annual report - anfaal capital€¦ · the pillar 3 disclosure comprises both qualitative and...

Company Registration No.: 4030200832 CMA License No. 14180-37

ANNUAL REPORT

Financial Year Ended 31 December 2015

ANFAAL CAPITAL ANNUAL REPORT 2015

CONTENTS Page

BOARD OF DIRECTORS 1

DIRECTORS’ REPORT 2

CORPORATE GOVERNANCE STATEMENT 5

Directors

Responsibilities of the Board of Directors and its Committees

Remuneration & Compensation

Declaration on Penalty Imposed by CMA

Code of Conduct

Results of Audit Review on Internal Control Procedures

Directors’ Responsibility Statement

Shariah governance

SHARIAH SUPERVISORY ANNUAL STATEMENT 14

AUDITED FINANCIAL STATEMENTS 15

Independent Auditors’ Report

Balance Sheet

Income Statement

Cash Flow Statement

Statement of Changes in Shareholders’ Equity

Notes to the Financial Statements

PILLAR 3 DISCLOSURES 34


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BOARD OF DIRECTORS

As at 31 December 2015

Name Classification

1. Saud Al Sabhan Chairman, Independent

2. Muzaffar Bin Hisham Member, Non-Executive

3. Alyas Al Meftah Member, Non-Executive

4. Abdulwahhab Al Dahlawi Member, Non-Executive

5. Farid Arshad Masood Member, Non-Executive

6. Mohamad Yasin Abdullah Member, Non-Executive

7. Dr. Abubaker Ali Bagabir Member, Independent

8. Abdul Hamid Sh Mohamed Member, Independent

9. [Vacant]*

* Ms Nida Raza has been nominated to the vacant position. Management is in the process of compiling the necessary documents for

submission to CMA for approval.


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DIRECTORS’ REPORT

In the name of Allah, the Beneficent, the Merciful

Dear Esteemed Shareholders,

On behalf of the Board of Directors, I hereby share with you the Annual Report and Audited Financial

Statement of Anfaal Capital (“Anfaal” or “the Company”) for the year ended 31 December 2015.

The year 2015 witnessed the fall of the crude oil price from around 100 USD/bbl in 2014 to as low as 30

USD/bbl at the start of 2016. This price plunge had a negative effect on many countries that depended on oil as

their major source of revenue. Many oil producing countries have announced measures such as budget

calibration, prudent spending and subsidy cuts in trying to weather this oil price crash. 2015 also saw a

significant appreciation of the US Dollars against most currencies around the world. Major stock markets

around the world fell as investors became nervous with facing the current bearish market conditions. China

market conditions is facing uncertainty and may even lead to a full blown crisis.

Anfaal was not immune to the ongoing uncertainties in the global market in 2015. Our second investment

banking department deal from China had to be aborted when China stock market nose-dived sometime in mid-

2015. Even certain investment banking deals around the Gulf was postponed or was dropped.

At Anfaal, we recognized the market challenges that we have to face in the coming year. However, we feel that

the Saudi market conditions are still the strongest in the region and among the Gulf countries. We are in the

opinion that Saudi Arabia is the right place to be and it is just a matter of producing the right products that

appeal and gives appropriate returns to investors with the current risk appetite. Furthermore, Anfaal

recognizes that opportunities for new deals are still in abundance and we are diligently reaching out to the

market locally and globally in sourcing these deals.

During the year, Anfaal successfully obtained the Dealing as Principal license from Saudi Capital Markets

Authority (CMA). This has added to Anfaal current licenses of Managing, Custody, Advising and Arranging of

securities. Towards the end of 2015, Anfaal has also successfully launched a new unique Shariah Compliant

liquidity management product called Maysarah Money Market Fund (Maysarah). Through Maysarah, Anfaal

aims to offer to its investors stable growth, diversification, minimised risk exposure with the objective of

outperforming USD fixed deposit products. Currently, Anfaal is aggressively promoting Maysarah to investors

and we hope that by end of 2016, we would be able to attract approximately USD 100 million into Maysarah.

In December 2015, Anfaal has completed the process to increase its share capital from SAR 50,000,000 to SAR

61,499,950 by converting our subordinated debt and shareholder funding account to ordinary shares. Total

revenue for 2015 was SAR 11.4 million (2014: SAR 12.9 million), mainly from AlFareeda Residential Fund (ARF).

