Public Disclosure Authorized

THE UNITED REPUBLIC OF

NATIONAL AUDIT OFFICE Public Disclosure Authorized

PROJECT REPORT AND ANNUAL FINANCIAL STATEMENTS OF THE HOUSING FINANCE PROJECT (IDA) CREDIT N0.4712-TA AND N0.5590-TZ

FOR THE YEAR ENDED 30TH JUNE 2017 Public Disclosure Authorized Deloitte.

Deloitte &Touche Certified Public Accountants The Controller and Auditor General (Tanzania) National Audit Office of Tanzania 3 rd Floor, Aris House 16 Samora Machel Avenue Plot 152, Haile Selassie Road P.O. Box 9080 P. 0. Box 1559 11101 Dar-es-Salaam Tanzania Telegram: " Ukaguzi" Tel: + (255 - 22) 211 6006, 211

Public Disclosure Authorized Telephone: 255 22 2115157 /8 5352 Fax: 255 22 2117527 Fax: + (255 - 22) 211 6379 E-mail: [email protected] Email : [email protected]. tz Website: www.nao.go.tz www.deloitte.com

December, 2017 PR/FSBoT/2017 OF TANZANIA

HOUSING FINANCE PROJECT UNDER INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA) CREDIT N0.4712-TA AND 5590-TZ PROJECT FINANCIAL REPORT

FOR THE YEAR ENDED 30 JUNE 2017 · HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

Table of Contents Page

Report of Project management 1-10

Statement of Project management's responsibilities 11

Declaration of finance management specialist 12

Independent auditors' report 13 - 14

Financial statements:

Statement of income and expenditure 15

Statement of financial position 16

Statement of changes in accumulated fund 17

Statement of cash flows 18

Notes to the Financial Statement 19 - 40 BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

GLOSSARY OF TERMS

Acronym Description

HFP Housing Finance Project

HMFF Housing Microfinance Fund

IDA International Development Association

FSSP Financial Sector Support Project

FIRST Financial Sector Reform and Strengthening Initiative

TMRC Tanzania Mortgage Refinance Company

NHC National Housing Corporation

NHBRA National Housing Building and Research Agency

PML Primary Mortgage Lenders

MLHHSD Ministry of Lands, Housing and Human Settlements Developments

MOF Ministry of Finance

PIU Project Implementation Unit

PCC Project Coordinating Committee

SRA Spread Reduction Account

MFI Microfinance Institutions

URT United Republic of Tanzania BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

PROJECT INFORMATION

Name of the Project: Housing Finance Project (HFP)

Borrower: United Republic of Tanzania (URT) through the Ministry of Finance

Funder: World Bank through the International Development

Co-funder: United Republic of Tanzania (URT)

Project Implementing Agent: Bank of Tanzania (BOT)

Project Beneficiaries: Tanzania Mortgage Refinance Company Limited (TMRC), Watumishi Housing Company Limited (WHC) , National Housing Corporation (NHC), National Housing Building and Research Agency (NHBRA), Ministry of Lands, Housing and Human Settlements Developments (MLHHSD) .

Auditors: Principal : Controller and Auditor General (CAG) . Delegated : Deloitte & Touche. BANK OF TANZANIA - HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT

1. INTRODUCTION

The Project Implementing Agent (the BOT) presents this report together with the audited financial statements for the year ended 30 June 2017, which disclose the state of financial affairs of the Housing Finance Project (HFP) .

During the year, the BOT continued to implement the project in accordance with Subsidiary Agreements between the Government of Tanzania through the Ministry of Finance and Planning and the BOT which were signed on 30 th November 2010 and 29th May 2015 for the Parent and additional finance projects, respectively. Both main and intermediate objectives of the projects are well amplified in the Projects Finance Agreements between the United Republic of Tanzania and the World Bank which were signed on 31st March 2010 and 12th March 2015 for the Parent and Additional Finance, respectively.

PROJECT ESTABLISHMENT

HFP was established in March 2010 when the Government signed a USO 40 million Credit Agreement with the International Development Association (IDA) for the Housing Finance Project (HFP) and mandated the Bank of Tanzania (BOT) to be an implementing agent. The Government contribution (in kind) to the project was valued at USO 2.0 million . Originally, the HFP was a five-year project with expected closing date of 31 March 2015 .This was extended for two years to 31 March 2017. Parallel to this, on 12 March 2015, the Government signed a USO 60 .0 million Credit Agreement with the International Development Association (IDA) for the HFP Additional Financing (HFP-AF) , mainly with a view of enhancing the scope of the original project. The HFP-AF will expire on 31 March 2018 .

The HFP builds on analytical work carried out by the BOT and the Government with the support of the Financial Sector Support Project (FSSP) particularly under the financial markets and long-term development finance components. It has also benefited from reports by the Urban Institute, which were funded by the Financial Sector Reform and Strengthening Initiative (FIRST) . This work provided an initial feasibility assessment for the creation of a mortgage liquidity facility in Tanzania.

PROJECT'S OBJECTIVES The objective of HFP is to create and develop a sustainable, market-based mortgage through the provision of medium and long-term liquidity to mortgage lenders. The Project combines demand driven , using a mix of mortgage and housing-microfinance instruments, with supply stimulation , using technical assistance, promoting the use of low cost building materials and technologies as a way to make housing more affordable.

The Project's intermediary objectives are: (i) to improve access to long-term housing finance progressively mobilized through the domestic capital market; (ii) to develop access to medium-term affordable housing micro-finance; and (iii) to support the development of a private developer industry and promoting the use of low cost building materials and technolog ies as a way to make housing more affordable. BANK OF TANZANIA · HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

2. PROJECT STATUTE AND PRINCIPAL ACTIVITIES

HFP operates in the United Republic of Tanzania i.e. Mainland and and is owned by the Government of United republic of Tanzania. The Bank of Tanzania implements the Project under agency agreement with the Government.

The Project has the following components:

(i) Component I • Development of the Mortgage Market· (USO 73.8 million - USO 33.0 million from the Parent project and USO 40.8 million under the Additional Financing) . This component seeks to develop the mortgage market by creating a mortgage liquidity facility namely, Tanzania Mortgage Refinance Company (TMRC) for providing long-term to primary mortgage lenders. Under this component, funds are loaned to TMRC for provision of liquidity to primary mortgage lenders at its own risk . TMRC is a private limited company established with the help of the HFP and is mainly owned by commercial . TMRC's lending operations are financed by the IOA credit but will later on start issuing bonds to fund a small share of its funding needs alongside the IOA.

(ii) Component II • Development of Housing Microfinance - (USO 20.5 million - USO 5.0 million from the parent project and USO 15.5 million under the additional financing) . This component seeks to address housing finance needs of low-income population through housing microfinance. A Housing Microfinance Fund (HMFF) was established to provide loans of up to 5 years or longer to low income households . HMFF started with a seed capital from HFP and is open to other donor funds. Under this component, regulatory reforms and capacity building to eligible Microfinance Institutions (MF ls) to foster safe lending practices are envisaged .

(iii) Component Ill· Expansion of Affordable Housing Supply· (USO 5.7 million - USO 2.0 million from the Parent project and USO 3.7 million under the Additional Financing) . Activities under this component aim at supporting the development of a private developer industry. They include conducting a baseline housing market study to identify the gaps and constraints facing the housing market, improving the capacity of the National Housing Corporation (NHC) to deliver serviced land for housing development, improving capacity of banks to provide real estate development finance and promoting the use of low cost building materials and technologies as a way to make housing more affordable.

3. RESOURCES AND STRENGHTS

Resources and strengths that facilitate the Project in achieving its strategic objectives include financial and human resources , partnerships and proper project governance structure .

In terms of human capital , the Project has permanent staff who are qualified and committed to the project implementation. Further, the Project is mainstreamed in the BOT governance and internal control systems that assist as additional strength for the project management. The Project has a strong governance structure that include the Streeling Committee (SC) chaired by the Permanent Secretary Treasury. This

2 BANK OF TANZANIA - HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT (CONTINUED)

3. RESOURCES AND STRENGHTS (CONTINUED)

Committee reviews overall project policies and results. Other committee is the Project Coordinating Committee (PCC) chaired by the Director of Strategic Planning and Performance Review (DSPR) of the BOT. This Committee is a main decision-making body of the Project. Moreover, there is a Project Administration Team (PAT) comprising a mix of project staff and BOT employees who are responsible for the day-to-day operations of the Project.

The Project collaborates with the World Bank in monitoring and reporting results , budget management, cash forecasts , and on technical assistance to enable the Project achieve its objectives . Other partners include the Government through its beneficiary ministries, its agents and other private institutions that access loans and/or technical assistance from the Project.

4. PROJECT PERFORMANCE AND ACHIEVEMENTS

The following are the major achievements of the Project since it started in March 2010 :

(i) Component I - Development of the Mortgage Market Under this component, establishment of Tanzania Mortgage Refinance Company {TMRC) for provision of liquid ity to Primary Mortgage Lenders (PMLs) was envisaged . TMRC was incorporated in January 2010 as a Private Limited Company. Currently TMRC has twelve1 (12) shareholding commercial banks and three2 (3) non-banking institutions. TMRC commenced its operations in January 2011 and receives loan funds from HFP for providing liquidity finance to enable Primary Mortgage Lenders (PMLs) refinance and pre-finance their mortgage portfolios. As at 30 June 2017, a total of TZS 68,100,000,000 (USO 30,688,808) had been disbursed to TMRC to facilitate refinancing and pre-financing of mortgages portfolios. TMRC is also expected to raise funds from other sources including issuing bonds to address sustainability of its funding needs .

