Chairman of the General Authority for Financial Supervision

Decision No. 489 of 2015

Dated: 25/05/2015

Regarding the Rules for Preparing and Presenting Financial Statements for Associations and Non-Profit Institutions Licensed to Conduct Microfinance Activities

The Chairman of the General Authority for Financial Supervision

Having reviewed:

• The Law on Associations and Non-Profit Institutions issued by Law No. 84 of 2002;
• The Law on Regulating Supervision on Non-Banking Financial Markets and Instruments issued by Law No. 10 of 2009;
• Law No. 141 of 2014 regulating microfinance activities;
• Minister of Investment Decision No. 243 of 2006 regarding Egyptian Accounting Standards and its amendments;
• Minister of Investment Decision No. 166 of 2008 issuing Egyptian Standards for Auditing and Review Engagements and Other Assurance Services;
• Board of Directors Decision No. 158 of 2014 regarding the determination of microfinance activity fields and values;
• Board of Directors Decision No. 161 of 2014 regarding the controls for registration, continuation of registration, and deletion in the register of auditors for microfinance companies and associations and non-profit institutions licensed to conduct this activity with the Authority;
• Board of Directors Decision No. 31 of 2015 regarding the rules and standards for practicing microfinance activities by associations and non-profit institutions;
• Board of Trustees of the Microfinance Supervision Unit for Associations and Non-Profit Institutions Decision No. 1 of 2014 regarding the conditions, rules, and procedures for regularizing the status of associations and non-profit institutions practicing microfinance activities prior to the implementation of Law No. 141 of 2014;

And after taking the opinion of the Board of Trustees of the Microfinance Supervision Unit for Associations and Non-Profit Institutions;

Decided:

(Article One) Associations and non-profit institutions licensed by the Authority to conduct microfinance activities are obligated, when preparing their financial statements for this activity, to adhere to the rules attached to this Decision, as well as to review the illustrative financial statement forms attached to these rules. This obligation applies starting from the first annual or periodic financial statement after June 30, 2015. Furthermore, the aforementioned associations and institutions are obligated to apply the same rules and attached forms when preparing and presenting the opening balance sheet for the microfinance activity.

(Article Two) This Decision shall be published in the Official Gazette and on the Authority's website, and shall be enforced from the day following its publication in the Official Gazette.

The Chairman of the Authority Sherif Samy

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Rules for Preparing and Presenting Financial Statements

For Associations and Non-Profit Institutions

Practicing Microfinance Activities

1- Objective: These guidelines aim to establish rules and bases for preparing and presenting financial statements for associations and non-profit institutions practicing microfinance activities licensed under the provisions of Decree-Law No. 141 of 2014, as required by Articles (9) and (15) of the aforementioned Decree-Law.

2- Scope: These rules apply to associations and non-profit institutions practicing microfinance activities, provided they hold a license from the General Authority for Financial Supervision to conduct microfinance activities as defined in Law No. 141 of 2014.

3- Introduction: The distinguishing feature of these associations or non-profit institutions is that they have items shared between the microfinance activity and other association activities (such as fixed assets, cash, various receivables, various payables, surplus, salaries, administrative and general expenses, depreciation, etc.). In accordance with Article No. (15) of Law No. 141 of 2014, they must maintain separate accounts and prepare separate financial statements for their microfinance activity. Self-financing represents the funds allocated by the association or non-profit institution to practice microfinance activities from member subscriptions or surplus from other activities, excluding the surplus from microfinance itself.

4- Separation of the Opening Balance Sheet: 4-1 The Board of Directors of the association or non-profit institution must, based on the association's financial position at the end of the last financial year prior to licensing the microfinance methodology, prepare a balance sheet including assets and liabilities directly related to this activity. For shared assets that are practically difficult to classify into the microfinance activity, they should be included only in the association's balance sheet. The income and expense statement should include a proportionate share of depreciation, maintenance expenses, and other expenses based on their usage ratio in the microfinance activity, as determined by the association's or institution's Board of Directors.

4-2 Self-financing and accumulated surplus (revenues over expenses) carried forward from previous years for the microfinance activity are treated as an accounting supplement in the balance sheet for this activity.