ARF’s 4 year term is expiring in November 2016. We acknowledged this and have been developing new funds

that will replace ARF which could give stable and consistent fees. Maysarah is an example of the new fund that

we have developed and more projects are in the pipeline. Net loss for the year before zakat was SAR 4.5

million (2014: SAR 0.7 million). This is mainly due to higher costs of doing business, bad debt provisioning and

lower than anticipated revenues amid challenging environment.

As a continuation to last year, we are pleased to publish the ‘Pillar 3 Disclosure’ report at the last section of this

Annual Report. The ‘Pillar 3 Disclosure’ is for the market participants to assess the key pieces of information on

the scope of application, capital, risk exposures, risk assessment processes and capital adequacy of the

Company. The Pillar 3 Disclosure comprises both qualitative and quantitative information.


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Key Business Activities

Investment Banking (IB)

IB, through our Corporate Finance Department, is focused on arranging and advising innovative funding

solutions to its clients within the spheres of both Islamic equity and debt markets. The range of services offered

include: general financial advisory, merger and acquisition, arranging sukuk and arranging debt and equity

syndications locally and internationally.

Asset Management (AM)

Our Asset Management Department offers fund type solutions to institutions and individuals seeking sharia

compliant products based on their investment goals and objectives. Currently, apart from having extensive

expertise in real estate development, Money Market Fund is a newly launched product by AM that offers stable

returns to investors who are seeking investment opportunities in the money market.

AM also offers customized Discretionary Portfolio Management (DPM) services for institutional and high net-

worth investors seeking discretionary portfolio management services.

Operating Results

Financial year ending 31 December 2013 2014 2015 Change

(SAR, unless stated otherwise) Y-o-Y

Total Revenues 13,769,831 12,725,000 11,066,466 -13%

Total Expenses 10,881,251 13,563,476 15,993,021 18%

Profit/(Loss) from Operations 2,888,580 -838,476 -4,926,555 488%

Net Profit/(Loss) for the year 4,069,386 -657,415 -4,481,700 582%

Earnings/(Loss) per Share 0.81 -0.13 -0.89 575%

Investment Return & Productivity Measures

Both return on investment yardstick – Return on Equity and Return on Capital Employed – are in the negative in

2015 as compared to the previous year due the reasons mentioned in the previous section. The higher

employee remuneration and coupled with lower revenue in 2015 have caused productivity measurements to

deteriorate as compared to the previous year.

Financial year ending 31 December 2013 2014 2015 Change

(SAR, unless otherwise stated) Y-o-Y

Net Profit/(Loss) after Zakat & Tax 3,260,427 -1,289,180 -4,731,590 267%

Share Capital 50,000,000 50,000,000 61,499,950 23%

Sub Debt SAR 10 mil 10,000,000 10,000,000 0 -100%

Shareholders Funding Account 1,499,950 1,499,950 0 -100%

Total Capital Employed 61,499,950 61,499,950 61,499,950 0%

Total Shareholders’ Equity 35,171,206 33,882,026 39,186,557 16%

Return on Equity (ROE) 9.7% -3.7% -13% 247%

Return on Capital Employed (ROCE) 5.1% -2.1% -7.7% 283%


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CORPORATE GOVERNANCE STATEMENT

The Board of Anfaal fully appreciates the importance of adopting high standards of corporate governance

within the Company in order to safeguard stakeholders’ interests as well as enhancing shareholders’ value. The

Board views corporate governance to be synonymous with four key concepts namely; transparency,

accountability, integrity as well as corporate performance.

The Board of Anfaal believes in inculcating a culture that seeks to balance conformance requirements with the

need to deliver long-term strategic success through performance, predicated on entrepreneurship, control and

ownership, without compromising personal or corporate ethics and integrity.

As such, the Board strives to adopt the substance behind corporate governance prescriptions and not merely

the form. The Board is pleased to provide a narrative statement on the application with corporate governance

principles and best practices.

Corporate Governance Requirements

Resolution No. 3-4-2011 dated 23 Jan 2011

Compliance Commitment Level

Non Committed

Semi Committed

Fully Committed

1. Restructure the Board of Directors of the Authorized Person to include independent members not fewer than two, or, one-third of the members of the Board, whichever is greater

2. Issuing an Annual Report that includes:

(a) Description of key business activities, plans and key decisions such as restructuring, expansion or suspension of operations;

(b) Financial results of the Authorized Person and comments from the external auditors, if any;

(c) Names of companies which the Board Member is a director, formation and composition of the Board of Directors and the classification of its members;

(d) Brief description of the terms of reference of the Board Committees, its functions with the names of the chairman and members, and the number of meetings held;

(e) Details of remuneration and compensation paid by the Authorized Person to the Board Members and 5 senior executives in the Company who received the highest total remuneration in addition to the CEO and the CFO;

(f) Any penalty, sanction or reserve restriction imposed on the Company by the CMA or any other supervisory, judiciary or regulatory authorities or in other jurisdictions; and

(g) The results of the annual audit review of the effectiveness of internal control procedures of the company.

