Fianal report fmfb

INTERNSHIP REPORT
(1st Draft)
The First MicroFinance Bank Ltd.
Specialization: Human Resource Management
Submitted to: Chairman Department of Business Administration
Submitted by:
Name: Adeel Ahmed Shakree
Roll No: W586224
Reg: 07-PBK-0042
Mailing Address: C/O Madina Photo Copy House
43- B Shan Arcade Barkat Market New Garden
Town, Lahore.
Contact: 0346-44525425
Date of Submission: 01-September-2013
ALLAMA IQBAL OPEN UNIVERSITY - ISLAMABAD
1

First of all, In the name of Allah the most merciful who blessed me to learn and gain
knowledge. He is the beneficent, gracious to all mankind, who has given me power,
abilities and blessed me to complete all works in my whole life. After that I would like
to extend gratitude to Management of Allama Iqbal Open University, Islamabad
(Lahore Campus) and my class fellows who helped me in understanding the various
aspects of our study and my supervisors who afforded me the opportunity to intern at
Secondly, I would like to thank Mr. Habib Ullah Shakree (Brother) who pushed me up
to continue my studies for the Masters Degree. During this course till last semester, he
helped me a lot for my studies and assignments.
Allah will bless all of the angels (Tutors, Class Fellows, Friends & Colleagues) for their
assistance and help during my course study.
2
Acknowledgement
s
Acknowledgement
s

1- History of Organization …………………. 4
2- Nature of Organization …………………. 5
3- Business Volume …………………. 6
4- Product Line …………………. 7
5- Overall Detail Structure …………………. 24
6- Departments …………………. 28
7- Role of Managers …………………. 34
8- Funds Management …………………. 47
9- Data Analysis …………………. 53
10- Competitors …………………. 75
11- Recommendations & Suggestions …………………. 77
12- References …………………. 80
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Table of ContentsTable of Contents

Poverty has been steadily rising in Pakistan; the provision of financial services
to the poor is an important component of the government’s poverty alleviation program.
The Aga Khan Rural Support Programmer’s (AKRSP) highly successful micro credit
and saving’s initiative has been serving some of the country’s poorest populations since
1982. Since 1990, the AKDN was trying to institutionalize this program; however there
was no regulatory ordinance under which the entity could be created. Perseverance paid
off and a new ordinance was promulgated in October 2001 to promote the provision of
the Microfinance by private sector institutions. It is in this context that the Aga Khan
Development Network has established The First MicroFinance Bank Ltd as a way
forward to provide an array of financial services to the neglected segments of society
across Pakistan by expanding the scope and product range of a micro-credit program.
The Bank has been established as a non-listed public limited company under the
provisions of the Companies Ordinance (1984) in November 2001 and licensed as a
MicroFinance institution under the provisions of the MicroFinance Institutions
ordinance 2001 in January 2002. The principal sponsors and shareholders are the Aga
Khan Rural Support Programme (AKRSP) and the Aga Khan Fund for Economic
Development (AKFED). The initial paid-up capital of Rs. 500 million has now
increased to Rs. 660 million, after IFC (a member of the World Bank Group) has
invested Rs. 160 million and become a partner. The authorized Capital is Rs. 1.0 billion
to allow for growth.
The Bank will reach out to disadvantaged populations throughout the country
not currently able to access financial services in rural and urban areas. The Bank aims
to serve these people with dignity and respect. Specific emphasis on vulnerable groups,
women in particular, is a governing principle of the institution. To ensure its
sustainability, the Bank aims to fully cover its inflation-adjusted costs with its revenues
4
Brief History of OrganizationBrief History of Organization

and will lend to individuals and through them to groups. Savings will be mobilised
from individuals, groups and institutions.
5

In order to maintain its vision The First MicroFinance Bank is committed to:
 To improve the living standards and promote the concept of micro-credit and
other financial services for underserved, neglected groups, particularly women.
 Be an institution to promote habit of savings amongst the under privileged and
optimize return on their resources.
 Be a bank, which adopts best practices in all its endeavors.
 Treat each employee fairly and with mutual respect. The Bank does not tolerate
discrimination of any kind and encourages all managers and supervisors to
involve employees in the creativity process. If problems arise, the facts should
be analyzed to determine ways to avoid similar problems in the future.
 Foster an open door policy, which encourages interaction, discussions and ideas
to improve the work environment, thus increase our productivity.
 Deliver competitive, impeccable service to our customers.
 Make “Do it Right The First Time” Bank commitment as a team will assure
continued growth and prosperity.
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Nature of
Organization
Nature of
Organization

Last five year Business volume of the organization is mention below:-
2004 2005 2006 2007 2008
Investment 101,542,689 149,771,763 75,352,555 545,684,356 549,214,503
Deposit 392,000,000 469,000,000 651,000,000 925,000,000 2,036,000,000
Revenue 5,951,946 721,470 19,440,098 -27,788,819 -106,593,219
Advances 677,656,815 758,358,057 674,215,332 1,193,609,27
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2,067,750,648
Annual Report The First Micro Finance Bank ltd 2004
7
Business Volume of OrganizationBusiness Volume of Organization
SourceSource

Deposit Product
The objectives of The First MircoFinanceBank Ltd (FMFB) are to encourage
the habit of savings amongst the poor people by deposits mobilization. It is the
important tools to graduate the poor people out of the poverty trap. Staff should give
proper attention to service the customer satisfactorily. If the customer is not satisfied
with the service, it will create a negative image for the bank. In the light of the fact that
deposits is one of the most important components of our business, operational
procedures are well elaborated, clearly defined and correctly applied so as avoid any
operational error which may lead to any false commitment. Realizing the importance of
building assets for the poor through encouraging saving, The First MicroFinanceBank
was the first to introduce saving accounts along with credit and life insurance service
for the poor in Pakistan. Any individual can open a deposit account with FMFB for Rs.
5 only and maintain the account without any minimum balance. The Bank offers
competitive market based rate of return. Deposit product which bank offers are as:-
 First Gharana Bachat Account
 First Current Account
 First Term Deposit Account
 First Micro Cash Maximiser Account
 First Bachat Tanzeem
First Gharana Bachat Account
Gharana Bachat Account is PLS Saving account and this account is offered only
individual customer. This account is open Rs.5/- The interest rate which bank offer on
Gharana Bachat Account is mention below:-
Up to Rs 25,000 6%
Rs 25,000 to Rs.1, 000,000 4%
Rs 1,000,000 to Rs.5, 000,000 6%
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Product LineProduct Line

Over Rs 5,000,000 6.50%
First Current Account
First Current Account is offered only individual customer. This account is open Rs.5/-.
This account has many special feature.
First Term Deposit Account
Term Deposit Account is offered with a minimum investment of Rs. 5,000. The interest
rate which bank offer on First Term Deposit Account is mention below:-
1 Month 7%
3 Month 8%
6 Month 8.75%
1 Year 9.75%
First Micro Cash Maximiser Account
The interest rate which bank offer on Micro Cash Maximiser Account is
mention below:-
Rs 25,000 to Rs.1, 000,000 3%
Rs 1,000,000 to Rs.5, 000,000 4%
Over Rs 5,000,000 5%
To enable the poor to effectively capitalise on economic opportunities to allow
access to basic social services and facilitate capital formation through entrepreneurial
activities. FMFB offers a range of targeted loan product catering to the diverse
financial needs of the poor in the mountainous and plain rural areas, as well as urban
centres of Pakistan. Micro credit for economic activities ranging from farm and
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Loan ProductLoan Product

