2330 Review Summary Memorandum - June 30, 2014

NRSP Microfinance Bank Limited

Review Summary MemorandumFor the Period Ended June 30, 2014

Deloitte.M. Yousuf Adil Saleem & Co.

Chartered Accountants

ENTITY AND ITS BACKGROUND

Engagement risk:

Key matters arising from review of ethics including: Results of conflict of interest check

Issues arising from updating identification procedures/background checks

Significant threats to our independence and objectivity and appropriate safeguards/response

Sufficiency of professional competence and experience

Audit committee pre-approval where relevant

NRSP Microfinance Bank Limited (the Bank) was incorporated as a public limited company incorporated in Pakistan on October 22, 2008 under the Companies Ordinance 1984. The Bank received license by the State Bank of Pakistan (SBP) to operate as a microfinance bank on February 18, 2009, and received certificate of commencement of business from Securities and Exchange Commission of Pakistan (SECP) on February 8, 2011. Further SBP approved the application of the Bank for commencement of business on February 28, 2011.The Bank was established to mobilize funds for providing microfinance services to economically challenged people for mitigating poverty and promoting social welfare and economic justice through community building and social mobilization with the ultimate objective of poverty alleviation.The Bank’s registered office is situated at 46, Aga Khan Road, F/6-4, Islamabad and principal place of business is situated at University Road, Bahawalpur. There are 54 branches of the Bank as at June 30, 2014 (2013: 48 branches).

Based on the preliminary assessment of engagement risks and results of test performed, we conclude that the risk associated with the engagement is “ACCEPTABLE”; therefore we can accept to serve the entity.

The preliminary assessment of engagement risk was assessed to be greater than "GREATER THAN NORMAL” due to the reason that the client is a financial institution.

The assigned partner and staff are independent of the client, there are no known ethical issues, and the name of the client has been circulated to the Firm.

This is our third year of engagement. Appropriate background checks have been performed before making our “client retention” decision for the year 2014.

All the engagement team have signed independence forms which state that the teams have no financial or other interest in the entity and all the teams members have directed that they are not holding any equity shares in the Company, directly or indirectly.

Responding to the assessed risk and performing the audit is reliant upon an appropriate engagement team. Collectively, the selected engagement team has the appropriate capabilities, competence, and time to perform the audit engagement.

The audit committee of the Bank recommended for the appointment of M. Yousuf Adil Saleem & Co as auditors for the next year.

Terms of engagement particularly any imposition of limitation of scopeTerms of engagement are normal therefore there is no scope limitation.Planned references to our review report

Quality control proceduresSince NRSP MFB is a public un-listed company in financial sector, EQCR will be performed by the EQCR department of the firm.

Engagement teamName Designation SpecialtyTalat Javed Engagement Partner Applicable accounting standards and expertiseRana Usman Khan Executive Director Applicable accounting standards and expertiseAsad Mustafa Manager Applicable accounting standards and expertiseHasnain Ejaz Supervisor Applicable accounting standards and expertiseHammad Haider Supervisor Generalist with training and experience appropriate for levelZohaib Arif Senior Generalist with training and experience appropriate for levelMuhammad Haris Senior Generalist with training and experience appropriate for levelMohsin Jamel Senior Generalist with training and experience appropriate for level

KEY MATTERS ARISING FROM PLANNING

KEY PLANNING CONSIDERATIONSMateriality

June 30, 2014 June 30, 2013Rupees Rupees

Materiality 50,100,000 39,000,000 Performance Materiality 45,090,000 35,100,000 Clearly Trivial Threshold 2,505,000 1,950,000

Since audit report of annual audit for the year ended December 31, 2013 was unmodified and in performing preliminary update of understanding and discussions with management we did not come across any significant matter at the planning stage of this review.

As selected by senior engagement team members, the benchmark is total assets to determine the materiality.

Understanding the entity and its environment, including internal control, developments/changes in the entity’s business and its environment in the period under review and in particular key changes

There is no significant change in business, the bank's environment and internal control components during our review period.

(a) Accounting policies and accounting pronouncements that affect the financial information During the period, no such accounting pronouncement has been issued which might affect the financial statements.(b) Risks IdentifiedFollowing risks were identified and on the basis of preliminary review procedures performed:a) Compliance Risk

Review procedures performedEnsured throughout the review engagement that the bank is in compliance with the provisions of prudential regulations.

Conclusion:Satisfactory

b) BorrowingsThere is a risk that amounts of borrowing from different banks are misstated.

Review procedures performed

Significant financial accounting and reporting The financial statements are reviewed (un-audited) and our review report is being addressed to the members. The financial statements of the Bank for the year ended June 30, 2014 has been prepared in accordance with the requirements of the International Financial Reporting Standards, Companies Ordinance, 1984 and Microfinance Institutions Ordinance, 2001. The financial statements are prepared for the purpose of consolidation with NRSP NGO.

§ The industry of the Bank is highly regulated; therefore there may be pressures on the management to show a compliant picture of the Bank’s financial information in the following areas:§ Capital adequacy ratio – PR4 (iii)§ Exposure against contingent liabilities – PR5§ Maintenance of cash reserve and liquidity - PR6§ Statutory reserve – PR7§ Depositors’ protection fund – PR8

Obtained agreement of loans under which both the parties are in a binding contract.Obtained individual loan movement of long term finance from July 1, 2013 to June 30, 2014.Agreed opening balances of individual loans with reviewed financial statements for the year ended June 30, 2014Reviewed whether the payments were as per repayment schedules and also traced entries from General Ledger.Loans received and disbursement of loans were traced in the bank statements.Closing balances were traced in General Ledger.


Review procedures performedEnsured that related party amounts are identified and disclosed as per IAS 24.


within the system.

Review procedures performed1. Obtained understanding of sub heads being classified under Mark-up Interest Earned.2. Inquired Company's' policy for recording, classifying and summarizing transactions under Mark-up Interest Earned.

c) Other Payable§ Amount involves related party balances and there may be risk that the same is not separately identified and disclosed.

d) Presumed Revenue Risk:§ There is a presumed risk of material misstatement due to fraud relating to mark-up / return / interest (“revenue”) recognition.§ Revenue may be recognized by the Bank on non-performing loans. Prudential regulations require the suspension of revenue from such loans and require credit of the same to interest suspense account. § There may be a risk that revenue is misstated because of changes in interest rates are not appropriately authorized and recorded

§ Risk exists as to incorrect manual calculation of revenue.

3. Performed analytical procedures by developing expectation on the basis of Productwise monthly average outstsnding Advance amounts and compared this with amounts of interest earned as per client.4. Performed comparison analysis of share of principal outstanding of each sub head in total portfolio as on June 30, 2014

5. Inquired from management regarding reasons for material variations.6. Compared figures with last year Reviewed Financial Statements .


Use of and liaison with internal auditors

Material weaknesses and significant weaknesses that come to our attentionNo weaknesses came to our attention.

Review team discussions and supervisionDiscussions held where needed and supervision was provided throughout the engagement to more junior team members.

None.

Key issues arising from other review proceduresRefer below for detailed commentary.

Key issues arising from our inquiries and analytical proceduresRefer below for detailed commentary.

REVIEW SUMMARY OF INDIVIDUAL ACCOUNT HEADS

BALANCE SHEET

SHARE CAPITAL AND RESERVES

AUTHORISED SHARE CAPITALDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013

4. Performed comparison analysis of share of principal outstanding of each sub head in total portfolio as on June 30, 2014 with percentage of interest earned of each sub head in total interest amount .

Meeting was conducted with internal auditors (Representative: Mr. Waqas Ashraf - Head of Internal Audit). We reviewed minutes of Audit Committee at same time as Mr. Waqas Ashraf is also secretary of Internal Audit Committee. Further, we obtained and reviewed the internal audit report of Hasilpur Branch of the Bank to identify any weakness reported to those charged with governance and planned response thereto.

Matters for communication to those charged with governance

…………………………………..Rupees………………………………..

Authorized share capital ### ### ###

Reason for variation:

Procedures performedCertified to be true copy of latest form-A, form 7 and form 26 was reviewed.Confirmed the closing balance from general ledger.

ConclusionSatisfactory

ISSUED, SUBSCRIBED AND PAID-UP CAPITALDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

### ### - ### ### - ### ### -

Reason for variation:There is no change in paid-up share capital of the bank during the year.

Procedures performedVerified opening balance from last year's reviewed financial statements.Certified copy of latest form-A was reviewed.Confirmed the closing balance from general ledger.


Authorized share capital has increased by Rs. 2 billion during the year. The Bank has increased its authorized share capital in order to accommodate the planned issue of further share capital by Rs. 500 million.

100,000,000 ordinary shares of Rs. 10 each issued for 100,000,000 fully paid ordinary shares of Rs. 10 each issued cash

STATUTORY RESERVESDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Statutory reserve 119,904,447 69,577,896 50,326,551 Depositors' protection fund 29,976,112 17,394,474 12,581,638 Statutory Reserves 149,880,559 86,972,370 62,908,189


Procedures performedAgreed opening balance with the last year reviewed financial statements.Inquired from the management regarding reserve maintenance.Recalculated the reserves' amount and verified that the bank is in compliance with the Prudential Regulations.Confirmed the closing balance from general ledger.


UNAPPROPRIATED PROFITDescription of Account

June 30 June 30 Increase / (Decrease)2014 2013…………………………………..Rupees………………………………..

Unappropriated profit 370,223,525 181,498,955 188,724,570


The reason for variation in reserves is due to requirements of Prudential Regulations for microfinance banks issued by SBP. The MFBs are required to t create statutory liquidity reserve fund at 20% of its annual profits after tax and depositors' protection fund at 5% of profits after tax till such time the reserve fund equals the paid-up capital of the MFB.

Procedures performedAgreed opening balance with the last year reviewed financial statements.Prepared a reconciliation of opening unappropriated profit balance with closing balance.Confirmed the closing balance from general ledger.


SURPLUS / (DEFICIT) ON REVALUATION OF ASSETSDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Surplus /(deficit) on revaluation of Investments5,790,359 12,968,022 -7,177,663


Procedures performedAgreed opening balance with the last year reviewed financial statements.Recalculated the amount of surplus as per SBP guidelines under Prudential Regulation using Market rates of investments.Inquired from management the reasons of material changes in the surplus during the current period.Recalculated the amount of deferred tax arising on revaluation surplus.Confirmed the closing balance from general ledger.


DEFERRD GRANTS

The company earned a profit after tax of Rs. 251.62 million during the year. Out of this profit Rs. 50.3 million and Rs. 12.5 million is appropriated for statutory reserve and depositors' protection fund respectively and remaining Rs. 370.2 million is transferred to unappropriated profit

Revaluation surplus is decreased by Rs. 7.1 million which represents a significant change. This is mainly due to appreciation in value of mutual funds by a net of deferred tax amount of Rs. _________ (2013: 5.94 million) and Rs.___________ (2013: Rs. 4.80 million ) respectively. Remaining appreciation pertains to investment in TFCs of Pakistan Mobile Communication Limited amounting to Rs. __________ (2013: 2.23 million).

Description of Account June 30 June 30 Increase / (Decrease)2014 2013…………………………………..Rupees………………………………..

Opening Balance 64,691,339 77,957,659 ###Grant Received 19,893,364 36,876,293 ###Interest Income -427,506 496,023 (923,529)Amortization of grant during the year -41,885,070 (50,638,636) 8,753,566

42,272,127 64,691,339 (22,419,212)###


Procedures performedAgreed opening balance with the last year reviewed financial statements.Reviewed the agreement of grant from SBP and Shore bank international.Obtained the movement of grant during the period from management.

Recalculate the amortization of grant recognized during the year.Confirmed the closing balance from General ledger.

There are three grants which have been received by NRSP Bank up till now. One from Shore Bank International for the implementation of core banking system named OFSS Flexcube-UBS and the other two are received from SBP under Institutional Strengthening Fund(ISF) of Financial Inclusion Programme (FIP)-UK.The grant received during the year is from SBP under ISF. This grant is to finance Rs. 75.79 million project for institutional capacity building of the bank. Out of total cost of the said project 75% share (Rs._________million) is approved to be received as grant. Remaining 25% is to be self-financed by the bank. As of June 30, 2014 an amount of Rs. 36.88 million has been received.The pattern of amortization is according to the nature of the project costs being financed with grant and are categorized into capital expenditures (i.e. purchase of data equipments, video conferencing devices for communication & data center and allied equipments) and revenue expenditures. Capital expenditure backed grant is amortized over the period of 36 months matching the pattern of depreciation of capital expenditures while revenue expenditure backed grant is amortized when the

Interest income represents the interest on grant funds placed in saving account. As grant received during the year is greater than that of previous year, accordingly interest earned thereupon is increased during the year.

Obtained original invoices to verify costs incurred on the grant financed projects and to ensure compliance with the terms of the grant agreements.


DEPOSITS AND OTHER ACCOUNTSDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Fixed deposits ### 543,792,441 973,654,559 Saving deposits ### ### 188,480,574 Current deposits 133,926,833 36,479,958 97,446,875

### ### ###

June 30, 2014 June 30, 2013 Number of Accounts : Total Accounts Amount Total Accounts

Fixed deposits 369 ### 87 Saving deposits 124,163 ### 79,916 Current deposits 27,043 133,926,833 16,878 Total 151,575 ### 96,881


The reason of increase in number of deposits is increase in number of branches from 48 to 54.

Procedures performed:Agreed opening balance with the last year reviewed financial statements.

Also performed different analysis to assess the reasonableness od deposit amounts.Inquired from management the reasons of variation in the deposits' number and amounts during the year.

Number of deposits have increased immensely during the year Fixed Deposits are increased from 87 to 369, Saving Deposits have increased from 79,916 to 124,163 and Current Deposit accounts have increase from 16,878 to 27,043 which became the main reason of increase in deposit amount during the year.

Performed analytical procedures by developing expectation on the basis of average deposits to assess the reasonableness of deposit amounts.

Confirmed the closing balance from general ledger.


BORROWINGSDescription of Account

June 30 June 30 Increase / (Decrease)2014 2013…………………………………..Rupees………………………………..

Borrowings from Banks/Financial Institutions in Pakistan ( ### ### 678,732,704 Borrowings from Banks/Financial Institutions outside Pakis - - - Borrowings from Govt. of Pakistan - - - Borrowings from SBP - - -

### ### 678,732,704


Procedures performed:Obtained agreement of loans under which both the parties are in a binding contract.Obtained individual loan movement of long term finance from July 1, 2013 to June 30, 2014.Agreed opening balances of individual loans with reviewed financial statements for the year ended June 30, 20124Reviewed whether the payments were as per repayment schedules and also traced entries from General Ledger.Loans received and disbursement of loans were traced in the bank statements.Closing balances were traced in General Ledger.


In the current period of review, the bank has obtained three new loan facilities from JS Bank of amounting to Rs.800 million , Eco Trade and Development to Rs. 542 million and Pak Oman Investment Company amounting to Rs. 800 Million which totals 2,142 million and repaid upto Rs.1,464 million which causes 18% increase in borrowings of amounting to Rs. 678 million during the period as compared to last period.

OTHER LIABILITIESDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Mark-up / return / interest payable 123,418,289 135,216,414 -11,798,125 Accrued expenses 20,751,529 11,442,554 9,308,975 Current taxation (net of payments) 98,359,660 51,238,532 47,121,128 Payable to defined benefit plan - - - Staff gratuity 41,446,773 16,529,490 Accumulated compensated absences 35,669,682 17,663,766 18,005,916 Payable to defined contribution plan 60,902 55,969 4,933 Liabilities against assets subject to finance lease 29,366,216 19,588,866 9,777,350 Withholding tax payable 11,154,374 10,830,957 323,417 Payable to National Rural Support Program 1,827,000 - 1,827,000 Payable to Techlogix (Pvt) Ltd. - - 0 Insurance payable 2,092,755 9,378,422 -7,285,667 Zakat payable 116,311 955 115,356 Others 5,663,268 1,202,004 4,461,264

369,926,759 273,147,929 96,778,830


Withholding tax payableThis tax payable is mainly withheld on deposit interest and federal excise duty on loan processing to customers.

