to aggressively pursue the objectives set out in our 2018-2022 strategic plan. The strategic plan for the Sacco set out in 2018, has continued to guide the direction of the Sacco and monthly reviews are done on the key performance indicators and the approved budget. The strategic plan 2018-2022 envisioned 4 key pillars namely;

1. Growth of the loan book to drive revenue. 2. Membership growth which would enhance product uptake and guarantee future Sacco growth. 3. Growth of share capital aimed at enhancing Sacco's financial stability and provision of funds for expansion, 4. Investment in ICT systems to enhance delivery of service to members and management of costs.

In particular, the Board and Management focused on a robust cost management programme in 2020 that resulted in reduced total operating costs by Ksh.35Million without negatively impacting on the quality of service. The Board and Management are committed to maintaining this aggressive cost management programme to realize greater efficiencies going forward. To complement this and grow our revenues, the board and management team is continuously exploring opportunities for innovative products and services to meet member needs. In 2020 the Sacco introduced a new product (Development loan) which allows members to borrow within their deposits and at a reduced rate without requiring guarantors. Quick cash loan was also enhanced in order to cushion our members against Covid-19 effects by increasing the maximum qualifying amount to Ksh, 100,000 form Ksh.60,000 as well as expansion of the repayment period from one month to 3 months. Dividend advance was also automated, and this increased the uptake by 32% from 2019 figures. The Board and Management intend to invest more in digital platforms for delivery of products and services to members noting that a significant proportion of our membership is based outside Nairobi. The board and management also note the build-up of liquidity within the society, which is a strategic asset. With limited investment options available to the society under the regulated environment and slow uptake of products highlighted previously, the funds have largely been invested in short term instruments with regulated financial institutions. These represent sub-par investments exposing the society to volatile interest rates and other market risks.

7 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 CHAIRMAN'S REPORT (CONTINUED)

Strategy and way forward:

To address this issue, the board and management, while cognizant of the concerns raised in the past, urges a rethink of the Special Purpose Vehicle available to UN Sacco i.e. Wanamataifa Investment Company Limited. A properly structured and governed Wanamataifa Investment Company presents a realistic and viable window of opportunity for the Society to meet member needs in housing, diversification of revenue sources and spreading of risk as well as growth of the asset base since it's a fully owned subsidiary. The subsidiary has remained dormant for several years and now gradually draining its own resources due to existing fixed costs. It is the Board and Management’s view that a revamped, restructured, and operational subsidiary is strategically useful to the society.

Compliance with regulatory and other requirements:

UN Sacco continues to be compliant with all regulatory requirements and prudential ratios as set out by SASRA, the Cooperative Societies Act. the income and other Tax laws, as well as meeting the various statutory requirements for operating a financial institution business. Corporate governance:

Good corporate governance is directly related to the sustainability, performance and success of institutions. In line with this, the Board has instituted high standards of corporate governance and strict observation of ethical practices as is embodied in our core values. We continuously review our corporate governance structures in line with regulatory requirements and best industry practices. Social responsibility: The Sacco continued its successful partnership with Kenyatta National Hospital to provide much needed prosthetic support to deserving beneficiaries, in 2019, screening for deserving patients was done and 19 patients drawn from various regions across the country were identified. The hospital delayed in submitting the names in 2019 and the support was therefore offered in the last quarter of 2020.

Awards:

UN Sacco continued its rich streak of industry awards. In 2020, the Sacco missed on these coveted awards since the International Co-operatives Day {Ushirika day) and Screening of Financial Reporting Awards (FiRe) were cancelled by the promoters due to Covid-19 pandemic and the constraints imposed by the observance of Covid-19 protocols.

Acknowledgement:

The success that we cherish would not have been possible without the close support of our stakeholders. 1 would like to put on record my gratitude for the support and guidance received from our regulators, both SASRA and the Cooperative Departments at both national and county levels. I would also like to thank the Board, the Supervisory Committee, Management and Staff who have tirelessly endeavoured to serve our members. Finally, on behalf of the Board, Management and Staff I would like to thank our members for the continued trust, support and patronage without which we would not be where we are today.

Thank you. God bless you and God bless UN Sacco.

8 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 CORPORATE GOVERNANCE REPORT

Introduction

The Sacco has many stakeholders whose needs and interests differ. The interests of these stakeholders need to be carefully balanced and taken care of as occasionally, the interests of one stakeholder may conflict those of another. The Sacco has therefore crafted certain rules, processes and practices for directing and controlling the affairs of the Sacco in order to meet these varying needs.

In view of this and the changing business environment, good corporate governance consists of a system of structuring, operating and controlling an institution, to achieve a culture based on the foundation of business ethics and fulfilment of the long-term strategic goals of the owners. This must be done considering the expectations of all key stakeholders while at the same time complying with all the applicable legal and regulatory requirements under which the organization is operating.

The Sacco sub-sector is governed by the cooperative principles notably; voluntary and open membership; democratic member control; members economic participation; autonomy and independence; education, training and information; cooperation among cooperatives and concern for community. UN Sacco fully supports these principles in her endeavour to meet our member's needs while remaining focussed on her key role and mandate of receiving deposits and advancing loans to her members as guided by the regulator (SASRA). These aspects have been incorporated in the development of the Sacco corporate governance structure.

The UN Sacco board, made up of directors from different professions, is committed to ensuring the Sacco is run on sound corporate governance principles notably; The Rule of Law, Transparency, Professionalism, Accountability as well as Equity and Inclusiveness. The Board regularly reviews policies to anticipate the changing business environment and is committed to continue with these reviews for the benefit of the Sacco.

The key players in the implementation of corporate governance structure of UNSACCO are as shown in the chart below:

Members External Audit Finance & Administration

Credit Committee \' Supervisory Board of Directors Committee Business Development & Education Committee /

Audit Committee

\'

Internal Audit Management

Note: Arrows indicate an appointing and reporting relationship.

g United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______CORPORATE GOVERNANCE REPORT (CONTINUED)

Member representation and participation

The Sacco by-laws stipulate that members, who are the owners of the Sacco, are the supreme authority of the Sacco. The members jointly and severally protect, preserve and exercise this authority in General and Special General Meetings. Each Sacco member has one vote irrespective of their share of withdrawable and non-withdrawable deposits as guided by the principle of democratic member control. The members elect directors based on the credibility of each contesting member. Thereafter, directors appoint the office bearers amongst themselves as well as the members who sit in the various committees.

The Board Chairman presides over the general meeting. In the absence of the Board Chairman, the Vice Chairman or any board member elected by a majority of those present in the absence of the two, presides over the general meeting. All business at the general meeting is recorded by the Honorary Secretary and the final record and resolutions are signed by the chairman of the meeting and the secretary or at least one other board member present at the meeting.

Each year during the Annual General Meeting, the members appoint the External Auditors from three recommended names as presented to them by the Board through the Board Audit Committee. The recommended names are chosen through a competitive bidding process in a restricted tender.

Board of Directors, structure, powers and functions

The members elect the Board of Directors and the Supervisory committee. Being a representation of the membership, they safeguard the interests of the members. The Board of directors sits at the top level of the governance structure and is the governing authority of the Sacco. It consists of nine non-executive members who include a Chairman. Vice Chairman, Treasurer and Honorary Secretary who also ensure compliance with all laws and regulations including preparation of proper books of accounts. The powers and functions assigned to the Board are stipulated in the relevant government Acts, Rules and By-laws of the Sacco, and this is reviewed by the resolutions of the general or special meeting.

Board appointment and induction

The Sacco has a nomination committee whose composition and duties are stipulated in the by-laws. The mandate of appointing the independent nomination committee rests on the board who appoint the S-member committee from the stakeholders to run for a period of one year. The committee, by the set rules and criteria, vets all members who express interest to serve either in the board or Supervisory committee and presents the successful members with nomination certificates which the members present to the returning officer at the Annual General meeting. Democratic elections are held during the Annual General Meeting and the winning candidates are duly appointed to the board and supervisory committees. There are no special positions reserved for either gender. The nomination process is open to all Sacco members if they fulfil the nomination requirements.

Board and Supervisory Committee Composition

The Board of Directors and Supervisory Committee are independent and non-executive. Eligible members join the Board of Directors and the Supervisory Committee by way of a democratic election in a General meeting. Successful candidates offer themselves up for election while retiring candidates can also offer themselves for re-election. Current board members and members of the supervisory committee are from different professions and this blend of professions encourages diversity as well as synergy in the Sacco’s operations. The current Board and Supervisory committee have at least 4 Certified Public Accountants while the other 8 members are from different professions.

10 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 CORPORATE GOVERNANCE REPORT (CONTINUED)

Board and Supervisory Committee Composition (continued)

Elected board members, not being Sacco employees may not have a Sacco background when joining the board. In order to help the directors, dispense their duties correctly, the elected directors go through an induction process during which they are briefed on the Sacco policies, procedures and relevant regulations. New directors get appointment letters which spell out their terms of appointment. The Sacco further informs the Commissioner of Co-operatives and SASRA of the new directors appointed who then complete and submit The Fit and Proper Tesf forms as well as 'Declaration of Wealth’ forms. The directors also sign the Board Charter which stipulates their conduct as directors of the Sacco.

Board skills development and succession planning

SACCO board members are individuals from different professions, and some have little knowledge of SACCO Laws, rules and procedures. The Sacco facilitates training at local, regional and international level for board and supervisory committee members to equip them with the necessary skills required to manage and oversee the Sacco's operations. Additionally, all board and supervisory committee members are trained on corporate governance.

Board continuity

Board and Supervisory committee Members are elected on a 3-year term with an option of re-election. To ensure succession planning and continuity, each year, a third of the Board of Directors and the Supervisory Committee retire. The retirees are eligible for re-election.

Board compensation

No salary is paid for both the Board and the Supervisory Committee members as they work on voluntary basis and do not draw a monthly salary. They are however paid an allowance as set out in policy for any meetings attended as approved by the SASRA regulations.

Board Committees

The Board sets out Board Committees to enable it to effectively discharge its functions. The composition of each committee is guided by the skilis required in each committee as welt as SASRA guidelines. Some positions like the Treasurer and the Head of Business Development & Education committee are set out in the bylaws. Each committee has at least 3 board members and tables its factual and well researched reports to the board during the monthly board meetings.

The UN Sacco has the following four board committees:

1. Credit Committee 2. Audit Committee 3. Finance and Administration Committee 4. Business Development and Education Committee

Credit Committee

The Credit committee comprises of 3 members who meet monthly or as the needs of the business dictate and have delegated the day to day work to the secretariat through the Chief Executive Officer. The Head of Credit sits on the committee as an ex-official member. It deals with ail member related credit matters in the Sacco such as loans, loan appeals and credit risk management.

11 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______CORPORATE GOVERNANCE REPORT (CONTINUED)

Audit committee (BAC)

The audit committee consists of three members of the board one of whom is conversant with accounting and financial matters. The Head of Internal Audit sits on the committee as an ex-official member. The primary functions of this committee include; Review of internal controls of the Sacco, review of all reports and operation procedures for the different departments, reviewing co-ordination between the internal and external audit functions as well as monitoring external auditor’s independence and objectivity taking into consideration relevant and regulatory requirements. The committee is also tasked with monitoring the ethical conduct of the Sacco and considering the development of ethical standards and requirements, including effectiveness of procedures for handling and reporting complaints. Investigation of member complaints is also a major function of this committee.

Finance and Administration Committee (F&A)

This Committee is chaired by the Treasurer and comprises of three board members. It meets once in a month to consider all financial, Information Communication Technology, Human Resource, Procurement and other administrative matters of the Sacco. The CEO and Head of Finance sit in the committee as ex-official members to appraise the committee on the operational matters as well as provide technical guidance.

Business Development and Education Committee (BDE)

This Committee handles member education and growth, directors training, Sacco branding, promotions. Sacco positioning and corporate social responsibility (CSR). It comprises of four board members and is chaired by the Vice Chairperson. The Head of Marketing and Head of FOSA sit in this committee as ex- official members to provide technical guidance.

* Board composition

The board is composed of 9 members and only successful members join the board irrespective of the gender balance. In the current board, one third gender rule has not been attained as there is one lady and 8 men. Women have been encouraged to offer their candidature for directorship. The current board has skill sets which include and are not limited to Finance, ICT, Research, Urban planning. Monitoring and Evaluation, Security and Environmental Science. During the year 2020, there were no elections and due to Covid-19 and restrictions as guided by the Ministry of Health. The Ministry guided that the one third of directors who were due for retirement continue holding office until otherwise advised. The Board Chairman continued to be CPA Bernard Koech deputised by Grace Wangeci. The position of the Treasurer is held by Julius Kipkoech while the Honorary secretary is Dr. Jack Onyisi,

No Director Position Credit BAC F&A BDE Total 1 CPA Bernard Koech Chairman x 1 2 Grace Wangeci Vice-Chairman /Chair BDE x 1 3 CPA Gabriel Wanqa Treasurer/Chair F&A 4 Dickson Aduwo Secretary BAC/Member BDE X x 2 5 Jack Onyisi Member Credit x X 2 6 Jeremiah Ougo Secretary Credit/Member BAC XX 2 7 James Ouka Chair Credit/Member Audit XX 2 8 Peter Kingori Member Credit/Secretary BDE X X 2 9 Julius Kipkoech Treasurer/Chairman F&A X 1

Total 3 3 3 4 13

12 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______CORPORATE GOVERNANCE REPORT (CONTINUED)

Supervisory committee

The Supervisory Committee is elected at the annual general meeting to oversee the operations of the Board on behalf of the members and consists of three members with one member retiring annually but eligible for re-election. The Committee holds regular meetings as well as quarterly joint meetings between its members, the Board of directors and the Commissioner of Cooperatives. The Committee then finally presents its annual report to the members at the Annual /Special general meeting. However, the Supervisory Committee does not perform or exercise any of the powers or functions of the Board of directors. The current supervisory committee is compliant with the affirmative representation; having 1/3 of the members as ladies and the other 2/3 as men.

The present members who serve in the Supervisory Committee are:

CPA Dominic Shikunyi - Chairperson CPA Charles Wambua - Secretary Fridah Karimi - Member

Board and board committee meetings

The Board meets once monthly to discuss the progress of Sacco operations. To ensure proper planning, the office of the Chief Executive Officer (CEO) prepares a calendar of all planned board engagements at the beginning of the year for the entire year. The quorum at the Board meetings is two thirds of the directors and the CEO. Members of management team may be invited for some meetings to facilitate effective deliberations due to their technical input.

Board-Management relationship

The Board being non-executive has delegated operational functions and responsibilities to management who are held accountable for the business decisions that they make. To maintain control of this, the delegated duties and responsibilities are, supervised through the various board committees. Management, through the various board committees, prepares reports on the various functions of the Sacco. This enables the board to keep abreast with the happenings in the Sacco and further aids in decision making.

Legal and secretarial services

The Sacco does not have an internal legal department but outsources both Legal and Secretarial services from registered lawyers and Certified Public Secretaries. To avoid conflict of interest, the service providers are independent members of the relevant professional bodies and are not members of the Sacco.

Management team

The UN SACCO management is comprised of the Chief Executive Officer (CEO) and Heads of Departments. All the management team report to the CEO who is tasked with the responsibility of managing the day to day operations of the society on behalf of the board of directors as provided for in Regulation 64 of SASRA Regulations. The CEO attends all Board and General meetings as an ex-official member and is a signatory to all society documents. He is answerable to the Board and ensures implementation of and adherence to the policies, procedures and standards in the Sacco as well as ensuring that all Sacco assets are safeguarded. The CEO is responsible for all staff matters, code of conduct and compliance with the relevant Acts, Regulations, Rules and By-laws. The CEO is assisted in his roles by the Heads of departments and other staff members.

All members of the management team are appointed by the Board of directors.

13 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______CORPORATE GOVERNANCE REPORT (CONTINUED)

Management team (continued) The Management team meets frequently as per business requirements and oversees day to day operations in their respective functions. The team is comprised of the following staff members;

- Jack Gudo - Outgoing CEO (Resigned in January 2021) - Esther Mailu - Deputy CEO & Head of Finance & Administration - Evelyn Olunja - Head of Marketing and Customer Care - Moses Amolo - Head of Credit - Assumpta Pius - Acting Head of ICT - Joseph Muraguri - Head of Internal Audit - Silas Alumasa - Head of Front Office and Operations

Procurement Procurement is a support function meant to strengthen professionalism, independence and transparency. The procurement function is headed by a procurement officer whose activities are guided by the procurement laws and best practice. Among the guiding principles of procurement is the nature of procurement, value of goods and services, necessity of the procurement, timeliness of the procurement and the quality of goods and services procured.

