Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697752519891.pdf (Georgia)
JSC Microfinance Organization Crystal Financial Statements for the year ended 31 December 2014 Contents Independent Auditors’ Report ....................................................................................................... 3 Statement of profit or loss and other comprehensive income ........................................................ 4 Statement of financial position ...................................................................................................... 5 Statement of cash flows ................................................................................................................. 6 Statement of changes in equity ...................................................................................................... 7 Notes to the financial statements ................................................................................................... 8 1 Background ............................................................................................................................. 8 2 Basis of preparation ................................................................................................................ 8 3 Significant accounting policies ............................................................................................... 9 4 Net interest income ............................................................................................................... 17 5 Other income ........................................................................................................................ 17 6 Other general administrative expenses ................................................................................. 18 7 Taxation ................................................................................................................................ 18 8 Cash and cash equivalents .................................................................................................... 20 9 Financial instruments at fair value through profit or
 loss ..................................................... 20 10 Loans to customers ............................................................................................................... 21 11 Property and equipment ........................................................................................................ 26 12 Intangible assets .................................................................................................................... 27 13 Other assets ........................................................................................................................... 27 14 Loans and borrowings .......................................................................................................... 28 15 Other liabilities ..................................................................................................................... 29 16 Share capital and reserves ..................................................................................................... 29 17 Risk management, corporate governance and internal control ............................................. 30 18 Capital management ............................................................................................................. 37 19 Operating leases .................................................................................................................... 38 20 Contingencies ....................................................................................................................... 38 21 Related party transactions ..................................................................................................... 39 22 Financial assets and liabilities: fair values and accounting classifications ........................... 39 23 Events after the reporting period .......................................................................................... 41 JSC Microfinance Organization Crystal Statement of Financial Position as
 at 31 December 2014 Notes 2014 GEL’000 2013 GEL’ ASSETS Cash and cash equivalents Financial instruments at fair value through profit or loss held by the Company Loans to customers: Principal Interest accrued Property and equipment Intangible assets Deferred tax assets Other assets Total assets LIABILITIES Loans and borrowings Principal Interest accrued Current tax liability Other liabilities Total liabilities EQUITY Share capital Share premium Retained earnings Total equity Total liabilities and equity The statement of financial position is to be read in conjunction with the notes to, and forming part of, the financial statements.
5 JSC Microfinance Organization Crystal Statement of Cash Flows for the year ended 31 December 2014 2014 2013 Note GEL’000 GEL’000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax Adjustments for: Net gain on financial instruments at fair value through profit or loss Depreciation and amortization Interest income Interest expenses Loan impairment charge Loss from exchange Loss on disposal of property and equipment Cash outflows from operating activities before changes in operating assets and liabilities Changes in: 4,066 2,526 (842) 909 (209) 587 (19,637) (12,567) 4,724 2,791 1,033 270 1,386 308 14 25 (8,347) (6,269) Increase in financial instruments at fair value through profit or loss (549) (86) Increase in loans to customers Increase in other assets Increase in other liabilities Cash used in operating activities Interest received Interest paid Income tax paid Cash used in operations CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment Purchases of intangible assets Cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Receipts from loans and borrowings Repayment of loans and borrowings Dividends paid Cash flows from financing activities Net increase (decrease) in cash and cash equivalents Effect of changes in exchange rates on cash and cash equivalents Cash and cash equivalents as at the beginning of the year (25,589) (16,214) (132) (461) (87) 187 (34,704) (22,843) 19,034 12,182 (3,911) (2,558) (563) (583) (20,144) (13,802) (1,758) (1,267) (181) (716) (1,939) (1,983) 46,143 20,470 (19,291) (6,060) (173) (322) 26,679 14,088 4,596 (1,697) 380 72 1,344 2,969 Cash and cash equivalents as at the end of the year 8 6,320 1,344 The statement of cash flows is to be read in conjunction with the notes to, and forming part of, the financial statements.
6 JSC Microfinance Organization Crystal Statement of Changes in Equity for the year ended 31 December 2014 GEL’000 Share capital Share premium Retained earnings Total Balance as at 1 January 2013 2,179 2,660 5,918 10,757 Profit and total comprehensive income for the year Transactions with owners, recorded directly in equity Dividends Total transactions with owners - - - - - - 2,212 2,212 (322) (322) (322) (322) Balance as at 31 December 2013 2,179 2,660 7,808 12,647 Balance as at 1 January 2014 2,179 2,660 7,808 12,647 - - 3,496 3,496 Profit and total comprehensive income for the year Transactions with owners, recorded directly in equity Issue of ordinary shares Issue of preference shares Dividends Total transactions with owners 20 9 - 29 (20) (9) - (29) - - - - (181) (181) (181) 11,123 (181) 15,962 Balance as at 31 December 2014 2,208 2,631 The statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the financial statements.
7 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 1 Background (a) Organization and operations JSC Microfinance Organization Crystal (“the Company”) was established on 23 August 2007 on the basis of the decision of the Crystal Fund (Board’s Resolution #20, 21 August 2007) according to the Georgian Law on Microfinance Organizations dated 18 July 2006.

The legal address of the Company is 72 Tamar Mepe Strеet, Kutaisi, Georgia.
The supreme governing body of the Company is the General Meeting of Shareholders.

The supervision of the Company’s operations is conducted by the Supervisory Board, members of which are appointed by the General Meeting of Shareholders.

Daily management of the Company is carried out by the Board of Directors appointed by the Supervisory Board.
The Company objectives are to support and develop micro, small and medium businesses in Georgia, to improve the social and economic conditions of clients by providing them with accessible financial services.

The main activity of the Company is micro lending.

The Company’s financial products are: individual business loans, agro loans, consumer loans, pawnshop loans, housing loans, company loans, etc.

The Company has twenty seven branches around Georgia and the head office is located in Kutaisi.
The Company’s parent and ultimate controlling party with 73.18% of the voting rights is Crystal Fund.

Related party transactions are described in detail in note 21.

(b) Georgian business environment The Company’s operations are located in Georgia.

Consequently, the Company is exposed to the economic and financial markets of Georgia, which display emerging-market characteristics.
Legal, tax and regulatory frameworks continue to develop, but are subject to varying interpretations and frequent changes that, together with other legal and fiscal impediments, contribute to the challenges faced by entities operating in Georgia.

The financial statements reflect management’s assessment of the impact of the Georgian business environment on the operations and financial position of the Company.

The future business environment may differ from management’s assessment.
2 Basis of preparation (a) Statement of compliance The accompanying financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).

(b) Basis of measurement The financial statements are prepared on the historical cost basis except that financial instruments at fair value through profit or loss.
8 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 (c) Functional and presentation currency The functional currency of the Company is the Georgian Lari (GEL) as, being the national currency of Georgia, it reflects the economic substance of the majority of underlying events and circumstances relevant to them.

