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ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31ST DECEMBER 2007
CONTENTS PAGE
CORPORATE INFORMATION 2
REPORT OF THE DIRECTORS 3
STATEMENT OF DIRECTORS' RESPONSIBILITIES 4
REPORT OF THE INDEPENDENT AUDITOR 5
FINANCIAL STATEMENTS:
INCOME STATEMENT 6
BALANCE SHEET 7
STATEMENT OF CHANGES IN CAPITAL FUNDS 8
CASHFLOW STATEMENT 9
NOTES TO THE FINANCIAL STATEMENTS 10 -17

ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2007
CORPORATE INFORMATION
DIRECTORS: Ms. Miriam Cherogony: Chairperson
Mr. Austin T. Menya: Vice- Chairperson
Mr. Stephen M. Mirero : Treasurer
Mrs. Gladys N. Tarayia
Mr. John S. Kimathi
Mrs. Mwanjuma A. Abok
Dr. Roselyne Gakure
Mr. Henry Ikatukhu
Ms. Lillian A Owiti
REGISTERED OFFICE: Ngong Lane, off Ngong Road,
P.O. Box 76622-00508, NAIROBI
Phone: +254-20-3870280, 3864901
Fax: + 254-20-3871531
Cell: +254-722-200083, 736-175004
Email: sisdo@sisdo.org
Website: http\\:www.sisdo.org
AUDITORS: Wachira Irungu & Associates
Dominion House, Westlands
P.O. Box 46671 - 00100
Nairobi, Kenya
BANKERS: Co-operative Bank of Kenya Co-operative Bank of Kenya
Nairobi Business Centre, P.O. Box 1250-90100,
P.O. Box 19555-00202. MACHAKOS.
NAIROBI.
Co-operative Bank of Kenya Kenya Commercial Bank
P.O. Box 12253-10100, P.O. Box 7014,
NYERI. CHUKA.
Co-operative Bank of Kenya National Bank of Kenya
P.O. Box 101-60400, P.O. Box 240
CHUKA. LIMURU.
Kenya Commercial Bank
P.O. Box 65659-00400,
MILIMANI, NAIROBI.

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ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2007
REPORT OF THE DIRECTORS
1 FINANCIAL STATEMENTS
The directors have the pleasure in presenting their report together with the audited Financial Statements for the year
ended 31st December 2007.
2 PRINCIPAL ACTIVITY
The principal activity of the organisation is lending to small-income earners two major types of loans, namely business and
agriculture loans both of which are based on the group lending methodology. Existing borrowers are entitled to add-on
loans to cover school fees, emergencies and asset financing.
3 RESULTS
The results for the year are set out on page 6.
4 DIRECTORS

The directors who held office during the year are shown on page 2.
6 AUDITORS
M/s Wachira Irungu & Associates were appointed during the year and have expressed their willingness to continue in
office in accordance with section 159(2) of the Kenyan Companies Act (Cap 486).
BY THE ORDER OF THE BOARD
SECRETARY----------------------------------------
DATE---------------------------------------

3
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2007
STATEMENT OF THE DIRECTORS' RESPONSIBILITIES
The Non-Governmental Organisation (NGO) Coordination Act requires the directors to prepare financial
statements for each financial year, which give a true and fair view of the state of the financial affairs of the
company as at the end of the financial year and of its operating results for that year.It also requires the directors
to ensure that the company keeps proper accounting records which disclose with reasonable accuracy at any
time, the financial position of the company.They are also responsible for safeguarding the assets of the
organisation.
The directors are responsible for the preparation of these financial statements in accordance with International
Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal
controls relevant to the preparation and fair presentation of financial statements that are free from material
misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and
making accounting estimates that are reasonable in the circumstances.
The directors accept responsibility for the annual financial statements, which have been prepared using
appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity
with International Financial Reporting Standards and the requirements of the NGO Coordination Act. The
directors are of the opinion that the financial statements give a true and fair view of the state of the financial
affairs of theorganisation and of its operating results. The directors further accept responsibility for the
maintenance of accounting records which may be relied upon in the preparation of financial statements, as
well as adequate systems of internal financial control.
Nothing has come to the attention of the directors to indicate that the organisation will not remain a going
concern for at least twelve months from the date of this statement.
DIRECTOR………………………………………. DATE……………………………………….
DIRECTOR………………………………………. DATE……………………………………….

