UNITED NATIONS SACCO SOCIETY LIMITED

31 December 2017

1 Contents >>

1 Corporate Information

2 Sacco information

3 Who we are

4 Sacco Statistical information

5-7 Chairman’s report

8-14 Corporate governance report

15-21 Five year financial performance review

22 Report of the directors

23 Statement of directors’ responsibilities

24-29 Independent auditors’ report Consolidated statement of profit or loss and other comprehensive income 30

Sacco statement of profit or loss and other comprehensive income 31

Consolidated statement of financial position 32

Sacco Statement of financial position 33

Consolidated statements of changes in equity 34

Sacco statements of changes in equity 35

Consolidated statement of cash flows 36

Sacco statement of cash flows 37

Notes to the financial statements 38-83

Contents >> Corporate Information VISION – MISSION STATEMENTS

Vision The financial solutions provider of choice.

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

Core 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:

● Team work ● Customer focus ● Accountability ● Integrity ● Transparency ● Professionalism

4 Annual Report and Financial Statement 31 December 2017 Sacco Information For the year ended 31 December 2017

BOARD OF DIRECTORS ● Geoffrey Omedo Chairman ● Philomena Makena Vice Chairman ● Dickson Aduwo Honorary Secretary –Appointed 24th March 2017 ● Gabriel Wanga Treasurer ● Maurice Owalo Retired 30 January, 2017 ● Samson Legesse * Director ● Kimathi Mungania Director ● Jack Abebe Director –Appointed 24th March 2017 ● Peter Kingóri Director – Appointed 24th March 2017 ● Jeremiah Ougo Director- Appointed 24th March 2017 ● Phillip Migire Retired 24th March 2017 ● Jack Gudo Chief Executive Officer ● *Ethiopian

SUPERVISORY COMMITTEE MEMBERS ● Gordon Onyatta Chairperson ● Rael Odhiambo Secretary ● Fridah K. Gitua Member- Appointed 24th March 2017 ● Stephen Ndeti Retired 24th March 2017

REGISTERED OFFICE United Nations Savings and Credit Co-operative SocietyLimited United Nations Complex, UN Avenue, Gigiri PO Box 2210 – 00621 Nairobi

PRINCIPAL BANKERS Kenya Commercial Bank Limited Cooperative Bank of Kenya Limited Citibank NA UN Gigiri Branch Gigiri Branch Upper Hill Branch P. O. Box 39402 – 00623 P. O. Box 38764 – 00600 P. O. Box 30711 – 00100 Nairobi Nairobi Nairobi

AUDITORS KPMG Kenya Certified Public Accountants 8th Floor, ABC Towers, Waiyaki Way PO Box 40612 – 00100 Nairobi

LEGAL ADVISORS Ombonya & Company Advocates Harambee Co-operative Plaza, 7th Floor PO Box 53781 – 00200 Nairobi

Annual Report and Financial Statement 31 December 2017 5 Who We Are – Our History For the year ended 31 December 2017

he United Nations Savings and Credit Co- regulations 2010 andits By-laws. The affairs of the Sacco operative Society Limited (the “Sacco”) was are directed by the Board of Directors (BOD) elected by started in 1975 with the objective of providing a members in the Annual General Meeting (AGM) while mechanism for United Nations (“UN’’) employees the Supervisory Committee performs oversight over in Kenya to save and borrow at low cost in order the Board. Tto meet the employees' socio-economic needs. The Sacco currently serves the staff and immediate family The Core Functions of the Sacco are: Deposit taking, members of all UN and affiliate agencies all over the Disbursement of Loans and Investment. The society world. drives investment opportunities for its members through a wholly owned investment vehicle known as The Sacco is one of the largest deposit taking Sacco’s Wanamataifa Investment Company Limited. in the country and was licensed by Sacco Societies Regulatory Authority (SASRA) in the year 2011. The Sacco offers various products under its back office and front office. At the back office, long and With an initial membership of 123 the Sacco currently short term loan products are issued to members for boasts of over 6,000 members comprising both local property acquisition and development needs as well as and international staff of the United Nations spread education and emergency needs. At the front office, across the globe from different nationalities. The Sacco the Sacco offers short to medium term loan products is housed in Gigiri Square, Second floor Wing A Nairobi to cater for members unforeseen needs. adjacent to Block F with some FOSA offices within the UN-Gigiri Complex. The Sacco has also partnered with some service providers to provide value additional services such The Sacco derives its mandate from the Co-operative as ATM’s,Mobile banking through MSacco platform, Societies Act 2004 and its revised Act of 2012, the Sacco online banking and automated alerts and emails Act 2008, Sacco Societies Regulatory Authority (SASRA) for transactions like loan processing, bank deposit receipting and new membership applications.

6 Annual Report and Financial Statement 31 December 2017 Sacco Statistical Information For the year ended 31 December 2017

MEMBERSHIP 2017 2016 No. No.

Active 4,208 5,072 Dormant 2,460 1,225

Total 6,668 6,297

FINANCIALS SUMMARY KShs KShs Total assets 11,422,514,334 10,854,947,023 Members’ deposits 8,868,715,906 8,355,333,216 Loans to members 7,586,039,412 7,411,381,817 Investments 17,062,929 3,769,619 Core capital 1,780,269,490 1,594,095,272 Share capital 823,981,128 696,340,961 Institutional capital 956,116,797 897,754,311 Total revenue 1,298,597,970 1,300,313,857 Total interest income 1,060,445,908 1,077,298,895 Total expenses 1,117,767,680 1,073,987,538 Interest on members’ deposits 719,694,675 826,835,612 Cash and cash equivalents 3,025,010,978 2,589,216,133

Employees of the Sacco 26 25

KEY RATIOS

CAPITAL ADEQUACY RATIO: Core capital/Total assets (Minimum requirement 10%) 16% 15% Core capital/Total deposits (Minimum requirement 8%) 20% 19% Institutional capital/Totalassets (Minimum requirement 8%) 8.4% 8%

LIQUIDITY RATIO (15%): Liquid assets/Total deposits and long term liabilities 34% 31%

Operating efficiency/Loan quality ratios:

Total Expenses/Total income 86% 83% Interest on member deposits/Total income 55% 64% Interest rate on members deposits 8.7% 10.5% Dividend rate on members share capital 12% 18% Total delinquency loans/Gross loan portfolio 0.5% 0.4%

The statistical data is extracted from the Sacco statement of comprehensive income and Sacco statement of financial position set out on pages 31 and page 33 respectively.

Annual Report and Financial Statement 31 December 2017 7 Chairman’s Report For the year ended 31 December 2017

Dear Honourable Members UN SACCO Performance in 2017 In our review of our 2017 performance, we see a resilient institution. UNSACCO has managed to weather many am pleased to present the UNSACCO Financial storms, and still managed to post good results. 2017 Report for the year 2017. This Financial Report is was a difficult year not only for the Sacco but for the our accountability statement to our Esteemed entire country mainly due to the prolonged draught Membership, Partners and key stakeholders. It and the lengthy electioneering period slowing down shows how UNSACCO performed in the year 2017, economic activities in the last 5 months of the year. and therefore a critical measure of the trajectory the I In addition to the extended electoral cycle, the sector institution is taking. has had to deal with regulatory changes, especially the 2016 capping of interest rates as a result of the Banking 2017 Economic Environment Amendment Bill 2016. This bill has seen many banks Central Banks’ Policy stance in advanced economies issue profit warnings in the year and the Sacco has was biased towards economic tightening, with the US been equally affected. Federal Reserve raising the Federal Funds Rate three times in 2017, and the European Central Bank halving In September 2016, UNSACCO took the bold step of their monthly bond purchases and signalling an end reducing the rates charged on our loans, bringing our to their 3-year old stimulus package in 2018. Sub- average loan price from a high of 36% to a low of 12%. Saharan Africa economic growth remained relatively Therefore, 2017 is the year that we have observed a full strong in 2017 compared to 2016 with the region’s GDP year of operations under a reduced loan rates regime. growth averaging 2.4% for the first three quarters of Still, the Board took this decision because we are 2017 compared to the annual growth of 1.4% in 2016, gradually reverting to the primary cooperative model mainly driven by commodity exporting countries as commodity prices recovered in global markets. where affordable credit will be the key determinant for our business. We have also experienced 18 Months The Kenyan economy expanded by an average of without the 850 Million shillings that have been held 4.7% for the first three quarters of 2017 compared to at Chase Bank Limited (IR). The cumulative impact of all an average of 5.7% in a similar period in 2016. In Q3, these, is mixed performance for 2017. the economy grew by 4.4%, (lower than World Banks growth projection of 4.9% ) which is the slowest growth In the year under review, our loan portfolio grew by in a period of five years as per Kenya National Bureau 2% from Kshs. 7.4 Billion in 2016 to Kshs 7.6 Billion in of Statistics. The quarterly Gross Domestic Product 2017. The Member deposits have maintained a growth report attributed the reduced growth to uncertainty trajectory, registering a 6% growth from Kshs. 8.3 associated with political environment coupled with effects of adverse weather conditions. Billion in 2016 to Kshs. 8.9 Billion in 2017, signifying growing savings culture within the membership. Even In 2017, the yield on the 91-day T-bill declined by 50 more remarkable, is the 18% growth in Share Capital basis points to 8.1% from 8.6%. Yields on the 182 and havingexpanded our equity base from Kshs. 696 Million 364-day papers increased by 10 basis points and to Kshs.823 Million. Our Member numbers registered a 20 basis points to 10.6% and 11.2% from 10.5% and marginal growth from 6,297 to 6,668 in 2017. In terms 11.0% at the end of 2016, respectively. The yield curve of income, as a result of reduction of loan interest rates, experienced downward pressure during the year as the our total income stagnated at1.3 Billion. The Board and government contained rates by rejecting expensive Management have also maintained a strict cost cutting bids. The earnings growth for the year is expected to be regime, which has resulted in reduced expenses within low with the listed banks recording an 8.2% decline in their core earnings per share in Q3’2017 compared to a the period under review. growth of 14.1% in Q3’2016. The decline in earnings can be attributable to the tough operating environment The board together with management has prepared a as a result of the interest rate cap and the prolonged Strategic Plan covering 2018 - 2022. The Strategic Plan political uncertainty in the country that affected the has the following key drivers: business environment.

8 Annual Report and Financial Statement 31 December 2017 Chairman’s Report For the year ended 31 December 2017 (Continued)

1. Growth in loan book through recruitments and default and subsequent loss of funds by guarantors partnerships will drastically reduce while the borrowing power for 2. Growth in membership by venturing into diaspora members will take an upward trend. 3. Growth in sharecapital and reduction of costs 4. Investment in ICT systems Credit Reference Bureau (CRB) UN SACCO has registered with all CRBs to enhance its The UNSACCO Board of Directors is committed to credit process by making prudent lending decisions. maintaining UNSACCO's growth trajectory. To do so, The objective of this registration is to reduce loan we require a review of our By-Laws to fit the needs of a growing institution, and which are in line with delinquency and subsequently reducing loan provision the model Cooperatives Buy-Laws promoted by our expense, as well as protecting guarantors from regulator, the SASRA. borrowers with poor credit history. 2017 Key Performance Indicators Compliance with regulatory At the outset, I wish to inform our Honourable Members requirements that our overall performance in 2017 demonstrates UNSACCO has complied with all regulatory requirements growth across most of the key Strategic Plan Objectives. and SASRA key ratios as at December 31st 2017. In a nutshell, the key statistics are: 1. Growth in our Loan Portfolio by 2% (Loans as at Business Continuity December 2017 had risen from KShs. 7.4 Billion in Our current Strategic Plan expires this December, 2017. 2016 to Kshs.7.6 Billion in 2017). The Board and Management have reviewed all the 2. Growth in Member deposits by 6% from KShs. 8.3 pillars of the 2015 – 2017 strategy taking cognizance Billion in 2016 to KShs.8.9Billion in 2017). of the volatile economic and political environment. 3. Strengthening of our equity base by an 18%growth With this in mind, wehave prepared the next Strategic Plan for the period 2018 – 2020 with a focus on key in Share Capital from KShs. 696 Million in 2016 to areas such as; By-laws review, UNSACCO Plaza and KShs.823Million in 2017. providing affordable housing to our members through 4. Growth in the number of our Members from 6,297 partnerships. in 2016 to 6,668Members in 2017. 5. A minimaldecrease (KShs. 1.7 Million)in our income Appreciation from KShs. 1.3billion in 2016 to KShs. 1.298billion in 2017. We take this opportunity to extend our appreciation to all our Members, Government regulators, specifically Employees and Values SASRA and the Commissioner of Cooperatives, our partners within the banking industry, service providers UN SACCO adheres to the highest standards of and especially our host and within the UN. We are proud corporate governance. We continuously review our to be associated with you, and we welcome all of you to corporate governance structures in line with existing journey together with us as we seek to be the Financial and emerging regulatory requirements. UN SACCO’s Anchor of Choice to our Members worldwide. governance structures and processes are set out in greater detail in the Corporate Governance section of Thank you and May God bless you all and the entire UN this report. SACCO family. Credit Reference Bureau (CRB) UN SACCO has registered with all CRBs to enhance its credit process by making prudent lending decisions. This registration is serving to reduce loan delinquency and subsequently reducing loan provision expense, in line with the strategic objective of minimizing costs. Geoffrey Omedo As a result of this CRB registration, cases of loan SACCO CHAIRMAN Date: 14/03/2018

Annual Report and Financial Statement 31 December 2017 9 Corporate Governance Report For the year ended 31 December 2017

Introduction transparency, professionalism and accountability in the management of the SACCO and member’s interests are Corporate governance is a process by which institutions adequately addressed within a reasonable time period are directed, controlled and held accountable. It while taking into consideration compliance with the encompasses authority, responsibility, accountability, relevant by-laws, policies and regulations. The Board stewardship, leadership, direction and control with a has continued to review policies to take care of the primary objective of safeguarding shareholder interest changing business environment as well as embrace in conformity with stakeholder interest. It ensures that change in technology and will continue to do so for the varying interests of shareholders and stakeholders are benefit of the Sacco. balanced, decisions by the board and management are made in a rational, informed and transparent fashion, Member representation and and they contribute to the overall efficiency and effectiveness of an organization. Corporate Governance participation also determines how the board and management set The supreme authority of the Sacco is vested in the the organizational strategy and objectives, recruit members who jointly and severally protect, preserve employees, shape day to day operations establish and exercise it in general meetings. Each member has control functions, align organization culture and one vote irrespective of their shareholding as per the behaviour. cooperative principle of democratic member control. The members ensure that only credible members are Effective corporate governance is critical for a stable elected to the board of directors. The general meeting is Sacco sector and the economy as a whole given the presided over by the board chairman or in his absence huge role Sacco’s play in the economic growth of the vice-chairman or by any board member elected by a country. Corporate governance in Sacco’s entails a majority of those present in the absence of the two. All complying with the seven cooperative principles business at the general meeting is recorded in a minute i.e. voluntary and open membership; democratic book whose final record and resolutions are signed by member control; members economic participation; the chairman of the meeting and the secretary or at autonomy and independence; education, training and least one other board member present at the meeting. information; cooperation among cooperatives and concern for community. The members appoint the External Auditors each year from three recommended names as presented to them The Sacco Societies Regulatory Authority (SASRA) by the board. through its deposit taking SACCO regulations set out standards for the proper management The key players in the corporate governance structure of UNSACCO of these organizations. These regulations ensure are as shown in the chart below that the SACCOS remain focused on their core mandate of receiving deposits and lending to Members External Audit their members. SASRA further seeks to enhance Finance & Administration these regulations and is in the process of Committee publishing corporate governance guidelines for the deposit-taking SACCOs in Kenya having Credit Committee Board of Supervisory already undertaken stakeholder reviews on the Committee Business Development Directors proposed guidelines. The UNSACCO has adopted & Education these guidelines in setting up its corporate Committee governance structure and continues to ensure Audit strict compliance to the principles set out therein Committee as well as those recommended by other leading financial regulatory bodies in the world. Internal Audit Management

The UNSACCO board is committed to ensuring Note: Arrows indicate an appointing and reporting relationship

10 Annual Report and Financial Statement 31 December 2017 Corporate Governance Report For the year ended 31 December 2017 (Continued)

Board of Directors, structure, To ensure good succession planning, a third of the directors retire annually but the retirees are eligible for powers and functions re-election. The Board is the governing authority of the Sacco consisting of nine non-executive members who include a Chairman, Vice Chairman, Treasurer and Board compensation Honorary Secretary. It represents andsafeguards the The Board works on voluntary basis .Members do not interests of all the members of the Sacco at all times. receive a salary but are paid an allowance for meetings The powers and functions allotted to the Board are attended as approved by members in general meetings normally stipulatedin the relevant government Acts, and as the set out in the policies. Rules and By-laws of the Sacco, and are regulated by the resolutions of the general or special meeting. Board committees Board committees are established by the board Board appointment and induction to enable it effectively discharge its functions. The Election to the board is through a nomination process Chairman of the board only sits in the full board. Each handled by a nomination committee leading to the committee tables its report to the board during the general meeting where democratic elections are held monthly board meetings. to appoint the winning individuals to the board. The UN Sacco has the following four board committees; The nomination committee is appointed by the board 1. Credit Committee on an annual basis and comprises of five members, 2. Audit Committee two representatives from the Commissioner of Co- 3. Finance and Administration Committee operatives office - one serving as chairman, the 4. Business Development and Education Committee UNSACCO CEO as secretary, one management staff and a person from a recognized and relevant professional Credit Committee association. The committee vets all nominees and The committee comprises of three members of the ensures that they meet the set criteria for appointment board. The committee meets on a monthly basis or as as directors of UNSACCO. the needs of the business require. The Head of Credit sits on the committee as an ex-official member. It deals Once elected at the annual general meeting, the with all member related credit matters in the Sacco directors go through an induction process where such as loans, loan appeals and credit risk management. among others, they are briefed on the Sacco policies, The committee delegated some of its loan approval procedures and relevant regulations. They also get authority to the management to ensure more speed their appointment letters which spell out their terms of and efficiency in the loans processing. appointment. The Sacco also informs the Commissioner and SASRA of the new directors appointed who are Audit Committee (BAC) then required to fill out ‘The Fit and Proper Test’ forms as The audit committee consists of three members of the well as ‘Declaration of Wealth’ forms. These filled forms board one of whom is conversant with accounting and are then filed with the two regulators respectively. financial matters. The Head of Internal Audit sits on the committee as an ex-official member. Its primary Board skills development and functions include; ● Ensuring that internal controls are established succession planning and effectively maintained to achieve the Sacco’s The Sacco facilitates training at local, regional and financial reporting objectives international level for board and supervisory committee ● Reviewing internal controls including the scope members to equip them with the necessary skills of the internal audit program, the internal audit required to manage and oversee the Sacco’s operations.