The GEL is also the presentation currency for the purposes of these financial statements.
Financial information presented in GEL is rounded to the nearest thousands, except when otherwise indicated.

(d) Use of estimates and judgments The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

Actual results could differ from those estimates.


Estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies is described in the following notes: loan impairment estimates - note 10; • • classification of loans in local currency collateralized by deposits in foreign currency as derivatives - currency contracts – note 9 (a).
3 Significant accounting policies The accounting policies set out below are applied consistently to all periods presented in these financial statements (a) Foreign currency Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.
The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value is determined.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in profit or loss.
9 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 (b) Cash and cash equivalents Cash and cash equivalents include notes and coins on hand and unrestricted current accounts held with banks with original maturities of less than three months.

Cash and cash equivalents are carried at amortised cost in the statement of financial position.
(c) Financial instruments (i) Classification Financial instruments at fair value through profit or loss are financial assets or liabilities that are: - - - - acquired or incurred principally for the purpose of selling or repurchasing in the near term part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking derivative financial instruments (except for a derivative that is a financial guarantee contract or a designated and effective hedging instruments) or, upon initial recognition, designated as at fair value through profit or loss.
The Company may designate financial assets and liabilities at fair value through profit or loss where either: - - - the assets or liabilities are managed, evaluated and reported internally on a fair value basis the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise or, the asset or liability contains an embedded derivative that significantly modifies the cash flows that would otherwise be required under the contract.
All trading derivatives in a net receivable position (positive fair value), as well as options purchased, are reported as assets.

All trading derivatives in a net payable position (negative fair value), as well as options written, are reported as liabilities.

Management determines the appropriate classification of financial instruments in this category at the time of the initial recognition.
Derivative financial instruments and financial instruments designated as at fair value through profit or loss upon initial recognition are not reclassified out of at fair value through profit or loss category.

Financial assets that would have met the definition of loans and receivables may be reclassified out of the fair value through profit or loss or available-for-sale category if the Group has an intention and ability to hold them for the foreseeable future or until maturity.
Other financial instruments may be reclassified out of at fair value through profit or loss category only in rare circumstances.

Rare circumstances arise from a single event that is unusual and highly unlikely to recur in the near term.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that the Company: intends to sell immediately or in the near term upon initial recognition designates as at fair value through profit or loss upon initial recognition designates as available-for-sale or, - - - - may not recover substantially all of its initial investment, other than because of credit deterioration.
Management determines the appropriate classification of financial instruments at the time of the initial recognition.

10 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The Company classifies non-derivative financial assets into loans and receivables category, which consists of loans to customers and cash and cash equivalents.
The Company classifies non-derivative financial liabilities into the other financial liabilities category.

Other financial liabilities comprise loans and borrowings and other payables.

(ii) Recognition Financial assets and liabilities are recognized in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

All regular way purchases of financial assets are accounted for at the settlement date.
(iii) Measurement A financial asset or liability is initially measured at its fair value plus, in the case of a financial asset or liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability.
Subsequent to initial recognition, financial assets, including derivatives that are assets, are measured at their fair values, without any deduction for transaction costs that may be incurred on their sale or other disposal, except for loans and receivables which are measured at amortized cost using the effective interest method.
All financial liabilities, other than those designated at fair value through profit or loss and financial liabilities that arise when a transfer of a financial asset carried at fair value does not qualify for derecognition, are measured at amortized cost.
(iv) Amortized cost The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.
Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortized based on the effective interest rate of the instrument.
(v) Fair value measurement principles Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Company has access at that date.

The fair value of a liability reflects its non-performance risk.
When available, the Company measures the fair value of an instrument using quoted prices in an active market for that instrument.

A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

When there is no quoted price in an active market, the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
The chosen valuation technique incorporates all the factors that market participants would take into account in these circumstances.

11 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price, i.e., the fair value of the consideration given or received.
If the Company determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price.
Subsequently, that difference is recognized in profit or loss on an appropriate basis over the life of the instrument, but no later than when the valuation is supported wholly by observable market data or the transaction is closed out.
(vi) Gains and losses on subsequent measurement A gain or loss on a financial instrument classified as at fair value through profit or loss is recognized in profit or loss For financial assets and liabilities carried at amortized cost, a gain or loss is recognized in profit or loss when the financial asset or liability is derecognized or impaired, and through the amortization process.
(vii) Derecognition The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset.
Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Company is recognized as a separate asset or liability in the statement of financial position.

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.

The Company writes off assets deemed to be uncollectible.

(viii) Derivative financial instruments Derivative financial instruments include foreign currency contracts.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value.

All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.

Changes in the fair value of derivatives are recognised immediately in profit or loss.

Although the Company has derivative instruments for risk hedging purposes, these instruments do not qualify for hedge accounting.
(ix) Offsetting Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
12 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 (d) Property and equipment (i) Owned assets Items of property and equipment are stated at cost less accumulated depreciation and impairment losses.

Where an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment.
(ii) Depreciation Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of the internally individual assets.

Depreciation commences on the date of acquisition or, in respect of constructed assets, from the time an asset is completed and ready for use.
The estimated useful lives are as follows: - buildings - vehicles - furniture - IT equipment - leasehold improvements - other 30 years 5 years 3 to 6 years 3 to 6 years 3 to 5 years 2 to 6 years Leasehold improvements are depreciated over the shorter of the lease term and their useful lives.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(iii) Subsequent expenditure The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the entity, and its cost can be measured reliably.

The carrying amount of the replaced component is derecognised.

The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
(e) Intangible assets Acquired intangible assets are stated at cost less accumulated amortisation and impairment losses.

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of intangible assets.

The estimated useful lives range from 5 to 10 years.
(f) Impairment The Company assesses at the end of each reporting period whether there is any objective evidence that a financial asset or Company of financial assets is impaired.

If any such evidence exists, the Company determines the amount of any impairment loss.
13 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial asset (a loss event) and that event (or events) has had an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, breach of loan covenants or conditions, restructuring of financial asset or Company of financial assets that the Company would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, deterioration in the value of collateral, or other observable data related to a Company of assets such as adverse changes in the payment status of borrowers in the group, or economic conditions that correlate with defaults in the group.
(i) Financial assets carried at amortized cost Financial assets carried at amortized cost consist principally of loans and other receivables.

The Company reviews its loans and receivables to assess impairment on a regular basis.

The Company first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for loans and receivables that are not individually significant.
If the Company determines that no objective evidence of impairment exists for an individually assessed loan or receivable, whether significant or not, it includes the loan or receivable in a Company of loans and receivables with similar credit risk characteristics and collectively assesses them for impairment.

