Report of the Board of Directors

Market developments in FY 2016

The global microfinance market reported a strong growth of 15-20%1 over FY 2016. Asia displayed the strongest growth momentum. A particularly impressive development in this region was the revival of India’s microfinance market, which is by far, the most important market in the Asian region, whereby growth exceeded 30% in FY 2016. Central Asia was impacted by the economic crisis in Russia, leading to a slight slowdown in financial sector development compared to previous years. Other regions in the world, such as South and Central America, Africa and the Middle East, showed a growth of the microfinance market of around 10-15%.

Healthy market growth in the Asia-Pacific region was driven by an impressive economic momentum resulting in an average GDP growth of around 7%. Domestic markets in the region were booming without price stability appearing to be under threat. The labour markets were healthy, the demographic age structure was favourable and financial conditions were extremely robust due to inflow of capital. As a result, direct investment and portfolio investment rose to a new record high.

GDP growth is an important element for the potential growth of the microfinance market. Moreover, the development of the financial sector usually serves as a growth accelerator. The financial sectors of developing economies and emerging markets are generally underdeveloped. Their capacity has often not evolved sufficiently relative to the overall size of the economy: the volume of lending to other sectors of the economy typically amounts to 20-30% of GDP in these countries, compared with 100-200% of GDP in developed economies. As part of the overall economic growth of developing countries, the financial sector is therefore likely to expand at least three times more rapidly than the economy as a whole.

Financial results

CreditAccess’ financial book year runs from April 1st until March 31st or equal to that of CAA-GK, its main Operating Company. CreditAccess’ other two Operating Companies, CAA-BAV and CAA-OP, have financial years equal to calendar years. For reporting purposes, CAA-BAV and CAA-OP align their financial results according to CreditAccess’ reporting period.

CreditAccess’ consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Due to the fact that the Company was incorporated on March 20th, 2014, the General Meeting of Shareholders resolved to extend to the first financial period from 20 March 2014 until 31 March 2015.

Total income
CreditAccess’ interest income and fees in FY 2016 were 80.6% higher at € 74.3 million. This increase was solely driven by a strong growth in loan book resulting from a 45% increase of active clients accompanied with a 9.5% higher average ticket size. Notwithstanding the reduced average interest rate on funding, the interest expenses and fees grew by 68.4% to € 37,3 million on account of the average higher outstanding debt to finance the higher portfolio book to € 356.6 million (+56%).
The resulting total income, i.e. net interest income and fees plus other income, came in at € 37.4 million, or 90.8% higher compared with the previous financial year.

Total income by Operating Company (x € million)

  • CAA-GK reported a 81% increase in net interest income and fees to € 34.4 million in FY 2016, primarily due to the positive effect of higher disbursements. The customer base grew c. 40% to 1.2 million customers, driven by a 25% increase in the number of branches and higher productivity per branch. This good performance was realised while CAA-GK successfully managed during the financial year a complex transition to a new IT Core Banking Platform which has caused a slow down in the disbursements in Q3 of the financial year.
  • CAA-BAV’s net interest income and fees were 58% higher at € 5.7 million. The main contributory factor to the increase in disbursements was the opening of 51 new branches, or a growth of c. 44%.
  • Net interest income and fees of CAA-OP were 767% higher in FY 2016 at € 2.6 million. Higher disbursements were driven by a 430% jump of active customers resulting from a tripling in the number of branches.
  • Net interest income attributed to Non-Operating Companies mainly consists of interests and other financial charges on debt securities issued by CreditAccess Asia NV. Because of derivative components embedded in the financial instruments, a large portion of these charges are accrued on the basis of the effective interest rates which are higher than the coupon rate payable on said instruments.

Gross result and Operating result

Gross result came in at € 36.4 million (+89%), driven by a favourable development in total income in combination with slightly higher loan loss provisions (€ 1.0 million vs. € 0.4 million in FY 2015), on account of the large increase in loan portfolio to € 356.6 million. Despite a small rise, provision and write offs remained at a very low level of 0.3% over the average outstanding porfolio. This is the main indicator that the portfolio at risk is well under control.

