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INTRODUCTORY DOCUMENT

SWARNAMAHAL FINANCIAL SERVICES LIMITED A trust etched in gold

SWARNAMAHAL FINANCIAL SERVICES LIMITED
Incorporated under the Companies Act No. 17 of 1982 and re-registered under the Companies Act No.07 of 2007. The Company is also registered by the Monetary Board of the Central Bank of Sri Lanka under the Finance Companies Act No. 78 of 1988.

INTRODUCTORY DOCUMENT
For obtaining the listing of 25,000,007 Ordinary Voting Shares on the Diri Savi Board of the Colombo Stock Exchange.

For further inquiries, please contact the Managers to the Introduction If you are in any doubt regarding the contents of this document you should consult your stockbroker, bank manager, lawyer or any other professional advisor. The delivery of this Introductory Document shall not under any circumstance constitute a representation or create any implication or suggestion, that there has been no material change in the affairs of the Company since the date of this document.

MANAGERS TO THE INTRODUCTION Capital Alliance Limited, Level 05, “Millennium House”, 46/58, Navam Mawatha, Colombo 02. Tel: 011 2317777 Fax: 011 2317788

DECLARATION

This Introductory Document has been prepared by Capital Alliance Limited from information supplied by Swarnamahal Financial Services Limited (“The Company”) or which is publicly available. The Directors of the Company, collectively and individually, having made all reasonable inquiries, confirm that to the best of their knowledge and belief, the information contained herein is true and correct in all material respects and that there are no other material facts, the omission of which, would make any statement herein misleading. While Capital Alliance Limited has taken reasonable care to ensure full and fair disclosure, it does not assume any responsibility for any investment decision made by investors based on information contained herein. In making an investment decision, prospective investors must rely on their own examination and assessments of the Company including the risks involved. No person is authorized to give any information or to make any representations not contained in this Introductory Document and if given or made, any such information or representation must not be relied upon as having been authorized by the Company.
   

The Colombo Stock Exchange (CSE) has taken reasonable care to ensure full and fair disclosure of information in this Introductory Document. However, the CSE assumes no responsibility for the accuracy of the statements made, opinions expressed or reports included in this Introductory Document.

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ABBREVIATIONS USED IN THIS INTRODUCTORY DOCUMENT
CDS CSE SFS or the “Company” SEC CBSL Ordinary Share(s) EGM Central Depository Systems (Pvt.) Limited Colombo Stock Exchange Swarnamahal Financial Services Limited Securities & Exchange Commission of Sri Lanka Central Bank of Sri Lanka Ordinary Voting Share(s) of the Company Extraordinary General Meeting

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TABLE OF CONTENTS
1 2 CORPORATE INFORMATION INFORMATION RELEVANT TO THE INTRODUCTION
2.1 Introduction of Ordinary Voting Shares for Listing 2.2 Collection points

5 6
6 7

3 4

FINANCIAL SECTOR
3.1 Registered Finance Companies

10
10

PROFILE OF THE ENTRY
4.1 Overview of the Company and Nature of the Business 4.2 Principal Activities 4.3 Branch Network 4.4 Degree of Dependence 4.5 Corporate Structure 4.6 Human Resources 4.7 Information Technology 4.8 Future Plans and Prospects 4.9 Assumptions on future plans 4.10 Associated risks to future plans DETAILS OF THE BOARD OF DIRECTORS SENIOR MANAGEMENT TEAM CAPITAL STRUCTURE 7.1 Stated Capital 7.2 Ten Largest Ordinary Shareholders as at 07th April 2011 7.3 Issue of Shares Prior to Listing 7.4 Changes to the Stated Capital 7.5 Convertible Debt Securities 7.6 Transferability of Shares OTHER INFORMATION 8.1 Litigation, Disputes and Contingent Liabilities 8.2 Inspection of Documents

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12 13 14 15 15 15 16 16 16 17 20 27 29 29 29 30 31 31 31 32 32 32

5. 6. 7.

8.

9.

FINANCIAL INFORMATION
9.1 Ratios and Share Information 9.2 Receivables 9.2.1 Policy for classification of non-performing receivables 9.2.2 Composition of Receivables 9.2.3 Segmental Analysis of Loans & Advances, Leases, Hire Purchase by Industry 9.3 Maturity Analysis of Deposits & Borrowings CORPORATE GOVERNANCE PRACTICES 10.1 Independent Directors 10.2 Remuneration Committee 10.3 Audit Committee

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33 34 34 34 35 35 36 36 37 38

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11 DECLARATION BY THE DIRECTORS AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2008 AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2009 AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2010 UN-AUDITED INTERIM FINANCIAL STATEMENTS AS AT 31ST DECEMBER 2010 ANNEXURE 1 - DETAILS OF TRANSFER OF SHARES

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1 CORPORATE INFORMATION

Name of the Company Incorporation & Legal Form

Swarnamahal Financial Services Limited A Public Unquoted Limited Liability Company Incorporated in Sri Lanka on 14th January 2004, under the Companies Act No.17 of 1982, and reregistered on 16th September 2008 under the Companies Act No.7 of 2007. The Company is also registered by the Monetary Board of the Central Bank of Sri Lanka under the Finance Companies Act No.78 of 1988.

Company Registration No. Registered Office Telephone Fax Company Secretary

PB 594 No.676, Galle Road, Colombo 03. 011-2556160-4 / 011-2595061 011-2595062 / 011-2589823 Cyrus Corporate Services (Pvt) Limited A2, Matha Road, Colombo 08. BDO Partners Chartered Accountants 65/2, Sir Chiththampalam A Gardiner Mawatha, Colombo 02. Commercial Bank of Ceylon PLC Sampath Bank PLC Seylan Bank PLC Hatton National Bank PLC

Company Auditors

Bankers

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2 INFORMATION RELEVANT TO THE INTRODUCTION
2.1 INTRODUCTION OF ORDINARY VOTING SHARES FOR LISTING This Introductory Document dated 28th April 2011 is published for the purpose of obtaining a listing on the Colombo Stock Exchange for the Ordinary Voting Shares of Swarnamahal Financial Services Limited. The shares are to be listed on the Diri Savi Board of the Colombo Stock Exchange.

2.2 COLLECTION POINTS Copies of the Introductory Document may be obtained from the Manager or any member firm and trading member firm of the Colombo Stock Exchange

2.2.1 MANAGERS TO THE INTRODUCTION Capital Alliance Limited Level 5, ‘Millennium House’ 46/58, Navam Mawatha, Colombo 02. Telephone Fax : 011-2317777 : 011-2317788

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2.2.2 MEMBERS AND TRADING MEMBERS OF THE CSE
Members of the CSE Acuity Stockbrokers (Pvt) Limited Level 6, Acuity House, 53, Dharmapala Mawatha, Colombo 03. Telephone: 2206206 Fax: 2206298/9 E-mail: sales@acuitystockbrokers.com Asia Securities (Pvt) Limited Level 21, West Tower, World Trade Center, Echelon Square, Colombo 1. Telephone: 2423905,5320000 Fax: 2336018 E-mail: enquiry@asiacapital.lk Bartleet Mallory Stockbrokers (Pvt) Ltd. Level "G", Bartleet House, 65, Braybrooke Place, Colombo 2. Telephone: 5220200 Fax: 2434985 E-mail: info@bartleetstock.com Ceylinco Stockbrokers (Pvt) Limited Ceylinco House, Level 9, 69, Janadhipathi Mawatha, Colombo 1. Telephone: 4714300, 4714388, 4714389 Fax: 2387228 E-mail: info@ecsbl.com D N H Financial (Pvt) Limited Level 16, West Tower, World Trade Centre, Colombo 01. Telephone: 5732222 Fax: 5736264 E-mail: info@dnhfinancial.com Asha Phillip Securities Limited Level 4, "Millennium House" 46/58, Navam Mawatha, Colombo 02 Telephone: 2429100 Fax: 2429199 E-mail: apsl@ashaphillip.net Assetline Securities (Pvt) Limited 282, Kaduwela Road, Battaramulla. Telephone: 4700111, 2307366 Fax: 4700112 E-mail: dpgsl@sltnet.lk

Capital TRUST Securities (Pvt) Limited 42, Sir Mohamed Macan Marker Mawatha, Colombo 3. Telephone: 5335225 Fax: 5365725 E-mail: inquiries@capitaltrust.lk

CT Smith Stockbrokers (Pvt) Limited 4-14, Majestic City, 10, Station Road, Colombo 4. Telephone: 2552290-4 Fax: 2552289 E-mail: ctssales@sltnet.lk J B Securities (Pvt) Limited 150, St. Joseph Street, Colombo 14. Telephone: 2490900, 0772490900 Fax: 2430070, 2446085,2447875 E-mail: jbs@jb.lk