The main reason of this decrease is because of NRSP paid Rs. 60 million to JS Bank, and 33 million to Eco trading in the month of June2014.Accrued expenses;Accrued expenses have increased significantly mainly due to Accrued Expense which comprise different expenses Vehicle repair and maintainance, Newspaper, UPS battries, fuel expensesnd, security gaurd expense, software maintenance fee and other miscellaneous expenses. Other reason of increase is Accrued client insurance because last year no accrual was booked of insurance expense and was treated on actual payment basis but this year at the end of each month acrual is booked.

Procedures performed:Agreed opening balances from last year audited Financial statements and working papers.Verified the subsequent payment of withholding tax from monthly sales tax cum FED return.Ensured the accuracy of calculation of mark-up payable on all borrowings and depositor's protection fund.Obtained the details regarding other payables from management.Inquired from management regarding reasons of material variations.Confirmed the closing balance from General ledger.


NON-CURRENT ASSETSOperating Fixed AssetsDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Capital work-in-progress 1,554,994 8,927,349 (7,372,355)Property and equipment 176,441,386 155,726,553 20,714,833 Intangible assets 42,640,058 71,235,925 -28,595,867

220,636,438 235,889,827 -15,253,389

Payable to defined benefit plan;Increase in Staff gratuity was due to increase in staff from ___________ increment during the year @ ______% and accumulation of post employment funds which the company has to pay at the end of employees' job in the shape of final settlement.Liabilities against assets subject to finance lease;Liability against finance lease due to more staff members avail this lease opportunity during the year. The Bank was entered into agreements with JS Bank Limited for lease of vehicles for its employees. Lease rentals are payable on monthly basis with a mark-up at the rate 6 months KIBOR plus 4.50% per annum and then charge to its employees 5% markup. The extra charge will bear the NRSP. The Bank intends to exercise its options to purchase the above assets upon completion of the lease periods and then will transfer to employees.Others;The increase in others is mainly due to and insurance payable is transferred to this head and removed from above insurance payable which was previously shown seperatly and insurance receiveable from gold loan customers.

Obtained the details regarding accrued expenses, payable to suppliers & insurance payable from management and checked there subsequents.

Capital work-in-progressCivil works 1,554,994 8,927,349 -7,372,355 Advances to suppliers for implementation of:Banking software - - 0 Hardware - - 0

1,554,994 8,927,349 (7,372,355)

Property and equipmentFurniture and fixtures 67,495,738 43,524,427 23,971,311 Office equipment 39,267,946 24,830,554 14,437,392 Computer equipment 33,163,492 51,864,893 (18,701,401)Vehicles 36,514,210 35,506,679 1,007,531

176,441,386 155,726,553 20,714,833 Intangible AssetsComputer softwares 42,640,058 71,235,925 (28,595,867)Client acquisition costs - - -

42,640,058 71,235,925 (7,881,034)

Reasons for variation:

Intangible assets have decreased due to amortization expense.

Procedures performed:Obtained fixed assets schedule and traced opening balances from last year financial statements.Trace some additions from last year working papers to list of additions provided in this year.Compliance with accounting policy was checked.

Checked and verified disposal made during the period under review.


The decrease in amount of Civil Work is due to tranfer into furniture and fixture due to completion of renovation of newly opened branches.The 14% increase in Property & Equipment is due to increase in furniture and fixtures for new branches. Computer equipments

Recalculations of depreciation and matched with actual depriciation charge.Cecked completion certificates of branches completed in the period under review which transfered from CWIP to Operating fixed assets.Ensured that accurate amounts are appearing in the financials.

CASH AND BALANCES WITH SBP AND NBPDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Cash In Hand (local currency) 49,948,063 15,017,715 34,930,348 Balances with SBP (local currency) 195,468,615 126,824,081 68,644,534

245,416,678 141,841,796 103,574,882 Reason for variation:

Procedures performed:Confirmed the opening balance from last year financials and audit file.

Obtained the cash certificates from banks and agreed the balances with cash count figures.obtained the maximum insurance limit for individual branch to keep cash in safe.Reviewed the prudential regulation No # 6, recalculated the figure and agreed the balance with statement obtained from SBP.Conclusion:Satisfactory

BALANCES WITH OTHER BANKS/NBFI'S/MFB'SDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Local currency current accounts (including Undelivered Che 181,227,837 205,496 181,022,341 Local currency deposit accounts 542,056,742 ### 931,715,345 (389,658,603)

723,284,579 ### 931,920,841 (208,636,262)Reason for variation:

Procedures performed::

The increase of 73% in cash and balances with SBP is due to increase in deposits. Total deposits in current period have been increased than prior period, in which current accounts are increased ,deposits in saving accounts are increased and fixed deposits are increased. According to Microfinance ordinance 18A " microfinance bank shall maintain by way of cash reserve in cash in current account, opened with the State Bank or its agent, a sum equivalent to five per cent of its deposits or such percentage as State Bank may from time to time notify.

Obtained the bank ledger, bank statement, reconciliation statement (where required) and send direct bank confirmations under our control to respective banks to confirm the closing balance.

The decrease of 22.4% in the balances with other banks are mainly due to high investment made during the year. This is mainly due to the transfer of liquid assets ( cash and bank balance) into profitable investments.

Traced opening balances from last year financial statement and working papers.Obtained the signed list of banks on letter head.

Obtained the subsequent bank statement to verifying the reconciling items.Conclusion:Satisfactory

INVESTMENTSDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Available for sale securities:Federal Govt. securitiesPakistan Investment Bonds 415,047,388 131,064,975 283,982,413 Market Treasury Bills - 122,059,027 (122,059,027)

Bonds, participation term certificates and term finance certificates:Term Finance Certificates 141,432,160 183,375,000 (41,942,840)

Other InvestmentsMutual Funds ### 804,417,530 350,660,591

Less: Provision for diminution in value of investments - - - ### ### 470,641,137

Reasons for variation:Main reason of increase in investments is listed below:

Obtained the bank statements and reconciliation statements and agreed the balances with the balances appearing in individual bank accounts.Inquired from the management main reasons for variation and corroborated through its impact on corresponding head of account.

Investments has been increased by 250% as compare to last year which represents an increase of Rs. 885 million. This is mainly due to the transfer of liquid assets (cash and bank balance) into profitable investments , which has been decreased by 54% (Rs. 1 billion) as compare to last year.

Investment in mutual funds has been Increased by Rs 804 million which represents 100% increase as compare to last year. This increase is due to the heavy investment in mutual funds (invested in debt instruments) managed by different asset management companies in order to gain short term profits by using surplus cash by efficient working capital management. Asset management companies involving in it are NAFA, MCB, HBL, UBL,ABL, JS.

Procedures Performed:Traced opening balances from the published financial statement for the period ended June 30, 2012.Obtained the agreements of the relevant investments.

Recalculated the amount of surplus as per SBP guidelines under Prudential Regulation using Market of investments.Ensured that Mutual funds are revalued.


ADVANCESDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Micro Credit ### ### ### Micro Lease - - Others 41,100,977 30,041,617 11,059,360

6,326,215,475 ###

Less: Provision held: (14,740,094) (16,680,610) 1,940,516 Specific (61,612,008) (47,243,378) (14,368,630)

Investment in Pakistan investment Bonds has been increased by approx Rs 59 million representing 83% increase. This is mainly due to the purchase of two PIBs having face value of Rs 55 million and Rs 70 Million at the same time PIB having face value of Rs 87 million has been redeemed during the year reaming difference is due to the revaluation of PIBs.Investment in Treasury bills has been increased by approx 46% as compare to last year which represents increase of Rs 38 million this is mainly due to the purchase of Treasury bill having face value of Rs 50 million at the start of the year. further more revaluation loss restrict the increase in TBs book value.

Investment in TFC has been decreased by 8% representing Rs 11 million decrease.Bank has invested Rs 200 million in Term Finance Certificate of Pakistan Mobile Communication Limited . which has been redeemed by Rs 20 Million during the year as per predetermined redemption schedule. but increase in market value of TFC restricted book value of TFCs.

Ensured that all the investments made are in "A" Agreed the profit rates from relevant documents, recalculated the profit on the investments and matched them with the figures in the records

General (76,352,102) (63,923,988)### ### ###


Procedures Performed:Agreed the opening balances with previous year financialsObtained the portfolio of advances branch wise and borrower wise.

Obtained age analysis of all advances for calculation of non performing loans


Provision against non-performing loans and advancesDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Loan type Specific Provision (14,740,094) (16,680,610) 1,940,516 General Provision (61,612,008) (47,243,378) (14,368,630)

Advances has been increased by 31% as compare to last year which represents increase of Rs 1.47 billion . This mainly due to the growth strategy by the management of the Bank . bank is in the initial stage of its operations and continuously focus on less developed areas of Pakistan for growth purpose. . In order to do so bank is borrowing loans from other commercial banks which has been increased by approx Rs 678 million .Secondly, Deposits and other accounts has also been increased by Rs 1.25 billion . Thirdly, increse in No. of branches from 48 (as at June 30, 2013) to 54( as at June 30, 2014) was also contributed in increase in Advances.All of the above mentioned activities supports increase in advances.General and Specific provision has been increased by Rs 12.5 million as compare to last year which is mainly due to the increase in Advances .

Performed analytical procedures by developing expectation on the basis of average amount per borrower to assess the reasonableness of Advances amounts.Prepared different analysis to assess the reasonableness of Advances amounts and obtained justification from management, where necessary.For the specific provisoning made, we selected samples from different branches portfolios, and performed a walkthrough test to verify whether system properly classify loans or not.For the specific provisioning made, verified the advance outstanding for number of days since issuance date from the system generated report and compared them with our recalculated figures. As far as general provision is concerned, recalculated and agreed the figures with records.

(76,352,102) (63,923,988) (12,428,114)

Reasons for Variation

Procedures performed:

Compared figures with last year corresponding half year.Performed a walkthrough test to obtain reliance over system generated classifed loans report.Obtained understanding of sub heads being classified under Advances -Net of Provision.Inquired from management regarding reasons of material variations.Agreed balances with general ledger.


OTHER ASSETSDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Income / mark-up accrued 638,517,884 311,692,651 326,825,233 Interest receivable on bank deposits 8,946,066 13,663,350 (4,717,284)Accrued income on investment 3,638,773 4,466,762 (827,989)Receivable from National Rural Support Program 965,623 282,143 683,480 Advances to employees 2,411,184 3,906,669 -1,495,485 Advances to suppliers 27,656,622 27,982,893 -326,271 Prepayments 38,102,839 31,111,199 6,991,640 Advance tax 166,463,432 52,056,907 114,406,525 Other receivables 10,017,822 2,460,819 7,557,003

General and Specific provision has been increased by Rs 12.4 million as compare to last year which is mainly due to the increase in Advances. The bank provides general provision on all outstanding loans (net with specific provision) @ 1% and specific provisions for classified portfolio as per Prudential Regulations of State Bank of Pakistan for microfinance banks.

Inquired Company's' policy for recording, classifying and summarizing transactions under Provision against non-performance loans and advances.

Receivable from ShoreBank International - - 0 Others 4,611,686 2,525,414 2,086,272

901,331,931 450,148,807 451,183,124


Procedures Performed:Obtained the ledger of prepayments, advance income tax and other receivables and checked for unusual transactions

Interest receivable on bank deposits;12% decrease in mark-up accrued on bank balances is due to decrease in deposits with other banks therefore income of last month is also decreased which directly affecting this decrease.

Income / mark-up accrued;Income accrued on advances has been increased 104% which represents Rs. 323 million increase. This is mainly due to the increase Advances which has been increased by approx 31% which results an increase in accrued markup at the end of the year. Further, Agri loan cvers al,ost 84% of total portfolio of loan and in this category, total amount of interest is received at the time of maturity due to lump sum Principal payment.Accrued income on investments relates to the interest income of Term Finance Certificates of last quarter which is amounting to 4.46 million approx.Advances to employees;Advances to employees have been given against their salaries, advances have been given irrespective of the designation of the employees. However, there is a decrease in the overall advances by Rs. 1.6 M during the period under review. This is because recovery is more than advances given in the period

Prepayments:The prepayments include advance rent paid to the owners of the branches of amounting to Rs.13 million & other mainly paid to Adamjee Insurance for an amount of Rs.5.6 million, Computer Software Renewal License Fee of amounting to Rs. 1.2 million, Prepaid Oracle Data Base License Renewal Fee of amounting to Rs. 7.8 million Due to the opening of new branches opened during the period and around the period end, this figure has also been on the higher side.Advance tax on utilities;Advance tax has been increased by Rs. 114 million approx as compare to last year . This is mainly due to increase in advance income tax paid amounting Rs 132 million approx remaining increase in advance is due to the withholding tax on profit on bank accounts and advance tax on interest on investments.Other Receivables;The other receivable increased by 4.7 million mainly due to insurance receivable from gold customers by 2.1 million and it also now includes receivable from KFW in respect of training provided to the employees of KFW. Others;This resembles the net difference of C/A Balance between the head office with its branches.

Obtained the mark-up calculation workings of accrued income on advances and deposits along with supporting documents like profit letters from banks and agreements with clients.

Obtained the calculations of accrued income on investments and ensured that the amounts are accurately calculated.

Ensured all the figures are appropriately calculated and recorded in the financials


INCOME STATEMENT

Mark-up /return / interest earned


Mark-up Interest Income on advancesInterest / mark-up on advances ### ### 467,947,891 Interest / mark-up on investments in government securities 35,472,071 23,259,519 12,212,552 Interest / mark-up on deposits accounts / placements with other banks / financial institution 65,815,661 78,796,808 (12,981,147)

Interest / mark-up on investments in term finance certific 18,131,894 24,378,246 (6,246,352)### ### 460,932,944

Reasons for Variation:

Further, advances are financed through increase in deposits and new borrowings during the year.

Obtained the grant agreement from the entity of grant receivable from shore bank and obtained the evidence of subsequent receipts such as remittance advice.

Interest income has been increased by 39% which represents an increase of Rs 459 million which is mainly due to the increase in Advances by 45%. Bank is entering into the new areas for micro finance loans has opened 8 new branches during the year which results an increase in interest income from new disbursements in those areas.

Procedures performed:Obtained understanding of sub heads being classified under Mark-up Interest Earned.Prepared an expectation of the amount and assessed the reasonableness of the recorded amounts.Inquired from management regarding reasons for material variations.Compared figures with last year Reviewed Financial Statements .Obtain Bank Offer Letters for Profit Rates and verified it from the bank statements. Obtained calculation of interest earned for each category and reviewed it for accuracy.Agreed amounts with the general ledger.


MARKUP/INTEREST EXPENSEDDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Deposits 252,604,529 110,638,333 141,966,196 Borrowings 462,850,345 459,737,754 3,112,591 Loan processing fee on borrowings 23,806,500 - 23,806,500 Liabilities against assets subject to finance lease 4,021,482 315,253 3,706,229

743,282,856 ### 570,691,340 172,591,516 Reasons for Variation:

Agri product represents 84% of total portfolio and its loan period depends upon crop seasons (approx 6 months) increase in Agri loans boost interest income by approx 319 million(466*84%). Interest rate is 28% per annum on agri, livestock and gold loans. enterprises loans carry interest rates of 30% per annum. Advances as at June 30, 2014 has been increased by amounting of Rs. 1.48 million as compared to Jne 30, 2013.Interest / mark-up on investments in government securities has significantly increased as the banks investment in Pakistan Investment Bonds and Treasury Bills have increased by Rs. 98.07 million during the year.40% decrease in interest earned on deposits is mainly due to 54% decrease in interest bearing deposits in other banks. In prior period total balances with other banks were approx. Further, average rate of interest has decreased by about 1.8% on deposits with other banks resulting in decrease in interest income.Interest income on investments in TFCs represents income from investment in Pakistan Mobile Communication Limited. This investment earned on average 10.51% interest income during the year.

