MOSTAFA SHAWKI & CO MEDIUM. SMALL AND MICRO ENTERPRISES DEVELOPMENT AGENCY PROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT FINANCED BY INTERNATIONAL DANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN NUMBER 8345-EG FINANCIAL STATEMENTS TOGETHER WITH AUDITOR'S REPORT FOR THE PERIOD FROM JANUARY 1, 2017 TO DECEMBER 31, 2017 MAZARS MEDIUM, SMALL AND MICRO ENTERPRISES DEVELOPMENT AGENCY PROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT FINANCED BY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN NUMBER 8345-EG FINANCIAL STATEMENTS TOGETHER WITH AUDITOR'S REPORT FOR THE PERIOD FROM JANUARY 1. 2017 TO DECEMBER 31, 2017 Table of Contents Page No. EXECUTIVE SUMMARY 1. Basis of Assignment 1 2. Objective of the audit I 3. Scope of audit work I 4. Report Limitation 3 STATEMENT OF THE PROJECT Auditor's Report 4 Statement of Financial Position 5 Notes to the Financial Statements 6 Annexes: Sources and uses of fund I Cash withdrawals II Cash forecasts III Special account reconciliation IV Variance analysis V Bank Statements VI MAZARS MOSTAFA SHAWKI & CO To Ms. Nevine Gamea Managing director Medium, Small and Micro Enterprises Development Agency Dear Ms. Gamea, This report presents the results of our audit of the financial statement of Promoting Innovation for Inclusive Financial Access Project implemented by Medium, Small and Micro Enterprises Development Agency financed by International Bank for Reconstruction and Development for the period from January 1, 2017 to December 31, 2017. EXECUTIVE SUMMARY 1. Basis of the Assignment Medium, Small and Micro Enterprises Development Agency has assigned Mazars Mostafa Shawki to conduct audit in accordance with Terms of Reference (TOR), as per objectives of the audit section below. 2. Objectives of the Audit The primary objective of the audit engagement is to enable us to express professional opinion whether the Project Financial Statements (PFS) show true and fair presentation of the Project's financial position for the period from January 1, 2017 to December 31, 2017 and fund receipts and expenditures incurred during the period then ending. To accomplish this objective, we will carry out whether necessary examinations of the statements and underlying records and control systems. The audit opinion should also state whether the Procurement Guidelines of the World Bank have been properly applied and in accordance with the Project's Agreement. 3. The scope of audit work 3.1 The audit of Project accounts and funds flow is considered as special purpose contractual agreement audit which in addition to compliance with International Standard on Auditing, the auditor need to consider the World Bank reporting requirements, compliance with the World Bank Procurement Guidelines. The audit scope includes: a. All funds provided to the Project have been used, accounted for and classified in accordance with the relevant financing agreements; b. Goods and services financed have been procured in accordance with the relevant financing agreement; c. All necessary copy of supporting documents, records, and accounts have been kept in respect of all project ventures. Clear linkages should exist between the books of account and reports presented to the Bank; 153 MOHAMED FARID STREET, BANK MIsRTowER. P.O. Box 2095, CAIRO 11518, EcvPr TEL: (02) 2391 7299. 2390 1890 FAx: (02) 2393 9430 E-mail: mshawkli@mshawki.com www.mazars.com.eg www.mshawki.com MAZARS MOSTAFA SHAWKI & CO d. Where Special Accounts have been used, they have been maintained in accordance with the provisions of the relevant financing agreement; e. Compliance with specific covenants of the Loan Agreement and Project Appraisal Document (e.g. compliance with the short-term and long-term borrowing conditions, cash flow covenant); f. Determine eligibility of expenditures claimed under Statement of Expenditures submitted to the World Bank for replenishment. This is in addition to substantiation of these expenditures; g. Audit all correspondences with the World Bank in relation to the Project including copies of the Aide Memoires, Mission Reports, and assess progress on all financial issues. h. In addition to point "g" above, we will audit of the Medium, Small and Micro Enterprises Development Agency internal Audit Reports concerning the project when determining the sample of NGOs and ultimate beneficiaries that will be visited under the audit operation. The sample selected should be on a risk-based approach using all the available reports and correspondence at the Medium, Small and Micro Enterprises Development Agency i. At the level of ultimate beneficiary, selected within our sample, we will ensure the reasonability of the use of Operating Cost and that such Operating Cost is not used in high percentages compared to the total amount of the loan provided and that such cost is in accordance with the items specified under the legal agreements of the project. 