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World Bank Document Public Disclosure Authorized THE UNITED REPUBLIC OF TANZANIA 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 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 BANK 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 BANK OF TANZANIA· 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 Loan 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 Zanzibar 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 loans 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 banks . 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
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