Number of deposits have increased immensely during the year. Fixed and saving deposits carry interest while current deposits do not carry any interest. Fixed Deposits have increased from 87 to 369 while Saving Deposits have increased from 79,916 to 124, 163 as discussed in Deposit section above. Due to this interest on deposits for the current year has increased by 128%. The bank has been paying the interest around 6% per annum on saving deposits and upto 13% per annum on fixed deposits to its depositors.

Interest on liabilities against assets subject to finance lease represent interest expense on leased vehicles from JS Bank Limited.

Procedures performed:Performed analytical procedures by developing expectation of interest expense on deposits.Inquired from management regarding reasons of material variations.

Ensured the accuracy of calculation of interest expense for the period.Verified KIBOR rates charged from the website of SBP.Inquired from management regarding reasons of material variations.Compared figures with those of last year.Agreed balances with the general ledger.


FEE, COMMISSION AND BROKERAGE INCOMEDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Loan processing fee 197,931,913 193,251,796 4,680,117 Collection service income 108,296 9,133,724 (9,025,428)

198,040,209 202,385,520 (4,345,311)Reasons for Variation

Number of deposits have increased immensely during the year. Fixed and saving deposits carry interest while current deposits do not carry any interest. Fixed Deposits have increased from 87 to 369 while Saving Deposits have increased from 79,916 to 124, 163 as discussed in Deposit section above. Due to this interest on deposits for the current year has increased by 128%. The bank has been paying the interest around 6% per annum on saving deposits and upto 13% per annum on fixed deposits to its depositors.As above in borrowing section, during the year five more loans had been executed by the bank with Pak Oman investment bank, JS bank and Exo trade and Development bank.

Obtained the workings of interest expense on borrowings for the year and recalculate according to the applicable KIBOR rates for the current period.

There is 2% increase in loan processing fee (LPF) in current year as compared to last year. The increase is mainly due to increase in loans and advances processed and increase in loan processing fee from Rs. 600/loan to Rs. 700/loan. This figure also include other transactions processing fee.Previously, the Collection Service Income (CSI) was being charged to NRSP NGO on outstanding NRSP NGO loans while during the year CSI is being charged on collected amount of loan on behalf of NGO. Further, outstanding portfolio of NRSP NGO has decreased during the year and recoverability is slow as well. This resulted in 70% decrease in CSI as compared to last year.

Procedures performed:Obtained understanding of sub heads being classified under Fees , Commission and Brokerage Income.Prepared expectation of LPF based on number of loans and advances processed during the year.Obtained NRSP outstanding portfolio breakup to verify and to prepare an expected amount of CSI earned during the year.Inquired from management regarding reasons of material variations.

Compared current figures with last year Reviewed Financial Statements.


OTHER INCOMEDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Amortization of deferred grant 41,885,070 50,638,636 (8,753,566)Gain on disposal of fixed assets 1,165,047 384,410 780,637 Gain on disposal of investment 88,884,929 58,047,112 30,837,817 Reversal on amortization of client acquisition cost - - - Other services income 4,954,775 17,836,975 (12,882,200)

136,889,821 126,907,133 9,982,688 Reasons for Variation

Amortization of deferred grant

Gain on disposal of fixed assets

Gain on disposal of investment

Previously, the Collection Service Income (CSI) was being charged to NRSP NGO on outstanding NRSP NGO loans while during the year CSI is being charged on collected amount of loan on behalf of NGO. Further, outstanding portfolio of NRSP NGO has decreased during the year and recoverability is slow as well. This resulted in 70% decrease in CSI as compared to last year.

Inquired Company's' policy for recording, classifying and summarizing transactions under Fees, Commission and Brokerage Income.

The increase in amortization of Rs. 45.4 million as compared to last year is due to new grant received from SBP of amounting to Rs. 36.88 million during the year which has been amortized by Rs. 29 million during the year and previous grant form SBP is amortized by Rs.15 million and that from shore bank by Rs. 6 million during the year under review. This causes increase in amortization during the year by 886%.The pattern of amortization is according to the nature of the project costs being financed with grant and are categorized into capital expenditures (i.e. purchase of data equipments, video conferencing devices for communication & data center and allied equipments) and revenue expenditures. Capital expenditure backed grant is amortized over the period of 36 months matching the pattern of depreciation of capital expenditures while revenue expenditure backed grant is amortized when the

The gain on disposals substantially relate to the disposals of motor cycles of the entity during the twelve month periods, sold to general public at arms length through a auction process at Rs. 384 million appox.

Other services income


Enquired from management for any unusual transactions during the period.Ensured that appropriate figures are appearing in the financialsConclusion:SatisfactoryADMINISTRATIVE EXPENSES


Staff salaries and benefits 446,090,056 288,208,350 157,881,706 Non-Executive Directors Expense 2,507,877 709,510 1,798,367 Training 9,958,735 24,535,080 -14,576,345 Legal and professional charges 1,598,695 24,591,794 -22,993,099 Communication 34,448,555 29,924,944 4,523,611 Repair and maintenance 4,599,972 4,010,351 589,621 Stationary and printing 12,658,956 12,991,195 -332,239 Advertisement and publicity 2,754,534 1,408,948 1,345,586 Depreciation 58,195,599 44,357,492 13,838,107 Amortization 36,100,893 31,692,279 4,408,614 Staff travel 16,915,177 16,241,517 673,660 POL expenses 58,449,142 53,850,914 4,598,228 Vehicle running and maintenance 17,034,188 15,462,758 1,571,430 Office supplies 3,304,817 3,488,624 -183,807 Meetings and conferences 5,037,290 5,545,200 -507,910 Utilities 22,515,631 12,977,809 9,537,822 Rent expenses 37,809,206 24,301,019 13,508,187 Miscellaneous expenses 34,397,872 14,592,857 19,805,015 Insurance expenses 25,422,139 40,806,714 -15,384,575

Gain on disposal of investments has been increased by Rs. 56 million which represents gain recognized on sale of units related mutual fund investments . Bank has invested in mutual funds by Rs 804 million and frequently sale it and purchase it in order to earn gain on it. This leads to increase in gain on sale of investments.

Other services income includes Income from Guest house, Income from Training centre & Other Misc Incomes. Rs 17.145 million of the whole figure relates to income from trainings held at NRSP trainings centre. These trainings services are provided to NRSP Branches personnel as well as to external Financial Institutions.

For the disposal of Non current assets, disposal proceeds and the approval by the relevant authority for the transaction. Recalculated the profit calculation.For the investments disposal, reviewed the bank statement showing the proceeds from disposal and recalculated the profit figures.

1,460,329

Security and administration 26,804,556 14,057,339 12,747,217 Auditor's remuneration 1,426,039 470,000 956,039 Disposal of assets - - 0 Corporate social responsibility 2,505,956 1,544,113 961,843 Others - - 0

860,535,885 665,768,807 194,767,078


Staff salaries and benefits

Training

Legal and professional charges

Communication

Repair and maintenance

Stationary and printing

Advertisement and publicity

Administrative expenses has increased from Rs. 430 million in the last year to Rs. 665.77 million in the current year. The bank's overall operations have grown during the year and in this regard 24 new branches were opened during the year. To support and manage the growing operations of the bank, 297 employees were also hired during the year.

Salaries and benefits have increased by 28%. This increase is because of the increase in staff by 297. As on June 30, 2013 the number of employees stood at 1120 as compared to 973 employees last reporting date. Further, salary of employees have increased by 7.98% contributing to increased salaries and benefits cost.

Training Expense is decreased by 167% this year due to increase in number of branches from 24 to 48 and staff by 297 this year and also due to implementation of Flex cube software which is cumbersome to use due to its technicalities.

Legal and professional charges were Rs 7.7 million last year and now they stand at Rs 24.6 million ( increased by 218%). The main reason of increase is due to payment of SECP fee Rs 6 million for enhancement of Share Capital and software maintenance fee from Rs 2.4 to Rs 12.8 million.

Communication charges were Rs 18 million last year, have increased by 66%. The major reason of increase in expense is Online connectivity charges of Rs.11 million (last year Rs8 million) increase by 33%. Cost incurred during the year includes DRC(Data Recovery Centre) PTCL charges of 1.25 million and ECIB(Online client verification system) Fees of Rs 2.6 million (Both Nil last year). Expense charged by NADRA include verification expenses, increased by 142% (Rs.4.6 million).

Repair and maintenance expense have increased by 51%. This is due to repair of Office Equipment that has increased from Rs 1.75 million to Rs 2.2 million (27% increase this year). Expense on Repair of Computer Equipment increased forms 0.2 million to Rs 0.5 million due net increase in Computer and Equipment .

Stationary and Printing has increased by Rs. 4.1 Millions (47% increase) from the comparative period which is due to an increase in price of paper in market as well increase in staff/Branches/.

Advertisement expense have increased by only 21% due to increase in advertisement by Rs 0.244 million and Publicity Expense

Depreciation

Amortization

Staff travel cost

POL expenses

Vehicle running and maintenance

Meetings and conferences

Utilities

Rent expenses

Miscellaneous expense

Advertisement expense have increased by only 21% due to increase in advertisement by Rs 0.244 million and Publicity Expense from Rs 0.083 million to Rs 0.275 million.

The depreciation expense has increased by Rs 25.6 million. This increase is primarily based on increase in depreciation of computer equipment that has increased to Rs 22.9 million due to additions in computer equipment of 66 million. The depreciation on motor vehicle has increased by Rs 2 million due to Rs 9 million due to addition in assets.

Amortization has increased by 12 times during the year due to increase in intangible assets by Rs 100 million in August 2012, consequently, additional amortization of Flexcube for Rs 29.8 million was charged for 10 months over a period of three years.Staff travel cost hasn't increased so much due to the fact that 77 new motor bikes were purchased and issued to new staff. The expenditure relating to bikes is included in POL expenses head.

POL expenses have increased by Rs. 18 million (50% increase) as an increase in Petrol and CNG prices as well as NRSP operations has increased by 24 branches as well as increase in 77 new bikes, 7 new vehicles and 24 new generators (one for each new branch)Vehicle maintenance has increased from Rs. 10.9 million to Rs 15.46 million. Additions during the year of Rs 8.9 million were made in vehicles. Vehicles' number increased from 69 to 76 and Motor Bikes from 433 to 510. Due to this running and maintenance charges have increased during the year.

This expense includes meeting and conference expense and staff refreshment expense. The increase in meeting and conference expense from Rs.2.9 million to Rs.4.7 due to the fact that Board Meetings are conducted on monthly basis, (previously on quarterly basis) and monthly Progress meeting are now conducted.

Utility Expense is composed of Electricity, water and Gas expenses. Electricity expense has been increased from Rs 7.6 million to Rs 10.35 million (36% increase) due to opening of 24 new branches during the year and increase in Electricity rates.Rent expense includes the rental of head office and all branches of the bank. Rent of bank sites has increased by 92% due to doubling of number of branches. Rent expense of Garage Rs 6 million which is about 25% of total rent expense has only increased by 7.5% this year.Miscellaneous expense includes various expenses which increased significantly this year that include: Misc. expense sub ledger which costs Rs 5.8 million this year (last year Rs 0.17 million). Inactive expense is worth Rs 4 million (last year Rs 1.89 million) due to hiring of security guards at new branches. An expense of Rs 1.2 million was in respect of "Office Equipment related Minor Assets" for write-off of all assets worth less than Rs. 2,000.

Insurance expense

Security and administration

Auditor's remuneration

Corporate social responsibility

Procedures performed:Obtained understanding of sub heads being classified under Administrative Expense.Inquired from the management regarding reasons for material variation.Prepared expectations of various account heads for reasonableness.Performed various comparisons including trend analyses, monthly analyses and inquired about variations.Studied relationships between various financial and non-financial information for plausible relationships.Performed test of details where SAP could not be performed including that on legal and professional charges.Compared figures with last year Reviewed Financial Statements .


TaxationDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Current - current year (59,264,154) -44,775,738 (14,488,416)Deferred - prior year (12,479,254) 34,632,452 (47,111,706)

(71,743,408) (10,143,286) (61,600,122)

Insurance expense includes fire insurance, client insurance expense, vehicle insurance, group life insurance etc. Major reason for increase in insurance cost is 'Client Insurance Expense' which has increased from Rs.18.6 million to Rs.36 million (50% increase) which is linked with amount of advances to the client. Advance were Rs 2.2 billion last year are now Rs 4.7 billion (about 50% increase).

Security and administration cost has increased due to increase in salaries of security guard and hiring of new security guards at new branches.Decrease in auditor's remuneration is due to the fact that last year there were fee for various special certifications and sundry advisory services amounting to Rs. 3.129 million while this year the amount is Nil.

CSR expenses incurred during the year relate to salaries provided to employees at training centre. People are provided training to get technical knowledge to. Last year CSR cost incurred was for 2 months.


Procedures performed:Inquired from management regarding reasons of material variations.Inquired Company's' policy for recording, classifying and summarizing transactions under Tax.

Performed recalculation of current and deferred tax.Compared figures with last year Reviewed Financial Statements .


OVERALL CONCLUSION:

Increase is current tax provision is mainly due to increase in mark-up/interest earned, realized interest income on investments and grant received during the year.Provision of deferred tax is due to creation of deferred tax asset during the prior year. Deferred tax has aroused mainly due to deductible temporary differences on deferred grant and non-performing advances' provision.

Obtained tax consultant's working on computation of current tax and calculation of deferred tax. Reviewed the same for reasonableness.

Based on the review procedures performed, nothing came to our attention that caused us to believe that the bank's financial statements as of and for the year ended June 30, 2014 was not prepared, in all material respects, in accordance with the approved accounting standards as applicable in Pakistan.

NRSP Microfinance Bank Limited (the Bank) was incorporated as a public limited company incorporated in Pakistan on October 22, 2008 under the Companies Ordinance 1984. The Bank received license by the State Bank of Pakistan (SBP) to operate as a microfinance bank on February 18, 2009, and received certificate of commencement of business from Securities and Exchange Commission of Pakistan (SECP) on February 8, 2011. Further SBP approved the application of the Bank for commencement of The Bank was established to mobilize funds for providing microfinance services to economically challenged people for mitigating poverty and promoting social welfare and economic justice through community building and social mobilization with

The Bank’s registered office is situated at 46, Aga Khan Road, F/6-4, Islamabad and principal place of business is situated at University Road, Bahawalpur. There are 54 branches of the Bank as at June 30, 2014 (2013: 48 branches).


The preliminary assessment of engagement risk was assessed to be greater than "GREATER THAN NORMAL” due to the reason that

The assigned partner and staff are independent of the client, there are no known ethical issues, and the name of the client

This is our third year of engagement. Appropriate background checks have been performed before making our “client retention”

All the engagement team have signed independence forms which state that the teams have no financial or other interest in the entity and all the teams members have directed that they are not holding any equity shares in the Company, directly or


The audit committee of the Bank recommended for the appointment of M. Yousuf Adil Saleem & Co as auditors for the next

Terms of engagement are normal therefore there is no scope limitation.

Since NRSP MFB is a public un-listed company in financial sector, EQCR will be performed by the EQCR department of the firm.

SpecialtyApplicable accounting standards and expertiseApplicable accounting standards and expertiseApplicable accounting standards and expertiseApplicable accounting standards and expertiseGeneralist with training and experience appropriate for levelGeneralist with training and experience appropriate for levelGeneralist with training and experience appropriate for levelGeneralist with training and experience appropriate for level

Since audit report of annual audit for the year ended December 31, 2013 was unmodified and in performing preliminary update of understanding and discussions with management we did not come across any significant matter at the planning stage of this




During the period, no such accounting pronouncement has been issued which might affect the financial statements.(b) Risks IdentifiedFollowing risks were identified and on the basis of preliminary review procedures performed:

Ensured throughout the review engagement that the bank is in compliance with the provisions of prudential regulations.