nonfarm based activities, manufacturing and trade services are offered to micro
entrepreneurs, with special emphasis on the vulnerable poor, especially women.
Cognisant of the needs and dynamics of micro businesses, FMFB has adopted cash
flow based lending methodology that takes into account both the amount and frequency
of the borrowers cash flow to determine the repayment schedule. All loans are insured
by and insurance company in case of the death or permanent disability of the borrower.
No tangible collateral is secured from the borrower. The products which offer the bank
are as:-
 First Karubari Sarmaya
 Urban Group Financial Services
 Village Group Financial Services
 Micro-Enterprise Finance
 Low Salary Employee Loan
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First Karubari Sarmaya
The First MicroFinanceBank Ltd is a licensed microfinance institution regulated
by the State Bank of Pakistan. Its primary objective is to deliver financial services to
the poor for income generating activities and employment creation at gross root level. It
has been recognized that there is a mass level of poverty exists in urban areas which
have not yet been effectively served through financial services. This clientele base live
in slums, kachiabadies and basties. Having varied and specialized skills for income
generating activities and easily accessible markets there is a great need for convenient
and accessible financial services for these population. FMFB is planning to intervene in
these areas through a structured group lending methodology, a modified form of the
urban group lending approach used in Pakistan to reach a large number of population.
The objective is to achieve outreach to a maximum number of poor people by providing
them access to loan services with minimum volatility based on a sound loan portfolio.
Loan policies area formulated to support the Bank’s business strategies. Providing loan
services is an integral part of the business development. Loan processes and
management should be geared towards avoiding losses, but at the same time it should
ensure efficiency both in terms of response time and client needs. In order to provide
loans to micro businesses in the Urban Areas of the country this new loan product has
been designed. The main objective of the product is to provide access to financial
services to the poor segment in major population centers in Pakistan. To provide
platform to the disadvantaged community to enable linkage development, education
and capacity building of group members.
Urban Group Financial Services
The FirstMicroFinance Bank designed its intervention for the urban areas of
Pakistan. Urban Group Financial Service meet the need of the poor population, this
product provide sources of funds for areas specific productive investments, i.e.
investment that yield competitive returns that commensurate with risk. Urban Group
Financial Services (UGFS) provide access to financial services to the poorest segment
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in major population centres and to provide a platform to the disadvantages community
to enable linkage development, education and capacity building of group members.
Village Group Financial Services
Rural areas account for 112 MM people an estimated 68% of Pakistan’s
population according to World Bank report 2004-05 34 MM people in rural areas are
poor. Although as reported, the real agriculture GDP per capita rose by 7.4% between
2001-02 and 2004-05.This is the major reason that bank introduce Village Group
Financial Service product. This product is designed for rural area. The villagers are
engaged mostly in economic activities related to agriculture and livestock, generating a
major portion of their income from these two sectors. Financing is required to finance
input and stock holding period, processing, packaging and marketing of the non farm
sector. FMFB offer financial services to development of social and human capital
people need financing to meet lump sum housing, educational and health related
expense.
Micro-Enterprise Finance
Micro Enterprise Finance is a credit product. This product is offered those people who
did not want to make a group of 15-25 members. The special feature of this
product is its group size. Micro Enterprise Finance is running in rural and as well
as urban area.
Low Salary Employee Loan
Low Salary Employee Loan is offered to the employee of government, semi
government and private employee. Those employees can get the facility of low salary
employee loan those salary is less than the taxable limit.
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Business Development Services
Based on its vision, FMFB has institutionalized Business Development Services (BDS)
as an integral part of its operations. The BDS activities focus on developing
entrepreneurial capacities and providing opportunities for capital formation to the
chronic poor segment, which in turn will make them bankable. Undertaking an intra-
enterprise approach, FMFB currently offers market-driven intensive business start up
and management trainings coupled with mentoring services to facilitate business set up
and growth.
Account Opening Procedure and Types of Accounts
Account Opening
To open an account in FMFB should know the customer. For this purpose the
conditions given, staff should fulfill “Know Your Customer” be approved by the
concerned Branch Manager or the Officer authorized by FMFB in this regard. To open
an account branch operation Incharge fulfill these requirements:-
Account Opening Procedure
 A customer desiring to open an account in the Bank shall submit in the
prescribed form an application for opening an account.
 The customer must be introduced as required. The introduce must be person
holding an account holder of another bank then his signature should be
verified by the authorized official of that bank.
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Non Financial ProductNon Financial Product

 The account opening forms should be completed by the person himself or
with the assistance of any other officer of the bank.
 The account opening form should be complete.
 Copy of CNIC or a copy of Passport should attach with the accounts
opening form.
 The signed copy of the terms and conditions governing should attach with
the accounts opening form.
 In two different places, the specimen signature cards should signed to ensure
the identical signature by the account holder.
 Please check the all “Types of accounts and documentation”. The list of
documents required for different types of accounts.
Know Your Customers
 The “Know Your Customer” policy of FMFB is primarily to identity
customers who are involved in any kind of illegal activity including money
laundering.
 FMFB shall open accounts only of persons known to the staff of the Bank or
introduced to the Bank by an existing account holder or by another Bank.
 State Bank of Pakistan and the Government of Pakistan require that Banks
ascertain customer’s status and their source of income before opening an
account.
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 First impression on our customer has a long lasting effect. As an account is
opened, welcome the customer with a smile to the FMFB family. Do
introduce yourself to him and encourage him to introduce himself to you
and tell you about his business place and about his profession or business
activity.
 These above notes will be keep with account opening form for record.
Specimen Signature Card
 This is obtaining to verify the signature of the account holder.
 It should be kept serially numbers and locked in fireproof steel cabinets.
 On SSC, two signatures are should be from the customer.
 The signature obtained on the card is duly admitted by the officer concerned
for scanning into the computer and customer’s record.
Minimum Balance
No prescribed minimum balance requirements for maintaining a PLS savings Account
or a Current Account. The minimum balance for Micro Cash Maximizer Account has
been fixed at Rs: 500,000/- and profit on the balance is calculated on daily product
basis.
Account Number
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 Each customer shall be allotted a system generated distinctive account
number, which should be quoted in all correspondence with the bank
relating to the account.
 The account number allotted should also be noted on the account opening
form and the specimen signature card.
Deposit Slip and Depositing Money
 After completion of the formalities, a deposit slip is issued to the customer
for depositing initial cash deposit is completed.
 The depositor is then directed to the cashier who receives cash and writes
the amount received on the deposit slip and puts his full signature.
 On the back of the deposit slip the denominations of notes received are to be
noted by the cashier.
 The amount received is then input into the eRapid application against the
concerned customer’s account.
 The cashier puts a cash received stamp on the deposit slip after the AMO
has initialed it. The customer’s copy is then returned to the concerned
depositor.
Letter of Thanks
 A letter of thanks is sent of all new account holders and the introducer.
 Office copy of the letter should be attached with account opening form for
record.
Filing an account opening Form
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 The account opening forms, specimen signature cards, know you customer
information, CNIC and other relevant documents are pasted in numerical
order which are kept as permanent record.
 These files are kept in fireproof steel cabinets because these forms are basic
documents of the contract with the customer.
Types of Accounts offered by The First Micro Finance Bank Ltd
Individual or Personal Account
Definition:
This account is for the personal use of customer only one-person can holds this account
for its personal use.
Documents Required
1. Account opening Form should be completed with all the respects.
2. This account is open on the name of person on the prescribed account opening
form.
3. The form should be completed.
4. Kinship detail should be completed.
5. Title of account should be written with the correct spelling.
6. Complete and sign the specimen signature cards.
7. Copy of the CNIC of the account holder is should attached with the account
opening documents
8. ‘Original seen’ stamp should be affixed on the copy of CNIC, and verification
should be done by the concerned staff.
9. Complete account documentation checklist.
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Joint Account
Definition:
Account in the name of more than one person is known as “Joint Account”. It is used
either for business or for any other purpose.
Documents Required:
1. Account opening form should be completed.
2. The form is to be completed in all respects by all the persons.
3. Ensure that survivorship details are fully completed.
4. The title of account should be written with the correct spelling.
5. Ensure that the account opening forms and specimen signature cards must clearly
express the account operating instruction, i.e. whether the account is be operated by
either or survivor or operated jointly.
6. Complete and sign the specimen signature cards.
opening documents
should be done by the concerned staff
Minors Account
Documents Required
1. Those who are under 18 years old are treated as minors. The Branch Manager must
first approve all such accounts.
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3. The legal guardian must be identified first on all documents.
4. The operation of account must be marked as “for” or “on” behalf of the name of
minor and signed by the guardian.
5. The form is to be completed in all respect.
6. Ensure that minor detail are fully completed.
7. Completed and signed specimen signature cards.
8. Photocopy of the CNIC of the guardian.
should be done by the concerned staff
10. Photocopy of Form “B” of the minor.
Account of Illiterate Person
Definition:
The person who can’t sign or their handwriting is not firm, are treated as illiterate or
semi-illiterate people.
Documents Required
2. Three passport size photographs of such account holder are obtained and
attached with the account opening form.
3. To avoid the photograph being mixed up with some other account, the name of
the account holder and the account number should also appear in the
photograph itself.
4. Whenever he wants to draw money or give any instruction to the Bank in
respect of his account, he would personally come to the Bank or
any other designated place, sign the withdrawal or mandate in the
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presence of officer of the branch where he maintains, his account,
and get his signature attested by such officer.
5. This account is opened in the name of the person on the prescribed account
opening form.
6. Ensure that kinship details are fully completed.
7. Completed thumb impression (Specimen Signature) cards.
opening documents
10. Obtain a letter indemnifying bank in case of fraud/forgery in the account.
Account of Proprietorship
Definition
Firms owned by individual proprietors are called proprietary firms.
Documents Required
2. Only current deposit accounts are opened for proprietary firms.
3. In such cases where a person is sole proprietor of a firm, he/she write the name
of the firm in the prescribed column of the firm.
4. The proprietor declares that he/she is the sole proprietor of the firm and
undertakes to inform the bank of any change in the constitution of the
firm in the following way: “I am the sole proprietor of M/s.
as written in the prescribed column of the Account Opening
Form” and undertake to inform the bank of any change in its
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constitution”. The signature of the proprietor must be taken under
the declaration.
5. The signature of the proprietor is obtained in his/her personal capacity under
this declaration. It means that the proprietor will not sign over
the stamp of the firm declaring himself/herself as proprietor.
6. In case of death of the proprietor, any authority given to the manager ceases.
7. The account is opened in the name of the firm on the prescribed account
opening form.
8. The form should be completed in all the respects.
9. The title of account should be written with the correct spelling.
opening documents
Account of Partnership Firm’s
Definition:
Partnership is the relation between person who has agreed to share the profit of the
business, carried on by all or by any of them acting for all. OR
The partner is the agent of the firm having powers to execute transactions for the
purpose of the business of the firm.
Documents Required:
2. The account should therefore, be closed and a new account in place thereof
should be opened with the remaining partners, after all the legal formalities are
completed by the remaining partners.
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3. In case of retirement or admission of a new partner, the existing account should
be closed a new account in place thereof should be opened.
4. In case of death of a partner, the firm stands dissolved.
5. The names of all the partners along with any special instruction are mentioned
or written in the account opening form and the specimen signatures of all the
partners should be obtained.
6. Copy of the CNIC of all the partners should attached with the account opening
documents
Account of Private/Public Limited Company’s
Documents Required:
2. Copy of CNIC of each director.
3. Copy of certificate in corporation.
4. Certified true copy of Memorandum and articles of association.
5. Copy of resolution of Board of Directors to open the account.
6. List containing names of directors
7. List of authorized signatories with specimen signature, clearly identifying account
operating requirements.
8. Copy of commencement of business, in case if a Public Limited Company.
9. The form should be completed in all respect.
opening documents
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Account of Association, Societies and Clubs’
Documents Required
2. Copy of rules and regulation should be attached.
3. Copy of resolution of managing committee or governing body or executive council
regarding opening and conduct of the account.
4. Certified list containing names, addresses and signatures of signatures of office
bearers.
5. Copy of the CNIC of the account holders should attached with the account opening
documents.
6. A resolution to the above effect shall be signed by both the outgoing and incoming
managing committee.
Account of Executors and Administrators
Definition of Executor
An executor is a person to whom the execution of a will is entrusted by the testator.
Definition of Administrator
An executor is the person who is appointed by the court to look after the estate of the
deceased who has left no will or has not named any person and the heirs are minor.
Documents Required:
1. The executor produces the will in a competent court and the court issues a “Letter
of Probate”
2. The letter issued by the court for administrator is called “Letter of Administrator”
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3. Account of executor and administrators should only be opened with the prior
permission of COO from the Head Office.
4. All the administrator, if more that one shall sign or by all the executors to whom
probate has been granted for opening the account. The Letter of probate or letter of
administration shall be duly registered at the branch.
5. Clear instruction with the signatures of all the administrators or all the executors
should be obtained to determine as to which of the executors or administrators shall
operate the account.
6. When such instructions are revoked by anyone of the executors or administrators,
further operations in the account shall be allowed only under the joint signatures of
all the executors and/or administrators.
opening documents
Account of FMFB Staff
Definition:
The account that is open for the staff or their spouse is called “Staff Account”
Documents Required
1. Such account must clearly be marked as “Staff Account”
2. In the system these account are to be held separately by unique identification.
3. The Branch Manager or authorized staff member should monitor these accounts
separately and investigate large and unusual transactions whenever necessary.
4. The form should be completed in all respects.
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opening documents
25