Organizational values and code of conduct

UN SACCO has set out a set “UN SACCO Code of conduct” which is anchored on best practice and statutory requirements .The entire UN Sacco fraternity (Board, Supervisory committee and employees) work to deliver on the Vision and strategic plan of the Sacco and subscribe to this code of conduct and the organizational values. The team continuously practices the four key organizational values which define what the Sacco promises to abide by notably: Integrity; Accountability; Customer Focus and Teamwork. In this regard, every individual pledges to work for the good of the institution and not to engage in any activity, directly or indirectly, which competes or conflicts with the Sacco's interests.

Internal controls and risk management

Internal controls relate to the rules, procedures and mechanisms implemented by an entity to ensure the integrity of financial and accounting information, promote accountability, improve efficiency and prevent fraud. The board keenly analyses the existing controls, assesses possible risk and sets up the necessary mitigating factors and monitoring procedures .In order to ensure that controls are up to date, the Board regularly reviews Policies and Procedures to ensure any new threats are captured and mitigated.

While the Board prepares the policies, the management team supports this Board initiative by ensuring that, proper risk management processes exist in all operations. In the current VUCA (volatility, uncertainty, complexity, and ambiguity) environment, management constantly identify emerging risks and establish internal controls in order to safeguard the assets of the Sacco. The internal audit function operates with utmost independence, reviews the adequacy of the controls in place and advises on risk management matters.

Conflict of interest

The possibility of a clash between one’s personal interest and the interest of the organization can cause conflict of interest whereby the individual’s judgement is impaired, or their impartiality undermined. Conflict of interest may also happen when one undertakes an activity whose benefits are contrary to those of the organization. The prevent conflict of interest, the Board has put in place policies and procedures that dearly spell out the roles and responsibilities of the Board, the Chief Executive Officer and those of Management where the CEO and Management are involved in the day to day operations while the board plays an oversight role. The code of conduct which every insider ascribes to goes a great way in preventing confiict of interest.

14 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______CORPORATE GOVERNANCE REPORT (CONTINUED)

Conflict of interest (continued)

Every 2 years, the Ministry requires that the board and management disclose their wealth with the ministry. Additionally, all staff are required to sign a Secrecy bond every beginning of the year and this has been fully complied with in 2020

Compliance and statutory Audits

The Sacco is required to comply with different stakeholder requirements. The main stakeholders for whom compliance is required is the regulator (SASRA), The parent ministry, Local county authorities and the Kenya Revenue Authority (KRA) among other bodies. Both KRA and SASRA require monthly returns in pre-set formats which the Sacco complied with in 2020. The Board in cognisance of the importance of compliance to the regulator, laws and other government agencies has set up an Independent Internal Audit department and assigned the Board Audit Committee with the responsibility of ensuring that all compliance matters are reviewed and any noncompliance addressed. The Board of Directors through the office of the CEO ensures that all relevant legislation and new updates of the same is identified and complied with.

Compliance and statutory Audits (continued)

The internal audit office, which operates independently, carries out audits on the different facets of the Sacco as well as the systems on a monthly basis. At the beginning of the year, the internal audit team prepare an audit plan which details the scope of their audit though out the calendar year. Other aspects of the Sacco including internal controls are also reviewed by the internal audit office at least once every quarter. After every end of the financial year, an independent External Auditor is deployed to review the financial reports of the Sacco and issue an opinion as to whether the books are properly kept and if the books also reflect the true stats of the Sacco for the period under audit. The Sacco picks the external auditor from among the best 10 audit firms in the country due to the seriousness that the board attaches to this exercise.

There was no non-compliance identified for the period under review.

15 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______ENVIRONMENTAL AND SOCIAL RESPONSIBILITY

Corporate social responsibility (CSR)

CSR is one of the ways in which an organization gives back to the society by ensuring economic responsibility, human rights responsibility, environmental responsibility as well as philanthropic responsibility. The objective of CSR is to ensure an organization operates in an economically, socially and environmentally sustainable manner. It aims at promoting a vision of business accountability to a wide range of stakeholders (both direct and indirect) as opposed to concentrating on the core business of the institution without concern to the environment within which it operates. The UN SACCO Board has among others, zeroed in on philanthropic responsibility.

In 2017/2018, the Sacco focused on health under the Sociocultural Sustainability pillar and piloted Poverty alleviation activities under the Economic Sustainability pillar. The Sacco entered a Memorandum of Understanding (MOU) with Kenyatta National Hospital Orthopaedic Technology Department to provide Prosthetics & Orthotics services to needy disabled patients with various limb amputations and Special Seating Chairs for Cerebral Palsy patients. While the provision of these services is carried out by the Orthopaedic Technology Department, UN SACCO caters for the associated costs. The Sacco has supported at least 18 patients in 2017 and 2018. In 2020, the Sacco through this CSR project supported a further 19 patients who had been screened in 2019.

Market place practices

The Sacco concentrates on her key mandate and where there is constrained internal capacity or where the required services are specialised, the Sacco outsources such services to qualified institutions. The outsourcing process is done through an independent procurement process and mainly through an open tendering system. A select tender committee evaluates all tenders in order to arrive at the final vendor who is awarded the job. To foster transparency and ensure there is no negative exposure to the Sacco, the office of the independent Internal Auditor further reviews the process. All contracts are first reviewed by the company lawyer to ensure there is no legal exposure and that the interest of the Sacco is taken care of. Additionally, the Supervisory committee reviews all board activities and Sacco transaction to ensure the interest of the members is safeguarded.

Payment of goods and services

The Sacco secures goods and services upon requisition from the user department through procurement office. Finance department then confirms that the requested goods are within the approved budget and issue a local purchase order or have a contract drawn between the vendor and the Sacco depending on the nature of goods/service. Goods delivered are inspected by the user department and Procurement Officer to ensure they comply with the quality and quantity specifications as per the purchase order issued. Any goods that do not pass the quality mark are returned to the supplier for exchange and the supplier may be blacklisted in future for poor service delivery. All outsourced services are monitored and reviewed at each milestone to confirm they comply with the agreed terms of reference.

The standard payment terms for the Sacco is 30 days except for contracts where there are specific payment terms as per milestones set. Goods and services supplied are promptly paid for either by Cheque or electronic funds transfer as per the agreed payment terms.

16 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 REPORT OF THE DIRECTORS

The directors submit their annual report together with the audited consolidated financial statements for the year ended 31 December 2020 which disclose the state of affairs of the Sacco and the group.

Incorporation

The Sacco, which is the parent to the group is incorporated in Kenya under the Co-operatives Societies Act Cap 490 and is licensed under the Sacco Societies Act No. 14 of 2008 and is domiciled in Kenya.

Principal activity

The principal activity of the Sacco continues to be deposit-taking, disbursement of loans and investment from and on behalf of its members. The regulator (SASRA) has stipulated the investment options which deposit-taking Saccos can venture into.

The principal activity of the subsidiary {Wanamataifa Investment Company Limited) is buying and selling properties.

Group results 2020 2019 Shs Shs

Profit before tax 305,173,003 254,120,252 Income tax expense (67,447,723) (54,106,528)

Profit for the year 237,725,280 200,013,724

Total comprehensive income for the year 242,119,221 198,841,777

Interest on members' deposits 935,284,567 871,106,860

Share capital

The share capital of the Sacco increased during the year from Shs. 937,694,856 to Shs. 935,832,180.

Dividends and interest on members' deposits

The directors have recommended payment of 12% - Shs. 118,299,862 (2019:13% - Shs. 121,900,331) as dividend on share capita! and 10% - Shs.935,284,567 (2019:10% - Shs.871,106,860) interest on members' deposits.

Directors

The directors who held office during the year and to the date of this report are shown on page 1.

In accordance with the Sacco’s by laws directors Dickson Aduwo, Jeremiah Ougo and Dr. Jack Onyisi; and supen/isory committee member Fridah Karimi will retire by the annual general meeting date. Except for Jeremiah Ougo all three are eligible to offer themselves for re-election.

Directors/Supervisory Committee honoraria and staff bonus

The directors propose directors and supervisory committee honoraria of Shs. 9,158,163 (2019: Shs. 7,757,898) and staff bonus of Shs. 8,060,813 (2019: Shs. 7,595,643) for the year ended 31 December 2020. This is based on the approved policy. This has not been expensed in the statement of profit or loss as per guidelines from the Ministry incharge of Cooperatives in Kenya.

17 United Nations Savings and Credit Co-operative Society Limited ■ CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 REPORT OF THE DIRECTORS (CONTINUED)

Independent auditor

The group's auditor, PKF Kenya LLP has indicated willingness to continue in office in accordance with Sacco Societies Act No. 14 of 2008.

BY ORDER OF THE BOARD

Signature. date. 2021

Honorary Secretary

ts

18 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial sfafemenfs For the year ended 31 December 2020______SACCO FINANCIAL AND STATISTICAL INFORMATION

As at 31 December 2020 2019 Numbers Numbers Membership Active 4,273 4,431 Dormant 2,048 2,358

6,321 6,789

Number of branches 1 1 Number of employees 26 27

2020 2019 Financial Shs Shs

Total assets 14,083,966,198 12,840,228,722 Members' deposits 10,714,387,089 9,741,281,410 Loans and advance to members 8,241,685,920 8,302,230,674 Provision for impairment o loans and advances 177,533,223 100,605,366 Financial assets 22,545,449 22,981,668 Total revenue 1,612,162,598 1,519,207,861 Total interest income 1,554,228,190 1,487,483,393 Total expenses 1,302,060,316 1,260,551,998 Share Capital 985,832,180 937,694,856 Statutory resen/e 465,377,242 417,802,557 Appropriation account 702,657,382 549,784,126 Core capital 2,130,321,354 1,881,299,871 Institutional capital 1,144,489,175 1,086,405,753

Key ratios: 2020 2019 % % Capital adequacy ratios

Core capital/Total assets 15.1% 14.7% Minimum ratio 10.0% 10.0% Core capital/Total deposits 19.9% 19,3% Minimum ratio 8.0% 8.0% Institutional capital/Total assets 8,1% 8.5% Minimum ratio 8.0% 8,0% Liquidity ratio Liquid assets/Total deposits and short-term liabilities 49.4% 41.4% Minimum ratio 15.0% 15.0%

Operating efficiency/quality ratios

Total expenses/Total revenue 80.8% 83.0% Interest on members deposits/Total revenue 58.0% 57.3% Interest rate on members' deposits 10.0% 10.0% Dividend rate on members share capital 12.0% 13.0% Total delinquent loans/Gross loan portfolio 2.1% 1.2%

19 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 FIVE YEAR FINANCIAL PERFORMANCE REVIEW

SACCO STATEMENT OF FINANCIAL POSITION

Assets 2016 2017 2018 2019 2020 Shs Shs Shs Shs Shs

Loans to members 7,411,381,817 7,586,039,412 8,297,125,538 8,302,230,674 8,241,685,920 Cash and cash equivalents 2,589,216,133 3,025,010,978 3,798,126,025 4,454,957,479 5,740,130,032 Long term assets 28,625,447 37,301,222 27,555,755 34,460,147 32,208,370 Other assets 825,723,626 774,162,722 74,881,525 48,580,422 69,941,877

Total assets 10,854,947,023 11,422,514,334 12,197,688,843 12,840,228,722 14,083,966,198 Liabilities Member deposits 8,355,333,216 8,868,715,906 9,308,242,190 9,741,281,410 10,714,387,089 Interest on members’ deposits 826,817,828 720,018,188 753,948,943 871,105,917 935,280,520 Other liabilities 78,700,707 53,510,750 122,329,734 71.552,939 105,913,330

Total liabilities 9,260.851,751 9,642,244,844 10,184,520,867 10,683,940,266 11,755,580,939

Sharehoiders' equity 1,594,095,272 1,780,269,490 2,013,167,976 2,156,288,456 2,328,385,259

Total liabilities & equity 10,854,947,023 11,422,514,334 12,197,688,843 12,840,228,722 14,083,966,198

SACCO STATEMENT OF PROFIT OR LOSS Total income 1,300,313,857 1,298,597,969 1,382,591,515 1.519,207,861 1,612,162,598 Loan Interest income 1,077,298,895 1,060,445,908 1,091,195,937 1,149,461,775 1,133,667,494 Total finance costs 847,215,395 746,449,168 781,554,576 901,581,980 973,128,864 Net loan interest income 230,083,500 313,996,740 309,641,361 247,879,795 160,538,629 Other income 223,014,962 238,152,061 291,395,578 369,746,086 478,495,104 Operating expenses 185,967,708 328,708,289 327,189,736 359,464,797 323,634,741 EBITDA 267,130,754 223,440,512 273,847,204 265,182,174 309,500,240 Depreciation & amortization 8,259,867 8,553,597 8,072,791 6,526,311 4,228,119 % EBIT 258,870,887 214,886,915 265,774,412 258,655,863 305,272,122 Tax expense 32,544,569 33,885,061 42,229,210 54,054,628 67,398,695 PAT 226,326,318 181,001,854 223,545,202 204,601,235 237,873,427 Other disclosures Interest on deposit rate 10.5% 8.7% 9.0% 10.0% 10.0% Dividend rate 18.0% 12.0% 12.5% 13.0% 12.0% Non-performing loans to total loans 0.4% 0.5% 0.4% 1.2% 2.1% Capital adequacy ratios Core capital/total assets 15.0% 16.0% 16.0% 14.7% 15.1% Core capital/totai deposits 19.0% 20,0% 21.0% 19.3% 19.9% Institutional capitalA'otal assets 8.0% 8.4% 8.9% 8.5% 8.1% Liquidity ratio 31.0% 34.0% 39.7% 41,4% 49.4% Growth rate (%) Total income (8.0%) (0.1%) 6.0% 9.9% 6.1% Total assets 8.0% 5.0% 6.0% 5.3% 9.7% Member deposits 7.0% 6.0% 5.0% 4.7% 10.0% Loans to members 5.0% 2.0% 9.0% 0.2% (0.7%) Share capita! 13.0% 18.0% 8,0% 5.5% 5.1% No. of employees 25 26 27 27 25 Key performance indicators Non member interest income to 19,0%17.0% 21.0% 24.3% 29.7% total income Cost to income ratio 86.0%83.0% 80.8% 83.0% 80.8%

20 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 SACCO TREND ANALYStS

Profit before income tax

Profit before tax increased in 2020 to Shs.305 million. This is maily due to cost reduction partly ocassioned by Covid 19 since not all planned activities were carried out.

Profit Before Tax ksh. Millions

350

300 305.3 265.8 250

200

ISO

100

50

0 2016 2017 2018 2019 2020

Total income

Total Sacco's income increased by 6% {Shs, 92 million) from prior year to Shs, 1,611 billion in 2020 V mainly due to the growth of other revenue streams.

Total Revenue in Ksh. Millions

1800 1,611 1600 1,519 1,383 1400 1,300 1,298 1200 1000 800 600 400 200 0 2016 2017 2018 2019 2020

21 ! United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements j Forthe year ended 31 December 2020 SACCO TREND ANALYSIS (CONTINUED) I > Non-Member interest income to total income ratio

There was an increase in the percentage of non member interest income 2019 owing to increase in the amount of funds fixed for income.

Pecentage of Non member interest income 0.35

0.3 29.7%

0.25 19% 0.2 17% 0.15

0.1

0.05

0 2016 2017 2018 2019 2020

2019 Revenue distribution

At least 76% {68%+8%) of the total revenue has been paid back to the members in terms of interest on member deposits, dividend on shares and reserves (Statutory and retained)

*

2020 revenue distribution

4%

■ Members (Dividend & interest) ■ Tax a Admin and other expenses I ■ Members (Reserves) ■ Asset impairment

t

all

22 PKF Kenya LLP PKf

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED

Opinion

We have audited the consolidated financial statements of United Nations Savings and Credit Co-operative Society Limited and its subsidiary (the group) set out on pages 30 to 83, which comprise the consolidated and Sacco statement of financial position as at 31 December 2020, and the consolidated and Sacco statement of profit or loss and other comprehensive income, consolidated and Sacco statement of changes in equity and consolidated and Sacco statement of cash Rows for the year then ended, and notes to the consolidated finanoial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated and Sacco financial position as at 31 December 2020, and of the consolidated and Sacco financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and the Sacco Societies Act.