The financial statements are reviewed (un-audited) and our review report is being addressed to the members. The financial statements of the Bank for the year ended June 30, 2014 has been prepared in accordance with the requirements of the International Financial Reporting Standards, Companies Ordinance, 1984 and Microfinance Institutions Ordinance, 2001. The financial statements are prepared for the purpose of consolidation with NRSP NGO.

§ The industry of the Bank is highly regulated; therefore there may be pressures on the management to show a compliant picture of the Bank’s financial information in the following areas:

Obtained individual loan movement of long term finance from July 1, 2013 to June 30, 2014.Agreed opening balances of individual loans with reviewed financial statements for the year ended June 30, 2014Reviewed whether the payments were as per repayment schedules and also traced entries from General Ledger.Loans received and disbursement of loans were traced in the bank statements.

Ensured that related party amounts are identified and disclosed as per IAS 24.

2. Inquired Company's' policy for recording, classifying and summarizing transactions under Mark-up Interest Earned.

§ Amount involves related party balances and there may be risk that the same is not separately identified and disclosed.

§ There is a presumed risk of material misstatement due to fraud relating to mark-up / return / interest (“revenue”) recognition.§ Revenue may be recognized by the Bank on non-performing loans. Prudential regulations require the suspension of revenue from such loans and require credit of the same to interest suspense account.§ There may be a risk that revenue is misstated because of changes in interest rates are not appropriately authorized and recorded

3. Performed analytical procedures by developing expectation on the basis of Productwise monthly average outstsnding Advance amounts and compared this with amounts of interest earned as per client.4. Performed comparison analysis of share of principal outstanding of each sub head in total portfolio as on June 30, 2014

5. Inquired from management regarding reasons for material variations.6. Compared figures with last year Reviewed Financial Statements .

Discussions held where needed and supervision was provided throughout the engagement to more junior team members.


BALANCE SHEET

Increase / (Decrease)%

4. Performed comparison analysis of share of principal outstanding of each sub head in total portfolio as on June 30, 2014 with percentage of interest earned of each sub head in total interest amount .


200%

Certified to be true copy of latest form-A, form 7 and form 26 was reviewed.Confirmed the closing balance from general ledger.


0%0%0%

There is no change in paid-up share capital of the bank during the year.

Verified opening balance from last year's reviewed financial statements.Certified copy of latest form-A was reviewed.Confirmed the closing balance from general ledger.



72%72%72%

Agreed opening balance with the last year reviewed financial statements.Inquired from the management regarding reserve maintenance.Recalculated the reserves' amount and verified that the bank is in compliance with the Prudential Regulations.Confirmed the closing balance from general ledger.


104%

The reason for variation in reserves is due to requirements of Prudential Regulations for microfinance banks issued by SBP. The MFBs are required to t create statutory liquidity reserve fund at 20% of its annual profits after tax and depositors' protection fund at 5% of profits after tax till such time the reserve fund equals the paid-up capital of the MFB.

Agreed opening balance with the last year reviewed financial statements.Prepared a reconciliation of opening unappropriated profit balance with closing balance.Confirmed the closing balance from general ledger.


55%

Agreed opening balance with the last year reviewed financial statements.Recalculated the amount of surplus as per SBP guidelines under Prudential Regulation using Market rates of investments.


The company earned a profit after tax of Rs. 251.62 million during the year. Out of this profit Rs. 50.3 million and Rs. 12.5 million is appropriated for statutory reserve and depositors' protection fund respectively and remaining Rs. 370.2

Revaluation surplus is decreased by Rs. 7.1 million which represents a significant change. This is mainly due to appreciation in value of mutual funds by a net of deferred tax amount of Rs. _________ (2013: 5.94 million) and Rs.___________ (2013: Rs. 4.80 million ) respectively. Remaining appreciation pertains to investment in TFCs of Pakistan Mobile Communication Limited amounting to Rs. __________ (2013: 2.23 million).


-17%-46%-186%-17%-35%

Agreed opening balance with the last year reviewed financial statements.

Confirmed the closing balance from General ledger.

There are three grants which have been received by NRSP Bank up till now. One from Shore Bank International for the implementation of core banking system named OFSS Flexcube-UBS and the other two are received from SBP under Institutional Strengthening Fund(ISF) of Financial Inclusion Programme (FIP)-UK.

during the year is from SBP under ISF. This grant is to finance Rs. 75.79 million project for institutional capacity building of the bank. Out of total cost of the said project 75% share (Rs._________million) is approved to be received as grant. Remaining 25% is to be self-financed by the bank. As of June 30, 2014 an amount of Rs.

The pattern of amortization is according to the nature of the project costs being financed with grant and are categorized into capital expenditures (i.e. purchase of data equipments, video conferencing devices for communication & data center and allied equipments) and revenue expenditures. Capital expenditure backed grant is amortized over the period of 36 months matching the pattern of depreciation of capital expenditures while revenue expenditure backed grant is amortized when the

represents the interest on grant funds placed in saving account. As grant received during the year is greater than that of previous year, accordingly interest earned thereupon is increased during the year.


179%10%267%

50%

June 30, 2013 Amount

543,792,441 1,916,809,552 36,479,958 2,497,081,951



Performed analytical procedures by developing expectation on the basis of average deposits to assess the reasonableness of



18%0%0%0%18%




-9%81%100%100%

102%100%50%3%100%0%-78%12079%371%35%

This tax payable is mainly withheld on deposit interest and federal excise duty on loan processing to customers.

The main reason of this decrease is because of NRSP paid Rs. 60 million to JS Bank, and 33 million to Eco trading in the

Accrued expenses have increased significantly mainly due to Accrued Expense which comprise different expenses Vehicle repair and maintainance, Newspaper, UPS battries, fuel expensesnd, security gaurd expense, software maintenance fee and other miscellaneous expenses. Other reason of increase is Accrued client insurance because last year no accrual was booked of insurance expense and was treated on actual payment basis but this year at the end of each month acrual is booked.

Agreed opening balances from last year audited Financial statements and working papers.Verified the subsequent payment of withholding tax from monthly sales tax cum FED return.Ensured the accuracy of calculation of mark-up payable on all borrowings and depositor's protection fund.Obtained the details regarding other payables from management.Inquired from management regarding reasons of material variations.Confirmed the closing balance from General ledger.


-83%13%-40%-6%

Increase in Staff gratuity was due to increase in staff from ___________ increment during the year @ ______% and accumulation of post employment funds which the company has to pay at the end of employees' job in the shape of final

Liabilities against assets subject to finance lease;Liability against finance lease due to more staff members avail this lease opportunity during the year. The Bank was entered into agreements with JS Bank Limited for lease of vehicles for its employees. Lease rentals are payable on monthly basis with a mark-up at the rate 6 months KIBOR plus 4.50% per annum and then charge to its employees 5% markup. The extra charge will bear the NRSP. The Bank intends to exercise its options to purchase the above assets upon completion of the lease

The increase in others is mainly due to and insurance payable is transferred to this head and removed from above insurance payable which was previously shown seperatly and insurance receiveable from gold loan customers.

-83%

0%0%-83%

55%58%-36%3%13%

-40%

-11%


Obtained fixed assets schedule and traced opening balances from last year financial statements.Trace some additions from last year working papers to list of additions provided in this year.Compliance with accounting policy was checked.


The decrease in amount of Civil Work is due to tranfer into furniture and fixture due to completion of renovation of newly The 14% increase in Property & Equipment is due to increase in furniture and fixtures for new branches. Computer equipments

Cecked completion certificates of branches completed in the period under review which transfered from CWIP to Operating


233%54%73%

Confirmed the opening balance from last year financials and audit file.

Obtained the cash certificates from banks and agreed the balances with cash count figures.obtained the maximum insurance limit for individual branch to keep cash in safe.Reviewed the prudential regulation No # 6, recalculated the figure and agreed the balance with statement obtained from SBP.


88090.45%-41.82%-22%

The increase of 73% in cash and balances with SBP is due to increase in deposits. Total deposits in current period have been increased than prior period, in which current accounts are increased ,deposits in saving accounts are increased and fixed deposits are increased. According to Microfinance ordinance 18A " microfinance bank shall maintain by way of cash reserve in cash in current account, opened with the State Bank or its agent, a sum equivalent to five per cent of its deposits or such percentage as State Bank may from time to time notify.


The decrease of 22.4% in the balances with other banks are mainly due to high investment made during the year. This is mainly due to the transfer of liquid assets ( cash and bank balance) into profitable investments.


Obtained the subsequent bank statement to verifying the reconciling items.


217%-100%

-23%

100%

38%

Obtained the bank statements and reconciliation statements and agreed the balances with the balances appearing in individual Inquired from the management main reasons for variation and corroborated through its impact on corresponding head of

Investments has been increased by 250% as compare to last year which represents an increase of Rs. 885 million. This is mainly due to the transfer of liquid assets (cash and bank balance) into profitable investments , which has been decreased

Investment in mutual funds has been Increased by Rs 804 million which represents 100% increase as compare to last year. This increase is due to the heavy investment in mutual funds (invested in debt instruments) managed by different asset management companies in order to gain short term profits by using surplus cash by efficient working capital management. Asset management companies involving in it are NAFA, MCB, HBL, UBL,ABL, JS.

Traced opening balances from the published financial statement for the period ended June 30, 2012.Obtained the agreements of the relevant investments.

Recalculated the amount of surplus as per SBP guidelines under Prudential Regulation using Market of investments.


31%0%100%

100%30%

Investment in Pakistan investment Bonds has been increased by approx Rs 59 million representing 83% increase. This is mainly due to the purchase of two PIBs having face value of Rs 55 million and Rs 70 Million at the same time PIB having face value of Rs 87 million has been redeemed during the year reaming difference is due to the revaluation of PIBs.Investment in Treasury bills has been increased by approx 46% as compare to last year which represents increase of Rs 38 million this is mainly due to the purchase of Treasury bill having face value of Rs 50 million at the start of the year. further more revaluation loss restrict the increase in TBs book value.

Investment in TFC has been decreased by 8% representing Rs 11 million decrease.Bank has invested Rs 200 million in Term Finance Certificate of Pakistan Mobile Communication Limited . which has been redeemed by Rs 20 Million during the year as per predetermined redemption schedule. but increase in market value of TFC

Agreed the profit rates from relevant documents, recalculated the profit on the investments and matched them with the

31%



-12%30%

Advances has been increased by 31% as compare to last year which represents increase of Rs 1.47 billion . This mainly due to the growth strategy by the management of the Bank . bank is in the initial stage of its operations and continuously focus on less developed areas of Pakistan for growth purpose. . In order to do so bank is borrowing loans from other commercial banks which has been increased by approx Rs 678 million .Secondly, Deposits and other accounts has also been increased by Rs 1.25 billion . Thirdly, increse in No. of branches from 48 (as at June 30, 2013) to 54( as at June 30, 2014) was also contributed in increase in Advances.All of the above mentioned activities supports increase in advances.General and Specific provision has been increased by Rs 12.5 million as compare to last year which is mainly due to the

Performed analytical procedures by developing expectation on the basis of average amount per borrower to assess the Prepared different analysis to assess the reasonableness of Advances amounts and obtained justification from management, For the specific provisoning made, we selected samples from different branches portfolios, and performed a walkthrough test to verify whether system properly classify loans or not.For the specific provisioning made, verified the advance outstanding for number of days since issuance date from the system generated report and compared them with our recalculated figures. As far as general provision is concerned, recalculated and

19%

Compared figures with last year corresponding half year.

Obtained understanding of sub heads being classified under Advances -Net of Provision.Inquired from management regarding reasons of material variations.


105%-35%-19%242%-38%-1%22%220%307%


Inquired Company's' policy for recording, classifying and summarizing transactions under Provision against non-performance

0%83%100%

Obtained the ledger of prepayments, advance income tax and other receivables and checked for unusual transactions

12% decrease in mark-up accrued on bank balances is due to decrease in deposits with other banks therefore income of last month is also decreased which directly affecting this decrease.

Income accrued on advances has been increased 104% which represents Rs. 323 million increase. This is mainly due to the increase Advances which has been increased by approx 31% which results an increase in accrued markup at the end of the year. Further, Agri loan cvers al,ost 84% of total portfolio of loan and in this category, total amount of interest is received at the time of maturity due to lump sum Principal payment.Accrued income on investments relates to the interest income of Term Finance Certificates of last quarter which is

Advances to employees have been given against their salaries, advances have been given irrespective of the designation of the employees. However, there is a decrease in the overall advances by Rs. 1.6 M during the period under review. This is because recovery is more than advances given in the period

The prepayments include advance rent paid to the owners of the branches of amounting to Rs.13 million & other mainly paid to Adamjee Insurance for an amount of Rs.5.6 million, Computer Software Renewal License Fee of amounting to Rs. 1.2 million, Prepaid Oracle Data Base License Renewal Fee of amounting to Rs. 7.8 million Due to the opening of new branches opened during the period and around the period end, this figure has also been on the higher side.

Advance tax has been increased by Rs. 114 million approx as compare to last year . This is mainly due to increase in advance income tax paid amounting Rs 132 million approx remaining increase in advance is due to the withholding tax on profit on bank accounts and advance tax on interest on investments.

The other receivable increased by 4.7 million mainly due to insurance receivable from gold customers by 2.1 million and it also now includes receivable from KFW in respect of training provided to the employees of KFW.

This resembles the net difference of C/A Balance between the head office with its branches.



INCOME STATEMENT


45%100%

-16%100%39%


Obtained the grant agreement from the entity of grant receivable from shore bank and obtained the evidence of subsequent


Inquired from management regarding reasons for material variations.Compared figures with last year Reviewed Financial Statements .


128%1%

0%30%


Number of deposits have increased immensely during the year. Fixed and saving deposits carry interest while current deposits do not carry any interest. Fixed Deposits have increased from 87 to 369 while Saving Deposits have increased from 79,916 to 124, 163 as discussed in Deposit section above. Due to this interest on deposits for the current year has increased by 128%. The bank has been paying the interest around 6% per annum on saving deposits and upto 13% per annum on fixed deposits to its


Performed analytical procedures by developing expectation of interest expense on deposits.Inquired from management regarding reasons of material variations.

Ensured the accuracy of calculation of interest expense for the period.

Inquired from management regarding reasons of material variations.Compared figures with those of last year.


2%-99%-2%

Number of deposits have increased immensely during the year. Fixed and saving deposits carry interest while current deposits do not carry any interest. Fixed Deposits have increased from 87 to 369 while Saving Deposits have increased from 79,916 to 124, 163 as discussed in Deposit section above. Due to this interest on deposits for the current year has increased by 128%. The bank has been paying the interest around 6% per annum on saving deposits and upto 13% per annum on fixed deposits to its As above in borrowing section, during the year five more loans had been executed by the bank with Pak Oman investment bank,

Obtained the workings of interest expense on borrowings for the year and recalculate according to the applicable KIBOR rates

There is 2% increase in loan processing fee (LPF) in current year as compared to last year. The increase is mainly due to increase in loans and advances processed and increase in loan processing fee from Rs. 600/loan to Rs. 700/loan. This figure


Prepared expectation of LPF based on number of loans and advances processed during the year.Obtained NRSP outstanding portfolio breakup to verify and to prepare an expected amount of CSI earned during the year.Inquired from management regarding reasons of material variations.