The mortgage market in Tanzania has grown rapidly in recent years both in number of loans and balances outstanding and TMRC has played a critical role in supporting this market's growth. The mortgage market has continued to grow, recording an average annual growth rate of 16 percent for the last eight years that is above the overall GDP growth in Tanzania. Further, 29 lenders are now offering mortgage products compared to only 8 banks in 2010 prior to the establishment of TMRC. This increase has brought increased competition in the market. Outstanding mortgage debt stood at TZS 416 .94 billion as at 31 December 2016 up from TZS 130.55 billion in 2010. Current average mortgage debt size is TZS 118 million equivalents to around USO 54,200. Tanzania Mortgage Refinance Company (TMRC) is now extending financing to non-member banks as well as its member banks. Mortgage loans tenors have increased from 5 - 10 years in 2010 to 15 - 25 years to date. Furthermore, the first Mortgage Finance Company in Tanzania formed by partnership between Bank M, IFC, HDFC (India) and other investors has been licensed . Mortgage loans interest rates have decreased from above 22% - 24% in 2010 to 16% - 19% to date. It is anticipated that more real estate developers will respond with great interest to opportunities in the Tanzania housing market.

3 BANK OF TANZANIA - HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT (CONTINUED)

4. PROJECT PERFORMANCE AND ACHIEVEMENTS (CONTINUED)

(ii) Under Component II - Development of Housing Microfinance

Th is component seeks to address housing finance needs of low-income population which could not be served under. traditional mortgage. A study was undertaken in year 2012 to assess the potential to develop housing microfinance product, examine and set up a Housing Microfinance Fund (HMFF) that could provide loans for up to 5 years or longer. A seed capital of USO 18.0 million was set aside; it was formally established in April 2014 through public finance (Housing Micro Finance Fund Establishment) order 2014 issued by the Minister for Finance. Further, a five-year Agency Agreement between the Ministry of Finance and the Bank of Tanzania (BOT) was signed in May 2014 that mandated BOT to implement the Fund .

As at 30 June 2017 funds disbursed under the HMFF amounted to TZS 9.0 billion . (U SO 4.1 million) . Invitation for applications for eligible financial institutions to participate into the fund was published on 11 May 2015, and about 15 financial institutions expressed interest to borrow from the Fund . However, most of the institutions did not meet the eligibility criteria and hence disbursement under this component has been slow. Efforts are under way to improve lend ing criteria and build capacity for eligible financial institutions.

(iii) Under Component Ill - Expansion of Affordable Housing Supply

Activities under this component aim at supporting the development of a private and public developer industry. The activities undertaken under this component included conducting a baseline housing market study to identify the gaps and constraints faci ng the housing market; improving capacity of banks to provide real estate developer finance; improving the capacity of the National Housing Corporation (NHC) to deliver serviced land for housing development; improving the capacity of National Housing Building and Research Agency (NHBRA) to develop and promote affordable housing products and promoting the use of low cost construction technologies as a means to make housing more affordable.

The project has performed well under this component. Notable milestone include procurement of equipment for planning and designing studio for the NHC to enable the institu tion undertake its operations in a more efficient manner; financing of various capacity building programmes for staff from TMRC, MLHHSO, MOF, NH BRA, NHC and BOT in a bid to enhance the capacity of the institutions to discharge their respective mandates on development of housing and housing finance; procurement of motor vehicle for NHBRA to assist NHBRA in the dissemination of low cost bu ilding technologies in various regions in Tanzania; technical assistance for effective issuance of bonds by TM RC ; acquisition of TMRC mortgage refinance core system to assist TMRC in performing its operations; development of capacity building programs for the mortgage market in Tanzania review of NHBRA operations on the development and promotion of affordable housing products; supply of computers and electronic equipment to NHBRA aiming at enhancing the agency's capacity in discharging the mandate of carrying out research , develop and promote use of low-cost bu ilding materials and tech nologies so that the majority of low-income earners can have access to affordable housing ; housing market study to establish reliable data on Tanzania's housing market and ; enhancing operational efficiency and effectiveness of the real estate business in Tanzania . 4 BANK OF TANZANIA - HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT (CONTINUED)

5. PROJECT GOVERNANCE

The Steering Committee is the governing organ of the Project. The Permanent Secretary to the Treasury has the mandate to appoint members of the Steering Committee, all Tanzanians. The following members served as members of the Steering Committee during the year:

No Name Institution Position at the Institution Position of the Steering Committee 1 Mr. Doto James Ministry of Finance Permanent Secretary to the Chairperson and Planning Treasury 2 Dr. Khatibu Ministry of Finance Deputy Permanent Secretary Member Kazungu 3 Dr. Moses Kusiluka Ministry of Lands, Acting Permanent Secretary Member Housing and Human Settlements Development 4 Mr. Seif S. Seif Ministry of Finance Representative of the Member and Planning of Principal Secretary Zanzibar 5 Prof. Benno J. Bank of Tanzania Governor Member Ndulu 6 Dr. Yamungu Bank of Tanzania Deputy Governor Member Kayandabila 7 Dr. Bernard Bank of Tanzania Deputy Governor Member Kibesse 8 Mr. Francis Ministry of Finance Accountant General Member Mwakapalila and Planning 9 Mr. Michael P. Ministry of Finance Acting Assistant Member Nyagoga and Planning Commissioner of Financial Sector Developement 9 Mr. Mgonya Ministry of Finance Commissioner for Policy Member Benedicto and Planning Analysis 11 Mr. Shaft Mrutu Bank of Tanzania Director of Strategic Secretary Planning and Performance Review

Two committees are assisting the Project Streeling Committee in discharging of its functions namely Project Coordinating Committee (PCC) and Project Implementation Unit (P IU) . The Executive Office of the Bank of Tanzania appoints members of the two committees, all Tanzanians .

5 BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT (CONTINUED)

5. PROJECT GOVERNANCE (CONTINUED)

Members of PCC who served during the year are as follows :

No Name Institution Position at the Position in Institution the Committee 1 Mr. Shaft Mrutu Bank of Tanzania Director of Strategic Chairperson Planning and Performance Review 2 Mr. Oscar Mgaya Tanzania Mortgage Chief Executive Officer Member Refinance Company Limited (TMRC) 3 Dr. Fred Msemwa Watumishi Housing Chief Executive Officer Member Company Limited 4 Mr. Alexander NQ'winamila Bank of Tanzania Director Financial Market Member 5 Mr. Johnson Nyella Bank of Tanzania Director of the Member Economic Policy and Research 6 Mr. Kened Nyoni Bank of Tanzania Director Banking Member Supervision 7 Dr. Matiko Samson National Housing and Chief Executive Officer Member Building Research AQency 8 Mr. Yusto E. Tongola Bank of Tanzania Secretary to the Board Member 9 Mr. Pius Tesha Ministry of Land , Ag . Director of Housing Member Housing and Human Settlement 10 Victor Tarimu Bank of Tanzania Manager Technical Secretary Assistance coordination

6 BANK OF TANZANIA · HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT (CONTINUED)

5. PROJECT GOVERNANCE (CONTINUED)

Members of the Project Implementation Unit who served during the year as follows :

No Name Institution Designation Position 1 Mr. Victor Tarimu Bank of Tanzania Manager Technical Chairperson Assistance Coordination 2 Mr. Damas Mugashe Bank of Financial Management Member Tanzania/Housing Specialist Finance Project 3 Mr. Ayoub Nga'hasha Bank of Procurement Management Member Tanzania/Housing Specialist Finance Project 4 Mr. Baraka Munisi Bank of Mortgage Finance Specialist Member Tanzania/housing Finance Project 5 Mr. DeoQratias Mnyamani Bank of Tanzania Principal Financial Analyst Member 6 Mrs . Bank of Tanzan ia Assistant Manager Member Rosemarie Twag irayezu 7 Mrs . Sauda Juma Bank of Tanzan ia Senior Principal Officer Member 8 Mr. Albert Mkenda Bank of Tanzan ia Head of Project Management Secretary Unit

6. ME ETINGS

During the year ended 30 th June 2017, the Steering Committee held the first meeting on the 11 th March 2017 at the Min istry of Finance Offices in Dodoma and the second meeting on 2nd May 2017 to discuss the project performance and the way forward with the World Bank Supervision Mission . A meeting between PCC and the World Bank Supervision Mission was held on the J d May 20 17 to discuss progress report. The PIU participated in this meeting . The PIU meets once every month to deli berate on project implementation .

7. RELATIONSHIP WITH STAKEHOLDERS AND PARTNERS

Management of the Project recognize the importance of stakeholders and partners in order to fulfil its objectives. The Project key stakeholders include the Government, its Ministries and agencies, Tanzania Mortgage Refinance Company Limited , Financial Institutions borrowing under the Housing Microfinance Fund, the World Bank, other financial institutions , public and employees. The Project is committed to deliver value for money to its stakeholders and partners th rough fulfilling its objectives .

