Al Khayr Islamic Cooperative Accountant Report for the Year Ended 31st January 2010 Introduction

Praise be to Allah the Most Gracious the Most Merciful. It is Allah in His infinite mercies that has granted us His favours to establish this society some year ago and has by His grace made us manage it efficiently and effectively up till this moment. Alhamdulilah. May the peace and blessings of Allah be on His holy prophet Muhammad (S.A.W) Permit me to present the financial report of the society for the year ended 31st January 2010. The report consists of the analysis of the performance of the society over the year, the report on the management efforts to abide by the administration policies, record keeping efforts, and recommendations for better operating performance.

Operating Performance
The performance of the society over the year 2009/2010 fell below the previous year. Total income went down by 24% from ₦221,210 to ₦168,550 and surplus reduced by 36% to ₦122,257 from ₦190,297 in the previous year. This was as a result of the reduction in trading profit from ₦194,550 to ₦119,550, despite the profit of ₦26,000 realised from sales of Ileya Ram on which ₦170,000 was invested. The Income Margin went down from 86% to 73% by 16%, Return on Assets went down from 12% to 6% by 49% and Dividend per ₦100 of Members Fund reduced from ₦8.44 to ₦ 4.19 by 5%. The unfavourable performance resulted from the fact that the society used the largest percentage of the funds available to issue loans to members. This therefore affected the growth in Members Funds which went down by 29% from ₦1.465 Million to ₦1.898 Million compared to a growth of 57% between 2007/2008 and 2008/2009.

Trading Activities
The society engaged in the sale of consumable and non consumable commodities during the year. It also traded Ileya Rams in Joint Venture with a muslim brother. The Sales Procedures involve the following: i. Obtaining and completion of Booking/Application Form at a fee of ₦50, for Non consumables while booking for Consumables does not require this procedure. ii. Submission of forms to the officer in charge. iii. Disbursement of cost of purchase in cash to the Applicants/Buyers (Buyers buy the commodities by themselves whereby Invoices are prepared by the seller in the Applicants/Buyers Names). Applicants/Buyers repay in three equal instalments at a mark up of 10% in the case of members and 15% in the case of non-members.



Total Loans Issued during the year is in the sum of ₦2.331 Million which is an increase of 32% more than ₦1.767 Million issued in the previous year 2008/2009.

The total outstanding loans are in the sum of ₦1. were used to trade during the year. the balance of which was used to grant loans. Tawariq. This shows a weak financial policy and forms one of the causes of the year’s weak performance. It was found that society gives out loans to some members for business finance. Mudaraba. Cash Management Cash in Hand as at the end of the year is ₦166. The records show that average of 20 members obtained loans during the year out of 27 members on register. of those funds that could be used for trading & investment. 250).511 Million which is more than that of 2008/2009. ₦90.250 balance in Building Fund. Ijara etc. Fund Management The society has ₦133. These types of loans should not be treated as “Qard Hassan” rather they should be treated under other finance products such as Murabaha.628. Almighty Allah prohibited interest-based transaction in Quran 2 Verse 275.876.000 of the total (₦288. Musharaka. Shar’iah Compliance The operation of the society as regards the sales of commodities was not done in compliance with Shar’iah. This translates to 65% of loans granted compared to 49% last year. The society style of giving cash to those that make bookings for the purchase of commodities constitute a form of interest-based transaction. Only ₦160.000 has been confirmed to be in custody of Mr Adigun.000 in Investment Fund and ₦64.39. . 969. health and other welfare purposes. 5 of those members on loans obtained loans twice. Building Fund supposed to have been used for buying Lands for the society or members. This is about 80% of member’s fund which depicts a bad signal of inherent credit crisis consequent to the failure to strictly comply with the loan policies of the society and a reduced repayment effort by the members on loans. The society only operates Murabaha (Cost-plus financing) to trade consumables and non-consumable commodities in disguise (interest-based element) as a result of the fact stated above.98 as Revenue Reserve. Cash at bank is ₦5. such Loans are giving out to finance education. In Islamic finance an act of giving out loans free of interest are classified under an Islamic Banking Product referred to as “Qardu Hasan”.00 out of this ₦9.

An arrangement could also be made with the sellers of the commodities whereby the buyers may be given a note to go and collect the commodities from the sellers directly. if not possible during the school hours. Any other loans should be treated applying mudaraba. (i. ijara or tawariq principles as the case may be. • A representative of the society should be in charge of procurement of the commodities items. • 7. Payment Voucher expense/purchase. Interest-free loans should be granted for welfare purpose only. Savings Balance multiply by 2) If a new member does not reach the 7th month or more of joining the society. The society should widen and diversify its investment base in order to earn more income and reduce business risks by employing the work of experts such as accountants.000 respectively.000 (Building Fund) should be used to buy lands for onward sale to member. 8. A sum not less than ₦200. The society needs to organise training particularly on Islamic Finance due to the current development in the Nigerian Financial Industry and the emerging opportunities of the Central Bank of Nigeria to embrace Islamic Finance. while ₦200. 9. 5. The habit of giving cash to the buyers of commodities to buy by themselves should be stopped unfailingly as it is not a shar’iah compliant business principle. Collection Sheet should be prepared and signed by the beneficiaries when Sallah and Loans are disbursed. 2. 6. Conclusion . ₦200. No loans should be granted: • • • If the applicant has not finished the previous instalments Above the credit limit. 000 (Investment Fund & Reserve) should be invested outside the society any viable investment opportunities. The Executive Officers should not handle the society’s loan policies with levity hands.e. 3.000 (Shares) should be invested in commodities trading on monthly basis.Shares and Investment Fund should be increased to ₦15000 and ₦10.Recommendations 1. 10. murabaha. it could be done on weekends and distributes to the buyers later. should be prepared and approved for every 4. Forms should be completed by the applicants of loans and non consumables and approved before disbursements and purchases as the case may be.

Prepared by Onaolapo Sulaiman Bayonle (ACA) .I believe if all the above recommendations are given the due consideration. the society will move forward to a greater height by the end of the next financial year.