Organizational Structure:
Departments
 Managers
 Asst. Manager
 Team Leaders
 MicroFinance Officers
 Branch Operations Incharge
 Teller
26
The First MicroFinace Bank Ltd.The First MicroFinace Bank Ltd.
PresidentPresident
Produc
t
Produc
t
FinanceFinance Busines
s
Busines
s
RMDRMD Audi
t
Audi
t
HRDHRD
Operation
s
Operation
s
AdminAdmin

The banking sector in Pakistan is highly regulated. As the Central Bank of the country,
the State Bank of Pakistan regulates the banking sector with full autonomy. In general,
State Bank of Pakistan is responsible for licensing, directing, supervising, controlling
and inspecting banks, and for exercising various monetary control policy measures. In
addition, the Securities and Exchange Commission of Pakistan also monitors the
operations of the listed banks in so far as they relate to public shareholding matters. The
banking sector in Pakistan consists of Commercial Banks, Islamic banking, Micro
Finance Banking and Specialized Banking Institutions
27
Overall Structure of
Organization
Overall Structure of
Organization

Baghbanpura branch located in Lahore, its start its operation in 2005 as a point of link
(POL) and upgraded in early 2008. Designation wise staff position of the Branch is as
under-
Ser Designation Strength
1. Branch Manager 01
2. Branch Operation In charge 01
3. Team Leader 01
4. Team Leader PPO 01
5. Customer Relation Ship Officer 01
6. Teller 01
7. Account Officer 01
8. Micro Finance Officer 08
Total 15
Business position of the branch is as under:-
2004 2005 2006 2007 2008
Deposit 0 0 0 0 44,210,200
Loan Disbursed 0 4,365,000 25,712,000 49,657,900 80,941,900
Loan
Outstanding
0 3,846,000 13,556,745 14,443,510 19,162,183
NPL 0 0 0 58,256 845,472
28
Structure of Dharampura
Branch
Structure of Dharampura
Branch
SourceSource

29

Risk Management Department
Risk Management is a discipline at the core of every financial institution and
encompasses all the activities that affect its risk profile. It involves identification,
measurement, monitoring and controlling risk to ensure that:
 The individual who take or manage clearly understand it.
 The organization’s risk exposure is within the limits established by the
management.
 Risk taking decisions are in line with business strategy and objectives set by the
management.
 Risk taking decisions are explicit and clear.
 Sufficient capital as a buffer is available to take risk.
The mission of risk management department is to develop strong culture of internal
control among FMFB staff and provide excellent services to clients by adopting a
systematic approach to identify measure, monitor and manage credit, FMFB is now
able to effectively highlight indentify and prioritize risks and further develop strategy
to measure and mitigate the prospective risks. This department is establish in 2006.
The goal of credit risk is to maximize Bank’s risk adjusted rate of return by maintaining
credit risk exposure within acceptable parameters. The Bank needs to manage the credit
risk inherent in the entire portfolio as well as the risk in group, individual credits or
transactions. The effective management of credit risks is a critical component of a
comprehensive approach to risk minimization so essential to long term success of any
banking institution. Being aware of the increasing risk with the rapid increase in credit
portfolio, the Bank established the Risk Management Department. RMD is mandated
30
Review of Various DepartmentsReview of Various Departments

to approve all decisions involving material risk which might negatively impact the
Bank’s profitability or ability to generate future profits.
Internal Audit & Compliance Department
Audit department play a key role in every organization. The audit department of
FMFB independently appraises activity within an organization for the review of
operations as a service to management. The Major role of FMFB audit department is
as:-
 To ensure compliance with the process and guidelines.
 To add value to the process and system.
 Offer advise at every stage of the implementation of the policy especially
compliance with the rule of the game, university and government contract
procedures, statutory deductions like taxes and approval limit.
Audit Rating Methodology
CLEAR evaluation addresses financial & operational functions being performed
at the branches/ units and the rating is summarized as follows:
 Cash Collections, Deposits & Funds Transfers
 Loans & Advances
 Effective Internal Control
 Account Openings & Related Procedures
 Reporting, Accounting & Administration
Each of the above elements would be rated based on the marks awarded to the
functions/activities covered under the same and adequate risk weight age assigned to it.
Cash Collections, Deposits & Funds Transfers
The evaluation of cash & collection involves;
 Cash receipt procedures;
31

 Cash withdrawal procedures;
 Safe/ vault operations;
 Safe keys maintenance;
 Cash count;
 Fund Transfers procedures
Loans & Advances
Loan is the most important function for the bank and has thus being given the
Maximum weight age in the rating methodology. This function deals with the issues of
and the rating is based on;
 Framework for loan management
 Lending Policies & Procedures
 Loan analysis
 Loan administration
 Loan monitoring
 Loan delinquency & loan collection
 Loan Committees at branches
 Physical verification of borrowers
 Portfolio at Risk
 Adherence to internal & external legislation
Effective Internal Control
An evaluation tells us whether MFI is profitable or not and is sustainable in the
long run. As an MFI efficiency determines the capacity for outreach and the quality of
its services. Special attention is paid on asset- liability management. It focuses on;
 Proper system entries & updated stock register
 Proper handling of cheque books
32

 Adherence of cheque signing limits
 Proper Bank Reconciliation Statements
 Implementation of Interest on Head office account
 Deduction of taxes from payments & submitted in govt treasury
33