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 consolidated financial statements section of our report. We are independent of the Sacco in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (lESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the lESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Loan impairment provisions

The directors exercise significant judgement in classification of loans and advances to customers into the various credit grades/stage as described in note 1 (b) and note 23(b) to the consolidated financial statements as well as the level of expected credit loss provisions necessary for each grade/stage of loan which is based on the group's past experience and reference to the regulatory guidelines and industry standards and consideration of relevant forward looking factors. Because of the significance of these judgements and the quantum of loans and advances, the audit of loan expected credit loss provisions is a key audit matter. Further details of the loans and advances balances and impairment provisions are included in note 8 to the consolidated financial statements.

26 Kalamu House • Grevlllea Grove • Westlands • P O Box 14077 • 00800 • Nairobi • Kenya Tel +254 20 4270000 • Mobile +254 732144000 • Email pl

PannerB: A. Snahi, A. Vaflher, P. Shan, R. MircharOanl', D. Kabeberi, C. Oguitu”*, A. ChauOhiy, K. Shah", M. Mbuoigu, G- Santokh, D. Shah, S. Alibhal, L. Abreu, P. Kurfa, N. Shah, J. Shah, E. N|uguna, P. Kahl, A. Chahdria, M. Ximunau, S. Chhefla", M. Bhavsar, C. Mukunu, K. BharaOva ClnOlan, "Brnish, •"Uganflan)

PKF Kenya LLP and ita associates are member lirtrs ot the PKF International Umliefl family ot legally independent firms and do not accept any responsibitity or liability (or the actions Of Inactions of any other individual memDer or correspondent firm or firms PKf

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED (CONTINUED)

Key audit matters (continued)

Loan impairment provisions (continued)

Our audit procedures included testing the model used by the directors in classifying loans and advances into their respective credit grades and stages of performance which included understanding the classification criteria and reviewing this for consistency with the Sacco and industry experience. We tested a sample of loans and advances (including loans that had not been identified by management as impaired) to form our own assessment as to whether the loan classification and staging was reliable. For a sample of impaired loans we tested the extraction of data used in the models, the assessment of probability of default and the estimation of the future expected cash flows from the members based on historic experience including realisation of collateral held which primarily represented current deposits which we tested against records of member deposits which are key inputs into the loss given default assumption.

Information technology control environment

The Sacco is highly dependent on information systems and controls over access rights to such systems are critical and therefore represent a key audit matter.

We tested the design and implementation of the Sacco’s controls around the information technology environment and operating effectiveness for controls that were critical to databases within the scope of our audit and the financial reporting process. Where our procedures identified deficiencies, we assessed the design and implementation of any controls that mitigated the identified risks and extended the scope of our tests of operating effectiveness of controls and/or substantive audit procedures.

Other information

The directors are responsible for the other information. The other information comprises; corporate information - vision and mission statement, who we are - our history, chairman's report, corporate governance report, environmental and social responsibility, the report of the directors, Sacco financial and statistical information, five year financial performance and Sacco trend analysis which we obtained prior to the date of this auditor's report, and the other reports included in the annual report, excluding the consolidated financial statements and our audit report thereon, which are expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and. in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this report of the independent auditor, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the other reports expected to be made to us after date of report of the independent auditor, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

27 PKr

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED (CONTINUED)

Responsibilities of directors for the consolidated financial statements

The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the requirements of the Sacco Societies Act, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the group’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 the directors either intend to liquidate the Sacco or to cease operations, or has no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism 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 Sacco’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

- Conclude on the appropriateness of the director’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 Sacco’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 Sacco to cease to continue as a going concern.

28 PKT

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF UNITED NATIONS SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LIMITED (CONTINUED)

Auditor’s responsibilities for the audit of the financial statements (continued)

- Evaluate the overall presentation, structure and content of the consolidated 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.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding Independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our Independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when. In extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Certified Pubiic Accountants Nairobi 2021

FCPA Chaudhry Mohamed Asif, Practicing certificate P/No. 2059 Signing partner responsible for the independent audit

170/21

29 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

2020 2019 Notes Shs Shs Revenue Interest income: - Interest on loans and advances 2(a) 1,133.667,494 1,149,461,775

- Other interest income 2(b) 420,696,967 338,191,024

Total interest Income 1,554,364,460 1,487.652,799

Interest expense 2(C) (973,128,864) (901,581,980)

Net interest income 581,235,596 586,070,819

Net fee and commission income 2(d) 10,119,312 9,812,925

Other operating income 2(e) 50,165,096 22,860,013 Reclassification from profit or loss; loss on disposal of equity instruments measured at fair value through other comprehensive income 20 (iv) (4,830,160)

Impairment (charge) on loan and advances 3(a) (76,927,858) (77,619,068)

Impairment (charge)/recovery on other financial assets 3 (b) (5,296,711) 494,779

Governance expenses 3(c) (28,484,915) (52,063,562)

Staff costs 3(d) (131,832,137) (142,612,202)

Other administrative expenses 3(e) (26,198,324) (35,563,932)

Other operating expenses 3(f) (62,776,895) (57,259,520)

Operating profit before tax 305,173,003 254,120.252 income tax expense 4(a) (67,447,723) (54,106,528) Profit for the year 237,725,280 200,013,724

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss: - Fair value (loss) on financial assets classified as fair value through other comprehensive income 9 (436,219) (1,171,947) - Reclassification from profit or loss; loss on disposal of equity instruments measured at fair value through other comprehensive income 4,830,160 Total comprehensive income 242,119,221 198,841,777 Dividend:

Proposed final dividend for the year 20 (V) 118,299,862 121,900,331

The notes on pages 40 to 83 form an integral part of these financial statements. Report of the independent auditor - pages 26 to 29.

30 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 ______SACCO STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

2020 2019 Notes Shs Shs Revenue Interest income: - interest on loans and advances 2(a) 1,133,667,494 1,149,461,775

Other interest income 2(b) 420,560,697 ____ ^338,021,618

Total interest income 1,554,228,190 1,487,483,393

Interest expense 2(c) (973,128,864) (901,581,980)

Net interest income 581,099,326 585,901,413

Net fee and commission income 2(d) 10,119,312 9,812,925

Other operating income 2(e) 47,815,096 21,911,543 Reclassification from profit or loss; loss on disposal of equity instruments measured at fair value through other comprehensive income 20 (iv) (4,830,160) Impairment charge on loan and advances 3 (a) (76,927,858) (77,619,068)

Impairment (charge)/recovery on other financial assets 3(b) (5,296,711) 494,779

Governance expenses 3(c) (28,484,915) (52,063,562)

Staff costs 3(d) (131,142,601) (141,612,202)

Other administrative expenses 3(e) (24,317,261) (31,839,868)

Other operating expenses 3(f) (62,762,105) (56,330,097)

Operating profit before tax 305,272,122 258,655,863

Income tax expense 4 (67,398,695) (54,054,628)

Profit for the year 237,873,427 204,601,235 Other comprehensive income:

Items that may be reclassified subsequently to profit or loss: - Fair value (loss) on financial assets classified as fair value through other comprehensive income 9 (436,219) (1,171,947) - Reclassification from profit or loss; loss on disposal of equity instruments measured at fair value through other comprehensive income 4,830,160

Total comprehensive income 242,267,368 203,429,288 Dividend:

Proposed final dividend for the year 20 (V) 118.299.862 121,900,331

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29.

31 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2020 2019 Notes Shs Shs

ASSETS Cash and cash equivalents 5 5,297,256,555 4,040,858,000 Term deposits in other financial institutions 6 449,810,772 420,932,877 Prepayments and other receivables 7 19,340,379 24,713,780 Loans and advances to members 8 8,241,685,920 8,302,230,674 Financial assets 9 22,545,449 22,981,668 Property and equipment 11 8,630,203 9,461,415 Right-of-use assets 12 41,471,131 14,794,801 Inventory 13 9,816,150 11,014,704 Intangible assets 14 112,832 1,111,966

Total assets 14,090,669,392 12,848,099,885

LIABILITIES Trade and other payables 15 57,207,085 52,698,200 Lease liabilities 16 43,355,476 16,987,099 Interest due to members 17 935,280,520 871,105,917 Members' depqsTB "" "■- 18 10,714,387,089 9,741,281,410 Current tax 9,279,648 6,816,341

11,759,509,818 10,688,888,967

FINANCED BY 3 0 MAR lOil Share capital 19 985,832,180 937,694,856 Retained earrings ...... ,20 (i) 705,431,697 552,706,588 (20 (ii) 465,377,242 417,802,557 OSITV:20{iii) 54,905,913 132,187,847 Fair value reserve 20 (iv) 1,312,680 (3,081,261) Dividend account 20 (V) 118,299,862 121,900,331

2,331,159,574 2,159,210,918

Total liabilities and capital 14,090,669,392 12,848,099,885

The financial tements on pages 30 to 83 were approved and authorised for issue by the board

of directors on 2 ^ M rcJ^ 2021 and were signed on its behalf by:

Chairman (Bernard Koech)

Treasurer (Julius Kipkoech)

Honorary Secretary (Dr. Jack Onyisi)

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29.

32 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated rmancial statements For the year ended 31 December 2020 SACCO STATEMENT OF FINANCIAL POSITION As at 31 December 2020 2019 Notes Shs Shs

ASSETS Cash and cash equivalents 5 5,290,319,261 4,034,024,602 Term deposits in other financial institutions 6 449,810,772 420,932,877 Prepayments and other receivables 7 28,470,745 33,785,621 Loans and advances to members 8 8,241,685,920 8,302,230,674 Financial assets 9 22,545,449 22,981,668 Investment in subsidiary 10 1,000,000 1,000,000 Property and equipment 11 8,550,088 9,366,513 Right-of-use assets 12 41,471,131 14,794,801 Intangible assets 14 112,832 1,111,966

Total assets 14,083,966,198 12,840,228,722

LIABILITIES Trade and other payables 15 53,319,087 47,774,910 Lease liabilities 46^ 43,355,476 16,987,099 Interest due to members APPROVED 171 935,280,520 871,105,917 Members'deposit^ on,1 pr^non 10,714,387,089 9,741,281,410 Current tax ''' 9,238,767 6,790,930

3 0 MAR 20^1 11,755,580,939 10,683,940,266

FINANCED BY SIGM:.. Share capital 985,832,180 937,694,856 Retained earnings •(1) 702,657,382 549,784,126 Statutory reserve 20 (ii) 465,377,242 417,802,557 Credit risk reserve 20 (iii) 54,905,913 132,187,847 Fair value reserve 20 (iv) 1,312,680 (3,081,261) Dividend account 20 (v) 118,299,862 121,900,331

2,328,385,259 2.156,288,456

Total liabilities and capital 14,083,966,198 12,840,228,722

The financi^statements on pages 30 to 83 were approved and authorised for issue by the board of directors.o i 2021 and were signed on its behalf by: e;

Chairman (Bernard Koech)

.’I Treasurer (Julius Kipkoech)

I Honorary Secretary (Dr. Jack Onyisi)

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29.

k 33 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Note Share Retained Statutory Credit risk Fair value Dividend capital earnings reserve reserve reserve account Total Shs Year ended 31 December 2020 Shs Shs Shs Shs Shs Shs

At Start of year 937,694,856 552,706,588 417,802,557 132,187,847 (3,081,261) 121,900,331 2,159,210,918

Total comprehensive income:

profit for the year 237,725,280 237,725,280 Reclassification from profit or loss; loss on disposal of equity instruments measured at fair value through other comprehensive income 4,830,160 4,830,160 fair value of (loss) on classified as fair value through other comprehensive income financial assets (436,219) (436,220)

Transfer to statutory reserve (47,574,685) 47,574,685

Transfer from credit risk reserve 8 77,281,934 (77,281,934)

Transactions with owners: Issue of Investment shares 19 48,137,324 48,137,324 Transfer to retained earnings - dividend 3,592,442 (3,592,442) Dividends: - proposed 2020 20(v) (118,299,862) 118,299,862 - paid 2019 20(v) (118,307!889) (118,307,889)

At end of year 985,832,180 705.431.697 465.377.242 54,905,913 1,312,680 118,299,862 2,331,159,574

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29.

34 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

Note Share Retained Statutory Credit risk Fair value Dividend capital earnings reserve reserve reserve account Total Year ended 31 December 2019 Shs Shs Shs Shs Shs Shs Shs

At start of year 888,741,501 564,196.136 376,882,310 93,505,153 (1,909,314) 106,310,519 2,017,726.305

Total comprehensive income;

* profit for the year 200,013,724 200,013,724 fair value of (loss) on classified as fair - value through other comprehensive income financial assets (1,171,947) (1,171,947)

Transfer to statutory reserve (40,920,247) 40,920,247

Transfer to credit risk reserve 8 (38,682,694) 38,682,694

Transactions with owners; Issue of investment shares 19 48,953,355 48,953,355 Dividends: - proposed 2019 (121,900,331)20(v) 121,900,331 - paid 2018 20(v) (106,310,519) (106,310,519)

At end of year 937,694,856 552,706,588 417,802,557 132,187,847 (3,081,261) 121,900,331 2,159,210,918

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29.

35 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 SACCO STATEMENT OF CHANGES IN EQUITY

Note Share Retained Statutory Credit risk Fair value Dividend capital earnings reserve reserve reserve account Total Shs Shs Year ended 31 December 2020 Shs Shs Shs Shs Shs 121,900,331 2,156,288,457 At start of year 937,694,856 549,784,126 417,802,557 132,187,847 (3,081,261)

Total comprehensive income:

- profit for the year 237.873,427 237,873,427 Reclassification from profit or loss; loss on disposal of equity instruments measured at fair value through other 4,830,160 comprehensive income 4,830,160 fair value of (loss) on classified as fair - value through other comprehensive income financial assets (436,219) (436,220)

Transfer to statutory reserve (47.574,685) 47,574,685

Transfer from credit risk reserve 8 77,281,934 (77,281.934)

Transactions v/ith owners: 48,137,324 Issue of share capital 19 48,137,324 Transfer to retained earnings - dividend 3,592,442 (3.592,442) Dividends: 20{v) (118,299,862) 118,299,862 - proposed 2020 (118,3071889) (118,307,889) - paid 2019 20(v)

At end of year 985,832,180 702,657,382 465,377,242 54,905,913 1,312,680 118,299,862 2,328,385,259

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29,

36 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 SACCO STATEMENT OF CHANGES IN EQUITY (CONTINUED)

Note Share Retained Statutory Credit risk Fair value Dividend capital earnings reserve reserve reserve account Total Year ended 31 December 2019 Shs Shs Shs Shs Shs Shs Shs

At start of year 888,741,501 546,686,163 376,882.310 93,505,153 (1,909,314) 106,310,519 2,010,216,332

Total comprehensive income:

- profit for the year 204,601,235 204,601,235 fair value (loss) on classified as fair value - through other comprehensive income financial assets (1,171,947) (1,171,947)

Transfer to statutory reserve (40,920,247) 40,920,247

Transfer to credit risk reserve 8 (38,682,694) 38,682,694

Transactions with owners: Contributions for the year 19 48,953,355 48,953,355 Dividends: - proposed 2019 20(v) (121,900,331) 121,900,331 - paid 2018 20(v) (1O6,310i519) (106,310,519)

At end of year 937,694,856 549,784,126 417,802,557 132,187,847 (3,081,261) 121,900,331 2,156,288,456

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29.

