MOSTAFA SHAWKI & CO

MEDIUM. SMALL AND MICRO ENTERPRISES DEVELOPMENT AGENCYPROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT

FINANCED BY INTERNATIONAL DANKFOR RECONSTRUCTION AND DEVELOPMENT

LOAN NUMBER 8345-EGFINANCIAL STATEMENTS TOGETHER WITH

AUDITOR'S REPORTFOR THE PERIOD FROM JANUARY 1, 2017 TO DECEMBER 31, 2017

MAZARS

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MEDIUM, SMALL AND MICRO ENTERPRISES DEVELOPMENT AGENCYPROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT

FINANCED BY INTERNATIONAL BANKFOR RECONSTRUCTION AND DEVELOPMENT

LOAN NUMBER 8345-EGFINANCIAL STATEMENTS TOGETHER WITH

AUDITOR'S REPORTFOR THE PERIOD FROM JANUARY 1. 2017 TO DECEMBER 31, 2017

Table of Contents

Page No.

EXECUTIVE SUMMARY

1. Basis of Assignment 1

2. Objective of the audit I

3. Scope of audit work I

4. Report Limitation 3

STATEMENT OF THE PROJECT

Auditor's Report 4

Statement of Financial Position 5

Notes to the Financial Statements 6

Annexes:

Sources and uses of fund I

Cash withdrawals II

Cash forecasts III

Special account reconciliation IV

Variance analysis V

Bank Statements VI

MAZARS

MOSTAFA SHAWKI & CO

To Ms. Nevine GameaManaging directorMedium, Small and Micro Enterprises Development Agency

Dear Ms. Gamea,

This report presents the results of our audit of the financial statement of Promoting Innovationfor Inclusive Financial Access Project implemented by Medium, Small and Micro EnterprisesDevelopment Agency financed by International Bank for Reconstruction and Development forthe period from January 1, 2017 to December 31, 2017.

EXECUTIVE SUMMARY

1. Basis of the Assignment

Medium, Small and Micro Enterprises Development Agency has assigned Mazars MostafaShawki to conduct audit in accordance with Terms of Reference (TOR), as per objectives ofthe audit section below.

2. Objectives of the Audit

The primary objective of the audit engagement is to enable us to express professional opinionwhether the Project Financial Statements (PFS) show true and fair presentation of theProject's financial position for the period from January 1, 2017 to December 31, 2017 andfund receipts and expenditures incurred during the period then ending. To accomplish thisobjective, we will carry out whether necessary examinations of the statements and underlyingrecords and control systems. The audit opinion should also state whether the ProcurementGuidelines of the World Bank have been properly applied and in accordance with theProject's Agreement.

3. The scope of audit work

3.1 The audit of Project accounts and funds flow is considered as special purpose contractualagreement audit which in addition to compliance with International Standard on Auditing, theauditor need to consider the World Bank reporting requirements, compliance with the WorldBank Procurement Guidelines. The audit scope includes:

a. All funds provided to the Project have been used, accounted for and classified inaccordance with the relevant financing agreements;

b. Goods and services financed have been procured in accordance with the relevant financingagreement;

c. All necessary copy of supporting documents, records, and accounts have been kept inrespect of all project ventures. Clear linkages should exist between the books of accountand reports presented to the Bank;

153 MOHAMED FARID STREET, BANK MIsRTowER. P.O. Box 2095, CAIRO 11518, EcvPrTEL: (02) 2391 7299. 2390 1890 FAx: (02) 2393 9430E-mail: mshawkli@mshawki.com www.mazars.com.eg www.mshawki.com

MAZARS

MOSTAFA SHAWKI & CO

d. Where Special Accounts have been used, they have been maintained in accordance withthe provisions of the relevant financing agreement;

e. Compliance with specific covenants of the Loan Agreement and Project AppraisalDocument (e.g. compliance with the short-term and long-term borrowing conditions, cashflow covenant);

f. Determine eligibility of expenditures claimed under Statement of Expenditures submittedto the World Bank for replenishment. This is in addition to substantiation of theseexpenditures;

g. Audit all correspondences with the World Bank in relation to the Project including copiesof the Aide Memoires, Mission Reports, and assess progress on all financial issues.

h. In addition to point "g" above, we will audit of the Medium, Small and Micro EnterprisesDevelopment Agency internal Audit Reports concerning the project when determining thesample of NGOs and ultimate beneficiaries that will be visited under the audit operation.The sample selected should be on a risk-based approach using all the available reports andcorrespondence at the Medium, Small and Micro Enterprises Development Agency

i. At the level of ultimate beneficiary, selected within our sample, we will ensure thereasonability of the use of Operating Cost and that such Operating Cost is not used in highpercentages compared to the total amount of the loan provided and that such cost is inaccordance with the items specified under the legal agreements of the project.