Annual Report and Financial Statement 31 December 2017 11 Corporate Governance Report For the year ended 31 December 2017 (Continued)

findings, and recommend actions to be taken by ● Investigating member complaints management ● Considering any matter of significance raised at ● Ensuring that accounting records and financial the annual general meeting. reports are promptly prepared to accurately reflect ● Monitoring the ethical conduct of the Sacco and operations and results considering the development of ethical standards ● Reviewing co-ordination between the internal and requirements, including effectiveness of and external audit functions as well as monitoring procedures for handling and reporting complaints external auditor’s independence and objectivity ● Reviewing any related party transactions that may taking into consideration relevant and regulatory arise within the Sacco requirements ● Reviewing with external auditors the scope of Finance and Administration Committee (F & A) their annual audit plan, systems of internal audit This committee also comprises of three members of reports, assistance given by management to the the board and is chaired by the Treasurer. The Head of auditors and any findings and actions taken , and Finance sits on the committee as an ex-official member. recommending the auditor’s remuneration to the It meets on a monthly basis to consider all financial and board administration matters of the Sacco. ● Reviewing management reports ● Reviewing co-ordination between the internal Business Development and Education and external audit functions as well as monitoring Committee (BDE) external auditor’s independence and objectivity The committee comprises of three members of the taking into consideration relevant and regulatory board. It handles member education, and directors requirements training and marketing of the Sacco to prospective Reviewing with external auditors the scope of ● members. their annual audit plan, systems of internal audit reports, assistance given by management to the auditors and any findings and actions taken , and Board Composition recommending the auditor’s remuneration to the During the year 2017, the elect Board Chairman was board Geoffrey Omedo while the board secretary director ● Reviewing management reports Philip Migire retired on 24th March 2017 and was succeeded by Director Dickson Aduwo. The members of the board of directors are distributed to various committees as follows:

No Director Position Credit BAC F & A BDE Total

1 Geoffrey Omedo Chairman 2 Philomena Makena Vice-Chairman /Chair BDE x 1 3 Gabriel Wanga Treasurer/Chair F & A x 1 4 Dickson Aduwo Hon. Secretary x 1 5 Samson Legesse Member/Secretary Credit x x 2 6 Jeremiah Ougo Member/Secretary BDE x x 2

7 Kimathi Mungania Member/Chair credit x x 4

8 Peter Kingori Member/Chair BAC x 1

9 Jack Abebe Member/Secretary F&A x x 2

Total 3 3 3 3

12 Annual Report and Financial Statement 31 December 2017 Corporate Governance Report For the year ended 31 December 2017 (Continued)

Supervisory Committee Board-Management relationship The Supervisory Committee is an oversight committee The board maintains an open business relationship with elected at the annual general meeting to oversee the the management team to provide a good environment operations of the Board on behalf of the members. for efficient management. With time the board has continued to empower the management by delegating It consists of three members with one member retiring functions to them with supervision through the annually but eligible for re-election. The committee relevant board committees. This positive relationship holds regular meetings as well as quarterly joint ensures informed, effective and expeditious decision meetings between its members to the Commissioner making responsive to business needs. It also promotes of Cooperatives. The committee then finally presents its transparency and disclosure in the business. annual report to the members at the general meeting. The committee does not however perform or exercise any of the powers or functions of the board of directors. Management team The UNSACCO management is comprised of the Chief The present members who serve in the Supervisory Executive Officer (CEO) and Heads of Departments. Committee are; The CEO is an employee of the Sacco whose work is to ● Gordon Onyatta – Chairman manage day to day activities of the society on behalf ● Rael Odhiambo – Secretary of the board of directors as provided for in regulation Fridah Karimi - Member ● 64 of SASRA Regulations. The CEO and other staff members are appointed by the board of directors. The Stephen Ndeti who was the Chairman at the beginning of the year retired on March 24th 2017. CEO is assisted in his roles by the heads of departments and other staff members. The CEO attends all board and general meetings as an ex-official member and is Board and board committee meetings a signatory to all society documents. He is responsible The board meets monthly and has a formal schedule to the board and ensures implementation of and of meetings. The quorum at the board meetings is adherence to the policies, procedures and standards two thirds of the directors and the CEO. Members of in the Sacco. He is also responsible for all staff matters, management staff are also invited for some meetings code of conduct and compliance with the relevant to facilitate effective deliberations. Acts, Regulations, Rules and By-laws.

The management team meets frequently as per business requirements. The team is comprised of the following staff members; Jack Gudo CEO

Esther Mailu Deputy CEO & Head of Finance & Administration (From 21st August 2017)

Evelyn Olunja Head of Marketing Head of Marketing Moses Amolo Head of Credit James Mugo Head of ICT Joseph Muraguri Head of Internal Audit

Silas Alumasa Head of Front Office and Customer Care (FOSA)

Dianah Ongus Procurement Officer

This team is in charge of day to day operations in their respective departments.

Annual Report and Financial Statement 31 December 2017 13 Corporate Governance Report For the year ended 31 December 2017 (Continued)

Procurement requirements. Every individual in this regard is expected Procurement in the Sacco is guided by the procurement not to engage in any activity whether directly or laws and best practice. The Sacco has a Tender indirectly which competes or conflicts with the Sacco’s Committee independent of the Board and CEO office interest. to handle procurement matters in the Sacco. The Committee draws its membership from the Heads of Internal controls and risk management Departments and theProcurement Officer. A tender The Board ensures that the Sacco functions effectively evaluation committee comprised of the Procurement and that an adequate and effective system of internal officer and staff from other cadres in the Sacco also control system is put in place. It also ensures that a risk meets to open and evaluate tenders as part of the management framework exists that is able to identify, procurement process. mitigate and effectively respond to various risks the business faces. Organizational values and code of conduct The management team supports this board responsibility by ensuring that relevant internal The UNSACCO board, management and all employees controls are implemented and proper risk management commit to four key organizational values: Integrity; processes exists in the UNSACCO operations. Transparency; Customer Focus and Team work. These values ensure that focus on the vision and mission The internal audit function supports this area by of the Sacco is not lost and customer expectations reviewing the adequacy of the controls in place as well are continuously met. The board of directors and as advising on risk management issues. The audit team management also prescribe to a UNSACCO code of has adopted a risk based audit approach in their work conduct which is based on best practice and regulatory to support the Sacco in meeting its strategic objectives.

14 Annual Report and Financial Statement 31 December 2017 Five Year Financial Performance Review

SACCO STATEMENT OF FINANCIAL POSITION

2013 2014 2015 2016 2017 ASSETS KShs. KShs. KShs. KShs. KShs.

Loans to members 6,453,383,482 7,019,226,729 7,070,373,979 7,411,381,817 7,586,039,412

Cash and cash equivalents 1,040,844,117 1,734,542,871 2,915,414,482 2,589,216,133 3,025,010,978

Long term assets 4,495,361 11,860,815 15,716,698 28,625,447 37,301,222

Other assets 27,470,816 54,490,896 66,389,932 825,723,626 774,162,722

Total Assets 7,526,193,776 8,820,121,311 10,067,895,091 10,854,947,023 11,422,514,334

Liabilities

Member deposits 6,231,636,509 7,158,079,069 7,777,889,283 8,355,333,216 8,868,715,906

Interest on members' deposits 805,610,175 626,593,522 803,649,275 826,817,828 720,018,189

Other liabilities 23,359,747 34,634,214 77,670,250 78,700,707 53,510,749

Total Liabilities 7,060,606,431 7,819,306,804 8,659,208,807 9,260,851,751 9,642,244,844

Shareholders' Equity 465,587,345 1,000,814,507 1,408,686,284 1,594,095,272 1,780,269,490 Total Liabilities & Equity 7,526,193,776 8,820,121,311 10,067,895,091 10,854,947,023 11,422,514,334

SACCO STATEMENT OF PROFIT OR LOSS

Total income 1,057,257,017 1,231,177,970 1,412,184,156 1,300,313,857 1,298,597,969 Loan Interest income 994,230,907 1,078,294,502 1,117,066,957 1,077,298,895 1,060,445,908 Total finance costs 819,275,606 573,481,906 821,284,984 847,215,395 746,449,168 Net loan interest income 174,955,301 504,812,596 295,781,973 230,083,500 313,996,740 Other income 63,026,109 152,883,468 295,117,199 223,014,962 238,152,061

Operating expenses 159,069,821 247,024,293 195,215,669 185,967,708 328,708,289

EBITDA 78,911,589 410,671,771 395,683,503 267,130,754 223,440,512

Depreciation & amortization 1,664,918 2,451,500 5,332,790 8,259,867 8,553,597

EBIT 77,246,671 408,220,270 390,350,713 258,870,887 214,886,915

Tax expense 5,210,704 22,216,716 43,358,081 32,544,569 33,885,061

PAT 72,035,967 386,003,554 346,992,632 226,326,318 181,001,854

Other disclosures

Interest on deposit rate 13.5% 10% 11.5% 10.5% 8.7%

Dividend rate 20% 20% 20% 18% 12%

Non-performing loans to total loans 2.9% 7.1% 1.6% 0.4% 0.5%

Annual Report and Financial Statement 31 December 2017 15 Five Year Financial Performance Review (Continued)

SACCO STATEMENT OF FINANCIAL POSITION

2013 2014 2015 2016 2017 KShs. KShs. KShs. KShs. KShs.

Capital adequacy ratios

Core capital/Total assets 6% 11% 14% 15% 16%

Core capital/Total deposits 7% 14% 18% 19% 20%

Institutional capital/Total assets 3% 6% 8% 8% 8.4%

Liquidity ratio 17% 24% 37% 31% 34%

Growth rate (%)

Total income 10% 16% 15% -8% -0.1%

Total assets 15% 17% 14% 8% 5%

Member deposits 16% 15% 9% 7% 6%

Loans to members 10% 9% 1% 5% 2%

Share capital 20% 77% 33% 13% 18%

No. of employees 17 19 22 25 26

Key Performance Indicators

Non-interest income to total income 6% 12% 21% 17% 19%

Cost to income ratio 93% 69% 75% 83% 86%

Profit before Income Tax Total Income ● Profit before tax decreased in 2017 to KShs. 215 ● Total Society incomedecreased by KShs. 1.7Mfrom million due to the reduction in the interest paid on prior year to KShs 1.299billion in 2017 largely loans compared to 2016. At least KShs. 70 Million as a result of the reduction in the lending rates impairment in Chase bank deposit was absorbed during the year and reduced interest income from in the year. bank deposits after the Central bank interest rate capping.

16 Annual Report and Financial Statement 31 December 2017 Five Year Financial Performance Review (Continued)

Cost to Income ratio ● The cost to income ratio in 2017 was 86% mainly comprised of the interest on member deposits. This includes at least KShs.109M impairment on loans and Chase Bank fixed deposits impairment

Non-Interest Income to Total Income Ratio ● There was an increase in 2017 owing to increase in the amount of funds fixed for income, aggressive sale of FOSA products and new partnerships that brought in commission income. ● The Society’s strategic objective is to grow this ratio by diversifying the Society’s income streams

Member Deposits ● In 2017, the member deposits grew by 6% year on year to KShs 8.8 billion due to increase in saving culture over the period ● The growth in member deposits is consistent with the Society’s Strategic objective to increase in membership base and deposit balances held by individuals. Loans to members ● Growth in the loan book was at 2% to KShs. 7.586 billion in 2017 driven by premier loan promotion, increased secured asset loan and normal loan uptake. ● The aggregate growth in the loan book from the year 2013 was 18%.

Total Assets ● Year on year growth in the balance sheet in 2017 was 5% largely driven by growth in the lending book as well as cash and cash equivalents and other investments.

Annual Report and Financial Statement 31 December 2017 17 Five Year Financial Performance Review (Continued)

● The growth in assets was funded by the increase in customer deposits ● The growth to KShs.11.4B is consistent with the Core Capital to Total Deposits (%ge) overall strategic objective of growing total assets. 25%

20% 20% 19% 18% 15% 14% 10% 7% 5%

0% 2013 2014 2015 2016 2017

Core Capital to Total Deposits ● The minimum requirement is 8% ● The Society attained 20% in 2017 well above the Liquidity ratio minimum threshold ● The Society’s aim is to build a strong liquidity position to guard against any unexpected funding difficulties and enable meeting of the core mandate of lending to our members. ● In 2017, the liquidity ratio increased to 33.8% with cash and cash equivalents increasing to KShs. 3.02 Institutional Capital to Total Assets (%ge) billion from KShs. 2.59 billion in 2016. 9% 8.40% 8% 8% 8% 7% 6% 6% 5% 4% 3% 3% 2% 1% 0% 2013 2014 2015 2016 2017

Institutional Capital to Total Assets ● Minimum requirement is 8% ● The strategic objective to fully attain this Core Capital to Total Assets ratio requirement by end of 2017 has been met .The ● Minimum statutory requirement is 10% Society’s aim is to strengthen its capital ratios ● The Society attained 16% in 2017 in line with its to support depositors’ confidence and provide Strategic Objective of compliance with regulatory greater operational and strategic flexibility. requirements

18 Annual Report and Financial Statement 31 December 2017 Report of the Directors For the year ended 31 December 2017

The directors have pleasure in presenting their report together with the audited financial statements of United Nations Saving and Credit Co-operative Society Limited (the “Sacco”) for the year ended 31 December 2017, which disclose the Sacco’s state of affairs. 1. Incorporation The Sacco is incorporated in Kenya under the Cooperative Societies Act, Cap 490 and licensed under the Sacco Societies Act No. 14 of 2008, and is domiciled in Kenya. 2. Principal activity The principal activityof the Sacco continues to be receiving savings from and provision of loans to its members. 3. Group results

2017 2016 KShs KShs

Surplusbefore tax 212,912,143 260,155,068 Tax charge (33,904,211) (32,901,179)

Surplusafter tax 179,007,932 227,253,889

30% transfer to statutory reserve ;(2016 :20%)Sacco (54,300,556) (45,265,264)

Surplus for the year 124,707,376 181,988,625

Interest on members’ deposits 719,694,675 826,835,612 4. Dividend and interest on members’ deposits The Board of Directors does recommend payment of the first and final dividends of 12% per share- KShs 98,877,735 (2016: first and final dividends of18% per share - KShs122,467,803). They also recommend interest on members’ deposits of 8.70%-KShs719,694,675 (paid2016 10.5%: KShs 826,835,612). 5. Board of directors The directors who held office during the year and to the date of this report are shown on page 2. In accordance with the Sacco’s by laws, Gabriel Wanga, Philomena Makena, Peter Kingóri and Gordon Onyatta (Supervisory Committee) will retire by the AGM date. Both Gabriel Wanga and Peter Kingoribeing eligible, offer themselves for re-election. 6. Auditors The Sacco’s auditor KPMG Kenya has indicated willingness to continue in office in accordance with Sacco Societies Act No. 14 of 2008.

BY ORDER OF THE BOARD Date: 14/03/2018

Annual Report and Financial Statement 31 December 2017 19 Statement of Directors’ Responsibilities

he Co-operative Societies Act and Sacco Societies Act No. 14 of 2008 (the “Acts”) and United Nations Savings and Credit Co-operative Society by-laws (the “by-laws”) require the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Sacco as at the end of the financial year and of its operating results for that year in accordance with International Financial Reporting Standards. It also requires the directors to ensure that they keep proper accounting records which disclose with reasonable Taccuracy at any time the financial position of the Sacco. The directors are also responsible for safeguarding the assets of the Sacco.

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

The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Sacco Societies Act, No. 14 of 2008.

The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Sacco as at 31 December 2017and of its operating results for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Sacco Societies Act, No. 14 of 2008. The directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

Nothing has come to the attention of the directors to indicate that the Sacco and its subsidiary will not remain a going concern for at least the next twelve months from the date of this statement.