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MEMBERS AND TRADING MEMBERS OF THE CSE
John Keells Stockbrokers (Pvt) Limited 130, Glennie Street, Colombo 2. Telephone: 2306250,2342066-7,2446694-5 Fax: 2342068, 2326863 E-mail: jkstock@keells.com NDB Stockbrokers (Pvt) Limited 5th Floor, NDB Building, 40, Navam Mawatha, Colombo 2. Telephone: 2314170-8 Fax: 2314180 E-mail: mail@ndbs.lk Somerville Stockbrokers (Pvt) Limited 137, Vauxhall Street, Colombo 2. Telephone: 2329201-5, 2332827, 2338292-3 Fax: 2338921 E-mail: ssb@web-lk.com Lanka Securities (Pvt) Limited 228/2, Galle Road Colombo 4. Telephone: 4706757,2554942 Fax: 4706767 E-mail: lankasec@sltnet.lk SC Securities (Pvt) Limited 2nd Floor, 55, D.R. Wijewardena Mawatha, Colombo 10. Telephone: 4711000 Fax: 2394405 E-mail: cscres@sltnet.lk

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MEMBERS AND TRADING MEMBERS OF THE CSE
Trading Members of the CSE Arrenga Capital (Pvt) Limited 410/115, Bauddhaloka Mawatha, Colombo 07 Tel: 2689107, 0777847720 Fax: 2689106 E-mail: rohan @ascot.lk Capital Alliance Securities (Pvt) Limited Level 5, "Millennium House", 46/58 Navam Mawatha, Colombo 02 Tel: 2317777 Fax: 2317788 E-mail: info@capitalalliance.lk First Guardian Equities (Pvt) Limited 32nd Floor, East Tower, World Trade Centre, Colombo 01 Tel: 5884400 Fax: 5884401 E-mail: info@firstguardianequities.com IIFL Securities Ceylon (Pvt) Limited 27th Floor, East Tower, World Trade Centre, Colombo 01 Tel: 2333000 Fax: 2333383 E-mail: info.ceylon@iiflcap.com

Claridge Stockbrokers (Pvt) Limited 10, Gnanartha Pradeepa Mawatha, Colombo 08 Tel: 2697974 Fax: 2677576 E-mail: fonseka@mackwoods.com

Heraymila Securities Limited Level 8, South Wing, ‘Millennium House’ 46/58, Navam Mawatha, Colombo 02 Tel: 2359100 Fax: 2305522 E-mail: info-hsl@heraymila.com New World Securities (Pvt) Limited 2nd Floor, 45/2, Braybrooke Street, Colombo 02 Tel: 23587800/20 Fax: 2358701 E-mail : info@nws.lk SKM Lanka Holdings (Pvt) Limited 377/3, Galle Road, Colombo 03 Tel: 2372413-4 Fax: 2372416 E-mail: info@skmlankaholdings.com Taprobane Securities (Pvt) Limited 2nd Floor, 10, Gothami Road, Colombo 08 Tel: 5328200 Fax: 5328277 E-mail: info@taprobane.lk

Richard Pieris Securities (Pvt) Limited 69, Hyde Park Corner, Colombo 02 Tel: 7448900 Fax: 2675064 E-mail : communication@rpsecurities.com SMB Securities (Pvt) Limited 47, Dharmapala Mawatha, Colombo 03 Tel: 5539593 Fax: 2339292 E-mail: smbsecurities@gmail.com TKS Securities (Pvt) Limited 19-01, East Tower, World Trade Centre, Colombo 01 Tel: 7857799 Fax: 7857857 E-mail: ralph@tks.lk

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3

FINANCIAL SECTOR

The financial sector in the country, including the Central Bank of Sri Lanka, mainly comprises of the following major financial institutions – Licensed Commercial Banks, Licensed Specialized Banks, Specialized Leasing Companies, Registered Finance Companies, Insurance Companies and Pension and Provident Funds. In total, the asset base of the country’s major financial institutions amounted to Rs. 5,616 billion as at end of December 2009. 3.1 REGISTERED FINANCE COMPANIES The core activities of Registered Finance Companies (RFCs) revolve around providing financing to customers that do not have easy access to bank finance, through leasing and hire purchase facilities. RFCs are regulated under the Finance Companies Act No.78 of 1988.

The total number of RFCs in operation as at end December 2009 was recorded at 35, carrying out operations through a network of 289 branches spread island wide. Out of the total asset base of Rs. 5,616 billion, the total asset base of RFCs for the year 2009 was recorded at Rs. 185 billion, accounting for 3.3% of the total assets of the country’s major financial institutions.

Market share of the two largest RFCs accounted for approximately 37% of the total assets of the industry during 2009, a reduction of 9% from 46% during 2008. The largest nine RFCs accounted for approximately 73% of the total assets, whilst eighteen medium size RFCs accounted for only 24% of total assets. The sector is steadily recovering, with the performance of most of the companies in the sector having been adversely affected in 2009 due to the resultant high interest rates and the heightened credit and liquidity risks which were caused by the collapse of certain unregulated finance companies. The financial distress caused by the collapse of the unregulated finance companies, resulted in a loss of investor confidence in all finance companies and cast a negative outlook on the entire sector.

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FINANCIAL SECTOR
This resulted in most of the Companies scaling down business operations to mitigate the risk factor. Hire Purchase and Lease facilities which accounted for approximately 63% of the RFC industry’s assets saw a slowdown in growth, with many companies curtailing lending and adopting a conservative approach. Thus the growth of total assets of RFCs was recorded at 5% as opposed to a 23% growth in 2008.

However, amidst these challenges most of the RFCs have continued to generate positive returns, with 27 of the 35 RFCs complying with the increased minimum capital requirement, and maintaining the capital adequacy well above the statutory minimum indicating the sector’s resilience and ability to withstand its challenges.

The sector recovered significantly as a result of the good governance and well adopted business practices undertaken by RFCs. The stability of the sector was preserved primarily through the timely intervention and stringent regulations and supervision undertaken by the CBSL, which undertook several measures to restore the public confidence in the sector and provided advisory services on the recovery process.

Further, to enhance and strengthen the regulatory framework of the financial sector, CBSL have proposed certain changes to the framework, which include closely monitoring the compliance with the Finance Companies (Corporate Governance) Direction and making the boards of directors more accountable for the companies’ performance and risk management practices. In addition, RFCs have been required to list on the Colombo Stock Exchange by the end of June 2011 to broad base the share ownership structure and to improve transparency as well as the imposition of the Finance Companies (Reporting Requirement) Direction No. 05 of 2009 to grant more powers to the CBSL to regulate RFCs.

Source: Central Bank of Sri Lanka

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4 PROFILE OF THE ENTITY
4.1 OVERVIEW OF THE COMPANY AND NATURE OF THE BUSINESS

Swarnamahal Financial Services Limited (SFS) is a public unquoted limited liability Company, which was incorporated on 14th January 2004 under the Companies Act of 1982 in Colombo, and re-registered under the Companies Act No.7 of 2007 on 16th September 2008. The Company is also registered by the Monetary Board of the Central Bank of Sri Lanka under the Finance Companies Act No.78 of 1988. SFS is a well established Finance Company comprising of qualified and well experienced staff with the ability to fulfil a wide array of financial requirements. The Company provides professional, customer friendly, convenient and cost effective financial solutions to both individual and corporate customers. SFS is currently enriched with seven (07) fully-fledged Branches and eight (08) Pawning Centres. The Company intends to expand its branch network rapidly in the near future in order to provide a better service for its clientele. During the last two years, SFS has strategically relocated two Branches and a Pawning Centre and it has further expanded the Branch Network by opening two (2) fully-fledged Branches and six (6) Pawning Centres in order to effectively capitalize the market opportunities. As a result, the Company continues to be the one of the fastest growing Finance Companies in Sri Lanka today.

Further in January 2009, the Board of Directors re-structured the Company with the appointment of a new Director/CEO, together with a few senior managers to overlook different functional areas of the Company. The new management is focused on taking proactive measures and implementing long term strategies to overcome challenges arising from macro environmental factors.

It should be noted that the Company has made remarkable progress, within a short span of two years, under the guidance of the new Director/CEO.

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PROFILE OF THE ENTITY
4.2 PRINCIPAL ACTIVITIES

The Company’s principal lines of business can be broadly classified under two categories – Lending Products and Borrowing Products.