Account Openings & Related Procedures
The CLEAR methodology also focuses on account openings since it’s a very
sensitive part of documentation .It checks whether the administration is abiding by the
rules and
Regulations. It keeps a track if the documentations are complete and account opening
Forms properly filled .The various activities include;
 Adherence with Prudential Regulations
 Account Opening forms properly filled with relevant information
 SS cards completed and scanned
 Deduction of Zakat according to prevailing laws
 Deposit rates are correct & profit credited according to policy
 Term Deposit forms completely filled & requirement of changes in Signatories
 Account c closures marked properly in the system
 Check details of dormant & inoperative account
Reporting, Accounting & Administration
Reporting & administration play a key role in the processing cycle. The various
activities
Include;
 System generated reports in compliance with each other
 Calculation of profits on deposit account & income on loan account
 Accurate periodic reporting to Head office & SBP
 System and server room access to authorized personal
 Data backup procedures & virus detection measures
 Security arrangement at the Branch & with the agency
 Attendance record maintenance upto date.
34

The Administration Department is responsible for a wide range of administrative
services including property management, setup of new branches, cost-effective
procurement of goods and services, Logistic Support etc. Transformation of
Administration Department into a dynamic, professionally sound and time efficient
Department capable to play meaningful role in achieving FMFB‘s objectives by
planning, direction and coordination of Management according to maximum strategic
use of human and material resources.
Services provide by Administration Department
 Property management
 Branch Setup
 Procurement
 Logistic Support
 Maintenance
Logistic Support provide by Administration Department
 Travel arrangements
 Air ticket and hotel arrangement
 Training Arrangement
 On time and safe delivery of asset and other items
 Process of expense claims
35
Administration
Department
Administration
Department

President / CEO
Head of Department
Asst: Manager (Reporting) Asst: Manager
(Operation)
Support Staff Team Leader(s)
Support Staff
37
Structure of Finance DepartmentStructure of Finance Department

Role of Chief Financial Officer (CFO)
Chief Financial Officer directly report to Chief Executive Officer and supervise
Executive Officer – Accounts and Executive Officer – Finance and Treasury.
Chief Financial Officer lead the process of execution of financial operations
and implementation of financial plans, accounting frameworks, and strategic
information systems to support the Bank’s business. The incumbent works at
both the strategic and operational levels, and strives to administer control
frameworks through his supporting organization. The incumbent is
responsible to oversee regulatory affairs of the Bank as well as
implementation of internal controls for effective and efficient execution of
business plans approved by the Board of Directors.
Key Accountabilities
The key accountabilities of Chief Financial Officer are as:-
 Financing and banking arrangements
 Timely settlement of payments due
 Optimisation of fund balances
 Assets and liability management
 Quality and timeliness of financial information
 Implementation of strategic information system plans
 Budgetary control
 Compliance with Operating Policy Guidelines
 Tax management and optimisation
38
Role of Financial ManagersRole of Financial Managers

Key Interfaces
There are two types of interfaces, which are mention below:-
External
 Professional institutes for input on technical issues
 Bankers for negotiating financing arrangements and banking services
 State Bank of Pakistan for conduct of SBP audits and resolution of issues
raised
 Auditors, tax advisors, professional values, and consultants for obtaining
professional advice
 SECP for regulatory affairs
Internal
 Directors for meeting their information requirements
 President / CEO for financial strategy formulation, policy making and
operational decision making
 All Heads of Departments for day to day coordination, resolution of cases
requiring senior level inputs, and discussions on new initiatives
Functions of Chief Financial Officer
Chief Financial Officer performs the following functions:-
Board Affairs
 Offer comments relating to financial and regulatory implications on proposed
initiations and operational strategies presented for consideration by the Board.
40

 Prepare briefs on the bank’s financial performance for presentation to the Board
and the senior management team.
Financial Strategies
 Negotiate cost effective banking arrangements and secure timely flow of funds
to spending locations.
 Monitor the bank’s budgetary performance, analyze significant variances, and
propose to the President / CEO ways and means for containing adverse cost
tendencies.
 Secure value for money in all expenditures through curtailment of avoidable
outlays at the commitment stage, and restriction of payments
Accounting
 Direct the recording of financial transactions in the books of account based
on generally accepted accounting principles.
 Ensure the proper application of prescribed cut-off procedures, and
compilation of accounts of the Bank.
 Coordinate the conduct of the annual and special audits of accounts of the Bank
System Controls
 Provide and extend the vision for enhanced and strengthened systems for
financial management and control.
41

 Establish and oversee operation of the prescribed framework for resource
budgeting and expenditure accounting at the bank.
 Institute mechanisms for responsibility accounting and controls at activity
level.
 Facilitate execution of the Bank’s Strategic Internal Audit Plan by the
Internal Audit Department, and promote the review, appraisal, and
implementation of internal audit recommendations
Team Building
 Plan and oversee building and strengthening of institutional capacity for
implementing upgraded accounting, budgeting, and information systems.
Regulatory Affairs
 Keep abreast of changes in legislation, rules, and regulations, including
impending modifications; dilate on their implications for the Bank, and
present outlines of strategies for mitigating their likely adverse impacts on
the Bank operations.
 Coordinate the provision of financial information on the Bank’s affairs to
external agencies as authorized by the President / CEO.
Treasury Management
 Negotiate banking arrangements designed to secure cost-effective access to
the full range of banking services.
42

 Provide required guidelines for funds management and transfer of funds
between accounts to minimize non-earning floats.
Financial Accounting
 Direct the operation of financial accounting systems at the Bank, review
periodic financial statements, and present commentaries on financial results
to the Chief Executive Officer.
 Interpret for the benefit of the senior management team and supporting staff
the implications of generally accepted accounting standards and principles,
and regulatory requirements insofar as they impact operations of the Bank
 Enforce the application of schedule of delegation of financial powers
approved by the Board.
 Monitor the status of loan recoveries, initiate management action on
potential defaults, and propose provisioning to reflect the true state of
receivables in the books of account.
Budgetary Control
 Lead and coordinate the annual planning and budgeting exercises for the
Bank.
 Review monthly budgetary performance reports, highlight adverse trends in
spending, and circulate variances to the incurring Heads of Departments
soliciting reasons for adverse trends, and steps taken to remain within annual
budgeted levels.
Taxation
43

 Minimize the Bank’s exposure to taxation through efficient tax planning,
advice from tax consultants, and compliance with reporting obligations.
 Ensure the timely payment of all tax dues to avoid levy of penalties or
surcharges
Reporting
 Supervise the preparation, internal review, and timely submission of
regulatory returns to the State Bank of Pakistan, SECP, Registrar Joint Stock
Companies, and the tax authorities.
Executive Officer – Accounts
The Executive Officer – Accounts report to Chief Financial Officer and supervise
Assistant Accountants. The Executive Officer – Accounts performs the function of
financial management and accounting at the Bank. Key responsibilities assigned to the
incumbent include supervision of the accounting function, provision of functional
guidance to subordinates and ensuring that the books of accounts are maintained in
accordance with generally accepted accounting principles.
The key accountabilities of Executive Officer – Accounts are as:-
 Timely settlement of payments
 Quality and timeliness of financial information
 Budgetary control
 Audit of accounts
44

Key Interfaces
External
 Bankers for negotiating settlement of transactions
related thereto.
 External auditors for conduct of statutory audit.
 Legal Advisors
 Income Tax Department
Internal
 Executive Officer – Finance and Treasury
 All Heads of Departments for day to day coordination
 Internal Auditors
Functions of Executive Officer – Accounts
Executive Officer – Accounts performs the following functions:-
 Supervise up to date maintenance of books of accounts of the Bank with a
view to reflect, completely and accurately, all accounting transactions and
compilation of periodical financial statements.
45

 Coordinate the annual budget preparation process for the Bank, and exercise
budgetary control throughout the financial year.
 Enforce systems of internal checks and controls for protection of the Bank’s
fixed assets.
 Ensure adherence to Bank’s prescribed accounting policies and procedures.
 Liaise with external and internal auditors; ensure the provision of adequate
clarifications to their queries, follow up on audit reports, and institute
controls in areas where weaknesses are highlighted through audits
conducted.
 Liaise with tax consultants; ensure timely payment of income and other
taxes and filing of tax returns.
 Keep abreast of pronouncements of regulatory and professional bodies
affecting the Bank’s financial management operations.
 Manage the financial administration of the Bank’s Gratuity and Provident
Fund Schemes.
 Scrutinize all vouchers for propriety and entries for coding before posting to
the General Ledger.
 Review and approve periodic reconciliation statements between the General
Ledger and other subsidiary records.
46