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ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 2007
REPORT OF THE INDEPENDENT AUDITORS TO MEMBERS OF SISDO
REPORT ON FINANCIAL STATEMENTS
DIRECTORS' RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
AUDITOR'S RESPONSIBILITY
as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
CERTIFIED PUBLIC ACCOUNTANTS
DOMINION HOUSE, MUTHITHI ROAD
P.O. BOX 46671 - 00100
NAIROBI
DATE:…………...………………….……
We have audited the accompanying financial statements of Smallholder Irrigation Scheme Development Organisation (SISDO) set
out on pages 6 to 17 which comprise the balance sheet as at 31st December 2007, and the income statement, the statement of
changes in capital funds and cash flow statement for the year then ended, and a summary of significant accounting policies and
other explanatory notes and have obtained all the information and explanations which to the best of our knowledge and belief were
necessary for the purposes of our audit.
The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International
Financial Reporting Standards and the requirements of the NGO Coordination Act. This responsibility includes designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free
from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making
accounting estimates that are reasonable in the circumstances. The NGO Coordination Act also requires the directors to ensure that
the organisation maintains proper books of accounts which are in agreement with the balance sheet and profit and loss account.
Our responsibility is to express an independent opinion on these financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on our judgement, including the assessment of the risks of material misstatements of the financial
statements, whether due to fraud or error. In making those risk assessments, we considered the internal control relevant to the
organisation's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of organisation's internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
the directors,
In our opinion, the financial statements give a true and fair view of the state of financial affairs of the organisation at 31st December
2007 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting
Standards and the NGO Coordination Act.

Wachira Irungu & Associates
5
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
INCOME STATEMENT
2007 2006
Restated
Note Kshs Kshs
Income 2 61,915,713 33,592,944
Operating Expenses 3 69,227,486 42,883,456
Operating Loss (7,311,773) (9,290,512)
Grants Received 7 3,098,736 6,107,785
Finance Costs 4 7,226,906 3,633,143
Net Loss for the Year (11,439,943) (6,815,870)

6
FINANCIAL STATEMENTS FOR THE YEAR ENDED
31ST DECEMBER 2007
BALANCE SHEET
2007 2006
Restated
Note Kshs Kshs
ASSETS
Non Current Assets
Property, Equipment & Software 1 (d) & 5 23,319,488 20,951,068
Intangible Assets 1 (e) & 6 2,645,265 109,396
25,964,752 21,060,464
Current Assets
Net Outstanding Loans 8 215,985,108 135,451,491
Other Receivables and Prepayments 9 2,684,609 1,534,084
Cash & Cash Equivalents 10 32,164,633 44,427,378
250,834,350 181,412,953
TOTAL ASSETS 276,799,102 202,473,417
FUNDS AND LIABILITIES
Capital Funds
Revolving Loan Fund 11 53,723,173 53,723,173
General Fund 12 (6,656,767) 4,783,176
47,066,406 58,506,349
Non-Current Liabilities
Long-term loans 13 61,000,000 31,000,000
61,000,000 31,000,000
Current Liabilities
Short-term loans 14 6,200,000 9,033,335
Collateral Deposits 15 155,476,880 102,894,832
Trade and Other Payables 16 7,055,816 1,038,901
168,732,696 112,967,068
TOTAL EQUITY AND LIABILITIES 276,799,102 202,473,417
The Financial Statements on pages 6 to 17 were approved for issue by the directors
on__________________ and signed on their behalf by:
DIRECTOR: ________________________
DIRECTOR: ________________________