3. Authorized Person to send a copy of Annual Report to CMA during the first quarter of the year following the fiscal year

4. Authorized Persons should establish the governance structure necessary to develop a code of conduct of corporate governance to include the following:

(a) Define procedures and restrictions for the membership of the Board of Directors of the Authorized Person and the responsibilities and basic functions;

(b) Define the authorities of the Board of Directors and the executive management;


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(c) Develop the code of conduct for the employees of the Authorized Person; and

(d) The formation of oversight committees.

A. DIRECTORS

THE BOARD

The Board plays a pivotal role in the stewardship of the Company’s direction and operations, including

enhancing long-term shareholders’ value. In order to fulfil this role, the Board is explicitly responsible for

reviewing and adopting a strategic plan for business performance; overseeing the proper conduct of the

Company’s business; identifying principal risks and ensuring the implementation of systems to manage risks

and succession planning.

Whilst the Board is responsible for creating the framework and policies within which the Company should be

operating, Management is responsible for instituting compliance with laws, regulations, rules, directives and

guidelines, including the achievement of the Company’s corporate objectives. This demarcation of roles both

complements and reinforces the supervisory role of the Board.

The Board has a formal schedule of matters specifically reserved to it for decision. Such matters include the

overall Company strategy and direction, investment policy, approval for major capital expenditure,

consideration of significant financial matters and monitoring the financial and operating performance of the

Company. This arrangement enables the direction and control of the Company to be firmly in the Board’s hand.

FORMATION OF THE CURRENT BOARD

The Board currently has nine (9) members, comprising three (3) Independent Non-Executive Directors and six

(6) Non-Independent Non-Executive Directors including one (1) vacant position.

The new term of the Board of Directors started on 24 March 2015 for a 3 years period to 23 March 2018. The

new term replaces the Founding Director of Anfaal five years term which expired on 23 March 2015. Out of the

nine (9) incumbent Directors, only one (1) Director had stated the intention not to renew his term as a Board

Member. Ms Nida Raza has been nominated to take up the vacant seat and management is currently compiling

all the required documents for submission to CMA for the approval of her appointment.

The Board ordinarily meets at least four (4) times a year with additional meetings convened when urgent and

important decisions need to be taken between the scheduled meetings. Due notice is given of scheduled

meetings and matters to be dealt with. The agenda for each Board meeting and papers relating to the agenda

items are disseminated to all Directors at least seven (7) days before the meeting, in order to provide sufficient

time for the Directors to review the Board papers and seek clarification, if any.

All proceedings from the Board meetings are minuted and signed by the Chairman of the meeting and all

Directors.


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MEMBERSHIP OF THE BOARD, NUMBER OF MEETINGS HELD IN 2015 AND ATTENDANCE RECORD

Name of Director Position

Membership Classification

Attendance Record

16.02.2015 Meeting

18.05.2015 Meeting

15.09.2015 Meeting

08.12.2015 Meeting

Current Members

1 Saud Al Sabhan(1)

Chairman,

Independent 4/4

2 Muzaffar Bin Hisham

Non-Executive 3/4 --

3 Alyas Al Meftah Non-Executive 3/4 --

4 Abdulwahhab Al Dahlawi Non-Executive 2/4 -- --

5 Farid Arshad Masood(2)

Non-Executive 4/4

6 Mohamad Yasin Abdullah

Non-Executive 4/4

7 Dr. Abubaker Ali Bagabir

Independent 4/4

8 Abdul Hamid Sh Mohamed

Independent 4/4

9 [Vacant] (3)

Resigned

1 Khalid Al Aboodi(4)

Non-Executive 1/1 na na na

Note:

(1) Appointment as Chairman accepted by CMA via Circular dated 31.12.2015

(2) Resigned subsequent to financial year end. Resignation approved by CMA via Circular dated 1.2.2016

(3) Ms Nida Raza has been nominated to replace Mr Khalid Al Aboodi during 15.09.2015 BODM. Management is in the

process of compiling the necessary documents for submission to CMA for approval. (4)

Decline to renew term upon expiry on 23.3.2015.