Lending Products include Pawning, Leasing, Hire Purchase and Term loans.  PAWNING – SFS Pawning offers a competitive amount of pawning advance with attractive interest rates. The Pawning Team is trained professionally in order to maintain high standards in terms of the quality of service provided. In addition, Branches and Pawning Centres are open 365 days of the year to provide greater convenience to customers.  LEASING & HIRE PURCHASE – Leasing and Hire Purchase schemes are well structured to suit the requirements of customers, enabling them to obtain maximum benefits. SFS strives to offer highly competitive interest rates in the market together with personalized and efficient service. Borrowing Products include Fixed Deposits and Savings Accounts.  FIXED DEPOSITS – SFS possesses a fixed deposit portfolio worth Rs. 3.4 billion as at 28th February 2011. An additional interest rate of 1% p.a. than these applicable to normal depositors will be offered to the Senior Citizens. SFS offers higher and more competitive interest rates in the market with a guaranteed security.  SAVINGS ACCOUNTS – SFS offers a wide range of Savings Accounts which are specifically designed both for corporate and individual customers.

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PROFILE OF THE ENTITY
 SFS SAVER – This product is exclusively designed for depositors who opt to deposit in large volumes. Clients will earn higher interest rates on Savings depending on the deposit amount.   NORMAL SAVINGS ACCOUNT – This account provides constant and attractive interest rates for any amount of deposits. MINOR SAVINGS ACCOUNT – This product is branded as “Kumara Kumari” and offers attractive interest rates with a variety of valuable and enjoyable gifts for minors.

4.3

BRANCH NETWORK

The branch network of the Company comprises of the following fully fledged Branches and Pawning Centres: FULLY FLEDGED BRANCHES Jaffna Kollupitiya Negombo Nugegoda Ratnapura Trincomalee Vavuniya No.338, Hospital Road, Jaffna No. 654, Galle Road, Colombo 03 No. 18, Greens Road, Negombo No. 31, St. Thilakaratna Mw, Nugegoda No.15, Main Street, Ratnapura No.31, Central Road, Trincomalee No.141, Kandy Road, Vavuniya 021 2220245 011 2556160-4 031 2222619 011 2810666 045 2226270 026 2226677 024 2226233

PAWNING CENTRES Chilaw Gampaha Hatton Ja-Ela Kandy Ragama Sea Street Wattala No. 24A, Bazaar Street, Chilaw No. 14, Baudhaloka Mawatha, Gampaha No.15, Main Street, Hatton 120, Negombo Road, Ja-Ela No.156, Kotugodella Street, Kandy No. 62A, Tewatte Road, Ragama No. 147, Sea Street, Colombo 11 No. 416, Negombo Road, Wattala 032 2224888 033 2248444 051 2224466 011 2249085 081 2226126 011 2957053 011 2452245 011 3193340

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PROFILE OF THE ENTITY
4.4 DEGREE OF DEPENDENCE

The Company does not have a high degree of dependence on any customer or supplier. The advances portfolio and term deposits base are well spread out. The portfolio for pawning advances as at 28th February 2011 amounted to LKR 2,443 million approximately, out of which almost 99% of advances are less than Rs. 100,000.00. The portfolio for leasing, hire purchases and term loans advances as at 28th February 2011 amounted to LKR 546 million approximately, out of which almost 90% of the advances are less than Rs. 1,000,000.00. The degree of dependence on term deposits is normally skewed with little or no dependence on any one depositor or profile of depositors.

4.5

CORPORATE STRUCTURE

Swarnamahal Financial Services Limited is a solitary entity and does not have any subsidiaries, nor is it a subsidiary of another Company. 4.6 HUMAN RESOURCES

The staff strength of SFS as at 28th February 2011 was 186, in comparison to 180 employees as at 31st March 2010.

The Company adopts a stringent recruiting policy designed to attract experienced, talented and skilled employees who will be able to work effectively in line with the emerging trends of the future of the business. The staff strength of the Company as at 28th February 2011 can be broadly classified as follows:      CEO Managers Senior Asst. Managers and Asst. Managers Senior Executives and Executives Non-Executives 01 09 09 27 140

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PROFILE OF THE ENTITY
The Company does not have any Labour Unions and thus has not entered into any collective agreement with the employees.

4.7

INFORMATION TECHNOLOGY

The Company is equipped with a state-of-the-art IT system. All the Branches and Pawning Centres are electronically linked with each other across the island enabling to do real time transactions all 365 days of the year.

4.8

FUTURE PLANS AND PROSPECTS

SFS intends to be the premier Financial Services Provider in the Market, by executing the following plans:  SFS plans to increase the present Branch Network including Pawning Centres from fifteen (15) to twenty five (25) in view of the expected higher Economic Growth during the Financial Year 2011/12 which in turn would result in a higher demand for the financial products of the Company. This plan has already been initiated and the approval for the opening of a Pawning Centre and a Branch at Aluthgama and Batticaloa respectively has been obtained from the Central Bank of Sri Lanka.   SFS will continue to focus on Pawn Broking in order to assure a higher quality Asset Portfolio while maintaining NPL ratio below industry average. SFS intends to engage in specific marketing campaigns in order to further strengthen the brand image of the Company.

4.9 

ASSUMPTIONS ON FUTURE PLANS SFS expects an acceleration of the economic development with the prevalent peace ending of the three decade war which would in turn increase overall economic activities while enhancing the demand for the financial products of the Company. The Company does not expect a material change in the market interest rates that would have a material impact on the present interest rate margin.

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PROFILE OF THE ENTITY
 SFS does not expect material changes in current tax legislations applicable to the financial products that may affect the feasibility of its financial business. SFS expects that the Company would have the availability and access to funds in order to fulfil the lending requirements at a minimum cost. ASSOCIATED RISKS TO FUTURE PLANS

4.10

Swarnamahal Financial Services Limited, along with other finance companies in the industry, faces the following risks, which may have an adverse impact on the profitability of the business. The following risk factors have been identified by the Company, having understood the importance of managing risks involved in line with the business plan of the Company.
INTEREST RATE RISK

Financial institutions, such as SFS are susceptible to interest rate risk which arises due to volatility in market rates. In order to manage interest rate risk, the Company regularly reviews the movements of the interest rates and ensures that this risk is maintained within the acceptable level. Interest rates movements are analyzed on regular basis to ascertain the impact of the changes on the earnings of the Company.
CREDIT RISK MANAGEMENT

One of the ways in which financial institutions compete with banks, is through lending activities such as Leasing, Hire Purchase and Pawning Advances, thereby exposing themselves to credit risks, also known as default risk. To curtail the risks involved, the Company has implemented a proper credit evaluation process to ascertain the credit and trustworthiness of customers and guarantors. In addition, SFS has implemented a strong recovery process to monitor and collect the debts regularly.
LIQUIDITY RISK MANAGEMENT

This relates to the inability of financial institutions to discharge existing financial obligations on time, which was one of the main risk factors which affected some of the
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PROFILE OF THE ENTITY
finance companies during the recent financial crisis. As a result the Company has, taken measures to set in place a proper plan to maintain adequate liquid assets to meet the financial commitments of the Company.

OPERATIONAL RISK MANAGEMENT

This refers to the possible financial losses arising as a result of errors or frauds of the staff, failure of information systems or unpredictable or uncontrollable natural disasters. The Company has implemented proper controls procedures and segregation of duties for each category of employees and is enriched with the highly qualified Internal Audit Staff. They regularly monitor the daily operational activities of each staff member to ensure that controls are in order, and there are no deviations in operational activities against the set controls.

The Company is also enriched with one of the industry’s best IT system. Proper security and backup procedures have also been implemented with a view to mitigate the operational risk.

ASSET AND LIABILITY MANAGEMENT RISK

One of the risks that can adversely affect financial institutions is asset-liability mismatch risk, which in essence is a mismatch in the maturity pattern of assets and liabilities of a Company. If maturity patterns of assets and liabilities are not well matched, there arises the possibility of Companies facing a shortfall in liquidity rendering them incapable of meeting their financial obligations. In order to mitigate asset-liability mismatch risks, SFS has established an Asset-Liability Committee (ALCO), which holds monthly meetings in order to monitor and review the implemented asset-liability management strategies, review the current and prospective liquidity position, review the impact of major shifts and changes in the overall investment and lending strategies and analyze the maturity of assets and liabilities.

Financial institutions, like SFS are also exposed to other macro-economic risks such as exchange rate risk and inflation risk, which affect the disposable income of consumers thereby affecting their saving and spending patterns. This has both direct and indirect impact on the borrowing and lending portfolio of finance companies, in terms of the level of deposits and the tendency for customers to invest in vehicle financing.
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PROFILE OF THE ENTITY
Further risk factors which are faced by financial institutions such as SFS include regulatory risks, which include amendments in legislation and directions issued by the Central Bank of Sri Lanka as well as changes in the tax legislation. In addition, there is also the risk of downgrades in credit ratings, which may affect the borrowing cost, the availability of debt capital from financial markets and capability of raising deposits from public. There is also reputational risk involved, arising from negative public opinion, which was witnessed after the recent financial crisis, which may adversely affect the ability of finance companies to attract and retain customers. As a result, SFS needs to be cognizant of the risks it can be exposed to in an evolving macro environment.