Loans and receivables that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on a loan or receivable has been incurred, the amount of the loss is measured as the difference between the carrying amount of the loan or receivable and the present value of estimated future cash flows including amounts recoverable from guarantees and collateral discounted at the loan or receivable’s original effective interest rate.
Contractual cash flows and historical loss experience adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating expected cash flows.

In some cases the observable data required to estimate the amount of an impairment loss on a loan or receivable may be limited or no longer fully relevant to current circumstances.
This may be the case when a borrower is in financial difficulties and there is little available historical data related to similar borrowers.

In such cases, the Company uses its experience and judgment to estimate the amount of any impairment loss.

All impairment losses in respect of loans and receivables are recognized in profit or loss and are only reversed if a subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized.
When a loan is uncollectable, it is written off against the related allowance for loan impairment.

The Company writes off a loan balance (and any related allowances for loan losses) when management determines that the loans are uncollectible and when all necessary steps to collect the loan are completed.
14 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 (ii) Non financial assets Other non financial assets, other than deferred taxes, are assessed at each reporting date for any indications of impairment.

The recoverable amount of non financial assets is the greater of their fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is recognized when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

All impairment losses in respect of non financial assets are recognized in profit or loss and reversed only if there has been a change in the estimates used to determine the recoverable amount.
Any impairment loss reversed is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognized.

(g) Share capital and share premium (i) Ordinary shares Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.
(ii) Preference share capital Preference share capital that is non-redeemable is classified as equity.

(iii) Share premium When share capital is increased, any difference between the registered amount of share capital and the fair value of actual consideration received is recognized as share premium.

(iv) Dividends The ability of the Company to declare and pay dividends is subject to the rules and regulations of the Georgian legislation.
Dividends in relation to ordinary shares are reflected as an appropriation of retained earnings in the period when they are declared.

(h) Taxation Income tax comprises current and deferred tax.

Income tax is recognised in profit or loss except to the extent that it relates to items of other comprehensive income or transactions with shareholders recognised directly in equity, in which case it is recognised within other comprehensive income or directly within equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
15 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 Deferred tax assets and liabilities are recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets and liabilities are not recognised for the initial recognition of assets or liabilities that affect neither accounting nor taxable profit.
The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the temporary differences, unused tax losses and credits can be utilized.

Deferred tax assets are reduced to the extent that taxable profit will be available against which the deductible temporary differences can be utilized.

(i) Income and expense recognition Interest income and expense are recognized in profit or loss using the effective interest method.
Loan origination fees, loan servicing fees and other fees that are considered to be integral to the overall profitability of a loan, together with the related transaction costs, are deferred and amortized to interest income over the estimated life of the financial instrument using the effective interest method.

Other fees, commissions and other income and expense items are recognized in profit or loss when the corresponding service is provided.
Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease.

Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

(j) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective as at 31 December 2014, and are not applied in preparing these financial statements.
Of these pronouncements, potentially the following will have an impact on the financial position and performance.

The Company plans to adopt these pronouncements when they become effective.

• IFRS 9 Financial Instruments is to be issued in phases and is intended ultimately to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement.
The first phase of IFRS 9 was issued in November 2009 and relates to the classification and measurement of financial assets.

The second phase regarding the classification and measurement of financial liabilities was published in October 2010.

The third phase of IFRS 9 was issued in November 2013 and relates to general hedge accounting.

The standard was finalized and published in July 2014.

The final phase relates to a new expected credit loss model for calculating impairment.
The Company recognizes that the new standard introduces many changes to accounting for financial instruments and is likely to have a significant impact on the financial statements.

The Company has not analyzed the impact of these changes yet.

The Company does not intend to adopt this standard early.

The standard will be effective for annual periods beginning on or after 1 January 2018 and will be applied retrospectively with some exemptions.
16 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 • Various Improvements to IFRS are dealt with on a standard-by-standard basis.

All amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than 1 January 2014.

The Company has not yet analyzed the likely impact of the improvements on its financial position or performance.
4 Net interest income Interest income Loans to customers Cash and cash equivalents Interest expenses Loans and borrowings 2014 GEL’000 2013 GEL’000 19,594 12,528 43 39 19,637 12,567 (4,724) (2,791) (4,724) (2,791) 14,913 9,776 Included within various line items under interest income for the year ended 31 December 2014 is a total of GEL 420 thousand (2013: GEL 233 thousand) accrued on impaired financial assets.
5 Other income Income from penalties Other income 2014 GEL’000 2013 GEL’000 394 3 280 40 397 320 17 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 6 Other general administrative expenses Operating lease rentals Utilities and communication Consumables and office supplies Marketing and advertising Fuel Membership fees Legal and other professional services Bank charges Personnel training and recruitment Security Business trips Repairs and maintenance Insurance Taxes other than on income Charity Loss on disposal of property and equipment and intangible assets Other 7 Taxation 2014 GEL’000 2013 GEL’ Current year Movement in deferred tax assets and liabilities due to origination and reversal of temporary differences Total income tax expense 2014 GEL’000 2013 GEL’000 876 515 (306) (201) 570 314 In 2014, the applicable tax rate for current and deferred tax is 15% (2013: 15%).
Reconciliation of effective tax rate for the year ended 31 December: Profit before tax Income tax at the applicable tax rate Non taxable income 2014 2013 GEL’000 % GEL’000 % 4,066 100 2,526 100 610 (40) 570 15 (1) 14 379 (65) 314 15 (3) 12 18 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 (a) Deferred tax assets and liabilities Temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes give rise to net deferred tax assets as at 31 December 2014 and 2013.
The deductible temporary differences do not expire under current tax legislation.
Movements in temporary differences during the years ended 31 December 2014 and 2013 are presented as follows: GEL’000 Loans to customers Property and equipment Intangible assets Loans and borrowings Other liabilities GEL’000 Loans to customers Property and equipment Intangible assets Loans and borrowings Other liabilities Balance Recognized in Balance 1 January 2014 profit or loss 31 December 2014 216 261 477 3 (13) (10) (13) (2) (15) - 58 58 21 2 23 227 306 533 Balance Recognized in Balance 1 January 2013 profit or loss 31 December 2013 16 200 5 (2) 216 3 (2) (11) (13) (10) 10 - 17 4 21 26 201 227 (b) Recognized deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: GEL’000 Assets Liabilities Net 2014 2013 2014 2013 2014 2013 Loans to customers Property and equipment Intangible assets Loans and borrowings Other liabilities Net tax (assets)/liabilities 477 216 - - 58 23 558 3 - - 21 240 - (10) (15) - - - - (13) - - (25) (13) 477 (10) (15) 58 23 533 216 3 (13) - 21 227 19 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 8 Cash and cash equivalents Bank balances Cash on hand 2014 GEL’000 3,197 3,123 Total cash and cash equivalents 6,320 No cash and cash equivalents are impaired or past due.
2013 GEL’000 426 918 1,344 As at 31 December 2014 the majority of the Company’s cash in banks is with banks rated by Fitch as B (short-term rating), BB- (long-term rating), BB (long-term rating) and B (long-term rating).

