South African Micro-finance Apex Fund samaf ANNUAL REPORT 2009/10 1

Contents 2 Mandate Vision, Mission & Values Products and Services Auditor General Report What has samaf done since inception 2009/10 Performance 2009/10 Financial Performance Human Resources Report Effective Use of New Technology Supply Chain Management Corporate Governance Challenges

Mandate 3 Contribute to Government’s poverty reduction goals by acting as a catalyst for the development of an effective micro-finance sector through: Support for the establishment of sustainable micro-finance institutions that can reach deeper and broader to the enterprising poor; Facilitating the establishment of an enabling environment for effective financial intermediation and facilitation of working markets for the enterprising poor; and Building a strong, effective and efficient Apex Fund.

Vision 4 Active participation of enterprising poor in economic activities is robust and bears fruit; Reduction of financial troughs for a better livelihood; Sustainable Financial Intermediaries (FIs); Adoption of best practise models; Competent employees; Utilisation of systems in delivery of services; and A financially sustainable samaf samaf envisions a country in which a network of sustainable micro-finance institutions broadens and deepens access to affordable financial services by the enterprising poor. This is achieved when:

Mission 5 Provide developmental financial and non-financial services to FI’s (MFI’s & FSC’s) through: The effective mobilisation and wholesaling of capital for micro-finance institutions with proven potential; The development of human capital in the economic environment through capacity building and institutional development; Contribute to policy development with respect to micro-finance to inform and support samaf staff, its partners, and stakeholders; and The development of valuable partnerships between business, Government and the community.

Values 6 The following values will underscore samaf’s behaviour as it strives towards the achievement of its mandate, vision and mission: Integrity - Dealing with stakeholders in an honest and ethical manner; Transparency - Ensuring compliance to best practice on the dissemination and sharing of information with all stakeholders and consult with them to ensure comprehensiveness and buy-in to samaf activities; Professionalism - Adhere to specific defined norms and setting standards of workmanship, respect, and communication; Accountability - Taking responsibility for the decisions and actions, including allocation of powers and duties; and High Performance - Excellent performance and satisfied customers that guarantee long term sustainability of the South African Micro-Finance Apex Fund.

Products and Services 7 samaf offers three main products and services namely Financial Services,Technical Support and FSC Supervision. Financial Services: Loans - samaf can provide loans to a maximum of R10 million to its FIs, who in turn can provide loans to its clients up to a maximum of R Capacity building - the following are the capacity building interventions that samaf offer: Loan linked grant: MFI’s receive a maximum of 50% of the total loan amount approved whilst FSCs receive a maximum of 170% of the loan approved. R grant: This grant is not linked to the loan and is given to FSCs that are still to be capacitated in terms of training and operational costs. Technical support: samaf staff provide technical support such as the development of operational policy documents, training of FSCs, etc. FSC Supervision: samaf is mandated to regulate and supervise all FSCs in South Africa in terms of Exemption Notice 887 of the Banks Act.

Auditor General Report 8 Basis for qualified opinion A number of journals were passed during the system implementation process. Management failed to provide sufficient and appropriate explanation to substantiate journals. Emphasis of matter Auditor General opinion is not modified in respect of the following matters: Restatement of corresponding figures Irregular expenditure Material impairments Non-consolidation of controlled Financial Intermediaries

Auditor General Report - continued 9 Report on other Legal and Regulatory Requirements: The following findings were issued: Non-Compliance with regulatory and reporting requirements Lack of effective, efficient and transparent systems and internal controls regarding performance management. Usefulness of reported information. Changes to planned performance information not approved. Planned and reported performance targets not verifiable. Reliability of reported Information. Reported targets not valid, accurate ad complete as inadequate supporting source information was provided.

10 Despite not having a local benchmarking model, the entity has to date built a network of 51 FI’s, directly benefiting very small survivalist entrepreneurs with total loans of R49,8m. samaf has spent R26.3m in grant support to build the capacity of the FIs which extend services to poor communities through their lending and savings mobilisation programmes. An infrastructure network has been established through samaf’s nine (9) provincial offices. samaf employs 61 people, of whom 34 are deployed in provinces. What has samaf done since inception

/10 Performance MEASURETARGETACTUALREASON FOR VARIANCE MFIs supported811 FSCs supported104 Required standards not met first time No. of end users Household Impact End-user women profile67%86% End-user rural profile50%75% End-user semi-urban profile50%25% Loan utilisation Enterprise Housing Education 40% 25% 35% 75% 15% 10% FI loan repayment rate50%92%