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5 DETAILS OF THE BOARD OF DIRECTORS
The Board of Directors of Swarnamahal Financial Services Limited comprises of ten (10) Directors with a wide array of financial and commercial knowledge and experience.

Name, Designation, Address and Qualification Dr. (Mrs.) Soma Edirisinghe CHAIRPERSON No.7/6, Sulaiman Terrace, Colombo 05

Age 72

Directorships on Other Boards Chairperson: Swarnamahal Jewellers (Pvt) Ltd Edirisinghe Trust Investments Ltd. PLMTT Muthukaruppan Chettiar (Pvt) Ltd Swarnamahal Property Developers (Pvt) Ltd EAP Networks (Pvt) Ltd Intermedia Productions (Pvt) Ltd Colombo Communications (Pvt) Ltd Lavinia Breeze Sea Food Restaurant (Pvt) Ltd EAP Security Services (Pvt) Ltd Hotel Sapphire (Pvt) Ltd. EAP Films & Theaters (Pvt) Ltd EAP Property Developers (Pvt) Ltd Integrated Power System (Pvt) Ltd EAP Restaurant (Pvt) Ltd Rockchalet Hotel Korathota

Business Experience Counts for over 50 years of experience in the field of Film, Gold, Jewellery, Finance, Electronic Media and Management. Founder of “Jana Sarana” an independent nonprofit organization to reach humanity affairs in difficult and rural areas of the country.

DETAILS OF THE BOARD OF DIRECTORS
Name, Designation, Address and Qualification Mr. Jeewaka Hemal Edirisinghe DEPUTY CHAIRMAN No. 98/2, Rosmead Place, Colombo 07 Age 49 Managing Director : Directorships on Other Boards Swarnamahal Jewellers (Pvt) Ltd Edirisinghe Trust Investments Ltd. PLMTT Muthukaruppan Chettiar (Pvt) Ltd Swarnamahal Property Developers (Pvt) Ltd EAP Networks (Pvt) Ltd Intermedia Productions (Pvt) Ltd Colombo Communications (Pvt) Ltd Lavinia Breeze Sea Food Restaurant (Pvt) Ltd EAP Security Services (Pvt) Ltd Hotel Sapphire (Pvt) Ltd. EAP Films & Theaters (Pvt) Ltd EAP Property Developers (Pvt) Ltd Integrated Power System (Pvt) Ltd EAP Restaurant (Pvt) Ltd Rockchalet Hotel Korathota Swarnamahal Jewellers (Pvt) Ltd Edirisinghe Trust Investments Ltd. PLMTT Muthukaruppan Chettiar (Pvt) Ltd Swarnamahal Property Developers (Pvt) Ltd EAP Networks (Pvt) Ltd Intermedia Productions (Pvt) Ltd Colombo Communications (Pvt) Ltd Lavinia Breeze Sea Food Restaurant (Pvt) Ltd Business Experience Counts for over 25 years of extensive experience in the field of Gold, Jewellery, Finance, Electronic Media and Management.

Mrs. Anjalee Deepa Edirisinghe DIRECTOR No.122, Ward Place, Colombo 07

47

Director :

Counts for over 20 years of experience in the field of Management and Finance.

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DETAILS OF THE BOARD OF DIRECTORS
Name, Designation, Address and Qualification Mrs. Anjalee Deepa Edirisinghe (Contd.) Age Director: Directorships on Other Boards EAP Security Services (Pvt) Ltd Hotel Sapphire (Pvt) Ltd. EAP Films & Theaters (Pvt) Ltd EAP Property Developers (Pvt) Ltd Integrated Power System (Pvt) Ltd EAP Restaurant (Pvt) Ltd Rockchalet Hotel Korathota Swarnamahal Jewellers (Pvt) Ltd Edirisinghe Trust Investments Ltd. PLMTT Muthukaruppan Chettiar (Pvt) Ltd Swarnamahal Property Developers (Pvt) Ltd EAP Networks (Pvt) Ltd Intermedia Productions (Pvt) Ltd Colombo Communications (Pvt) Ltd Lavinia Breeze Sea Food Restaurant (Pvt) Ltd EAP Security Services (Pvt) Ltd Hotel Sapphire (Pvt) Ltd. EAP Films & Theaters (Pvt) Ltd EAP Property Developers (Pvt) Ltd Integrated Power System (Pvt) Ltd EAP Restaurant (Pvt) Ltd Rockchalet Hotel Korathota Business Experience

Mr. Nalaka Premal Edirisinghe DIRECTOR No.122, Ward Place, Colombo 07

42

Director:

Has an expert knowledge in Gold and other precious metals and stones. Counts for over 20 years of extensive experience in the field of Gold, Information Technology, Finance and Management. He is the Vice President of the Association of Gem & Jewellery industry and an Executive Committee Member of Gem and Finance, Hotel, Gem & Jewellery Institute. He is also a Member of Sri Lanka Gem Traders Association.

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DETAILS OF THE BOARD OF DIRECTORS
Name, Designation, Address and Qualification Mr.Asanka Edisinghe DIRECTOR No.7/6, Colombo 05 Sulaiman Terrace, Age 40 Director: Directorships on Other Boards Swarnamahal Jewellers (Pvt) Ltd Edirisinghe Trust Investments Ltd. PLMTT Muthukaruppan Chettiar (Pvt) Ltd Swarnamahal Property Developers (Pvt) Ltd EAP Networks (Pvt) Ltd Intermedia Productions (Pvt) Ltd Colombo Communications (Pvt) Ltd Lavinia Breeze Sea Food Restaurant (Pvt) Ltd EAP Security Services (Pvt) Ltd Hotel Sapphire (Pvt) Ltd. EAP Films & Theaters (Pvt) Ltd EAP Property Developers (Pvt) Ltd Integrated Power System (Pvt) Ltd EAP Restaurant (Pvt) Ltd Rockchalet Hotel Korathota Business Experience Finalist of the Chartered Institute of Management Accountants (UK) and a Member of the Film Association. Counts for over 20 years of experience in the field of Film Industry, Gold, Information Technology and Finance.

Mr. Sunil Abeyratna DIRECTOR No.86, Waragoda Road, Kelaniya FCA (SL), FSCMA (UK), FCMA (SL), CMA (AUS.)

63

Partner:

Chairman: Director:

AbeyRatna & Co. an associate of AGN A Fellow Member of the Institute of Chartered International Limited UK and the 06th largest Accountants of Sri Lanka, Fellow Member of the Accounting association which is recognized in Institute of Management Accountants of UK, Member of Certified Management Accountants of 102 countries in the world. Australia and Fellow Member of Certified West Asia and African region of AGN. Management Accountants of Sri Lanka. He has obtained the PhD by research for Finance AGN International Board, UK. Management (Tea Industry) from the University of Edirisinghe Trust Investments Limited Honolulu USA.

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DETAILS OF THE BOARD OF DIRECTORS
Name, Designation, Address and Qualification Mr.Sameera Ganegoda DIRECTOR/CEO No.29, Pepiliyana Road, Nadimala, Dehiwala ACA, B.B.Mgt (Acc), ASCMA Age 39 Directorships on Other Boards Business Experience Holds a Business Management Degree from the University of Kelaniya and an Associate Member of the Institute of Chartered Accountants of Sri Lanka, Society of Certified Management Accountants of Sri Lanka and National Institute of Accountants of Australia. He was the Former General Manager – Finance & Administration of Edirisinghe Trust Investments Limited. 56 Counts for over 25 years of experience in the field of Finance. Holds a Master’s Degree in Business

Mr.Mahendra De Silva DIRECTOR No. 1228, Rajamalwatte Road, Battaramulla MBA (USJP), FCA, FSCMA(Aus)

Administration (MBA) from the University of Sri Jayawardenapura, a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and Society of Certified Management Accountants of Australia.

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DETAILS OF THE BOARD OF DIRECTORS
Name, Designation, Address and Qualification Mr. J.F.G. De Silva DIRECTOR No.5, Uswatta Road, Moratuwa BSc., FCIB (UK) He is a professional banker, primarily severed at Bank of Ceylon and retired as a Senior Deputy General Manager. He also was the Managing Director/CEO of People’s Merchant Bank PLC from May 2003 to September 2007. He has held Directorships at the subsidiaries of Bank of Ceylon namely Ceybank Securities Ltd, Ceylease Financial Services Ltd, BOC Travels Ltd and Nepal Bank of Ceylon. Mr. Sunimal Ajit Weerasinha DIRECTOR No. 550/8/7, Isuru Uyana, Pelwatte, Battaramulla 60 He is a professional banker having over 25 years of banking experience at People’s Bank. He joined the People’sBank as a Senior Finance Officer in 1979 and retired from the Bank as the Deputy General Manager – Human Resources in December 2006. He was the General Manger of State Mortgage and Investment Bank from November 2006 to November 2009. He has held Directorships at the board of Uva Development Bank and Ruhunu Venture Capital Company. SWARNAMAHAL FINANCIAL SERVICES LIMITED – INTRODUCTORY LISTING 25 | P a g e Age 69 Directorships on Other Boards Business Experience He is a Fellow Member of the Chartered Institue of Bankers (UK) and holds a Bachelor of Science Degree, University of Ceylon, Peradeniya.