7 BANK OF TANZANIA · HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT (CONTINUED)

7. RELATIONSHIP WITH STAKEHOLDERS AND PARTNERS (CONTINUED)

Accordingly, the Project was involved in the following initiatives aiming at creating value for money to stakeholders and partners :

(a) Dissemination of mortgage materials: The project through a consultant Tanzania Real Estate Settlement and Tittle Assurance Company Limited (TRESTA) has been disseminating mortgage literacy materials to the public as well as running awareness campaigns on various media to let the public understand the benefit of mortgage. The dissemination has been done through trade -fairs e.g. Saba Saba and Nanenane and through workshops and seminars. The dissemination exercise started July 2016 and continued through the year.

(b) Training and capacity building for mortgage market in Tanzania : During the year, three capacity building programs to various financial institutions on the subject of mortgage were undertaken. The Bank of Tanzania through its Training Institute, TMRC and internal trainers who were trained by the Project for that purpose conducted these programme jointly.

(c) Sharing the Project progress reports during World Bank supervision visits where all stakeholders are involved. During the year, only one supervision mission took place in May 2017 .

8. CASH FLOW PROJECTIONS

Due to the nature of the Project activities, cash projections are based on the approved budget and work plans. Most of cash flows are disbursements from the World Bank during the lifetime of the Project. A small part of the cash flow will be from the interest income from loans extended to TMRC and other financial institutions borrowing under HMFF together with income generated from investments in Treasury bills and bonds. The Project is expected end on 31 st March 2018 , with possibility of extension for two years in order to complete all pending activities. Cash flows from disbursements of the World Bank will cease at the time of Project completion .

9. MANAGEMENT

The Bank of Tanzania implements the Project under Sub-fin ancing Agreements signed with the Ministry of Finance and in line with the signed Project Agreement between the World Bank and BOT. The agreements give BOT mandate to implementation the Project that is mainstreamed in the BOT processes and internal control mechanisms.

10. FUTURE PROJECT PLANS

The Project is scheduled to end on 31 st March 2018 , with a possibility of extension for two years. The focus of the Project during the remaining time will be on the following:

(a) Ensuring TMRC's funding sustainability by providing support to enable the institution raise long-term funding from the capital market;

8 BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT (CONTINUED)

10. FUTURE PROJECT PLANS (CONTINUED)

(b) Ensuring sustainability of HMFF by striving to recover time lost due to various challenges experienced by the Project. This will entail expediting issuance of loans to eligible financial institutions during the remaining period of the Project, so that HMFF can generate sufficient resources to enable it to operate sustainably after the Project completion . Sustainability of the HMFF will entail finding alternative and reliable fund mechanisms to enable the Fund operate independent of the Project; and

(c) Completion of ongoing procurements including training and capacity building on HMFF, the Housing Finance Education , setting-up a Housing Information Centre at the Ministry of Lands, Housing and Human Settlements Developments, establishment of Guidelines and Standards for low income housing, strengthening the NHBRA, and identification of materials & techniques to be adopted for affordable Housing in Tanzania

11. FINANCIAL PERFOMANCE OF THE YEAR

a. Financial Results

The performance of the project is measured by the achievements of its objectives in implementing its activities as detailed in the Project Finance Agreements of 4712 under the Parent project and 5590 under the additional financing . In the course of its activities, the Project generated total income of USO 5.2 million. (2016: USO 4.0 million). The income was attributable to Government's contribution , amortization of deferred loan from IDA, interests generated from loans to TMRC and HMFF, and investments in Treasury Bonds and Treasury Bills .

b. Financial Position

The financia l position of the project is set out in the Statement of Financial position of the Project. During the year total assets of the projects increased by USO 18.3 million (2016: USO 11 million). Major increase was attributable to increase in bank balances, loan advances, investment in government securities and receivables.

12. RISK MANAGEMENT AND INTERNAL CONTROL

BOT accepts final responsibility for risk management and internal controls systems of the Project. It is the responsibi lity of management to ensure that adequate internal financial and operational control systems are developed and maintained on an ongoing basis in order to provide reasonable assurance regarding : (a) The effectiveness and efficiency of operations; (b) The safeguarding of the Project's funds ; (c) Compliance with applicable laws, regulations and the World Bank funding protocol ; (d) The reliability of accounting records; (e) Meeting project objectives under normal as well as adverse conditions; and (D Responsible behavior towards all stakeholders.

9 BANK OF TANZANIA· HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

REPORT OF PROJECT MANAGEMENT (CONTINUED)

13. SIGNIFICANT PREJUDICIAL MATTERS

During the year ended 30 June 2017 the re were no significant preju dicial matters to report.

14. AUDITORS

The Contro ll er and Auditor General ("CAG) is the statutory auditor of the Bank of Tanzania and related Projects. The Controller and Auditor General appointed Deloitte & Tou che to carry out joint aud it for the financial ye ar ended 30 June 2017 , on their behalf, in accordance with section 37(4) an d 37(5) of the Public Finance Act No. 6, of 2001 .

Approved by th e Project Management on .. .~/.I.~(. ?-:-P ..1. T...... and sign ed on its behalf by :

&M@ .· Prof. Benno Ndulu Mr~ B. Ra phael Governor - Bank of Tanzania Deputy Governor (AIC) - Bank of Tanzania

10 BANK OF TANZANIA - HOUSING FINANCE PROJECT PROJECT FINANC IAL REPORT FOR TH E YEAR ENDED 30 JUNE 20 17

STATEMENT OF PROJECT MANAGEMENT'S RESPONSIB ILITI ES

The management of Bank of Tanzania , wh o coord in ates the implementation of the Housing Finance Project IDA Credit no 4712-TA and Housing Finance Project - additional financing IDA Credit no 5590-TZ referred to as ("the Project") is responsib le for preparing the financial statemen ts which give a true and fair view of the Project financial position as at 30 June 2017 and of its income and expenditure for the year th en ended . The management is requ ired to ensure that the project keeps proper accounting records , which disclose with reasonable accuracy at any time , the financial position of the Project. Th e management is also responsible for safeguard in g the assets of the Project.

The management is responsible for the preparation and fair presentation of the financial statements in accordance with modified cash receipt and disbu rsemen t basis of accou nti ng and for such internal controls as management determine are necessary to enable the preparation of fi nancial statements that are free from material misstatements , whether due to fraud or error.

The management accepts responsib ility for the financial statements , which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with the Project's accounting policies ; and the provisions of the financing ag reement and its governing clauses . The management is of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Project and of the res ul ts of its acti vities . The managemen t further accepts respo nsibility for the maintenance of accounting records which may be relied upon in the preparation of the financia l statements , as we ll as adeq uate systems of internal financial contro l.

Signed on behalf of Project management by:

Prof. Benno Ndu lu Gove rn or - Bank of Tanzania Date

Mr.

11 BANK OF TANZANIA - HOUSING FINANCE PROJECT PROJECT FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2017

DECLARATION OF THE FINANCE MANAGEMENT SPECIALIST

The National Board of Accountants and Auditors (NBAA) according to the power conferred under the Auditors and Accountants (Registration) Act. No. 33 of 1972, as amended by Act No. 2 of 1995, requires financial statements to be accompanied with a declaration issued by the Head of Finance/Accounting responsible for the preparation of financial statements of the entity concerned.

It is the duty of a professional accountant to assist the Project management to discharge the responsibility of preparing financial statements of the project showing true and fair view of the project financial position and financial performance in accordance with applicable Accounting Standards and statutory financial reporting requirements. Full legal responsibility for the preparation of financial statements rests with the project management as under Project responsibility statement on page 11 .

I, Damas Damian Mugashe, being the finance management specialist of the Project hereby acknowledge my responsibility of ensuring that financial statements for the year ended 30 June 2017 have been prepared in compliance with applicable accounting standards and statutory requirements.

I thus confirm that the financial statements give a true and fair view position of the Bank of Tanzania as at 30 June 2017 and that they have been prepared based on properly maintained financial records.

Finance Management Specialist NBAA Membership No: ACPA 1418

1 Date: ...... ?.?.: .t.t.?:-.l.. ~ . ~.. ..1 ......

12 INDEPENDENT AUDITORS' REPORT

Board Chairman Bank of Tanzania P.O . Box 2939 Dar es Salaam , Tanzania

RE: REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THE HOUSING FINANCE PROJECT (HFP) FOR THE YEAR ENDED 30 JUNE 2017

Opinion

I have audited the accompanying financial statements of Housing Finance Project implemented by Bank of Tanzan ia under IDA Credit no.4712-TA and IDA Credit no . 5590-TZ set out from pages 15 to 40 which comprise the statement of financial position as at 30 June 2017 , statement of income and expenditure , statement of changes in accumulated fund, statement of cash flow for the year, and summary of significant accounting policies and other explanatory notes. In my opinion, the financial statements give a true and fair view of the financial position of the Bank of Tanzania - Housing Finance Project as at 30 June 2017 , its financial performance, and its cash flows for the year ended in accordance with modified cash receipt and disbursement basis of accounting and the provisions of the Project's Finance Agreements. Basis of opinion The audit was conducted in accordance with International Standards on Auditing (ISA) , International Standards of Supreme Audit institutions (INTOSAI) and such other audit procedures I considered necessary in the circumstances. These standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis , evidence supporting the amounts and disclosures in the financial statements. It also, includes assessing the significant estimates and judgments made in the preparation of the financial statements, assessing whether the internal control system and the accounting policies are appropriate to the circumstances of Bank of Tanzan ia - Housing Finance Project and that they have been consistently applied and adequately disclosed . It also involves evaluating the overall financial statements presentation and assessing the extent of compliance with the statutory requirements .