37 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements Forthe year ended 31 December 2020______CONSOLIDATED STATEMENT OF CASH FLOWS

Notes 2020 2019 ShsShs Operating activities

Interest income 2(a) 1,133,667,494 1,149,461,775 Other interest income 2 (b) 420,696,967 338,360,430 Net fee and commission income 10,100,761 9,812,925 Other operating income 2 (e) 48,504,632 22,860,013 Interest payments (908,954,262) (784,425,006) Payment to employees and suppliers (461424,431) (228,070,179)

Net cash from operating activities 242,591,160 507,999,958

lncrease/(decrease) in operating assets Loans and advances to members 8 219,230,047 (89,262,652)

Increase in operating liabiiities Members deposits 18 973,105,679 389,498,495

Net cash from operating activities before income taxes 1,434,926,886 808,235,801 Income tax paid 4(b) (64,983,230) (60,676^569)

Net cash from operating activities 1,369,943,656 747,559,232

Investing activities

Cash paid for purchase of property and equipment 11 (2,494,010) (4,440,531) Cash paid for purchase of intangible assets 14 (162,120) Proceeds on disposal of property and equipment 100,000 Purchase of investments and securities 9 (10,000,000) Term deposits in other entities 6 (28,877,895) (321692,877)

Net cash (used in) investing activities (31271,905) (336,295,528)

Financing activities

Increase in share capital 19 48,137,324 48,953,355 Dividend paid 20(v) (118,307,889) (106,310,519) Principle repayment of lease liability 16 (12,102,630) (11,934,565)

Net cash (used in) financing activities (82,273,195) (69,291,729)

Movement in cash and cash equivalents Increase in cash and cash equivalents 1,256,398,556 341,971,975 Cash and cash equivalents at start of year 4,040,858,000 3,698,886,025

Cash and cash equivalents as at end of the year 5 5,297,256,556 4,040,858,000

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29.

38 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 SACCO STATEMENT OF CASH FLOWS “

Notes 2020 2019 Shs Shs Operating activities

Interest income 2(a) 1,133,667,494 1,149,461,775 Other interest income 2(b) 420,560,697 338,021,618 Net fee and charge income 10,100,760 9,812,925 . Other operating income 2(e) 47,815,096 21,911,543 Interest payments (908,954,262) (784,425,006) Payment to employees and suppliers (460,734,895) (233,616,294)

Net cash from operating activities 242,454,889 501,166,561

Increase/fdecrease) in operating assets Loans and advances to members 8 219,230,047 (89,262,652)

Increase in operating liabilities Members savings 18 973,105,679 389,498,495

Net cash from operating activities before income taxes 1,434,790,616 801,402,404 Income tax paid 4(b) (64i950,857) (60,676^569)

Net cash from operating activities 1,369,839,758 740,725,835

Investing activities

« Cash paid for purchase of property and equipment 11 (2,494,010) (4,440,531) Cash paid for purchase of intangible assets 13 (162,120) Proceeds on disposal of property and equipment 100,000 Purchase of investments and securities 9 (10,000,000) Term deposits in other entities 6 (28,877,895) (321,692,877)

Net cash (used in) investing activities (31,271,905) (336,295,528)

Financing activities

Increase in share capital 19 48,137,324 48,953,355 Dividend paid 20(v) (118,307,889) (106,310,519) Principle repayment of lease liability 16 (12,102!630) (11,934^565)

Net cash (used in) financing activities (82,273,195) (69,291,729)

Movement in cash and cash equivalents Increase in cash and cash equivalents 1,256,294,659 335,138,578 Cash and cash equivalents at start of year 4,034,024,602 3,698,886,025

Cash and cash equivalents as at end of the year 5 5,290,319,261 4,034,024,603

The notes on pages 40 to 83 form an integral part of these financial statements.

Report of the independent auditor - pages 26 to 29.

39 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES

1. Significant accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. a) Basis of preparation

The consolidated financial statements have been prepared under the historical cost convention, except as indicated otherwise below and are in accordance with international Financial Reporting Standards (IFRS), The historical cost convention is generally based on the fair value of the consideration given in exchange of assets. 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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Sacco takes into account the characteristics of the asset or liability if market participants would take those characteristics into when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36 on 'Impairment of Assets'.

In addition, for financial reporting purposes, fair value measurements are categorised into level 1,2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; - Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and - Level 3 inputs are unobservable inputs for the asset or liability.

These consolidated financial statements comply with the requirements of the Sacco Societies Act No, 14 of 2008. The statement of profit or loss and other comprehensive income represents the profit and loss account referred to in the Act. The statement of financial position represents the balance sheet referred to in the Act.

Going concern

The financial performance of the group is set out in the director's report and in the consolidated statement of profit or loss and the other comprehensive income. The financial position of the group is set out in the consolidated statement of financial position. Disclosures in respect of risk management are set out in note 23 and capital management disclosures are set out in note 24.

Based on the financial performance and position of the group and its risk management policies and the disclosures set out in note 23 with regards to minimum capital requirements, the directors are of the opinion that the group is well placed to continue in business for the foreseeable future and as a result the financial statements are prepared on a going concern basis.

New and amended standards adopted by the group

The group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2020. The group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

40 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

1. Significant accounting policies (continued) a) Basis of preparation (continued)

New standards, amendments and interpretations adopted by the group (continued) Conceptual Framework for Financial Reporting issued on 29 March 2018 The revised Conceptual Framework includes some new concepts, updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements. Amendments to IAS 1 and IAS 8 Definition of Material (issued in October 2018) The amendments, applicable to annual periods beginning on or after 1 January 2020, clarify the definition of material and how it should be applied by including in the definition guidance that previously featured elsewhere in IFRS. Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform (issued in September 2019) The amendments, applicable to annual periods beginning on or after 1 January 2020, provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments have no impact on the consolidated financial statements as it does not have any interest rate hedge relationships. Amendments to IFRS 16 Covid-19 Related Rent Concessions (issued on 28 May 2020) The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Cov(d-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the Covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification. The amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted. This amendment had no impact on the consolidated financial statements. New standards, amendments and interpretations issued but not effective At the date of authorisation of these consolidated financial statements, the following standards and interpretations, which have not been applied in these consolidated financial statements, were in issue but not yet effective for the year presented: - Amendments to IAS 1 'Classification of Liabilities as Current or Non-current {issued in January 2020), effective for annual periods beginning or after 1 January 2023, clarify a criterion for classifying a liability as non-current: the requirement for an entity to have the right to defer settlement for at least 12 months after the reporting date. - Amendments to IAS 16 'Property, Plant and Equipment: Proceeds before Intended Use' (issued in May 2020), effective for annual reporting periods beginning on or after 1 January 2022 prohibit entities from deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss, - Amendments to IAS 37 'Onerous Contracts - Costs of Fulfilling a Contract' {issued in May 2020), effective for annual reporting periods beginning on or after 1 January 2022, specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making.

41 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020______NOTES (CONTINUED)

1. Significant accounting policies (continued)

a) Basis of preparation (continued)

New standards, amendments and interpretations issued but not effective (continued)

- Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards Subsidiary as a first-time adopter' (issued in May 2020), effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted, permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRS. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16{a) of IFRS 1.

- Amendment to IFRS 9 Financial Instruments 'Fees in the '10 per cent’ test for derecognition of financial liabilities' (issued in May 2020), effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted, clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other's behalf.

- Amendments to IFRS 10 and IAS 28 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture' (issued in September 2014), applicable from a date yet to be determined, address a current conflict between the two standards and clarify that a gain or loss should be recognized fully when the transaction involves a business, and partially if it involves assets that do not constitute a business.

- IFRS 17 ‘Insurance Contracts' (issued in May 2017), effective for annual periods beginning on or after 1 January 2023, establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held and investment contracts with discretionary participation features issued. The objective is to ensure that entities provide relevant information in a way that faithfully represents those contracts. The group does not issue insurance contracts.

The directors do not expect that adoption of these standards and interpretations will have a material impact on the consolidated financial statements in future periods. The group plans to apply the changes above from their effective dates.

b) Significant accounting judgements, estimates and assumptions

In the application of the accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other relevant factors. Such estimates and assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

The directors have made the following assumptions that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

- Measurement of expected credit losses (ECL):

The measurement of the expected credit loss allowance for financial assets measured at amortised cost and FVTOCI is an area that requires the use of complex models and significant assumption about future economic conditions and credit behaviour.

42 > United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

1. Significant accounting policies (continued) b) Significant accounting judgements, estimates and assumptions

- Measurement of Expected Credit Losses (ECL) (continued):

A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:

- Determining criteria for significant increase in credit risk; - Choosing appropriate models and assumptions for the measurement of ECL; - Establishing the number and relative weightings of fonward-looking scenarios for each type of product/market and associated ECL; and - Establishing groups of similar financial assets for the purposes of measuring ECL.

ECLs are measured as the probability-weighted present value of expected cash shortfalls over the remaining expected life of the financial instrument.

The measurement of ECLs are based primarily on the product of the instrument's Probability of Default (PD), Loss Given Default (LGD), and Exposure At Default (EAD).

The ECL model contains a three-stage approach that is based on the change in the credit quality of assets since initial recognition.

Stage 1 - If, at the reporting date, the credit risk of non-impaired financial instruments has not increased significantly since initial recognition, these financial instruments are classified in Stage 1, and a loss allowance that is measured, at each reporting date, at an amount equal to 12-month expected credit losses is recorded.

- Stage 2 - When there is a significant increase in credit risk since initial recognition, these non-impaired financial instruments are migrated to Stage 2, and a loss allowance that is measured, at each reporting date, at an amount equal to lifetime expected credit losses is recorded. In subsequent reporting periods, if the credit risk of the financial instrument improves such that there is no longer a significant increase in credit risk since initial recognition, the ECL model requires reverting to recognition of 12-month expected credit losses.

- When one or more events that have a detrimental impact on the estimated future cash flows of a financial asset have occurred, the financial asset is considered credit-impaired and is migrated to Stage 3, and an allowance equal to lifetime expected losses continues to be recorded or the financial asset is written off.

Assessment of significant increase in credit risk: The determination of a significant increase in credit risk takes into account many different factors including a comparison of a financial instruments credit risk or PD at the reporting date and the credit or PD at the date of initial recognition. IFRS 9 however includes rebuttable presumptions that contractual payments are overdue by more than 30 days will represent a significant increase in credit risk (stage 2) and contractual payments that are more than 90 days overdue will represent credit impairment (stage 3). The group uses these guidelines in determining the staging of its assets unless there is persuasive evidence available to rebut these presumptions. Based on the nature of the credit contracts that the group has, the group has rebutted the IFRS 9 presumption and treats all credit contracts where contractual payments are overdue by more than 180 days as stage 3.

43 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

1. Significant accounting policies (continued)

b) Critical accounting estimates and judgement (continued)

Fair value of financial instruments

In estimating the fair value of an asset or a liability, the group uses market-observable data to the extent it is available. Where level 1 inputs are not available, the group makes use of financial models or engages third party qualified values to perform the valuation and provide inputs to the model.

The valuation of financial instruments is described in more detail in Note 9.

- Useful lives, depreciation methods and residual values of property and equipment, intangible assets and right-of-u$e assets

Management reviews the useful lives, depreciation methods and residual values of the items of property, plant and equipment, intangible assets and right-of-use assets on a regular basis. During the financial year, the directors determined no significant changes in the useful lives and residual values. The carrying amounts of property and equipment, right-of-use assets and intangible assets are disclosed in notes 11,12 and 13, respectively.

- Accounting for leases under IFRS 16

Management has made various judgements and estimates under IFRS 16 as detailed below:

Incremental borrowing rate: To determine the incremental borrowing rate, the group: - where possible, uses recent third-party financing received as a starting point, adjusted to reflect changes in financing conditions since third party financing was received; and - makes adjustments specific to the lease, e.g.. Term, currency and security.

Lease term/period: In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). For teases of warehouses, retail stores and equipment, the following factors are normally the most relevant: - If there are significant penalties to terminate (or not extend), the group is typically reasonably certain to extend (or not to terminate). - If any leasehold improvements are expected to have a significant remaining value, the group is typically reasonably certain to extend (or not terminate). Otherwise, the group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset.

Most extension options in offices teases have not been included in the lease liability, because the group could replace the assets without significant cost or business disruption.

The lease term is reassessed if an option is actually exercised (or not exercised) or the group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.

The carrying amounts of right-of-use assets and lease liabilities are disclosed in notes 12 and 15 respectively.

44 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the yearended 31 December 2020 NOTES (CONTINUED)

1. Significant accounting policies (continued)

- c) -Revenue recognition

Interest income and expense

Interest income is recognised under the effective interest method. The effective interest is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. Loan fees that are recognized using the effective interest method are included with loan balances in the consolidated statement of financial position.

Fee and commission income (including other operating income)

Fees and commission income, including account servicing fees and custody fees are generally recognised on an accrual basis when the service has been provided. This income comprises of account servicing fees, loan discharge and administration fees are recognized as the related services are performed.

Other income

i) Dividend is recognised when the right to receive income is established, Dividend are reflected as a component of other operating income based on the underlying classification of the equity instrument. Dividends are presented in net income from other financial instruments at fair value.

ii) Benevolent fund contribution is charged for the insurance of loans and advances to members. Income is recognised on an accruals basis at a rate of Shs.300 per member per month.

d) Property and equipment

All property and equipment is initially recorded at cost and thereafter stated at historical cost less depreciation. Historical cost comprises expenditure initially incurred to bring the asset to its location and condition ready for its intended use.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost can be reliably measured. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial year in which they are incurred.

Depreciation is calculated using the straight line basis over the estimated useful lives of the assets. The rates used are based on the following estimated useful lives to the current and prior year,

Asset Rate t%)

Furniture and fittings 12.5 Office equipment 12.5 Computer equipment 25

45 United Nations Savings and Credit Co-operative Society Limited ■ CS/2375 Annual report and consolidated financial statements For the year ended 31 December2020 NOTES (CONTINUED)

1. Significant accounting policies (continued) d] Property and equipment (continued)

The assets' residual values and lives are reviewed, and adjusted if appropriate at each balance sheet date.

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.

Gains or losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining operating profit.

e) Intangibie assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated, amortisation and accumulated impairment losses. Amortisation is recognised on a straight line basis over their estimated useful lives of 3 years. The estimated useful life and amortisation method are reviewed at the end of each repotting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight line method to write down the cost of each asset to its residual value over its estimated useful life.

f) Financial instruments

Financial assets and financial liabilities are recognised when the group becomes a party to the contractual provisions of the instrument. Management determines all classification of financial instruments at initial recognition.

- Financial assets

Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in profit or loss.

The group's financial assets fall into the following categories:

Amortised cost: Financial assets that are held for collection of contractual cash flows where those cash flows represent Solely Payments of Principal and Interest (SPPI), and are not designated at Fair Value Through Profit or Loss (FVTPL), are measured at amortised cost. The carrying amount of these assets is adjusted by any expected credit loss allowance recognised and measured. Interest income from these financial assets is included in 'interest and similar income' using the effective interest rate method.

Fair Value Through Other Comprehensive Income (FVTOCI): Financial assets that are held for collection of contractual cash flows where these cash flows comprise SPPI and also for liquidating the assets depending on liquidity needs and that are not designated at FVTPL, are measured at FVTOCI. Movements in the carrying amount are taken through OCI, except for recognition of impairment gain or losses, interest revenue and foreign exchange gain and losses. Gains and losses previously recognised in OCI are reclassified from equity to profit or loss on disposal of such instruments. Gains and losses related to equity instruments are not reclassified.

46 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

1. Significant accounting policies (continued) f) Financial instruments (continued)

- Financial assets (continued)

Fair Value Through Profit or Loss (FVTPL): Financial assets that do not meet the criteria for amortised cost or FVTOCI are measured at FVTPL. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognised in profit or loss and presented in the statement of profit or loss and other comprehensive income.

Financial assets designated at fair value through OCi (equity instruments): Upon initial recognition, the group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in profit or loss when the right of payment has been established, except when the group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.

The group elected to classify irrevocably its non-listed equity investments under this category.

For the purpose of SPPl the test, principal is the fair value of the financial asset at initial recognition. That principal amount may change over the life of the financial asset (e.g. if there are repayments of principal). Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin. The SPPl assessment is made in the currency in which the financial asset is denominated.

Contractual cash flows that are SPPl are consistent with a basic lending arrangement. Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement will not comprise SPPl.

An assessment of business models for managing financial assets is fundamental to the classification of a financial asset. The group determines the business models at a level that reflects how the group's financial assets are managed together to achieve a particular business objective. The group’s business model does not depend on management’s intentions for an individual instrument. Therefore, the business model assessment is performed at a higher level of aggregation rather than on an instrument-by-instrument basis.