-17%203%53%0%

100%8%


Inquired Company's' policy for recording, classifying and summarizing transactions under Fees, Commission and Brokerage

The increase in amortization of Rs. 45.4 million as compared to last year is due to new grant received from SBP of amounting to Rs. 36.88 million during the year which has been amortized by Rs. 29 million during the year and previous grant form SBP is amortized by Rs.15 million and that from shore bank by Rs. 6 million during the year under review. This causes increase The pattern of amortization is according to the nature of the project costs being financed with grant and are categorized into capital expenditures (i.e. purchase of data equipments, video conferencing devices for communication & data center and allied equipments) and revenue expenditures. Capital expenditure backed grant is amortized over the period of 36 months matching the pattern of depreciation of capital expenditures while revenue expenditure backed grant is amortized when the



55%253%-59%-93%15%15%-3%96%31%14%4%9%10%-5%-9%73%56%136%-38%



For the disposal of Non current assets, disposal proceeds and the approval by the relevant authority for the transaction. For the investments disposal, reviewed the bank statement showing the proceeds from disposal and recalculated the profit

91%203%0%100%0%29%

Administrative expenses has increased from Rs. 430 million in the last year to Rs. 665.77 million in the current year. The bank's overall operations have grown during the year and in this regard 24 new branches were opened during the year. To support and manage the growing operations of the bank, 297 employees were also hired



Legal and professional charges were Rs 7.7 million last year and now they stand at Rs 24.6 million ( increased by 218%). The main reason of increase is due to payment of SECP fee Rs 6 million for enhancement of Share Capital and software







Amortization has increased by 12 times during the year due to increase in intangible assets by Rs 100 million in August 2012, consequently, additional amortization of Flexcube for Rs 29.8 million was charged for 10 months over a period of three

Staff travel cost hasn't increased so much due to the fact that 77 new motor bikes were purchased and issued to new staff. The expenditure relating to bikes is included in POL expenses head.

POL expenses have increased by Rs. 18 million (50% increase) as an increase in Petrol and CNG prices as well as NRSP operations has increased by 24 branches as well as increase in 77 new bikes, 7 new vehicles and 24 new generators (one for

Vehicle maintenance has increased from Rs. 10.9 million to Rs 15.46 million. Additions during the year of Rs 8.9 million were made in vehicles. Vehicles' number increased from 69 to 76 and Motor Bikes from 433 to 510. Due to this running and maintenance charges have increased during the year.


Utility Expense is composed of Electricity, water and Gas expenses. Electricity expense has been increased from Rs 7.6 million to Rs 10.35 million (36% increase) due to opening of 24 new branches during the year and increase in Electricity

Rent expense includes the rental of head office and all branches of the bank. Rent of bank sites has increased by 92% due to doubling of number of branches. Rent expense of Garage Rs 6 million which is about 25% of total rent expense has only

Miscellaneous expense includes various expenses which increased significantly this year that include: Misc. expense sub ledger which costs Rs 5.8 million this year (last year Rs 0.17 million). Inactive expense is worth Rs 4 million (last year Rs 1.89 million) due to hiring of security guards at new branches. An expense of Rs 1.2 million was in respect of "Office Equipment related Minor Assets" for write-off of all assets worth less than Rs. 2,000.

Obtained understanding of sub heads being classified under Administrative Expense.Inquired from the management regarding reasons for material variation.Prepared expectations of various account heads for reasonableness.Performed various comparisons including trend analyses, monthly analyses and inquired about variations.Studied relationships between various financial and non-financial information for plausible relationships.Performed test of details where SAP could not be performed including that on legal and professional charges.Compared figures with last year Reviewed Financial Statements .


32%-100%607%

Insurance expense includes fire insurance, client insurance expense, vehicle insurance, group life insurance etc. Major reason for increase in insurance cost is 'Client Insurance Expense' which has increased from Rs.18.6 million to Rs.36 million (50% increase) which is linked with amount of advances to the client. Advance were Rs 2.2 billion last year are now

Security and administration cost has increased due to increase in salaries of security guard and hiring of new security

Decrease in auditor's remuneration is due to the fact that last year there were fee for various special certifications and sundry advisory services amounting to Rs. 3.129 million while this year the amount is Nil.


Inquired from management regarding reasons of material variations.Inquired Company's' policy for recording, classifying and summarizing transactions under Tax.

Compared figures with last year Reviewed Financial Statements .

Increase is current tax provision is mainly due to increase in mark-up/interest earned, realized interest income on

Provision of deferred tax is due to creation of deferred tax asset during the prior year. Deferred tax has aroused mainly due to deductible temporary differences on deferred grant and non-performing advances' provision.

Obtained tax consultant's working on computation of current tax and calculation of deferred tax. Reviewed the same for



Engagement risk:

Key matters arising from review of ethics including: Results of conflict of interest check

Issues arising from updating identification procedures/background checks

Significant threats to our independence and objectivity and appropriate safeguards/response

Sufficiency of professional competence and experience

NRSP Microfinance Bank Limited (the Bank) was incorporated as a public limited company incorporated in Pakistan on October 22, 2008 under the Companies Ordinance 1984. The Bank received license by the State Bank of Pakistan (SBP) to operate as a microfinance bank on February 18, 2009, and received certificate of commencement of business from Securities and Exchange Commission of Pakistan (SECP) on February 8, 2011. Further SBP approved the application of the Bank for commencement of business on February 28, 2011.The Bank was established to mobilize funds for providing microfinance services to economically challenged people for mitigating poverty and promoting social welfare and economic justice through community building and social mobilization with the ultimate objective of poverty alleviation.The Bank’s registered office is situated at 46, Aga Khan Road, F/6-4, Islamabad and principal place of business is situated at University Road, Bahawalpur. There are ___ branches of the Bank as at June 30, 2014 (2013: 48 branches).


The preliminary assessment of engagement risk was assessed to be greater than "GREATER THAN NORMAL” due to the reason that the client is a financial institution.

The assigned partner and staff are independent of the client, there are no known ethical issues, and the name of the client has been circulated to the Firm.

This is our second year of engagement. Appropriate background checks have been performed before making our “client retention” decision for the year 2013.

All the engagement team have signed independence forms which state that the teams have no financial or other interest in the entity and all the teams members have directed that they are not holding any equity shares in the Company, directly or indirectly.


Audit committee pre-approval where relevant

Terms of engagement particularly any imposition of limitation of scopeTerms of engagement are normal therefore there is no scope limitation.Planned references to our review report

Quality control proceduresSince NRSP MFB is a public un-listed company in financial sector, EQCR will be performed by the EQCR department of the firm.

Engagement teamName Designation SpecialtyTalat Javed Engagement Partner Applicable accounting standards and expertiseRana Usman Khan Executive Director Applicable accounting standards and expertiseAsad Mustafa Manager Applicable accounting standards and expertiseHasnain Ejaz Supervisor Applicable accounting standards and expertiseHammad Haider Supervisor Generalist with training and experience appropriate for levelZohaib Arif Senior Generalist with training and experience appropriate for levelMuhammad Harris Senior Generalist with training and experience appropriate for levelMohsin Jamel Senior Generalist with training and experience appropriate for level

KEY MATTERS ARISING FROM PLANNING

KEY PLANNING CONSIDERATIONSMateriality

June 30, 2013Rupees

Materiality 39,000,000 Performance Materiality 35,100,000 Clearly Trivial Threshold 1,950,000


Since audit report of annual audit for the year ended December 31, 2012 was unmodified and in performing preliminary update of understanding and discussions with management we did not come across any significant matter at the planning stage of this review.




During the period, no such accounting pronouncement has been issued which might affect the financial statements.(b) Risks IdentifiedFollowing risks were identified and on the basis of preliminary review procedures performed:a) Compliance Risk

Review procedures performedEnsured throughout the review engagement that the bank is in compliance with the provisions of prudential regulations.Conclusion:Satisfactory

b) BorrowingsThere is a risk that amounts of borrowing from different banks are misstated.

Review procedures performedObtained agreement of loans under which both the parties are in a binding contract.Obtained individual loan movement of long term finance from July 1, 2013 to June 30, 2014.Agreed opening balances of individual loans with reviewed financial statements for the year ended June 30, 20124Reviewed whether the payments were as per repayment schedules and also traced entries from General Ledger.Loans received and disbursement of loans were traced in the bank statements.Closing balances were traced in General Ledger.Conclusion:Satisfactory

Significant financial accounting and reporting The financial statements are reviewed (un-audited) and our review report is being addressed to the members. The financial statements of the Bank for the year ended June 30, 2013 has been prepared in accordance with the requirements of the International Financial Reporting Standards, Companies Ordinance, 1984 and Microfinance Institutions Ordinance, 2001. The financial statements are prepared for the purpose of consolidation with NRSP NGO.(a) Accounting policies and accounting pronouncements that affect the financial information

§ The industry of the Bank is highly regulated; therefore there may be pressures on the management to show a compliant picture of the Bank’s financial information in the following areas:§ Capital adequacy ratio – PR4 (iii)§ Exposure against contingent liabilities – PR5§ Maintenance of cash reserve and liquidity - PR6§ Statutory reserve – PR7§ Depositors’ protection fund – PR8

c) Other Payable

Review procedures performedEnsured that related party amounts are identified and disclosed as per IAS 24.Conclusion:Satisfactory

Review procedures performed1. Obtained understanding of sub heads being classified under Mark-up Interest Earned.2. Inquired Company's' policy for recording, classifying and summarizing transactions under Mark-up Interest Earned.

4. Performed comparison analysis of share of principal outstanding of each sub head in total portfolio as on June 30, 2013 with percentage of interest earned of each sub head in total interest amount .5. Inquired from management regarding reasons for material variations.6. Compared figures with last year Reviewed Financial Statements .Conclusion:Satisfactory

Use of and liaison with internal auditors

Material weaknesses and significant weaknesses that come to our attentionNo weaknesses came to our attention.

Review team discussions and supervisionDiscussions held where needed and supervision was provided throughout the engagement to more junior team members.


d) Presumed Revenue Risk:§ There is a presumed risk of material misstatement due to fraud relating to mark-up / return / interest (“revenue”) recognition.§ Revenue may be recognized by the Bank on non-performing loans. Prudential regulations require the suspension of revenue from such loans and require credit of the same to interest suspense account.§ There may be a risk that revenue is misstated because of changes in interest rates are not appropriately authorized and recorded within the system.§ Risk exists as to incorrect manual calculation of revenue.

3. Performed analytical procedures by developing expectation on the basis of Productwise monthly average outstsnding Advance amounts and compared this with amounts of interest earned as per client.


None.

Key issues arising from other review proceduresRefer below for detailed commentary.

Key issues arising from our inquiries and analytical proceduresRefer below for detailed commentary.


BALANCE SHEET

SHARE CAPITAL AND RESERVES

AUTHORISED SHARE CAPITALDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Authorized share capital ### ### ###


Procedures performedCertified to be true copy of latest form-A, form 7 and form 26 was reviewed.Confirmed the closing balance from general ledger.ConclusionSatisfactory

ISSUED, SUBSCRIBED AND PAID-UP CAPITALDescription of Account June 30 June 30 Increase / (Decrease)

Matters for communication to those charged with governance


2013 2012…………………………………..Rupees………………………………..

### ### - ### ### - ### ### -

Reason for variation:There is no change in paid-up share capital of the bank during the year.Procedures performedVerified opening balance from last year's reviewed financial statements.Certified copy of latest form-A was reviewed.Confirmed the closing balance from general ledger.ConclusionSatisfactory

STATUTORY RESERVESDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Statutory reserve 69,577,896 29,593,332 39,984,564 Depositors' protection fund 17,394,474 7,398,333 9,996,141 Statutory Reserves 86,972,370 36,991,665 49,980,705


Procedures performedAgreed opening balance with the last year reviewed financial statements.Inquired from the management regarding reserve maintenance.Recalculated the reserves' amount and verified that the bank is in compliance with the Prudential Regulations.Confirmed the closing balance from general ledger.ConclusionSatisfactory

100,000,000 ordinary shares of Rs. 10 each issued for 100,000,000 fully paid ordinary shares of Rs. 10 each

The reason for variation in reserves is due to requirements of Prudential Regulations for microfinance banks issued by SBP. The MFBs are required to t create statutory liquidity reserve fund at 20% of its annual profits after tax and depositors' protection fund at 5% of profits after tax till such time the reserve fund equals the paid-up capital of the MFB. So in the current year statutory liquidity reserve of Rs. 39.98 million and depositors' protection fund of Rs. 10.00 million are

UNAPPROPRIATED PROFITDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Unappropriated profit 181,498,955 31,556,842 149,942,113


Procedures performedAgreed opening balance with the last year reviewed financial statements.Prepared a reconciliation of opening unappropriated profit balance with closing balance.Confirmed the closing balance from general ledger.ConclusionSatisfactory

SURPLUS / (DEFICIT) ON REVALUATION OF ASSETSDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Surplus /(deficit) on revaluation of Investments12,968,022 (280,581) 13,248,603


Procedures performedAgreed opening balance with the last year reviewed financial statements.Recalculated the amount of surplus as per SBP guidelines under Prudential Regulation using Market rates of investments.Inquired from management the reasons of material changes in the surplus during the current period.Recalculated the amount of deferred tax arising on revaluation surplus.Confirmed the closing balance from general ledger.

The company earned a profit after tax of Rs. 199.92 million during the year. Out of this profit Rs. 39.98 million and Rs. 10.00 million is appropriated for statutory reserve and depositors' protection fund respectively and remaining Rs. 149.94 million is transferred to unappropriated profit resulting in 475% increase in the same.

Revaluation surplus is increased by Rs. 13.25 million which represents a significant change. This is mainly due to appreciation in value of mutual funds by a net of deferred tax amount of Rs. 5.94 million (2012: Nil as investment is new) and Rs. 4.80 (2012: Rs. 0.28 million deficit) respectively. Remaining appreciation pertains to investment in TFCs of Pakistan Mobile Communication Limited amounting to Rs. 2.23 million (2012: Nil as investment is new).


DEFERRD GRANTSDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Opening Balance 77,957,659 59,587,936 18,369,723.0 Grant Received 36,876,293 23,196,649 13,679,644.0 Interest Income 496,023 413,210 82,813 Amortization of grant during the year (50,638,636) (5,240,136) (45,398,500)

64,691,339 77,957,659 (13,266,320)###


Procedures performed

There are three grants which have been received by NRSP Bank up till now. One from Shore Bank International for the implementation of core banking system named OFSS Flexcube-UBS and the other two are received from SBP under Institutional Strengthening Fund(ISF) of Financial Inclusion Programme (FIP)-UK.The grant received during the year is from SBP under ISF. This grant is to finance Rs. 75.79 million project for institutional capacity building of the bank. Out of total cost of the said project 75% share (Rs.56.83 million) is approved to be received as grant. Remaining 25% is to be self-financed by the bank. As of June 30, 2013 an amount of Rs. 36.88 million has been received out of Rs. 56.83 million total approved grant.The increase in amortization of Rs. 45.4 million as compared to last year is due to new grant received from SBP of amounting to Rs. 36.88 million during the year which has been amortized by Rs. 29 million during the year and previous grant form SBP is amortized by Rs.15 million and that from shore bank by Rs. 6 million during the year under review. This causes increase in amortization during the year by 886%.The pattern of amortization is according to the nature of the project costs being financed with grant and are categorized into capital expenditures (i.e. purchase of data equipments, video conferencing devices for communication & data center and allied equipments) and revenue expenditures. Capital expenditure backed grant is amortized over the period of 36 months matching the pattern of depreciation of capital expenditures while revenue expenditure backed grant is amortized when the

Interest income represents the interest on grant funds placed in saving account. As grant received during the year is greater than that of previous year, accordingly interest earned thereupon is increased during the year.

Agreed opening balance with the last year reviewed financial statements.Reviewed the agreement of grant from SBP and Shore bank international.Obtained the movement of grant during the period from management.