Operating result in FY 2016 was € 5.1 million, compared with € 1.9 million in FY 2015. OPEX as percentage of total income dropped to 83.6% versus 88.6% in FY 2015, benefitting from economy of scale and cost containment. As a result, the operating margin improved to 13.6% versus 9.6% in FY 2015.

Operating result & Operating margin by Operating Company (x € million)

  • CAA-GK’s operating result advanced strongly and came in at € 17.4 million (+102%). The improvement reflects the robust growth in the total income and a less than proportional increase in operating expenses despite higher software costs for the implementation of the new advanced Core Banking Solution Platform. Hence, the operating margin rose to 50.6% or was 53 basis points higher than in FY 2015.
  • Operating result of CAA-BAV came in at € 0.4 million negative, versus € 0.1 negative in last financial year. The operating result is reaching the break-even point, which is a normal pattern after four years since inception. The Company is benefitting from economies of scale which, in combination with continued top line growth, should translate into profitability in the near future.
  • CAA-OP’s operating result was € 3.2 million negative compared to €1.7 million negative in FY 2015. Operating costs increased substantially due to the acceleration of opening new branches (77 in FY 2016 versus 33 in FY 2015). With 110 branches in place, CAA-OP has now reached the scale to improve efficiency further and to focus on increasing productivity (i.e. more customers) per branch.
  • The result of Non-Operating Companies includes the following costs of CreditAccess Asia N.V.: € 894k negative for employee costs, € 12k negative for amortisations and € 1.7 million negative of other expenses, mostly relating to legal and financial and business advisory received during the period. Further details are provided in note 11 to the consolidated Financial Statements.

Result for the period

The positive operating result is then adjusted by certain non core or extraordinary items. In particular:

  • The result from foreign currency denominated transactions amounted to € 2.2 million positive, compared to € 2.5 million negative in FY 2015. This result was mainly driven by transactions in non-EURO currencies which are settled at different rates and revaluation of year end balances of non- EURO currencies.
  • The result from financial instruments came in at € 4.9 million negative versus € 0.5 million negative in the previous financial year. The increase was solely caused by the revaluation of the redemption liability (€ 4.8 million) for the remaining CAA-GK shares which CreditAccess had to pay to the minority shareholders.
  • The taxation item was € 5.2 million negative, driven by the positive results of CAA-GK. Negative operating result of CAA-BAV, CAA-OP and of CreditAccess Asia N.V. could not be compensated on an intercompany level.

Other items and result for the period (x € million)

Impact of extraordinary items
The consolidated net result was affected by the extraordinary and/or nominal items listed below. The effect of these items is such that the consolidated net result changes from € 4.5 million positive to € 2.9 million negative. The most significant items were:

  • € 4,946,385 financial expenses to the Company due to the increase value of the redemption liability for the purchase of minority interest of Grameen Koota. This higher value of the liability translated into a higher purchase price of the equity stake, and instead of being “capitalised” it has been expensed through the profit and loss accounts.
  • € 2,165,574 gains to the Company mainly due to decreased value of the redemption liability for the purchase of minority interest of Grameen Koota on account of the INREUR currency exchange. Similarly to the above, the decreased value did not lower the capitalised amount and was booked through profit and loss accounts.
  • € 1,644,015 financial charges booked by the Company due to notional interests recognised from discounting the redemption liability for Grameen Koota.
  • € 1,523,712 financial charges to the Company on the IPO Incentive Bond to reflect the effective interest rate of approximately 12% as opposite to the coupon rate of 6.5%.
  • € 760,740 financial charges to the Company due to the amortisation of the Olympus Bond security at an effective interest rate of approximately 14%, whereas the interest of 8% per annum shall be payable only in case of non conversion into equity of the security.
  • € 675,225 net of tax depreciation charged to the Company due to the amortisation of the Grameen Koota brand which is recognised under the IFRS standards and amortised over 5 years.

Financial position

Cash flow
Cash flow from operating activities in FY 2016 amounted to € 154 million negative. The increase of 93.67% compared with FY 2015 (€ 79.5 million negative) reflected mainly the choppy growth of the loan portfolio of the Company by € 148 million, whereby the loans granted amounted to € 465 million, while the repayments received came in at € 316.1 million.