9 Financial instruments at fair value through profit or loss ASSETS Derivative financial instruments Foreign currency contracts 2014 GEL’000 2013 GEL’000 1,742 351 Financial instruments at fair value through profit or loss comprise foreign currency contracts.
No financial assets at fair value through profit or loss are past due or impaired.

(a) Foreign currency contracts The Company aggregates non-derivative transactions of back to back loans from banks guaranteed by foreign currency deposits placed at the same banks as derivative instruments (foreign currency contracts), due to the fact that the transactions (placement of deposit and taking of the loan) result, in substance, in a derivative.
The conclusion is based on the following indicators: - - - - - they are entered into at the same time and in contemplation of one another; they have the same counterparty; they relate to the same risk; there is no apparent economic need or substantive business purpose for structuring the transactions separately that could not also have been accomplished in a single transaction; there is an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors, and future settlement.
20 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The table below summarizes the contractual amounts outstanding at 31 December 2014 and 2013 with remaining periods to maturity.

Foreign currency amounts presented below are translated at rates ruling at the reporting date.
The resultant unrealised gains and losses on these unmatured contracts are recognized in profit or loss and in financial instruments at fair value through profit or loss, as appropriate.
Sell USD buy GEL Less than 3 months Between 3 and 12 months More than 1 year Sell EUR buy GEL More than 1 year 10 Loans to customers Principal Interest Total loans to customers Loans to retail customers Agriculture Service Trade Consumer Pawn shop Manufacture Total loans to retail customers Gross loans to customers Impairment allowance Net loans to customers Notional amount 2014 GEL’000 2013 GEL’000 4,151 16,513 932 21,596 3,398 24,994 - 4,341 1,736 6,077 - 6,077 2014 GEL’000 2013 GEL’000 69,674 43,390 1,443 861 71,117 44,251 23,672 15,903 17,010 10,040 13,012 7,834 10,932 5,622 5,617 3,962 2,400 1,548 72,643 44,909 (1,526) (658) 71,117 44,251 21 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The loans to customers are classified by types based on a combination of factors (mainly the income source of the borrowers and the purpose of the loan).
Loans taken by individual business owners for consumer purposes are presented in relevant categories according to the business activity types of the borrowers (Trade, Service, and Agriculture).
Movements in the loan impairment allowance for the year ended 31 December 2014 are as follows: Balance at the beginning of the year Net charge for the year Written off for the year Recoveries Balance at the end of the year 2014 GEL’000 2013 GEL’000 658 447 1,033 270 (342) (194) 177 1,526 135 658 The following table provides information by types of loan products as at 31 December 2014: Loans to retail customers: Agriculture Service Trade Consumer Pawn shop Manufacture Gross amount GEL’000 Impairment allowance GEL’000 Carrying amount GEL’000 23,672 (714) 22,958 17,010 (315) 16,695 13,012 (219) 12,793 10,932 (136) 10,796 5,617 (101) 5,516 2,400 (41) 2,359 Total loans to customers 72,643 (1,526) 71,117 The following table provides information by types of loan products as at 31 December 2013: Loans to retail customers: Agriculture Service Trade Consumer Pawn shop Manufacture Gross amount GEL’000 Impairment allowance GEL’000 Carrying amount GEL’000 15,903 (260) 15,643 10,040 (125) 9,915 7,834 (106) 7,728 5,622 (62) 5,560 3,962 (87) 3,875 1,548 (18) 1,530 Total loans to customers 44,909 (658) 44,251 22 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 (a) Credit quality of loans to customers The following table provides information on the credit quality of loans to customers as at 31 December 2014: Loans to retail customers Agriculture loans - not overdue - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days -restructured Total agriculture loans Service loans - not overdue - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days Total service loans Trade loans - not overdue - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days Total trade loans Consumer loans - not overdue - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days Total consumer loans Pawn shop loans - not overdue - overdue less than 30 days - overdue 90-179 days Total pawn shop loans Manufacture loans - not overdue
 - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days Total manufacture loans Gross loans GEL’000 Impairment allowance GEL’000 Net loans GEL’000 22,543 273 330 209 317 (231) (66) (93) (169) (155) 22,312 207 237 40 162 Impairment allowance to gross loans, % 1% 24% 28% 81% 49% 23,672 (714) 22,958 3.02% 16,830 79 72 29 (241) (20) (33) (21) 16,589 59 39 8 1% 25% 46% 72% 17,010 (315) 16,695 1.85% 12,874 56 40 42 (162) (14) (28) (15) 12,712 42 12 27 1% 25% 70% 36% 13,012 (219) 12,793 1.68% 10,877 28 12 15 (115) (7) (7) (7) 10,762 21 5 8 1% 25% 58% 47% 10,932 (136) 10,796 1.24% 5,427 177 13 (54) (43) (4) 5,617 (101) 5,373 134 9 5,516 2,356 32 7 5 (25) (9) (5) (2) 2,331 23 2 3 1% 24% 33% 1.80% 1% 28% 71% 40% 2,400 (41) 2,359 1.71% Total loans to customers 72,643 (1,526) 71,117 2.10% 23 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The following table provides information on the credit quality of the loans to customers as at 31 December 2013: Gross loans GEL’000 Impairment allowance GEL’000 Net loans GEL’000 Impairment allowance to gross loans, % Loans to retail customers Agriculture loans - not overdue - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days -restructured Total agriculture loans Service loans - not overdue - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days Total service loans Trade loans - not overdue - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days Total trade loans Consumer loans - not overdue - overdue less than 30 days - overdue 30-89 days - overdue 90-179 days Total consumer loans Pawn shop loans - not overdue - overdue less than 30 days - overdue 30-89 days Total pawn shop loans Manufacture loans - not overdue - overdue less than 30 days - overdue 30-89 days Total manufacture loans 15,651 71 151 19 11 15,903 (157) (17) (69) (12) (5) (260) 15,494 54 82 7 6 15,643 9,983 24 14 19 10,040 (100) (6)
 (6) (13) (125) 9,883 18 8 6 9,915 7,741 72 16 5 7,834 (78) (17) (7) (4) (106) 7,663 55 9 1 7,728 5,606 9 5 2 5,622 (57) (2) (2) (1) (62) 5,549 7 3 1 5,560 3,757 203 2 3,962 (37) (49) (1) (87) 3,720 154 1 3,875 1,538 8 2 1,548 (15) (2) (1) (18) 1,523 6 1 1,530 Total loans to customers 44,909 (658) 44,251 (b) Key assumptions and judgments for estimating loan impairment (i) Loans to retail customers The Company does not have individually significant loans.
Management estimates loan impairment for loans to retail customers based on its past historical loss experience.