The group has more than one business model for managing its financial instruments which reflect how the group manages its financial assets in order to generate cash flows. The group’s business models determine whether cash flows will result from collecting contractual cash flows, selling financial assets or both.

The group considers all relevant information available when making the business model assessment. However, this assessment is not performed on the basis of scenarios that the group does not reasonably expect to occur, such as so-called 'worst case’ or ‘stress case’ scenarios. The group takes into account all relevant evidence available such as:

- how the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity's key management personnel;

47 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated ^nanciai statements For the year ended 31 December 2020 NOTES {CONTINUED)

1. Significant accounting policies (continued) f) Financial instruments(continued)

- Financial assets (continued)

- the risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way in which those risks are managed; and

- how managers of the business are compensated (e.g, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected).

At initial recognition of a financial asset, the group determines whether newly recognised financial assets are part of an existing business model or whether they reflect the commencement of a new business model. The group reassess its business models each reporting period to determine whether the business models have changed since the preceding period. For the current and prior reporting period the group has not identified a change in its business models.

When a debt instrument measured at FVTOCI is derecognised, the cumulative gain/loss previously recognised in OCI is reclassified from equity to profit or loss. In contrast, for an equity investment designated as measured at FVTOCI, the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to profit or loss but transferred within equity.

Debt instruments that are subsequently measured at amortised cost or at FVTOCI are subject to impairment.

Impairment

The group recognises loss allowances for ECUs on the following financial instruments that are not measured at FVTPL: - Cash and cash equivalents - Loans and advances ■ Other financial assets

No impairment loss is recognised on investments measured at FVTPL.

ECLs are required to be measured through a loss allowance at an amount equal to:

- 12-month expected credit loss (ECL), i.e. lifetime ECL that result from those default events on the financial instrument that are possible within 12 months after the reporting date, (referred to as Stage 1); or

- full lifetime ECL, i.e. lifetime ECL that result from all possible default events over the life of the financial instrument, (referred to as Stage 2 and Stage 3).

A loss allowance for full lifetime ECL is required for a financial instrument if the credit risk on that financial instrument has increased significantly since initial recognition. For all other financial instruments, ECLs are measured at an amount equal to the12-month ECL. More details on the determination of a significant increase in credit risk are provided in note 24.

ECLs are a probability-weighted estimate of the present value of credit losses. These are measured as the present value of the difference between the cash flows due to the group under the contract and the cash flows that the group expects to receive arising from the weighting of multiple future economic scenarios, discounted at the asset’s EIR.

48 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED) f) Financial instruments(contlnued)

Financial assets (continued)

Impairment (continued)

For undrawn loan commitments, the ECL is the difference between the present value of the difference between the contractual cash flows that are due to the group if the holder of the commitment draws down the loan and the cash flows that the group expects to receive if the loan is drawn down.

For financial guarantee contracts, the ECL is the difference between the expected payments to reimburse the holder of the guaranteed debt instrument less any amounts that the group expects to receive from the holder, the debtor or any other party.

The group measures ECL on an individual basis, or on a collective basis for portfolios of loans that share similar economic risk characteristics. The measurement of the loss allowance is based on the present value of the asset’s expected cash flows using the asset’s original effective interest rate (EIR), regardless of whether it is measured on an individual basis or a collective basis.

More information on measurement of ECLs is provided in note 24 (b), including details on how instruments are grouped when they are assessed on a collective basis.

A financial asset is ’credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Credit-impaired financial assets are referred to as Stage 3 assets. Evidence of credit-impairment includes observable data about the following events:

- contractual payments that are more than 90 days overdue; - significant financial difficulty of the borrower or issuer; - a breach of contract such as a default or past due event; - financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider; - the disappearance of an active market for a security because of financial difficulties; or - the purchase of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event, instead, the combined effect of several events may have caused financial assets to become credit-impaired. The society assesses whether all new and revised standards and interpretations that have become effective for the first time credit-impaired at each reporting date. To assess if sovereign and corporate debt instruments are credit impaired, the society considers factors such as bond yields, credit ratings and the ability of the borrower to raise funding .

Modification and derecognition of financial assets

A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are renegotiated or otherwise modified between initial recognition and maturity of the financial asset A modification affects the amount and/or timing of the contractual cash flows either immediately or at a future date. In addition, the introduction or adjustment of existing covenants of an existing loan would constitute a modification even if these new or adjusted covenants do not yet affect the cash flows immediately but may affect the cash flows depending on whether the covenant is or is not met (e.g. a change to the increase in the interest rate that arises when covenants are breached). 49 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) f) Financial Instruments (continued)

- Financial assets (continued)

Modification and derecognition of financial assets (continued)

The group renegotiates loans to customers in financial difficulty to maximise collection and minimise the risk of default. A loan forbearance is granted in cases where although the borrower made ail reasonable efforts to pay under the original contractual terms, there is a high risk of default or default has already happened and the borrower is expected to be able to meet the revised terms.

The revised terms in most of the cases include an extension of the maturity of the loan, changes to the timing of the cash flows of the loan (principal and interest repayment), reduction in the amount of cash flows due (principal and interest forgiveness) and amendments to covenants. The group has an established forbearance policy which applies for corporate and retail lending.

When a financial asset is modified, the group assesses whether this modification results in derecognition. In accordance with the group’s policy a modification results in derecognition when it gives rise to substantially different terms. To determine if the modified terms are substantially different from the original contractual terms the group considers the following:

- Qualitative factors, such as contractual cash flows after modification are no longer SPPI, change in currency or change of counterparty, the extent of change in interest rates, maturity, covenants. If these do not clearly indicate a substantial modification, then;

- A quantitative assessment is performed to compare the present value of the remaining contractual cash flows under the original terms with the contractual cash flows under the revised terms, both amounts discounted at the original effective interest.

If the difference in present value is greater than 10% the group deems the arrangement is substantially different leading to derecognition.

In the case where the financial asset is derecognised, the loss allowance for ECL is remeasured at the date of derecognition to determine the net carrying amount of the asset at that date. The difference between this revised carrying amount and the fair value of the new financial asset with the new terms will lead to a gain or loss on derecognition. The new financial asset will have a loss allowance measured based on 12-month ECL except in the rare occasions where the new loan is considered to be originated - credit impaired. This applies only in the case where the fair value of the new loan is recognised at a significant discount to its revised par amount because there remains a high risk of default which has not been reduced by the modification. The group monitors credit risk of modified financial assets by evaluating qualitative and quantitative information, such as if the borrower is in past due status under the new terms.

When the contractual terms of a financial asset are modified and the modification does not result in derecognition, the group determines if the financial asset's credit risk has increased significantly since initial recognition by comparing:

- the remaining lifetime PD estimated based on data at initial recognition and the original contractual terms; with

- the remaining lifetime PD at the reporting date based on the modified terms.

50 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements Forthe yearended 31 December2020 NOTES (CONTINUED) "

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) f) Financial instruments (continued)

- Financial assets (continued)

For financial assets modified as part of the group’s forbearance policy, where modification did not result in derecognition, the estimate of PD reflects the group’s ability to collect the modified cash flows taking into account the group’s previous experience of similar forbearance action, as well as various behavioural indicators, including the borrower's payment performance against the modified contractual terms. If the credit risk remains significantly higher than what was expected at initial recognition the toss allowance will continue to be measured at an amount equal to lifetime ECL. The loss allowance on forborne loans will generally only be measured based on 12-month ECL when there is evidence of the borrower's improved repayment behaviour following modification leading to a reversal of the previous significant increase in credit risk.

Where a modification does not lead to derecognition the group calculates the modification gain/loss comparing the gross carrying amount before and after the modification (excluding the ECL allowance). Then the group measures ECL for the modified asset, where the expected cash flows arising from the modified financial asset are included in calculating the expected cash shortfalls from the original asset.

The group derecognises a financial asset only when the contractual rights to the asset’s cash flows expire (including expiry arising from a modification with substantially different terms), or when the financial asset and substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the group retains substantially all the risks and rewards of ownership of a transferred financial asset, the group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain/loss that had been recognised in OCI and accumulated in equity is recognised in profit or loss, with the exception of equity investment designated as measured at FVTOCI, where the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to profit or loss.

On derecognition of a financial asset other than in its entirety (e.g. when the group retains an option to repurchase part of a transferred asset), the group allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain/loss allocated to it that had been recognised in OCI is recognised in profit or loss. A cumulative gain/loss that had been recognised in OCI is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. This does not apply for equity investments designated as measured at FVTOCI, as the cumulative gain/loss previously recognised in OCI is not subsequently reclassified to profit or loss.

51 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December2020 NOTES (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) —- ■ f) Financial instruments (continued)

- Financial assets (continued)

Write-off

Loans and debt securities are written off when the group has no reasonable expectations of recovering the financial asset (either in its entirety or a portion of it). This is the case when the group 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, A write-off constitutes a derecognition event. The group may apply enforcement activities to financial assets written off. Recoveries resulting from the group’s enforcement activities will result in impairment gains.

Quoted investments, managed funds, unit trust investments and unquoted shares are classified as FVTOCI financial instruments. The fair values of quoted investments are based on current bid prices at the reporting date. Where fair values cannot be reliably measured (unquoted investments), the group establishes fair value by using valuation techniques.

Cash in hand and balances with financial institutions, loan and advances, other receivables and tax recoverable are classified as amortised cost financial assets.

- Financial assets (continued)

- Financial liabilities measured at amortised cost; These include borrowings, payables and accruals, member deposit and interest due to members. These are initially measured at fair value and subsequently measured at amortised cost, using the effective interest rate method.

Any difference between the proceeds (net of transaction costs) and the redemption value is recognised as interest expense in profit or loss under finance costs under the effective interest rate method.

All financial liabilities are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

- Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.

- Offsetting financial instruments

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when there is a currently enforceable legal right to offset the amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

52 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December2020 NOTES (CONTINUED) g) Accounting for leases

The group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The group as lessee

On the commencement date of each lease (excluding leases with a term, on commencement, of 12 months or less and leases for which the underlying asset is of low value) the group recognises a right-of-use asset and a lease liability.

The lease liability is measured at the present value of the lease payments that are not paid on that date. The lease payments include fixed payments, variable payments that depend on an index or a rate, amounts expected to be payable under residual value guarantees, and the exercise price of a purchase option if the group is reasonably certain to exercise that option. The lease payments are discounted at the interest rate implicit in the lease. If that rate cannot be readily determined, the group's incremental borrowing rate is used.

For leases that contain non-lease components, the group allocates the consideration payable to the lease and non-lease components based on their relative stand-alone components.

The right-of-use asset is initially measured at cost comprising the initial measurement of the lease liability, any lease payments made on or before the commencement date, any initial direct costs incurred, and an estimate of the costs of restoring the underlying asset to the condition required under the terms of the lease.

Subsequently the lease liability is measured at amortised cost, subject to remeasurement to reflect any reassessment, lease modifications, or revised fixed lease payments.

All other right-of-use assets are subsequently measured at cost less accumulated depreciation and any accumulated impairment losses, adjusted for any remeasurement of the tease liability. Depreciation is calculated using the straight-line method to write down the cost of each asset to its residual value over its estimated useful life. If ownership of the underlying asset is not expected to pass to the group at the end of the lease term, the estimated useful life would not exceed the lease term.

h) Investment in subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies. Control is achieved when the Sacco; has power over the trustee; is exposed or has right to variable returns from its involvement with the investee and has the ability to use its power to affect its returns.

The group also assesses the existence of control where it does not have a majority of the voting rights power but is able to govern the financial and operating policies of a subsidiary. Control may arise in certain circumstances where including the size of the group’s voting rights relative to the size and dispersion of holdings of other shareholders give the group the power to govern the financial and operating policies, where potential voting rights are held by the group and rights from other contractual arrangements etc.

53 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

h) Investment In subsidiaries

When the Sacco has assessed and has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.

The Sacco reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of controls listed above.

Consolidation of a subsidiary begins when the Sacco obtains control over the subsidiary and ceases when the Sacco loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit and loss and other comprehensive income from the date the Sacco control until the date the Sacco ceases to control the subsidiary.

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss from the effective date of acquisition and up to the effective date of disposal as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Sacco and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Intra-group balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-Sacco transactions that are recognised in assets I are also eliminated. Accounting policies of subsidiaries have been changed where necessary adjustments are made to financial statements of subsidiary to bring their accounting policies into line with the group's accounting policy.

- Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

- Disposal of subsidiaries

When the Sacco ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is tost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Sacco had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

- Business combinations

The Sacco applies the acquisition method to account for business combinations. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred to/by the group, liabilities incurred by the Sacco to the former owners of the acquiree and the equity interests issued by the Sacco in exchange for control of the acquire. Acquisition related costs are generally recognised in profit or loss as incurred.

54 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED) h) Investment in subsidiaries (continued)

- Business combinations (continued)

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquire is remeasured to fair value at the acquisition date through profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

Any contingent consideration to be transferred by the society is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 'Financial Instruments: Recognition and Measurement' in profit or loss income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

i) Impairment of non-financial assets

At the end of each reporting period, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). * Assets that have an indefinite useful life are not subject to amortisation and are tested for impairment annually. 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 impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

j) Retirement benefit obligations

The group and its employees contribute to the National Social Security Fund (NSSF), a statutory defined contribution scheme registered under the NSSF Act. The group's contributions to the defined contribution scheme are charged to the statement of comprehensive income in the year to which they relate.

k) Inventories

Inventories comprise work in progress and are stated at the lower of cost and net realisable value. Cost is determined by the first-in-first-out (FIFO) basis and comprises all costs attributable to bringing the properties to their current location and condition. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses.

55 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

I) Taxation

Current tax is provided on the basis of the results for the year, as shown in the financial statements, adjusted in accordance with tax legislation applicable to the society and its subsidiary.

In particular under section 19A (4) of the Income Tax Act, the Sacco being a designated Sacco that carries on business as a Credit and Savings Co-operative Society, income tax only arises on interest income from non-members, rental income and any other income not arising from activities relating to advances or deposits from members.

Deferred income tax is provided, 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, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability. Currently enacted tax rates are used to determine deferred income tax.

Deferred income tax assets are recognized only to the extent that it is probable that the future taxable surplus will be available against which temporary differences can be utilized. m) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

o) Share capital

Member interest are classified as equity where the entity has an unconditional right to refuse redemption of the members’ shares.

Provisions in the Sacco Societies Act, regulations or the Sacco by-laws impose unconditional prohibitions on the redemption of members' shares.

p) Reserves

- Statutory reserve

Transfers are made to the statutory reserve fund at a rate of 20% of net operating surplus after tax in compliance with the provision of section 47 (1& 2) of the Co-operative Societies Act. Cap 490. This reserve is not distributable.

- Credit risk reserve

Where impairment losses required by legislation or regulation exceed those calculated under International Financial Reporting Standards (IFRSs), the excess is recognised as a regulatory credit risk and accounted for as an appropriation of retained profits. This reserve is not distributable.

Fair value reserve

The fair value reserve arises on the revaluation of financial assets classified as fair value through other comprehensive income. Where a revalued financial asset is sold, the portion of the reserve that relates to that financial asset, and is effectively realised, is recognised in profit or loss. Where a revalued financial asset is impaired, the portion of the reserve that relates to that financial asset is recognised in profit or loss.

Gains and losses transferred from equity into statement of comprehensive income during the period are included in other gains and losses. This reserve is not distributable.