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion .

Other Information

The Management of Bank of Tanzania - Housing Finance Project is responsible for the other information , including report of Project Management. The other information does not include the financial statements and aud itor's report thereon. My opin ion on the financial statements does not cover the other information and I do not express any form of assurance conclusion thereon .

In connection with my audit of the financial statements , my responsibility is to read the other information and , in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit or otherwise appears to be materially misstated . If, based on the work I have performed on the other information that I obtained prior to the date of this auditor's report, I conclude that there is a material misstatement of this other information , I am required to report that fact. I have nothing to report in this regard .

13 INDEPENDENT AUDITORS' REPORT (CONTINUED)

Management Responsibility for the financial statement The Management of Bank of Tanzania - Housing Finance Project is responsible for the preparation and fair presentation of the Project financial statements in accordance with the accounting policies set out in Note 1 of this report, and for such internal controls as Management determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Responsibilities of the Controller and Auditor General My responsibility as an auditor is to express an independent opinion on the financial statements based on the audit. The audit was conducted in accordance with International Standards on Auditing (ISA) and such other audit procedures I considered necessary in the circumstances . These standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements , whether due to fraud or error. In making those risk assessments, I considered the internal control relevant to the Project's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal contro l. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accoun ti ng estimates made by management, as well as evaluating the overall presentation of the financial statements. In add ition , Sect. 10 (2) of the Public Audit Act No. 11 of 2008 requires me to satisfy myself that the accounts have been prepared in accordance with the appropriate accounting standards and that; reasonable precautions have been taken to safeguard the collection of revenue, receipt, custody, disposal , issue and proper use of public property, and that the law, directions and instructions applicable thereto have been duly observed and expenditures of public monies have been properly authorized.

Benjamin Mashauri Magai Ag. CONTROLLER AND AUDITOR GENERAL National Audit Office Dar es Salaam Tanzania

14 BANK OF TANZANIA· HOUSING FINANCE PROJECT

STATEMENT OF INCOME AND EXPENDITURE FOR THE YEAR ENDED 30 JUNE 2017 Notes 30.6.2017 30.6.2016 US$ US$

Income Government's contribution 2.1 330,675 362,180 Amortization of project fund(technical assistance) 2.2 903,560 1,404,420 Total funds available 1,234,235 1,766,600

Other fund Interest earned on loans to TMRC & HMFF 2.3 3,082,56 1 2,087,871 Interest earned on government securities 2.4 874,758 149,957 Total other fund 3,957,319 2,237,828 Total income 5,191,554 4,004,428

Expenditure Development of mortgage market 3.0 356,463 992,839 Development of housing microfinance 3.0 131 ,313 103,888 Expansion of affordable housing supply 3.0 302,90 1 233,916 Project management costs 3.0 424,235 691 ,306 Provision for audit fees 3.0 19,466 17,966

Total expenditure 1,234,378 2,039,915

Surplus for the year 4.0 3,957,176 1,964,513 Effects on foreign currency translations 5.0 (758,008} (230,470} Net surplus 3,199,167 1,734,043

15 BANK OF TANZANIA · HOUSING FINANCE PROJECT STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017

Notes 30.6.2017 30 .6.2016 US$ US$ ASSETS Ban k balance 6.1 16,145,833 15,092 ,952 Loan and advances 6.2 34,744 ,598 22,444 ,165 Interest income receivab le 6.3 553 ,330 416 ,931 Investment in governme nt securities 6.4 8,083 ,670 3,262 ,885

Total Assets 59 ,527,431 41,216 ,933

ACCUMULATED FUNDS AND LIABILITIES

Accumulated surplus 4.0 7,685 ,680 4,486 ,513

Liabi liti es Payable to Government of Tanzania 7.1 51 ,786,442 36,712,454 Other Payables 7.2 55 ,309 17,966 Total Liabilities 51 ,841 ,751 36,730 ,420

Total accumulated funds and liabilities 59 ,527 ,431 41 ,216,933

The Project's financia l statements on pages 15 to 40 was approved by the Bank of Tanzania - Housing Finance Project management on ;;i_;;t / J ~I 2017 and was signed on its behalf by :

~ -- Prof. Benno Ndulu Mr. 3ulian B. Raphael Governor· Bank of Tanzania Deputy Governor (AIC) · Bank of Tanzania

16 BANK OF TANZANIA· HOUSING FINANCE PROJECT STATEMENT OF CHANGES IN ACCUMULATED FUND FOR THE YEAR ENDED 30 JUNE 2017

Effects of Notes foreign accumulated currency surplus translation Total US$ US$ US$

Balance as of 1 July 2015 2,752,470 2,752,470 Surplus for the year 1,964,513 1,964,513 Effects of exchange rates (230,470} (230,470} Balance as of 30 June 2016 4,716,983 (230,470) 4,486,513

Balance as of 1 July 2016 4,486,513 4,486,513 Surplus for the year 3,957,175 3,957,175 Effects of exchange rates (758,008} (758 ,008}

Balance as of 30 June 2017 8,443,688 (758,009) 7,685,680

17 BANK OF TANZANIA - HOUSING FINANCE PROJECT STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2017

30.6.2017 30.6.2016 us$ us$ Operating activities Net surplus for the year 3,199,167 1,734,043

Working capital adjustments Increase in receivables (136,399) (177,534) Increase in other payables 37,343 856 Net Cash used in operations (99,056) (176 ,, 678)

Cash flows from investing activities Increase in loans to TMRC& HMFF (12,300,433) (1 ,999,425) Increase in payable to the government 15,073,988 9,297,815 Increase in Investment in government securities (4,820,785} (1,499,369}

Net Cash flow used in investing activities (2,047,230) 5,799,021

Net increase in cash and cash equivalents 1,052,881 7,356,386 Bank balance at the beginning of the year 15,092,952 7,736,566 Cash and cash equivalent as at year end 16,145,833 15,092,952

Represented by Bank balance 16,145,833 15,092,952

18 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the Project's financial statements are set out below:

(a) Basis of Accounting The Project's financial statements have been prepared in conformity with cash receipt and disbursement basis, modified to accrue for outstanding payables and receivables. This is a comprehensive basis of accounting other than generally accepted accounting principles .

(b) Accounting Period The Project's financial statements under review cover an accounting period of twelve (12) months from 1 July 2016 to 30 June 2017 .

(c) Receipts, Income and Payments • Receipts These comprise disbursements by IDA to the Project special bank account together with interest income generated from loans extended to TMRC and other eligible financial institutions under the Housing Microfinance Fund for Housing Microfinance purposes. Other receipts are interest income generated from investment of the Spread Reduction Account (SRA) . SRA is maintained specifically to receive interests from loans extended to TMRC as well as interest income from Housing Microfinance Fund . Balances in this account are invested in Government Bonds and/or Treasury Bills . • Income Government contribution: Th is amount is a contribution in kind as agreed in the Project finance agreement and Project Appraisal Document. The details of calculations are elaborated on Note 2.1. This is recognized in the fi nancial statements on accrual basis. Amortization of deferred loan from IDA: This is the expenditure incurred during the financial year after IDA has approved it as eligible expenditure. The expenditure represents economic benefits to the Project. It is recognized in the financial statements as income on accrual basis . This income should match project expenditure for that period as there is no gain or loss. Interest earned on loan to TMRC: This is interest earned on quarterly basis from loans extended to TMRC . They are recognized in the financial statements on accrual basis. Interest earned on loans to HMFF: These are interest income earned from loans extended to eligible financial institutions under the Housing Microfinance Fund for lending to the target group as Housing Microfinance. Interest earned from investments on treasury bonds/ bills: This relates to interest earned from investment of monies in the Spread Reduction Account in treasury bills and bonds . The interest is recognized on accrual basis and based on effective interest rates .

• Payments All payments are made when good or services have been delivered in accordance to terms of agreement and there are evidences that delivery has been done.

19 BANK OF TANZANIA · HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

(d) Loan to TMRC These are loans extended to TMRC on the agreed arrangement between the Bank of Tanzania (BOT) and Tanzania Mortgage Refinance Company Limited (TMRC) for on lending to Primary Mortgage Lenders (PML) to refinance or pre-finance their mortgage portfolio. These loans are secured by a debenture certificate comprising of treasury bonds/bills or a list of mortgages which have met eligibility criteria. The principal portion of the loans are repaid at an agreed period as bullet payment and recognized in the financial statements at amortized cost.

(e) Loans to HMFF These are loans extended to eligible financial institutions engaged in housing microfinance activities . These loans are secured by a debenture certificate comprising of Treasury Bonds and Bills or a perform ing loan assets or any other legal security that is not encumbered . These loans are paid back at an agreed period specified in the loan agreement. The principal portion of the loans are repaid as bullet payment and are recognized in the financial statements at fair value.