Approved by the Board of Directors’ on 14th March, 2018 and signed on its behalf by:

Geoffrey Omedo Gabriel Wanga Chairman Treasurer

Dickson Aduwo Honorary Secretary

Date: 14/03/2018

20 Annual Report and Financial Statement 31 December 2017 Report of the Independent Auditors to the Members of UN Sacco

Report on the Audit of the Financial Statements Opinion We have audited the consolidated and separate financial statements of United Nations Savings and Credit Co-operative Society Limited, which comprise the consolidated and Sacco statement of financial position as at 31 December 2017, 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 flows for the year then ended, and notes to the financial statements including a summary of significant accounting policies and other explanatory information as set out on pages 30 to 83. In our opinion, the accompanying consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of United Nations Savings and Credit Co-operative Society Limited as at 31 December 2017, and of its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, the requirements of the Kenyan Co-operative Societies Act, the Sacco Societies Act No.14 of 2008 and theSacco By-laws. Basis of opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the group and Sacco in accordance with the International Ethics Standards Board for accountants’ Code of Ethics for Professional Accountants (IEBSA 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 IEBSA 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 judgment, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Annual Report and Financial Statement 31 December 2017 21 Report of the Independent Auditors to the Members of UN Sacco (Continued)

Impairment of loans and advances to members

See Note 15 to the Group financial statements

The key audit matter How the matter was addressed

Impairment of loans and advances to members Our audit procedures in this area included, isImpairment considered of aloans key andaudit advances matter becauseto members the Our amongaudit procedures others: in this area included, among Directorsis considered make acomplex key audit and subjectivematter because judgments the ●others: Performing control assessments on the key overDirectors both make timing complex of recognition and subjective of impairment judgments and ● Performingcontrols over control the credit assessments grading and on monitoring the key theover estimation both timing of ofthe recognition size of any ofsuch impairment impairment. and process,controls overto assess the credit if the grading credit grades and monitoring allocated the estimation of the size of any such impairment. toprocess, counterparties to assess ifwere the creditappropriate grades and allocated loans Specific impairment provisions are based on wereto counterparties appropriately were identified, appropriate on a timely and loansbasis, management’sSpecific impairment judgment provisions in estimating are whenbased anon aswere impaired. appropriately identified, on a timely basis, impairmentmanagement’s event judgment has occurred in estimating and present when value an ● Performingas impaired. credit assessments of a sample ofimpairment expected eventfuture hascash occurred flows whichand presentare inherently value ● Performingof loans based credit on materialityassessments levels. of aFor sample these uncertain.of expected future cash flows which are inherently selectedof loans loans,based weon assessedmateriality the levels. reasonableness For these uncertain. ofselected the forecastloans, we ofassessed recoverable the reasonableness cash flows, For loans and advances there is uncertainty in realisationof the forecast of collateral of recoverable and other cash possible flows, relationFor loans to and the advances forecast therecash isflows uncertainty including in sourcesrealisation of repaymentof collateral such and as otherguarantors. possible We estimatedrelation to timing the andforecast proceeds cash from flows the futureincluding for comparedsources of keyrepayment assumptions such toas progress guarantors. against We theestimated future salestiming of andassets proceeds securing from the debtthe future as these for businesscompared plans key assumptions and our own to progress understanding against loansthe future are secured sales of byassets assets securing or guarantee the debt from as theseother ofbusiness the relevantplans and industries our own understandingand business members.loans are secured by assets or guarantee from other environments.of the relevant industries and business members. ● Performingenvironments. control assessments on the key Collective impairment is calculated on a modelled ● Performing management control controls assessments over the on inputthe keyof basisCollective for portfolios impairment of loans is calculated and advances. on a modelled underlyingmanagement data controls into the impairmentover the model.input of basis for portfolios of loans and advances. ● Assessingunderlying datathe intoappropriateness the impairment model.of the We focused our audit on the following areas of ● Assessingemergence period.the appropriateness of the impairment specifically relating to: ● Assessingemergence the period. overall reasonableness of the ● The key assumptions and judgments made ● Assessing portfolio impairment the overall balancereasonableness with respect of the to ● Theby the key Directors assumptions that andunderlie judgments the calculation made by theportfolio qualitative impairment and quantitative balance with changes respect in the to ofthe Directorsmodelled thatcollective underlie impairment.the calculation Key of underlyingthe qualitative portfolio. and quantitative changes in the assumptionsmodelled collective and impairment.judgments include the ● Assessingunderlying portfolio.the key judgments, relating to ● Keyemergence assumptions period and usedjudgments for unidentifiedinclude the ● Assessing recovery, namelythe key the judgments, likely price relating(estimated to impairment,emergence periodthe usedestimated for unidentified cash flows im- cashrecovery, flows) namely and expected the likely time price to sell (estimated the assets calculationpairment, the and estimated the cashloss flowsgiven calculation default orcash recover flows) amounts and expected as pledged time to by sell guarantors the assets calculation.and the loss given default calculation. inor recoverrespect amountsof the impaired as pledged exposure by guarantors for the ● The completeness of the customer accounts specificin respect impairment of the impaired portfolio. exposure for the that areare included included in in the the impairment impairment calculation, calcula- specific impairment portfolio. includingtion, including how how unidentified unidentified impairment Assessing whether the financial statement (customers that have had a loss event that has disclosuresAssessing appropriatelywhether the reflectfinancial the Groupstatement and not yet manifested itself in a missed payment Society’sdisclosures exposure appropriately to credit reflect risk. the Group and or other indicator) are taken account of. Society’s exposure to credit risk.

22 Annual Report and Financial Statement 31 December 2017 Report of the Independent Auditors to the Members of UN Sacco (Continued)

Assessment of recoverability and classification of Chase Bank (K) Limited (in receivership) balances

See Note 13 to the Group financial statements

The key audit matter How the matter was addressed

Recoverability and classification of the fixed deposit Our audit procedures in this area included, among balance in Chase Bank (K) Limited (In Receivership) others is considered a key audit matter because of the uncertainty surrounding the timing of when ● Performing control assessments on the key the depositors would be allowed to access their controls over the cash and cash equivalents deposits and the amount that will eventually be process, to assess if the reconciliation of these received. balances was appropriate. United Nations Sacco is holding deposits amounting to KShs. 850,000,000 in Chase Bank (K) ● Assessing the appropriateness of the recovery Limited (In Receivership). period. The bank was placed under receivership on 7 April 2016 by the Central Bank of Kenya and was ● Assessing the overall reasonableness of the re-opened on 27 April 2016 under a Receiver Chase Bank deposits balance with respect to Manager. Since then, the depositors were allowed the publicly available information from the access of up to KShs 1 Million. Further to this the regulators and the receiver manager. Central Bank of Kenya recently announced that it had signed a binding agreement with Standard ● Assessing the key judgments, relating to Bank of Mauritious(SBM), with the process likely to recovery, namely the estimated cash flows and be finalized in March 2018. expected time to recover the amounts due While deliberations are still ongoing with the receiver from the bank. manager, SASRA and the relevant stakeholders, there has been no explicit communication as to the ● Assessing the appropriateness of the discount date when the funds shall be made available or the rate used in discounting the future cash flows amount to be made available to the Sacco. to the present value. Due to the passage of time, directors made Assessing whether the financial statement complex and subjective judgments regarding the ● period over which the funds will be recovered and disclosures appropriately reflect the Group and the estimation of the present value of the balance. Society’s exposure to credit risk. Determination of the discount rate applicable and the period to recover the funds is a matter of judgment and may be subjective. We focused our audit on the following areas of impairment specifically relating to: ● The key assumptions and judgments made by the Directors that underlie the calculation of the discounted cash flows. Key assumptions and judgments include the discounting rate used, the estimated recovery period and the estimated cash flows calculation.

Annual Report and Financial Statement 31 December 2017 23 Report of the Independent Auditors to the Members of UN Sacco (Continued)

Other information Auditors’ responsibilitiesfor the audit of the The directors are responsible for the other information. consolidated and separate financial statements The other information comprises the information Our objectives are to obtain reasonable assurance included in the included in the Annual Report about whether the consolidated and separate and Financial statements but does not include the financial statements as a whole are free from material consolidated and separate financial statements and our misstatement, whether due to fraud or error, and to auditors’ report thereon. issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is Our opinion on the consolidated and separate financial not a guarantee that an audit conducted in accordance statements does not cover the other information and with ISAs will always detect a material misstatement we do not express or any form of assurance conclusion when it exists. Misstatements can arise from fraud or thereon. error and are considered material if, individually or in the aggregate, they could reasonably be expected to In connection with our audit of the consolidated and influence the economic decisions of users taken on separate financial statements, our responsibility is to the basis of these consolidated and separate financial read the other information and, in doing so, consider statements. whether the other information is materially inconsistent with the consolidated and separate financial statements As part of an audit in accordance with ISAs, we exercise or our knowledge obtained in the audit, or otherwise professional judgment and maintain professional skepticism throughout the audit. We also: appears to be materially misstated. If, based on the work we have performed, we conclude that there is a ● Identify and assess the risks of material misstatement material misstatement of this other information, we are of the consolidated and separate financial required to report that fact. statements, whether due to fraud or error, design and perform audit procedures responsive to those We have nothing to report in this regard. risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. Responsibility of the directors for the The risk of not detecting a material misstatement consolidated and separate financial statements resulting from fraud is higher than for one resulting The directors are responsible for the preparation of from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the and fair presentation of the consolidated and separate override of internal control. financial statements in accordance with International Financial Reporting Standards and the Sacco Societies ● Obtain an understanding of internal control relevant Act No. 14 of 2008, and for such internal control as to the audit in order to design audit procedures the directors determine is necessary to enable the that are appropriate in the circumstances, but not preparation of consolidated and separate financial for the purpose of expressing an opinion on the statements that are free from material misstatement, effectiveness of the group’s and the Sacco’s internal whether due to fraud or error. control.

In preparing the consolidated and separate financial ● Evaluate the appropriateness of accounting statements, the directors are responsible for assessing policies used and the reasonableness of accounting the group’s and the Sacco’s ability to continue as estimates and related disclosures made by the a going concern, disclosing, as applicable, matters directors. related to going concern and using the going concern basis of accounting unless the directors either intend ● Conclude on the appropriateness of the directors’ to liquidate the group and/ or the Sacco or to cease use of the going concern basis of accounting and operations, or have no realistic alternative but to do so. based on the audit evidence obtained, whether a material uncertainty exists related to events or

24 Annual Report and Financial Statement 31 December 2017 Report of the Independent Auditors to the Members of UN Sacco (Continued)

conditions that may cast significant doubt on the period and are therefore the Key audit matters. We group’s and the Sacco’s ability to continue as a going describe these matters in our auditor’s report unless concern. If we conclude that a material uncertainty law or regulation precludes public disclosure about the exists, we are required to draw attention in our matter or when, in extremely rare circumstances, we auditor’s report to the related disclosures in the determine that a matter should not be communicated consolidated and separate financial statements or, in our report because the adverse consequences of if such disclosures are inadequate, to modify our doing so would reasonably be expected to outweigh opinion. Our conclusions are based on the audit the public interest benefits of such communication. evidence obtained up to the date of our auditor’s report. However, future events or conditions may Report on other legal requirements cause the group and / or the Sacco to cease to continue as a going concern. The Kenyan Sacco Societies Act No.14 of 2008 requires that we report the following matters to the Sacco ● Evaluate the overall presentation, structure and Societies Regulatory Authority (SASRA). We report that: content of the consolidated and separate financial statements, including the disclosures, and whether (i) we have obtained all the information and the consolidated and separate financial statements explanations which, to the best of our knowledge represent the underlying transactions and events and belief, were considered necessary for the in a manner that achieves fair presentation. purposes of our audit;

● Obtain sufficient appropriate audit evidence (ii) we are not aware of irregularities or illegal acts that regarding the financial information of the entities have been committed by directors, employees or or business activities within the Group to express an the Sacco Society itself; and, opinion on the consolidated financial statements. We are responsible for the direction, supervision (iii) we have no grounds to believe that the Sacco and performance of the group audit. We remain Society is insolvent or that there is a significant risk solely responsible for our audit opinion. that it may become insolvent. We communicate with the directors regarding, among The Engagement Partner responsible for the audit resulting other matters, the planned scope and timing of the audit in this independent auditors’ report is CPA Joseph Kariuki – and significant audit findings, including any significant deficiencies in internal control that we identify during P/2102. our audit.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the current Date: 14/03/2018

Annual Report and Financial Statement 31 December 2017 25 UN Sacco Society Limited For the year ended 31 December 2017

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017

Revenue 2017 2016 Notes Kshs. Kshs.

Interest income:

Interest on loans and advances 6(a) 1,060,445,908 1,077,298,895 ● Other interest income 6(b) 205,914,122 194,138,992

Total interest income 1,266,360,030 1,271,437,887

Interest expenses 7 (746,449,168) (847,215,395)

Net interest income 519,910,862 424,222,492

Other gains and losses

Net fee and commission income 8 10,809,076 11,136,444

Other operating income 9 24,801,091 26,061,536

Credit impairment charges 15(c) (39,297,858) 85,551,128

Administrative expenses 10(a) (138,636,420) (103,136,934)

Other operating expenses 10(b) (164,674,608) (183,679,598)

Operating surplus before tax 212,912,143 260,155,068

Income tax charge 11(b) (33,904,211) ( 32,901,179)

Profit for the year 179,007,932 227,253,889

Other comprehensive income - -

Total comprehensive income for the year 179,007,932 227,253,889

The notes set out on pages 38 to 83 form an integral part of these financial statements.

26 Annual Report and Financial Statement 31 December 2017 UN Sacco Society Limited For the year ended 31 December 2017 (Continued)

SACCO STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017

2017 2016 Note KShs KShs Revenue

Interest income:

● Interest on loans and advances 6(a) 1,060,445,908 1,077,298,895 ● Other interest income 6(b) 205,861,895 194,097,282

Total interest income 1,266,307,803 1,271,396,177

Interest expenses 7 (746,449,168) ( 847,215,395)

Net interest income 519,858,635 424,180,782

Other gains and losses

Net fee and commission income 8 10,809,076 11,136,444

Other operating income 9 21,481,091 17,781,236

Credit impairment charges 15(c) (39,297,858) 85,551,128

Administrative expenses 10(a) (135,793,266) (101,605,876)

Other operating expenses 10(b) (162,170,763) (178,172,827)

Operating surplus before tax 214,886,915 258,870,887

Income tax charge 11(b) (33,885,061) (32,544,569)

Profit for the year 181,001,854 226,326,318

Other comprehensive income - -

Total comprehensive income for the year 181,001,854 226,326,318

The notes set out on pages 38 to 83 form an integral part of these financial statements

Annual Report and Financial Statement 31 December 2017 27 UN Sacco Society Limited For the year ended 31 December 2016 (Continued)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017

Note 2017 2016 ASSETS KShs KShs

Cash and cash equivalents 12 3,031,636,974 2,598,223,266 Investments held in fixed deposits 13 712,969,943 782,969,943 Trade and other receivables 14 59,841,180 40,755,885 Loans to members 15(a) 7,586,039,412 7,411,381,817 Investments 16 16,062,929 3,769,619 Intangible asset 19 3,720,889 1,309,103 Property, plant and equipment 20 16,517,404 22,546,725 11,426,788,731 10,860,956,358 Assets held for sale 17 12,414,703 13,328,232 TOTAL ASSETS 11,439,203,434 10,874,284,590

LIABILITIES AND EQUITY Liabilities Members' deposits 24 8,868,715,906 8,355,333,216 Provision for interest on members’ deposits 25(a) 720,018,189 826,817,828 Trade and other payables 28 55,548,802 55,271,499 Tax payable 11(a) 98,453 26,220,259

Total liabilities 9,644,381,350 9,263,642,802 Equity Share capital 21 823,981,128 696,340,961 Retained earnings 23 638,667,686 633,762,811 Credit risk reserve 15(c) - 2,665,302 Statutory reserves 22 332,173,270 277,872,714 Total Equity 1,794,822,084 1,610,641,788 TOTAL EQUITY AND LIABILITIES 11,439,203,434 10,874,284,590

The financial statements on pages 30 to 83 were approved and authorised for issue by the Board of Directors on 14 March, 2018 and were signed on its behalf by:

Geoffrey Omedo Gabriel Wanga Dickson Aduwo Chairman Treasurer Honorary Secretary The notes set out on pages 38 to 83 form an integral part of these financial statements.

28 Annual Report and Financial Statement 31 December 2017 UN Sacco Society Limited For the year ended 31 December 2016 (Continued)

SACCO STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017

Note 2017 2016 ASSETS KShs KShs

Cash and cash equivalents 12 3,025,010,978 2,589,216,133 Investments held in fixed deposits 13 712,969,943 782,969,943 Trade and other receivables 14 54,721,179 33,805,885 Loans to members 15(a) 7,586,039,412 7,411,381,817 Due from related parties 29(e) 6,471,600 8,947,798 Investments 16 16,062,929 3,769,619 Investment in subsidiary 18 1,000,000 1,000,000 Intangible asset 19 3,720,889 1,309,103 Property, plant & equipment 20 16,517,404 22,546,725 TOTAL ASSETS 11,422,514,334 10,854,947,023

LIABILITIES AND EQUITY Liabilities Members' deposits 24 8,868,715,906 8,355,333,216 Provision for interest on members’ deposits 25(a) 720,018,189 826,817,828 Trade and other payables 28 53,420,766 52,829,136 Tax payable 11(a) 89,983 25,871,571 Total Liabilities 9,642,244,844 9,260,851,751 Equity Share capital 21 823,981,128 696,340,961 Retained earnings 23 624,115,092 617,216,295 Credit risk reserve 15(c) - 2,665,302 Statutory reserves 22 332,173,270 277,872,714 Total equity 1,780,269,490 1,594,095,272

TOTAL EQUITY AND LIABILITIES 11,422,514,334 10,854,947,023

The financial statements on pages 30 to 83 were approved and authorised for issue by the Board of Directors on and were signed on its behalf by:

Geoffrey Omedo Gabriel Wanga Dickson Anduwo Chairman Treasurer Honorary Secretary The notes set out on pages 38 to 83 form an integral part of these financial statements

Annual Report and Financial Statement 31 December 2017 29 UN Sacco Society Limited For the year ended 31 December 2017 (Continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

Credit Share Retained Statutory risk Total Note2 capital earnings reserves reserve KShs. KShs. KShs KShs KShs KShs

1 January 2016 614,384,285 577,313,494 232,607,450 - 1,424,305,229

Contributions for the year 21 81,956,676 - - - 81,956,676

Surplus for the year 23 - 227,253,889 - - 227,253,889

20% Transfer to statutory reserve 23 - ( 45,265,264) 45,265,264 - -

Dividend paid 26 - (122,874,006) - - (122,874,006)

Credit risk reserve 15(c) - ( 2,665,302) - 2,665,302 -

696,340,961 633,762,811 277,872,714 2,665,302 1,610,641,788

1 January 2016 696,340,961 633,762,811 277,872,714 2,665,302 1,610,641,788

Contributions for the year 21 127,640,167 - - - 127,640,167

Surplus for the year 23 - 179,007,932 - - 179,007,932

30% Transfer to statutory reserve 23 - (54,300,556) 54,300,556 - - Dividend paid 26 - (122,467,803) - - (122,467,803)

Credit risk reserve 15(c) - 2,665,302 - (2,665,302) -

823,981,128 638,667,686 332,173,270 - 1,794,822,084

The notes set out on pages 38 to 83 form an integral part of these financial statements

30 Annual Report and Financial Statement 31 December 2017 UN Sacco Society Limited For the year ended 31 December 2017 (Continued)

SACCO STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

Credit Share Retained Statutory risk Total Note2 capital earnings reserves reserve Kshs. KShs. KShs KShs KShs KShs

1 January 2017 614,384,285 561,694,549 232,607,450 - 1,408,686,284

Contributions for the year 21 81,956,676 - - - 81,956,676

Surplus for the year 23 - 226,326,318 - - 226,326,318

20% Transfer to statutory reserve 23 - ( 45,265,264) 45,265,264 - -

Dividend paid 26 (122,874,006) - (122,874,006)

Credit risk reserve 15(c) - (2,665,302) - 2,665,302 -

696,340,961 617,216,295 277,872,714 2,665,302 1,594,095,272

1 January 2016 696,340,961 617,216,295 277,872,714 2,665,302 1,594,095,272

Contributions for the year 21 127,640,167 - - - 127,640,167

Surplus for the year 23 - 181,001,854 - - 181,001,854

30% Transfer to statutory reserve 23 - (54,300,556) 54,300,556 - -

Dividend paid 26 - (122,467,803) - (122,467,803)

Credit risk reserve 15(c) - 2,665,302 - (2,665,302) -

823,981,128 624,115,092 332,173,270 - 1,780,269,490

The notes set out on pages 38 to 83 form an integral part of these financial statements.