56 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated ^nancial statements For the year ended 31 December 2020 NOTES (CONTINUED)

p) Reserves (continued) ■ *ir 'r z

- Dividend account

Dividend is recognised as a liability by transferring funds from retained earnings to dividend account. Proposed dividends are disclosed as a separate component of equity. This reserve is distributable. q) Comparatives

Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

57 United Nations Saving's and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financiai statements For the year ended 31 December2020 NOTES (CONTINUED)

Group Sacco 2019 2020 20192020 2. Revenue Shs Shs Shs Shs

a) Interest income on loans and advances

BOSA loans 758,832,215 804,086,045 758,832,215 804,086,045 FOSA loans and advances 374,835,278 345,375,730 374,835,278 345,375,730

1,133,667,494 1,149,461,775 1,133,667,494 1,149,461,775

b) Other interest income Interest income from fixed deposits 420,503,662 337,995,808 420,503,662 337,995,808 Interest income from bank accounts 193,304 195,216 57,034 25,810

420,696,967 338,191,024 420,560,697 338,021,618

Total Interest income 1,554,364,460 1,487,652,799 1,554,228,190 1,487,483,393

c) Interest expenses Interest on FOSA accounts 33,034,925 26,589,530 33,034,925 26,589,530 Interest on Junior accounts 2,513,296 1,777,728 2,513,296 1,777,728 Interest on fixed deposit accounts 2,296,076 2,107,862 2,296,076 2,107,862 Interest on member deposits 935,284,567 871,106,860 935,284,567 871,106,860

Total interest expense 973,128,864 901,581,980 973,128,864 901,581,980

Net interest income 581,235,596 586,070,819 581,099,326 585,901,413 f d) Net fee and commission income Withdrawal commission (FOSA) 327,200 1,795,680 327,200 1,795,680 Dividend processing fee 1,249,806 1,217,197 1,249,806 1,217,197 Penalty/commission charges 3,930,004 4,980,983 3,930,004 4,980,983 Mpesa commissions 2,119,349 1,379,623 2,119,349 1,379,623 Insurance related commissions 2,361,675 242,956 2,361,675 242,956 ATM Fosa 35,528 86,286 35,528 86,286 Bankers cheque and EFT payments 95,750 110,200 95,750 110,200

Total net fee and commission income 10,119,312 9,812,925 10,119,312 9,812,925

e) Other operating income Account closing charge 1,426.388 948,010 1,426,388 948,010 Share transfer charge 68,000 112,400 68,000 112,400 Water tanks charge 50,885 73,448 50,885 73,448 Other income - Fosa t-shirt sale 60,500 60,500 Benevolent fund subscription 18,284,101 17,905,861 18,284,101 17,905,861 Statement or official letter 116,220 606,936 116,220 606,936 Safe custody 26,000 22,100 26,000 22,100 Membership subscription 796,311 1,112,667 796,311 1,112,667 Dividend income 390,274 1,069,621 390,274 1,069,621 Income from plot sales 2,350,000 940,000 Other recoveries 22,846,978 22,846,978 Other miscellaneous income 3,791,387 8,470 3,791,387 Gain on disposal of equipment 18,551 18,551

Total other operating income 50,165,096 22,860,013 47,815,096 21,911,543

58 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

Group Sacco 3. Profit before tax 2020 2019 2020 2019 Shs Shs Shs Shs The following items have been charged in arriving at profit before tax;

a) Impairment charge on loans and advances (Note 8) 76,927,858 77,619,068 76,927,858 77,619,068

b) Impairment charge/(recovery) on other financial assets

Cash and cash equivalents (Note 5} 5,108,236 (2,534,779) 5,108,236 (2,534,779) Other term deposits (Note 6) 188,475 2,040,000 188,475 2,040,000

5,296,711 (494,779) 5,296,711 (494,779)

c) Governance expenses (member related costs)

Board and supervisory expenses 25,644,220 30,193,916 25,644,220 30,193,916 Member education 334,202 3,233,445 334,202 3,233,445 AGM and SGM expenses 2,506,493 15,179,720 2,506,493 15,179,720 Honorarium 3,456,481 -______3,456,481 28,484,915 52,063,562 28,484,915 52,063,562

d) Staff costs

Salaries and wages 80,809,916 75,336,839 80,809,916 75,336,839 Pension and NSSF 16,825,086 15,629,450 16,825,086 15,629,450 Other staff cost 34,197,135 44,732,955 33,507,599 43,732,955 Staff bonus -______6,912,958 -______6,912,958 131,832,137 142,612,202 131,142,601 141,612,202

e) Other administrative expenses

Marketing expenses 1,004,033 6,206,102 1,004,033 5.857.222 iCT expenses 886,631 1,636,222 886,631 1.636.222 Printing and stationery 1,145,211 1,150,343 1,145,211 1,092,826 Audit fees 3,016,038 2,934,190 2,926,950 2,843,450 Exchange gain (3,688,431) (2,898,841) (3,688,431) (2,898,841) CRB processing 183,072 79,200 183,072 79,200 Telephone and courier 1,638,104 872,221 1,638,104 843,110 Consultancy 5,720,012 5,720,012 Bank charges 1,010,218 1,531,146 1,009,978 1,523,946 Legal and professional fees 5,121,935 2,725,660 5,101,935 2,452,750 Public relations 1,678,500 2,353,816 1,678,500 2,353,816 License and fees 1,591,963 507,500 1,591,963 507,500 Office expenses 4,893,585 7,891,900 4,320,404 5,743,615 UNON common service 6,518,911 4,300,042 6,518,911 4,085,040 Cost of assets held for sale 1,198,554 554,419 26,198,324 35,563,932 24,317,261 31,839,868

59 United Nations Savings and Credit Co-operative Society Umited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

Group Sacco 3. Profit before tax (continued) 2020 2019 2020 2019 Shs Shs Shs Shs f] Other operating expenses

Depreciation on property and equipment (Note 11) 3,243,775 5,156,018 3,228,985 5,141,228 Rent and rates 1,729,394 5,145,567 1,729,394 4,291,560 KRA tax assessments 2,015,772 2,015,772 Contingencies 8,927,639 2,191,593 8,927,639 2,191,593 Lease interest expense 1,918,625 1,686,451 1,918,625 1,686,451 Amortisation of intangible assets (Note 14) 999,134 1,385,083 999,134 1,385,083 Depreciation on right of use asset (Note 12) 10,460,179 9,309,035 10,460,179 9,309,035 Water, fuel and electricity 1,161,912 1,212,528 1,161,912 1,151,902 Insurance 23,854,134 18,357,271 23,854,134 18,357,271 Repair and maintenance 429,104 747,202 429,104 747,202 SASRA and other statutory levies 10,053,000 10,053,000 10,053,000 10,053,000

62,776,895 57,259,520 62,762,105 56,330,097

4. a) Tax

Current tax 67,447,723 54,106,528 67,398,695 54,054,628

67,447,723 54.106.528 67,398,695 54,054,628

The tax on the Sacco's operating profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows:

Group Sacco 2020 2019 2020 2019 Reconciliation of the expense Shs Shs Shs Shs

Profit before tax 305,173,003 254,120,252 305,272,122 258,655.863

Tax calculated at a tax rate of 25% (2019: 30%) 91,551,901 76,236,076 91,581,636 77,596,759 Tax effects of: Expenses not deductible for tax purposes 322,319,572 378,944,429 322,240,807 377,531,845 Income not subject to tax (346.423.750) (401,073,977) (346,423,748) (401,073,976)

Tax charge 67,447,723 54,106,528 67,398,695 54,054.628

b) Tax payable

At start of year (6,816,341) (13,443,600) (6,790,930) (13,412,871) Income tax expense (67,447,723) (54,080,039) (67,398,695) (54,054,628) Tax paid 62,389,885 57,627,531 62,356,327 57,596,802 Withholding tax certificates 2,594,530 3,079,767 2,594,530 3,079,767

At end of year (9,279,648) (6,816,341) (9,238,767) (6,790,930)

60 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES {CONTINUED)

Group Sacco 5. Cash and cash equivalents 2020 2019 20192020 Shs Shs Shs Shs Cash and cash equivalents at the end of the year comprise;-

Cash and bank balance 5,334,811,493 4,073,299,841 5,327,874,198 4,066,466,443 (37!554,937) Expected credit loss on bank balances (32,441,841) (37,554,937) (32,441,841)

5,297,256,555 4,040,858,000 5,290,319,261 4,034,024,602

Cash in hand 20,406,118 30,233,907 20,406,118 30,233,907 Cash at bank 280,137,947 278,175,183 273,200,652 271,341,785 Short term deposits 4,996,712,491 3,732,448,910 4,996,712,491 3,732,448,910

Total 5,297,256,556 4,040,858,000 5,290,319,261 4,034,024,602

The weighted average effective interest rate on short-term bank deposits at year-end was 8.05% (2019: 8.4%). 2020 2019 Group cash at bank balances ShsShs Bank Name Branch Currency Citibank N.A, Upper Hill Branch UN Sacco Ltd Current Account Kenya Shilling 17,774,060 29,823,236 Citibank N.A, Upper Hill Branch UN Sacco Ltd Current Account United States Dollars 5,227,460 7,511,884 KCB Bank Group Pic, Gigiri Branch UN Sacco Ltd Current Account Kenya Shillings 214,370,433 178,737,800 Cooperative Bank of Kenya Ltd, Gigiri Branch UN Sacco Ltd ATM Account Kenya Shillings 23,911,072 10,509,805 UN SACCO Ltd Mpesa Account UN Sacco Ltd Mpesa Business Number Kenya Shillings 20,319,107 26,046,883 Cooperative Bank of Kenya Ltd, Gigiri Branch UN Sacco Ltd Current Account Kenya Shillings 11,601,047 18,542,268 SBM Bank, Ngara Branch UN Sacco Ltd Current Account Kenya Shillings 175,549 173,723 Kenya Commercial Bank, Gigiri Branch Wanamataifa Ltd Current Account Kenya Shillings 3,863,872 3,492,798 United Nations Sacco Ltd FOSA A/C Wanamataifa Ltd FOSA Savings account Kenya Shillings 3,073,423 3,336,786

Total 300,316,023 278,175.183

61

i t United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December2020 NOTES (CONTINUED)

5. Cash and cash equivalents (continued)

For the purpose of the statement cash flow, the year end cash and cash equivalents comprise the following: Group Sacco 2020 2019 2020 2019 Shs Shs Shs Shs

Cash and bank balances 300,544,065 308,409,090 293,606,770 301,575,692 Short term bank deposits maturing within 91 days 4,996,712,491 3,732,448,910 4,996,712,491 3,732,448,911

5,297,256,556 4,040,858,000 5,290,319,261 4,034,024,603

Expected credit losses of Shs. 37,554,937 (2019: Shs. 32,446,701) have been recognised against bank balances based on published credit ratings of banks.

The carrying amounts of the group's cash and cash equivalents are denominated in the following currencies:

2020 2019 Shs Shs

Kenya Shilling 5,292,029,096 4,033,293,162 US Dollar 5,227,460 7,564,838

5,297,256,556 4,040,858,000

6. Term deposits in other financial institutions 2020 2019 Group and Sacco Shs Shs

KUSCCO 452,799,247 423,732,877 Expected credit loss on term deposits (2,988,475) (2,800,000)

449,810,772 420,932,877

The weighted average effective interest rate on term deposits at year-end was 11% (2019:11%).

Expected credit losses of Shs. 2,988,476 (2019: Shs. 2,800,000) have been recognised against bank balances based on published credit ratings of banks.

Group Sacco 2020 2019 2020 2019 7. Prepayments and other receivables Shs Shs Shs Shs

Prepayments 19,250,676 24,394,076 19,250,676 24,394,076 Staff advances 89,704 319,704 89,704 319,704 Other receivables 48,109,780 70,956,758 48,109,780 70,956,758 Provision for other receivables (48,109780) (70,956758) (48,109,780) (70,956,758)

19,340,379 24,713,780 19,340,379 24,713,780 Receivable from related party (Note 23(iv)) 9,130,366 9,071,841

19,340,379 24,713,780 28,470,745 33,785,621

62 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annuai report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

7. Prepayments and other receivables (continued)

In the opinion of the directors, the carrying amounts of prepayments and other receivables approximates to their fair value.

The carrying amounts of the group's receivables and prepayments are denominated in Kenya Shillings (Shs.)

8. Loans and advances to members 2020 2019 Shs Shs Group and Sacco

At the start of the year 8,302,230,674 8,297,125,538 Granted during the year 5,567,299,812 6,293,368,424 Interest charged 1.133,667,494 1,149,461,776 Payments received (6,583,978,837) (7,337,119,698)

Totai gross loans and advances 8,419,219,143 8,402,836,040 Expected credit loss (177,533,223) (100,605,366)

8,241,685,920 8,302,230,674 Movement in expected credit loss At start of year 100,605,366 22,986,298 Impairment charge for the year (Note 3(a)) 76,927,857 77,619,068

At end of year 177,533,223 100,605,366

(I) Loans and advances to members at amortised cost

The society groups its loans and advances based on the contractual credit period vi/hich range from loans to be repaid within 12 months to loans to be repaid within 180 months.

Gross ECL Carrying amount allowance amount Year ended 31 December 2020 Shs Shs Shs

12 months 200,893,764 (2,522,414) 198,371,350 36 months 1,068,054,355 (13,962,197) 1,054,092,158 60 months 3,330,493,871 (68,587,715) 3,261,906,156 72 months 1,245,885,712 (38,268,294) 1,207,617,419 180 months 2.573.891.440 (54,192,603) 2,519,698,837 8,419,219,143 (177,533,223) 8.241,685,920

Year ended 31 December 2019

12 months 212,695,997 (1,257,836) 211,438,161 36 months 1,096,213,863 (10,268,086) 1,085,945,777 60 months 3,285,751,782 (52,883,596) 3,232,868,186 72 months 1,326,252,253 (10,633,678) 1,315,618,575 180 months 2,481,922,145 (25,562,170) 2,456,359,975 8,402,836,040 (100,605,366) 8,302,230,674

63 (

United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 ______! NOTES (CONTINUED)

8. Loans and advances (continued) ( I Group and Sacco Annual transfer Provision as Impairment to statutory i ! per statutory provision as Statutory loan loan loss regulations per IFRS 9 loss reserve reserve Shs Shs Shs Shs Year end 31 December 2020 177,533,223 54,905,913 (77.281,934) Loans and advances 232,439,136

Year end 31 December 2019 132,187,847 38,682,694 Loans and advances 232,793,213 100.605,366

(ii) IFRS 9 provisions Stage 1 Stage 2 Stage 3 2020 2019 12-month ECL Lifetime ECL Lifetime ECL Total Total Shs Shs Shs Shs Shs 87,637,255 100,605,366 22,986,298 At start of year 12,384,829 583,282 41,747,151 76,927,857 77,619,068 Increase in loss allowance 26,245,169 8.935.537 129,384,406 177.533,223 100,605,366 At end of year 38,629,998 9.518,819 2020 2019 Shs Shs Provision as per statutory regulations 80,356,700 79,957,610 0 Days (Performing -1%) 6,561,144 7,350,955 1- 30 Days (Watch -5%) 35,746,934 63,634,048 31 -180 Days (Substandard- 25%) 18,738,431 9,319,724 181- 360 Days (Doubtful - 50%) 91,035,927 72,530,876 Over 361 Days (Loss -100%) 232,439,136 232,793,213

In the opinion of the directors, the carrying amounts of loans and advances approximate to their fair value,

64 i 5 1 ’ I. United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

8. Loans and advances (continued)

Group and Sacco Annual transfer Provision as Impairment to statutory per statutory provision as Statutory loan loan loss regulations per IFRS 9 loss reserve reserve Shs Shs Shs Shs Year end 31 December 2020 Loans and advances 232.439.136 177,533,223 54,905.913 (77,281,934)

Year end 31 December 2019 Loans and advances 232.793.213 100,605,366 132,187,847 38.682,694

(ii) IFRS 9 provisions Stage 1 Stage 2 Stage 3 2020 2019 12-month ECL Lifetime ECL Lifetime ECL Total Total Shs Shs Shs Shs Shs At start of year 12,384,829 583,282 87,637,255 100,605,366 22,986,298 Increase in loss allowance 26,245,169 8,935,537 41,747,151 76,927,857 77,619,068

At end of year 38,629,998 9,518,819 129,384,406 177,533,223 100,605,366 2020 2019 Provision as per statutory regulations Shs Shs

0 Days (Performing -1%) 80,356,700 79,957,610 1- 30 Days (Watch -5%) 6,561,144 7,350,955 31 -180 Days (Substandard- 25%) 35,746,934 63.634,048 181-360 Days (Doubtful - 50%) 18,738,431 9.319,724 Over 361 Days (Loss -100%) 91,035,927 72,530,876 232,439,136 232,793,213

In the opinion of the directors, the carrying amounts of loans and advances approximate to their fair value.