3.2 In accordance with International Standards on Auditing, We will pay attention to the following: a. Fraud and Corruption: In accordance with ISA 240 (The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements) we will identify and evaluate risks related to fraud, obtain or provide sufficient evidence of analysis of these risks and assess properly the risks identified or suspected; b. Laws and Regulations: In preparing the audit approach and in executing the audit procedures, we will evaluate the compliance with the provisions of laws and regulations that might impact significantly the PFSs as required by ISA 250 (Considerations of Laws and Regulations in an Audit of Financial Statements); c. Governance: Communicate with the Project Management responsible for Governance regarding significant audit issues related to governance in accordance with ISA 260 (Communication with those charged with Governance); and d. Risks: With a view to reducing audit risks to a relatively low level, we will apply appropriate audit procedures and handle anomalies/risks identified during their evaluation. This is in accordance with ISA 330 (The Auditor's Responses to Assessed Risks). MAZARS MOSTAFA SHAWKI & CO 4. Report Limitation This report is intended solely for the use of the Medium, Small and Micro Enterprises Development Agency and International Bank for Reconstruction and Development. It is not authorized to be used for any other purpose. The attached report and procedures include details of the work performed, together with related fndi y @urs, A KI MAZARS MOSTAFA SHAWKI & CO INDEPENDENT AUDITOR'S REPORT To the management of Medium, Small and Micro Enterprises Development Agency International Bank for Reconstruction and Development Cairo, Egypt. Loan Agreement No. 8345-EG We have audited the financial statements of Promoting Innovation for Inclusive Financial Access Project financed by International Bank for Reconstruction and Development, under loan Agreement No. 8345-EG managed by Medium, Small and Micro Enterprises Development Agency, which comprise the statement of financial position, Sources and Uses of Fund, Cash Withdrawals, Cash Forecast and Special Account Reconciliation as of December 31, 2017, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Project as of December 31, 2017, Sources and Uses of Funds, Cash Withdrawals, Cash Forecast and Special Account Reconciliation for the year then ended. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Project in accordance with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternative but to do so. 153 MOHALM FARID STREEt, BANK MISR TOWER, P.O. Box 2095,CAino 11518, EcYPT TEL: (02) 2391 7299 - 2390 1890 FAx: (02) 2393 9430 E-mail: mshawki@mshawki.com www.mazars.com.eg www mshawki.com MAZARS MOSTAFA SHAWKI & CO Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The project management's policy is to prepare the accompanying statement using the cash receipts and disbursements basis. Therefore, revenue is recognized when received rather than when earned, and expenses are recognized when paid rather than when incurred, which is a comprehensive basis of accounting other than International Financial Reporting Standards. Cairo, July 25, 2018 Au TAW t S M WKI MEDIUM, SMALL AND MICRO ENTERPRISES DEVELOPMENT AGENCY PROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT FINANCED BY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN NUMBER 8345-EG STATEMENT OF FINANCIAL POSITION FOR THE PERIOD FROM JANUARY 1. 2017 TO DECEMBER 31, 2017 (Amount expressed in US Dollar) Note For the period Cumulative since from 1/1/2017 inception date to 31/12/2017 Sep.30,2014 Assets: Non-current assets Long term loan (4) 13,993,387 284,702,787 Funds received 13,993,987 284,702,787 - The accompanying notes are an integral part of this financial position statement. - Auditor's report is attached Chief Financial and Operations MEDIUM, SMALL AND MICRO ENTERPRISES DEVELOPMENT AGENCY PROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT FINANCED BY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN NUMBER 8345-EG NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM JANUARY 1, 2017 TO DECEMBER 31, 2017 (Amount expressed in US Dollar) 1. BACKGROUND The International Bank for Reconstruction and Development signed a loan agreement No.8345-EG on April 12, 2012 with the government of the Arab Republic of Egypt represented by the Ministry of International Cooperation to expand access to finance for micro and small enterprises in The Arab Republic of Egypt. Medium, Small and Micro Enterprises Development Agency as an implementing entity for the implementation of the project. The project will be implemented between April 12, 2012 and December 31, 2019 is the agreement scheduled closed date. The objectives of the project is to expand access to finance for micro and small enterprises in the Arab Republic of Egypt, using innovative financing mechanisms, with a special focus on youth and women, as well as underserved regions. The project consists of Line of credit - Establishment and operation of a line of credit by the project implementing entity for the purpose of providing financing through participating financial institutions