Annual Report and Financial Statement 31 December 2017 31 UN Sacco Society Limited For the year ended 31 December 2017 (Continued)

CONSOLIDATED STATEMENT OF CASH FLOWS AS AT 31 DECEMBER 2017

2017 2016 Operating activities Note KShs KShs

Surplus before tax 212,912,143 260,155,068 Adjustments for: Amortisation of intangible assets 19 1,747,622 2,263,626 Depreciation of equipment 20 6,805,975 5,996,242 (Gain)/Loss on revaluation of Equity Investments (2,293,310) 1,770,927 Impairment on fixed deposits 13 70,000,000 67,030,055 Interest on members’ deposits 7 719,694,675 826,835,612 1,008,867,105 1,164,051,530 Changes in working capital: Trade and other receivables 14 (19,085,295) 16,776,742 Trade and other payables 28 277,303 (5,584,232) Assets held for sale 17 913,529 2,371,765 Loans to members 15 (174,657,595) (341,007,838) Members’ deposits 24 478,719,718 383,551,828 Cash generated from operating activities before income tax 1,295,034,765 1,220,159,795 Income tax paid 11(a) (60,026,017) (27,456,907) Net cash generated from operating activities 1,235,008,748 1,192,702,888

Investing activities Investment in fixed deposits 13 - (850,000,000) Purchase of shares in KUSSCO 16 (10,000,000) - Purchase of intangible assets 19 ( 4,159,408) - Purchase of Property, plant and equipment 20 (776,654) (12,826,270)

Net cash used in investing activities (14,936,062) (862,826,270)

Financing activities Share capital contributions 21 127,640,167 81,956,676 Increase/(decrease) in members’ savings 24 34,662,972 193,892,105 Dividends paid 26 (122,467,803) (122,874,006) Interest on members’ deposits paid 25 (826,494,314) (803,667,059)

Net cash used in financing activities (786,658,978) (650,692,284)

Net (decrease)/increase in cash and cash equivalents 433,413,708 (320,815,666) Cash and cash equivalents at the start of the year 2,598,223,266 2,919,038,932

Cash and cash equivalents at the end of the year 12 3,031,636,974 2,598,223,266

The notes set out on pages 38 to 83 form an integral part of these financial statements.

32 Annual Report and Financial Statement 31 December 2017 UN Sacco Society Limited For the year ended 31 December 2017 (Continued)

SACCO STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 31 DECEMBER 2017

2017 2016 Operating activities Note KShs KShs

Surplus before tax 214,886,915 258,870,887 Adjustments for: Amortisation of intangible assets 19 1,747,622 2,263,626 Depreciation of equipment 20 6,805,975 5,996,242 (Gain)/loss on revaluation of equity investments (2,293,310) 1,770,927 Impairment on investment held in fixed deposits 13 70,000,000 67,030,055 Interest on members’ deposits 7 719,694,675 826,835,612 1,010,841,877 1,162,767,349 Changes in working capital: Trade and other receivables 14 (20,915,294) 15,631,740 Trade and other payables 28 591,630 (4,076,371) Balances due from related parties 29(e) 2,476,198 ( 2,108,766) Loans to members 15 (174,657,595) (341,007,838) Members’ deposits 24 478,719,718 383,551,828 Cash generated from operating activities before income tax 1,297,056,534 1,147,727,888 Income tax paid 11(a) (59,666,649) (27,437,737) Net cash generated from operating activities 1,237,389,885 1,187,320,205 Investing activities Investment in fixed deposits 13 - (850,000,000) Investment in KUSSCO shares 16 (10,000,000) - Purchase of intangible assets 19 ( 4,159,408) - Purchase of Property, plant and equipment 20 (776,654) (12,826,270) Net cash used in investing activities (14,936,062) (837,173,730) Financing activities Share capital contributions 21 127,640,167 81,956,676 Increase in members’ savings 24 34,662,972 193,892,105 Dividends paid 26 (122,467,803) (122,874,006) Interest on members’ deposits paid 25 (826,494,314) (803,667,059)

Net cash used in financing activities (786,658,978) (650,692,284)

Net increase/(decrease) in cash and cash equivalents 435,794,845 (326,198,349)

Cash and cash equivalents at the start of the year 2,589,216,133 2,915,414,482

Cash and cash equivalents at the end of the year 12 3,025,010,978 2,589,216,133

The notes set out on pages 38 to 83 form an integral part of these financial statements.

Annual Report and Financial Statement 31 December 2017 33 Notes to the Financial Statements For the year ended 31 December 2017

1. REPORTING ENTITY The estimates and underlying assumptions are reviewed United Nations Savings & Credit Co-operative Society on an ongoing basis. Revisions to accounting estimates Limited (Registration Number CS/2375) is registered in are recognised in the period in which the estimate is Kenya with its principal place of business and registered revised if the revision affects only that period or in the office at, United Nations Complex, Gigiri, Nairobi, Kenya. period of the revision and future periods if the revision It is incorporated under the Co-operative Societies Act, affects both current and future periods. Cap 490 and licensed under the Sacco Societies Act No.14 of 2008. It is regulated by the Sacco Societies (d) Functional and presentation currency Regulatory Authority (SASRA). The consolidated financial statements are presented in Kenya shillings, which is also the Group’s functional 2. BASIS OF PREPARATION currency. Except as otherwise indicated, financial information presented in Kenya shillings (KShs) has been rounded to the nearest shilling. (a) Statement of compliance The financial statements have been prepared in 3. SIGNIFICANT ACCOUNTING POLICIES accordance with International Financial Reporting Standards and the Co-operative Societies Act. The principal accounting policies adopted in the preparation of these financial statements are set out For Co-operative Societies Act reporting purposes, the below: balance sheet is represented by statement of financial (a) Basis of consolidation position and the income and expenditure account by the statement of profit or loss and other comprehensive The consolidated financial statements include the income, in these financial statements. Sacco and its subsidiaries made up to the end of the financial year. The subsidiaries are set out on Note 18. The financial statements are prepared under the historical cost basis except for fair valuation of certain Subsidiaries are investees controlled by the Sacco. assets. The Sacco ‘controls’ an investee if it is exposed to, or has rights to, variable returns from its involvement (b) Going concern with the investee and has the ability to affect those Based on the financial performance and position of the returns through its power over the investee. The Sacco and its risk management policies, the directors financial statements of subsidiaries are included in the are of the opinion that the Sacco is well placed to consolidated financial statements from the date on continue in business for the foreseeable future and as a which control commences until the date when control result the financial statements are prepared on a going ceases. concern basis. Intra-group balances and any unrealised income and expenses arising from intra-group transactions are (c) Use of estimates and judgments eliminated in preparing the consolidated financial The preparation of financial statements in conformity statements. The financial statements have been with International Financial Reporting Standards prepared using uniform accounting policies for like requires the use of estimates and assumptions that transactions and other events in similar circumstances. affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts (b) Revenue recognition of revenues and expenses during the reported period. Revenue is derived substantially from Group business Although these estimates are based on the Directors’ and related activities and comprises net interest income best knowledge of current events and actions, actual and non-interest income. Income is recognised on an results ultimately may differ from the estimates. accrual basis in the period in which it is earned.

34 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

(i) Interest initially at fair value plus, for an item not at fair Interest income and expense for all interest bearing value through profit or loss, transaction costs that instruments are recognised in profit or loss as it are directly attributable to its acquisition or issue. accrues, taking into account the effective interest rate of the asset or an applicable floating rate. (ii) Classification The effective interest rate is the rate that exactly The Group classifies its financial assets into one of discounts the estimated future cash flows through the following categories: the expected life of the financial asset or liability to the carrying amount of the financial asset or Loans and receivables liability. Interest income and expense includes the Loans and receivables are financial assets with fixed amortisation of any discount or premium or other or determinable payments and fixed maturities differences between the initial carrying amount that are not quoted in an active market. of an interest bearing instrument and its amount at maturity calculated on an effective interest rate They arise when the Group provides money basis. directly to borrowers, other than those created with the intention of short-term profit taking. They Once a financial asset or a group of similar financial are recognised at the date money is disbursed to assets has been written down as a result of an the borrower or when they are transferred to the impairment loss, interest income is recognised Group from a third party. using the rate of interest used to discount the future cash flows for the purpose of measuring the Subsequent to initial recognition, these are carried impairment loss. at amortised cost. Loan origination fees together with related direct costs are treated as part of the (ii) Fees and commission income cost of the transaction. Fees and commission income including brokerage income is recognized on an accrual basis when the Amortised cost is calculated using the effective service is provided. interest method. The amortisation and accretion This income comprises of appraisal and facility fees of premiums and discounts is included in interest charged on advances, commissions charged on income. use of channels and ledger fees levied on current and savings accounts. Held-to-maturity These are financial assets with fixed or determinable (iii) Dividend income payments and fixed maturities that the Group’s Dividend income is recognised when the management has the positive intention and ability shareholder’s right to receive payment has been to hold to maturity. The sale of a significant amount established. of held-to-maturity assets would taint the entire category leading to reclassification as available-for- (c) Financial assets and financial liabilities sale. (i) Recognition Subsequent to initial recognition, these are carried The Group initially recognises loans and advances at amortised cost. and deposits on the date on which they originated. All other financial instruments are recognised Held-to-maturity - continued on the trade date, which is the date the Group Amortised cost is calculated using the effective becomes a party to the contractual provisions of interest rate method. The amortisation and the instrument. accretion of premiums and discounts is included A financial asset or financial liability is measured in interest income.

Annual Report and Financial Statement 31 December 2017 35 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES Financial liabilities (Continued) The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortized cost. (c) Financial assets and financial liabilities (continued) (iii) Derecognition A financial asset is derecognised when the Group Fair value through profit and loss loses control over the contractual rights that This category has two sub-categories: financial comprise that asset. This occurs when the rights assets held for trading, and those designated at fair are realised, expire or are surrendered. A financial value through profit or loss at inception. A financial liability is derecognised when its contractual asset is classified in this category if acquired obligations are discharged or cancelled, or expires. principally for the purpose of selling in the short term or if so designated by management. Held-to-maturity instruments and loans and receivables are derecognised on the day they are Investments held for trading are those which were repaid in full or when they are transferred by the either acquired for generating a profit from short- Group to a third party. term fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern (iv) Offsetting of short-term profit-taking exists. Financial assets and liabilities are offset and the net amount reported on the statement of financial Investments held for trading are subsequently re- position when there is a legally enforceable right measured at fair value based on quoted bid prices to set-off the recognised amount and there is an or dealer price quotations, without any deduction intention to settle on a net basis, or to realise the for transaction costs. All related realized and asset and settle the liability simultaneously. unrealized gains and losses are included in profit or loss. Interest earned whilst holding held for trading (d) Assets held for sale investments is reported as interest income. Non-current assets, or disposal groups comprising Available-for-sale assets and liabilities, are classified as held-for-sale if it Available-for-sale financial assets are financial highly probable that they will be recovered primarily assets that are intended to be held for an indefinite through sale rather than through continuing use. period of time, which may be sold in response to needs for liquidity or changes in interest rates, Such assets, or disposal groups, are generally measured exchange rates or equity prices or that are not at the lower of their carrying amount and fair values less classified as loans and receivables, held-to-maturity costs to sell. Any impairment loss on a disposal group investments or financial assets at fair value through is allocated first to goodwill, and then to the remaining profit or loss. assets and liabilities on a pro rata basis, except that no loss is allocated to financial assets which continue to Available-for-sale financial assets are initially be measured in accordance with the Group’s other recognised at fair value, which is the cash accounting policies. Impairment losses on initial consideration including any transaction costs, and measured subsequently at fair value with gains and classification as held-for-sale or held-for-distribution losses being recognised in other comprehensive and subsequent gains and losses on measurement are income and cumulated in a separate reserve in recognised in profit or loss. equity, fair value reserve, until the financial asset is derecognised. However, interest is calculated using Once classified as held-for-sale, intangible assets and the effective interest method, and foreign currency property, plant and equipment are no longer amortised gains and losses on monetary assets classified as or depreciated, and any equity-accounted investee is available-for-sale is recognised in profit or loss. no longer equity accounted.

36 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES historical modelling. Default rate, loss rates and the (Continued) expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate. (e) Identification and measurement of impairment of financial assets Impairment losses on assets carried at amortised At each reporting date the Group assesses cost are measured as the difference between the whether there is objective evidence that financial carrying amount of the financial assets and the assets not carried at fair value through profit or present value of estimated cash flows discounted loss are impaired. Financial assets are impaired at the assets’ original effective interest rate. Losses when objective evidence demonstrates that a loss are recognised in profit or loss and reflected in an event has occurred after the initial recognition of allowance account against loans and advances. the asset, and that the loss event has an impact Interest on the impaired asset continues to be on the future cash flows on the asset than can be recognised through the unwinding of the discount. estimated reliably. When a subsequent event causes the amount of The Group considers evidence of impairment impairment loss to decrease, the impairment loss at both a specific asset and collective level. All is reversed through profit or loss. individually significant financial assets are assessed for specific impairment. (f) Impairment for non-financial assets The carrying amounts of the Group’s non-financial All significant assets found not to be specifically assets, other than deferred tax, are reviewed at impaired are then collectively assessed for any each reporting date to determine whether there is impairment that has been incurred but not any indication of impairment. If any such indication yet identified. Assets that are not individually exists then the assets’ recoverable amount is significant are collectively assessed for impairment estimated. by grouping together financial assets (carried at amortised cost) with similar risk characteristics. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit Objective evidence that financial assets are exceeds its recoverable amount. A cash-generating impaired can include default or delinquency by a unit is the smallest identifiable asset group that borrower, restructuring of a loan or advance by the generates cash flows that largely are independent Group on terms that the Group would not otherwise from other assets and groups. Impairment losses consider, indications that a borrower or issuer will are recognised in profit or loss. Impairment losses enter Group bankruptcy, the disappearance of an recognised in respect of cash-generating units are active market for a security, or other observable allocated first to reduce the carrying amount of any data relating to a group of assets such as adverse goodwill allocated to the units and then to reduce changes in the payment status of borrowers or the carrying amount of the other assets in the unit issuers in the group, or economic conditions that (group of units) on a pro-rata basis. correlate with defaults in the group. In assessing The recoverable amount of an asset or cash- collective impairment the Group uses statistical generating unit is the greater of its value in use and modelling of historical trends of the probability its fair value less costs to sell. In assessing value in of default, timing of recoveries and the amount use, the estimated future cash flows are discounted of loss incurred, adjusted for management’s to their present value using a pre-tax discount rate judgement as to whether current economic and that reflects current market assessments of the credit conditions are such that the actual losses time value of money and the risks specific to the are likely to be greater or less than suggested by asset.

Annual Report and Financial Statement 31 December 2017 37 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES Software 33.33% (Continued) Computer equipment 25% Office equipment 12.5%

Depreciation methods, useful lives and residual (f) Impairment for non-financial assets values are reassessed and adjusted, if appropriate, (continued) at each reporting date. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is (iii) Subsequent costs reversed only to the extent that the asset’s carrying The cost of replacing a component of property or amount does not exceed the carrying amount that equipment is recognised in the carrying amount of would have been determined, net of depreciation the item if it is probable that the future economic or amortisation, if no impairment loss had been benefits embodied within the part will flow to recognised. the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property (g) Translation of foreign currencies and equipment are recognised in profit or loss as Transactions in foreign currencies during the incurred. year are converted into Kenya Shillings at the exchange rate ruling at the date of the transaction. (iv) Disposal of property and equipment Foreign currency monetary assets and liabilities Gains and losses on disposal of property and are translated at the exchange rate ruling at the equipment are determined by reference to their reporting date. carrying amount and are recognised in profit or loss in the year in which they arise. Resulting exchange differences are recognised in profit or loss in the year in which they arise. (i) Intangible assets - Software Computer software licenses are stated at cost Non-monetary assets and liabilities denominated less accumulated amortisation and accumulated in foreign currencies are translated at the exchange impairment. rates ruling at the transaction date. The cost incurred to acquire and bring to use (h) Property and equipment specific computer software licences are capitalised. The costs are amortised on a straight line basis (i) Recognition and measurement over the expected useful lives, for a period not Items of property and equipment are measured exceeding three years and are recognised in profit at cost less accumulated depreciation and or loss. Costs associated with maintaining software impairment losses. Cost includes expenditures that are recognised as an expense as incurred. are directly attributable to the acquisition of the asset. Subsequent expenditure on software assets is (ii) Depreciation capitalised only when it increases the future Depreciation is recognised on a straight-line economic benefits embodied in the specific basis over the estimated useful lives of the assets. asset to which it relates. All other expenditure is The rates of depreciation used are based on the expensed when incurred. following estimated useful lives applicable to the current and prior year: Amortisation methods, useful lives and residual values are reviewed at each reporting date and Furniture and fittings 12.5% adjusted if appropriate.