64

1 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED) •r •

8. Loans and advances (continued)

Loans to insiders

Group and Sacco

Insiders are deemed to be employees, members of supervisory committees and directors of the society. The following loans were granted to insiders: 2020 2019 Shs Shs

Total loans advanced during the year 59,977,410 129,402,927 Total loans outstanding at the end of the year; Loans to key management 22,507,295 31,826,017 Loans to directors 58,566,324 79,679,650 Loans to supervisory committee members 38,950,195 47,790,595 Loans to other employees 33,833,465 27,057,476 Total loans 153,857,278 186,353,738

The effective interest rate on loans and advances is 13,5 % (2019:13,7%) 9. Financial assets

Group and Sacco

At start of year 22,981,668 14,153,615 Additions 10,000,000 Fair value loss (436,219) (1,17T947) At end of year 22,545,449 22,981,668 Available for sale financial assets No. of shares Co-operative Insurance Society Limited 1,066,658 2,271,977 2,943,970 Co-opholdings Co-operative Society Limited 27,216 258,454 22,680 KUSSCO Limited 200,150 20,015,018 20,015,018 Total financial assets 22,545,449 22,981,668 Income from financial assets classified as fair value through other comprehensive income 390,274 1,069,621

The fair values of financial assets are categorised as follows based on the information set out on accounting policy (a). There were no reclassification between the classes.

Level 2 Level 3 Total Shs Shs Shs Year ended 31 December 2020 Fair value through other comprehensive income 2,530,431 20,015,018 22,545,449 Year ended 31 December 2019 Fair value through other comprehensive income 2,966,650 20,015,018 22,981,668 The carrying value of the investment in KUSSCO ordinary share is based on cost as a reasonable estimate of the fair value as KUSSCO adopts a significant dividend distributable policy with the effect that the market value of the share is at any time not expected to materially differ from cost.

65 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consoiidated financiai statements For the year ended 31 December 2020 NOTES (CONTINUED)

9. Financial assets (continued)

Market risk primarily arises from the changes in the market value and the financial stability of the respective quoted companies.

Management monitors the quality of financiai assets by: - discussion at the management and board meetings; - reference to external historical information available; and - discussions with the Sacco's investment advisors.

None of the financial assets are considered to be impaired and are dominated in Kenya Shillings.

10. Investment in subsidiary 2020 2019 Shs Shs Sacco At start and end of year 1,000,000 1,000,000

Reporting Country of Principal % Name year end incorporation activity Held

Wanamataifa Investments Company Limited 31-Dec Kenya Real estate 99%

Equity and Profit/Loss Summarised financial information Assets liabilities Revenue for the year Shs Shs Shs Shs

31 December 2020 16,833,557 16,833,557 2,350,000 (148,151)

31 December 2019 17,943,004 17,943,004 940,000 (3,161,814)

11. Property and equipment

Year ended 31 December 2020

Group Furniture Office Computer and fittings equipment equipment Total Shs Shs Shs Shs Cost At start of year 7,125,800 15,567,662 30,341,807 53,035,269 Disposal (480,300) (480,300) Additions 672,053 1,821,957 2,494,010

At end of year 7,125,800 15,759,415 32,163,764 55,048,979

Depreciation

At start of year 4,195,243 11,545,286 27,833,322 43,573,851 Charge for the year 596,813 1,742,948 904,014 3,243,775 Disposal -(398,850) ■(398,850)

At end of year 4,792,056 12,889,384 28,737,336 46,418,776

Net book value 2,333,744 2,870,031 3,426,428 8,630,203

66

W United Nations Savings and Credit Co-operative Society Limited • CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

11. Property and equipment (continued)

Year ended 31 December 2019

Group Furniture and Office Computer fittings equipment equipment Total Shs Shs Shs Shs Cost At start of year 5,683,165 14,799,916 28,111,656 48,594,737 Additions 1,442,635 767.746 2,230,150 4,440,531

At end of year 7,125,800 15,567,662 30,341,806 53,035,268

Depreciation

At start of year 3,737,657 9,096,242 25,583,934 38,417,833 Charge for the year 457,587 2,449,045 2,249,388 5,156,020

At end of year 4,195,244 11,545,287 27,833,322 43,573,853

Net book values 2,930,556 4,022,375 2,508,484 9,461,415

Year ended 31 December 2020

Sacco Furniture and Office Computer fittings equipment equipment Total Shs Shs Shs Shs Cost At start of year 7,125,800 15,449,342 30,341,806 52,916,948 Disposal (480,300) (480,300) Additions ^______672,053 1,821,957 2,494,010

At end of year 7,125,800 15,641,095 32,163,763 54,930,658

Depreciation

At start of year 4,195,244 11,521,869 27,833,322 43,550,435 Charge for the year 596,813 1,728,158 904,014 3,228.985 Disposal (398,850) -______(398,850)

At end of year 4,792,057 12,851,177 28,737,336 46,380,570

Net book value 2,333,743 2,789,918 3,426,427 8,550,088

67 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

11. Property and equipment (continued)

Year ended 31 December 2019

Sacco

Furniture and Office Computer fittings equipment equipment Total Shs Shs Shs Shs Cost At start of year 5,683,165 14,681,596 28,111,656 48,476,417 Additions 1,442,635 767,746 2,230,150 4,440,531

At end of year 7,125,800 15,449,342 30,341,806 52,916,948

Depreciation

At start of year 3,737,657 9,087,614 25,583,934 38,409,205 Charge for the year 457,587 2,434,255 2,249,388 5,141,230

At end of year 4,195.244 11,521,869 27,833,322 43,550,435

Net book vaiues 2,930,556 3,927,473 2,508,484 9,366,513

2020 2019 12. Right-of use assets Shs Shs

Group and Sacco

Office space 41,471,131 14,794,801

At start of year 14,794,801 24,103,836 Additions 37,136,509 Depreciation charge for the year (Note 3(f)) (10,460,179) (9,309,035)

At end of year 41,471,131 14,794,801

The group leases offices spaces. The leased offices spaces are typically for periods of between 2 and 5 years, with options to renew. None of the leases contains any restrictions or covenants other than the protective rights of the lessor or carries a residual value guarantee.

For information on the related lease liabilities, see Note 16.

13. Inventory 2020 2019 Shs Shs Group

Plots for sale 9,816,150 11,014,704

68 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

2020 2019 14. Intangible assets Shs Shs Group and Sacco

Cost At start of year 19,059.560 18,897,440 Additions - 162,120

At end of year 19,059,560 19,059,560

Amortisation At start of year (17,947,594) (16,562,511) Amortization charge (999,134) (1,385,083)

At end of year (18,946,728) (17,947,594)

Net book value 112,832 1,111,966

Group Sacco 2020 2019 2020 2019 15. Trade and other payables Shs Shs Shs Shs

Payables 18,362,872 13,122,798 17,992,872 12,052,798 Other payables and provisions 38,844,213 39,575,402 35,326,215 35,722,112 Total payables 57,207,085 52,698,200 53,319,087 47,774,910

in the opinion of the directors, the carrying amounts of trade payables approximate to their fair value.

The average credit period on purchases from suppliers is 30 days. No interest is charged on payables.

The carrying amounts of the group's payables are denominated in the Kenya Shillings (Shs).

2020 2019 16. Lease liabilities Shs Shs Group and Sacco

Office space 43,355,476 16,987,099

Reconciliation of lease liabilities arising from financing activities:

At start of year 16,987,099 27,055,482 New lease within the year 37,136,509 Interest charged to profit or loss (Note 3(f)) 1,918,625 1,686,451 Cash flows: - Payments under leases (12,102,630) (11,934,565) Exchange differences (584,127) 179,731

At end of year 43,355,476 16,987,099

69 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

16. Lease liabilities (continued)

The leases expiring within one year are subject to review at various dates during the next financial year.

The exposure of the group's leases to interest rate changes and the contractual repricing dates at the reporting date are as follows: 2020 2019 Shs Shs

6 months or less 4,590,249 5,589,183 6-12 months 4,945,531 2,397,265 1 - 5 years 33,819,696 9,000,651

43,355,476 16,987,099

Weighted average effective interest rates at the reporting date was: 2020 2019

Lease liabilities 6,5% 7.5%

The carrying amounts of the Sacco's lease liabilities are 2020 2019 denominated in the following currencies: Shs Shs

Kenya Shilling 34,354,825 4,712,311 US Dollar 9,000,651 12,274,789

43,355,476 16,987,099

Maturity based on the repayment structure of lease liabilities is as follows;

Gross lease liabilities - minimum lease payments

Not later than 1 year 9,535,780 7,986,448 Later than 1 year and not later than 5 years 33,819,696 9,000,651

Total gross lease 43,355,476 16,987,099

Future Interest expense on leases liabilities 5,658,950 1,677,912

Present value of lease liabilities 49,014,426 18,665,011

17. Interest due to members

Group and Sacco

At the start of the year 871,105,917 753,948,943 Provisions for the year 935,284,567 871,106,860 Payments during the year (871,109,964) (753,949^886)

At end of year 935,280,520 871,105,917

70 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

2020 2019 18. Members’deposits Shs Shs

Group and Sacco

Savings deposits At start of year 8,980,407,355 8,601,823,903 Net additional deposits during the year 757,663,974 378,583,452

Total 9,738,071,329 8,980,407,355

Short term deposits At start of year 44,689,618 37,030,746 Net additional deposits during the year 10,490,104 7,658,872

Total 55,179,722 44,689,618

FOSA deposits At start of year 716,184,437 669,387,541 Net additional deposits during the year 204,951,601 46,796,896

Total 921,136,038 716,184,437

Total member savings 10,714,387,089 9,741,281,410

There are no members holding more than 1% of total members deposits.

2020 2019 19. Share capital Shs Shs

Group and Sacco

At start of year 937,694,856 888,741,501 Contributions for the year 48,137,324 48,953,355

At end of year 985,832,180 937,694,856

There are no members who hold more than 25% of the Sacco's share capital.

20. Reserves

Included In the members balances are the following reserves which are as a result of statutory requirements:- Group Sacco 2020 2019 2020 2019 i) Retained earnings Shs Shs Shs Shs

At start of year 552,706,588 554,196,136 549,784,126 546,686,163 Profit for the year 237,725,280 200,013,724 237,873,427 204,601,235 Transfer to statutory reserve (47,574,685) (40,920,247) (47,574,685) (40,920,247) Transfer from dividend account 3,592,442 3,592,442 Transfer to credit risk reserve 77,281,934 (38,682,694) 77,281,934 (38,682,694) Proposed dividends (118,299,862) (121,900,331) (118,299,862) (121,900,331)

At end of year 705,431,697 552,706,588 702,657,382 549,784,126

71

■i, United Nations Savings and Credit Cooperative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

Group Sacco 20. Reserves (continued) 2020 2019 2020 2019 Shs Shs Shs Shs il) Statutory reserve

At start of year 417,802,557 376,882,310 417,802,557 376,882,310 Transfer from retained earnings 47,574,685 40,920,247 47,574,685 40,920,247

At end of year 465,377,242 417,802,557 465,377,242 417,802,557

iii) Credit risk reserve

At start of year 132,187,847 93,505,153 132,187,847 93,505,153 Transfer from retained earnings (77,281,934) 38,682,694 (77,281,934) 38,682,694

At end of year 54,905,913 132,187,847 54,905,913 132,187,847

iv) Fair value reserve

At Start of year (3,081,261) (1,909,314) (3,081,261) (1,909,314) Reclassification from profit or loss; loss on disposal of equity instruments measured at fair value through other comprehensive income 4,830,160 4,830,160 Fair value loss for the year (436,219) (1,171,947) (436^219) (1,171,947)

At end of year 1,312,680 (3,081,261) 1,312,680 (3,081,261)

v) Dividend account

At start of year 121,900,331 106,310,519 121,900,331 106,310,519 Transfer to retained earnings (3,592,442) (3,592,442) Current year proposed 118,299,862 121,900,331 118,299,862 121,900,331 Prior year paid (118,307,889) (106,310,519) (118,307,889) (106!310,519)

At end of year 118,299,862 121,900,331 118,299,862 121,900,331

The total proposed dividend for the year is 12% on share capital (2019; 13%) amounting to a total of Shs. 118,299,862 (2019: Shs. 121,900,331).

During the year, proposed dividend for 2019 of 13% on share capita! (2018; 12.5%) amounting to a total of Shs. 121,900,331 (2018; Shs. 106,310,519) was paid.

21. Contingent liability

The Sacco is a defendant in legal action from members of the Sacco arising on actions taken by the Sacco on recovery of defaulted loans. The Sacco is also involved in other legal matters which arise in the ordinary course of business.

In the opinion of the directors, adequate provisions have been recognised for the quantifiable extend of such matters and no further material loss is likely to be incurred.

72 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 •s NOTES (CONTINUED)

22. Related party traneactions 2020 2019 Shs Shs i) Insider transactions

Interest income 21,280,069 19,102,027

Interest expense 6,626,999 5,605,253

il) Insider deposits

Total deposits outstanding at end of year

Due to management 10,022,798 9,902,507 Due to directors 28,855,735 21,749,623 Due to supervisory committee members 13,225,881 11,915,581 Due to other employees 14,165,573 12,484,817 Total deposits and savings 66,269,986 56,052,527 ill) Key management personnel remuneration

Short term employee benefits 34,767,237 27,450,466 Iv) Board of directors and supervisory committee

Committee allowances 25,644,220 30,193,916 Honoraria - 3,456,481

25,644,220 33,650,397 iv) Receivable from related parties (Note 7) Wanamataifa Investments Company Limited 9,130,366 9,071,841 Refer to Note 8 for loans and advances to insiders.

23. Risk management objectives and policies

Financial risk management The group's activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk), credit risk and liquidity risk.

The group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group's financial performance.

Risk management is carried out by the risk sub-committees under policies approved by the directors. The risk sub-committee identifies, evaluates and manage financial risks in close co-operation with various departmental heads. The directors provides written principles for overall risk management, as well as written policies covering specific areas, such as liquidity risk, interest rate risk, credit risk, and investment of excess liquidity.

The sub-committees reports to the directors on all aspects of risks including nature of risks, measures instituted to mitigate risk exposures etc.

(a) Market risk Market risk is the risk that changes in market prices, such as interest rates, equity prices and foreign exchange rates will affect the fair value or the future cash flows of the Sacco's financial instruments. The objective of market risk is to manage and control market risk exposures to within acceptable parameters while optimising the return on risk.

73 * United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financiai statements For the year ended 31 December 2020 NOTES (CONTINUED)

23. Risk management objectives and policies (continued)

Financial risk management (continued)

(a) Market risk (continued) - Interest rate risk The group's exposure to interest rate risk arises from financial assets. Loan and advances and members deposits are fixed interest securities and therefore not susceptible to market interest rate changes. Financial assets and liabilities advanced and obtained at different rates expose the group to interest rate risk. Financial assets and liabilities obtained at fixed rates expose the group to fair value interest rate risk, except where the instruments are carried at amortised costs. The group maintains adequate ratios of borrowings when compared to total borrowings in fixed interest rates. The table below summarises the effect on post-tax profit had interest rates been 1 percentage point higher, with all other variables held constant. If the interest rates were lower by 1 percentage point, the effect would have been the opposite- 2020 2019 Shs Shs Effect on profit increase 4,067,695 4,101,310 - Price - risk The group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The group does not actively trade these investments. The group's investments in equity of other entities are publicly traded and included in the Nairobi Stock Exchange (NSE). The table below summarises the impact of increases of the NSE on the group's post-tax profit for the year. The analysis is based on the assumption that the equity indexes had increased by 5% with all other variables held constant and all the group’s equity instruments moved according to the historical correlation with the index. Impact on other comprehensive income Index 2020 2019 Shs Shs NSE 88,565 103,833 (b) Credit risk Credit risk is the risk that a customer or counterparty will default on its contractual obligation resulting in financial loss to the Sacco. The Sacco's main income generating activity is lending to customers and therefore credit risk is a principal risk. Credit risk mainly arises from loans and advances to customers and balances held on deposits with other financial institutions. The Sacco considers all elements of credit risk exposure such as counterparty default risk, geographical risk and sector risk for risk management purposes. Credit risk management The Sacco’s credit committee is responsible for managing the Sacco’s credit risk by; - Ensuring that the Sacco has appropriate credit risk practices, including an effective system of internal control, to consistently determine adequate allowances in accordance with the Sacco's stated policies and procedures, IFRSs and relevant supervisory guidance, - identifying, assessing and measuring credit risk across the Sacco, from an individual instrument to a portfolio level.