The Chairman nor any Director of the Company has been or is involved in any of the following events:  A petition under any bankruptcy laws filed against such person or any partnership in which he was a partner or any corporation of which he was an executive officer; 

Conviction for fraud, misappropriation or breach of trust or any other similar offence which the CSE considers a disqualification.

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6 SENIOR MANAGEMENT TEAM
Mr. Sameera Ganegoda – Director/Chief Executive Officer ACA, B.B.Mgt (Acc), ASCMA No.29, Pepiliyana Road, Nadimala, Dehiwala

Mr. Ganegoda holds a Business Management Degree from the University of Kelaniya. He is an Associate Member of the Institute of Chartered Accountants of Sri Lanka, Society of Certified Management Accountants of Sri Lanka and National Institute of Accountants of Australia.

He was the Former General Manager – Finance and Administration of Edirisinghe Trust Investments Limited.

The Chief Executive Officer is not and was not involved in the following events:  A Petition under bankruptcy laws filed against such person or any partnership in which he was a partner or any corporation of which he was an Executive Officer.  Convicted for fraud, misappropriation or breach of trust or any other similar offence which the CSE considers a disqualification. The Company has provided Rs. 51,859.56 for the key management personnel out of the total provision for staff retirement benefits for the year ending 31st March 2010.

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SENIOR MANAGEMENT TEAM
Mr. R.M.G. Ratnayake MANAGER – FINANCE Over 07 years of experience in Financial Sector. He holds a Degree of B.Sc. Accountancy & Financial Management (Special), from the University of Sri Jayawardenapura. Diploma in Treasury Management, Institute of Bankers of Sri Lanka.

Mrs. Chammika Dayaratne MANAGER – LEGAL

Over 12 years of experience in the field of Law, Notary Public and Company Secretary. She holds the LLB Degree from the Open University of Sri Lanka and passed out as an Attorney at Law from Sri Lanka Law College in 1997.

Mr. George Samantha
MANAGER–CORPORATE RELATIONS

Over 07 years of experience in the field of Banking and Finance. He holds a B.Sc Marketing Management (Special) Hons. Degree from the University of Sri Jayawardenapura and is an Associate member of Sri Lanka Institute of Marketing (AMSLIM).

Mr. Mahesha Withanawasam MANAGER – BRANCH OPERATIONS

Over 07 years of experience in the field of Accounting and Finance. He holds a B.Sc. Accountancy & Financial Management (Special) Degree from the University of Jayawardenapura.

Mr. Dhanuka Perera
MANAGER – PAWNING & GOLD SALES

Over 09 years of experience in the field of Pawning and Gold Sales and holds a Diploma in Business Management from JMC.

Mr. R Harendran MANAGER – INTERNAL AUDIT

He holds a bachelor of Business Administrations (Special Finance Management) from the University of Colombo and is an Associate Member of the Institute of Chartered Accountants of Sri Lanka. He counts over 04 years of experience at Ernst and Young (E&Y).

Mr. Newton Fernando MANAGER – CREDIT

Over 12 years of experience in the field of Credit and holds a B.Sc Business Administration (Special) Degree from the University of Jayawardenapura.

Mrs. Subhani Edirisinghe
MANAGER-DEPOSIT MOBILIZATION

Over 10 years of experience in the field of deposit mobilization. She holds a Degree of B.Sc Business Administrations from the University of Sri Jayawardenapura.

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7 CAPITAL STRUCTURE
7.1 STATED CAPITAL Ordinary Shareholding Structure as at 07th April 2011
Level of Shareholding 1 1,001 5,001 10,001 50,001 100,001 500,001 Over Total 1,000 5,000 10,000 50,000 100,000 500,000 1,000,000 1,000,000 No. of Shareholders 56 22 22 15 02 07 06 130 No. of Shares 9,802 71,200 205,000 420,000 125,000 1,669,000 22,500,005 25,000,007 % of Shareholding 0.04 0.28 0.82 1.68 0.50 6.68 90.00 100.00

7.2

TEN LARGEST ORDINARY SHAREHOLDERS AS AT 07TH APRIL 2011
ORDINARY SHAREHOLDERS Dr. (Mrs.) Soma Edirisinghe Mr. Jeewaka Hemal Edirisinghe Mr. Nalaka Premal Edirisinghe Mrs. Anjali Deepa Edirisinghe Mr. Asanka Srimal Edirisinghe M/s Edirisinghe Trust Investments Ltd. Mr. L H Jagath Piyasena Mr. M K Gunawardana Mr. A Y Gunawardana Mr. T G Thilakaratne Mr. W G M Premadasa Others TOTAL NUMBER OF SHARES 4,100,001 4,100,001 4,100,001 4,100,001 4,100,001 2,000,000 500,000 250,000 244,000 200,000 200,000 1,106,002 25,000,007 SHARE PERCENTAGE 16.40 16.40 16.40 16.40 16.40 8.00 2.00 1.00 0.98 0.80 0.80 4.42 100.00

The public holding percentage as at the date of the Introductory Document is 10.00%

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CAPITAL STRUCTURE
7.3 ISSUE OF SHARES PRIOR TO LISTING

The Company allotted Ordinary Voting Shares to the following shareholders of the Company, two years preceding the date of this Introductory Document. The shares were allotted to the shareholders on 10th August 2009. Details of the share allotment are as follows:
No. of Shares issued 2,000,000 600,000 600,000 600,000 600,000 600,000 5,000,000 Shareholding after allotment 2,000,000 4,600,001 4,600,001 4,600,001 4,600,001 4,600,001 2 25,000,007 % Share holding after the issue 8.00% 18.40% 18.40% 18.40% 18.40% 18.40% 100.00%

Name

Price per share 10.00 10.00 10.00 10.00 10.00 10.00 10.00

Value

Edirisinghe Trust Investments Ltd. Dr. (Mrs.) Soma Edirisinghe Mr.Jeewaka Hemal Edirisinghe Mrs. Anjali Deepa Edirisinghe Mr. Nalaka Premal Edirisinghe Mr. Asanka Srimal Edirisinghe Others

20,000,000.00 6,000,000.00 6,000,000.00 6,000,000.00 6,000,000.00 6,000,000.00 50,000,000.00

Further it should be noted, that 2,500,000 shares were transferred on 01st April 2011 from some of the shareholders of SFS to selected individuals at a consideration of Rs.20/- per share, in order to establish 10% public shareholding. Further details with regard to the share transfer have been disclosed in Annexure 1 of this Document.

Apart from the issue and transfer of shares mentioned above, the Company has not issued or transferred any other shares, of the same class or another class, within the two years preceding the date of the Introductory Document.
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CAPITAL STRUCTURE
7.4 CHANGES TO THE STATED CAPITAL

It should also be noted that the Company has not redeemed or repurchased any shares in the two years preceding the date of the Introductory Document, nor have any shares been subscribed or sold in conjunction with the public issue of shares and that there has not been a reduction in the Stated Capital of the Company.

7.5

CONVERTIBLE DEBT SECURITIES

The Company does not have any outstanding convertible debt securities as at the date of this Introductory Document.

7.6

TRANSFERABILITY OF SHARES

There are no statutory restrictions on the free transferability of the Shares to be listed on the Colombo Stock Exchange. Further there are no restrictions applicable to nonresidents shareholders holdings shares of the Company.

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8 OTHER INFORMATION
8.1 LITIGATION, DISPUTES AND CONTINGENT LIABILITIES The Company has not been involved, nor is it currently involved in any legal, arbitration or meditation proceeding as at the date of this Introductory Document which may affect or may have had a significant effect on the Company's financial position and profitability.

Further more; there were no legal, arbitration or meditation proceedings against the Company in the recent past which affected the financial position or the profitability of the Company as at the date of this Introductory Document.

The Company does not have any contingent liabilities that would affect its current and future profits as at the date of this Introductory Document.

There have been no penalties imposed by Regulatory or State Authorities on the Company.