38 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2016 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES recognised in profit or loss on a straight line basis (Continued) over the term of the lease.

(k) Income tax expense (j) Operating leases Income tax expense comprises current tax and Leases where a significant portion of the risks and deferred tax. Current tax and deferred tax are rewards of ownership are retained by the lessor recognised in profit or loss except to the extent are classified as operating leases. Payments made under operating leases are recognised in profit or that it relates to items recognised directly in equity loss on a straight line basis over the period of the or other comprehensive income. lease. Current tax is the expected tax payable on the (i) Determining whether an arrangement contains taxable income for the year using tax rates enacted a lease. at the reporting date, and any adjustment to tax At inception of an arrangement, the Group payable in respect of a previous year. determines whether the arrangement contains or is a lease. Deferred tax is recognised on all temporary differences between the carrying amounts of At inception or on reassessment of whether an financial assets and financial liabilities for financial arrangement contains a lease, the Group separates reporting purposes and the amounts used for payments and other consideration required by taxation purposes, except differences relating to the arrangement into those of the lease and the initial recognition of assets or liabilities which those for other elements on the basis of their affect neither accounting nor taxable profit. relative fair values. If the Group determines for a finance lease that it is impractical to separate the Deferred tax is calculated on the basis of the tax payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of rates that are expected to be applied to temporary the underlying asset; subsequently, the liability is differences when they reverse, using tax rates reduced as payments are made and an imputed enacted or substantively enacted at the reporting finance cost on the liability is recognised using the date. Group’s incremental borrowing rate. A deferred tax asset is recognised only to the extent (ii) Arrangements where the Group is the lessee that it is probable that future taxable profits will be Assets held by the Group under leases that transfer available against which the asset can be utilised. substantially all the risk and rewards of ownership Deferred tax assets are reviewed at each reporting are classified under finance leases. The leased date and are reduced to the extent that it is no assets are measured initially at an amount equal longer probable that the related tax benefit will be to the lower of their fair value and present value realised. of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in Deferred tax assets and liabilities are offset if there accordance with the accounting policy applicable is a legally enforceable right to offset current tax to that asset. liabilities current tax assets, and they relate to Assets held under other leases are classified as taxes levied by the same tax authority on the same operating leases and are not included in the taxable entity, or on different tax entities, but they Group’s statement of financial position. intend to settle current tax liabilities and assets on a net basis or their assets and liabilities will be Lease payments made under operating leases are realised simultaneously.

Annual Report and Financial Statement 31 December 2017 39 Notes to the Financial Statements For the year ended 31 December 2016 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (m) Cash and cash equivalents (Continued) For the purpose of presentation of the cash flows in the financial statements the cash and (l) Employee benefits cash equivalents include cash and balances with Banks available to finance the Group’s day-to-day The majority of the Group’s employees are operations and treasury bills and bonds which eligible for retirement benefits under a defined mature within 90 days or less from the date of contribution plan. A defined contribution plan acquisition. is a post-employment benefit plan under which an entity pays fixed contributions into a separate Cash and cash equivalents are carried at amortised entity and has no legal or constructive obligation cost in the statement of financial position. to pay further amounts. (n) Related parties Contributions to the defined contribution plan In the normal course of business, transactions have are recognised in profit or loss as incurred. Any been entered into with certain related parties. difference between the amount recognised in These transactions are at arm’s length. profit or loss and the Contributions payable is recognised in the statement of financial position (o) Contingent liabilities under other receivables or other payables. Liabilities arising out of legal disputesare accounted for and disclosed as contingent liabilities. The Group also contributes to a statutory defined Estimates of the outcome and the financial effect contribution pension scheme, the National Social of contingent liabilities is made by management Security Fund (NSSF). Contributions are determined based on the information available up to the date by local statute and are currently limited to KShs. the financial statements are approved for issue by 1,800 per employee per month. the Directors. Any expected loss is recognised in (i) Termination benefits profit or loss. Termination benefits are recognised as an expense when the Group is demonstrably committed, (p) Fiduciary activities without realistic possibility of withdrawal, to a Assets held for clients in an agency or fiduciary formal detailed plan to terminate employment capacity by the Group are not assets of the Group before the normal retirement date. Termination and have a nil effect in the statement of financial benefits for voluntary redundancies are recognised position. if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer (q) Comparatives will be accepted, and the number of acceptances Where necessary, comparative figures have been can be estimated reliably. adjusted to conform to changes in presentation in the current period. (iii) Short term employee benefits (r) New standards and interpretations Short term employee benefits are expensed as the related service is provided. A liability is recognised (i) New standards, amendments and interpretations for the amount expected to be paid if the Group effective and adopted during the year has a present legal or constructive obligation to pay The Company has adopted the following new this amount as a result of past service provided by standards and amendments during the year ended the employee and the obligation can be estimated 31 December 2017, including consequential reliably. amendments to other standards with the date of

40 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2016 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES requirements also relate to changes in financial (Continued) assets if they meet the same definition.

(r) New standards, amendments and The amendments state that one way to fulfil interpretations (continued) the new disclosure requirement is to provide a reconciliation between the opening and closing (i) New standards, amendments and interpretations balances in the statement of financial position for effective and adopted during the year (continued) liabilities arising from financing activities. initial application by the Company being 1 January 2017. The nature and effects of the changes are as Finally, the amendments state that changes in explained here in. liabilities arising from financing activities must be disclosed separately from changes in other assets New standard or Effective for annual and liabilities. amendments periods beginning on or after The amendments apply for annual periods beginning on or after 1 January 2017 and early Disclosure Initiative 1 January 2017 application is permitted. (Amendments to IAS 7) Recognition of 1 January 2017 The adoption of these changes did not have a Deferred Tax Assets significant impact on the financial statements of for UnrealisedLosses the Sacco. (Amendments to IAS 12)

– Recognition of Deferred Tax Assets for Unrealised – Disclosure Initiative (Amendments to IAS 7) Losses (Amendments to IAS 12) The amendments in Disclosure Initiative The amendments in Recognition of Deferred Tax (Amendments to IAS 7) come with the objective Assets for Unrealised Losses clarify the following that entities shall provide disclosures that enable aspects: users of financial statements to evaluate changes ● Unrealised losses on debt instruments in liabilities arising from financing activities. measured at fair value and measured at cost for tax purposes give rise to a deductible The International Accounting Standards Board temporary difference regardless of whether (IASB) requires that the following changes in the debt instrument's holder expects to liabilities arising from financing activities are recover the carrying amount of the debt disclosed (to the extent necessary): (i) changes instrument by sale or by use. from financing cash flows; (ii) changes arising from ● The carrying amount of an asset does not obtaining or losing control of subsidiaries or other limit the estimation of probable future taxable businesses; (iii) the effect of changes in foreign profits. exchange rates; (iv) changes in fair values; and (v) ● Estimates for future taxable profits exclude tax deductions resulting from the reversal of other changes. deductible temporary differences. ● An entity assesses a deferred tax asset in The IASB defines liabilities arising from financing combination with other deferred tax assets. activities as liabilities "for which cash flows were, or Where tax law restricts the utilisation of tax future cash flows will be, classified in the statement losses, an entity would assess a deferred tax of cash flows as cash flows from financing asset in combination with other deferred tax activities". It also stresses that the new disclosure assets of the same type.

Annual Report and Financial Statement 31 December 2017 41 Notes to the Financial Statements For the year ended 31 December 2016 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES not been applied in preparing these financial (Continued) statements.

(r) New standards , amendments and The Sacco does not plan to adopt these standards interpretations (continued) early. These are summarised below; IFRS 15 Revenue from 1 January 2018 (i) New standards, amendments and interpretations Contracts with Customers effective and adopted during the year (continued) IFRS 9 Financial Instruments 1 January 2018 Recognition of Deferred Tax Assets for Unrealised (2014) Losses (Amendments to IAS 12) (continued) Classification and The standard was effective for annual periods Measurement of Share- 1 January 2018 beginning on or after 1 January 2017 with early based Payment Transactions application permitted. As transition relief, an entity (Amendments to IFRS 2) may recognise the change in the opening equity Applying IFRS 9 Financial of the earliest comparative period in opening Instruments with IFRS 1 January 2018 retained earnings on initial application without 4 Insurance Contracts allocating the change between opening retained (Amendments to IFRS 4) earnings and other components of equity. The IFRIC 22 Foreign Currency Board has not added additional transition relief for Transactions and Advance 1 January 2018 first-time adopters. Consideration IAS 40 Transfers of Investment 1 January 2018 The adoption of these changes did not have a Property significant impact on the financial statements of IFRS 16 Leases 1 January 2019 the Sacco. IFRIC 23 Income tax exposures 1 January 2019 Annual improvements cycle (2014-2016) IFRS 9 Prepayment Features 1 January 2019 Standard Amendments with Negative Compensation IFRS 12 Disclosure of Interests in IAS 28 Long-term Interests in 1 January 2019 Disclosure Other Entities Associates and Joint Ventures of Interests Clarifies that the disclosure IFRS 17 Insurance contracts 1 January 2021 in Other requirements for interests in Entities other entities also apply to Sale or Contribution of Assets interests that are classified as between an Investor and To be held for sale or distribution. its Associate or Company determined (Amendments to IFRS 10 and The adoption of these changes did/did not have IAS 28). a significant impact on the financial statements of the Sacco. – IFRS 15 Revenue from Contracts with Customers This standard replaces IAS 11 Construction (ii) New standards, amendments and interpretations Contracts, IAS 18 Revenue, IFRIC 13 Customer in issue but not yet effective for the year ended 31 Loyalty Programmes, IFRIC 15 Agreements for the December 2017 Construction of Real Estate, IFRIC 18 Transfer of A number of new standards, amendments to Assets from Customers and SIC-31 Revenue – Barter standards and interpretations are not yet effective of Transactions Involving Advertising Services. for the year ended 31 December 2017, and have

42 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2016 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES measurement bases of the financial assets (Continued) to amortised cost, fair value through other comprehensive income or fair value throughprofit or loss. (r) New standards , amendments and interpretations (continued) Even though these measurement categories are similar to IAS 39, the criteria for classification into (i) New standards, amendments and interpretations these categories are significantly different. In in issue but not yet effective for the year ended 31 December 2017 (continued) addition, the IFRS 9 impairment model has been changed from an “incurred loss” model from IAS 39 The standard contains a single model that applies to an “expected credit loss” model. to contracts with customers and two approaches to recognising revenue: at a point in time or over The standard is effective for annual period beginning time. The standard specifies how and when an on or after 1 January 2018 with retrospective IFRS reporter will recognise revenue as well as application, early adoption permitted. requiring such entities to provide users of financial statements with more informative, relevant The Sacco is assessing the impact of adoption of disclosures. these changes on the amounts and disclosures in the Sacco’s financial statements. The standard provides a single, principles based five-step model to be applied to all contracts – Classification and Measurement of Share-based with customers in recognising revenue being: Payment Transactions (Amendments to IFRS 2) Identify the contract(s) with a customer; identify The following clarifications and amendments are the performance obligations in the contract; contained in the pronouncement: determine the transaction price; Allocate the transaction price to the performance obligations ● Accounting for cash-settled share-based in the contract; and recognise revenue when (or payment transactions that include a as) the entity satisfies a performance obligation. performance condition Up until this point, IFRS 2 contained no guidance IFRS 15 is effective for annual reporting periods on how vesting conditions affect the fair value of beginning on or after 1 January 2018, with early liabilities for cash-settled share-based payments. adoption permitted. IASB has now added guidance that introduces accounting requirements for cash-settled share- The Sacco is assessing the impact of adoption of based payments that follows the same approach these changes on the amounts and disclosures in as used for equity-settled share-based payments. the Sacco’s financial statements. ● Classification of share-based payment IFRS 9: Financial Instruments (2014) transactions with net settlement features On 24 July 2014 the IASB issued the final IFRS 9 IASB has introduced an exception into IFRS 2 so Financial Instruments Standard, which replaces that a share-based payment where the entity earlier versions of IFRS 9 and completes the IASB’s settles the share-based payment arrangement net project to replace IAS 39 Financial Instruments: is classified as equity-settled in its entirety provided Recognition and Measurement. the share-based payment would have been classified as equity-settled had it not included the This standard introduces changes in the net settlement feature.

Annual Report and Financial Statement 31 December 2017 43 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES The Sacco is assessing the impact of adoption of (Continued) these changes on the amounts and disclosures in the Sacco’s financial statements.

(r) New standards , amendments and – Applying IFRS 9 Financial Instruments with IFRS 4 interpretations (continued) Insurance Contracts (Amendments to IFRS 4) (i) New standards, amendments and interpretations The amendments in Applying IFRS 9 'Financial in issue but not yet effective for the year ended 31 December 2017 (continued) Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4) provide two options for – Classification and Measurement of Share-based entities that issue insurance contracts within the Payment Transactions (Amendments to IFRS 2) scope of IFRS 4: (continued) ● an option that permits entities to reclassify, ● Accounting for modifications of share-based from profit or loss to other comprehensive payment transactions from cash-settled to income, some of the income or expenses equity-settled arising from designated financial assets; this is Up until this point, IFRS 2 did not specifically the so-called overlay approach; address situations where a cash-settled share- ● an optional temporary exemption from based payment changes to an equity-settled applying IFRS 9 for entities whose predominant share-based payment because of modifications of activity is issuing contracts within the scope of the terms and conditions. The IASB has introduced IFRS 4; this is the so-called deferral approach. the following clarifications: The application of both approaches is optional and ● On such modifications, the original liability an entity is permitted to stop applying them before recognised in respect of the cash-settled the new insurance contracts standard is applied. share-based payment is derecognised and the equity-settled share-based payment is An entity applies the overlay approach recognised at the modification date fair value retrospectively to qualifying financial assets to the extent services have been rendered up when it first applies IFRS 9. Application of the to the modification date. overlay approach requires disclosure of sufficient information to enable users of financial statements ● Any difference between the carrying amount to understand how the amount reclassified in the of the liability as at the modification date and reporting period is calculated and the effect of that the amount recognised in equity at the same reclassification on the financial statements. date would be recognised in profit and loss immediately. An entity applies the deferral approach for annual periods beginning on or after 1 January 2018. The amendments are effective for annual periods Predominance is assessed at the reporting entity beginning on or after 1 January 2018. Earlier level at the annual reporting date that immediately application is permitted. The amendments are to precedes 1 April 2016. Application of the deferral be applied prospectively. However, retrospective approach needs to be disclosed together with application is allowed if this is possible without information that enables users of financial the use of hindsight. If an entity applies the statements to understand how the insurer qualified amendments retrospectively, it must do so for all for the temporary exemption and to compare of the amendments described above. insurers applying the temporary exemption with

44 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES non-monetary liability arising from advance (Continued) consideration (for example, the measurement of goodwill applying IFRS 3 Business Combinations). (r) New standards , amendments and interpretations (continued) The amendments apply retrospectively for annual periods beginning on or after 1 January 2018, with (i) New standards, amendments and interpretations early application permitted. in issue but not yet effective for the year ended 31 December 2017 (continued) The adoption of these changes will not affect the entities applying IFRS 9. The deferral can only be amounts and disclosures of the Sacco’s financial made use of for the three years following 1 January statements. 2018. Predominance is only reassessed if there is a change in the entity’s activities. – IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration The adoption of these changes will not affect the The IASB has amended the requirements in IAS 40 amounts and disclosures of the Sacco’s financial Investment property on when a company should statements. transfer a property asset to, or from, investment property. – IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration The adoption of these standard will not have an This Interpretation applies to a foreign currency impact on the financial statements of the Sacco. transaction (or part of it) when an entity recognises a non-monetary asset or non-monetary liability The Sacco is assessing the impact of adoption of arising from the payment or receipt of advance these changes on the amounts and disclosures in consideration before the entity recognises the the Sacco’s financial statements. related asset, expense or income (or part of it). – IFRS 16: Leases This Interpretation stipulates that the date of the On 13 January 2016 the IASB issued IFRS 16 Leases, transaction for the purpose of determining the completing the IASB’s project to improve the exchange rate to use on initial recognition of the financial reporting of leases. IFRS 16 replaces the related asset, expense or income (or part of it) is previous leases standard, IAS 17 Leases, and related the date on which an entity initially recognises interpretations. the non-monetary asset or non-monetary liability IFRS 16 sets out the principles for the recognition, arising from the payment or receipt of advance measurement, presentation and disclosure of consideration. leases for both parties to a contract, i.e. the This Interpretation does not apply to income taxes, customer (‘lessee’) and the supplier (‘lessor’). The insurance contracts and circumstances when standard defines a lease as a contract that conveys an entity measures the related asset, expense or to the customer (‘lessee’) the right to use an asset income on initial recognition: for a period of time in exchange for consideration.

(a) at fair value; or A Company assesses whether a contract contains a (b) at the fair value of the consideration paid or lease on the basis of whether the customer has the received at a date other than the date of initial right to control the use of an identified asset for a recognition of the non-monetary asset or period of time.