to micro and small enterprises. According to the Loan Number 8345-EG with the International Bank for Reconstruction and Development (IBRD), Section (IV), schedule (2) "Project Execution" withdrawal of loan proceeds, by the borrower (Medium, Small and Micro Enterprises Development Agency) should adopt the following allocation of the amounts of the Loan to each category and the percentage of expenditures for items to be financed in each category: Category Amount of the Loan Percentage of Allocated Expenditure (expressed in USDI to be financed (1)Sub financing for subprojects 299,250,000 100% (2)Interest rate cap or interest rate collar Amount due under Section premium -- 2.07 of the loan agreement Amount due under section (3) Front-end Fee 750,000 2.03 of this agreement in accordance with section 2.07 of the general conditions TOTAL AMOUNT 300,000,000 Loans Repayment condition The borrower shall repay the principal amount of the credit in the amount of US$ 300,000,000 in semi-annual installments payable on each January 15 and July 15, commencing July 15, 2021 and ending July 15, 2042. Each installment payable up to January 15, 2042 shall be 2.33% of such principal amount and each installment thereafter shall be 2.14% of such principal amount. 2. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of the fund accountability statement are as follows: (2-1) Accounting Policies: The financial statements have been prepared on the cash basis of accounting. On this basis revenues are recognized when received rather than when earned and expenditures are recognized when paid rather than when incurred expect for cash forecast statement which was prepared according to the anticipated cash disbursements during the next six months after the reporting date. The forecasted amount may be based and the future expectations of withdrawals based on the experience of Medium, Small and Micro Enterprises Development Agency and the expected installments to be transferred to the project financial intermediaries according to their relative signed or to be contracts. (2-2) Foreign Currency The project maintains its accounts in USD. Revenues are received in USD. Expenditures which represent amount delivered to intermediary institutions, were paid in LE and translated to USD with the exchange rates prevailed at the date of transferring such amounts from Medium, Small and Micro Enterprises Development Agency to the project financial intermediaries. Expenditures that represent amount transferred to end beneficiaries were paid in L.E and translated to USD using actual exchange rates prevailed at the date of transferring cash from Medium, Small and Micro Enterprises Development Agency to intermediary institutions using "First in First out method". As for the cash forecast statements, forecasts are made in accordance to signed (or expected to be signed) contracts with intermediary agencies in Egyptian pounds and are translated to USD using the prevailing rate at the date of reporting (US$=LE 17.8240). 3. SPECIAL ACCOUNT FOR (PIIFAP) NO 04/015/16759/4 : The special account for PIIFAP amounted to US$ 8,016 as of December 31, 2017. 4. Amounts refunded from projects : Code Project Amount L.E 4727 Promotion of small enterprises ( leasing) 49,475 4740 Promotion of SMEs SAIB 46,508 4741 Promotion of SMEs (Audi)IDA- 4,653,144 Promoting Innovation 4736 Mosharkah (United Bank) IDA-Promoting 4,631 Innovation Total 4,753,758 The Medium , Small and Micro Enterprises Development Agency did record the refunded balances from projects amounted to LE 4,753,758 equivalent to USD 543,779 in the Medium, Small and Micro Enterprises Development Agency Bank Account which is reported in the special account reconciliation due to the refunded amounts in EGP and the special account currency USD. 5. RECEIPTS FROM IBRD FUNDS Receipts from IBRD Funds account represents the amount of withdrawals requests presented by the management of Medium, Small and Micro Enterprises Development Agency to the World Bank. The following details are the approved withdrawals requests: Receipts from IDA Funds Withdrawal request No. Receiving date US$ 1 30/09/2014 81,245,626 2 7/03/2015 53,670,957 3 16/06/2015 53,943,080 4 16/09/2015 17,091,272 5 28/12/2015 9,009,619 6 30/03/2016 55,196,225 7 14/12/2016 552,621 8 5/12/2017 13,993,387 Total fund received till 31/12/2017 284,702,787 Annex I: Sources and Uses of Fund Statement :, г * � s' � �•� ._.. - �...�.. � _..а.пr� ла • ����ааrт'ras .- ,...� а-rп�_�_У � � � а w�. . . .f , � л � � ~ �~ч +. �_�. � � •-- �� ���': :�.7 - - .-'r= �.....� .�г.:�..га:: � -. � - '3 "' •" 1�1 г - - _ ' . . . ,' � _ � � , а � „ - r _ � .� �, � _�=�.т ;g�}��s • • ' -� : . • '1 � ,� � � � . - • -�: r-ti , .. � � n n n,. � t � -�-�=� . . . , t+",�� ^� н н н �.� � �: i1's . � � ^ п�г ' п � i'� • � i Т .�t.e �f � Л � , � � � � �� � �� � � � � i �0' н i ,Р.� . 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MTFMENTS MENSES rN 171227 171131 CLOSING BALANCE 8,016.20 CLOSING AVAILABLE BALANCE 8,016,20 DatdTirne 02-01-2018 1:20:471 Page 10 of 44 User: MOHAMED 4