Abridged cash flow statement (x € million)

Balance sheet position
The balance sheet total as at the end of financial year 2016 was € 507.3 million, an increase of € 139.5 million compared with FY 2015. This was mainly due to the growth of € 128.2 million in loans and advances to customers. Portfolio at risk (“PAR”) – the percentage of the loan portfolio with payments more than 30 days overdue – remained stable from FY 2015 or as low as 0.2%. PAR at CAA-GK remained at a low level of 0.1% due to close monitoring and strict risk management, while CAA-BAV and CAA-OP witnessed a slight increase to 2.3% and 1.9% respectively, as the microfinance market in these countries is still in a more infant stage and there is a higher rate of late payments.

Non-current assets were € 46.6 million higher, mainly because of an increase in loans and advances to customers (€ 62.9 million). The non current portion of investments available for sale, i.e. CreditAccess’ participation in Equitas declined by € 9.6 million. This was linked to the upcoming IPO of Equitas, which became effective on April 21st 2016, which resulted in the following effects:

  1. Overall revaluation of CreditAccess’ stake (i.e. 12.84%) in Equitas at the intended IPO price of INR 110 per share, compared to INR 68.66 in FY 2015. Hence, the value of its participation went up to € 50.4 million versus € 35.3 million in FY 2015;
  2. CreditAccess’ intention to sell 49.1% of its stake in Equitas at the IPO resulted in a split of the asset into the current portion of Investments available for sale (or 49.1% which was intended to be sold, and eventually sold, at IPO) and into the non-current portion of investments available for sale (or 50.9% of the stake which is subject to a 12 months lock in period expiring in April 2017).

Consequently, the non-current asset ‘investments available-for-sale’ declined by € 9.6 million, or from € 35.3 million in FY 2015 to € 25.6 million in FY 2016.

Current assets rose by € 92.9 million to € 347.8 million, which was also mainly driven by the increase in loans and advances to customers (€ 65.3 million). Furthermore, as explained above, investments available-for-sale increased to € 24.8 million versus € 1.2 million in FY 2015.

Shareholders’ equity
Shareholders’ equity as at financial year-end 2016 amounted to € 79.5 million. The increase of € 17.0 million was the result of a reported negative result over FY 2016 (€ 5.0 million), the step up of the valuation of the Company’s participation in Equitas (€ 11.6 million), currency differences in translation of the equity of the Operating Companies (€ 8.9 million negative) and reclassifications into equity of respectively the CPEC liability (€ 8.9 million) and noncontrolling interest of CAA-GK (€ 10.5 million due to the increase of CreditAccess’ participation to 96.5% versus 81.2% in FY 2015).

Movements in shareholders’ equity (x € million)

The solvency ratio (shareholders’ equity as a percentage of balance sheet total) declined to 15.7% compared with 17.0% as at FY 2015, because the increase in the balance sheet total was greater in percentage terms than the increase in shareholders’ equity. Debt to adjusted capital ratio amounted to 410% in FY 2016 versus 294% in FY 2015 which was driven by the strong increase of the loan portfolio.

Interest-bearing debt
Net interest-bearing debt amounted to € 376 million, an increase of € 126 million compared with FY 2015. This was fully driven by the increase in loan portfolio. Currently, CreditAccess’ borrowing needs are financed mainly on a local level, provided by local and international banks and international MIVs (Microfinance Investment Vehicles) and DFIs (Development Finance Institutions). For the medium term, the Company is aiming for a further diversification of the funding sources in order to mitigate the financial/ liquidity risk and to optimize (i.e. lower) the average interest rates.

Information and communication technology

ICT strategy: three pillars
CreditAccess’ ICT strategy is designed to support the business in terms of reducing costs, improving efficiency and providing better services to its customers by:

  1. Integrating and enhancing the Group IT Architecture of the Operating Companies starting from the core banking platform.
  2. Coordinating, supporting and integrating the development of ICT applications that add value and support the business objectives of the Operating Companies.
  3. Building Business Intelligence (BI) solutions for in depthanalysis, timely/quality decision-making and support improvements in business processes of the Operating Companies. Report of the Board of Directors

Core Banking Solution Platform
Currently, CreditAccess uses different IT systems for the three Operating Companies: CAA-GK operates with TEMENOS T24 (by Temenos Group AG) while CAA-BAV and CAA-OP operate with BR-net (by Craft Silicon). CreditAccess envisions that also CAA-BAV and CAA-OP will migrate to TEMENOS T24 in the medium term when they have reached the adequate size in terms of number of clients. Hence, all projects to be developed in the short to medium term, share the final objective to have T24 as an integrated core banking system at Group level.