Annual Report and Financial Statement 31 December 2017 45 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES (a) short-term leases (i.e. leases of 12 months or less) (Continued) and; (b) leases of low-value assets (r) New standards , amendments and interpretations (continued) The new Standard is effective for annual periods beginning on or after 1 January 2019. Early application (i) New standards, amendments and interpretations is permitted insofar as the recently issued revenue in issue but not yet effective for the year ended 31 Standard, IFRS 15 Revenue from Contracts with December 2017 (continued) Customers is also applied. – IFRS 16: Leases - (continued) The Sacco is assessing the impact of adoption of these The standard eliminates the classification of leases as changes on the amounts and disclosures in the Sacco’s either operating leases or finance leases for a lessee and financial statements. introduces a single lessee accounting model. All leases are treated in a similar way to finance leases. – IFRIC 23 Clarification on accounting for Income tax exposures Applying that model significantly affects the accounting IFRIC 23 clarifies the accounting for income tax and presentation of leases and consequently, the lessee treatments that have yet to be accepted by is required to recognise: tax authorities, whilst also aiming to enhance (a) assets and liabilities for all leases with a term of transparency. more than 12 months, unless the underlying asset is of low value. A Company recognises the present IFRIC 23 explains how to recognise and measure value of the unavoidable lease payments and shows deferred and current income tax assets and them either as lease assets (right-of-use assets) or liabilities where there is uncertainty over a tax together with property, plant and equipment. If treatment. lease payments are made over time, a Company also recognises a financial liability representing its An uncertain tax treatment is any tax treatment obligation to make future lease payments. applied by an entity where there is uncertainty (b) depreciation of lease assets and interest on lease over whether that treatment will be accepted by liabilities in profit or loss over the lease term; and the tax authority. (c) separate the total amount of cash paid into a principal portion (presented within financing If an entity concludes that it is probable that activities) and interest (typically presented within the tax authority will accept an uncertain tax either operating or financing activities) in the treatment that has been taken or is expected to statement of cash flows be taken on a tax return, it should determine its IFRS 16 substantially carries forward the lessor accounting for income taxes consistently with that accounting requirements in IAS 17. Accordingly, a tax treatment. If an entity concludes that it is not lessor continues to classify its leases as operating leases probable that the treatment will be accepted, it or finance leases, and to account for those two types should reflect the effect of the uncertainty in its of leases differently. However, compared to IAS 17, IFRS income tax accounting in the period in which that 16 requires a lessor to disclose additional information determination is made. Uncertainty is reflected about how it manages the risks related to its residual in the overall measurement of tax and separate interest in assets subject to leases. provision is not allowed.

The standard does not require a Company to recognise The entity is required to measure the impact of the assets and liabilities for: uncertainty using the method that best predicts

46 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES 9 to long-term interests in an associate and joint (Continued) venture that form part of the net investment in the associate or joint venture but to which the equity (r) New standards , amendments and method is not applied. interpretations (continued) The Sacco is assessing the impact of adoption of (i) New standards, amendments and interpretations these changes on the amounts and disclosures in in issue but not yet effective for the year ended 31 the Sacco’s financial statements. December 2017 (continued) The amendments apply for annual periods – IFRIC 23 Clarification on accounting for Income tax beginning on or after 1 January 2019. Early exposures (continued) adoption is permitted. the resolution of the uncertainty (that is, the entity should use either the most likely amount method – IFRS 17 Insurance Contracts or the expected value method when measuring an IFRS 17 Insurance Contracts sets out the requirements that an entity should apply in uncertainty). reporting information about insurance contracts it The entity will also need to provide disclosures, issues and reinsurance contracts it holds. An entity under existing disclosure requirements, about shall apply IFRS 17 Insurance Contracts to: (a) judgments made; (b) assumptions and other estimates used; and (a) insurance contracts, including reinsurance (c) potential impact of uncertainties not reflected. contracts, it issues; (b) reinsurance contracts it holds; and – Prepayment Features with Negative Compensation (c) investment contracts with discretionary participation features it issues, provided the (Amendments to IFRS 9) entity also issues insurance contracts The amendments clarify that financial assets containing prepayment features with negative IFRS 17 requires an entity that issues insurance compensation can now be measured at amortised contracts to report them on the statement of cost or at fair value through other comprehensive financial position as the total of: income (FVOCI) if they meet the other relevant requirements of IFRS 9. (a) the fulfilment cash flows—the current estimates of amounts that the entity expects Management is currently evaluating the impact to collect from premiums and pay out for of the new standard to the Sacco’s financial claims, benefits and expenses, including an statements. adjustment for the timing and risk of those amounts; and The amendments apply for annual periods (b) the contractual service margin—the expected beginning on or after 1 January 2019 with profit for providing insurance coverage. retrospective application, early adoption is The expected profit for providing insurance permitted. coverage is recognised in profit or loss over The Sacco is assessing the impact of adoption of time as the insurance coverage is provided. these changes on the amounts and disclosures in the Sacco’s financial statements. IFRS 17 requires an entity to recognise profits as it delivers insurance services, rather than – Long-term Interests in Associates and Joint when it receives premiums, as well as to provide Ventures (Amendment to IAS 28) information about insurance contract profits that The amendments clarify that an entity applies IFRS the Company expects to recognise in the future.

Annual Report and Financial Statement 31 December 2017 47 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

3. SIGNIFICANT ACCOUNTING POLICIES The Sacco is assessing the impact of adoption of (Continued) these changes on the amounts and disclosures in the Sacco’s financial statements. (r) New standards , amendments and interpretations (continued) – Sale or Contribution of Assets between an Investor and its Associate or Company (Amendments to (i) New standards, amendments and interpretations IFRS 10 and IAS 28) in issue but not yet effective for the year ended 31 The amendments require the full gain to be December 2017 (continued) recognised when assets transferred between an – IFRS 17 Insurance Contracts (continued) investor and its associate or Company meet the definition of a ‘business’ under IFRS 3 Business IFRS 17 requires an entity to distinguish between Combinations. Where the assets transferred do not groups of contracts expected to be profit making meet the definition of a business, a partial gain to and groups of contracts expected to be loss the extent of unrelated investors’ interests in the making. Any expected losses arising from loss- associate or Company is recognised. The definition making, or onerous, contracts are accounted for in of a business is key to determining the extent of profit or loss as soon as the Company determines the gain to be recognised. that losses are expected. IFRS 17 requires the entity to update the fulfilment cash flows at each The effective date for these changes has now reporting date, using current estimates of the been postponed until the completion of a broader amount, timing and uncertainty of cash flows and review. of discount rates. The entity: The adoption of these changes will not affect the (a) accounts for changes to estimates of future amounts and disclosures of the Sacco’s financial cash flows from one reporting date to statements. another either as an amount in profit or loss or as an adjustment to the expected profit for providing insurance coverage, depending on 4. FINANCIAL RISK MANAGEMENT the type of change and the reason for it; and Although the Sacco is exposed to various risks, the (b) chooses where to present the effects of some major risks exposures arise due to use of financial changes in discount rates—either in profit or instruments and can be categorized as follows: loss or in other comprehensive income. (a) Credit risk IFRS 17 also requires disclosures to enable users of (b) Liquidity risk financial statements to understand the amounts (c) Market risks recognised in the entity’s statement of financial (d) Operational risks. position and statement of profit or loss and other comprehensive income, and to assess the risks the The Society is continuously putting measures in Company faces from issuing insurance contracts. place to help manage these risks every day. These measures include setting appropriate strategic IFRS 17 replaces IFRS 4 Insurance Contracts. IFRS and operational objectives, policies and processes 17 is effective for financial periods commencing geared towards identification and effective on or after 1 January 2021. An entity shall apply management of the risks identified. the standard retrospectively unless impracticable. A Company can choose to apply IFRS 17 before Risk management framework that date, but only if it also applies IFRS 9 Financial The directors have overall responsibility for the Instruments and IFRS 15 Revenue from Contracts establishment and oversight of the Sacco’s risk with Customers. management framework

48 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

4. FINANCIAL RISK MANAGEMENT (Continued)

The Sacco’s risk management policies are established to identify and analyse the risks faced by the Sacco, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.

Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Sacco, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The directors are responsible for monitoring compliance with the Sacco’s risk policies and procedures, and for reviewing their adequacy. The Board is assisted in these functions by

Internal Audit which undertakes both regular and ad-hoc reviews of risk controls and procedures, the results of which are reported to the Board Audit committee.

(a) Credit risk Credit risk is the risk of financial loss to the Sacco if a customer/member or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Sacco’s loans and advances to customers and other Sacco’s and investment securities. For risk management reporting purposes, the Sacco considers and consolidates all elements of credit risk exposure.

The amount that best represents the Sacco maximum exposure to the credit risk as at 31 December is made up as follows:

(i) Loans and advances to customers

Individually impaired Impaired (Watch) 2017 2016 2017 2016 Group Group Sacco Sacco KShs KShs KShs KShs Impaired (substandard) 61,015,307 30,137,128 61,015,307 30,137,128

Impaired (doubtful) 46,627,912 14,143,227 46,627,912 14,143,227

Impaired (loss) 20,048,866 15,087,013 20,048,866 15,087,013

Gross amount 127,692,085 59,367,368 127,692,085 59,367,368

Allowance for impairment (64,589,664) (25,467,826) (64,589,664) (25,467,826)

Carrying amount 63,102,421 33,899,542 63,102,421 33,899,542

Annual Report and Financial Statement 31 December 2017 49 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

4. FINANCIAL RISK MANAGEMENT (Continued)

(a) Credit risk (continued)

Collectively impaired 2017 2016 2017 2016 Group Group Sacco Sacco KShs KShs KShs KShs Normal 7,390,686,350 7,381,925,039 7,390,686,350 7,381,925,039

Watch list – Past due 136,869,425 - 136,869,425 -

Gross amount 7,527,555,775 7,381,925,039 7,527,555,775 7,381,925,039

Portfolio impairment provision (4,618,784) (4,442,764) (4,618,784) (4,442,764)

Carrying amount 7,522,936,991 7,377,482,275 7,522,936,991 7,377,482,275

Carrying amount 7,586,039,412 7,411,381,817 7,586,039,412 7,411,381,817

(ii) Other financial assets

Neither past due nor impaired 2017 2016 2017 2016 Group Group Sacco Sacco KShs KShs KShs KShs Cash and cash equivalents 3,031,636,974 2,598,223,266 3,025,010,978 2,589,216,133

Investment in fixed deposits 712,969,943 782,969,943 712,969,943 782,969,943

Trade and other receivables 59,374,661 40,755,885 54,721,179 33,805,885

Due from related parties - - 6,471,600 8,947,798

3,803,981,578 3,421,676,094 3,799,173,700 3,430,623,892

50 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

4. FINANCIAL RISK MANAGEMENT (Continued)

(b) Liquidity risk Liquidity risk is the risk that the Society will encounter difficulty in meeting obligations from its financial liabilities.

The table below provides a contractual maturity analysis of the Society’s financial liabilities:

On Due within 3 Due between Due between Group demand months 3-12 months 1-5 years Total 31 December 2017 KShs KShs KShs KShs KShs Liabilities

Customer deposits 266,061,477 443,435,795 8,159,218,634 - 8,868,715,906

Interest payable - 504,012,733 216,005,456 - 720,018,189

Other liabilities 24,809,808 27,637,768 3,101,226 - 55,548,802

Total liabilities 290,871,285 975,086,296 8,378,325,316 - 9,644,282,897

On Due within 3 Due between Due between Sacco demand months 3-12 months 1-5 years Total 31 December 2017 KShs KShs KShs KShs KShs Liabilities

Customer deposits 266,061,477 443,435,795 8,159,218,634 - 8,868,715,906

Interest payable - 504,012,733 216,005,456 - 720,018,189

Other liabilities payables 21,368,307 29,381,422 2,671,037 - 53,420,766

Total liabilities 287,429,784 976,829,950 8,377,895,127 - 9,642,154,861

Group 31 December 2017

Liabilities

Customer deposits 250,659,996 417,766,661 7,686,906,559 - 8,355,333,216

Interest payable - 578,772,480 248,045,348 - 826,817,828

Other liabilities 22,108,600 30,399,326 2,763,573 - 55,271,499

Total liabilities 272,768,596 1,026,938,467 7,937,815,480 - 9,237,422,543

Annual Report and Financial Statement 31 December 2017 51 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

4. FINANCIAL RISK MANAGEMENT (Continued)

(b) Liquidity risk (continued)

On Due within 3 Due between Due between Sacco demand months 3-12 months 1-5 years Total 31 December 2017 KShs KShs KShs KShs KShs

Liabilities

Customer deposits 250,659,996 417,766,661 7,686,906,559 - 8,355,333,216

Interest payable - 578,772,480 248,045,348 - 826,817,828

Other liabilities payables 21,131,655 29,056,026 2,641,455 - 52,829,136

Total liabilities 271,791,651 1,025,595,167 7,937,593,362 - 9,234,980,180

Management of liquidity risk The Sacco’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Society’s reputation.

(c) 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 management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Interest rate risk Interest rate risk arises primarily from investments in fixed interest securities. The sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the reporting date. For financial instruments described in this note, the sensitivity is solely associated with the former, as the carrying amounts of the latter are not directly affected by changes in market risks.

The Sacco’s management monitors the sensitivity of reported interest rate movements on a monthly basis by assessing the expected changes in the different portfolios due to a parallel movement of plus 10 basis points in all yield curves of financial assets and financial liabilities. These particular exposures illustrate the Sacco’s overall exposure to interest rate sensitivities included in the Sacco’s ALM framework and its impact in the Sacco’s profit or loss by business.

Sensitivity analysis on interest rates An increase of 1 percentage point in interest rates for the period would have increased/ (decreased) profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. This analysis is performed on the same basis for 2016.

52 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

4. FINANCIAL RISK MANAGEMENT (Continued)

(c) Market risk (continued)

Effect in Kenya shillings thousands Profit or loss/equityhs

2017 2016 Kshs Kshs Interest income 10,606,264 10,772,781

Interest expense (7,464,491) ( 8,472,154)

Net change in interest 3,141,773 2,300,627

A decrease of 1 percentage point in interest rates for the period would have had an equal but opposite effect on the profit and loss, on the basis that all other variables remain constant.

Equity price risk The Sacco is exposed to equity securities price risk as a result of its holdings in listed equity investments, classified as fair value through profit and loss. Exposure to equity shares in aggregate are monitored in order to ensure compliance with the relevant regulatory limits for solvency purposes. Investments held are both listed, and traded on the Nairobi Securities Exchange, and unquoted shares.

Investment management meetings are held routinely. At these meetings, management meet to discuss investment return and concentration of the equity investments.

Currency risk The Group is exposed to currency risk through transactions in foreign currencies. The Group’s transactional exposures give rise to foreign currency gains and losses that are recognised in the profit or loss. In respect of monetary assets and liabilities in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate.

The various currencies to which the Group is exposed at 31 December 2017 and 2016 are summarised in the table below (all expressed in Kenya Shillings):

31 December 2017 Total

On balance sheet items USD

Assets (KShs equivalent) 79,577,462 Cash and balances with Citi bank

Net currency exposure – on balance sheet position 79,577,462

Annual Report and Financial Statement 31 December 2017 53 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

4. FINANCIAL RISK MANAGEMENT (Continued)

(c) Currency risk (continued)

31 December 2017 Total

On balance sheet items USD

Assets (KShs equivalent) 57,743,568 Cash and balances with Citi bank

Net currency exposure – on balance sheet position 57,743,568

The following exchange rates were applied during the year:

Average rate Closing rates

2017 2016 2017 2016

US Dollar 103.31 101.51 103.15 101.85

Sensitivity analysis A 10 percent increase in the rate of the Kenya shilling against the following currencies at 31 December would have increased/ (decreased) profit or loss for revaluation by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remains constant. The analysis is performed on the same basis as for 2016.

Effect in Kenya shillings thousands

Profit or loss/Equity

As at 31 December 2017 2016

US Dollar 7,957,746 5,774,356

A 10 percent decrease in the rate of the Kenya Shilling against the above currencies at 31 December 2017 and 2016 would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

54 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

4. FINANCIAL RISK MANAGEMENT (Continued)

(d) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Sacco’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Sacco’s operations and are faced by all business units.

The Sacco’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Sacco’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit.

This responsibility is supported by the development of overall Sacco standards for the management of operational risk in the following areas:

● requirements for appropriate segregation of duties, including the independent authorisation of transactions ● requirements for the reconciliation and monitoring of transactions ● compliance with regulatory and other legal requirements ● documentation of controls and procedures ● requirements for the yearly assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified ● requirements for the reporting of operational losses and proposed remedial action ● development of contingency plans ● training and professional development ● ethical and business standards ● risk mitigation, including insurance where this is effective.

Compliance with SASRA regulations is supported by a programme of regular reviews undertaken by the Internal Audit department. The results of Internal Audit reviews are discussed with the Board and senior management of the Sacco.

Annual Report and Financial Statement 31 December 2017 55 KShs Total Total 16,062,929 56,905,509 55,548,802 16,062,929 720,018,189 9,644,282,897 59,841,180 712,969,943 3,031,636,974 7,586,039,412 8,868,715,906 11,390,457,509 ------KShs Level 3 Level - - KShs Level 2 Level 56,905,509 55,548,802 720,018,189 3,031,636,974 7,586,039,412 8,868,715,906 59,841,180 712,969,943 9,644,282,897 11,390,487,509 Fair value hierarchy value Fair ------KShs Level 1 Level 16,062,929 16,062,929 KShs Total 16,062,929 56,905,509 55,548,802 720,018,189 16,062,929 3,031,636,974 59,841,180 712,969,943 7,586,039,412 9,644,282,897 8,868,715,906 11,390,487,509 ------KShs Liabilities 56,905,509 55,548,802 720,018,189 8,868,715,906 Other financial 9,644,282,897 ------KShs Loans and Loans 59,841,180 receivables 712,969,943 3,031,636,974 7,586,039,412 11,390,487,509 ------Carrying amount KShs Held to Held to (Continued) Maturity ------KShs through through 16,062,929 At fair value fair value At 16,062,929 profit or loss profit ------KShs for-sale Available The table below sets out the group’s classification of each class of financial assets and liabilities, and their fair values (excluding accrued interest): (excluding values fair and their of each class financial assets and liabilities, classification sets out the group’s The table below Financial assets and liabilities their fair values Financial (e) FINANCIAL RISK MANAGEMENT FINANCIAL RISK MANAGEMENT Group 2017 31 December At assets measured Financial fair value at shares Quoted Total assets not Financial fair value at measured and cash equivalent Cash balances deposit in fixed Investment and other receivables Trade Members to Loans Total liabilities not Financial fair value at measured deposits Members’ on interest for Provision deposits Members’ Other liabilities Total 4.