(f) Functional and Presentation Currency The Project's financial statements have been prepared and presented in the United States Dollars (US$) which is the reporting currency. Transactions denominated in other currencies are translated into US$ at the exchange rate prevailing at the transactions dates. Balances at the year-end are translated using the closing rate.

(g) Basis of measurement The financial statements are presented on the historical cost basis except for the financial instruments which are presented at fair value and for the Treasury Bonds held to maturity at amortized cost.

(h) Uses of estimates and judgments The preparation of financial statements requires management to make judgments, estimates and assumptions that are consistent with the applicable policies in reporting assets, liabilities, income and expenses . Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis . Revisions of accounting estimates are recognized in the period in wh ich the estimate is revised and in any future periods affected . Significant estimates are made for the in kind contribution of the government in the form of services the Bank of Tanzania availed to the Project Implementation Unit to run the project such as office space used , stationeries and other facilities .

(i) Financial instruments These are bank balances, loans and advances, receivables , investment in treasury bills and bonds. The treasury bonds and bills are held up to maturity and presented at amortized costs while interests accruing from both financial instruments are recognized using effective interest rate . Further, all other financial instruments such as bank balances together with receivables are stated at their nominal value/cost, which approximates fair value due to the short-term nature of the obligation .

20 BANK OF TANZANIA · HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (j) Impairment of financial assets

The Project management assesses at each reporting date whether or not there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated . Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows , such as changes in arrears or economic conditions that correlate with defaults.

Government securities

The Bank assesses Government securities investments individually to confirm whether there is objective evidence of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows using the original effective interest rate .

The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognised , any amounts formerly charged are credited to the 'Impairment losses on financial investments'.

Loans and advances

Amounts due from banks, loans and advances are carried at amortised cost. The Bank first assesses individually whether or not there is objective evidence of impairment that exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets' carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred)

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss . Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Bank. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced

21 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

by adjusting the allowance account. If a future write-off is later recovered , the recovery is credited to the 'Impairment of loans and advances'. 1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) 0) Impairment of financial assets

The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate. If a loan has a variable interest rate , the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less cost for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank's internal credit grading system that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors . Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted based on current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates , property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

2. INCOME

2.1 Government's contribution The Government of Tanzania supported the Project in the form of in-kind contributions by facilitating the Project through the Bank of Tanzania . The in-kind contribution arrangement is well articulated in the Project Appraisal Document (PAD) whereby the Government of Tanzania is expected to contribute US$ 2 million towards the Project. The in-kind contribution has been apportioned to the Project's components based on the percentage of components' actual expenditure to the total costs of the financial year ended 30 June 2017 . The following was the basis of in-kind contribution : i. Cost of Human Capital: Total emoluments for financial year 2016/2017 for Manager-Technical Assistance Programmes Coordination , Head of Project Management Unit, Assistant Manager-Technical Assistance Coordination and two coordinators. All these are BOT Staff who are directly involved in the implementation of the Project. ii. Telephone Costs: The total cost of telephone of the Bank of Tanzania head office for the financial year 2016/2017. This amount was divided by 47 floors of the entire building and the result divided by 2 since the Technical Assistance Program coordination department, which coordinates the implementation of the Project occupies about half a floor. iii. Water, electricity, stationary and cleaning costs were determined using the same basis as per (ii) above. iv. Rent Contribution: The cost per square meter was estimated at US$ 25 . The total occupied square meters by the Technical Assistance Coordination Department are 520m 2, which result to US$ 156,000 per annum .

22 BANK OF TANZANIA · HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

This rate is similar to that of the Deposit Insurance Board (DIB) where a predetermined price per square meter drawn from the market of renting the office of the same size. 2. INCOME (CONTINUED)

2.1 Government's contribution (continued)

The following is the summary of the government contribution in kind during the year

Exchange 30.6.2017 30.6.2016 Description Currency Amount rate USD USD

Costs of human capital TZS 298,259,274 2,189.52 136,222 165,710 Telephone TZS 19,496,134 2,189.52 8,904 8,826 Water and electricity TZS 47,968,395 2,189.52 21,908 23,594 Rent contribution US$ 156,000 156,000 156,000 Stationary TZS 15,732 ,7 11 2,189.52 7, 186 7,648 Cleaning costs TZS 997,030 2,189.52 455 402 Total 3302675 362,180

It is worth to note that cumulatively up to 30th June 201 7, the Government's contribution in kind has been valued at US$ 1.8 million

2.2 Amortization of Project fund ( technical assistance ) Funds are disbursed to the Project upon cash flow requests , which are based on approved annual work plans. Each request is supported by the expenditure of previous disbursements and by showing how much was left from that part of the loan already disbursed. In the financial year which ended 30 June 2017, expenditure to the tune of US$0.9million (2016: US$ 1.4 million) was incurred from IDA credit as technical assistance. Project annual income is recognized to the extent of this expenditure because income cannot be recognized unti l there is reasonable assurance that all conditions of the World Bank have been met and the entire expenditure has been accepted as eligible. Below is summary of Project expenditure funded by IDA.

Expenditure 30.6.2017 30.6.2016 USD USD Development of Mortgage Market 104,903 787,200 Development of Housing Microfinance 67,430 82,371 Expansion of affordable housing supply 296,226 185,467 Project Management cost 415,535 331,416 Aud it fees 19,466 17,966 Total 903,560 1,404,420

23 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

2. INCOME (CONTINUED)

2.3 Interest income earned on loans to TMRC & HMFF Interest earned on loan to TMRC and HMFF during the year ending 30 June 2017 was US$ 2,703,545 (2016 : US$ 2,022 ,269) . (i) Interest income from TMRC Interest earned on loans extended to TMRC is paid quarterly. Previously, interest rates differed per loan depending on the rate of treasury bills at the time of extending the loan to TMRC . However, during the year, which ended 30 June 2017, interest rate was fixed at 10 percent. Below is the table detailing eligible interest income from TMRC for the year ending 30 June 2017.

Loan Period to Interest Interest tenor Date of Maturity charge amount Interest amount S/N Beneficiary institution Amount (TZS) rate (years) disbursement date interest (TZS) FY 2017 (TZS) FY 2016

1 loan 1 2,500,000,000 8.90% 5.1 15-Nov-11 14-Nov-16 1.00 83,513,699 222,500,000 2 Azania Ban k loan 1 Roll over 2,500,000,000 10.00% 2.0 14-Nov-16 14-Nov-18 0.62 156,164,384 3 Azan ia Bank loan 2 1,700,000,000 14.86% 3.0 1-May-12 30-Apr-15 1.00 4 Azan ia Bank Loan 2 Rollover 1,700,000,000 10.0% 5.1 1-May-15 30-Apr-20 1.00 170,000,000 170,000,000 5 Azan ia Ban k Loan 3 2,500,000,000 10.0% 3.0 27-Jun-13 26-Jun-16 1.00 250,000,000 6 Azan ia Bank loan 3 Rollover 2,500,000,000 10.00% 3.0 28-Jun-16 27-Jun-19 1.00 250,000,000 1,369,863 7 Azania Bank Loan 4 2,500,000,000 10.01% 3.0 31-Jul-13 30-Jul-16 1.00 20,568,493 250,250,000 8 Azania Bank loan 4-extension 2,500,000,000 10.01% 0.5 30-Jul-16 30-Jan-17 0.92 126,153,425 9 Azania Bank loan 4-Roll Over 2,500,000,000 10.01% 3.0 30-Jan-17 29-Jan-20 0.41 103,528,082 10 Bank of Africa loan I 2,750,000,000 10.00% 3.0 27-Jun-13 26-Jun-16 1.00 275,000,000 11 Bank of Africa loan I Rollover 2,750,000,000 10.00% 3.0 28-Jun-16 27-Jun-19 1.00 275,000,000 1,506,849 12 Bank Of Africa Loan 2 3,000,000,000 10.00% 2.5 8-Sep-14 7-Mar-17 1.00 205,479,452 300,000,000 13 Bank of Africa loan 2 roll over 3,000,000,000 10.00% 3.0 7-Mar-17 6-Mar-20 0.32 94 ,520,548 14 DCB loan I 1,500,000,000 10.01% 1.5 30-Aug-13 28-Feb-15 1.00 15 DCB loan I rollover 1,500,000,000 10.00% 2.0 1-Mar-15 28-Feb-17 1.00 99,863,014 150,000,000 16 DCB loan 1 , 2nd roll over 1,500,000,000 10.00% 2.0 28-Mar-1 7 29-Mar-19 0.26 38,630,137 17 Loan 1 3,000,000,000 10.00% 3.0 30-Aug-13 29-Aug-16 1.00 49,315,068 300,000,000 18 Exim Bank Loan 1-Extension 3,000,000,000 10.00% 0.8 29-Aug-16 29-May-17 0.84 224,383,562 19 Exi m Bank loan 1 -Roll over 1,000,000,000 10.00% 1.0 29-May-17 28-May-18 0.09 8,767,123 20 CRDB Bank Loan 1 5,000,000,000 10.00% 3.0 31-Mar-14 30-Mar-17 1.00 373,972,603 500,000,000 21 CRDB Loan 1 Roll over 5,000,000,000 10.00% 3.0 30-Mar-17 29-Mar-20 0.25 126,027,397

