In conducting of its operations, CreditAccess is exposed to a number of business risks and financial risks. As a financial intermediary, the Company is exposed to risks that are particular to its lending and the environment within which it operates. The object of the Company’s risk management policy is to permanently control the various actual and potential risks to CreditAccess’ business in the long term and to limit and hedge those risks where possible. The risk management process is continually improved and adapted to the changing global risk scenario. Despite the priority given to the control of those risks and the management and control procedures in place, risks can never be eliminated completely. Given the diversity of markets, customers and geographical areas served by CreditAccess, they are an inherent part of doing business. CreditAccess’ long-term risks are limited by:
- the diversity of the markets in which it operates (both geographically and in terms of clients);
- its informative, compliant and transparent reporting systems;
- its highly skilled workforce;
- a proactive and responsible management style.
Given the diversity of the markets, customers and regions served by CreditAccess and the breadth of its portfolio of activities, it is virtually impossible to quantify all the risks that may be relevant to the Company as a whole. Where those risks can be measured, however, they are quantified as accurately as possible.
The core business of the Company is to provide collateralfree loans in rural areas, and consequently requires enhanced operational risk management. Operational risk management is key to the success of CreditAccess and it represents one of the strengths of the Group. Each Operating Company controls operational risks through multiple layers of internal and external controls: Operating Procedures; IT System controls; Quality Assurance controls; Internal Audit controls and External Audit controls.
The low level of Non-Performing Loans and internal frauds shown by the Operating Companies against the respective benchmark/competitors, demonstrates the quality of the Group’s operations.
The Company’s Internal Control Systems are commensurate with the nature of its business and the size and complexity of its operations. Operating Companies apply a comprehensive approach to internal control and risk management through regular controlling and reporting to their respective Board and management teams, appropriate to their size and scale. The risk status is regularly reviewed and discussed with the management, and at quarterly intervals with the Board, within the scope of the Audit and Risk Committees of each company.
The high volume of low-ticket size transactions, requiring considerable manual intervention, characterises risks of the Operating Companies. In order to minimise these risks, each Operating Company has designed simple and highly standardised procedures with checks and balances at various levels to separate quality control functions from business target/sales functions. Management of data through robust and centralised IT platforms further ensures that risks integral to the nature of the business are minimised.
Key Risk Indicators
Each Operating Company has identified its risk exposure within broad categories including Credit, Operational and Financial Risk – and has put in place a system of monitoring of Key Risk Indicators (“KRIs”) within each category. KRIs are regularly updated to keep pace with organisational changes and process improvements.
The Risk function within each Operating Company is either handled by a separate department or held by the Internal Audit and Control department, depending on the Company’s risk exposure and complexity of the KRIs being tracked.
In order to further enhance the overall risk monitoring of the individual Operating Companies, the Operations Support Team reports on a quarterly basis to the Board of the Company on the risk exposure of each group entity, specifically covering Governance and Strategic Risk, Credit Risk and Operational Risk.
In addition to the Operational Risk Management detailed above, it is worth mentioning that at overall Group level, as well as at the level of each Operating Company, detailed policies are in place to manage and monitor other key risks of CreditAccess’ business: regulatory, political interference and financial and liquidity risks.
All of the Company’s disbursements and collections from borrowers are cash transactions, making cash management an important element of the business. To reduce the potential risks of theft, fraud and mismanagement, the Company has implemented an integrated cash management system which is operational in almost all its branches as of 31 March, 2016. The system utilises an Internet banking software platform that interfaces with various banks to provide the Company with real-time cash information for these branches and the loan activity therein. The Company believes this integrated system further enhances its management information systems and facilitates its bank reconciliations, audits and cash flow management. The system also reduces the risk of making errors.
The financial risks to which CreditAccess is exposed are:
- Credit risk
- Fair value or cash flow interest rate risk
- Foreign exchange risk
- Other market price risk, and
- Liquidity risk
All these risks, including a sensitivity analysis, are described in more detail in note 5 to the consolidated Financial Statements.
Risk management and internal control
The Board of Directors is responsible for the proper functioning of the Company’s risk management and internal control systems. Risk management is an integral part of business management. The objective of CreditAccess’ risk management and internal control systems is to provide reasonable assurance that the Company’s objectives are met, ensure compliance with legal requirements and safeguard the integrity of the Company’s financial reporting and related disclosures.
CreditAccess’ risk management approach is embedded in its governance structure, its risk-based framework of policies and procedures and its periodic business planning and review cycles.
Risk management process
In an increasingly dynamic business environment, the risks CreditAccess faces are becoming more complex and extensive. Managing these risks is part of the Company’s day-to-day activities and intelligent management of these risks contributes to the continued success of the business.
Risk management provides assurance, transparency and insight in relation to the management of CreditAccess’ business risks on behalf of its internal and external stakeholders, based on structured and thorough risk management procedures.
Corporate governance is the system of management and supervision by which a company is controlled. CreditAccess believes that proper Corporate governance is crucial to success in business. The key elements of proper Corporate governance are effective internal controls and high ethical standards.
A more detailed description of the Company’s Corporate governance model can be found on page 36.
Business planning and review
The Company’s budgeting and internal reporting processes are subject to fixed procedures and guidelines. The Board of Directors periodically discusses the financial performance and operational and financial risks of its activities with management of its Operating Companies in the course of business reviews. The Operating Company’s financial performance is evaluated and measured against approved budgets, historical performance, market developments and the competitive environment. Forecasts are evaluated quarterly and updated where necessary.
In control statement
In the light of the foregoing, the Board of Directors believe that, with regard to financial reporting risks, the Company’s risk management and internal control systems functioned properly in FY 2016 and provide a reasonable degree of certainty that the consolidated financial statements are free from material misstatements. The Board of Directors has no reason to assume that these systems will not function properly in FY 2017.
This does not imply that these systems and procedures provide any assurance that the Company’s operational and financial objectives will be met, nor can they prevent any misstatements, inaccuracies, fraud or non-compliance with rules and regulations. The actual effectiveness of this process can only be assessed on the basis of the results over a longer period. In a rapidly changing world in which new challenges constantly arise, ever-increasing demands are being placed on the internal risk management process. These processes therefore have to be reviewed and updated regularly.
The Board of Directors remain focused on continuous assessment and improvement of the Company’s risk management systems. The process and its monitoring are periodically discussed within the Board of Directors.
Responsibilities relating to the financial statements and annual report
The Board of Directors is responsible for preparing the financial statements and the annual report in accordance with the applicable laws of the Netherlands and the International Financial Reporting Standards (IFRS) which have been adopted by the European Union (EU).
The Board of Directors is required to prepare financial statements for each financial year which give a true and fair view of the assets, liabilities, financial position and profit or loss of the companies included in the consolidation. They are responsible for maintaining proper accounting records, safeguarding their assets and taking reasonable steps to prevent and detect fraud and other irregularities. The Board of Directors is responsible for selecting suitable accounting policies and applying them consistently, making judgements and estimates that are prudent and reasonable. Applicable accounting standards have been followed and CreditAccess’ financial statements, which are the responsibility of the Board of Directors, are prepared using accounting policies which comply with IFRS.
On the basis of the foregoing, the Board of Directors confirms that to the best of its knowledge:
- the financial statements offer a true and fair view of the assets, liabilities, financial position and profit or loss of CreditAccess Asia N.V. and its consolidated companies;
- the annual report offers a true and fair view of the position at the balance sheet date and the course of business during the financial year of CreditAccess Asia N.V. and its group companies included in the annual financial statements and describes the principal risks to which CreditAccess Asia N.V. is exposed.