7
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
STATEMENT OF CHANGES IN CAPITAL FUNDS
Revolving
Loan Fund
Property &
Equipment
Fund
Vehicle
Fund
Accumulated
Fund Total
Kshs
Kshs Kshs Kshs
Kshs
At 01/01/2006 53,723,173 1,299,181 2,621,426 7,506,747 65,150,527
Deficit for the Year- Restated - - - (6,815,870) (6,815,870)
Transfer to Property Fund - 7,000,000 - (7,000,000) -
Prior Year Items - - - 171,692 171,692
Transfer to/(from) Accumulated
Fund - 819,361 17,174 (836,535) -
At 31/12/2006 53,723,173 9,118,542 2,638,600 (6,973,966) 58,506,349
At 01/01/2007 53,723,173 9,118,542 2,638,600 (6,973,966) 58,506,349
Deficit for the Year - - - (11,439,943) (11,439,943)
Transfer to/ (from)
Accumulated Fund - 2,858,306 13,406 (2,871,712) -
At 31/12/2007 53,723,173 11,976,848 2,652,006 (21,285,622) 47,066,406

8
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
CASHFLOW STATEMENT
2007 2006
Restated
Note Kshs Kshs
Net Cash Used in Operations 17 (27,935,717) (13,390,341)
Investing Activities
Investment Income 397,324 -
Interest received - 1,260,142
Purchase of Property & Equipment 5 (3,904,346) (20,479,495)
Acquisition of computer software 6 (3,858,501) (164,094)
Net cash used in investing activities (7,365,523) (19,383,447)
Financing Activities
Bank loans received 30,000,000 37,200,000
Bank loan repayment (2,833,336) (4,761,904)
Interest on borrowings paid (4,376,778) (1,929,407)
Interest on collateral deposits (2,297,687) (1,703,736)
Loan processing fees (552,440) -
Grants received 3,098,736 6,107,785
Net cash generated from financing Activities 23,038,495 34,912,738
Net (Decrease)/ Increase in
Cash and Cash Equivalents (12,262,745) 2,138,950
Cash and cash equivalents at the beginning of the year 44,427,378 42,288,428
Cash and Cash Equivalents at the End of the Year 9 32,164,633 44,427,378

9
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
NOTES TO THE FINANCIAL STATEMENTS
1 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below.
a) Basis of Preparation
The financial statements are prepared in accordance with International Financial Reporting Standards(IFRS). The financial
statements are presented in Kenya Shillings (Kshs) and are prepared under the historical cost basis of accounting.
The preparation of financial statements in conformity with IFRS requires the use of assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reported period. It also requires the directors to exercise judgement in the process of applying the company's
accounting policies. These policies have been consistently applied during the year unless otherwise stated.
b) Revenue Recognition
Interest on loans is recognised when the amount is received with effect from 1st January 2007. Prior to this date, interest was
being recognised on accrual basis.
c) Change of an accounting policy
During the year under review, the management considered it more prudent to recognise as income interest on loans only when
this is actually received by the organisation. This is a major departure from prior reported periods whereby interest on loan
earned but not yet received was recognised as income receiveable for the period. The decision was informed by the experience
that much of this interest receiveable is not subsequently collected. The effect of this change was to write off the deferred
interest income amounting to Kshs 25,655,000 against the loans receivable as on 31/12/2007.

d) Property & Equipment
Property & Equipment are stated at historical cost less accumulated depreciation. Depreciation is calculated on a reducing
balance method to write down their cost or revalued amounts to their residual values over their estimated useful lives using
the following annual rates:
Rate
Land Nil
Buildings 2.5%
Office equipment, furniture & fittings 12.5%
Computers 33%
Gains and losses on disposal of property & equipment are determined by reference to their carrying amounts and are taken
into account in determining operating profit.
e) Intangible Assets
Intangible Assets comprise the cost of purchased computer software programs. Costs incurred on computer software are
initially accounted for at cost as intangible assets and subsequently at cost less any accumulated amortisation and accumulated
impairment losses. Intangible assets are amortised on a reducing balance basis over their expected useful life of 3 years.
f) Employee Benefits
The organisation and all its employees contribute to the National Social Securiy Fund (NSSF), which is a defined contribution
scheme registered under the National Social Security Act. The company's obligations under the scheme are limited to
specific contributions legislated from time to time and are currently limited to a maximum of Kshs 200 per employee per
month. The company's obligations are recognised in the income statement as they fall due.