ICT governance and organisation
At present, each subsidiary of CreditAccess has an IT Head reporting to the CEO of the operating company who bears full responsibility for ICT. However, CreditAccess is in the process of building up a solid Group ICT governance and organisation: an IT Group Manager has recently been hired and will be in charge of the planning, organisation and monitoring of IT projects at the Group level and facilitate the development of new technological strategic solutions to be implemented by the Operating Companies. The IT Group Manager will also be responsible for monitoring and strengthening the IT operational capacity of the subsidiaries.


CreditAccess considers innovation to be a critical success factor. Through continuous assessment of and prompt response to the customer’s wishes and requirements, the Company is continuing to build on its prominent market position in Asia. CreditAccess constantly explores ways of further broadening and improving the services it offers and, hence, sees research and development (R&D) as an important instrument for meeting the Company’s obligations to society. This process goes hand in hand with the continuous focus on streamlining its operations further and making control processes more effective.

All Operating Companies continued to focus on stimulating innovation in FY 2016. Further progress was made in building up a regional R&D community, which is now an integral part of the CreditAccess organisation. Regular meetings were and will be held by working groups on topics such as product development, IT and processes. Partly as a result of this development, an innovation mind-set has been instilled throughout the CreditAccess organisation. The objectives for the medium term are:

  1. To evolve and become more efficient in the way the Company assesses client worthiness by leveraging alternative/big data and behavioural based scoresystems;
  2. To strengthen its distinguished proposition, also against (future) competitors, while making costs of direct physical relationships with clients sustainable, by leveraging continuous process streamlining and by introducing new technologies;
  3. To expand the product range in line with its clients’ needs and being recognised as their financial and business partner;
  4. To master in running a “people and processes” business, by innovating the way CreditAccess manages HRs, aiming for a higher quality, lower attrition rate and at sustainable costs.

Each of these key elements with respect to innovation is described in a more extensive manner in this annual report (see also page 4, 9, 13, 21 and 26).

Corporate Social Responsibility strategy

CreditAccess’ Corporate Social Responsibility (CSR) mission is simple and straightforward. It is a clear recognition that CSR should be fully integrated into CreditAccess’ business model, enabling the Company to take a conscious and responsible approach towards its role in society.

CreditAccess is sensitive about the well-being of its clients, employees and the local communities it operates in. The Company’s key goal is to provide financial services in a way that will add value for all stakeholders in a balanced way. In order to accomplish this, the Company aims for the highest level of transparency, integrity, fairness and professionalism in all its operations.

CreditAccess strives to:

  • Execute social leadership programmes for top management and all operational leaders;
  • Continue with social and environmental programmes and exchanging best practices across the Operating Companies, and
  • Increase transparency of HR and social performance data.

Throughout the Group, CreditAccess adopts internationally recognised client protection principles. These principles guide all employees in conducting the core business of providing responsible financial services to the Company’s clients. In addition to adding value by offering access to financial services, CreditAccess also provides additional benefits to its clients and their families through specific socially responsible initiatives that are undertaken directly by the Operating Companies. The overall aim is to help clients to improve their standard of living.

Currently, these social initiatives are primarily undertaken by CAA-GK, which allocates 5% of its net profit to CSR projects. The initiatives include among others: access to safe sanitation systems and safe drinking water, skills development and employment enhancing vocational and skill trainings, and special education for children.

Set out below are highlights of the social initiatives conducted by CAA-GK in FY 2016.