56 Annual Report and Financial Statement 31 December 2017 Total Total KShs '000 KShs 16,062,929 6,471,600 16,062,929 53,420,766 720,018,189 8,868,715,906 54,721,179 9,642,154,861 712,969,943 3,025,010,978 7,586,039,412 11,385,213,113 ------Level 3 Level KShs '000 KShs - - Level 2 Level KShs '000 KShs 6,471,600 53,420,766 720,018,189 3,025,010,978 7,586,039,412 8,868,715,906 54,721,179 712,969,943 9,642,154,861 11,385,213,113 Fair value hierarchy value Fair ------Level 1 Level KShs '000 KShs 16,062,929 16,062,929 Total KShs '000 KShs 6,471,600 16,062,929 16,062,929 53,420,766 720,018,189 3,025,010,978 8,868,715,906 54,721,179 712,969,943 7,586,039,412 9,642,154,861 11,385,213,113 ------KShs '000 KShs Liabilities 53,420,766 720,018,189 8,868,715,906 Other financial 9,642,154,861 ------KShs '000 KShs 6,471,600 Loans and Loans 54,721,179 receivables 712,969,943 3,025,010,978 7,586,039,412 11,385,213,113 ------Carrying amount Held to Held to (Continued) Maturity KShs '000 KShs ------through through KShs '000 KShs 16,062,929 At fair value fair value At 16,062,929 profit or loss profit ------for-sale Available KShs '000 KShs Financial assets and liabilities and their fair values (continued) assets and liabilities their fair values Financial (continued) values - fair and classifications (i) Accounting (e) FINANCIAL RISK MANAGEMENT FINANCIAL RISK MANAGEMENT Sacco 2017 31 December At assets measured Financial fair value at shares Quoted Total assets not Financial fair value at measured and cash equivalent Cash balances deposit in fixed Investment and other receivables Trade parties related Due from Members to Loans Total liabilities not Financial fair value at measured deposits Members’ on interest for Provision deposits Members’ Other liabilities Total 4.

Annual Report and Financial Statement 31 December 2017 57 KShs Total Total 3,769,619 3,769,619 40,755,885 782,969,943 55,271,499 826,817,828 2,598,223,266 7,411,381,817 8,355,333,216 9,237,422,543 10,833,330,911 ------KShs Level 3 Level - - KShs Level 2 Level 40,755,885 782,969,943 55,271,499 826,817,828 2,598,223,266 7,411,381,817 8,355,333,216 9,237,422,543 10,833,330,911 Fair value hierarchy value Fair ------KShs Level 1 Level 3,769,619 3,769,619 KShs Total 3,769,619 3,769,619 40,755,885 782,969,943 55,271,499 826,817,828 2,598,223,266 7,411,381,817 8,355,333,216 9,237,422,543 10,833,330,911 ------KShs Liabilities 55,271,499 826,817,828 8,355,333,216 Other financial 9,237,422,543 ------KShs Loans and Loans 40,755,885 receivables 782,969,943 2,598,223,266 7,411,381,817 10,833,330,911 ------Carrying amount KShs Held to Held to (Continued) Maturity ------KShs through through 3,769,619 3,769,619 At fair value fair value At profit or loss profit ------KShs for-sale Available Financial assets and liabilities and their fair values (continued) assets and liabilities their fair values Financial (continued) values - fair and classifications (i) Accounting (e) FINANCIAL RISK MANAGEMENT FINANCIAL RISK MANAGEMENT Group 2017 31 December At assets measured Financial fair value at shares Quoted Total assets not Financial fair value at measured and cash equivalent Cash balances deposit in fixed Investment and other receivables Trade Members to Loans Total liabilities not Financial fair value at measured deposits Members’ on interest for Provision deposits Members’ Other liabilities Total 4.

58 Annual Report and Financial Statement 31 December 2017 Total Total KShs '000 KShs 3,769,619 8,947,798 3,769,619 33,805,885 52,829,136 782,969,943 826,817,828 2,589,216,133 7,411,381,817 8,355,333,216 9,234,980,180 10,826,321,576 ------Level 3 Level KShs '000 KShs - - Level 2 Level KShs '000 KShs 8,947,798 33,805,885 52,829,136 782,969,943 826,817,828 2,589,216,133 7,411,381,817 8,355,333,216 9,234,980,180 10,826,321,576 Fair value hierarchy value Fair ------Level 1 Level KShs '000 KShs 3,769,619 3,769,619 Total KShs '000 KShs 3,769,619 8,947,798 3,769,619 33,805,885 52,829,136 782,969,943 826,817,828 2,589,216,133 7,411,381,817 8,355,333,216 9,234,980,180 10,826,321,576 ------KShs '000 KShs Liabilities 52,829,136 826,817,828 8,355,333,216 Other financial 9,234,980,180 ------KShs '000 KShs 8,947,798 Loans and Loans 33,805,885 receivables 782,969,943 2,589,216,133 7,411,381,817 10,826,321,576 ------Carrying amount Held to Held to (Continued) Maturity KShs '000 KShs ------through through KShs '000 KShs 3,769,619 3,769,619 At fair value fair value At profit or loss profit ------for-sale Available KShs '000 KShs Financial assets and liabilities and their fair values (continued) assets and liabilities their fair values Financial (continued) values - fair and classifications (i) Accounting (e) FINANCIAL RISK MANAGEMENT FINANCIAL RISK MANAGEMENT Sacco 2017 31 December At assets measured Financial fair value at shares Quoted Total assets not Financial fair value at measured and cash equivalent Cash balances deposit in fixed Investment and other receivables Trade parties related Due from Members to Loans Total liabilities not Financial fair value at measured deposits Members’ on interest for Provision deposits Members’ Other liabilities Total 4.

Annual Report and Financial Statement 31 December 2017 59 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

4. FINANCIAL RISK MANAGEMENT The Sacco’s objectives in managing its capital are: (Continued) ● to match the profile of its assets and liabilities, (e) Financial assets and liabilities and their fair taking account of the risks inherent in the business; values (continued) ● to maintain financial strength to support new business growth; (ii) Measurement of fair values ● to satisfy the requirements of its policyholders, regulators and rating agencies; Cash and cash equivalents ● to retain financial flexibility by maintaining strong The fair value of cash and cash equivalents approximates liquidity and access to a range of capital markets; their carrying amount. ● to allocate capital efficiently to support growth; ● to safeguard the Sacco’s ability to continue as a Loans to Members going concern so that it can continue to provide Loans to Members are net of provisions for impairment. returns for shareholders and benefits for other The estimated fair value of loans represents the stakeholders; and discounted amount of future cash flows expected to be ● to provide an adequate return to shareholders by received, including assumptions relating to prepayment pricing the Sacco’s products commensurately with rates. Expected cash flows are discounted at current the level of risk. market rates to determine fair value. A substantial proportion of loans re-price within 12 months and The capital structure of the Sacco consists of net debt hence the carrying amount is a good proxy of the fair calculated as total debt (as shown in the statement of value. financial position) less the cash and cash equivalents and equity (comprising issued share capital, reserves Members’ deposits and provision for interest on and retained earnings). The board of directors reviews members’ deposits the capital structure on semi-annual basis. As part of The estimated fair value of deposits with no stated this review, the board considers the cost of capital and maturity is the amount repayable on demand. The risks associated with each class of capital. In order to estimated fair value of fixed interest bearing deposits maintain or adjust the capital structure, the Sacco may without quoted market prices is based on discounting adjust the amount of dividends paid to members or cash flows using the prevailing market. sell assets to reduce debt. The Sacco’s strategy remains unchanged from 2012. A substantial proportion of deposits mature within 6 months and hence the carrying amount is a good proxy In implementing capital requirements, the Sacco of the fair value. Societies Act requires each Sacco to maintain:-

5. CAPITAL RISK MANAGEMENT ● Core capital of not less than 10 million ● Core capital of not less than 10% of total assets The Sacco maintains an efficient capital structure from ● Institutional capital of not less than 8% of total a combination of shareholders’ funds and borrowings, assets; and consistent with the Sacco’s risk profile and the regulatory ● Core capital of not less than 8% of total deposits and market requirements of its business.

60 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

5. CAPITAL RISK MANAGEMENT (Continued)

The capital adequacy ratios as at 31 December 2017 and 31 December 2016 were as follows

SASRA 2017 2016 Recommended Sacco Sacco

Core capital to assets ratio 10% 15% 14%

Institutional capital to assets ratio 8% 8.4% 8%

Core capital to deposits ratio 8% 20% 18%

Group Sacco

2017 2016 2017 2016 KShs KShs KShs KShs

Total share capital 824,981,128 696,340,961 823,981,128 696,340,961

Retained earnings 637,667,686 633,762,811 624,115,093 617,216,295

Statutory reserves 332,173,270 277,872,714 332,173,270 277,872,714

Credit risk reserve - 2,665,302 - 2,665,302

Institutional capital 970,202,871 914,300,827 956,116,797 897,754,311

Core capital 1,794,822,084 1,610,641,788 1,780,269,490 1,594,095,272

Total assets 11,439,203,433 10,874,284,590 11,422,514,335 10,854,947,023

Total deposits 8,868,715,906 8,355,333,216 8,868,715,906 8,355,333,216

The Sacco is not subject to any external imposed capital requirements. However, the Kenyan Sacco Societies Act stipulates that a Sacco shall not acquire external borrowings in excess of 25% of its total assets unless the limit has been waived by the Authority. The Sacco did not have any borrowings.

The primary objective of the Sacco’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios to support its business and maximise shareholders value.

Annual Report and Financial Statement 31 December 2017 61 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

6. INTEREST INCOME

(a) Interest incomeon loans and advances Group and Sacco 2017 2016 KShs KShs

BOSA Loans 878,873,961 969,101,751

FOSA Loans and advances 181,571,947 108,197,144

1,060,445,908 1,077,298,895

Group Sacco

(b) Other interest 2017 2016 2017 2016 income KShs KShs KShs KShs

Interest from fixed deposits 205,672,670 193,484,103 205,672,670 193,484,103

Interest from bank 241,452 654,889 189,225 613,179

205,914,122 194,138,992 205,861,895 194,097,282

7. INTEREST EXPENSE 2017 2016 Group and Sacco KShs KShs

Interest on FOSA accounts 23,953,918 19,407,577

Interest on junior accounts 978,692 657,517

Interest on fixed deposit accounts 1,821,883 314,689 Interest on member deposits (Note 25 (a)) 719,694,675 826,835,612 746,449,168 847,215,395

8. NET FEE AND COMMISSION INCOME 2017 2016 Group and Sacco KShs KShs

Commissions 7,423,582 8,119,196 (MSACCO, Withdrawal, ATM, etc.) Service fees and charges 3,385,494 3,017,248

10,809,076 11,136,444

62 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

9. OTHER OPERATING INCOME Group Sacco

Group and Sacco 2017 2016 2017 2016 KShs. KShs KShs. KShs

Dividend income 15,509 121,874 15,509 121,874

Insurance commissions 1,901,169 2,237,689 1,901,169 2,237,689

Benevolent fund subscriptions 17,267,103 17,192,600 17,267,103 17,192,600

Fair value gains/(Losses) 2,297,310 (1,770,927) 2,297,310 (1,770,927)

Income from assets held for sale 3,320,000 8,280,300 - -

24,801,091 26,061,536 21,481,091 17,781,236

10. OPERATING SURPLUS BEFORE TAX The following items have been charged in arriving at net operating surplus:

Group Sacco

(a) Administrative 2017 2016 2017 2016 expenses KShs. KShs KShs. KShs

Printing and stationery 784,410 1,819,207 745,190 1,728,247

Postage and telephone 1,441,580 1,154,747 1,369,501 1,097,009

Consultancy services 6,383,676 2,092,165 6,383,676 2,092,165

Auditors’ remuneration 6,720,534 4,516,776 6,634,114 4,430,356

Other administrative costs 5,142,712 1,295,940 4,765,745 -

Office expenses 3,848,435 4,073,716 3,848,435 4,073,716

Repairs and maintenance 448,951 979,929 448,951 979,929 System maintenance and 2,198,484 1,503,482 2,198,484 1,503,482 scanning Staff costs 111,667,638 85,700,972 109,399,170 85,700,972

138,636,420 103,136,934 135,793,266 101,605,876

Annual Report and Financial Statement 31 December 2017 63 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

10. OPERATING SURPLUS BEFORE TAX (Continued) Group Sacco

2017 2016 2017 2016 (b) Other operating expenses KShs. KShs KShs. KShs

Rental charge 14,924,478 14,453,469 14,178,254 13,730,796

FOSA money Insurance 842,096 2,201,950 842,096 2,201,950

Loan guard insurance 18,415,732 20,679,648 18,415,732 20,679,648

Utilities 882,413 750,191 853,721 712,681

Bank charges 1,098,708 1,368,298 1,092,328 1,357,790

Statutory levies (SASRA, NITA) 5,000,001 5,048,840 5,000,001 5,048,840

Licences and fees 247,498 170,022 247,498 170,022

UNON common services 4,190,391 5,497,713 3,980,872 5,222,827

Cost of assets held for sale 1,383,529 2,371,765 - -

Miscellaneous expenses 170,000 678,100 170,000 678,100

Litigation provisions - 7,994,475 - 7,994,475 Provision on investment 70,000,000 67,030,057 70,000,000 - 67,030,057 in fixed deposit Exchange loss/(gain) 79,583 192,589 79,583 192,589

Depreciation 6,805,975 5,996,242 6,805,975 5,996,242 Amortisation of intangible 1,747,622 2,263,626 1,747,622 2,263,626 assets Board and Supervisory 27,069,050 22,648,621 27,069,050 20,803,392 Committee Hospitality and AGM expenses 5,398,478 14,473,527 5,398,478 14,473,527

Other operating expense 129,500 – – –

Member education 3,094,466 3,960,474 3,094,465 3,960,474 Public relations and 3,195,088 5,899,991 3,195,088 5,655,791 marketing 164,674,608 183,679,598 162,170,763 178,172,827

64 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

11. TAX Group Sacco

a) Statement of financial 2017 2016 2017 2016 position KShs. KShs KShs. KShs

At 1 January 2017 (26,220,259) (20,775,987) (25,871,571) (20,764,741)

Charge for the year (33,904,211) ( 32,901,179) (33,885,061) (32,544,569)

Tax paid during the year 53,844,475 20,775,987 53,485,107 20,764,741

Withholding tax 6,181,542 6,680,920 6,181,542 6,672,998

At 31 December 2017 (98,453) (26,220,259) (89,893) (25,871,571)

b) Statement of comprehensive income

Other income:

Interest from fixed deposits 205,672,670 193,484,103 205,672,670 193,484,103 Interest from deposits 189,225 613,179 189,225 613,179 with banks Chargeable income 205,861,895 194,219,156 205,861,895 194,219,156

Taxable income (50%) 102,930,948 97,109,578 102,930,948 97,109,578

Tax thereon at 30% (A) 30,879,284 29,132,873 30,879,284 29,132,873

Other income from members 12,726,761 14,562,833 12,726,761 13,374,133

Less: Attributable expenses (2,655,277) (2,001,814) (2,707,504) (2,001,814)

Taxable amount (100%) 10,071,484 12,561,019 10,019,257 11,372,319

Corporate tax at 30% (B) 3,021,446 3,768,306 3,005,777 3,411,696

Prior year under provision 3,481 - - -

Total tax charge (A+B) 33,904,211 32,901,179 33,885,061 32,544,569

Annual Report and Financial Statement 31 December 2017 65 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

12. CASH AND CASH EQUIVALENTS The Sacco holds accounts with three different banks notably Kenya Commercial bank Ltd (KCB), Cooperative Bank Ltd and Citibank N.A. The details of each bank and the amounts held at each bank is as below;

Group Sacco

2017 2016 2017 2016 Cash and bank balances KShs. KShs KShs. KShs

Cash in hand 20,353,278 30,540,580 20,353,278 29,907,904

Cash at bank 755,635,344 462,364,320 749,009,348 453,989,863

775,988,622 492,904,900 769,362,626 483,897,767

Amount (KShs.) 2017 2016

Bank Name- Citibank N.A, Upper Hill Branch 100,665,542 48,016,394

UN Sacco Ltd Current Account Currency – Kenya Shillings Bank Name- Citibank N.A, Upper Hill Branch 79,577,461 57,743,568 UN Sacco Ltd Current Account Currency – United States Dollars Bank Name- Kenya Commercial Bank, Gigiri Branch 518,108,646 308,417,896 UN Sacco Ltd Current Account Currency – Kenya Shillings Bank Name- Cooperative Bank of Kenya Ltd, Gigiri Branch 12,248,749 4,869,650 UN Sacco Ltd ATM Account Currency – Kenya Shillings Bank Name- UNsacco Ltd Mpesa Account 24,920,350 31,413,202 UN Sacco Ltd Mpesa Business Number Currency – Kenya Shillings Bank Name- Cooperative Bank of Kenya Ltd, Gigiri Branch 13,488,598 3,529,154 UN Sacco Ltd Current Account Currency – Kenya Shillings Bank Name- Kenya Commercial Bank, Gigiri Branch 5,507,424 8,374,456 Wanamataifa Ltd Current Account Currency – Kenya Shillings Bank Name- United Nations Sacco Ltd FOSA A/C 1,118,570 - Wanamataifa Ltd FOSA Savings account Currency – Kenya Shillings Total 755,635,342 462,364,320

66 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

12. CASH AND CASH EQUIVALENTS (continued)

Group Sacco

2017 2016 2017 2016 Term deposits with banks KShs. KShs KShs. KShs

Kenya Commercial Bank Limited 5,648,352 1,005,318,366 5,648,352 1,005,318,366

Co-operative Bank of Kenya Limited 1,250,000,000 1,100,000,000 1,250,000,000 1,100,000,000

Citibank N.A 1,000,000,000 - 1,000,000,000 -

2,255,648,352 2,105,318,366 2,255,648,352 2,105,318,366

Total cash and cash equivalents 3,031,636,974 2,598,223,266 3,025,010,978 2,589,216,133

The weighted average effective interest rate on short-term bank deposits at year-end was10.5% (2016:10%)

For the purposes of the statement of cash flows, cash and cash equivalents comprise cash in hand, deposits held at call with banks and investments in money market instruments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying amounts of the Sacco’s cash and cash equivalents are denominated in Kenya Shillings.