74 « United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

23. Risk management objectives and policies (continued)

Financial risk management (continued)

(b) Credit risk (continued)

Credit risk management (continued)

- Creating credit policies to protect the Sacco against the identified risks including the requirements to obtain collateral from borrowers, to perform robust ongoing credit assessment of borrowers and to continually monitor exposure against internal risk limit. - Establishing a robust control framework regarding the authorisation structure for the approval of credit faciiities. - Developing and maintaining the Sacco's risk grading to categorize exposure according to the degree of risk of default. Risk grades are subject to regular reviews. - Developing and maintaining the Sacco's risk processes for measuring Expected Credit Loss including monitoring of credit risk, incorporating forward looking information and the method used to measure ECL. - Ensuring the Sacco has policies and procedures in place to appropriately maintain and validate models used to assess and measure ECL. - Establishing a sound credit risk accounting assessment and measurement process that provides it with a strong basis for common systems, tools and data to assess credit risk to account for ECL, Providing advice, guidance and special skills to business units to promote best practice in the management of credit risk.

The internal audit function performs regular audit to make sure that the established controls and procedures are adequately designed and implemented.

Significant increase in credit risk The Sacco monitors all financial assets that are subject to impairment requirements to assess whether there has been a significant increase in credit risk since initial recognition. If there has been an increase in significant risk the Sacco will measure the loss allowance based on the lifetime rather than 12 - months ECL.

Internal credit risk rating The Sacco takes on exposure to credit risk which is the risk of financial loss to the Sacco if a member or counterparty to a financial instrument fails to meet its contractual obligations.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral against loans and advances in the form of registered securities over assets and guarantees from members. Credit risk in the Sacco, is also managed through a framework of policies and procedures. Origination, approval and disbursement roles are segregated.

To aid credit managers in portfolio management, regular internal risk management reports contain information on key environmental and economic trends across major portfolios, portfolio delinquency and loan impairment performance as well as information on migration across credit grades and other trends. Expected loss is the long-run average credit loss across a range of typical economic conditions. It is used in the delegation of credit approval authority and must be calculated for every transaction to determine the appropriate level of approval. To assist risk officers in monitoring the portfolio, various internal risk management reports are available on a regular basis, providing individual counterparty, counterparty Sacco and portfolio exposure information, the status of accounts showing signs of weakness or financial deterioration and updates on credit markets.

75 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annuai report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

23. Risk management objectives and policies (continued)

Financial risk management (continued)

(b) Credit risk (continued)

Internal credit risk rating (continued)

The Sacco' grading systems is based on the basic principles issued by the regulatory authority SASRA on the basis that the periods are largely consistent with the IFRS presumptions on stages of credit products. In addition to nominal aggregate exposure, expected loss Is used in the assessment of individual exposures and for portfolio analysis.

The credit grades within Sacco are based on a probability of default. The Sacco structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to the nature and type of loans. The Sacco grades its loans into five categories on the basis of the following criteria:

(1) Performing loans, being loans which are well documented and performing according to contractual terms. Such loans are considered under stage 1 - no significant increase in credit risk for purposes of the ECL calculation; (2) Watch loans, being loans whose principal or interest have remained un-paid for one day to thirty days or where one instalment is outstanding for less than 30 days. Such loans are also classified as stage 1 for purposes of the ECL calculation; (3) Substandard loans, being loans not adequately protected by the current repayment capacity and the principal or interest have remained un-paid between thirty-one to one eighty days or where two to six instalments have remained outstanding. Under this category, loans past due between 31 -180 days (or 2-3 pending instalments) are classified under stage 2 - significant increase in credit risk for purposes of the ECL calculation. Loans aged beyond 180 days are classified as stage 3 - credit

4 impaired; (4) Doubtful loans, being loans not adequately protected by the current repayment capacity and the principal or interest have remained un-paid between one hundred and eighty one to three hundred and sixty days or where seven to twelve instalments have remained outstanding. Such loans are classified as stage 3 for purposes of the ECL calculation; and (5) Loss loans, being loans which are considered uncollectible or of such little value that their continued recognition as receivable assets is not warranted, not adequately protected and have remained un-paid for more than three hundred and sixty days or where more than twelve instalments have remained outstanding. Such loans are also classified as stage 3 for purposes if the ECL calculation.

Measurement of ECL

The key inputs used for measuring ECL are:

• probability of default (PD); • loss given default (LGD); and • exposure at default (EAD).

As explained above these figures are generally derived from internally developed statistical models and other historical data and they are adjusted to reflect probability-weighted fonward-looking information where it may have a material impact on the ECL.

PD is an estimate of the likelihood of default over a given time horizon. It is estimated as at a point in time. The calculation is based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on market data (where available), as well as internal data comprising both quantitative and qualitative factors. PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates. The estimation is based on current conditions, adjusted to take into account estimates of future conditions that will impact PD.

76 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

23. Risk management objectives and policies (continued)

Financial risk management (continued)

(b) Credit risk (continued)

Measurement of ECL (continued)

LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows from any collateral. The LGD models for secured assets consider forecasts of future collateral valuation taking into account sale discounts, time to realisation of collateral, cross-collateralisation and seniority of claim, cost of realisation of collateral and cure rates (i.e. exit from non-performing status). LGD models for unsecured assets consider time of recovery, recovery rates and the calculation is on a discounted cash flow basis, where the cash flows are discounted by the original EIR of the loan.

EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities. The Sacco’s modelling approach for EAD reflects expected changes in the balance outstanding over the lifetime of the loan exposure that are permitted by the current contractual terms, such as amortisation profiles, early repayment or overpayment, changes in utilisation of undrawn commitments and credit mitigation actions taken before default. The Sacco uses EAD models that reflect the characteristics of the portfolios.

The Sacco measures ECL considering the risk of default over the maximum contractual period (including extension options) over which the entity is exposed to credit risk and not a longer period, even if contract extension or renewal is common business practice. However, for financial instruments such as revolving credit facilities and overdraft facilities that include both a loan and an undrawn commitment component, the

Sacco's contractual ability to demand repayment and cancel the undrawn commitment does not limit the ■K Sacco’s exposure to credit losses to the contractual notice period. For such financial instruments the Sacco measures ECL over the period that it is exposed to credit risk and ECL would not be mitigated by credit risk management actions, even if that period extends beyond the maximum contractual period. These financial instruments do not have a fixed term or repayment structure and have a short contractual cancellation period. However, the Sacco does not enforce in the normal day-to-day management the contractual right to cancel these financial instruments. This is because these financial instruments are managed on a collective basis and are cancelled only when the Sacco becomes aware of an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions that the Sacco expects to take to mitigate ECL, e.g. reduction in limits or cancellation of the loan commitment.

The ECL calculation for accounting purposes is different to the provisions calculation for regulatory purposes. The Sacco and group has ensured that the appropriate methodology is used when calculating ECL for both accounting and regulatory purposes. The main differences between the methodologies used to measure ECL in accordance with IFRS 9 versus the ones applied for regulatory purposes are as disclosed on Note 8 of the financial statements. Any excess in regulatory provisions over IFRS 9 ECLs are accounted for as an appropriation from retained earnings into a loan loss reserve.

Groupings based on shared risks characteristics

When ECL are measured on a collective basis, the financial instruments are grouped on the basis of shared risk characteristics, such as:

- instrument type; - credit risk grade; - collateral type; and - remaining term to maturity.

77 r

United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

23. Risk management objectives and policies (continued)

Financial risk management (continued)

(b) Credit risk (continued)

Measurement of ECL (continued)

The groupings are reviewed on a regular basis to ensure that each group is comprised of homogenous exposures.

Credit quality

The credit quality of the portfolio of ioans and advances can be assessed by reference to the internal rating system adopted by the Sacco based on the guidelines provided by SASRA with their respective ECL provisions:

Year ended 31 December 2020 12 months 36 months 60 months 72 months months Total180 Shs Shs Shs Shs Shs Shs Group and Sacco

Loans and advances to members

0 - 30 Days (Performing and watch, stage 1) 195,551,193 1,054,726,374 3.256,924.663 1,186,700,973 2,474,133,110 8,168,036,312 31 -180 Days (Substandard, stage 2) 3,689,221 6,591,983 31,060.305 34,981,754 66,664.474 142,987,736

181- 360 Days (Doubtful and Loss, stage 3) 1,653,350 6,735,999 42,508,904 24,202,986 33,093,857 108,195,094

200,893,764 1,068.054,355 3,330,493,871 1,245,885,712 2,573,891.440 8,419,219,143

78 United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED) 23. Risk management objectives and policies (continued)

Financial risk management (continued)

(b) Credit risk (continued) Credit quality (continued) Group and Sacco 12 months 36 months 60 months 72 months 180 months Total Year ended 31 December 2019 Shs Shs Shs Shs Shs Shs Loans and advances to members 0 - 30 Days (Performing and watch, stage 1) 207,665,754 1,071,629,132 3,198,285,392 1,280,740,034 2,328,738,010 8,087,058,322 31 -180 Days {Substandard, stage 2) 4,357,223 19,176,177 49,982,083 44,240,697 114,072,345 231,828,525 181- 360 Days (Doubtful and Loss, stage 3) 673,020 5,408,554 37,484,307 1,271,522 39,111,790 83,949,193 212,695,997 1,096,213,863 3,285,751,782 1,326,252,253 2,481,922,145 8,402,836,040

Analysis of the Sacco’s credit risk exposure per class of financial asset, internal rating and “stage" without taking into account the effects of any collateral or other credit enhancements is provided in the following tables. Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts. Stage 1 Stage 2 Stage 3 12 Months Lifetime Lifetime ECL ECL ECL Total Year ended 31 December 2020 Shs Shs Shs Shs

12 months 195,551,193 3,689,221 1,653,350 200,893,764 36 months 1,054,726,374 6,591,983 6,735,999 1,068,054,355 60 months 3,256,924,663 31,060,305 42,508,904 3,330,493,871 72 months 1,186,700,973 34,981,754 24,202,986 1,245,885,712 180 months 2,474,133,110 66,664,474 33,093,857 2,573,891,440

Total gross loans and advances 8,168,036,312 142,987,736 108,195,094 8,419,219,143 Expected credit loss provision (38!629,998) (9i518,819) (129i384,4Q6) (1771533,223)

Net credit exposure 8,129,406,314 133,468,918 (21,189,312) 8,241,685,920

79

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United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annuai report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

23. Risk management objectives and policies (continued)

Financiai risk management (continued)

(b) Credit risk (continued)

Group and Sacco Stage 1 Stage 2 Stage 3 12 Months Lifetime Lifetime Totai ECL ECL ECL Year ended 31 December 2019 Shs Shs Shs Shs

12 months 207,665,754 4,357,223 673,020 212,695,997 36 months 1,071,629,132 19,176,177 5,408,554 1,096,213,863 60 months 3,198,285,392 49,982,083 37,484,307 3,285,751,782 72 months 1,280,740,034 44,240,697 1,271,522 1,326,252,253 180 months 2,328,738,010 114,072,345 39,111,790 2,481,922,145

Total gross loans and advances 8,087,058,322 231,828,525 83,949,193 8,402,836,040 Expected credit loss provision (221219,200) (10,749i923) (67,636,243) (100,605,366)

Net credit exposure 8,064,839,122 221,078,602 16,312,950 8,302,230,674

Collateral held as security

The Sacco holds collateral against all loans and advances to members in the form of cash, residential, fixed assets such motor vehicle and other members guarantees. The Sacco has developed specific policies and guidelines for the acceptance of different classes of collateral.

Estimates of the collateral’s fair values are based on the value of collateral independently and professionally assessed at the time of borrowing, and re-valued with a frequency commensurate with nature and type of the collateral and credit advanced. Collateral structures and covenants are subjected to regular review to ensure they continue to fulfil the intended purpose.

80 t United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annuai report and consolidated financial statements •I For the year ended 31 December 2020 NOTES (CONTINUED)

23. Risk management objectives and policies (continued)

Financial risk management (continued)

Group and Sacco

(b) Credit risk (continued) Lifetime expected credit loss Gross carrying Expected credit amount losses Exposure Year ended 31 December 2020 Shs Shs Shs

Cash and bank balances 5,327,874,198 (37,554,937) 5,290,319,261 Term deposits in other entities 452,799,247 (2,988,475) 449,810,772

5,780,673,445 (40,543,412) 5,740,130,032 Year ended 31 December 2019

Cash and bank balances 4,066,466,443 (32,441,841) 4,034,024,602 Term deposits in other entities 423,732,877 (2,800,000) 420,932,877

4,490,199,320 (35,241,841) 4,454,957,479 (c) Liquidity risk

Cash flow forecasting is performed by the finance department by monitoring the Sacco's cash inflows and outflows regularly to ensure it has sufficient cash to meet operational needs.

The table below analyses assets and liabilities into the relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Group and Sacco

Year ended 31 December 2020 Current 1 to 5 to 1 year years Total Shs Shs Shs

- Trade and other payables 57,207,085 57,207,085 - Interest due to members 935,280,520 935,280,520 - Lease liabilities 9,535,780 33,819,696 43,355,476 - Current tax 9,279,648 9,279,648 • Member deposits 55,179,722 10,659,207,368 10,714,387,089

1,066,482,755 10,693,027,063 11,759,509,818

Year ended 31 December 2019 Current 1 to 5 to 1 year years Total Shs Shs Shs

- Trade and other payables 52,698,200 52,698,200 - Interest due to members 871,105,917 871,105,917 - Lease liabilities 7,986,448 9,000,651 16,987,099 - Current tax 6,816,341 6,816,341 - Member deposits 44,689,618 9,696,591,792 9,741,281,410

983,296,524 9,705,592,443 10,688,888,967

4 81 » United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES (CONTINUED)

24. Capital management

internally imposed capital requirements

The group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to members through the optimisation of the deposits and equity balance.

The capital structure of the group consists of net deposits calculated as member's deposit (as shown in the statement of financial position) less cash and cash equivalents and term deposits in other entities. The directors review the capital structure on a semi-annual basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. In order to maintain the capita! structure, the group may adjust the amounts of dividends paid to members. The group’s overall strategy remain unchanged from 2020.

The deposits-to-capital ratios at 31 December 2020 and 2019 were as follows;

2020 2019 Shs Shs

Total members deposits 10,714,387,089 9,697,740,685

Total cash and bank balances (5,290,319,261) (3,991,429,848) Term deposits in other entities (449,810,772) (397!200,000)

Net deposits 4,974,257,057 5,309,110,837

Total equity 2,328,385,259 2,156,288,456

Gearing ratio 2.1:1 2.5:1

Externally imposed capital requirements

The Sacco Societies Act has established certain guidelines for the management of capital and working capital for deposit taking Sacco's.

- core capital of not less than ten million shillings; - core capital of not less than ten percent of total assets; - institutional capital of not less than eight percent of total assets; - core capital of not less than eight percent of total deposits; and - maintain fifteen percent of its savings deposits and short term liabilities in liquid assets.

2020 2019 The ratios at 31 December 2020 and 2019 were as follows: Shs Shs

a) Core capital of not less that Shs 10 million

As per statement of financial position 2,130,321,354 1,881,299,871

2020 2019 % % b) Core capital of not less than 10% of total assets; As per statement of financial position 15.1% 14.7%

k 82 « United Nations Savings and Credit Co-operative Society Limited - CS/2375 Annual report and consolidated financial statements For the year ended 31 December 2020 NOTES {CONTINUED)

24. Capital management (continued)

Externally imposed capital requirements (continued) 2020 2019 Shs Shs c) Institutional capital of not less than eight percent of total assets

As per statement of financial position 8.1% 8.5%

d) Core capital of not less than eight percent of total deposits.

As per statement of financial position 19.9% 19.3%

e) Maintain fifteen percent of its savings deposits and shortterm liabilities in liquid assets

As per statement of financial position 49.4% 41.4%

25. Incorporation

United Nations Savings and Credit Co-operative Society Limited is registered in Kenya under the Cooperative Societies Act, Cap 490 and licensed under the Sacco Societies Act No. 14 of 2018 and is domiciled in Kenya.

26. Presentation currency

The financial statements are presented in Kenya Shillings (Shs.)

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