Recalculate the amortization of grant recognized during the year.Confirmed the closing balance from General ledger.Conclusion:Satisfactory

DEPOSITS AND OTHER ACCOUNTSDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Fixed deposits ### 543,792,441 973,654,559 Saving deposits ### ### 188,312,222 Current deposits 133,956,728 36,479,958 97,476,770

### ### ###

June 30, 2014 June 30, 2013 Number of Accounts : Total Accounts Amount Total Accounts

Fixed deposits 369 ### 87 Saving deposits 124,163 ### 79,916 Current deposits 27,043 133,956,728 16,878 Total 151,575 ### 96,881


The reason of increase in number of deposits is increase in number of branches from 48 to 54.Procedures performed:Agreed opening balance with the last year reviewed financial statements.

Obtained original invoices to verify costs incurred on the grant financed projects and to ensure compliance with the terms of the grant agreements.


Also performed different analysis to assess the reasonableness od deposit amounts.Inquired from management the reasons of variation in the deposits' number and amounts during the year.Confirmed the closing balance from general ledger.Conclusion:Satisfactory

BORROWINGSDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Borrowings from Banks/Financial Institutions in Pakistan ### ### 678,732,704 Borrowings from Banks/Financial Institutions outside Paki - - - Borrowings from Govt. of Pakistan - - - Borrowings from SBP ### ### 678,732,704


Procedures performed:Obtained agreement of loans under which both the parties are in a binding contract.Obtained individual loan movement of long term finance from July 1, 2013 to June 30, 2014.Agreed opening balances of individual loans with reviewed financial statements for the year ended June 30, 20124Reviewed whether the payments were as per repayment schedules and also traced entries from General Ledger.Loans received and disbursement of loans were traced in the bank statements.Closing balances were traced in General Ledger.Conclusion:Satisfactory

OTHER LIABILITIESDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013



…………………………………..Rupees………………………………..

Mark-up / return / interest payable 135,216,414 -135,216,414 Accrued expenses 22,735,487 11,442,554 11,292,933 Current taxation (net of payment) 51,238,532 (51,238,532)Payable to defined benefit plan 34,193,256 -34,193,256 Payable to defined contribution plan 55,969 Liabilities against assets subject to finance lease 29,366,216 19,588,866 9,777,350 Withholding tax payable 10,830,957 -10,830,957 Payable to National Rural Support Program - - 0 Payable to Techlogix (Pvt) Ltd. - - 0 Insurance payable - 9,378,422 -9,378,422 Zakat payable 116,311 955 115,356 Others 7,146,765 1,202,004 5,944,761

59,364,779 273,147,929 -213,783,150


Withholding tax payableThis tax payable is mainly withheld on deposit interest and federal excise duty on loan processing to customers.

Mark-up / return / interest payable;The increase in interest payable of Borrowings during the year is due to increase in five more loans from Standard Chartered Bank, Askari Bank, JS Bank, PPAF & Pak Oman Investment Company amounting to Rs 650 M, 400 M, 800 M, 500 M & 100 M respectively. The bank has been paying the mark-up @ 6 Month KIBOR +2% per annum for SC Bank, Askari Bank & Pak Oman Investment Company, @ 3 Months KIBOR +2% p.a for JS Bank and fix rate @12.36% for PPAF.Mark-up payable also includes mark up on deposits. Increase in deposits by the customers was one of the reasons for which markup payable on deposits and other accounts has increased this year by Rs. 8.77 million. Deposits carry mark-up rates ranging between 6% and 13% per annum.Accrued expenses;Accrued expenses have increased significantly mainly due to opening of new branches and Accrued client insurance because last year no accrual was booked of insurance expense and was treated on actual payment basis but this year at the end of each month acrual is booked. Accrued expense include repair & maintenance, periodicals, and news paper cost for branches and head office.

Payable to defined benefit plan;Increase in Staff gratuity was due to increase in staff from 973 to 1120, increment during the year @ 7.97% and accumulation of post employment funds which the company has to pay at the end of employees' job in the shape of final settlement.

Procedures performed:Agreed opening balances from last year audited Financial statements and working papers.Verified the subsequent payment of withholding tax from monthly sales tax cum FED return.Ensured the accuracy of calculation of mark-up payable on all borrowings and depositor's protection fund.Obtained the details regarding other payables from management.Inquired from management regarding reasons of material variations.Confirmed the closing balance from General ledger.


NON-CURRENT ASSETSOperating Fixed AssetsDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Capital work-in-progress 1,554,994 8,927,349 (7,372,355)Property and equipment 176,770,987 155,726,553 21,044,434 Intangible assets 43,214,924 71,235,925 -28,021,001

221,540,905 235,889,827 -14,348,922

Capital work-in-progressCivil works 1,554,994 8,927,349 -7,372,355 Advances to suppliers for implementation of:Banking software - - 0 Hardware - - 0

1,554,994 8,927,349 (7,372,355)

Liabilities against assets subject to finance lease;Liability against finance lease due to more staff members avail this lease opportunity during the year. The Bank was entered into agreements with JS Bank Limited for lease of vehicles. Lease rentals are payable on monthly basis with a mark-up at the rate 6 months KIBOR plus 4.50% per annum. The Bank intends to exercise its options to purchase the above assets upon completion of the lease periods.Others;The increase in others is mainly due to insurance received from gold loan customers and insurance payable is transferred to this head and removed from above insurance payable which was previously shown seperatly.

Obtained the details regarding accrued expenses, payable to suppliers & insurance payable from management.

Property and equipmentFurniture and fixtures 65,739,331 43,524,427 22,214,904 Office equipment 39,271,086 24,830,554 14,440,532 Computer equipment 35,229,080 51,864,893 (16,635,813)Vehicles 36,531,490 35,506,679 1,024,811

176,770,987 155,726,553 21,044,434 Intangible AssetsComputer softwares 43,214,924 71,235,925 (28,021,001)Client acquisition costs - - -

43,214,924 71,235,925 (6,976,567)



Procedures performed:Obtained fixed assets schedule and traced opening balances from last year financial statements.Major additions were verified from title documents. Compliance with accounting policy was checked.Checked calculations of depreciation.Checked and verified disposal made during the period under review.


CASH AND BALANCES WITH SBP AND NBPDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Cash In Hand (local currency) 49,948,063 15,017,715 34,930,348 Balances with SBP (local currency) 195,468,615 126,824,081 68,644,534

245,416,678 141,841,796 103,574,882


Ensured that accurate amounts are appearing in the financials.


Procedures performed:Confirmed the opening balance from last year financials and audit file.

Obtained the cash certificates from banks and agreed the balances with cash count figures.obtained the maximum insurance limit for individual branch to keep cash in safe.Reviewed the prudential regulation No # 6, recalculated the figure and agreed the balance with statement obtained from SBP.Conclusion:Satisfactory

BALANCES WITH OTHER BANKS/NBFI'S/MFB'SDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Local currency current accounts (including Undelivered Ch 181,227,837 205,496 181,022,341 Local currency deposit accounts 542,056,742 ### 931,715,345 (389,658,603)

723,284,579 ### 931,920,841 (208,636,262)


Procedures performed::Traced opening balances from last year financial statement and working papers.Obtained the signed list of banks on letter head.

The increase of 73% in cash and balances with SBP is due to increase in deposits. Total deposits in current period have been increased by 162.6% than prior period, in which current accounts are increased by 689.8%,deposits in saving accounts are increased by 138.9% and fixed deposits are increased by 277.9%. According to Microfinance ordinance 18A " microfinance bank shall maintain by way of cash reserve in cash in current account, opened with the State Bank or its agent, a sum equivalent to five per cent of its deposits or such percentage as State Bank may from time to time notify.


The decrease of 54% in the balances with other banks are mainly due to high investment made during the year. This is mainly due to the transfer of liquid assets ( cash and bank balance) into profitable investments , which has been decreased by 54% ( Rs 1 billion) as compare to last year.

Obtained the bank statements and reconciliation statements and agreed the balances with the balances appearing in individual bank accounts.

Obtained the subsequent bank statement to verifying the reconciling items.Conclusion:Satisfactory

INVESTMENTSDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Available for sale securities:Federal Govt. securitiesPakistan Investment Bonds 131,064,975 71,539,410 59,525,565 Market Treasury Bills 122,059,027 83,513,936 38,545,091

Bonds, participation term certificates and term finance certificates:Term Finance Certificates 183,375,000 200,000,000 (16,625,000)

Other InvestmentsMutual Funds 804,417,530 - 804,417,530

Less: Provision for diminution in value of investments - - - ### 355,053,346 885,863,186

Reasons for variation:Main reason of increase in investments is listed below:

Inquired from the management main reasons for variation and corroborated through its impact on corresponding head of account.

Investments has been increased by 250% as compare to last year which represents an increase of Rs. 885 million. This is mainly due to the transfer of liquid assets (cash and bank balance) into profitable investments , which has been decreased by 54% (Rs. 1 billion) as compare to last year.

Investment in mutual funds has been Increased by Rs 804 million which represents 100% increase as compare to last year. This increase is due to the heavy investment in mutual funds (invested in debt instruments) managed by different asset management companies in order to gain short term profits by using surplus cash by efficient working capital management. Asset management companies involving in it are NAFA, MCB, HBL, UBL,ABL, JS.Investment in Pakistan investment Bonds has been increased by approx Rs 59 million representing 83% increase. This is mainly due to the purchase of two PIBs having face value of Rs 55 million and Rs 70 Million at the same time PIB having face value of Rs 87 million has been redeemed during the year reaming difference is due to the revaluation of PIBs.

Procedures Performed:Traced opening balances from the published financial statement for the period ended June 30, 2012.Obtained the agreements of the relevant investments.

Recalculated the amount of surplus as per SBP guidelines under Prudential Regulation using Market of investments.Ensured that Mutual funds are revalued.Conclusion:Satisfactory

ADVANCESDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Micro Credit ### ### ### Micro Lease - - Others 34,348,688 30,041,617 4,307,071

6,319,463,186 ###

Less: Provision held: (14,740,094) (16,680,610) 1,940,516 Specific (61,612,008) (47,243,378) (14,368,630) General (76,352,102) (63,923,988)

### ### ###


Investment in Treasury bills has been increased by approx 46% as compare to last year which represents increase of Rs 38 million this is mainly due to the purchase of Treasury bill having face value of Rs 50 million at the start of the year. further more revaluation loss restrict the increase in TBs book value.

Investment in TFC has been decreased by 8% representing Rs 11 million decrease.Bank has invested Rs 200 million in Term Finance Certificate of Pakistan Mobile Communication Limited . which has been redeemed by Rs 20 Million during the year as per predetermined redemption schedule. but increase in market value of TFC restricted book value of TFCs.

Ensured that all the investments made are in "A" Agreed the profit rates from relevant documents, recalculated the profit on the investments and matched them with the figures in the records

Advances has been increased by 31% as compare to last year which represents increase of Rs 1.47 billion . This mainly due to the growth strategy by the management of the Bank . bank is in the initial stage of its operations and continuously focus on less developed areas of Pakistan for growth purpose. . In order to do so bank is borrowing loans from other commercial banks which has been increased by approx Rs 678 million .Secondly, Deposits and other accounts has also been increased by Rs 1.25 billion . Thirdly, increse in No. of branches from 48 (as at June 30, 2013) to 54( as at June 30, 2014) was also contributed in increase in Advances.All of the above mentioned activities supports increase in advances.

Procedures Performed:Agreed the opening balances with previous year financialsObtained the portfolio of advances branch wise and borrower wise.

Obtained age analysis of all advances for calculation of non performing loansConclusion:Satisfactory

Provision against non-performing loans and advancesDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Loan type Specific Provision (14,740,094) (16,680,610) 1,940,516 General Provision (61,612,008) (47,243,378) (14,368,630)

(76,352,102) (63,923,988) (12,428,114)



Performed analytical procedures by developing expectation on the basis of average amount per borrower to assess the reasonableness of Advances amounts.Prepared different analysis to assess the reasonableness of Advances amounts and obtained justification from management, where necessary.For the specific provisoning made, we selected samples from different branches portfolios, and performed a walkthrough test to verify whether system properly classify loans or not.For the specific provisioning made, verified the advance outstanding for number of days since issuance date from the system generated report and compared them with our recalculated figures. As far as general provision is concerned, recalculated and agreed the figures with records.



Compared figures with last year corresponding half year.Performed a walkthrough test to obtain reliance over system generated classifed loans report.Obtained understanding of sub heads being classified under Advances -Net of Provision.Inquired from management regarding reasons of material variations.Agreed balances with general ledger.Conclusion:Satisfactory

OTHER ASSETSDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Income / mark-up accrued 635,222,998 311,692,651 323,530,347 Interest receivable on bank deposits 8,946,066 13,663,350 (4,717,284)Accrued income on investment 3,638,773 4,466,762 (827,989)Receivable from National Rural Support Program ( note 12. - 282,143 (282,143)Advances to employees 2,279,110 3,906,669 -1,627,559 Advances to suppliers 27,656,622 27,982,893 -326,271 Prepayments 41,706,687 31,111,199 10,595,488 Advance tax on utilities 166,463,432 52,056,907 114,406,525 Other receivables 7,167,745 2,460,819 4,706,926 Receivable from Shore Bank International - - 0 Others 11,143,166 2,525,414 8,617,752

904,224,599 450,148,807 454,075,792


Inquired Company's' policy for recording, classifying and summarizing transactions under Provision against non-performance loans and advances.

Interest receivable on bank deposits;12% decrease in mark-up accrued on bank balances is due to decrease in deposits with other banks therefore income of last month is also decreased which directly affecting this decrease.Income / mark-up accrued;Income accrued on advances has been increased 173% which represents Rs. 197 million increase. This is mainly due to the increase Advances which has been increased by approx 113% which results an increase in accrued markup at the end of the year.

Procedures Performed:Obtained the ledger of prepayments, advance income tax and other receivables and checked for unusual transactions


Ensured all the figures are appropriately calculated and recorded in the financialsConclusion:Satisfactory

INCOME STATEMENT

Mark-up /return / interest earned

Accrued income on investments relates to the interest income of Term Finance Certificates of last quarter which is amounting to 4.46 million approx.Advances to employees;Advances to employees have been given against their salaries, advances have been given irrespective of the designation of the employees. However, there is a decrease in the overall advances by Rs. 1.6 M during the period under review. This is because recovery is more than advances given in the period

Prepayments:The prepayments include advance rent paid to the owners of the branches of amounting to Rs.13 million & other mainly paid to Adamjee Insurance for an amount of Rs.5.6 million, Computer Software Renewal License Fee of amounting to Rs. 1.2 million, Prepaid Oracle Data Base License Renewal Fee of amounting to Rs. 7.8 million Due to the opening of new branches opened during the period and around the period end, this figure has also been on the higher side.Advance tax on utilities;Advance tax has been increased by Rs. 114 million approx as compare to last year . This is mainly due to increase in advance income tax paid amounting Rs 132 million approx remaining increase in advance is due to the withholding tax on profit on bank accounts and advance tax on interest on investments.Other Receivables;The other receivable increased by 4.7 million mainly due to insurance receivable from gold customers by 2.1 million and it also now includes receivable from KFW in respect of training provided to the employees of KFW. Others;This resembles the net difference of C/A Balance between the head office with its branches.


Obtained the grant agreement from the entity of grant receivable from shore bank and obtained the evidence of subsequent receipts such as remittance advice.


Mark-up Interest Income on advancesInterest / mark-up on advances ### ### 466,000,796 Interest / mark-up on investments in government securitie 30,361,557 23,259,519 7,102,038 Interest / mark-up on deposits accounts / placements with other banks / financial institution 65,339,225 78,796,808 (13,457,583)

Interest / mark-up on investments in term finance certifi 23,683,485 24,378,246 (694,761)### ### 458,950,490



Procedures performed:Obtained understanding of sub heads being classified under Mark-up Interest Earned.Prepared an expectation of the amount and assessed the reasonableness of the recorded amounts.Inquired from management regarding reasons for material variations.