The cash and cash equivalent are available for use by the Sacco. The Sacco Society Regulatory Authority (SASRA) requires a Sacco to maintain 15% of its savings deposits and short term liabilities in liquid assets.

13. INVESTMENTS HELD IN FIXED DEPOSITS

Group Sacco

2017 2016 2017 2016 Term deposits with banks KShs. KShs KShs. KShs

Investment held with Chase Bank (In receivership) 782,969,943 850,000,000 782,969,943 850,000,000 Impairment (70,000,000) (67,030,057) (70,000,000) (67,030,057)

Carrying amount 712,969,943 782,969,943 712,969,943 782,969,943

As at 31 December 2017 bank balances amounting to KShs. 850 million are held with Chase Bank limited that is under receivership. The institution is in operation as efforts to resolve the receivership continue. The available information from the market regulator indicates that the bank has been sold to Standard Bank of Mauritius (SBM) who will take over 75% of the total deposits while the 25% remains in KDIC (“ In Receivership”) as Central Bank pursues possible avenues to pay back the depositors funds.SBM will make available 37.5% of the amount

Annual Report and Financial Statement 31 December 2017 67 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

13. INVESTMENTS HELD IN FIXED DEPOSITS (continued) immediately upon start of operations while the remaining balance will be available for withdrawal in 3 equal instalments over a 3 years period at an interest rate of 7%.

Due to the uncertainty of the period in which the 25% deposits held in Chase Bank in (“In Receivership”) will be returned, the remaining 25% amounting to Kshs.212 Million less the impairment previously recorded has been discounted by five years and an additional impairment of Kshs.70 Million has been made in the current year. Interest for the period the institution has been under receivership has not been recognised in the income for the Group.

14. INVESTMENTS HELD IN FIXED DEPOSITS

Group Sacco

2017 2016 2017 2016 Term deposits with banks KShs. KShs KShs. KShs

Interest income receivable 45,312,505 17,672,347 45,312,505 17,672,347 Staff advances - 91,638 - 91,638

Prepayments and otherreceivables 14,528,675 22,991,900 9,408,674 16,041,900

59,841,180 40,755,885 54,721,179 33,805,885

In the opinion of the Board of Directors, the carrying value of trade and other receivables approximates their fair value. 15. LOANS TO MEMBERS

Group and Sacco 2017 2016 (a) Loans to members: KShs. KShs

Gross loans and advances 7,655,247,860 7,441,292,407

Less: Allowance for bad and doubtful debts (69,208,448) (29,910,590)

Net loans to members 7,586,039,412 7,411,381,817

Comprising:

Due within one year 1,896,509,853 1,852,845,454

Due after one year 5,689,529,559 5,558,536,363

7,586,039,412 7,411,381,817

The carrying amounts of loans to members that are due within one year approximate to their fair value.

68 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

15. LOANS TO MEMBERS (Continued)

2017 2016 (i) Fosa loans KShs. KShs

FOSA salary advances 21,334,571 18,929,987

Secured asset loan facility 1,623,498,412 973,604,349

Commercial loans 2,882,984 2,882,984 1,647,715,967 995,417,320 Less: Allowance for bad and doubtful debts (42,915,404) (17,177,839) Net FOSA loans 1,604,800,563 978,239,481

2017 2016 (ii) BOSA loans KShs. KShs

Normal loan accounts 1,972,667,227 1,840,872,017

Loyal normal plus loan 9,546,994 109,258

Emergency loan accounts 18,714,902 21,321,124 Instant loan accounts 259,033,182 503,388,196 Education loan accounts 3,814,511 5,344,224 Premier loan 1,036,603,237 824,766,319 Premier plus loan 2,597,343,568 3,139,912,884 Motor vehicle loan 1,298,971 1,183,807 Dividend loan 70,379,063 74,519,191 Insurance loans 231,085 532,305 Settling down 2,687,993 1,901,864 Retiree loan 23,088,346 22,218,173 Salary personal loan 2,859,485 1,384,727 Staff loan 9,236,699 8,420,998 Junior Education loan 26,630 - 6,007,531,893 6,445,875,087 Less: Allowance for bad and doubtful debts (26,293,044) (12,732,751) Net BOSA loans 5,981,238,849 6,433,142,336

Net loans to members 7,586,039,412 7,411,381,817

Annual Report and Financial Statement 31 December 2017 69 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

15. LOANS TO MEMBERS (Continued)

2017 2016 (b) Insider borrowing: KShs. KShs

Total loans issued to insiders 118,958,535 84,708,858

% of insider loans to total loan portfolio 1.45% 1.14%

SASRA maximum requirement 5% 5%

The insider loans are issued to the directors, supervisory committee members and the SACCO employees at normal rates like other Sacco members.

2017 2016 (c) Movement in allowance for bad and doubtful debts: KShs. KShs

At 1 January 29,910,590 115,461,718

Movement during the year 39,297,858 (85,551,128) At 31 December 69,208,448 29,910,590

The provisions for doubtful debts include:

Provision as Provision as 2017: SASRA regulation per IFRS KShs KShs

Collective impairment 6,843,471 4,618,784

Specific impairment 58,616,649 64,589,664 65,460,120 69,208,448

In the current year, the provisions as per IFRS were higher than SASRA provisions by KShs 3,748,328. The credit risk reserve of KShs 2,665,302 was therefore transferred to retained earnings.

Provision as Provision as Transfer to/(from) 2016: SASRA regulation SASRA regulation Credit risk reserve KShs KShs KShs

Collective impairment 26,809,926 25,467,826 1,342,100

Specific impairment 5,765,966 4,442,764 1,323,202 32,575,892 29,910,590 2,665,302

70 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

15. LOANS TO MEMBERS (Continued) Group Sacco

2017 2016 Breakdown of SASRA 2017 2016 No. No. KShs KShs regulatory provision: Accounts Accounts

0 days (Performing - 0% provision) – – – –

1-30 days (Watch - 5%) 62 6,843,471 – –

31- 180 days (Substandard -25%) 56 15,253,827 25 7,534,282

181- 360 days (Doubtful - 50%) 58 23,313,956 20 7,071,614

>360 days (Loss account -100 17 20,048,866 18 17,969,996

Total 193 65,460,120 63 32,575,892

There were no write offs within the year.

The Sacco has adopted the requirements of the Sacco Societies (Deposit - taking business) regulation 44 in computing the loan loss provision. These provisions have been adjusted to comply with the requirements of IAS 39.

The Sacco has a loanguard policy on all classes of loans issued in which there is compensation of insured loan balances in the event of death or total permanent disability of a member.

The Sacco was given the option by the Sacco Societies Regulatory Authority (SASRA) in 2011 not to make 1% loan loss provision (general risk allowance) on the performing loans until otherwise advised by the authority. The society has adopted the option of not providing for 1% on the performing loans since they are fully covered by security or guarantee.

2017 2016 (d) Movement in loans to members: KShs. KShs

Balance as at 1 January 7,411,381,817 7,070,373,979

Granted during the year 5,047,156,616 5,379,535,206

Interest charged 1,060,445,908 1,077,298,895

Repayments during the year (5,863,736,481) (6,085,915,673)

Provisions (69,208,448) (29,910,590)

Balance as at 31 December 7,586,039,412 7,411,381,817

Annual Report and Financial Statement 31 December 2017 71 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

16. INVESTMENTS

Group Sacco

2017 2016 2017 2016 KShs. KShs KShs. KShs

Class B Quoted shares: 1,066,656 CIC shares 6,026,606 3,733,296 6,026,606 3,733,296 Class A Unquoted shares: 10,136(2016:136) shares in KUSCCO 10,013,643 13,643 10,013,643 13,643 22,680 Shares in Co-op Holdings 22,680 22,680 22,680 22,680

Total investments 16,062,929 3,769,619 16,062,929 3,769,619

The unquoted shares are equity investments in the apex body for co-operatives in Kenya and can only be sold to other co-operative societies. They are carried at cost due to lack of comparable quoted investment which could have been used as a basis for the determination of fair value. In the opinion of the directors, the above investments would, if sold, realize not less than the amounts at which they are stated.

17. ASSETS HELD FOR SALE Group Sacco

2017 2016 2017 2016 KShs. KShs KShs. KShs

Assets held for sale 12,414,703 13,328,232 - -

In February 2015 Wanamataifa Investment Company committed to a plan to sell 48 acres of land it bought to Sacco members and non-members. Accordingly, the land is presented as an asset held for sale. Efforts to sell the land have started and completion of the sale is expected in the third quarter of 2018 since the plots which are not sold are less than 50.

Impairment losses relating to disposal groups There was no impairment loss in carrying the asset held for sale at the lower of its carrying amount and its fair value less costs to sell.

72 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

18. INVESTMENT IN SUBSIDIARY

Sacco 2017 2016 At cost KShs. KShs

Wanamataifa Investment Company Limited 1,000,000 1,000,000

The details of the subsidiary are as follows::

Share capital % Country of Principal Company KShs Holding Incorporation activity

Wanamataifa Investment Investment in Company Limited 1,000,000 100% Kenya property

19. INTANGIBLE ASSET Group and Sacco 2017 2016 KShs. KShs Cost At 1 January 14,738,032 14,738,032 Additions 4,159,408 - At 31 December 18,897,440 14,738,032

Amortisation

At 1 January 13,428,929 11,165,303 Charge for the year 1,747,622 2,263,626 At 31 December 15,176,551 13,428,929 Net carrying amount 3,720,889 1,309,103

This is computer software which is amortised at a rate of 33% on a straight line basis.

Annual Report and Financial Statement 31 December 2017 73 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

20. PROPERTY, PLANT AND EQUIPMENT - Group and Sacco

Group Sacco

Furniture Office Computer Total Cost and fittings. equipment equipment KShs KShs KShs KShs

As at 1 January 2017 5,446,525 14,618,342 27,398,256 47,463,123

Additions 236,640 114,294 425,720 776,654

As at 31 December 2017 5,683,165 14,732,636 27,823,976 48,239,777

Depreciation

As at 1 January 2017 2,806,596 4,207,522 17,902,280 24,916,398

Charge for the year 474,636 2,435,308 3,896,031 6,805,975

As at 31 December 2017 3,281,232 6,642,830 21,798,311 31,722,373

Net book value

At 31 December 2017 2,401,933 8,089,806 6,025,665 16,517,404

As at 1 January 2016 3,775,705 5,032,853 25,828,295 34,636,853

Additions 1,670,820 9,585,489 1,569,961 12,826,270

As at 31 December 2016 5,446,525 14,618,342 27,398,256 47,463,123

Depreciation

As at 1 January 2016 2,331,156 2,607,874 13,981,126 18,920,156

Charge for the year 475,440 1,599,648 3,921,154 5,996,242

As at 31 December 2016 2,806,596 4,207,522 17,902,280 24,916,398

As at 31 December 2016 2,639,929 10,410,820 9,495,976 22,546,725

Included in all the above asset classes are assets with a cost of KShs 23,410,291 (2016 – KShs 21,762,200) which were fully depreciated. The notional annual depreciation charge on these assets would have been KShs 6,176,983 (2016 – 4,100,417).

74 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

21. SHARE CAPITAL Group Sacco

2017 2016 2017 2016 KShs. KShs KShs. KShs

At 1 January 696,340,961 614,384,285 696,340,961 614,384,285

Contributions during the year 127,640,167 81,956,676 127,640,167 81,956,676

At 31 December 823,981,128 696,340,961 823,981,128 696,340,961

22. STATUTORY RESERVES

Balance brought forward 277,872,714 232,607,450 277,872,714 232,607,450

Contributions for the year 54,300,556 45,265,264 54,300,556 45,265,264

332,173,270 277,872,714 332,173,270 277,872,714

23. RETAINED EARNINGS

Balance brought forward 633,762,811 577,313,494 617,216,295 561,694,549

Contributions for the year 179,007,932 227,253,889 181,001,854 226,326,318

30% transfer to statutory reserves (54,300,556) (45,265,264) (54,300,556) (45,265,264)

Transfer from credit risk reserve 2,665,302 (2,665,302) 2,665,302 ( 2,665,302)

Dividend paid (122,467,803) (122,874,006) (122,467,803) (122,874,006)

638,667,686 633,762,811 624,115,092 617,216,295

Transfers were made to the statutory reserve at a rate of 30%(2016:20%) of net operating surplus after tax in compliance with the provisions of the Kenyan Sacco Societies Act whose minimum transfer to reserves is 20%. These reserves are not distributable.

24. MEMBERS' DEPOSITS Group Sacco

2017 2016 2017 2016 KShs. KShs KShs. KShs

Balance brought forward 7,696,924,557 7,313,372,729 7,696,924,557 7,313,372,729

Contributions for the year 478,719,718 383,551,828 478,719,718 383,551,827

8,175,644,275 7,696,924,557 8,175,644,275 7,696,924,557

Annual Report and Financial Statement 31 December 2017 75 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

24. MEMBERS' DEPOSITS (Continued) Group Sacco

2017 2016 2017 2016 Members’ savings accounts KShs. KShs KShs. KShs

FOSA savings accounts 651,567,576 645,307,535 651,567,576 645,307,535

Fixed deposits 41,504,055 13,101,124 41,504,055 13,101,124

693,071,631 658,408,659 693,071,631 658,408,659

Total members’ deposits 8,868,715,906 8,355,333,216 8,868,715,906 8,355,333,216

25. PROVISION FOR INTEREST ON MEMBERS’ DEPOSITS Group Sacco

a) Statement of financial 2017 2016 2017 2016 position KShs. KShs KShs. KShs

At 1 January 826,817,828 803,649,275 826,817,828 803,649,275

Paid during the year (826,494,314) (803,667,059) (826,494,314) (803,667,059)

Provision for the year 719,694,675 826,835,612 719,694,675 826,835,612

720,018,189 826,817,828 720,018,189 826,817,828

b) Statement of comprehensive income

719,694,675 826,835,612 719,694,675 826,835,612

The Board of Directors recommends payment on interest on deposits at 8.7% (2016: 10.5%) 26. PAID DIVIDENDS Group Sacco

a) Statement of financial 2017 2016 2017 2016 position KShs. KShs KShs. KShs

Final dividend for 2017: 12% 122,467,803 122,874,006 122,467,803 122,874,006 per share(2016: 18%)

76 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

25. PROPOSED DIVIDENDS

Proposed final dividend for 2017:12% per share 98,877,735 125,341,373 98,877,735 125,341,373 (2016: 18% per share) 122,467,803 122,874,006 122,467,803 122,874,006

Proposed for approval at the annual general meeting (not recognised as a liability as at 31 December).

The Board of Directors recommends payment of first and final dividend of 12% per share (2016: 18%).

28. TRADE AND OTHER PAYABLES Group Sacco

2017 2016 2017 2016 KShs. KShs KShs. KShs

Trade payables 33,960,392 31,739,406 25,356,638 29,297,043

Provision for Honoraria 3,990,509 3,990,512 3,990,509 3,990,512

Provision for staff bonus 6,957,951 3,990,512 6,957,951 3,990,512

Other payables 10,639,950 15,551,069 17,115,668 15,551,069

55,548,802 55,271,499 53,420,766 52,829,136

The average credit period on purchases of goods from suppliers is 30 days. The Sacco has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. The average payment period during the year was less than 30 days. In the opinion of the Board of Directors, the carrying value of trade and other payables approximates their fair value.

29. RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Savings are made in the Sacco by directors and the staff. Loans to members as at 31 December 2017 include loans to directors and staff. All transactions with related parties are at arm’s length in the normal course of business, and on terms and conditions similar to those applicable to other customers.

Annual Report and Financial Statement 31 December 2017 77 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

29. RELATED PARTY TRANSACTIONS (Continued) Group Sacco

2017 2016 2017 2016 (a) Loans KShs. KShs KShs. KShs

At 1 January 84,708,858 94,811,177 84,708,858 94,811,177

Net movement in the year 34,249,677 (10,102,319) 34,249,677 (10,102,319)

As at 31 December 118,958,535 84,708,858 118,958,535 84,708,858

The loans are issued on similar terms as those of the Sacco members in compliance with the SASRA regulations.

(b) Depositss

At 1 January 55,177,773 48,686,445 55,177,773 48,686,445

Net movement in the year 58,055 6,431,328 58,055 6,431,328

As at 31 December 55,235,828 55,117,773 55,235,828 55,117,773

(c) Board of directors and supervisory Committee allowances 27,069,050 20,803,392 27,069,050 20,803,392

Honoraria/allowances 3,990,512 3,990,512 3,990,512 3,990,512

(d) Investment in a Subsidiary

Wanamataifa 1,000,000 1,000,000 1,000,000 1,000,000

(e) Due from related parties

Wanamataifa - - 6,471,600 8,947,798

These relate to amounts due from related party which are payable within three years. No interest is charged on outstanding amounts.The amounts due are unsecured and will be settled in cash.

78 Annual Report and Financial Statement 31 December 2017 Notes to the Financial Statements For the year ended 31 December 2017 (Continued)

30. OPERATING LEASES 2017 2016 KShs. KShs

Operating leases are payable as follows:

Within 1 year 14,475,958 14,561,268 2 to 5 years 37,401,706 45,920,326 Greater than 5 years - - 51,877,664 60,481,594

During the year ended 31 December 2017 an amount of KShs 14,561,268(2016 – 14,453,469) was recognised as an expense in profit or loss in respect of operating leases. 31. CONTINGENT LIABILITY There are a number of cases against the Sacco pending before the courts for which rulings were yet to be made. The directors, based on the advice from the legal advisers, do not expect any major claims to arise from these cases. Therefore, no provision has been made in these financial statements.

32. EVENTS AFTER THE REPORTING DATE No material events or circumstances have arisen between the accounting date and the date of this report

33. CONSOLIDATION The results of the subsidiary company, Wanamataifa Investment Company Ltd have been consolidated with the Sacco’s financial statements for the year 2017 in line with IFRS 10.

Annual Report and Financial Statement 31 December 2017 79 80 Annual Report and Financial Statement 31 December 2017