None of the members of the Board hold an executive position in the Company. None of the members of the

Board have any interest (whether directly or indirectly) in the Company’s business and contracts. None of the

members of the Board participated in any activity which may likely compete with the activities of the Company,

or trade in any branch of the activities carried out by the Company. Anfaal does not grant cash loan whatsoever

to any of its Board members or render guarantee in respect of any loan entered into by a Board member with

third parties, excluding banks and other fiduciary companies.

Non-executive members of the Board are persons of calibre, credibility and have the necessary skill and

experience to bring an independent judgement to bear on the issues of strategy, performance and resources;

including key appointments and standards of conduct. The Chairman of the Board is an independent non-

executive director and does not hold any position, executive or otherwise, within the controlling shareholders

of the Company.

The next table highlights the directorships held by members of the Board in other Joint Stock Companies, Public

Companies and Financial Institutions.


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BOARD OF DIRECTORS’ MEMBERSHIP IN OTHER JOINT STOCK AND PUBLIC COMPANIES

No Name of Company Country of Incorporation

Classification of Directorship

Executive Non-Executive Independent

Name : Saud Al Sabhan (Chairman)

1 Future Ceramics Company Saudi Arabia

2 Umm Al Qura Cement Company Saudi Arabia

Name : Abdul Hamid Sh Mohamed

1 Symphony House Berhad Malaysia

2 SILK Holdings Berhad Malaysia

3 MMC Corporation Berhad Malaysia

4 SCOMI Group Berhad Malaysia

5 POS Malaysia Berhad Malaysia

BOARD COMMITTEES

The Board has delegated certain responsibilities to the following Board Committees:

Board Committees Key Functions

Audit, Risk and Compliance Committee Audit Committee Compliance Committee Risk Committee

Executive Committee Executive Committee Nomination and Remuneration Committee Investment Committee

The Committees are required to report to the Board on all their deliberations and recommendations and such

reports are incorporated in the minutes of the Board meeting.

SUPPLY OF INFORMATION

The Chairman undertakes primary responsibility for organising information necessary for the Board to deal

with the agenda and in ensuring that all Directors have full and timely access to the information relevant to

matters that will be deliberated at the Board meeting. The Board is supplied with a comprehensive balance of

financial and non-financial information covering strategic, operational, financial, regulatory and marketing and

human resources issues for informed decision making and effective discharge of its responsibilities.

The Board Committees play a pivotal role in channelling pertinent operational and assurance related issues to

the Board. The Committees partly function as a filter to ensure that only pertinent matters are tabled at the

Board level.

All Directors have full and immediate access to information relating to the Company’s business and affairs in

the discharge of their duties. If the Board is required to take professional advice, in furtherance of their duties,

it would be at the Company’s expense.


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B. RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

BOARD OF DIRECTORS

The Board of Directors of the Company is ultimately responsible for the stewardship of the Company. It does

not actively manage but rather oversees the day-to-day management delegated to the CEO and the other

officers of the Company. The principal responsibilities and functions of the Board, among others, is the

following:

1. Reviewing, approving and supervising the adoption of the strategic plans of the Company;

2. Reviewing the adequacy and integrity of the Company’s internal control systems including systems for

compliance with applicable laws and regulations and the supervision of it;

3. Drafting a Corporate Governance Code for the Company, supervising and monitoring in general the

effectiveness of the code and amending it whenever necessary;

4. Laying down specific and explicit policies, standards and procedures, for the membership of the Board

of Directors and implementing them after they have been approved by the General Assembly;

5. Outlining a written policy that regulates the relationship with stakeholders with a view to protecting

their respective rights; and

6. Deciding policies and procedures to ensure the Company’s compliance with the laws and regulations

and the Company’s obligation to disclose material information to shareholders, creditors and other

stakeholders.

Without prejudice to the competences of the General Assembly, the company’s Board of Directors shall

assume all the necessary powers for the Company’s management. The Board may set up Board Committees or

delegate some of its powers to a third party; however, the ultimate responsibility for the Company will still rest

with the Board of Directors.

EXECUTIVE COMMITTEE (EXCOM)

The Executive Committee (EXCOM) is a combination of three committees; i.e. Executive Committee,

Investment Committee and Nomination & Remuneration Committee. It is constituted as a permanent

committee of the Board of Anfaal Capital.