8.2 INSPECTION OF DOCUMENTS The Introductory Document and Articles of Association of Swarnamahal Financial Services Limited will be hosted on the Company’s website at www.sfs.lk and on the CSE website at www.cse.lk for a period of not less than fourteen (14) days.

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9 FINANCIAL INFORMATION
9.1 RATIOS AND SHARE INFORMATION

Year Ended 31.03.2010 31.03.2009

Latest Interim 31.12.2010

Comparative Interim 31.12.2009

Net Interest Income / Total Average Assets (%) Non-Interest Income / Total Average Assets (%) Personnel & Other Non-Interest Expenses / Net Interest Income & Non-Interest Income (%) Gross NPL Ratio (%) General & Specific Loan Loss Reserves (B/S) / (Total Non-Performing Loans – Interest-In-Suspense) (%) Liquid Assets / Customer Deposits & Short – Term Funds Capital Adequacy Ratio (%) Debt/Equity Ratio Book Value per Share (Rs.) Earnings per Share (Rs.) Profit after Tax / Average Equity (%) Return on Average Assets (%) Effective Tax Rate (%) Dividends / Profit after Tax (%)

7.04 0.40 79.99 0.61 71.63 0.12

3.57 1.78 112.38 0.22

6.53 0.06 58.55 0.45 74.89 0.11

3.86 0.83 87.81 1.60 16.34 0.10

23.66 0.43 9.24 0.72 8.65 1.15 24.19 -

12.85 0.00 6.28 (0.59) (7.30) (0.78) -

21.76 0.35

15.61 0.00

11.32 8.60 2.08 0.75 20.28 4.57 2.32 0.43 25.74 Source: SFS

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FINANCIAL INFORMATION
9.2 RECEIVABLES 9.2.1 POLICY FOR CLASSIFICATION OF NON-PERFORMING RECEIVABLES The Company regularly reviews the advances made for its customers and provisions are made in accordance with the Finance Company Direction No.3 of 2006 for bad and doubtful debt issued by the Central Bank of Sri Lanka and in compliance with the Sri Lanka Accounting Standard No.33 of Revenue Recognition and Disclosure in the Financial Statements of the Finance Companies. Accordingly, provisions are made on following basis. All advances in arrears for a period of 6-12 months All advances in arrears for over 12% months 9.2.2 COMPOSITION OF RECEIVABLES:
YE 31.03.2010 (%) YE 31.03.2009 (%) Latest Interims 31.12.2010 (%) Comparative Interims 31.12.2009 (%)

50% 100%

Performing Loans & Advances Less than 3 months 3-6 months 7-12 months 13-18 months More than 18 months Total (%) Total Performing Loans (Rs.) ‘000 Non Performing Loans & Advances 1-2 months 3-6 months 6-7 moths 7-12 months 13-18 months Total (%) Total Non-Performing (Rs.)’000 Total (Rs.) ‘000

47 18 18 15 2 100.00 1,394,446

33 22 14 20 11 100.00 695,826

35 21 35 8 2 100.00 2,560,337

37 15 26 13 8 100.00 1,351,241

Loans

15 28 12 32 13 100.00 8,574 1,403,020

695,826

19 36 9 23 13 100.00 11,518 2,751,855

12 41 14 31 2 100.00 22,036 1,373,277 Source: SFS

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FINANCIAL INFORMATION
9.2.3 SEGMENTAL ANALYSIS OF LOANS & ADVANCES, LEASES, HIRE PURCHASE
BY INDUSTRY

31.12.2010

31.02.2010

31.03.2009

Transport Manufacturing Trading Others Pawning Other Distribution of Total Advances Leasing & Hire Purchase Receivables Loan & Advances Total Advances

351,476,599 6,790,201 148,346,802 2,065,241,614 2,019,665,175 45,576,439 2,571,855,216 351,476,599 2,220,378,617 2,571,855,216

234,436,705 26,452,624 245,413,877 896,716,687 864,468,462 32,248,225 1,403,019,893 234,436,705 1,168,583,188 1,403,019,893

107,539,436 466,994,702 121,291,656 83,556,061 37,735,595 695,825,794 107,539,436 588,286,358 695,825,794

9.3 MATURITY ANALYSIS OF DEPOSITS & BORROWINGS
YE 31.03.2010 (%) YE 31.03.2009 (%) Latest Interims 31.12.2010 (%) Comparative Interims 31.12.2009 (%)

Maturity Period Less than or equal to 1 month More than 1 month less than or equal to 3 months More than 3 months less than or equal to 6 months More than 6 months less than or equal to 1 year More than 1 year less than or equal to 3 years More than 3 years less than or equal to 5 years Matured (waiting for customer instructions) TOTAL

19.69 29.42 17.83 19.70 6.71 1.24 5.42 100.00

24.83 29.95 13.26 19.04 8.35 3.67 0.90 100.00

14.15 24.65 14.36 35.67 6.54 1.24 3.39 100.00

18.89 23.20 20.14 28.08 7.44 1.51 0.74 100.00

Source: SFS

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10 CORPORATE GOVERNANCE PRACTICES
The Company places a high degree of importance on sound Corporate Governance practices and is committed to maintaining the highest standards of business integrity and ethical values while rewarding all its stakeholders.

The Board of Directors of Swarnamahal Financial Services Limited is responsible for ensuring that the Corporate Governance practices of the Company are maintained and adhered to.

The Company has nine (09) Non-Executive Directors on the Board out of which three (03) Directors are Independent in order to facilitate the independent judgment in Board discussions while providing input to the Board’s decision making process. 10.1 INDEPENDENT DIRECTORS

The following are the Independent, Non-Executive Directors of Swarnamahal Financial Services Limited:    Mr. Damian Sunil Abeyratna Mr. Joseph Felix Gorgonius De Silva Mr. Sunimal Ajit Weerasinha

It should however be noted that according to the criteria set out in the Listing Rule No. 7.10.4 f (i) of Colombo Stock Exchange, Mr. Damian Sunil Abeyratna does not fall under the classification of an “Independent” Director as he represents the Board of Edirisinghe Trust Investment Limited (ETI) as a Director where the majority of the ETI Board represent the Board of SFS.

However, the following facts have been specially considered by the Board of SFS when determining Mr. Damian Sunil Abeyratna as an Independent Director of SFS: 

Swarnamahal Financial Services Ltd is a separate business entity and is not a subsidiary or a holding entity of any other Company nor is there any material

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CORPORATE GOVERNANCE PRACTICES
business relationship with any other Company in which the SFS Board of Directors represent. 

There is no significant share holding of ETI (ETI holds 8% shares of SFS) SFS does not hold any shares of ETI.

Mr. Damian Sunil Abeyratna is only an Independent Director of ETI and does not hold a material amount of shares of ETI.

10.2

REMUNERATION COMMITTEE

The Remuneration Committee constitutes of the following directors and is headed by Mr. Damian Sunil Abeyratna    

Mr. Damian Sunil Abeyratna – Independent Non-Executive Director Mr. Nalaka Edirisinghe – Non-Executive Director Mr. Joseph Felix Gorgonius De Silva – Independent Non-Executive Director Mr. Sunimal Ajit Weerasinha – Independent Non-Executive Director

Statement of the Remuneration Policy The Committee deliberates and determines the policies and criteria pertaining to the fees of the Executive and Non-Executive Directors of the Company, emoluments of Executive Directors, and salaries of the Corporate Management and Senior Management to ensure that remuneration levels are sufficient to attract and retain the caliber of professionals required for successful management and operation of the Company.

The aggregate of sum remuneration paid to the Executive and Non-Executive Directors amounts to Rs. 857,800/- per month.

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CORPORATE GOVERNANCE PRACTICES
10.3 AUDIT COMMITTEE

The Audit Committee constitutes of the following five (5) Non-Executive Directors and is headed by Mr. Damian Sunil Abeyratna     

Mr. Damian Sunil Abeyratna – Independent Non-Executive Director Mr. Nalaka Edirisinghe – Non-Executive Director Mrs. Deepa Edirisinghe – Non-Executive Director Mr. Joseph Felix Gorgonius De Silva – Independent Non-Executive Director Mr. Sunimal Ajit Weerasinha – Independent Non-Executive Director

The Audit Committee plays a key role in reviewing the internal control system that will guarantee the prevalence of effective internal controls. The Committee constantly reviews the system and controls and makes recommendations for improvements where necessary.

The Committee has reviewed all audited Financial Statements which include quarterly Interim Statements in order to ensure that they comply with all statutory provisions, Sri Lanka Accounting Standards and Central Bank mandated directives. In addition, the Audit Plan and the Management Letter submitted by the External Auditors have been reviewed by the Audit Committee.