Compared figures with last year Reviewed Financial Statements .Obtain Bank Offer Letters for Profit Rates and verified it from the bank statements. Obtained calculation of interest earned for each category and reviewed it for accuracy.Agreed amounts with the general ledger.


MARKUP/INTEREST EXPENSEDDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Deposits 252,604,529 110,638,333 141,966,196 Borrowings 462,850,345 459,737,754 3,112,591 Loan processing fee on borrowings 23,806,500 - 23,806,500 Liabilities against assets subject to finance lease 4,021,482 315,253 3,706,229

743,282,856 ### 570,691,340 172,591,516 Reasons for Variation:

Interest on liabilities against assets subject to finance lease represent interest expense on leased vehicles from JS Bank Limited.Procedures performed:Performed analytical procedures by developing expectation of interest expense on deposits.Inquired from management regarding reasons of material variations.

Ensured the accuracy of calculation of interest expense for the period.Verified KIBOR rates charged from the website of SBP.Inquired from management regarding reasons of material variations.Compared figures with those of last year.Agreed balances with the general ledger.

Number of deposits have increased immensely during the year. Fixed and saving deposits carry interest while current deposits do not carry any interest. Fixed Deposits have increased from 87 to 369 while Saving Deposits have increased from 79,916 to 124, 163 as discussed in Deposit section above. Due to this interest on deposits for the current year has increased by 128%. The bank has been paying the interest around 6% per annum on saving deposits and upto 13% per annum on fixed deposits to its depositors.As above in borrowing section, during the year five more loans had been executed by the bank with Pak Oman investment bank, JS bank and Exo trade and Development bank.

Obtained the workings of interest expense on borrowings for the year and recalculate according to the applicable KIBOR rates for the current period.


FEE, COMMISSION AND BROKERAGE INCOMEDescription of Account June 30 June 30 Increase / (Decrease)

2014 2013…………………………………..Rupees………………………………..

Loan processing fee 197,907,001 193,251,796 4,655,205 Collection service income 9,024 9,133,724 (9,124,700)

197,916,025 202,385,520 (4,469,495)


Procedures performed:Obtained understanding of sub heads being classified under Fees , Commission and Brokerage Income.Prepared expectation of LPF based on number of loans and advances processed during the year.Obtained NRSP outstanding portfolio breakup to verify and to prepare an expected amount of CSI earned during the year.Inquired from management regarding reasons of material variations.



OTHER INCOMEDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Amortization of deferred grant 50,638,636 5,240,137 45,398,499

There is 60% increase in loan processing fee (LPF) in current year as compared to last year. The increase is mainly due to increase in loans and advances processed and increase in loan processing fee from Rs. 600/loan to Rs. 700/loan. This figure also include other transactions processing fee.Previously, the Collection Service Income (CSI) was being charged to NRSP NGO on outstanding NRSP NGO loans while during the year CSI is being charged on collected amount of loan on behalf of NGO. Further, outstanding portfolio of NRSP NGO has decreased during the year and recoverability is slow as well. This resulted in 70% decrease in CSI as compared to last year.

Inquired Company's' policy for recording, classifying and summarizing transactions under Fees, Commission and Brokerage Income.

Gain on disposal of fixed assets 384,410 1,625,000 (1,240,590)Gain on disposal of investment 58,047,112 1,730,068 56,317,044 Reversal on amortization of client acquisition cost - 10,000,000 (10,000,000)Other services income 17,836,975 - 17,836,975

126,907,133 18,595,205 108,311,928 Reasons for Variation

Amortization of deferred grant

Gain on disposal of fixed assets

Gain on disposal of investment

Other services income


Enquired from management for any unusual transactions during the period.Ensured that appropriate figures are appearing in the financialsConclusion:SatisfactoryADMINISTRATIVE EXPENSES

Description of Account June 30 June 30 Increase / (Decrease)

The increase in amortization of Rs. 45.4 million as compared to last year is due to new grant received from SBP of amounting to Rs. 36.88 million during the year which has been amortized by Rs. 29 million during the year and previous grant form SBP is amortized by Rs.15 million and that from shore bank by Rs. 6 million during the year under review. This causes increase in amortization during the year by 886%.The pattern of amortization is according to the nature of the project costs being financed with grant and are categorized into capital expenditures (i.e. purchase of data equipments, video conferencing devices for communication & data center and allied equipments) and revenue expenditures. Capital expenditure backed grant is amortized over the period of 36 months matching the pattern of depreciation of capital expenditures while revenue expenditure backed grant is amortized when the





Description of Account2014 2013…………………………………..Rupees………………………………..

Staff salaries and benefits 450,628,326 288,208,350 162,419,976 Non-Executive Directors Expense 2,507,877 709,510 1,798,367 Training 9,958,735 24,535,080 -14,576,345 Legal and professional charges 1,688,695 24,591,794 -22,903,099 Communication 34,448,555 29,924,944 4,523,611 Repair and maintenance 4,599,972 4,010,351 589,621 Stationary and printing 12,658,956 12,991,195 -332,239 Advertisement and publicity 2,754,534 1,408,948 1,345,586 Depreciation 57,930,597 44,357,492 13,573,105 Amortization 35,526,031 31,692,279 3,833,752 Staff travel 16,915,177 16,241,517 673,660 POL expenses 58,449,142 53,850,914 4,598,228 Vehicle running and maintenance 17,034,188 15,462,758 1,571,430 Office supplies 3,304,817 3,488,624 -183,807 Meetings and conferences 5,037,290 5,545,200 -507,910 Utilities 22,515,631 12,977,809 9,537,822 Rent expenses 37,809,206 24,301,019 13,508,187 Miscellaneous expenses 34,783,494 13,132,528 21,650,966 Insurance expenses 25,422,139 40,806,714 -15,384,575 Security and administration 26,804,556 14,057,339 12,747,217 Auditor's remuneration 886,039 470,000 416,039 Disposal of assets - - 0 Corporate social responsibility 2,505,956 1,544,113 961,843 Others 640,021 1,460,329 (820,308)

864,809,934 665,768,807 199,041,127


Staff salaries and benefits

Administrative expenses has increased from Rs. 430 million in the last year to Rs. 665.77 million in the current year. The bank's overall operations have grown during the year and in this regard 24 new branches were opened during the year. To support and manage the growing operations of the bank, 297 employees were also hired during the year.


1,460,329

Training

Legal and professional charges

Communication

Repair and maintenance

Stationary and printing

Advertisement and publicity

Depreciation

Amortization

Staff travel cost

POL expenses


Legal and professional charges were Rs 7.7 million last year and now they stand at Rs 24.6 million ( increased by 218%). The main reason of increase is due to payment of SECP fee Rs 6 million for enhancement of Share Capital and software maintenance fee from Rs 2.4 to Rs 12.8 million.




Advertisement expense have increased by only 21% due to increase in advertisement by Rs 0.244 million and Publicity Expense from Rs 0.083 million to Rs 0.275 million.


Amortization has increased by 12 times during the year due to increase in intangible assets by Rs 100 million in August 2012, consequently, additional amortization of Flexcube for Rs 29.8 million was charged for 10 months over a period of three years.Staff travel cost hasn't increased so much due to the fact that 77 new motor bikes were purchased and issued to new staff. The expenditure relating to bikes is included in POL expenses head.

POL expenses have increased by Rs. 18 million (50% increase) as an increase in Petrol and CNG prices as well as NRSP operations has increased by 24 branches as well as increase in 77 new bikes, 7 new vehicles and 24 new generators (one for each new branch)

Vehicle running and maintenance

Meetings and conferences

Utilities

Rent expenses

Miscellaneous expense

Insurance expense

Security and administration

Auditor's remuneration

Corporate social responsibility



Utility Expense is composed of Electricity, water and Gas expenses. Electricity expense has been increased from Rs 7.6 million to Rs 10.35 million (36% increase) due to opening of 24 new branches during the year and increase in Electricity rates.Rent expense includes the rental of head office and all branches of the bank. Rent of bank sites has increased by 92% due to doubling of number of branches. Rent expense of Garage Rs 6 million which is about 25% of total rent expense has only increased by 7.5% this year.Miscellaneous expense includes various expenses which increased significantly this year that include: Misc. expense sub ledger which costs Rs 5.8 million this year (last year Rs 0.17 million). Inactive expense is worth Rs 4 million (last year Rs 1.89 million) due to hiring of security guards at new branches. An expense of Rs 1.2 million was in respect of "Office Equipment related Minor Assets" for write-off of all assets worth less than Rs. 2,000.

Insurance expense includes fire insurance, client insurance expense, vehicle insurance, group life insurance etc. Major reason for increase in insurance cost is 'Client Insurance Expense' which has increased from Rs.18.6 million to Rs.36 million (50% increase) which is linked with amount of advances to the client. Advance were Rs 2.2 billion last year are now Rs 4.7 billion (about 50% increase).

Security and administration cost has increased due to increase in salaries of security guard and hiring of new security guards at new branches.Decrease in auditor's remuneration is due to the fact that last year there were fee for various special certifications and sundry advisory services amounting to Rs. 3.129 million while this year the amount is Nil.


Procedures performed:Obtained understanding of sub heads being classified under Administrative Expense.Inquired from the management regarding reasons for material variation.Prepared expectations of various account heads for reasonableness.Performed various comparisons including trend analyses, monthly analyses and inquired about variations.Studied relationships between various financial and non-financial information for plausible relationships.Performed test of details where SAP could not be performed including that on legal and professional charges.Compared figures with last year Reviewed Financial Statements .


TaxationDescription of Account June 30 June 30 Increase / (Decrease)

2013 2012…………………………………..Rupees………………………………..

Current - current year 44,775,738 9,823,625 34,952,113 Deferred - prior year (34,632,452) - (34,632,452)

10,143,286 9,823,625 319,661


Procedures performed:Inquired from management regarding reasons of material variations.Inquired Company's' policy for recording, classifying and summarizing transactions under Tax.

Performed recalculation of current and deferred tax.Compared figures with last year Reviewed Financial Statements .

Conclusion:

Increase is current tax provision is mainly due to increase in mark-up/interest earned, realized interest income on investments and grant received during the year.Provision of deferred tax is due to creation of deferred tax asset during the prior year. Deferred tax has aroused mainly due to deductible temporary differences on deferred grant and non-performing advances' provision.

Obtained tax consultant's working on computation of current tax and calculation of deferred tax. Reviewed the same for reasonableness.

Satisfactory

OVERALL CONCLUSION:Based on the review procedures performed, nothing came to our attention that caused us to believe that the bank's financial statements as of and for the year ended June 30, 2013 was not prepared, in all material respects, in accordance with the approved accounting standards as applicable in Pakistan.


NRSP Microfinance Bank Limited (the Bank) was incorporated as a public limited company incorporated in Pakistan on October 22, 2008 under the Companies Ordinance 1984. The Bank received license by the State Bank of Pakistan (SBP) to operate as a microfinance bank on February 18, 2009, and received certificate of commencement of business from Securities and Exchange Commission of Pakistan (SECP) on February 8, 2011. Further SBP approved the application of the Bank for commencement of The Bank was established to mobilize funds for providing microfinance services to economically challenged people for mitigating poverty and promoting social welfare and economic justice through community building and social mobilization with

The Bank’s registered office is situated at 46, Aga Khan Road, F/6-4, Islamabad and principal place of business is situated at University Road, Bahawalpur. There are ___ branches of the Bank as at June 30, 2014 (2013: 48 branches).


The preliminary assessment of engagement risk was assessed to be greater than "GREATER THAN NORMAL” due to the reason that

The assigned partner and staff are independent of the client, there are no known ethical issues, and the name of the client

This is our second year of engagement. Appropriate background checks have been performed before making our “client

All the engagement team have signed independence forms which state that the teams have no financial or other interest in the entity and all the teams members have directed that they are not holding any equity shares in the Company, directly or


Terms of engagement are normal therefore there is no scope limitation.

Since NRSP MFB is a public un-listed company in financial sector, EQCR will be performed by the EQCR department of the firm.

SpecialtyApplicable accounting standards and expertiseApplicable accounting standards and expertiseApplicable accounting standards and expertiseApplicable accounting standards and expertiseGeneralist with training and experience appropriate for levelGeneralist with training and experience appropriate for levelGeneralist with training and experience appropriate for levelGeneralist with training and experience appropriate for level


Since audit report of annual audit for the year ended December 31, 2012 was unmodified and in performing preliminary update of understanding and discussions with management we did not come across any significant matter at the planning stage of this




During the period, no such accounting pronouncement has been issued which might affect the financial statements.(b) Risks IdentifiedFollowing risks were identified and on the basis of preliminary review procedures performed:

Ensured throughout the review engagement that the bank is in compliance with the provisions of prudential regulations.


The financial statements are reviewed (un-audited) and our review report is being addressed to the members. The financial statements of the Bank for the year ended June 30, 2013 has been prepared in accordance with the requirements of the International Financial Reporting Standards, Companies Ordinance, 1984 and Microfinance Institutions Ordinance, 2001. The financial statements are prepared for the purpose of consolidation with NRSP NGO.

§ The industry of the Bank is highly regulated; therefore there may be pressures on the management to show a compliant picture of the Bank’s financial information in the following areas:

Ensured that related party amounts are identified and disclosed as per IAS 24.

2. Inquired Company's' policy for recording, classifying and summarizing transactions under Mark-up Interest Earned.

4. Performed comparison analysis of share of principal outstanding of each sub head in total portfolio as on June 30, 2013 with percentage of interest earned of each sub head in total interest amount .5. Inquired from management regarding reasons for material variations.6. Compared figures with last year Reviewed Financial Statements .

Discussions held where needed and supervision was provided throughout the engagement to more junior team members.


§ There is a presumed risk of material misstatement due to fraud relating to mark-up / return / interest (“revenue”) recognition.§ Revenue may be recognized by the Bank on non-performing loans. Prudential regulations require the suspension of revenue from such loans and require credit of the same to interest suspense account.§ There may be a risk that revenue is misstated because of changes in interest rates are not appropriately authorized and recorded within the system.

3. Performed analytical procedures by developing expectation on the basis of Productwise monthly average outstsnding Advance amounts and compared this with amounts of interest earned as per client.



BALANCE SHEET


200%

Certified to be true copy of latest form-A, form 7 and form 26 was reviewed.Confirmed the closing balance from general ledger.

Increase / (Decrease)


%

0%0%0%

There is no change in paid-up share capital of the bank during the year.

Verified opening balance from last year's reviewed financial statements.Certified copy of latest form-A was reviewed.Confirmed the closing balance from general ledger.


135%135%135%

Agreed opening balance with the last year reviewed financial statements.Inquired from the management regarding reserve maintenance.Recalculated the reserves' amount and verified that the bank is in compliance with the Prudential Regulations.Confirmed the closing balance from general ledger.

The reason for variation in reserves is due to requirements of Prudential Regulations for microfinance banks issued by SBP. The MFBs are required to t create statutory liquidity reserve fund at 20% of its annual profits after tax and depositors' protection fund at 5% of profits after tax till such time the reserve fund equals the paid-up capital of the MFB. So in the current year statutory liquidity reserve of Rs. 39.98 million and depositors' protection fund of Rs. 10.00 million are


475%

Agreed opening balance with the last year reviewed financial statements.Prepared a reconciliation of opening unappropriated profit balance with closing balance.Confirmed the closing balance from general ledger.


4722%

Agreed opening balance with the last year reviewed financial statements.Recalculated the amount of surplus as per SBP guidelines under Prudential Regulation using Market rates of investments.


The company earned a profit after tax of Rs. 199.92 million during the year. Out of this profit Rs. 39.98 million and Rs. 10.00 million is appropriated for statutory reserve and depositors' protection fund respectively and remaining Rs. 149.94 million is transferred to unappropriated profit resulting in 475% increase in the same.