 Process suppliers’ bills and staff reimbursement requests in accordance with
contracted terms and Bank policy.
 Oversee operations of all bank accounts of the Bank to secure effective cash
management and minimize non-earning floats.
 Circulate workings of tax due on salaries to employees for confirming tax to
be deducted.
 Oversee processing of payroll and ensure timely payment of salaries into
employees’ accounts.
 Arrange timely payments to suppliers as contracted.
 Ensure weekly deposit of all taxes deducted at source.
 Supervise the periodic closing process and approve journal vouchers for
effecting period-end adjustments.
 Supervise preparation of monthly management accounts and annual
accounts of the Bank.
 Review monthly bank account reconciliation statements and follow up on
overdue reconciling items.
 Supervise the retention of updated records of employee funds as provided in
their constitutions, expedite processing of requests for withdrawals, audit of
accounts and provision of year-end balances to members.
Role of Executive Officer – Finance and Treasury
47

Executive Officer – Finance and Treasury reports to Chief Financial Officer and
supervise Treasury Officer. The Executive Officer – Finance and Treasury manages the
Bank's portfolio of cash and investments in equity and fixed income securities. The
position holder is responsible for strategy formulation for enhancing portfolio value
consistent with the Board of Directors appetite for risk. The incumbent is responsible
for monitoring and control of liquidity at different levels of the organization consistent
with regulatory requirements
48

The key accountabilities of Executive Officer – Finance and Treasury are as:-
 Financing and banking arrangements
 Optimisation of fund balances
 Assets and liability management
 Quality of annual investment / disinvestment planning
Key Interfaces
External
 Bankers for negotiating financing arrangements and banking services
raised
Internal
 Executive Officer – Accounts for availability of financial record and its
validation.
 All Heads of Departments for day to day coordination, resolution of matters
related to financial management and accounting and discussions on
budgetary performance.
49

Functions of Executive Officer – Finance and Treasury
Executive Officer – Finance and Treasury performs the following functions:-
 Prepare the Bank’s annual investment and profit plans based on alternate
sets of assumptions and levels of resource mobilization.
 Keep abreast of latest domestic developments in capital markets, accounting
regulations, and financial and valuation practices.
 Within the framework approved by Asset and Liability Committee, negotiate
deals with external entities such as brokers and investee companies.
 Secure timely and accurate recording of transactions relating to investment
activities of the Bank.
 Project market behavior and execute day to day trading to yield trading
margins within the prescribed regulatory framework and the Bank's policies
on risk
 Keep abreast of changes in legislation, rules, and regulations, including
impending modifications; dilate on their implications for the Bank, and
present outlines of strategies for mitigating their likely adverse impacts on
the Bank's operations.
 Coordinate the provision of financial information on the Bank’s affairs to
external agencies as authorized by the Chief Financial Officer.
 Operationally banking arrangements designed to secure cost-effective access
to the full range of banking services required by the Bank.
50

 Review daily bank balances and direct the transfer of funds between
accounts to minimize non-earning floats.
 Ensure compliance with regulatory requirements of SBP relating to liquidity
positions.
 Update the Bank's annual investment plans for changes in basic assumptions
made at the time of original formulation.
 Take short-term investment and disinvestment decisions within broad
parameters prescribed by the Asset and Liability Management Committee.
 Prepare and report Weekly Portfolio Report to the Chief Financial Officer.
 Participate in meetings of Asset and Liability Committee and apprise
members of possible scenarios for proposals under discussion.
 Coordinate with regional offices and branches in formulation of projection
of fund requirements and resource generation through deposit mobilization.
 Compile and finalize projections of deposit accumulation and lending
volumes for inclusion in the annual budget of the Bank.
 Monitor the performance of branch offices in relation to projected targets in
the budget, and report significant variances to the Chief Financial Officer
 Ensure compliance of investment / disinvestment proposals being executed
with rules, regulations and internal policies.
51

 Evaluate the investment portfolio in accordance with requirements of SBP.
 Continually strive to improve systems of Treasury operations within his
purview.
 Reconcile balances in current accounts with SBP on daily basis.
Use of electronic data in decision making
Electronic data is used by the organization for decision making purpose. For example
branches generate report of all expenditure head through e rapid and compare it with
budget allocated to those head and then they easily found various report and take any
decision.
Software used by the organization
Three type of software use by the organization, which are mention below:-
1. Tomcat
2. E rapid
3. MIS
Reports produce for management use
Reports which produce by that software are as under:-
 Daily statement of affair
 Full statement of affair
 Loan situation summary
 Loan type wise breakup
 Loan falling due listing
 MFO productivity
52

 Customer loan statement
 Depositor statement
 Loan provisioning summary
 Transaction general summary
In the real world businesses can use a wide range of sources of funds to help finance
their trading activities. Not all of them are in cash; some take the form of assets that the
business can use. These can be used to improve cash flow in both the long and short
term. The main sources of fund of The First Micro Finance Bank are as under:-
Shareholders' Capital
Shareholders capital is the major source of fund, shareholders invest money in the hope
of capital growth, (that is the business makes profits, grows, makes more profits, so as
the business becomes bigger their investment will be worth), and dividend (the
shareholders share of the company’s profits). The main share holders of the bank are
as:-
Aga Khan Rural Supporting Program 30,000,000
Aga Khan Agency for Microfinance 20,000,000
International Finance Corporation 16,000,000
Total 66,000,000
53
Source of FundsSource of Funds

Pattern of shareholding
No of shareholders From To Total shares held
5 1 100 50
1 101 30,000,000 30,000,000
1 30,000,001 50,000,000 20,000,000
1 50,000,051 66,000,050 16,000,000
8 66,000,050
Categories of shareholding
Particulars Number Shares held Percentage
Individual 1 10 0
Joint Stock Companies 1 50,000,040 73.76
Financial Institution 6 16,000,000 24.24
Total 8 66,000,050 100
54

Grants
Grant is another source of fund. Grants are provided by donors, multilateral grant aid
institutions, United Nations organizations and specialized agencies, international
financing institutions, international non-governmental organizations, the private sector,
foundations and charity organizations. The bank grant figures are quoted below:-
2004 2005 2006 2007 2008
Grant from Asian
Development Bank
8,190,575 16,162,59
0
16,500,00
0
16,500,000 16,500,000
Grant from United Nation
Development Program
0 5,886,579 12,904,97
4
21,331,449 21,449,812
Grant from Financial Sector
Strengthening Program
0 0 1,508,363 4,500,810 10,857,758
Grant from International
Labor Organization
4,157,109 0 0 1,873,811 5,915,161
Grant from Aga Khan Agency
from Microfinance
0 0 0 4,518,010 8,087,814
Total 12,347,68
4
22,049,16
9
30,913,33
7
48,724,080 62,810,545
55
SourceSource

Generation of Fund
Bank generate fund from the following activities:-
Markup
The First Micro Finance Bank Ltd gives loan to the poor segment of society but earn
markup up to 22% Flat rate. This is the major source of fund generation, analysis of
markup earn is as under:-
2004 2005 2006 2007 2008
Markup on advances 23,957,70
3
44,689,579 122,937,73
0
233,855,623 443,284,100
Income on
investment in
Government
securities
41,644,96
1
12,803,538 9,810,925 11,292,978 23,091,808
Income from Term
Finance Certificate
0 0 0 8,963,588 21,989,389
Markup on reverse
repo transaction
5,401,300 17,452,069 2,147,206 5,070,113 5,469,804
Markup on deposit
account with
treasury and other
banks
5,468,423 36,690,468 70,860,834 56,601,334 31,960,825
Total 76,472,38
7
111,635,65
4
205,756,69
5
315,783,636 525,795,926
Fee, Commission and Brokerage
2004 2005 2006 2007 2008
Fee 1,654,243 2,286,983 10,064,29
2
25,300,15
6
58,580,669
56

Commission 224,442 311,861 1,379,898 2,184,239 4,067,538
57

Deposit
Bank generate fund from deposit, Analysis of bank last five years deposit figures are
as:-
2004 2005 2006 2007 2008
Current Account 52,556,000 94,157,000 112,370,000 283,901,000 558,456,000
PLS Account 249,106,000 388,382,000 364,378,000 616,834,000 1,046,061,000
Term Deposit
Certificate
108,551,000 170,385,000 16,424,000 114,812,2000 1,706,150,000
Total 470,320,000 652,924,000 928,789,000 2,048,857,000 3,310,667,000
Investment in Government Securities
The bank generate fund from investment in governments securities, investment figure
of the last five years are as:-
2004 2005 2006 2007 2008
Income on investment in
Government Securities
41,644,96
1
12,803,53
8
9,810,92
5
11,292,978 21,031,837
Investment in Term Finance Certificate
The bank generate fund from investment in the shape of Term Finance Certificate, last
five year figures are as:-
2004 2005 2006 2007 2008
Term Finance Certificate 0 0 0 8,963,588 10,515,918
58