10
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
g) Financial Instruments
Financial assets and financial liabilities are recognised on the entity's balance sheet when the institution has become a party to the contractual
provisions of the instrument.
Loans and receivables originated by the organisation
Loans and receivables are carried at anticipated realisable value. An estimate is made for doubtful receivables based on the review of all outstanding
amounts at the year end. In addition, general provisions are maintained based on management’s evaluation of the portfolio of loans to SISDO's customers
and other exposures in respect of losses which, although not specifically identified, are known from experience to be present in any such portfolio.
When a loan is deemed uncollectable it is written off against the related bad debt provision and/ collateral deposits from the customer held by the organisation.
Subsequent recoveries of loans that have been written off are credited to the income statement.
Trade and Other Payables
Trade and other payables are stated at their nominal value.
Borrowings
Interest-bearing loans and bank overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable
on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not
settled in the period in which they arise. Borrowing costs are charged to the income statement when incurred.
h) Impairment
At each balance sheet date, the company reviews the carrying amounts of its financial assets, tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairement loss. If any such indications exists, the recoverable amounts of the assets are estimated and
an impairment loss is recognised in the income statement whenever the carrying amount of the asset exceeds its recoverable amount.

i) Critical Judgements and Estimates
In the process of applying the company's accounting policies, management has made estimates and assumptions that affect the reported amounts of
assets and liabilities within the next financial period. Estimates and judgements are continually evaluated and are based on historical experience and other
factors including expectations of future events that are believed to be reasonable under the circumstances. These are dealt with below:
Equipment
Critical estimates are made by the directors in determining the useful lives and depreciation rates for equipment.
Impairement
If an indication exists that the company's assets have suffered an impairement loss at the balance sheet date, the directors estimate the asset's
recoverable amount.
j) Cash & Cash Equivalents
For the purpose of the cashflow statement, cash and cash equivalents comprise cash in hand and bank balances.
k) Comparatives
Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. In particular, comparative figures
have been adjusted to comply with the presentation as per the International Financial Reporting Standards.

11
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
2007 2006
Restated
Kshs Kshs
2 Income
a) Interest on loans 54,698,085 28,295,089
b) Other income
Loan application fees 4,496,791 2,201,873
Bank interest - 954,052
Registration fees 964,410 760,320
Passbook fees 790,166 643,501
Bad debts recovered 336,564 383,530
Investment income 397,325 306,090
Penalties and exit fees 232,372 48,489
7,217,628 5,297,855
61,915,713 33,592,944
3 Operating Expenses
Personnel 29,717,101 22,410,983
Bad debts written off 3,232,515 1,576,936
Transport and travel 4,844,755 2,762,205
Rent & rates 1,101,785 1,749,524
Board travel 1,514,628 1,646,184
Stationery and printing 1,643,035 1,309,331
Communication 1,873,036 1,219,490
Training 1,185,386 1,122,108
Office expenses 700,840 534,229
Bank charges 1,069,311 501,400
Advertisement & publicity 498,405 442,705
Licenses and permits 486,590 291,500
Client mobilization & market research 125,100 228,350
Electricity and water 242,511 190,603
Provision for audit fees 200,000 196,040
Security 144,000 195,024
Legal fees 37,450 183,850
Repairs & Maintenance 314,281 175,471
Subscription 84,800 147,300
Consultancy 121,429 607,470
Insurance 54,126 52,513
Transformation costs 210,809 -
Performance incentives and awards 378,107 208,788
Foreign exchange loss 577,970 -
Evaluation costs 876,288 -
Provision for bad and doubtful debts 15,134,668 4,249,146
Provision for depreciation 1,535,927 827,608
Amortisation of intangible assets 1,322,632 54,698
69,227,486 42,883,456