The significant assumptions used by management in determining the impairment losses for loans to retail customers include: overdue payments under the loan agreement, significant difficulties in the financial conditions of the borrower and realisability of related collateral, if any.
24 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 In determining the impairment allowance for loans not past due, management creates a collective provision of 1% considering the economic environment and market loss experience.

Changes in this estimate could affect the loan impairment provision.
For example, to the extent that the net present value of the estimated cash flows differs by plus minus three percent, the impairment allowance on loans to retail customers as at 31 December 2014 would be GEL 2,179 thousand lower/higher (2013: GEL 1,347 thousand).
(c) Analysis of collateral and other credit enhancements (i) Loans to retail customers The following table provides the analysis of the loan portfolio, net of impairment: Loans with no collateral Loans with collateral Total 2014 GEL’000 % of loan portfolio 49,089 22,028 71,117 69% 31% 100% 2013 GEL’000 30,790 13,461 44,251 % of loan portfolio 70% 30% 100% Loans with collateral are mainly secured by real estate, movable property and precious metals.
In addition, the majority of the loans are collateralized by sureties.

Secured loans are mainly included in the pawn shop, service, trade and agro loan categories.

The Company’s policy is to issue such loans with a loan-to-value ratio at the date of loan issuance of a maximum of 60%.
Management estimates that the fair value of collateral estimated at the inception of the loans is at least equal to the carrying amounts of corresponding secured loans as at 31 December 2014 and 2013, excluding the effect of overcollateralization.

Due to the low loan-to-value ratio, the management does not expect any possible negative movements in market prices to have a significant impact on recoverability of the loans.
Sureties received from individuals are not considered for impairment assessment purposes.

Accordingly, such loans and unsecured portions of partially secured exposures are presented as loans without collateral.

Repossessed assets are presented in other assets (see note 13).

(d) Loan maturities The maturity of the loan portfolio is presented in note 17(d), which shows the remaining period from the reporting date to the contractual maturity of the loans.
25 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 11 Property and equipment GEL’000 Cost Balance at 1 January 2014 Additions Disposals Balance at 31 December 2014 Depreciation Balance at 1 January 2014 Depreciation for the year Disposals Balance at 31 December 2014 Carrying amount At 31 December 2014 GEL’000 Cost Balance at 1 January 2013 Additions Disposals Balance at 31 December 2013 Depreciation Balance at 1 January 2013 Depreciation for the year Disposals Balance at 31 December 2013 Carrying amount At 1 January 2013 At 31 December 2013 Buildings Vehicles Furniture IT equipment Leasehold improvements Other Total 95 105 221 - 28 136 - - (1) 701 377 - 1,081 854 (31) 747 363 (21) 2,950 1,758 (53) 95 133 356 1,078 1,904 1,089 4,655 (92) (23) (66) (3) (18) (67) 1 - - (312) (149) - (344) (259) 16 (361) (273) 21 (1,198) (769) 38 (26) (84) (158) (461) (587) (613) (1,929) 69 49 198 617 1,317 476 2,726 Buildings Vehicles Furniture IT equipment Leasehold improvements Other Total 95 - - 77 28 - 126 100 (5) 95 105 221 527 180 (6) 701 565 556 (40) 396 403 (52) 1,786 1,267 (103) 1,081 747 2,950 (20) (52) (59) (37) 4 (14) - (3) - (212) (105) 5 (213) (151) 20 (208) (202) 49 (764) (512) 78 (23) (66) (92) (312) (344) (361) (1,198) 75 72 25 39 67 129 315 389 352 737 188 386 1,022 1,752 Other property and equipment mainly consist of security systems and generators.
There are no capitalized borrowing costs related to the acquisition or construction of plant and equipment during 2014 (2013: nil).
26 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 12 Intangible assets GEL’000 Cost Balance at 1 January 2013 Additions At 31 December 2013 Additions Disposals At 31 December 2014 Amortization Balance at 1 January 2013 Amortization for the year Balance at 31 December 2013 Amortization for the year Disposals Balance at 31 December 2014 Carrying amounts At 1 January 2013 At 31 December 2013 At 31 December 2014 13 Other assets Other receivables Total other financial assets Repossessed assets Prepayments Prepayments for non-current assets Total other non-financial assets Total other assets Computer software 323 716 1,039 181 (1) 1,219 (112) (75) (187) (140) 1 (326) 211 852 893 2014 GEL’000 2013 GEL’000 205 33 205 33 252 168 435 190 8 323 695 681 900 714 27 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 14 Loans and borrowings This note provides information about the contractual terms of interest-bearing loans and borrowings which are measured at amortized cost.
For more information about exposure to interest rate, foreign currency and liquidity risks, see note 17.
Principal Interest accrued The Company’s major lenders include: Non-current liabilities Unsecured loans from financial institutions Current liabilities Unsecured loans from financial institutions Unsecured loans from related party Total loans and borrowings (a) Subordinated borrowings 2014 GEL’000 2013 GEL’000 66,530 35,776 1,017 582 67,547 36,358 2014 GEL’000 2013 GEL’000 40,526 22,153 27,021 12,530 - 1,675 27,021 14,205 67,547 36,358 As at 31 December 2014 subordinated borrowings included in unsecured loans from financial institutions comprise loans received from an international financial organization amounting to GEL 4,361 thousand (2013: GEL 4,336 thousand) with an annual interest rate of 11% (2013: 11%).
In case of bankruptcy, the repayment of the subordinated borrowings will be made after repayment in full of all other liabilities of the Company.
(b) Terms and debt repayment schedule Terms and conditions of outstanding loans are as follows: Unsecured loans from financial institutions Unsecured loans from financial institutions Unsecured loans from financial institutions Unsecured loan from Ministry of Finance Unsecured loan from Ministry of Finance Unsecured loan from related party Total interest bearing liabilities 2014 2013 Currency Nominal interest rate Year of maturity Face value Carrying amount Face value Carrying amount USD GEL EUR 7.25-10% 2013-2017 9-13.5% 2013-2019 6.50% 2017 53,065 53,065 26,950 26,950 10,454 10,454 6,825 6,825 3,424 3,424 - - GEL 2%+inflation 2019 USD 2%+6m Libor 2019 GEL 12% 2014 313 313 381 291 291 527 381 527 - - 1,675 1,675 67,547 67,547 36,358 36,358 28 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 15 Other liabilities Other payables Total other financial liabilities Accruals for employee compensation Taxes other than on income Other non-financial liabilities Total other non-financial liabilities Total other liabilities 16 Share capital and reserves (a) Share capital and share premium Shareholder Fund Crystal DWM Funds S.C.A-SICAV SIF Keith Young Number of shares 1,475,593 485,555 55,305 DWM Funds S.C.A-SICAV SIF 191,177 2,207,630 2014 GEL’000 2013 GEL’000 191 191 153 11 16 180 371 294 294 112 36 6 154 448 Common/ non-redeemable preference Share % Common Common Common Non-redeemable preference Voting rights 73.18% 24.08% 2.74% 66.84% 21.99% 2.51% Capital GEL 1,475,593 485,555 55,305 8.66% 100% - 100% 191,177 2,207,630 All shares have a nominal value of GEL 1 and are fully paid.
All ordinary shares rank equally with regard to the Company’s residual assets.