Allocation of fund is very important factor, if any organization doesn’t utilize their fund
into fruitful investment then suffer loss, The First Micro Finance Bank allocate their
fund into following activities:-
Advances
The major portion of fund allocate into advances, bank give loan to the society and earn
markup, this is very fruitful allocation, last five year figure of advances are mention
below:-
2004 2005 2006 2007 2008
No 18,589 27,932 51,888 104,484 207,874
Amount 468,974,208 650,718,783 1,009,684,000 1,714,931,000 3,226,316,000
59
Allocation of
Funds
Allocation of
Funds
SourceSource

Five Year Balance Sheet Analysis
2004 2005 2006 2007 2008
Assets
Cash and balances with SBP and
NBP
42,566,937 58,655,064 75,435,651 198,325,188 332,676,173
Balance with other
banks/NBFIs/MFBs
163,870,689 783,112,670 669,018,760 527,512,129 777,283,849
Lending to Financial Institution 600,000,000 - 47,730,500 72,959,550 -
Investments net of provisions 100,890,732 193,315,402 75,352,555 545,684,356 549,214,503
Advances net of provisions 207,226,321 353,726,051 674,215,332 1,193,609,2742,067,750,648
Operating fixed assets 16,789,269 17,615,370 68,820,532 169,202,301 195,984,338
Other assets 27,803,104 38,716,297 67,717,167 99,869,596 171,343,259
Deffered Tax Asset 5,661,558 7,000,000 1,898,058 - -
Total Assets 1,164,808,610 1,452,140,854 1,680,188,555 2,807,162,3944,094,252,770
Liabilities
Deposits and other accounts 468,974,208 650,718,783 924,575,411 2,035,584,3533,304,742,382
Borrowing - 95,883,500 - - 100,000,000
Subordinated debt - - - - -
Other liabilities 12,379,028 17,341,052 35,333,391 84,137,128 120,631,812
Deferred tax liabilities - - - - -
Total Liabilities 481,353,236 763,943,334 959,908,802 2,119,721,4813,525,374,194
Net Asset 683,455,374 688,197,520 720,279,753 687,440,913 568,878,576
60
Data AnalysisData Analysis

Represented by
Share Capital 660,000,500 660,000,500 660,000,500 660,000,500 660,000,500
Statutory and general reserves 2,793,914 2,938,212 8,040,156 8,040,156 8,040,156
Depositors Protection Fund - - 2,108,093 2,155,819 2,470,534
Unappropriated profit 10,477,178 11,018,280 30,150,582 2,361,763(104,231,456)
673,271,592 673,956,992 700,299,331 672,558,238 566,279,734
(Deficit) / surplus on revaluation of
assets
(64,991
)
1,626 44,945 (1,677,272) (8,759,343)
Deferred grants 4,936,286 4,976,262 1,495,407 6,476,904 11,358,185
Revolving fund for micro credit 4,590,141 8,470,141 18,440,070 10,083,043 -
Depositors Protection Fund 722,346 792,499 - - -
683,455,374 688,197,520 720,279,753 687,440,913 568,878,576
61
SourceSource

2,004 2,005 2,006 2,007 2,008
Markup/return /interest earned 66,963,931 110,304,282 205,756,695 315,783,636 525,795,926
Markup/return /interest expensed (7,919,766) (15,422,562) (39,346,562) (99,877,564) (165,468,186)
Net markup/interest income 59,044,165 94,881,720 166,410,133 215,906,072 360,327,740
Provision against non-performing
loans and advances 4,039,136 4,942,978 6,660,476 20,423,135 30,071,719
Provision for diminution in the value
of investments
- - - - -
Bad debts written off directly - - - - -
Net markup/interest income after
provisions
4,039,136 4,942,978 6,660,476 20,423,135 30,071,719
55,005,029 89,938,742 159,749,657 195,482,937 330,256,021
Non markup/non interest income
Fee, commission and brokerage
income 1,878,685 2,598,844 11,444,190 27,484,395 62,648,207
Dividend income - - - - -
Grant income net of related expenses - - 2,699,539 10,395,421 1,700,571
Gain on sale/redemption of securities 28,559,343 4,595,439 - 3,853,825 1,935,883
Unrealized gain on revaluation of held
for trading securities net - - - 2,738,046 -
Other income 5,461,817 15,380,990 675,937 1,195,059 3,159,631
Total non markup/not interest
income
34,021,160 19,976,429 3,375,476 18,182,351 6,796,085
90,904,874 112,514,015 174,569,323 241,149,683 399,700,313
62
Five Year Income Statement AnalysisFive Year Income Statement Analysis

Non markup/non interest expenses
Administrative expenses 80,690,928 110,455,928 144,579,628 264,237,436 505,616,295
Other provisions / write off - - - - -
Other charges 80,000 76,000 - - -
Total non markup/not interest
expenses
80,770,928 110,531,928 144,579,628 264,237,436 505,616,295
10,133,946 1,982,087 29,989,695 (23,087,753) (105,915,982)
Extra ordinary / unusual items - - - - -
(Loss) / Profit before taxation 10,133,946 1,982,087 29,989,695 (23,087,753) (105,915,982)
Taxation – Current 8,350,000 2,635,617 5,200,000 1,737,506 -
- Prior year - - 271,856 1,365,502 677,237
- Deferred (4,168,000) (1,375,000) 5,077,741 1,898,058 -
4,182,000 1,260,617 10,549,597 5,001,066 677,237
(Loss) / Profit after taxation 5,951,946 721,470 19,440,098 (28,088,819) (106,593,219)
Contribution to depositor protection
fund 297,597 36,074 972,005 - -
(Loss) / Profit for the year after
contribution
5,654,349 685,397 18,468,093 (28,088,819) (106,593,219)
Unappropriated profit brought
forward 6,013,218 10,477,178 16,784,436 30,150,582 2,361,763
Profit available for appropriations 11,667,567 11,162,574 35,252,529 2,061,763 (104,231,456)
Appropriations
Transfer to statutory reserve 1,190,389 144,294 5,101,947 - -
Unappropriated profit carried
forward
10,477,178 11,018,280 30,150,582 2,061,763 (104,231,456)
(Loss)/earnings per share (Rupee) 0.09 0.01 0.29 (0.43) (1.62)
63

64
SourceSource

1. Return on Assets (ROA)
This indicator measures how well the bank has used its total assets to generate returns
by calculating the net operating income before taxes to average assets. Return of Assets
(ROA) is calculated as follows:-
Return on Assets = Net Profit Before Tax x 100
Total Assets
Year 2004 2005 2006 2007 2008
Net Profit before
Tax
10,133,94
6
1,982,08
7
29,989,69
5
(23,087,75
3)
(105,915,98
2)
Total Assets
1,164,808,61
0
1,452,140,85
4
1,680,188,55
5
2,807,162,39
4
4,094,252,77
0
Return on Assets 0.87 0.14 1.78 (0.82) (2.59)
2. Return on Equity (ROE)
This indicator measures the rate of return on the average equity for the period by
calculating the net operating income after taxes to average equity. Return of Equity
(ROE) is calculated as follows:-
Return on Equity = Net Profit After Tax x 100
Total Equity
Year 2004 2005 2006 2007 2008
Net Profit after Tax
5,951,94
6
721,47
0
19,440,09
8
(28,088,81
9)
(106,593,21
9)
Equity
673,271,59
2
673,956,99
2
700,299,33
1
672,558,23
8
566,279,73
4
65
Ratio AnalysisRatio Analysis

Return on Equity 0.88 0.11 2.78 (4.18) (18.82)
3. Return on investment (ROI)
The ROI is the most important ratio of all. It is the percentage of return on funds
invested in the business by its owners. In short, this ratio tells the owner whether or not
all the effort put into the business has been worthwhile. Return of Investment (ROI) is
calculated as follows:-
Return on Investment = Net Profit After Tax x 100
Investment
Year 2004 2005 2006 2007 2008
5,951,94
6
721,47
0
19,440,09
8
(28,088,81
9)
(106,593,21
9)
Investment
100,890,73
2
193,315,40
2
75,352,55
5
545,684,35
6
549,214,50
3
Return on
Investment 5.90 0.37 25.80 (5.15) (19.41)
4. Return on Fix Assets
This measures how efficiently profits are being generated from the fix assets employed
in the business The Return on Assets Ratio is calculated as follows:
Return on Fix Assets = Net Profit Before Tax x 100
Fix Assets
Year 2004 2005 2006 2007 2008
5,951,94
6
721,47
0
19,440,09
8
(28,088,81
9)
(106,593,21
9)
Fixed Assets 16,789,26 17,615,37 68,820,53 169,202,30 195,984,33
66