Social initiatives

* Jagruthi: CAA-GK’s flagship programme to educate its customers

Launched in 2011, Jagruthi is the flagship of CAA-GK, a universal client education programme covering more than 200 topics such as child nutrition, open defecation, savings, preventive healthcare, cleanliness etc. Currently, Jagruti is reaching out to more than one million customers of CAA-GK every week. Jagruthi, which literally means ‘awareness’ in the local language, is an imaginary rural female character created to reach out to rural female customers, who are able to easily identify themselves with her. In the form of story-telling, Jagruthi’s letter is read by field officers at every centre meeting, every week, focusing on one topic every time. A Phicus survey conducted on Jagruthi has shown that the programme has made an impressive impact on rural women in spreading the message of health and sanitation in their community effectively.

Client Protection Certification
CreditAccess is also investing in the certification of its businesses, in order to receive the Client Protection Certification (“CPC”) for each of its Operating Companies. The CPC certificate is an independent, third party evalution, which is performed by Smart Microfinance, to publicly recognise financial institutions that meet adequate standards of care in treating clients. It enables financial institutions to demonstrate adherence to the microfinance industry standards for good contact towards clients. CAA-GK was among the first five institutions in the world to receive this CPC certificate in 2013. In December 2015, CAA-BAV received the pre-assessment report of the CPC Certification. When CAA-BAV is granted this certificate, it will be the first microfinance institute to receive this in Indonesia. Moreover, it will mean that around 95% of CreditAccess’ total operations are covered by the CPC certificate.

Caring for people
The active involvement, professionalism and knowledge of employees operating in a positive working climate are crucial for the Company’s success. CreditAccess therefore actively promotes the values and ethical behaviour embodied in its Code of Conduct. CreditAccess facilitates employability by creating equal opportunities for personal development, and communication of Company and personal objectives in an open atmosphere. The Company encourages individual and team performance through recognition and award schemes.

Personnel and organisation

CreditAccess retains its leading position in the microfinance industry by paying careful attention to the needs, responsibilities and aspirations of the people employed at all levels of the organisation.

Personnel and organisation
CreditAccess believes that the commitment, involvement and quality of its personnel are key to the achievement of its corporate objectives. CreditAccess’ human resources strategy is therefore to recruit new talent and develop, train, motivate and retain the existing talent. This strategy is consistent with the Company’s core values and code of conduct. CreditAccess is continuously looking for ways to improve its human resources systems and processes and has launched several initiatives to develop this in the years ahead.

Furthermore, CreditAccess is also investing in teambuilding and sharing best practices among its management teams by organising an annual three-day retreat for the top 40-50 managers of the Group. This event includes a mixture of teambuilding sessions and working sessions focused on business related topics and presentations about the recent performance of the Group and anticipated strategic developments.

Number of employees
As a result of the strong growth of CreditAccess’ activities, the average number of full-time equivalents increased to 5,645 in FY 2016, up 64.7% compared to FY 2015. In the pie charts, the split of the workforce into functions and per operating country are illustrated.

Remuneration policy
Currently, managers of all Operating Companies of CreditAccess Asia, including the Headquarters in the Netherlands and the Operating Support Team (“OST”) in Indonesia have diff erent remuneration schemes and policies and procedures. The goal for FY 2017 is to introduce an agreed common framework for remuneration at Group level, which will serve as a guide for the design and evolution of the remuneration schemes at each operating company level, including the Headquarters and OST.

CreditAccess recognises the need to ensure the same compensation structure and compensation package to all key and senior managers within the Group: A fair base salary at market level and related annual allowances, adequate annual (variable) bonuses and a long-term incentive plan.

Long-term incentive plan
In FY 2016, CreditAccess made the initial steps to introduce a long-term incentive plan (“LTI”) for key employees. The LTI is considered to be an eff ective instrument to align all key managers with the core objective of the shareholders to achieve a qualifi ed IPO, increase the value of CreditAccess’ shares overtime and reward long term commitments and targets achieved by the key managers of the Group. Introduction of the LTI is planned for FY 2017.

Ambitions for FY 2017
CreditAccess critical success factors are people and processes. Hence, the Company will continue to invest in ways to innovate its human resource systems in order to attract high quality people and to retain talent within the organisation at a sustainable cost. Furthermore, Human Resources will be concentrating on proper internal communication and, at the same time, close attention will continue to be paid to day-to-day operations to safeguard growth and continuity as far as possible.

Average number of employees (split per function)

Average number of employees: geographical split

1 Source: responsAbility | Microfinance Market Outlook 2015