12
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
2007 2006
Kshs Kshs
4 Finance Costs
Interest on borrowings 4,376,778 1,929,407
Loan processing fees 552,440 -
Interest on collateral deposits 2,297,688 1,703,736
7,226,906 3,633,143
5 Property & Equipment
COST/VALUATION Land Building
Office
Equipment,
Furniture &
Fittings Computers Totals
Kshs. Kshs. Kshs. Kshs Kshs.
At 01/01/2006 - - 1,007,755 1,062,741 2,070,496
Additions 14,720,010 4,000,000 669,755 1,253,824 20,643,589
At 31/12/2006 14,720,010 4,000,000 1,677,510 2,316,565 22,714,085
At 01/01/2007 14,720,010 4,000,000 1,677,510 2,316,565 22,714,085
Transfers to Intangible assets ( Note 6) - - - (164,094) (164,094)
Additions - 962,002 422,254 2,520,090 3,904,346
At 31/12/2007 14,720,010 4,962,002 2,099,764 4,672,561 26,454,337
DEPRECIATION
At 01/01/2006 - - 276,163 495,152 771,315
Charge for the year - 100,000 175,168 607,138 882,306
On transfers - - - (54,698) (54,698)
At 31/12/2006 - 100,000 451,331 1,047,592 1,598,923
At 01/01/2007 - 100,000 451,331 1,047,592 1,598,923
Charge for the year - 121,550 206,054 1,208,323 1,535,927
At 31/12/2007 - 221,550 657,385 2,255,915 3,134,850
NET BOOK VALUE
At 31/12/2007 14,720,010 4,740,452 1,442,379 2,416,646 23,319,487
At 31/12/2006 14,720,010 3,900,000 1,226,179 1,104,879 20,951,068
During the year, computer software was re-categorised as an intangible asset (Note 6) so as to comply
with IAS 38.

13
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
2007 2006
Restated
Kshs Kshs
6 Intangible Assets
Cost
At 1st January 164,094 -
Additions 3,858,501 164,094
At 31st December 4,022,595 164,094
Amortisation
At 1st January 54,698 -
Charge for the year 1,322,632 54,698
At 31st December 1,377,330 54,698
Net Book Value
At 31st December 2,645,265 109,396
7 Grants Received
Oxfam Novib 2,767,236 6,107,785
Oxfam International 331,500 -
3,098,736 6,107,785
8 Net Outstanding Loans
Micro-entreprise 198,637,019 121,417,101
Agriculture 29,426,142 38,758,583
Agri-business 6,713,556 5,868,921
Other products 4,588,556 3,307,383
Gross loans receivable 239,365,273 169,351,988
Deferred interest income derecognised (Note 1(c ). - (25,655,000)
Loan loss provision (23,380,165) (8,245,497)
215,985,108 135,451,491
9 Other Receivables and Prepayments
Staff car-loans 1,070,676 428,722
Rent deposits 384,156 347,656
Prepayments 1,081,214 714,873
Sundry debtors 64,944 32,204
Field staff travel imprest 83,619 10,629
2,684,609 1,534,084
10 Cash and Cash Equivalents
For purposes of the cashflow statement, cash and cash equivalents comprise
of the following:
Bank balances 32,149,853 6,171,288
Fixed deposits - 27,950,000
Money market fund - 10,306,090
Petty cash in hand 14,780 -
32,164,633 44,427,378
11 Revolving Fund
Balance at 31st December 53,723,173 53,723,173
This represents funds received from donors for on-lending.

14
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
2007 2006
Restated
Kshs Kshs
12 General Fund
Balance brought forward 4,783,176 11,427,354
Prior year adjustment - 171,692
Net loss for the year (11,439,943) (6,815,870)
Balance at 31st December (6,656,767) 4,783,176
13 Long-term Loans
Oxfam Novib- Long term loan 31,000,000 31,000,000
MESPT loan 30,000,000 -
61,000,000 31,000,000
Oxfam Novib loan is secured by SISDO's portfolio for a total amount of 150% of the outstanding loan plus interest
due in favour of the lender. The loan is repayable in six equal capital instalments, commencing 31/12/2007.
Interest is charged at a rate of 6% plus the yearly rate of inflation in Kenya; but the maximum rate is fixed at 11%
per annum.
MESPT loan is secured by a floating debenture over all of SISDO's assets, book debts and property. The loan is
repayable in 3 years from the date of disbursement. Interest is charged at a flat rate of 5% per annum subject to
change depending on the prevailing market conditions.
2007 2006
Kshs Kshs
14 Short-term Loans
Oxfam Novib- Short term loan 6,200,000 6,200,000
Jitegemee trust loan - 2,833,335
6,200,000 9,033,335
15 Collateral Deposits
Balance at 31st December 153,179,192 101,191,096
Provision for interest payable on the deposits 2,297,688 1,703,736
155,476,880 102,894,832
16 Trade and Other Payables
Trade payables 401,045 -
Accrued expenses 2,819,837 781,051
Other payables 3,577,084 -
Contingent liability (Note 20) 257,850 257,850
7,055,816 1,038,901