4-3 The Board of Directors or Board of Trustees must, from the date of this separation, adhere to it throughout the life of the association or non-profit institution as long as it practices microfinance activities alongside its other activities, unless fundamental changes occur requiring a review of this arrangement.

4-4 The opening balance sheet for the microfinance activity of the association or non-profit institution must be audited by its external auditor, who shall issue a report on the adequacy of the opening balance sheet relative to the Board of Directors' decision on separation.

5- Subsequent Preparation Rules: 5-1 From the date of the opening balance sheet, the association or non-profit institution is obligated to maintain accounts and prepare separate financial statements for the microfinance activity in accordance with Egyptian Accounting Standards. It is essential to ensure that the accounting system and financial statements are designed in a manner that enables the preparation of regulatory reports as per Appendix (B) of the Rules and Standards for Practicing Microfinance Activities for Associations and Non-Profit Institutions issued by the Authority's Board of Directors Decision.

5-2 Revenues and expenses directly related to the microfinance activity are recorded in the income and expense statement for this activity.

5-3 For shared expenses, the income and expense statement for the microfinance activity is charged with a proportion of these expenses based on the bases adopted by the Board of Directors or Board of Trustees of the association or non-profit institution, in accordance with the rules in Item (4-1) of the "Separation of the Opening Balance Sheet" rules above.

6- Provisions: 6-1 The association or non-profit institution must calculate the impairment value of the microfinance granted to its clients, referred to as "Provision for Doubtful Debts," at the end of each financial period, according to the provision calculation bases issued by the Authority.

6-2 The "Provision for Doubtful Debts" is a fund from which debts written off are deducted within the book balance limit, and to which provisions for the purpose of collecting previously written-off debts are added.

6-3 Crediting returns due on doubtful debts are avoided and are not added to revenues unless collected.

6-4 If a client pays an amount while being delinquent in paying one or more installments of the microfinance as well as the due returns, the payment is calculated first against the principal value of the due microfinance, and the remainder is treated as payment for the due returns.

Presentation: The association or non-profit institution is obligated to present its financial statements for the microfinance activity in accordance with Egyptian Accounting Principle No. (1) "Presentation of Financial Statements." Appendix (A) provides an illustrative model of the financial statements for the microfinance activity of an association or non-profit institution.

Appendix (A) Illustrative Model of Financial Statements Association or Non-Profit Institution Practicing Microfinance Activities Association S.S.W. Balance Sheet As of December 31, 2014

2014/12/31 Egyptian Pound	Note No.	Assets
×	×	Current Assets
		Cash in Banks or Treasury
		Microfinance Customers
	(×)	Provision for Doubtful Debts - Microfinance Customers
×	×	Microfinance Customers (Net)
		Various Receivables and Other Debit Balances
	(×)	Provision for Doubtful Debts - Various Receivables and Other Debit Balances
×		Various Receivables and Other Debit Balances (Net)
××		Total Current Assets
		Non-Current Assets
	×	Fixed Assets
	(×)	Accumulated Depreciation - Fixed Assets
×		Fixed Assets (Net)
××		Total Assets

2014/12/31 Egyptian Pound	Note No.	Assets
		Liabilities
×		Banks - Credit Facilities
×		Loans - Medium and Long Term
×		Various Payables and Other Credit Balances
××		Total Liabilities
		Surplus
×		Surplus (Deficit) of Revenues over Expenses Carried Forward
×		Surplus (Deficit) of Revenues over Expenses for the Year
××		Total Surplus of Revenues over Expenses
×		Self-Financing
××		Total Liabilities, Surplus of Revenues over Expenses, and Self-Financing

Continuation of Appendix (A) Association S.S.W. Income and Expense Statement For the Financial Year Ended December 31, 2014

Financial Year Ended 2014/12/31 Egyptian Pound	Note No.	Revenues
×		Microfinance Returns
		Less:
(×)		Cost of Microfinance
××		Surplus or Deficit of Activity
		Add:
××		Other Revenues
		Less:
(×)		General and Administrative Expenses
(×)		Provision for Doubtful Microfinance Balances
(×)		Other Provisions
(×)		Other Expenses
××		Total Expenses
××		Surplus of Revenues over Expenses Before Depreciation
		Less:
×		Depreciation of Fixed Assets
××		Surplus of Revenues over Expenses for the Period