Preference shares participate only to the extent of the face value of the shares, adjusted for any dividends in arrears.

Each preference share carries an option for conversion into common shares of the Company.

Holders of non-redeemable cumulative preference shares are entitled to receive an annual cumulative dividend (subject to the laws of Georgia on dividend distribution below).
The preference shares do not carry the right to vote.

(b) Dividends The holders of common shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at annual and general meetings of the Company.

In accordance with Georgian legislation the Company’s distributable reserves are limited to the balance of retained earnings as recorded in the Company’s statutory financial statements prepared in accordance with IFRS.
In 2014, dividends of GEL181 thousand were declared to common shareholders.

(2013: GEL 322 thousand), amounting to GEL 0.090 per share.

29 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 17 Risk management, corporate governance and internal control Management of risk is fundamental to the business and is an essential element of the Company’s operations.
The major risks faced by the Company are those related to market risk, credit risk and liquidity risk.

(a) Risk management policies and procedures The risk management policies aim to identify, analyse and manage the risks faced by the Company, to set appropriate risk limits and controls, and to continuously monitor risk levels and adherence to limits.
Risk management policies and procedures are reviewed regularly to reflect changes in market conditions, products and services offered and emerging best practice.

The Supervisory Board, together with its committees, has overall responsibility for the oversight of the risk management framework, overseeing the management of key risks and reviewing its risk management policies and procedures as well as approving significantly large exposures.
The Company’s Executive Board Risk Committee and the Finance Department are responsible for monitoring and implementation of risk mitigation measures and making sure that the Company operates within the established risk parameters.

The Head of the Risk Department is responsible for the overall risk management and compliance functions, ensuring the implementation of common principles and methods for identifying, measuring, managing and reporting both financial and non- financial risks.
He reports directly to the Executive Board.

Credit, market and liquidity risks both at the portfolio and transactional levels are managed and controlled through a system of Credit Committees and an Asset and Liability Management Committee (ALCO).

In order to facilitate efficient and effective decision-making, the Company established a hierarchy of credit committees depending on the type and amount of the exposure.
Both external and internal risk factors are identified and managed throughout the organization.

Particular attention is given to identifying the full range of risk factors and determination of the level of assurance over the current risk mitigation procedures.

Apart from the standard credit and market risk analysis, the Risk Department monitors financial and non-financial risks by holding regular meetings with operational units in order to obtain expert judgments in their areas of expertise.
(b) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.

Market risk comprises currency risk, interest rate risk and other price risks.

Market risk for the Company arises from open positions in interest rate financial instruments, which are exposed to general and specific market movements and changes in the level of volatility of foreign currency rates.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimizing the return on risk.

Overall authority for market risk is vested in the ALCO.

The Company manages its market risk by setting open position limits in relation to financial instruments, interest rate maturity and currency positions.

These are monitored on a regular basis and reviewed by the Executive Board and approved by the Supervisory Board.
30 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 (i) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company is exposed to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.
Interest margins may increase as a result of such changes, but may also reduce or create losses in the event that unexpected movements occur.

Interest rate gap analysis Interest rate risk is managed principally through monitoring interest rate gaps.
A summary of the interest gap position for major financial instruments is as follows: GEL’000 31 December 2014 ASSETS Cash and cash equivalents Loans to customers LIABILITIES Loans and borrowings 31 December 2013 ASSETS Cash and cash equivalents Loans to customers LIABILITIES Loans and borrowings Less than 3 months 3-6 months 6-12 months 1-5 years More than 5 years Non- interest bearing Carrying amount 695 6,991 - 3,114 - 13,746 - 47,059 - 207 5,625 - 6,320 71,117 7,686 3,114 13,746 47,059 207 5,625 77,437 6,547 6,687 13,787 40,526 - - 67,547 1,139 (3,573) (41) 6,533 207 5,625 9,890 11 10,371 - 6,753 - 12,000 - 15,127 - - 1,333 - 1,344 44,251 10,382 6,753 12,000 15,127 - 1,333 45,595 1,785 6,866 5,554 22,153 8,597 (113) 6,446 (7,026) - - - 36,358 1,333 9,237 31 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 Average effective interest rates The table below displays average effective interest rates for interest-bearing assets and liabilities as at 31 December 2014 and 2013.
These interest rates are an approximation of the yields to maturity of these assets and liabilities.
2014 2013 Average effective interest rate, % Average effective interest rate, % GEL USD EUR GEL USD 37% 31% - 39% 31% Interest bearing assets Loans to customers Interest bearing liabilities Loans and borrowings 12% 9% 3% 12% 9% Interest rate sensitivity analysis The management of interest rate risk, based on an interest rate gap analysis, is supplemented by monitoring the sensitivity of financial assets and liabilities.
An analysis of the sensitivity of net profit to changes in interest rates (repricing risk), based on a simplified scenario of a 100 basis point (bp) symmetrical fall or rise in all yield curves and positions of interest-bearing assets and liabilities existing as at 31 December 2014 and 2013, is as follows: 100 bp parallel fall 100 bp parallel rise (ii) Currency risk 2014 GEL’000 36 (36) 2013 GEL’000 (63) 63 The Company has assets and liabilities denominated in several foreign currencies.
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates.