24 BANK OF TANZANIA· HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

2. INCOME (CONTINUED)

2.3 Interest Income Earned on Loans to TMRC & HMFF (continued) (i) Interest income from TMRC (continued) Loan Period to Interest Interest tenor Date of Maturity charge amount amount SIN Beneficiary institution Amount (TZS) Interest rate (years) disbursement date interest (TZS) FY 2017 (TZS) FY 2016

22 CRDB Bank Loan 2 5,000,000,000 10.00% 3.0 26-Sep-14 25-Sep-17 1.00 500,000,000 500,000,000 23 CRDB Bank loan 3 7, 000,000,000 10.00% 3.0 4-Jun-15 3-Jun-18 1.00 700,000,000 700,000,000 24 Bank ABC 1,400,000,000 10.00% 3.0 15-Jul-14 14-Jul-17 1.00 140,000,000 140,000,000 25 I & M Loan 1 3,250,000,000 10.00% 3.0 14-Aug-14 13-Aug-17 1.00 325,000,000 325,000,000 26 Azania Bank Loan 5 2,800,000,000 10.00% 3.0 7-0ct-15 6-0ct-18 1.00 280,000,000 204,821 ,918 27 NBC Bank loan 1 2,000,000,000 13.07% 3.0 16-Mar-16 15-Mar-19 1.00 261,400,000 75,913,425 28 Bank of Africa loan 3 5,000,000,000 10.00% 3.0 5-Jul-16 4-Jul-19 0.99 493,150,685 29 DCB Loan 2 2,000,000,000 10.00% 3.0 15-Jul-16 14-Jul-19 0.96 191 ,780,822 30 Barclays Bank Loan 1 5,000,000,000 10.00% 2.7 1-Nov-16 15-Jul-19 0.66 330,136,986 31 NMB loan 1 1, 700,000,000 10.00% 4.1 1-Nov-16 30-0ct-20 0.66 112,246,575 32 CBA Loan 1 3,000,000,000 10.00% 3.0 13-Apr-17 26-Mar-20 0.21 64 ,109,589 33 KCB Loan 1 5,000,000,000 10.00% 3.0 14-Apr-17 23-Mar-20 0.21 105,479,452 34 FNB Loan 1 2,500,000,000 10.00% 5.1 15-Jun-17 14-Jun-22 0.04 10,273,973

Total 99,550,000,000 Expected interest earned in TZS 5,919,465,069 4,366,362,055 Loan matured/cancelled before year end 31,450,000,000 Average exchange rate 2,189.52 2,159.14

Loan balance as at year end 68,100,000,000 Expected interest amount in USO 2,703,545 2,022,269

25 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

2. INCOME (CONTINUED)

2.3 Interest Income Earned on Loans to TMRC & HMFF (continued) (ii) Interest income on loans to Housing Microfinance Fund (HMFF) Loan Period to Interest Interest tenor Date of Maturity charge amount Interest amount SIN Beneficiary institution Amount (TZS) rate (years) disbursement date interest (TZS) FY 2017 (TZS) FY 2016

1 DCB loan 1 1,000,000,000 10.00% 5.1 31-Jul-15 31-Jul-20 1.00 100,000,000 91 ,780,822 2 DCB Commercial bank-Loan 2 2,000,000,000 10.00% 5.1 31-Mar-16 31 -Mar-21 1.00 200,000,000 49,863,013 3 EFC Microfinance bank loan 1 4,000,000,000 10.00% 5.2 19-Aug-16 18-Sep-21 0.86 345,205,479 4 Yetu Microfinance Loan 1 2,000,000,000 10.00% 5.1 28-Jul-16 27-Jul-21 0.92 184,657,534

Total 9,000,000,000 Expected interest earned in TZS 829,863,013 141,643,835

Loan matured before year end Average exchange rate 2,189.52 2,159.14

Loan balance as at year end 9,000,000,000 Expected interest amount in USO 379,016 65,602

(iii) Total interest earned on loans to TMRC & HMFF

30.6.2017 30.6.2016 USO USO Interest income from TMRC 2,703,545 2,022,269 Interest income on loans to Housing Microfinance Fund 379,016 65,602

Total interest earned on loans to TMRC & HMFF 3,082,561 2,087,871

26 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

2. INCOME (CONTINUED)

2.4 Interest earned on government securities (i) Treasury bonds

Portion of Portion of income after income after bond bond amortization amortization Maturity Auction Amortized cost Face value - ad~ustment u~ ad~ustment u~ Details Issue date date no value amount o 30.6. 201 o 30.6. 201 TZS TZS TZS TZS

5 year Bond 30-Apr-15 30-Apr-20 392 3,844,665,723 4,400,000,000 927,851 ,216 102,593 ,195 5 year Bond 27-Apr-16 20-Apr-21 416 2,116,659 ,619 2,696,000,000 484,974,650 11 ,337 ,305 Total income from treasury bonds before 1,412,825,866 113,930 ,500 Exchange rate 2,189.52 2,159.14 US$ Equivalent 645,267 52,767

(ii) Treasury bills Portion of Portion of Maturity Auction Face value income up to income up to Details Issue date date no Cost value amount 30.6.2017 30.6.2016

365 Days -T-bills 7-0ct-15 6-0ct-16 938 1,893 ,178,701 2,176,120,000 75,451 ,013 209,848,130 182 Days-T-bills 1-Dec-16 20-Jun-17 983 5,777,501 ,000 6,200,000,000 422,499,000 182 Days T-bills 29-Jun-17 28-Dec-17 968 11 ,976,999 ,868 12,388,714,000 4,524,331 Total Income from Treasury Bills 502,474,344 209,848,130 Exchange Rate 2,189.52 2159.14 US$ Equivalent 229,491 97,190 Total income earned US$ 874,758 149,957

27 BANK OF TANZANIA· HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

3. PROJECT EXPENDITURE

Project expenditure is recognized on accrual basis. The table below shows the expenditure funded by IDA, Spread Reduction Account and Government of Tanzania (GOT) for the year ended 30 June 2017.

All figures in US$ 30.06.2017 30.06.2016 Spread Spread Funded Deduction Funded Funded Deduction Funded Project expenditure bylDA Account by GOT Total bylDA Account by GOT Total

Development of Mortgage Finance 104,903 251 ,560 356,463 787,200 217,509 992,839 Development of Housing Microfinance Fund 67,430 63,883 131 ,313 82,371 107,340 103,888 Expansion of affordable housing supply 296,226 6,675 302,901 185,467 13,395 233,916 Project management costs 415,535 143 8,557 424,235 331,416 273,315 23,936 691 ,306 Aud it fees 19,466 19,466 17,966 17,966 Total expenditure 903,560 143 330,675 1,234,378 1,404,420 273,315 362,180 2,039,915

28 BANK OF TANZANIA· HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

4. SURPLUS Surplus is generated due to the interest earned from loans extended to TMRC and those of HMFF together with interest income generated from investment of funds from the SRA in Government papers. During the year, ending 30 June 2017 income generated from investment was US$3,957,319, which was netted off by small project management expenditure of U$144 resulting into a surplus of US$ 3,957,176. This surplus was adjusted by the negative effects of foreign currency translations amounting to US$ 758,009 resulting to a net surplus of US$ 3,199,167 while the net surplus from the prior financial years was US$ 4,625,827 thus resulting to cumulative surplus of US$ 7,685,680.

5. EFFECTS OF FOREIGN CURRENCY TRANSLATIONS The Financial statements are presented in United States Dollar (US$) . This is the currency agreed to be used by IDA and Government of Tanzania (GOT) in presenting the financial statements . Transactions in local currency during the year are translated at BOT average monthly exchange rates for the entire financial year. Monetary assets and liabilities are translated at the closing exchange rate on the balance sheet date. The resulting differences from conversion are taken to the Project statement of income and expenditure in the year in which they arise. A table below shows calculations of loss on currency revaluation . Effects on currency valuation on spread and HMFF transactions Balance as at Exchange Balance as at balance as at 30 .06 .2017 rate 30.06 .2017 30.06 .2016 Account Balance TZS Us$ US$ Bank transactions during the year 1,273 ,324,219 2,219 .05 573 ,815 806,697 Loans and Advances during the year 71 ,100,000,009 2,219 .05 32,040 ,738 20 ,444 ,740 Investment in Government Securities during the year 17,938,067 ,651 2,219.05 8,083,670 3,262 ,885 In terest Receivable during the year 1,227 ,866,756 2,219.05 553,330 416,931 91 ,539,258 ,635 41,251 ,553 24,931 ,253

Opening Surplus 9,774 ,945,334 2,178.74 4,486 ,513 2,752,470 Interest earned on loan from TMRC&HMFF 6,749 ,328,082 2,189.52 3,082 ,561 2,087,871 Payable to the Government 48 ,900,000 ,009 2,178.74 22,444 ,165 20,444 ,740 Transfers from HF special Account 24 ,200 ,000 ,000 2219 .05 10,905 ,568 Interest earned on government securities 1,915,300 ,210 2189.52 874,758 149,957 Project Management costs (315,000) 2189 .52 (144) (273 ,315) 91 ,539,258 ,635 41 ,793,421 25,161,723