3.2 In accordance with International Standards on Auditing, We will pay attention to thefollowing:

a. Fraud and Corruption: In accordance with ISA 240 (The Auditor's ResponsibilitiesRelating to Fraud in an Audit of Financial Statements) we will identify and evaluate risksrelated to fraud, obtain or provide sufficient evidence of analysis of these risks and assessproperly the risks identified or suspected;

b. Laws and Regulations: In preparing the audit approach and in executing the auditprocedures, we will evaluate the compliance with the provisions of laws and regulationsthat might impact significantly the PFSs as required by ISA 250 (Considerations of Lawsand Regulations in an Audit of Financial Statements);

c. Governance: Communicate with the Project Management responsible for Governanceregarding significant audit issues related to governance in accordance with ISA 260(Communication with those charged with Governance); and

d. Risks: With a view to reducing audit risks to a relatively low level, we will applyappropriate audit procedures and handle anomalies/risks identified during theirevaluation. This is in accordance with ISA 330 (The Auditor's Responses to AssessedRisks).

MAZARS

MOSTAFA SHAWKI & CO

4. Report Limitation

This report is intended solely for the use of the Medium, Small and Micro EnterprisesDevelopment Agency and International Bank for Reconstruction and Development. It is notauthorized to be used for any other purpose.

The attached report and procedures include details of the work performed, together withrelated fndi

y @urs,

A KI

MAZARS

MOSTAFA SHAWKI & CO

INDEPENDENT AUDITOR'S REPORT

To the management of Medium, Small and Micro Enterprises Development AgencyInternational Bank for Reconstruction and DevelopmentCairo, Egypt.Loan Agreement No. 8345-EG

We have audited the financial statements of Promoting Innovation for Inclusive Financial AccessProject financed by International Bank for Reconstruction and Development, under loanAgreement No. 8345-EG managed by Medium, Small and Micro Enterprises DevelopmentAgency, which comprise the statement of financial position, Sources and Uses of Fund, CashWithdrawals, Cash Forecast and Special Account Reconciliation as of December 31, 2017, andnotes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, thefinancial position of the Project as of December 31, 2017, Sources and Uses of Funds, CashWithdrawals, Cash Forecast and Special Account Reconciliation for the year then ended.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Ourresponsibilities under those standards are further described in the Auditor's Responsibilities forthe Audit of the Financial Statements section of our report. We are independent of the Project inaccordance with the ethical requirements that are relevant to our audit of the financial statements,and we have fulfilled our other ethical responsibilities in accordance with these requirements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements inaccordance with International Financial Reporting Standards, and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that arefree from material misstatement, whether due to fraud or error.In preparing the financial statements, management is responsible for assessing the Project'sability to continue as a going concern, disclosing, as applicable, matters related to going concernand using the going concern basis of accounting unless management either intends to liquidatethe Project or to cease operations, or has no realistic alternative but to do so.

153 MOHALM FARID STREEt, BANK MISR TOWER, P.O. Box 2095,CAino 11518, EcYPTTEL: (02) 2391 7299 - 2390 1890 FAx: (02) 2393 9430E-mail: mshawki@mshawki.com www.mazars.com.eg www mshawki.com

MAZARS

MOSTAFA SHAWKI & CO

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue anauditor's report that includes our opinion. Reasonable assurance is a high level of assurance, butis not a guarantee that an audit conducted in accordance with ISAs will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are consideredmaterial if, individually or in the aggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these financial statements.

The project management's policy is to prepare the accompanying statement using the cashreceipts and disbursements basis. Therefore, revenue is recognized when received rather thanwhen earned, and expenses are recognized when paid rather than when incurred, which is acomprehensive basis of accounting other than International Financial Reporting Standards.

Cairo, July 25, 2018

Au TAW

tS M WKI

MEDIUM, SMALL AND MICRO ENTERPRISES DEVELOPMENT AGENCYPROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT

FINANCED BY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTLOAN NUMBER 8345-EG

STATEMENT OF FINANCIAL POSITIONFOR THE PERIOD FROM JANUARY 1. 2017 TO DECEMBER 31, 2017

(Amount expressed in US Dollar)

Note For the period Cumulative sincefrom 1/1/2017 inception dateto 31/12/2017 Sep.30,2014

Assets:

Non-current assets

Long term loan (4) 13,993,387 284,702,787

Funds received 13,993,987 284,702,787

- The accompanying notes are an integral part of this financial position statement.- Auditor's report is attached

Chief Financial and Operations

MEDIUM, SMALL AND MICRO ENTERPRISES DEVELOPMENT AGENCYPROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT

FINANCED BY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTLOAN NUMBER 8345-EG

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD FROM JANUARY 1, 2017 TO DECEMBER 31, 2017

(Amount expressed in US Dollar)

1. BACKGROUND

The International Bank for Reconstruction and Development signed a loan agreementNo.8345-EG on April 12, 2012 with the government of the Arab Republic of Egyptrepresented by the Ministry of International Cooperation to expand access to finance formicro and small enterprises in The Arab Republic of Egypt. Medium, Small and MicroEnterprises Development Agency as an implementing entity for the implementation of theproject. The project will be implemented between April 12, 2012 and December 31, 2019 isthe agreement scheduled closed date.