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11 DECLARATION BY THE DIRECTORS
We, the undersigned, who are named in the Introductory Document as Directors of Swarnamahal Financial Services Limited, hereby declare and confirm that we have read the provisions of the Companies Act No. 07 of 2007 and the Colombo Stock Exchange Listing Rules and any amendments to it relating to the issue of this Introductory Document and that those provisions have been complied with.

This Introductory Document has been seen and approved by us and we collectively and individually accept full responsibility for the accuracy of the information given and confirm that provisions of the CSE Listing Rules and of the Companies Act No. 7 of 2007 and any amendments to it from time to time have been complied with after making all reasonable enquiries and to the best of our knowledge and belief, there are no other facts, the omission of which would make any statement herein misleading or inaccurate.
Dr. (Mrs.) Soma Edirisinghe Mr. Jeewaka Hemal Edirisinghe Mr. Nalaka Premal Edirisinghe Mrs. Anjalee Deepa Edirisinghe Mr. Asanka Shrimal Edirisinghe Mr. Damian Sunil Abeyratna Mr. Sameera Maulika Ganegoda Mr. Nanayakkara Godakandage Mahendra de Silva Mr. Joseph Felix Gorgonius De Silva Mr. Sunimal Ajit Weerasinha (Sgd.) (Sgd.) (Sgd.) (Sgd.) (Sgd.) (Sgd.) (Sgd.) (Sgd.) (Sgd.) (Sgd.)

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AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2008

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AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2009

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AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2010

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UN-AUDITED INTERIM FINANCIAL STATEMENTS AS AT 31ST DECEMBER 2010

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INCOME STATEMENT FOR THE PERIOD ENDED 31ST DECEMBER 2010 Nine months ended 31st December 2010 (Unaudited) Rs. 467,478,765 465,566,587 (262,046,370) 203,520,217 1,912,178 205,432,395 2009 (Audited) Rs. 295,434,208 279,035,651 (202,451,109) 76,584,542 16,398,556 92,983,099

31st March 2010 (Audited) Rs. 425,680,931 417,561,368 (273,810,790) 143,750,578 8,119,563 151,870,141

Variance

% 58.23 66.85 29.44 165.75 (88.34) 120.94

Income Interest Income Interest Expense Net Interest Income Other Income

Less :

Non Interest Expense Personnel Costs - Fixed Premises, Equipment and Establishment Expen Provision for Retirement Benefits Other Operational Expenses 52,401,503 14,462,936 53,419,885 120,284,324 85,148,071 (2,484,768) 82,663,303 (10,544,818) 72,118,485 (20,000,000) 52,118,485 34,342,598 7,082,388 40,220,921 81,645,907 11,337,192 (2,174,162) 9,163,030 (683,724) 8,479,306 8,479,306 36,807,240 15,786,372 585,973 68,298,518 121,478,103 30,392,038 (4,715,362) 25,676,676 (2,283,724) 23,392,952 (6,610,341) 16,782,611 52.58 104.21 32.82 47.32 651.05 14.29 802.14 750.52 514.66

Profit Before Loan Losses & Provisions Loan Losses & Provisions Operating Profit Before Taxation & Value Added Tax Less : Value Added Tax Profit Before Taxation Less : Provision for Taxation Net Profit for the period

Basic Earnings per Share

2.08

0.75

0.72

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STATEMENT OF CHANGES IN EQUITY FOR THE NINE MONTHS ENDED 31ST DECEMBER 2010 STATED CAPITAL Balance as at 01st April 2009 Issue of Ordinary shares Transfer of Credit Loss Reserve Net Profit/(Loss) for the period Balance as at 31st December 2009 Balance as at 01st April 2010 Net Profit/(Loss) for the period Balance as at 31st December 2010 Rs. 200,000,070 50,000,000 250,000,070 250,000,070 250,000,070 STATUTORY RESERVE Rs. 1,029,391 1,029,391 4,385,913 4,385,913 RETAINED PROFIT/(LOSS) Rs. (45,527,218) 8,479,306 (37,047,912) (32,101,129) 52,118,485 20,017,356 CREDIT LOSS REVALUATION RESERVE RESERVE Rs. 1,425,838 (1,415,738) 10,100 Rs. 8,700,000 8,700,000

TOTAL Rs. 156,928,081 50,000,000 (1,415,738) 8,479,306 213,991,649 230,984,854 52,118,485 283,103,339

20th January 2011 SWARNAMAHAL FINANCIAL SERVICES LTD

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STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED 31ST DECEMBER 2010 31st December 2010 (Unaudited) Rs. Cash Flow from Operating Activities Net Profit/(Loss) Before Taxation
ADJUSTMENTS FOR,

31st December 2009 (Audited) Rs. 8,479,306

31st March 2010 (Audited) Rs. 23,392,952

72,118,485

Bad Debtors Provision Depreciation Provision for Gratuity Investments in CRIB Written off Operating Profit before changes in Operating Assets (Increase) / Decrease in Operating Assets & Liabilities Investments in Bank Deposits & Commercial Papers Investments in Government Securities Funds Advance to customers Change in Inventories Change in Other Assets Deposits from Customers Creditors & Accrued Expenses Net Cash from Operating Activities Before Tax Gratuity Paid ESC Paid Tax Paid Net Cash from/(used in) Operating Activities Cash Flow from Investing Activities Investment in Shares Purchase of Property Plant and Equipment Loan Repayment by related parties Net Cash from Investing Activities Cash Flow from Financing Activities Issue of Ordinary Shares Issue of Debenture Borrowings Net Cash Used in Financing Activities
Net Increase /(Decrease) in Cash and Cash equivalents Cash and Cash Equivalents at the Beginning of the Period

2,484,768 10,682,986 85,286,239

2,174,162 6,335,777 16,989,245

6,141,200 13,817,699 588,973 97,500 44,038,324

50,239,569 (54,488,761) (1,171,320,091) 21,688,414 (152,529,559) 1,266,486,691 (13,896,494) 31,466,008 (375,000) (3,609,774) 27,481,234

(10,868,164) 53,623,319 (606,816,724) (19,766,263) 19,331,940 577,021,602 17,148,506 46,663,461 46,663,461

27,898,072 22,152,606 (864,986,173) (7,999,992) 12,258,288 594,276,202 16,490,755 (155,871,918) (15,005,823) (170,877,741)

(3,904,250) (12,824,035) (16,728,285)

(24,190,556) (24,190,556)

(38,641,753) 157,792,073 119,150,320

10,752,949 87,627,303 98,380,252

50,000,000 50,000,000 72,472,905 (10,645,276) 61,827,629

50,000,000 100,000,000 150,000,000 98,272,579 (10,645,276) 87,627,303

Cash and Cash equivalents at the end of the Period

CASH & CASH EQUIVALENTS Cash in Hand Cash at Bank Bank Overdraft Cash and Cash Equivalent Reflected on Balance Sheet at the end of the period 79,516,950 124,401,932 (105,538,630) 98,380,252 69,075,714 41,388,692 (48,636,777) 61,827,629 91,735,490 30,516,696 (34,624,883) 87,627,303

20th January 2011 SWARNAMAHAL FINANCIAL SERVICES LTD

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SWARNAMAHAL FINANCIAL SERVICES LIMITED SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS

SEGMENTAL INFORMATION Pawning Rs. For the period ended 31st December 2009 Income Interest Income Other Income Total Income Percentage Less : Expenses 62,123,924 29,336,144 91,460,068 11,102,198 16,563,806 7,882,650 24,446,456 3,112,123 39,503,919 30,390,066 69,893,984 36,352,903 2,405,719 157,378 2,563,096 (2,012,887) 25,009,898 281,220 25,291,117 (24,307,944) 8,293,196 3,853,902 12,147,098 1,326,553 48,550,649 12,602,434 61,153,082 (17,093,640) 202,451,109 84,503,793 286,954,902 8,479,305 102,447,573 114,693 102,562,266 34.72 27,027,979 530,600 27,558,579 9.33 102,083,071 4,163,816 106,246,887 35.96 550,209 550,209 0.19 983,174 983,174 0.33 13,473,651 13,473,651 4.56 34,003,377 10,056,065 44,059,442 14.91 279,035,651 16,398,557 295,434,207 100.00 Leasing & Hire Purchase Rs. Loans Rs. Factoring Rs. Real Estate Rs. Treasury Bills /Bonds Rs. Other Rs. Total Rs.