Although the Company hedges its exposure to currency risk through use of back to back loans which are classified as derivatives (see note 9 (a)), such activities do not qualify as hedging relationships in accordance with IFRS.
32 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The following table shows the foreign currency exposure structure of financial assets and liabilities as at 31 December 2014: ASSETS Cash and cash equivalents Loans to customers Other financial assets Total assets LIABILITIES Loans and borrowings Total liabilities Net position The effect of derivatives held for risk management Net position after derivatives held for risk management purposes EUR USD Total GEL’000 GEL’000 GEL’000 740 - 299 1,039 4,301 25,936 29 30,266 3,424 3,424 (2,385) 3,398 53,356 53,356 (23,090) 21,596 5,041 25,936 328 31,305 56,780 56,780 (25,475) 24,994 1,013 (1,494) (481) The following table shows the foreign currency exposure structure of financial assets and liabilities as at 31 December 2013: ASSETS Cash and cash equivalents Loans to customers Other financial assets Total assets LIABILITIES Loans and borrowings Total liabilities Net position EUR GEL’000 USD GEL’000 Total GEL’000 221 - - 221 794 17,946 17 18,757 1,015 17,946 17 18,978 - - 27,477 27,477 27,477 27,477 221 (8,720) (8,499) The effect of derivatives held for risk management - 6,077 6,077 Net position after derivatives held for risk management purposes 221 (2,643) (2,422) The following significant exchange rates were applied during the year: in GEL USD 1 EUR 1 Average rate 2014 1.7659 2.3462 2013 1.6634 2.2094 Reporting date spot rate 2013 2014 1.8636 2.2656 1.7363 2.3891 33 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 A weakening of the GEL, as indicated below, against the following currencies at 31 December 2014 and 2013, would have increased (decreased) profit or loss by the amounts shown below.
This analysis is on a net-of-tax basis, and is based on foreign currency exchange rate variances that the Company considered to be reasonably possible at the end of the reporting period.

The analysis assumes that all other variables, in particular interest rates, remain constant.
20% appreciation of USD against GEL 20% appreciation of EUR against GEL 2014 GEL’000 (254) 172 2013 GEL’000 (449) 38 A strengthening of the GEL against the above currencies at 31 December 2014 and 2013 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remained constant.
(c) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

The Company has policies and procedures for the management of credit exposures, including the establishment of Credit Committees, the analytical bodies responsible for analysing the information in the loan applications, assessing and reducing the credit risks.
The credit policy (in the form of a Credit Manual) is reviewed and approved by the Supervisory Board.
The credit policy establishes: • procedures for reviewing and approving loan credit applications • methodology for the credit assessment of borrowers • methodology for the evaluation of collateral • • procedures for the ongoing monitoring of loans and other credit exposures credit documentation requirements The Credit Committee is authorized to make the final decision about financing or rejecting the loan applications.
The loans presented to the Committee for approval are based on limits established by the credit policy.

Accuracy and correctness of information presented to the Credit Committee is the responsibility of the credit officer, who fills in the initial application after the due scrutiny of the applicant’s business and its credit risks through the use of scoring models and application data verification procedures).
Eventually the Credit Committee members assess the application against the established criteria (applicant’s credit history, financial condition, competitive ability, etc.).

Assessment of the applicant’s creditworthiness through monitoring of its business allows timely avoidance the risk of financial loss.

Monitoring is performed by credit officers who report the results to the management.

Regular monitoring of loans is also performed by the Monitoring Department.
For timely response to potential risks, monitoring results are presented to the top management on monthly basis.

The monitoring system helps to manage credit risks and to minimize them in a timely manner.

34 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 Exposure to credit risk is also managed, in part, by obtaining collateral and personal guarantees.
Apart from individual customer analysis, the credit portfolio is assessed by the Risk Department with regard to credit concentration and market risks.

The maximum exposure to credit risk is generally reflected in the carrying amounts of financial assets in the statement of financial position.

For the analysis of collateral held against loans to customers and concentration of credit risk in respect of loans to customers refer to note 10.
As at 31 December 2014 the Company has no debtors or groups of connected debtors (2013: nil), credit risk exposure to whom exceeds 10% of maximum credit risk exposure.

(d) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Liquidity risk exists when the maturities of assets and liabilities do not match.
The matching and or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to liquidity management.

It is unusual for financial institutions ever to be completely matched since business transacted is often of an uncertain term and of different types.

An unmatched position potentially enhances profitability, but can also increase the risk of losses.
The Company maintains liquidity management with the objective of ensuring that funds will be available at all times to honour all cash flow obligations as they become due.

The liquidity policy is reviewed and approved by the Executive and Supervisory Boards.

.
.

The Company seeks to actively support a diversified and stable funding base comprising long- term and short-term loans from other banks and other financial institutions, accompanied by diversified portfolios of highly liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.
The liquidity management policy requires: • projecting cash flows by major currencies and taking into account the level of liquid assets necessary in relation thereto; • maintaining a diverse range of funding sources; • managing the concentration and profile of debts; • maintaining debt financing plans; • maintaining liquidity and funding contingency plans.

Liquidity position is monitored by the Finance Department and the ALCO.
Under the normal market conditions, information on the liquidity position are presented to the Management Risk Committee on a weekly basis.

Decisions on liquidity management are made by ALCO and implemented by the Finance Department.

The following tables show the undiscounted cash flows on financial liabilities and on the basis of their earliest possible contractual maturity.
The total gross inflow and outflow disclosed in the tables is the contractual, undiscounted cash flow on the financial liabilities.
35 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The maturity analysis for financial assets and liabilities as at 31 December 2014 is as follows: GEL’000 Non-derivative liabilities Loans and borrowings Other financial liabilities Demand and less than 1 month From 1 to 3 months From 3 to 6 months From 6 to 12 months More than 1 year Total gross amount outflow Carrying amount 296 191 6,761 8,155 - - 15,955 - 46,107 77,274 191 - 67,547 191 Total financial liabilities 487 6,761 8,155 15,955 46,107 77,465 67,738 The maturity analysis for financial assets and liabilities as at 31 December 2013 is as follows: Demand and less than 1 month From 1 to 3 months From 3 to 6 months From 6 to 12 months More than 1 year Total gross amount outflow Carrying amount GEL’000 Non-derivative liabilities Loans and borrowings Other financial liabilities Total financial liabilities 1,214 920 294 1,714 - 1,714 7,587 - 7,587 6,780 - 6,780 25,845 - 25,845 42,846 294 43,140 36,358 294 36,652 The table below shows an analysis, by expected maturities, of amounts recognised in the statement of financial position as at 31 December 2014: GEL’000 ASSETS Cash and cash equivalents Financial instruments at fair value through profit or loss: - Outflow - Inflow Loans to customers Property and equipment Intangible assets Deferred tax assets Other assets Demand and less than 1 month From 1 to 3 months From 3 to 12 months From 1 to 5 years More than 5 year No maturity Overdue Total 6,320 - - - - - 6,406 (3,759) (15,302) (4,191) 4,151 16,513 4,330 - 47,060 16,859 - - - - - - - - - 8 - - 504 - - - 640 - - 207 - - - - - - - - 2,726 893 533 252 - 6,320 - (23,252) - 24,994 81 71,117 2,726 893 533 900 - - - - Total assets 7,856 7,625 16,998 47,060 207 4,404 81 84,231 LIABILITIES Loans and borrowings Current tax liability Other liabilities Total liabilities Net position 237 - 371 6,311 - - 20,473 351 - 40,526 - - 608 6,311 20,824 40,526 - - - - - - - - - - 67,547 351 371 - -
 68,269 7,248 1,314 (3,826) 6,534 207 4,404 81 15,962 36 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The table below shows an analysis, by expected maturities, of amounts recognised in the statement of financial position as at 31 December 2013: GEL’000 ASSETS Cash and cash equivalents Financial instruments at fair value through profit or loss: - Outflow - Inflow Loans to customers Property and equipment Intangible assets Deferred tax assets Other assets Total assets LIABILITIES Loans and borrowings Current tax liability Other liabilities Total liabilities Net position Demand and less than 1 month From 1 to 3 months From 3 to 12 months From 1 to 5 years More than 5 year No maturity Overdue Total 1,344 - - - - - - 1,344 - - 3,911 - - - 223 5,478 582 - 448 1,030 4,448 - - 5,749 - - - 323 6,072 1,203 - - 1,203 4,869 (4,138) (1,588) 4,341 1,736 19,051 15,127 - - - - - - - 19,254 15,275 - - - - - - - - 12,421 38 - 17,921 - - 12,459 17,921 4,231 - - 4,231 - - - 1,752 852 227 168 2,999 - - - - - - 413 - - - - 413 - - - - 6,795 (2,646) (4,231) 2,999 413 (5,726) 6,077 44,251 1,752 852 227 714 49,491 36,358 38 448 36,844 12,647 18 Capital management The Company's objectives when maintaining capital are: - - to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders; and to provide an adequate return to shareholders by pricing services commensurately with the level of risk.
The Company sets the amount of capital it requires in proportion to risk.