9 0 2 1 8
Return on Fix
Assets 35.45 4.10 28.25 (16.60) (54.39)
5. Net Profit Margin
This indicator measures what percentage of operating revenue remains after all
financial expenses, loan loss provisioning expenses and operating expenses are paid by
calculating net operating income before taxes to operating revenue.
Net Profit Margin is calculated as follows:
Net Profit Margin = Net Profit After Tax x 100
Interest Income
Year 2004 2005 2006 2007 2008
Net Profit after Tax 5,951,946 721,470 19,440,098 (28,088,819) (106,593,219)
Interest Income 59,044,165 94,881,720 166,410,133 215,906,072 360,327,740
Net Profit Margin 10.08 0.76 11.68 (13.01) (29.58)
6. Interest Income to Total Income
Interest Income to Total Income is calculated as follows:
Interest Income to Total Income = Total Income x 100
Interest Income
67

Year 2004 2005 2006 2007 2008
Total Income
90,904,87
4
112,514,01
5
174,569,32
3
241,149,68
3
399,700,31
3
Interest Income
59,044,16
5
94,881,72
0
166,410,13
3
215,906,07
2
360,327,74
0
Ratio 64.95 84.33 95.33 89.53 90.15
7. Earning Per Share (EPS)
Earnings Per Share is calculated as follows:
Earnings Per Share = Net Profit After Tax
No of Shares
Year 2004 2005 2006 2007 2008
Net Profit after Tax 5,951,946 721,470 19,440,098 (28,088,819) (106,593,219)
No. of Shares 66,000,050 66,000,050 66,000,050 66,000,050 66,000,050
Earnings Per
Share (EPS) 0.09 0.01 0.29 (0.43) (1.62)
8. Dividend Per Share (DPS)
Dividend Per Share is calculated as follows:
Dividend Per Share = Total Dividend
No of Shares
68

Year 2004 2005 2006 2007 2008
Total Dividend 0 0 0 0 0
No. of Shares
66,000,05
0
66,000,05
0
66,000,05
0
66,000,05
0
66,000,05
0
DPS - - - - -
9. Book Value Per Share
Book Value Per Share is calculated as follows:
Book Value Per Share = Total Equity
No of Shares
Year 2004 2005 2006 2007 2008
Equity 673,271,592 673,956,992 700,299,331 672,558,238 566,279,734
No. of Shares 66,000,050 66,000,050 66,000,050 66,000,050 66,000,050
Book Value Per
Share 10.20 10.21 10.61 10.19 8.58
69

10. Equity to Total Assets
Equity to total assets is a common measure used to analyze capital adequacy of a bank.
This figure is determined as follows:
Equity to Assets = Stockholders Equity x 100
Average Total Assets
Year 2004 2005 2006 2007 2008
Total Equity
673,271,59
2
673,956,99
2
700,299,33
1
672,558,23
8
566,279,73
4
Total Assets
1,164,808,61
0
1,452,140,85
4
1,680,188,55
5
2,807,162,39
4
4,094,252,77
0
Ratio 57.80 46.41 41.68 23.96 13.83
11. Current Ratio
The Current Ratio is one of the best known measures of financial strength. This figure
is determined as follows:
Current Ratio = Current Assets
Current Liability
Year 2004 2005 2006 2007 2008
Current Asset
1,114,554,67
9
1,388,809,18
7
1,541,752,79
8
2,538,090,49
7
3,726,925,17
3
Current Liability
468,974,20
8
746,602,28
3
924,575,41
1
2,035,584,35
3
3,404,742,38
2
Ratio 2.38 1.86 1.67 1.25 1.09
12. Quick Ratio
70

The Quick Ratio is calculated as follows:
Quick Ratio = Cash + Cash Equivalent + Invested Fund
Current Liability
Year 2004 2005 2006 2007 2008
Cash + Cash
Equivalent + Invested
fund 307,328,358 1,035,083,136 819,806,966 1,271,521,673 1,659,174,525
Current Liability 468,974,208 746,602,283 924,575,411 2,035,584,353 3,404,742,382
Ratio 0.66 1.39 0.89 0.62 0.49
13. Working Capital
Working Capital is calculated as follows:
Working Capital = Current Assets - Current Liability
Year 2004 2005 2006 2007 2008
Total Current Asset
1,114,554,67
9
1,388,809,18
7
1,541,752,79
8
2,538,090,49
7
3,726,925,17
3
Total Current
Liability
468,974,20
8
746,602,28
3
924,575,41
1
2,035,584,35
3
3,404,742,38
2
Ratio
645,580,47
1
642,206,90
4
617,177,38
7
502,506,14
4
322,182,79
1
14. Asset Turnover
Asset Turnover is calculated as follows:
71

Asset Turnover = Revenue x 100
Assets
Year 2004 2005 2006 2007 2008
Revenue
5,951,94
6
721,47
0
19,440,09
8
(28,088,81
9)
(106,593,21
9)
Assets
1,164,808,61
0
1,452,140,85
4
1,680,188,55
5
2,807,162,39
4
4,094,252,77
0
Ratio 0.51 0.05 1.16 (1.00) (2.60)
15. Debt Ratio
Debt Ratio is calculated as follows:
Debt Ratio = Total Debt x 100
Total Assets
Year 2004 2005 2006 2007 2008
Total Debt
4,600,40
0
9,365,40
0
5,496,00
0
25,051,00
0
27,020,80
0
Total Assets
1,164,808,61
0
1,452,140,85
4
1,680,188,55
5
2,807,162,39
4
4,094,252,77
0
Ratio 0.39 0.64 0.33 0.89 0.66
72

2004 2005 2006 2007 2008
Assets
Cash and balances with SBP and NBP
10
0
13
8
17
7 466
78
2
Balance with other banks/NBFIs/MFBs
10
0
47
8
40
8 322
47
4
Lending to Financial Institution 100 - 8 12 -
Investments net of provisions
10
0
19
2
7
5 541
54
4
Advances net of provisions
10
0
17
1
32
5 576
99
8
Operating fixed assets
10
0
10
5
41
0
1,
008
1,16
7
Other assets
10
0
13
9
24
4 359
61
6
Deffered Tax Asset 100 124 34 - -
Total Assets
10
0
12
5
14
4 241
35
1
Liabilities
Deposits and other accounts
10
0
13
9
19
7 434
70
5
Borrowing - - - - -
Other liabilities
10
0
14
0
28
5 680
97
4
Total Liabilities
10
0
15
9
19
9 440
73
2
Net Asset
10
0
10
1
10
5 101
8
3
73
Horizontal Analysis of Balance
Sheet
Horizontal Analysis of Balance
Sheet

Represented by
Share Capital
10
0
10
0
10
0 100
10
0
Statutory and general reserves
10
0
10
5
28
8 288
28
8
Depositors Protection Fund - - - - -
Unappropriated profit
10
0
10
5
28
8 23
(99
5)
10
0
10
0
10
4 100
8
4
(Deficit) / surplus on revaluation of assets
10
0
(
3)
(6
9)
2,
581
13,47
8
Deferred grants
10
0
10
1
3
0 131
23
0
Revolving fund for micro credit
10
0
18
5
40
2 220
-
Depositors Protection Fund
10
0
11
0
- - -
10
0
10
1
10
5 101
8
3
74
SourceSource

2,0
04
2,0
05
2,0
06
2,00
7
2,0
08
Markup/return /interest earned 1
00
1
65
3
07
47
2
7
85
Markup/return /interest expensed 1
00
1
95
4
97
1,26
1
2,0
89
Net markup/interest income 1
00
1
61
2
82
36
6
6
10
Provision against non-performing loans and
advances
1
00
1
22
1
65
50
6
7
45
Net markup/interest income after provisions 1
00
1
22
1
65
50
6
7
45
1
00
1
64
2
90
35
5
6
00
Fee, commission and brokerage income 1
00
1
38
6
09
1,46
3
3,3
35
Grant income net of related expenses - - - - -
Gain on sale/redemption of securities 100 16 - 13 7
Unrealized gain on revaluation of held for trading
securities net
- - - - -
Other income 100 282 12 22 58
Total non markup/not interest income 100 59 10 53 20
100 124 192 265 440
75
Horizontal Analysis of Income
Statement
Horizontal Analysis of Income
Statement

Administrative expenses 100 137 179 327 627
Other charges 100 95 - - -
Total non markup/not interest expenses
1
00
1
37
1
79
32
7
62
6
1
00 20
2
96
(22
8)
(1,04
5)
(Loss) / Profit before taxation
1
00 20
2
96
(22
8)
(1,04
5)
Taxation – Current 1
00 32 62
2
1
-
- Prior year - - - - -
- Deferred 1
00 33
(1
22)
(4
6) -
1
00 30
2
52
12
0
1
6
(Loss) / Profit after taxation 1
00 12
3
27
(47
2)
(1,79
1)
Contribution to depositor protection fund 1
00 12
3
27 - -
(Loss) / Profit for the year after contribution 1
00 12
3
27
(49
7)
(1,88
5)
Unappropriated profit brought forward 1
00
1
74
2
79
50
1
3
9
Profit available for appropriations 100 96 302 18 (893)
76