Interest Other Expenses Total Expenses Profit Before Taxation Less : Income Tax Profit After Taxation Segment Assets Percentage Segment Liabilities

705,568,349 30.69

188,122,323 8.18

448,663,135 19.51

27,322,789 1.19

284,048,256 12.35

94,189,420 4.10

551,410,771 23.98

2,299,325,043 100.00

For the period ended 31st December 2010 Income Interest Income Other Income Total Income Percentage Less : Expenses 154,058,590 98,156,278 252,214,868 91,980,088 24,172,016 16,665,127 40,837,142 17,600,818 13,813,449 13,513,382 27,326,831 20,059,217 504,630 1,408,238 1,912,868 3,025,262 16,950,757 (1,286,560) 15,664,198 (20,175,650) 12,629,770 2,705,971 15,335,741 (5,846,979) 39,917,158 2,151,474 42,068,632 (34,524,271) 262,046,370 133,313,910 395,360,280 72,118,485 (20,000,000) 52,118,485 3,810,322,177 100.00 344,189,966 4,990 344,194,956 73.63 57,163,830 1,274,130 58,437,960 12.50 45,476,494 1,909,554 47,386,048 10.14 4,197,686 740,444 4,938,130 1.06 (4,511,452) (4,511,452) (0.97) 9,488,762 9,488,762 2.03 5,049,849 2,494,512 7,544,361 1.61 465,566,587 1,912,178 467,478,765 100.00

Interest Other Expenses Total Expenses Profit Before Taxation Less : Income Tax Profit After Taxation Segment Assets Percentage

2,240,110,644 58.79

351,476,599 9.22

200,856,401 5.27

7,337,643 0.19

246,474,874 6.47

183,644,948 4.82

580,421,068 15.23

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NOTES TO THE FINANCIAL STATEMENTS

1.

The figures given in the statements for the nine months ended 31st December 2010 are provisional and subject to audit.

2.

The Accounting policies and methods of computation disclosed in the Financial statements for the year ended 31st March 2010 were consistently followed during the said period.

3.

The Financial Statements for the nine months have been presented in the same format adopted in the audited published accounts as at 31st March 2010, and are in accordance with the Sri Lanka Accounting Standards, SLAS 35 interim Financial Reporting.

4.

Stated Capital – 25,000,007 Ordinary shares have been issued and fully paid up.

5.

No circumstances have arisen since the Balance Sheet date, which would require adjustments to or disclosure in the Financial Statements. There are no material changes in contingent liabilities as at 31st December 2010 from 31st March 2010.

6.

7.

Directors shareholding as at 31st January 2011 No. Name of Director Dr. (Mrs.) Soma Edirisinghe Mr. Jeewka Edirisinghe Mr. Nalaka Edirisinghe Mrs. Deepa Edirisinghe Mr. Asanka Edirisinghe Edirisinghe Trust Investments Ltd Mr. Mahendra De Silva Mr. Sameera Ganegoda No. of Shares 4,600,001 4,600,001 4,600,001 4,600,001 4,600,001 2,000,000 1 1

1.
2. 3. 4. 5. 6. 7. 8.

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ANNEXURE 1 – DETAILS OF TRANSFER OF SHARES
No. of Shares Transferred Date of Transfer : 2,500,000 : 18th March 2011

Date of Transfer was stamped: 01st April 2011 Consideration : Rs. 20.00 per share
No. of Shares Transferred 500,000 250,000 244,000 6,000 194,000 200,000 106,000 44,000 125,000 70,000 55,000 50,000 50,000 50,000 30,000 26,000 4,000 30,000 25,000 25,000 25,000 20,000 20,000 20,000 15,000 15,000 15,000 10,000 10,000 10,000 10,000 10,000 10,000 No. of Shares Transferred 500,000 250,000 244,000 200,000 200,000 150,000 125,000 70,000 55,000 50,000 50,000 50,000 30,000 30,000 30,000 25,000 25,000 25,000 20,000 20,000 20,000 15,000 15,000 15,000 10,000 10,000 10,000 10,000 10,000 10,000

Name of Transferor Dr. Soma Edirisinghe Mr. J H Edirisinghe Mr. J H Edirisinghe Mr. J H Edirisinghe Mrs. A D Edirisinghe Mrs. A D Edirisinghe Mrs. A D Edirisinghe Mr. N P Edirisinghe Mr. N P Edirisinghe Mr. N P Edirisinghe Mr. N P Edirisinghe Mr. N P Edirisinghe Mr. N P Edirisinghe Mr. N P Edirisinghe Mr. N P Edirisinghe Mr. N P Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe

Name of Transferee Mr. L Jagath Piyasena Mr. M K Gunawardana Mr.A.Y. Gunawardana Mr. W G M Premadasa Mr. T G Tillakaratne Mr. A S M Wanduragala Dr. D M I Dissanayake Mrs. S R Wooster Mr.A. Sithampalam Mr.A.R.J.Rajagopalan Mr. J.A.Y. Deshaka Mr. K S T Fernando Mr.M.V.D. Peiris Mr.P W Gunawardana Mrs. K P B P Perera Ms.Ranjida Rajagopalan Mr.S.E.Dias Mr. C Jeyabalan Mr. B Vaithieswaran Mr. V Sridaran Mr. D.C.Ratnayake Mr. N L T I Sanjaya Mr.A.A. Madawala Mr. H M T Herath Mr. M P S S Wijesinghe Mrs.P Elisabath Mrs. A R Miranda Mr. J A Fernando Mr. J C Sanjekanth Mr. N Chryshanthi

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Name of Transferor Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe

No. of Shares Transferred 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 7,500 7,500 7,500 6,500 6,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 4,100 3,000 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,000 1,600 1,500 1,500 1,000 1,000 1000 700

Name of Transferee Mr. V Nageswaran Mr. B Sathies Mr. S NandaKumar Mr. S Velrajah Mr.S. Vinothan Mr.P. Thangaraj Mrs. H T N Perera Mr.T.N. Gunawardana Mr. H M W B Herath Mr. A R Rodrigo Mr. S Mahadevan Intag International (Pvt) Ltd Mr.P. Gajendra Mr.W E Abeyrathna Mrs. G P N Jayamanna Mr. W H Piyasena Mrs. R A D G Ranatunga Dynamic Inv. Holdings (Pvt) Ltd Miss K S R Kumari Mrs. I W A D Ushani Mr. G.A.S.S. Chamila Mr. D I Wickramasinghe Mr. H.M.K.Appuhamy Ms. H M K N Maduwanthi Mr. W H D Prasanga Mrs. D S H Eleperuma Mrs. J M M T jayasinghe Mr. T Manoharaja Ms.Utthara Dewalegama Ms.I W A A D Kumari Mr. H D Anandasiri Mr. D K K S Samantha Mrs. K K Prabodani Ms.W B J D Jayathillake Mr. H N D Niroshana Mr. A M S.C Abewardana Mr. U G I De Silva Mr.T P Pathinayake Mr. I G G Siriwardana Mr. K A Nandana Mr A G S S Kumara Mr. M R Dewasurendra

No. of Shares Transferred 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 7,500 7,500 7,500 6,500 6,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 4,100 3,000 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,000 1,600 1,500 1,500 1,000 1,000 1000 700

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Name of Transferor Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe

No. of Shares Transferred 500 500 200 200 200 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

Name of Transferee Mr. R Perera Mrs. K.G.G. Dharmasiriwardana Mr. I G A K C Gunawardana Mr. H N Prasad Ms.D A S Sandakelum Mr. K A C Jayasena D L Kaluarachchi Mr.K A D Priyasantha Mr. L K P Wijetunga Mr.I H Osman Ms.D S D Siriwardana Mr.T A K M Thebuwana Mr.A S Wickramanayaka Mr.P D R K Ihalawatta Mr.K L D N R Kumara Mr.N Rajendram Mr.G A G Wasantha Ms.K Nageswary Mr.R A Jayadasa Mr.M A K S M Arachchi Mr.P K C Madusanka Ms.W A I Udayanganee Mr.S J I L Jayarathna Mr.K B A C Prasad Mr.R G S B Jayarathna Ms.R M S D Rajapaksha Mr.H M J Kumara Mr.W A H Lakmal Ms.B W N R Menike Mr.A K S R Amaraweera Mr.K S Kumara Ms.N M H T Narayana Mr.G M C Pathmasiri Mr.N M L N Narayana Mr.K C K Vidanagamaarachchi Ms.H B P S Rajahewa Ms.S H C V Samanmali Mr.M M P Silva Mrs. L M S Bandara Mr. S M Kumaranayake Mr. R Prashanthan Miss D H D Sriyanga

No. of Shares Transferred 500 500 200 200 200 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

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Name of Transferor Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Mr. A S Edirisinghe Total

No. of Shares Transferred 100 100 100 100 100 100 100 100 2,500,000

Name of Transferee Mr. L A N A D Jayasekara Mr. P.Punyasiri Miss. J S Weerakoon Mr. M V G Perera Mr. M T P Senaviratna Miss. M M Weerakkody Mr. P D M Fernando Mr.M H M S Buddhika Total

No. of Shares Transferred 100 100 100 100 100 100 100 100 2,500,000

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FINANCIAL SERVICES LTD.