The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
The Company is in compliance with minimum statutory capital requirements.

The Company also monitors its capital adequacy levels to comply with debt covenants, calculated accordance with the lenders requirements.

in 37 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 19 Operating leases Leases as lessee All lease agreements are cancellable upon the Company giving notice to the landlord.
Notice periods generally vary from one to three months.

Non-cancellable minimum lease rentals are payable as follows: Less than 1 year 2014 GEL’000 2013 GEL’000 223 179 The Company leases a number of premises under operating leases.

The leases typically run for an initial period of three to five years, with an option to renew the lease after that date.

Lease payments are usually increased every two or three years to reflect market rentals.
Some leases provide for additional rent payments that are based on changes in a local price index.

20 Contingencies (a) Litigation In the ordinary course of business, the Company is subject to legal actions and complaints.

Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations.
(b) Taxation contingencies The taxation system in Georgia continues to evolve and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are sometimes unclear, contradictory and subject to varying interpretation.

In the event of a breach of tax legislation, no liabilities for additional taxes, fines or penalties may be imposed by the tax authorities after six years have passed since the end of the year in which the breach occurred.
These circumstances may create tax risks in Georgia that are more significant than in other countries.

Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Georgian tax legislation, official pronouncements and court decisions.

However, the interpretations of the relevant authorities could differ and the effect on these financial statements, if the authorities were successful in enforcing their interpretations, could be significant.
38 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 21 Related party transactions (a) Control relationships The Company’s parent company is Crystal Fund, which is also the ultimate controlling party.
(b) Transactions with members of the Supervisory and Executive Boards Total remuneration and consulting fees included in personnel expenses for the years ended 31 December 2014 and 2013 is as follows: Salaries and bonuses Consulting fees (c) Transactions with other related parties 2014 GEL’000 461 26 2013 GEL’000 491 61 487 552 The outstanding balances and the related profit or loss amounts of transactions for the year ended 31 December 2014 with other related parties are as follows: Statement of financial position LIABILITIES Loans and borrowings Profit (loss) Interest expense Entity with significant influence over the Company 2014 GEL’000 2013 GEL’000 - 1,675 59 ( 276) The majority of balances resulting from transactions with related parties mature within one year.
Transactions with related parties are not secured.

22 Financial assets and liabilities: fair values and accounting classifications (a) Accounting classifications and fair values The estimates of fair value are intended to approximate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
However given the uncertainties and the use of subjective judgment, the fair value should not be interpreted as being realisable in an immediate sale of the assets or transfer of liabilities.

The estimated fair values of all financial instruments approximate their carrying values.

The principles for determining fair values is disclosed in note 3 (c) (v).
39 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 The estimated fair values of all financial assets and liabilities are calculated using discounted cash flow the techniques based on estimated future cash flows and discount rates for similar instruments at reporting date.
The Company uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require little management judgment and estimation.

Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate and currency swaps.
The following assumptions are used by management to estimate the fair values of financial instruments: • discount rates of 31-37% are used for discounting future cash flows from loans to customers (2013: 31-39%); • discount rates of 9%-12% are used for discounting future cash flows from loans and borrowings (2013: 9-12%).
As at 31 December 2014 and 2013, the Company does not have any financial instruments for which fair value is based on valuation techniques involving the use of non-market observable inputs.

(b) Fair value hierarchy The Company measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements: • Level 1: quoted market price (unadjusted) in an active market for an identical instrument.
• Level 2: inputs other than quotes prices included within Level 1 that are observable either directly (i.e., as prices) or indirectly (i.e., derived from prices).

This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
• Level 3: inputs that are unobservable.

This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.

This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
The table below analyses financial instruments measured at fair value at 31 December 2014, by the level in the fair value hierarchy into which the fair value measurement is categorized.
The amounts are based on the values recognized in the statement of financial position: GEL ’000 Financial instruments at fair value through profit or loss - Derivative assets Level 2 1,742 The table below analyses financial instruments measured at fair value at 31 December 2013, by the level in the fair value hierarchy into which the fair value measurement is categorized.
The amounts are based on the values recognized in the statement of financial position: GEL ’000 Financial instruments at fair value through profit or loss - Derivative assets Level 2 351 40 JSC Microfinance Organization Crystal Notes to, and forming part of, the financial statements for the year ended 31 December 2014 23 Events after the reporting period The Company has unsecured loans from Microvest with a total carrying amount of GEL 5,235 thousand at 31 December 2014.
According to the agreement, the Company is subject to a leverage covenant stating that at the end of each month (quarter, year) the Leverage ratio - Total Debt / (Total Assets - Total Liabilities) cannot exceed 4.5.

During 2015, due to the devaluation of GEL against US dollar the Company became in breach of this covenant.

Management of the Company is in the process of negotiations with Microvest to correct the issue.
During February 2015 the GEL foreign exchange rate devalued by approximately 21% in comparison to USD.

According to the management of the Company impact of such devaluation is not material to the Company’s financial results, as the Company’s exposure to the foreign currency risk is managed through the use of back to back instruments which are classified as derivatives as at 31 December 2014 (see note 9 (a)).

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