15
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
2007 2006
Restated
Kshs Kshs
17 Cash Generated From Operations
Operating loss (7,311,773) (9,290,512)
Adjustments for:
Depreciation 1,535,927 827,608
Amortisation 1,322,632 54,698
Investment Income (397,324) (306,090)
Interest income - (954,042)
Prior year adjustment - 171,692
Operating Loss Before Working Capital Changes (4,850,538) (9,496,646)
Increase in loans to customers (80,533,617) (46,693,882)
(Increase)/decrease in other receivables & prepayments (1,150,525) 694,744
Increase in trade and other payables 6,016,915 385,552
Increase in deferred interest income - 6,202,793
Increase in collateral deposits 52,582,048 35,517,098
Net Cash Used in Operations (27,935,717) (13,390,341)
18 Financial Risk Management Objectives and Policies
The organisation's activities expose it to a variety of financial risks, including credit risk and the effects of
changes in foreign currency exchange rates and interest rates. The organisation’s overall risk management
programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on its financial performance, but the organisation does not hedge any risks.
Risk management is carried out by the management of the organisation in accordance with policies approved
by the Board of Directors.
Foreign exchange risk
The organisation's operations are predominantly in Kenya, where the currency has remained relatively stable
against major convertible currencies.A significant portion of the organisations borrowings and grants are
denominated in foreign currencies, and is therefore exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the US dollar and Euro. Foreign exchange risk arises from future
commercial transactions, and recognised assets and liabilities.
Credit risk
The organisation takes on exposure to credit risk, which is the risk that a counter party will be unable to pay
amounts in full, when due. The organisation structures the levels of credit risk it undertakes by placing limits
on amounts of risk accepted in relation to one borrower or group of borrowers. Such risks are monitored on a
revolving basis and subject to annual or more frequent review.
The organisation's credit risk is concentrated on low-income earners of the economy engaged in smallholder
crop and dairy farming, agribusiness and other micro-enterprises. Exposure to credit risk is managed
through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital
repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also
managed in part by obtaining collateral and group guarantees.

16
FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31ST DECEMBER 2007
NOTES TO THE FINANCIAL STATEMENTS (CONT'D)
18 Financial Risk Management Objectives and Policies (cont'd)
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash balances to cover anticipated deposit
refunds to exiting customers and loan repayment instalments that fall due. Excess liquid funds are invested
in assets that can be easily liquidated.
Operational Risk
The company is exposed to operational risk which is associated with human error, system failures and
inadequate procedures and controls. The company ensures that there is an effective, integrated
operational risk management framework that incorporates a clearly defined organizational structure, with
defined roles and responsibilities for all aspects of operational risk.
19 Restatement of prior year comparatives
This relates to corrections made to opening balances of various items so as to fairly state them in the
current year.
20 Contingent Liabilities
A former employee sued the organisation fpr alleged wrong computation of his terminal benefits. The matter
is pending in court and the expected contingent liability of Kshs. 257,850, has been provided for.
(2006: Kshs. 257,850)
21 Foreign Currency
Transactions during the year in foreign currencies are translated at the rates ruling at the dates of the
transactions. Assets and liabilities denominated in foreign currencies at the end of the year are translated
at the rates of exchange ruling at the balance sheet date. Gains and losses on exchange are dealt with in
the income statement in the year in which they arise.
22 Incorporation
The organisation is domiciled and registered in Kenya as a Non Governmental Organisation (NGO) under
the Non- Governmental Organisations Coordination Act, 1990.
23 Currency
The financial statements are expressed in Kenya Shillings(Kshs).

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