12 Demographic Split 2009/10 Performance

/10 Performance MEASURETARGETACTUALREASON FOR VARIANCE No. of active savers Total savings bookR3,9mR3,4m Recession is possible reason End User satisfaction50% Stakeholder satisfaction60% Customer retention10%60% Client complaints60% Profile of services consumed Loans Grants/CapacityBuilding Savings Mobilisation/RRS 40% 50% 10% 68% 31% 1% FIs did not meet standards Target reviewed during mid yr Loans disbursedR20mR13,1m Non-compliance with standards Grants disbursedR10mR6,3m

14 Yearly Performance Comparison

15 Disbursements - Provincial Split (R’m) as at 31 March /10 Performance by Province

/10 Performance

/10 Performance MEASURETARGETACTUALREASON FOR VARIANCE % improvement of FIs from baseline20%5% Target removed during mid yr review Stakeholder brand awareness50%40% FI improve - service delivery quality50%40% No. of accredited FSCs60%82% Cost per rand disbursedDev toolNone Financial system delayed % of services within agreed turnaround times 60%30% FIs not meeting standards Review Credit Policy100% Implementation of Credit Policy100%40% Policy implemented late in F/Y Credit Policy fully implemented60%100% Implement due diligence40%100%

/10 Performance MEASURETARGETACTUALREASON FOR VARIANCE Approval of revised org. StructureApprovedProposed Deferred to new dept for approval Capacity building on: Financial systems & controls FI risk management Loan monitoring & tech support 60% 55% 80% 60% New system implemented Institutional capacity a challenge Work skills plan100% Succession plan100%Policy done Implementation takes longer Employee satisfaction rating index20%70% Complaints hampering progress % units comply to perform management 100%61% 94% contracted on time, 61% half yr review done on time. Budget variance20%37% FIs did not meet requirements Total operating cost to total budget100%94% Cost to income ratio58%54%

/10 Performance MEASURETARGETACTUALREASON FOR VARIANCE Portfolio at risk40%31% % write off50%17% % advisory board meetings 100%25% Resulted in lack of quorum Corporate audit qualification Technical qualification Accounting qualification Due to improper management of implementation of new accounting system

/10 Financial Performance Statement of Comprehensive Income

/10 Financial Performance

/10 Financial Performance

/10 Financial Performance

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Human Resources Report 25 Training and Development One Senior Manager and eight (8) Outreach Coordinators were identified to go on a Micro-finance Course at the University of Pretoria Staff Turnover Rate The staff turnover rate for the year ended 31 March 2010 was 1.3%.

Human Resources Report - continued 26 Financial Misconduct Disciplinary action is being taken against those found guilty of Financial Misconduct. Project Bokamoso The project was commissioned to map a clear strategy in order to shape the organizational culture into performance driven environment. The project was structured to address samaf challenges through five work streams as follows: Organizational design and structure; Balanced scorecard; Talent Management; Performance Management; and Change Management

Effective Use of New Technology 27 Upgrade of Productivity Tools The following productivity tools were implemented during the period under review: Microsoft Office 2007 Symantec Anti-Virus Symantec Back-Up Exec ERP Implementation A project was initiated to implement a ERP system with the following modules: AccPac – Financial Management Assetware – Asset Management VRM – Vendor Relationship Management eWorkflow – Automation of Procurement Process Only AccPac was implemented during the year under review

Supply Chain Management 28 The supply chain management process performed satisfactorily. There were deviations from the policy and procedure by samaf officials.

Corporate Governance 29 There has been steady progress in the refinement and improvement of corporate governance at samaf, particularly with respect to the operations of the key governance structures. Name of Committee Date Established No of Meetings Members ExecutiveIndependent Advisory BoardOctober Audit CommitteeJune Credit CommitteeDecember Risk Management CommitteeFebruary Rules, Registration, Supervision & Stabilisation Committee(RRSS)August Executive Committee (EXCO)April Tender/Bidding CommitteeJune Internal Audit Function Outsourced to GFIA (Gobodo Forensic Investigation Accountants)

Challenges 30 Appropriate skills, leadership & accountability at senior levels within samaf Lack of skills within the micro-finance sector Sustainability of FI’s (MFI’s & FSC’s) Turnaround times Cumbersome systems & processes Ineffective reporting & performance management systems Profit margin for start-ups is small. Deposit taking insurance – samaf FSC’s not covered in terms of the Bank Insurance Act. Challenges in Provinces due to socio-economic conditions.

Acronyms 31 AcronymDefinition the dtiThe Department of Trade and Industry EDDEconomic Development Department EXCOExecutive Committee FSCFinancial Services Co-operatives MFIMicro-finance Institution RRSSRegistration, Regulation, Supervision and Stabilisation FIFinancial Intermediary GFIAGobodo Forensic Investigation Accountants PFMAPublic Finance Management Act PARPortfolio at risk samafSouth African Micro-finance Apex Fund SMSSenior Management Service

32 Thank You