Effect on foreign currency translation (541,867) (230,470) Effect on foreign currency translation on TZS based transactions (541 ,867) (230,470)

29 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

5. EFFECTS OF FOREIGN CURRENCY TRANSLATIONS (CONTINUED)

Effects on Currency Valuation on HFP bank Accounts based in USD transactions

Balance as at Exchange Balance as at Balance as at 30.06.2017 rate 30.06.2017 30.06.2016 TZS US$ US$ Loans paid by HFP spread account to the HMFF clients 6,000,000 ,000 2,219 .05 2,703,860 Transfers to Spread Reduction Account from HFP special account 24 ,200,000 ,000 2,219.05 10,905 ,567.70

30,200,000,000 13,609,427 Transfers to Spread Bank Account from HFP Account at spot rate 24 ,200,000,000 11 ,058 ,171 Loans paid by HFP Special Ale to HMFF clients at spot rate 6,000,000 ,000 2,767 ,397

30,200,000,000 13,825,568 Effects on foreign Currency translation on USO based transactions (216,141) Grand total effects of foreign currency valuation !758,008) (230,470)

6. FINANCIAL ASSETS Financial assets of the project are loans extended to TMRC for on lending purposes and those loans extended to eligible financial institutions under HMFF, bank balances and interest receivable from TMRC, HMFF loans and investments in Treasury bills and bonds. All financial assets are recognized at amortized cost using effective interest rate . 6.1 Bank balances The bank balances constitute HFP designated accounts of which the funds originate from IDA. It also constitute balances from Spread Reduction Account coming from interests generated from loans extended to TMRC to facilitate either re-financing or pre-financing of mortgage portfolios Primary Mortgage Lenders (PML) together with interest from loans extended to eligible Financial Institutions under the Housing Microfinance Fund . It is worth noting that impairment of cash and bank balances will happen when the project ends, unused cash , and bank balances will be returned to the World Bank.

All figures in USD 30.06.2017 30.06.2016

HFP designated special account 726,992 4,236,255 Spread Reduction Account 180,582 749,356 HMFF Fund 393,233 57,341 HFP -Additional Financing Holding Account 50,549 50,000 HFP-Additional Financing-Special Account 14,794,477 10,000,000

Total 16,145,833 15,092,952

30 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

6.2 Loan and advances (i) Loan to TMRC Loan to TMRC is another financial asset of the project and it is related to component 1 of the Housing Finance Project. Under this component, the funds are provided to TMRC for on-lending to primary mortgage lenders after analyzing the risks and obtaining adequate loan securities in the form of either existing mortgages, if the purpose of the loan is for re-financing , or government bonds if the loan is for pre-financing arrangements. The Bank assigns securities obtained by TMRC from financial institutions to the Bank of Tanzania as securities for those particular loans extended to TMRC . Impairment will happen when there is objective evidence that the financial institution, which obtained a loan from TMRC, is under significant financial problems, or where there is default or delinquency in the payment of principal amount, or where a particular debenture, which used to cover the loan cannot realize the entire amount.

31 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

6.0. FINANCIAL ASSETS (CONTINUED)

6.2 Loan and advances (continued) (i) Loan to TMRC (continued)

The following table is an analysis of loans issued to TMRC as at 30 June 20 17

Interest Interest Expiry Tenor Tenor rate for rate for Interest 1st date on Expiry for for 1st 2nd rate per Name of Loan 1st date on Tenor 1st 2nd rolled rolled annum(%) Loan Loan the Loan Loan roll loan 2nd Loan 2nd of rolled rolled over over of the amount(Tzs) amount(Tzs) beneficiary Issue Expiry over roll roll over loan roll original over over loans loans original as of 30th as of 30th S/N Bank date date date over date over loan loans loans (%) (%) loan June 2017 June 2016 Azania 14-Nov- 14-Nov- Loan 1 15-Nov-11 14-Nov-16 16 18 5 2 10 8.9 2,500,000,000 2,500,000 ,000 Azania 1-May- 30-Apr- 2 Loan 2 2-May-12 1-May-15 15 20 3 5 10 14.86 1,700,000,000 1,700,000,000 Azan ia 28-Jun- 27-Jun- 3 Loan 3 28-Jun-13 27-Jun-16 16 19 3 3 10 2,500 ,000 ,000 2,500 ,000 ,000 Bank of Africa Loan 28-Jun- 27 -Jun- 4 1 28-Jun-13 27-Jun-16 16 19 3 3 10 2,750,000,000 2,750,000 ,000 Azania loan 5 4 31-Jul-13 30-Jul-16 3 10.01 2,500,000 ,000 2,500,000,000 DCB Loan 1-Mar- 28-Feb- 28-Feb- 27-Feb- 6 1 30-Aug-13 28-Feb-15 15 17 17 19 2 2 10 10 1,500 ,000,000 1,500,000,000 Exim Bank 29-Aug- 29- 29-May- 28-May- 7 Loan 1 30-Aug-13 29-Aug-16 16 May-17 17 18 3 10 10 10 1,000,000,000 3,000,000,000 CRDB loan 30-Mar- 31 -Mar- 8 1 31 -Mar-14 30-Mar-17 17 20 3 3 10 5,000,000,000 5,000 ,000,000 Bank ABC 9 Loan 1 15-Jul-14 14-Jul-17 3 10 1,400,000 ,000 1,400,000 ,000 l&M Ban k 10 loan 1 14-Aug-14 13-Aug-1 7 3 10 3,250 ,000,000 3,250,000,000 Bank of Africa loan 7-Mar- 6-Mar- 11 2 8-Sep-14 7-Mar-17 17 20 2 3 10 10 3,000,000 ,000 3,000,000 ,000 CRDB loan 12 2 26-Sep-14 25-Sep-17 3 10 5,000 ,000,000 5,000,000,000 32 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

6.0. FINANCIAL ASSETS (CONTINUED) 6.2 Loan and advances (continued) (ii) Loan to TMRC (continued)

Interest Interest Expiry Tenor Tenor rate for rate for Interest 1st date on Expiry for for 1st 2nd rate per Name of Loan 1st date on Tenor 1st 2nd rolled rolled annum(%) Loan Loan the Loan Loan roll loan 2nd Loan 2nd of rolled rolled over over of the amount(Tzs) amount(Tzs) beneficiary Issue Expiry over roll roll over loan roll original over over loans loans original as of 30th as of 30th S/N Bank date date date over date over loan loans loans (%) (%) loan June 2017 June 2016 CRDB loan 13 3 14-Jun-15 13-Jun-18 3 10 7,000,000,000 7,000 ,000,000 Azania 14 loan 5 7-0ct-15 6-0ct-18 3 10 2,800,000 ,000 2,800,000 ,000

15 NBC loan 1 16-Mar-16 15-Mar-19 3 13.07 2,000,000,000 2,000,000,000 Bank of Africa loan 16 3 5-Jul-16 4-Jul-19 3 10 5,000,000,000 DCB Loan 17 2 15-Jul-16 14-Jul-19 3 10 2,000,000 ,000 Barclays Bank Loan 18 1 1-Nov-16 15-Jul-19 3 10 5,000 ,000,000

19 NMB loan 1 1-Nov-16 30-0ct-19 3 10 1,700 ,000,000 CBA Loan 20 1 13-Apr-17 26-Mar-20 3 10 3,000,000,000 KCB Loan 24-May- 21 1 17 23-Mar-20 3 10 5,000 ,000,000 FNB Loan 22 1 15-Jun-17 14-Jun-22 5 10 2,500 ,000 ,000

Total Loans 68 ,100,000,000 5,900,000,000

Exchange rate 2,219.05 2,178.74

Equivalent in USO 30,688,808 21 ,067 ,222

33 BANK OF TANZANIA· HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

6.0. FINANCIAL ASSETS (CONTINUED)

6.2 Loan and advances (continued)

(iii) Loans under Housing Microfinance Fund These loans are extended directly by BOT to eligible financial institutions with housing micro finance products. These loans relates to Component II of the project. The component seeks to address housing finance needs of low-income population through housing microfinance. A Housing Microfinance Fund (HMF F) has been established to provide loans for up to 5 years or longer to low income households. HMFF started with a seed capital from HFP and will be open to other sources of finance including the Government and donor partners . Under this component, regulatory reforms and capacity building to eligible Microfinance Institutions (MFls) to foster safe lending environment will take place. During the financial year, ended 30 June 2017 two loans amounting to TZS 4.0 billion had been extended from the HMFF resulting to the cumulative total of TZS 9.0 billion loans already extended MFls. These loans are recorded in the statement of Financial Position at fair value. The loans have been secured by specific debentures backed by five years Treasury bond .

Impairment will happen when there is objective evidence that the financial institution which obtained a loan from BOT is under significant financial problems and there cou ld be default or delinquency in the payment of principal amount, or in the circumstances that a particular debenture which used to cover the loan cannot realize the entire amount and there is high probability that the said financial institution will be bankrupt. Below is the summary of the HMMF loans extended during the financial year ending 30 June 2017.