The objectives of the project is to expand access to finance for micro and small enterprisesin the Arab Republic of Egypt, using innovative financing mechanisms, with a special focuson youth and women, as well as underserved regions.

The project consists of Line of credit - Establishment and operation of a line of credit by theproject implementing entity for the purpose of providing financing through participatingfinancial institutions to micro and small enterprises.

According to the Loan Number 8345-EG with the International Bank for Reconstruction andDevelopment (IBRD), Section (IV), schedule (2) "Project Execution" withdrawal of loanproceeds, by the borrower (Medium, Small and Micro Enterprises Development Agency)should adopt the following allocation of the amounts of the Loan to each category and thepercentage of expenditures for items to be financed in each category:

Category Amount of the Loan Percentage ofAllocated Expenditure

(expressed in USDI to be financed(1)Sub financing for subprojects 299,250,000 100%

(2)Interest rate cap or interest rate collar Amount due under Sectionpremium -- 2.07 of the loan agreement

Amount due under section(3) Front-end Fee 750,000 2.03 of this agreement in

accordance with section 2.07of the general conditions

TOTAL AMOUNT 300,000,000

Loans Repayment condition

The borrower shall repay the principal amount of the credit in the amount of US$ 300,000,000in semi-annual installments payable on each January 15 and July 15, commencing July 15,2021 and ending July 15, 2042. Each installment payable up to January 15, 2042 shall be2.33% of such principal amount and each installment thereafter shall be 2.14% of suchprincipal amount.

2. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the fund accountabilitystatement are as follows:

(2-1) Accounting Policies:

The financial statements have been prepared on the cash basis of accounting. On thisbasis revenues are recognized when received rather than when earned andexpenditures are recognized when paid rather than when incurred expect for cashforecast statement which was prepared according to the anticipated cashdisbursements during the next six months after the reporting date. The forecastedamount may be based and the future expectations of withdrawals based on theexperience of Medium, Small and Micro Enterprises Development Agency and theexpected installments to be transferred to the project financial intermediariesaccording to their relative signed or to be contracts.

(2-2) Foreign Currency

The project maintains its accounts in USD. Revenues are received in USD.Expenditures which represent amount delivered to intermediary institutions, were paidin LE and translated to USD with the exchange rates prevailed at the date oftransferring such amounts from Medium, Small and Micro Enterprises DevelopmentAgency to the project financial intermediaries. Expenditures that represent amounttransferred to end beneficiaries were paid in L.E and translated to USD using actualexchange rates prevailed at the date of transferring cash from Medium, Small andMicro Enterprises Development Agency to intermediary institutions using "First inFirst out method".

As for the cash forecast statements, forecasts are made in accordance to signed (orexpected to be signed) contracts with intermediary agencies in Egyptian pounds andare translated to USD using the prevailing rate at the date of reporting(US$=LE 17.8240).

3. SPECIAL ACCOUNT FOR (PIIFAP) NO 04/015/16759/4 :

The special account for PIIFAP amounted to US$ 8,016 as of December 31, 2017.

4. Amounts refunded from projects :

Code Project Amount L.E4727 Promotion of small enterprises ( leasing) 49,4754740 Promotion of SMEs SAIB 46,5084741 Promotion of SMEs (Audi)IDA- 4,653,144

Promoting Innovation4736 Mosharkah (United Bank) IDA-Promoting 4,631

InnovationTotal 4,753,758

The Medium , Small and Micro Enterprises Development Agency did record the refundedbalances from projects amounted to LE 4,753,758 equivalent to USD 543,779 in theMedium, Small and Micro Enterprises Development Agency Bank Account which isreported in the special account reconciliation due to the refunded amounts in EGP and thespecial account currency USD.

5. RECEIPTS FROM IBRD FUNDS

Receipts from IBRD Funds account represents the amount of withdrawals requests presentedby the management of Medium, Small and Micro Enterprises Development Agency to theWorld Bank.

The following details are the approved withdrawals requests:

Receipts from IDA Funds

Withdrawal request No. Receiving date US$

1 30/09/2014 81,245,6262 7/03/2015 53,670,9573 16/06/2015 53,943,0804 16/09/2015 17,091,2725 28/12/2015 9,009,6196 30/03/2016 55,196,2257 14/12/2016 552,6218 5/12/2017 13,993,387

Total fund received till 31/12/2017 284,702,787

Annex I: Sources and Uses of Fund Statement

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