Appropriations
Transfer to statutory reserve
10
0
1
2
42
9 - -
Unappropriated profit carried forward
10
0
10
5
28
8
2
0
(99
5)
(Loss)/earnings per share (Rupee)
10
0
1
2
32
7
(47
2)
(1,79
1)
77
SourceSource

2004 2005 2006 2007 2008
Assets
Cash and balances with SBP and NBP 4 4 4 7 8
Balance with other banks/NBFIs/MFBs
1
4 54 40
1
9
1
9
Lending to Financial Institution
5
2
-
3 3
-
Investments net of provisions 9 13 4
1
9
1
3
Advances net of provisions
1
8 24 40
4
3
5
1
Operating fixed assets 1 1 4 6 5
Other assets 2 3 4 4 4
Deferred Tax Asset - - - - -
Total Assets
10
0
1
00
1
00
10
0
10
0
Liabilities
Deposits and other accounts
4
0 45 55
7
3
8
1
Borrowing - 7 - - 2
Other liabilities 1 1 2 3 3
Total Liabilities
4
1 53 57
7
6
8
6
Net Asset
5
9 47 43
2
4
1
4
78
Vertical Analysis of Balance SheetVertical Analysis of Balance Sheet

Represented by
Share Capital
5
7 45 39
2
4
1
6
Statutory and general reserves 0 0 0 0 0
Depositors Protection Fund
- -
0 0 0
Unappropriated profit 1 1 2 0
(
3)
5
8 46 42
2
4
1
4
(Deficit) / surplus on revaluation of
assets
(
0) 0 0
(
0)
(
0)
Deferred grants 0 0 0 0 0
Revolving fund for micro credit 0 1 1 0
-
Depositors Protection Fund 0 0
- - -
5
9 47 43
2
4
1
4
79
SourceSource

2,004 2,005 2,006 2,007 2,008
Markup/return /interest earned 66 85 98 95 99
Markup/return /interest expensed (8) (12) (19) (30) (31)
Net markup/interest income 58 73 80 65 68
Provision against non-performing loans and
advances
4 4 3 6 6
Provision for diminution in the value of
investments
- - - - -
Bad debts written off directly - - - - -
Net markup/interest income after provisions 4 4 3 6 6
54 69 76 59 62
Fee, commission and brokerage income 2 2 5 8 12
Grant income net of related expenses - - 1 3 0
Gain on sale/redemption of securities 28 4 - 1 0
Unrealized gain on revaluation of held for trading
securities net
- - - 1 -
Other income 5 12 0 0 1
Total non markup/not interest income 34 15 2 5 1
90 86 83 72 75
80
Vertical Analysis of Income
Statement
Vertical Analysis of Income
Statement

Administrative expenses 80 85 69 79 95
Other charges 0 0 - - -
Total non markup/not interest expenses 80 85 69 79 95
10 2 14 (7) (20)
(Loss) / Profit before taxation 10 2 14 (7) (20)
Taxation – Current 8 2 2 1 -
- Prior year - - 0 0 0
- Deferred (4) (1) 2 1 -
4 1 5 1 0
(Loss) / Profit after taxation 6 1 9 (8) (20)
Contribution to depositor protection fund 0 0 0 - -
(Loss) / Profit for the year after contribution 6 1 9 (8) (20)
Unappropriated profit brought forward 6 8 8 9 0
Profit available for appropriations 12 9 17 1 (20)
Appropriations
Transfer to statutory reserve 1 0 2 - -
Unappropriated profit carried forward 10 8 14 1 (20)
(Loss)/earnings per share (Rupee) 0 0 0 (0) (0)
81

With reference to the competitors we analysis and compare the following:-
 The First Micro Finance Bank Ltd (FMFB)
 Khushali Bank Ltd
 Development Action for Mobilization and Emancipation (DAMEN)
FMFB Khushali Bank DAMEN
Cash and balances with SBP and
NBP
332,676,17
3
87,610,48
8 71,654,262
Lending to financial institutions-
-
600,000,00
0
317,924,46
5
Investment
549,214,50
3
1,211,854,62
6 40,801,370
Advances
2,067,750,64
8
3,012,936,73
7 6,662,775
Fix Assets
195,984,33
8
157,587,12
9 21,943,056
Total Assets
4,094,252,77
0
6,685,742,41
2 459,300,928
Deposit
3,304,742,38
2
18,168,50
0 -
Borrowing
100,000,00
0
4,628,462,75
6 286,902,817
Total Liability
3,525,374,19
4
4,780,648,13
0 397,445,515
Net Asset
568,878,57
6
1,905,094,28
2
61,855,41
3
Profit
(106,593,21
9)
102,762,55
8 16,572,112
82
Organizational Analysis with reference to
competitors
Organizational Analysis with reference to
competitors

Future Prospect of the organization
Future Prospect of the organization is mention below:-
Growth and Outreach of Loan Product
2009 2010 2011
No of Loans Disbursed 379,228 541,373 709,070
Amount of Loans Disbursed–Pkr ‘000’
6,439,234
10,718,64
5 16,096,535
No of Outstanding Loans 332,159 474,023 659,398
Amount of Outstanding Loans–Pkr ‘000’ 4,263,132 7,129,531 11,724,500
No of Branches 92 98 108
No of PPOs 67 142 217
% of female borrowers 35% 38% 48%
Growth and Outreach of Deposit Product
2009 2010 2011
Amount of Deposits – Pkr in ‘000’ 6,343,641 8,679,040 11,693,130
Deposit Mix
Current 14% 14% 14%
PLS/MCM 23% 25% 26%
TDR 60% 56% 50%
Micro Savings 3% 4% 6%
Compulsory Savings 0% 1% 4%
Growth and Outreach of Branch Network
2009 2010 2011
No of Branches 92 98 108
Information Access
83
Recommendation and SuggestionRecommendation and Suggestion

The Bank should provide information to all the present and potential customers relating
to the new products, services, some service’s fee structure and other matters, which are
likely to affect the customers. It should be made sure that all the customers have access
to this information. Conveying information is of no use, unless, there is some feedback
from the customers. The following measures are suggested to implement this
suggestion.
 Brochures, hand outs, pamphlets and other printed reports must be provided
to customers, which should provide all the information necessary to attract
and retain customers and to satisfy the customer’s need for more
 Personal contacts with the customers can help in providing information to
customers. All the customers must be provided a chance to get the desired
information by personal contact with the Bank staff.
 Complaint and suggestion box should be maintained at the door of the Bank
where the customers can point out drawbacks in the customer’s services and
put forward their suggestions on his improvement of the services quality of
the Bank.
Performance Audit
The financial audit of the bank is conducted on regular basis both as a surprise and
routine audit. However, the performance and system audits are completely ignored
which, otherwise, should have been a compulsory part of the auditing services of the
Bank. The immediate outcome of ignoring performance outcome is shortcoming in the
non-financial aspects of this organization such as customer relations, lack of necessary
facilities, motivation of employees, and the control of manager.
In the light of the above facts it is suggested that the performance audit of the bank
must be carried out on both regular and surprise basis to keep the Bank competitive in
the run of for more customers, more deposits and high profitability.
84

Financial methodology
Banks need to acquire an appropriate financial methodology to service the micro-
enterprise sector – financial innovations that permit a cost-effective analysis of
creditworthiness, the monitoring of a large number of relatively poor clients, and the
adoption of effective collateral substitutes.
Cost-effectiveness
The First Micro Finance lending program is costly because of the small size of their
loans and because banks cannot operate them with their traditional mechanisms and
overhead structures, so I recommend that bank adopt cost effective strategy.
Micro-deposits
The First Micro Finance Bank relatively little about deposit mobilization
methodologies that reach the low income and micro-enterprise client. I recommend
following activity for deposit mobilization:-
 Open Liquid passbook savings accounts and low minimum balances.
 Depositories conveniently located
 Real, positive interest rates on deposits
 Incentive for saving such as lotteries.
Portfolio Diversification
The First Micro Finance Bank should diversify its portfolio into housing, health,
education, transport and security products.
Capital Market
The First Microfinance Bank is still in earlier stage of its development, and the
financial sustainability is also not satisfactory. In such situation, I recommend that bank
85

raise funds at economical cost either through debt or equity instruments of capital
markets.
86

S.No Organization Source Year
1 The First MicroFinanceBank Ltd. Annual Report 2004
6 Khushali Bank Ltd. Annual Report 2008
7 DAMEN Annual Report 2008
This bank has not published its Annual report after 2008. You can confirm from the
Finance Department.
17 Floor, HBL Tower, Blue Area
Islamabad.
87
ReferencesReferences
NoteNote

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