Interest Loan Loan Loan rate amount (Tzs) amount (Tzs) Loan Loan tenor per for year for year issue expiry (years ann um end ing June ending June S/N Beneficiary date date ) (%) 2017 2016 DCB Commercial Bank-Loan1 31 -Jul-15 31-Jul-20 5 10 1,000,000,000 1,000,000,000 DCB Commercial 31-Mar-16 2 Bank-Loan 2 31-Mar-21 5 10 2,000,000,000 2,000,000,000 Yetu Microfinance 28-Jul-16 3 Bank Pie. 6-Feb-21 5 10 2,000,000,000 EFC Tanzania 19-Aug-16 4 Microfinance 18-Aug-21 5 10 4,000,000,000

Total 9,000,000,000 3,000,000,000

Exchange rate 2,219.05 2,178.74

USD Equivalent 4,055,790 1,376,943

34 BANK OF TANZANIA· HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

6.0. FINANCIAL ASSETS (CONTINUED)

6.3 Interest income receivable (i) Interest income from loans to TMRC Interest income receivable related to interest earned from TMRC but not received during the financial year. Interest income is received on the due date. Interest that falls due at the end of the financial year but not received is treated as receivable. This financial asset is impaired if there is an objective evidence that the bank which obtained a loan from TMRC is under significant financial problems and there could be default or delinquency in the interest payment and the high probability that the said bank will be bankrupt. The table showing Interest receivable from TMRC as at 30 June 2017 30.06.2017 30.06.2016 Details TZS TZS

Opening balance 386,731 ,546 427,019,628 Add : Interest earned during the year 5,919,465,068 4,366,362,055

Total Interest earned during the year 6,306,196,614 4179313811683 Less: Interest received during the year (5,495,353,014} (4,406,650 ,137) Interest Receivable 810,843,600 386,731,546 Exchange rate at the end of year 2,219.05 2,178.74 USD Equivalent 365,401 177,502

(ii) Interest income receivable from HMFF Loans Interest income attributable to these loans is receivable each quarter after the loan disbursement date to eligible Micro Finance Institution borrowing the funds from the Housing Microfinance Fund . Each interest income earned but not received at the end of the financial year is recognized as income and recorded as interest income receivable in the statement of financial position . Impairment will happen when there is objective evidence that the financial Institution which obtained a loan from BOT is under significant financial problems and there could be default or delinquency in the payment of the interest amount or in the circumstances that a particular debenture wh ich used to cover the loan and interest payments cannot realize the entire amount and there is high probability that the said financial institution is becoming bankrupt.

35 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

6.0. FINANCIAL ASSETS (CONTINUED)

6.3 Interest income receivable (continued) (ii) Interest income receivable from HMFF Loans (continued) Below is the table summary of interest receivable from the HMFF loans for the financial year ended 30 June 2017 . 30 .06.2017 30.06.2016 TZS TZS

Opening balance 16,712,328 Add: Interest earned during the year 829,863,013 141 ,643,835

Total Interest Earned During the Year 846,575,341 141,643,835

Less : Interest received during the year (747,671 ,251 } (1 24,931 ,507} Interest Receivable 98,904,090 16,712,328 Exchange rate at the end of year 2,219.05 2,178.74

USD Equivalent 44,571 7,671

(iii) Interest receivable from investments in Government Securities Th is interest income is attributed to the investment in Treasury Bills and Bonds . Interest on Treasury Bonds is paid every six months and those on Treasury Bills are paid at the end of the investment period . Apportionment is done to capture the interest income earned but not received at the end of the financial year. Income is recognized in the statement of Income and Expenditure during the financial year and receivable is recorded in the Statement of Financial Position at an effective interest rate translated at the end of the year exchange rate .

Impairment is done when it is clear that the Government will fail to honor its obligation . Below is the table summarizing the Interest income receivable on Treasury bills and Treasury bonds. Summary 30.6.2017 30.6.2016 TZS TZS Opening income receivable 504,940,425 54,240,100 Add: Interest earned 1,170,031,790 652,659,086

Total interest available 1,674,972,215 706,899,186 Less: Interest received during the year (1 ,356,853,098} (201 ,958,761 }

Interest not received 318,119,117 504,940,425 Exchange rate 2219.05 2,178.74

Equivalent in USD 143,358 231,758

36 BANK OF TANZANIA· HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

6.0. FINANCIAL ASSETS (CONTINUED)

6.3 Interest income receivable (continued)

(iv) Interest Receivable from Investments in Government Securities (continued)

Table below is the summary of the total interests receivable from loans to TMRC, HMFF and from investments in Government securities.

30.6.2017 30.6.2016 US$ US$ Interest income receivable from TMRC Loans 365,401 177,502 Interest income receivable from HMFF loans 44,571 7,671 Interest income receivable from government securities 143,358 231 ,758

Total 553,330 416,931

6.4 Investment in Government Securities Total amount of TZS 17,938,067,651 was recorded as investment in Government securities during the financial year which ended 30 June 2017 . This translated to US$ 8,083,670 comparing to TZS 7,603,852,846 of 30 June 2016 equivalent of US$ 3,490,023. The increment in the investment is due more investment in Treasury Bills of 182 days and revaluation of the two 5-year Treasury Bonds as indicated in the table below. The investment in treasury bills and treasury bonds recognized in the statement of financial position at amortized cost.

37 BANK OF TANZANIA· HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

6.0. FINANCIAL ASSETS (CONTINUED)

6.4 Investment in Government securities (continued)

Below is a summary of cumulative investment as of 30 June 2017 (i) Investment in Treasury Bonds

Amortized Amortized Maturity Auction cost value as cost value as Details Issue date date no at 30.6.2017 at 30.6.2016 TZS TZS

5 year Bond 30-Apr-15 30-Apr-20 392 3,844,665,724 3,334,907,990 5 year Bond 27-Apr -16 20-Apri-21 416 2,116,402,060 1,880,891 ,809 Prior year adjustment 494,874,646

Total investment Treasury Bonds 5,961,067,784 5,710,674,445

Exchange rate 2,219 .05 2,178.74

US$ Equivalent 2,686,315 2,621,090

(ii) Investment inTreasury Bills

Maturity Auction Fair value as Fair value as Details Issue date date No at 30.6.2017 at 30.6.2016 TZS TZS

365 Days -T-bills 8-0ct-15 6 Oct-16 938 1,893,178,701 365 Days -T-bills 29-Jun-17 28-Dec-1 7 983 11 ,976,999,868

Total Investment in Treasury Bills 11 ,976,999,868 1,893,178,701

Exchange rate 2,219.05 2178 .74

US$ Equivalent 5,397,355 868,933

Total investment in Government securities 8,083,670 3,490,023

38 BANK OF TANZANIA· HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

7. FINANCIAL LIABILITIES

Project's financial liabilities are constituted by the cumulative amount of the loan from the government funded by IDA for the purpose of on lending to TMRC and other eligible Financial Institutions under HMFF. Other payables were mainly provision for audit fees and accrued project expenses that are recognized at amortized cost in the statement of financial position.

7.1 Payable to the Government These are cumulative funds from the Government received by BOT for financing various eligible expenditure under the Project. These funds include, technical assistances for institutional capacity building , mortgage loans for TMRC and housing micro loans for financial institutions (Fis) borrowing under HMFF. Funds used for technical assistances are considered as a grant and are always amortized every year. Funds spent as loans to TMRC and to HMFF for eligible Fis will be repaid by BOT to the Government. Repayment arrangements are defined under schedule 3 of the financing agreements under Project number 4712-TA and 5590-TZ between IDA and URT as detailed below:

Details Project no 4712-TA Project no 5590-TZ Repayment period On each May 15 and November 15 On each August 15 and February 15 Commencing date for 15 May 2020 to and including 15 15 August 2021 to and in 15 the first payment phase. November 2029 at the rate of 1 February 2053 at the rate of percent of the total credit. 1.5625 percent of the total credit. Commencing date for 15 May 2030 to and including 15 the second payment November 2049 at the rate of 2 phase. percent of the total credit.

BOT will follow the schedule of repayment as stated in the table above with regards to the amount payable to the Government. Further, BOT will transfer to the Government the portion of repayable amount for a particular period , one week in advance to ensure that the Government complies with the requirement of the financing agreements. The entire payable amount will be derecognized from the books of accounts at the time the entire amount has been repaid to the Government as per the financial records . Below is a summary of the amount payable to the Government:

30.06.2017 30.06.2016 US$ US$ Opening balance 36,712,454 25,785,749 Add funds from the Government during the year 15,977,549 12,331 ,125

Total funds during the year 52,690,003 38,116,874 Less funds spent on technical assistance during the year {903,561} {1,404,420} Total funds payable to the Government at the end of the year 51,786,442 36,712,454

39 BANK OF TANZANIA - HOUSING FINANCE PROJECT

NOTES TO THE PROJECT FINANCIAL STATEMENTS (CONTINUED)

7. FINANCIAL LIABILITIES (CONTINUED)

7.2 Other payables Other payables relate to the audit fees for the financial year ended 30 June 2017, which has been approved by the World Bank and BOT and accrued expenses relating to fees and reimbursable to the Project management costs .

30.06.2017 30.06.2016 US$ US$ Audit fees 19,466 17,966 Accrued expenses 35,843 Total other payables 55,309 17,966

8. RELATED PARTY TRANSACTIONS There were no related party transactions during the year.

40