Revaluation surplus is increased by Rs. 13.25 million which represents a significant change. This is mainly due to appreciation in value of mutual funds by a net of deferred tax amount of Rs. 5.94 million (2012: Nil as investment is new) and Rs. 4.80 (2012: Rs. 0.28 million deficit) respectively. Remaining appreciation pertains to investment in TFCs of Pakistan Mobile Communication Limited amounting to Rs. 2.23 million (2012: Nil as investment is new).


31%59%20%866%-17%

There are three grants which have been received by NRSP Bank up till now. One from Shore Bank International for the implementation of core banking system named OFSS Flexcube-UBS and the other two are received from SBP under Institutional Strengthening Fund(ISF) of Financial Inclusion Programme (FIP)-UK.

during the year is from SBP under ISF. This grant is to finance Rs. 75.79 million project for institutional capacity building of the bank. Out of total cost of the said project 75% share (Rs.56.83 million) is approved to be received as grant. Remaining 25% is to be self-financed by the bank. As of June 30, 2013 an amount of Rs. 36.88 million has been received out of Rs. 56.83 million total approved grant. of Rs. 45.4 million as compared to last year is due to new grant received from SBP of amounting to Rs. 36.88 million during the year which has been amortized by Rs. 29 million during the year and previous grant form SBP is amortized by Rs.15 million and that from shore bank by Rs. 6 million during the year under review. This causes increase

The pattern of amortization is according to the nature of the project costs being financed with grant and are categorized into capital expenditures (i.e. purchase of data equipments, video conferencing devices for communication & data center and allied equipments) and revenue expenditures. Capital expenditure backed grant is amortized over the period of 36 months matching the pattern of depreciation of capital expenditures while revenue expenditure backed grant is amortized when the

represents the interest on grant funds placed in saving account. As grant received during the year is greater than that of previous year, accordingly interest earned thereupon is increased during the year.


Confirmed the closing balance from General ledger.


179%10%267%

50%

June 30, 2013 Amount

543,792,441 1,916,809,552 36,479,958 2,497,081,951





18%0%0%18%





-100%99%100%100%

50%100%0%0%

100%12079%495%-78%

This tax payable is mainly withheld on deposit interest and federal excise duty on loan processing to customers.

The increase in interest payable of Borrowings during the year is due to increase in five more loans from Standard Chartered Bank, Askari Bank, JS Bank, PPAF & Pak Oman Investment Company amounting to Rs 650 M, 400 M, 800 M, 500 M & 100 M respectively. The bank has been paying the mark-up @ 6 Month KIBOR +2% per annum for SC Bank, Askari Bank & Pak Oman Investment Company, @ 3 Months KIBOR +2% p.a for JS Bank and fix rate @12.36% for PPAF.Mark-up payable also includes mark up on deposits. Increase in deposits by the customers was one of the reasons for which markup payable on deposits and other accounts has increased this year by Rs. 8.77 million. Deposits carry mark-up rates

Accrued expenses have increased significantly mainly due to opening of new branches and Accrued client insurance because last year no accrual was booked of insurance expense and was treated on actual payment basis but this year at the end of each month acrual is booked. Accrued expense include repair & maintenance, periodicals, and news paper cost for branches and

Increase in Staff gratuity was due to increase in staff from 973 to 1120, increment during the year @ 7.97% and accumulation of post employment funds which the company has to pay at the end of employees' job in the shape of final settlement.

Agreed opening balances from last year audited Financial statements and working papers.Verified the subsequent payment of withholding tax from monthly sales tax cum FED return.Ensured the accuracy of calculation of mark-up payable on all borrowings and depositor's protection fund.Obtained the details regarding other payables from management.Inquired from management regarding reasons of material variations.Confirmed the closing balance from General ledger.


-83%14%-39%-6%

-83%

0%0%

-83%

Liabilities against assets subject to finance lease;Liability against finance lease due to more staff members avail this lease opportunity during the year. The Bank was entered into agreements with JS Bank Limited for lease of vehicles. Lease rentals are payable on monthly basis with a mark-up at the rate 6 months KIBOR plus 4.50% per annum. The Bank intends to exercise its options to purchase the above assets upon

The increase in others is mainly due to insurance received from gold loan customers and insurance payable is transferred to this head and removed from above insurance payable which was previously shown seperatly.

51%58%-32%3%14%

-39%

-10%


Obtained fixed assets schedule and traced opening balances from last year financial statements.Major additions were verified from title documents. Compliance with accounting policy was checked.



233%54%73%


Confirmed the opening balance from last year financials and audit file.

Obtained the cash certificates from banks and agreed the balances with cash count figures.obtained the maximum insurance limit for individual branch to keep cash in safe.Reviewed the prudential regulation No # 6, recalculated the figure and agreed the balance with statement obtained from SBP.


88090.45%-41.82%-22%


The increase of 73% in cash and balances with SBP is due to increase in deposits. Total deposits in current period have been increased by 162.6% than prior period, in which current accounts are increased by 689.8%,deposits in saving accounts are increased by 138.9% and fixed deposits are increased by 277.9%. According to Microfinance ordinance 18A " microfinance bank shall maintain by way of cash reserve in cash in current account, opened with the State Bank or its agent, a sum equivalent to five per cent of its deposits or such percentage as State Bank may from time to time notify.


The decrease of 54% in the balances with other banks are mainly due to high investment made during the year. This is mainly due to the transfer of liquid assets ( cash and bank balance) into profitable investments , which has been decreased by 54%

Obtained the bank statements and reconciliation statements and agreed the balances with the balances appearing in individual

Obtained the subsequent bank statement to verifying the reconciling items.


83%46%

-8%

100%

250%

Inquired from the management main reasons for variation and corroborated through its impact on corresponding head of

Investments has been increased by 250% as compare to last year which represents an increase of Rs. 885 million. This is mainly due to the transfer of liquid assets (cash and bank balance) into profitable investments , which has been decreased

Investment in mutual funds has been Increased by Rs 804 million which represents 100% increase as compare to last year. This increase is due to the heavy investment in mutual funds (invested in debt instruments) managed by different asset management companies in order to gain short term profits by using surplus cash by efficient working capital management. Asset management companies involving in it are NAFA, MCB, HBL, UBL,ABL, JS.Investment in Pakistan investment Bonds has been increased by approx Rs 59 million representing 83% increase. This is mainly due to the purchase of two PIBs having face value of Rs 55 million and Rs 70 Million at the same time PIB having face value of Rs 87 million has been redeemed during the year reaming difference is due to the revaluation of PIBs.

Traced opening balances from the published financial statement for the period ended June 30, 2012.Obtained the agreements of the relevant investments.

Recalculated the amount of surplus as per SBP guidelines under Prudential Regulation using Market of investments.


31%0%

100%

100%30%

31%

Investment in Treasury bills has been increased by approx 46% as compare to last year which represents increase of Rs 38 million this is mainly due to the purchase of Treasury bill having face value of Rs 50 million at the start of the year. further more revaluation loss restrict the increase in TBs book value.

Investment in TFC has been decreased by 8% representing Rs 11 million decrease.Bank has invested Rs 200 million in Term Finance Certificate of Pakistan Mobile Communication Limited . which has been redeemed by Rs 20 Million during the year as per predetermined redemption schedule. but increase in market value of TFC

Agreed the profit rates from relevant documents, recalculated the profit on the investments and matched them with the

Advances has been increased by 31% as compare to last year which represents increase of Rs 1.47 billion . This mainly due to the growth strategy by the management of the Bank . bank is in the initial stage of its operations and continuously focus on less developed areas of Pakistan for growth purpose. . In order to do so bank is borrowing loans from other commercial banks which has been increased by approx Rs 678 million .Secondly, Deposits and other accounts has also been increased by Rs 1.25 billion . Thirdly, increse in No. of branches from 48 (as at June 30, 2013) to 54( as at June 30, 2014) was also contributed in increase in Advances.All of the above mentioned activities supports increase in advances.



-12%30%

19%


Performed analytical procedures by developing expectation on the basis of average amount per borrower to assess the Prepared different analysis to assess the reasonableness of Advances amounts and obtained justification from management, For the specific provisoning made, we selected samples from different branches portfolios, and performed a walkthrough test to verify whether system properly classify loans or not.For the specific provisioning made, verified the advance outstanding for number of days since issuance date from the system generated report and compared them with our recalculated figures. As far as general provision is concerned, recalculated and


Compared figures with last year corresponding half year.

Obtained understanding of sub heads being classified under Advances -Net of Provision.Inquired from management regarding reasons of material variations.


104%-35%-19%-100%-42%-1%34%220%191%0%

341%101%

Inquired Company's' policy for recording, classifying and summarizing transactions under Provision against non-performance

12% decrease in mark-up accrued on bank balances is due to decrease in deposits with other banks therefore income of last month is also decreased which directly affecting this decrease.

Income accrued on advances has been increased 173% which represents Rs. 197 million increase. This is mainly due to the increase Advances which has been increased by approx 113% which results an increase in accrued markup at the end of the

Obtained the ledger of prepayments, advance income tax and other receivables and checked for unusual transactions


INCOME STATEMENT

Accrued income on investments relates to the interest income of Term Finance Certificates of last quarter which is

Advances to employees have been given against their salaries, advances have been given irrespective of the designation of the employees. However, there is a decrease in the overall advances by Rs. 1.6 M during the period under review. This is because recovery is more than advances given in the period

The prepayments include advance rent paid to the owners of the branches of amounting to Rs.13 million & other mainly paid to Adamjee Insurance for an amount of Rs.5.6 million, Computer Software Renewal License Fee of amounting to Rs. 1.2 million, Prepaid Oracle Data Base License Renewal Fee of amounting to Rs. 7.8 million Due to the opening of new branches opened during the period and around the period end, this figure has also been on the higher side.

Advance tax has been increased by Rs. 114 million approx as compare to last year . This is mainly due to increase in advance income tax paid amounting Rs 132 million approx remaining increase in advance is due to the withholding tax on profit on bank accounts and advance tax on interest on investments.

The other receivable increased by 4.7 million mainly due to insurance receivable from gold customers by 2.1 million and it also now includes receivable from KFW in respect of training provided to the employees of KFW.

This resembles the net difference of C/A Balance between the head office with its branches.


Obtained the grant agreement from the entity of grant receivable from shore bank and obtained the evidence of subsequent


45%100%

-17%100%39%


Inquired from management regarding reasons for material variations.





128%1%

0%30%


Performed analytical procedures by developing expectation of interest expense on deposits.Inquired from management regarding reasons of material variations.

Ensured the accuracy of calculation of interest expense for the period.

Inquired from management regarding reasons of material variations.Compared figures with those of last year.

Number of deposits have increased immensely during the year. Fixed and saving deposits carry interest while current deposits do not carry any interest. Fixed Deposits have increased from 87 to 369 while Saving Deposits have increased from 79,916 to 124, 163 as discussed in Deposit section above. Due to this interest on deposits for the current year has increased by 128%. The bank has been paying the interest around 6% per annum on saving deposits and upto 13% per annum on fixed deposits to its As above in borrowing section, during the year five more loans had been executed by the bank with Pak Oman investment bank,

Obtained the workings of interest expense on borrowings for the year and recalculate according to the applicable KIBOR rates


2%-100%-2%

Prepared expectation of LPF based on number of loans and advances processed during the year.Obtained NRSP outstanding portfolio breakup to verify and to prepare an expected amount of CSI earned during the year.Inquired from management regarding reasons of material variations.



866%

There is 60% increase in loan processing fee (LPF) in current year as compared to last year. The increase is mainly due to increase in loans and advances processed and increase in loan processing fee from Rs. 600/loan to Rs. 700/loan. This figure


Inquired Company's' policy for recording, classifying and summarizing transactions under Fees, Commission and Brokerage

-76%3255%-100%100%582%

Increase / (Decrease)

The increase in amortization of Rs. 45.4 million as compared to last year is due to new grant received from SBP of amounting to Rs. 36.88 million during the year which has been amortized by Rs. 29 million during the year and previous grant form SBP is amortized by Rs.15 million and that from shore bank by Rs. 6 million during the year under review. This causes increase The pattern of amortization is according to the nature of the project costs being financed with grant and are categorized into capital expenditures (i.e. purchase of data equipments, video conferencing devices for communication & data center and allied equipments) and revenue expenditures. Capital expenditure backed grant is amortized over the period of 36 months matching the pattern of depreciation of capital expenditures while revenue expenditure backed grant is amortized when the





%

56%253%-59%-93%15%15%-3%96%31%12%4%9%10%-5%-9%73%56%165%-38%91%89%0%

100%-56%30%

Administrative expenses has increased from Rs. 430 million in the last year to Rs. 665.77 million in the current year. The bank's overall operations have grown during the year and in this regard 24 new branches were opened during the year. To support and manage the growing operations of the bank, 297 employees were also hired



Legal and professional charges were Rs 7.7 million last year and now they stand at Rs 24.6 million ( increased by 218%). The main reason of increase is due to payment of SECP fee Rs 6 million for enhancement of Share Capital and software






Amortization has increased by 12 times during the year due to increase in intangible assets by Rs 100 million in August 2012, consequently, additional amortization of Flexcube for Rs 29.8 million was charged for 10 months over a period of three

Staff travel cost hasn't increased so much due to the fact that 77 new motor bikes were purchased and issued to new staff. The expenditure relating to bikes is included in POL expenses head.

POL expenses have increased by Rs. 18 million (50% increase) as an increase in Petrol and CNG prices as well as NRSP operations has increased by 24 branches as well as increase in 77 new bikes, 7 new vehicles and 24 new generators (one for



Utility Expense is composed of Electricity, water and Gas expenses. Electricity expense has been increased from Rs 7.6 million to Rs 10.35 million (36% increase) due to opening of 24 new branches during the year and increase in Electricity

Rent expense includes the rental of head office and all branches of the bank. Rent of bank sites has increased by 92% due to doubling of number of branches. Rent expense of Garage Rs 6 million which is about 25% of total rent expense has only

Miscellaneous expense includes various expenses which increased significantly this year that include: Misc. expense sub ledger which costs Rs 5.8 million this year (last year Rs 0.17 million). Inactive expense is worth Rs 4 million (last year Rs 1.89 million) due to hiring of security guards at new branches. An expense of Rs 1.2 million was in respect of "Office Equipment related Minor Assets" for write-off of all assets worth less than Rs. 2,000.

Insurance expense includes fire insurance, client insurance expense, vehicle insurance, group life insurance etc. Major reason for increase in insurance cost is 'Client Insurance Expense' which has increased from Rs.18.6 million to Rs.36 million (50% increase) which is linked with amount of advances to the client. Advance were Rs 2.2 billion last year are now

Security and administration cost has increased due to increase in salaries of security guard and hiring of new security

Decrease in auditor's remuneration is due to the fact that last year there were fee for various special certifications and sundry advisory services amounting to Rs. 3.129 million while this year the amount is Nil.


Obtained understanding of sub heads being classified under Administrative Expense.Inquired from the management regarding reasons for material variation.Prepared expectations of various account heads for reasonableness.Performed various comparisons including trend analyses, monthly analyses and inquired about variations.Studied relationships between various financial and non-financial information for plausible relationships.Performed test of details where SAP could not be performed including that on legal and professional charges.Compared figures with last year Reviewed Financial Statements .


356%-100%3%

Inquired from management regarding reasons of material variations.Inquired Company's' policy for recording, classifying and summarizing transactions under Tax.


Increase is current tax provision is mainly due to increase in mark-up/interest earned, realized interest income on

Provision of deferred tax is due to creation of deferred tax asset during the prior year. Deferred tax has aroused mainly due to deductible temporary differences on deferred grant and non-performing advances' provision.

Obtained tax consultant's working on computation of current tax and calculation of deferred tax. Reviewed the same for

2330 Review Summary Memorandum - June 30, 2014

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Transcript of 2330 Review Summary Memorandum - June 30, 2014