The EXCOM oversees that the Business, Investment & Financial, and the Operational performances of the

Company are in accordance with the approved strategic business plan and budget, and recommends changes

to the Board as appropriate.

The EXCOM periodically reviews and provides views on the overall strategic business direction of the company;

the financial and business performance of the company; and provides necessary advice thereto and where

necessary; and advises the management on the day-to-day management activities of the company to ensure

that the business of the Company is operating effectively for the long term creation of value for shareholders

through financial and non-financial means.

Also, the EXCOM reviews and appraises performance of the investment portfolios and the investment

managers and other investment professionals regularly, to ensure adherence to policy guidelines and to

monitor progress towards achieving investment objectives. Where and when applicable, the committee also

reviews and approves management’s suggested investment strategy for the Company’s own account and any

underwriting exposure, including asset allocation, risk profile, exit strategy, investment horizon and other

relevant considerations.


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The scope of the EXCOM also covers that of a nomination and remuneration committee. EXCOM is responsible

to develop the strategies and policies related to staff recruitment, reward, retention, motivation and career

development.

The EXCOM is chaired by a non-executive member of the Board and all of the members of the committee are

solely responsible to the Board of Directors.

The EXCOM consists of at least three (3) members appointed by the Board, two (2) of which are members of

the Board, or, representatives of the members of the Board. The Board appoints one (1) of the Board members

of the EXCOM to serve as its chairman and the chairman shall generally lead the direction of the EXCOM. The

Board shall have the authority at any time to change the composition of the committee and to fill EXCOM

vacancies. The EXCOM’s recommendations and actions shall be reported to the Board.

The EXCOM held three (3) meetings throughout the financial year ended 31 December 2015.

The EXCOM Chairman may request any other member of management or other outside party to attend

meetings and provide relevant information on the issues to be deliberated at the committee meetings.

MEMBERSHIP OF EXCOM, NUMBER OF MEETINGS HELD IN 2015 AND ATTENDANCE RECORD

Name of Member Position

Membership Status

Attendance Record

16

.02

.20

15

18

.05

.20

15

10

.09

.20

15

Farid Masood Chairman

Board Member 3/3

Abdulwahhab Dahlawi Member

Board Member 2/3

--

Mohamad Yasin Abdullah Member

Board Member 3/3

Saud Al Sabhan Member

Board Member 3/3

AUDIT, RISK & COMPLIANCE COMMITTEE (ARCO)

Audit, Risk and Compliance Committee or ARCO is a combination of the three committees; ie. Audit

Committee, Risk Committee and Compliance Committee. It is constituted as a permanent committee of the

Board of Anfaal Capital.

The ARCO scope of responsibility covers the following: reviewing the Company’s financial reporting process to

ensure accuracy and sufficient disclosure; developing and maintaining programs that protect from

unanticipated loss by providing systematic risk analysis and developing techniques to reduce potential

exposure to loss; minimizing legal or regulatory risks and to demonstrate the Company’s commitment to follow

all laws and regulations and to maintain the highest ethical standards.

The ARCO consists of at least three (3) members. The members are appointed by the Board.

Members of the ARCO must have at least a Director who has significant financial and business experience.

The majority of the members of the ARCO shall be independent from the management and shall meet the

requirements of the applicable law, rules and regulations.

The Board appoints a member of the committee who is not from the management to serve as its chairman,

who shall generally lead the direction of the ARCO. The Board shall have the authority at any time to change


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the membership of the ARCO and to fill vacancies on the Committee. The Committee’s recommendations

and actions shall be reported to the Board.

The ARCO shall meet at least four times in a calendar year to carry out its responsibilities. The Committee

held four (4) meetings throughout the financial year ended 31 December 2015. Meetings may be called by

the Chairman of the ARCO and the Chairman may request any other member of management or other

outside party to attend meetings and provide relevant information on the issues to be deliberated at the

meeting.

MEMBERSHIP OF ARCO, NUMBER OF MEETINGS HELD IN 2015 AND ATTENDANCE RECORD

Name of Member Position

Membership Status

Attendance Record

11

.02

.20

15

12

.05

.20

15

14

.09

.20

15

07

.12

.20

15

Alyas Al Meftah Chairman

Board Member 4/4

Abubaker Bagabir Member

Board Member 4/4

Abdul Hamid Sh Mohamad Member

Board Member 4/4

Ayman Bitar Member

Board Representative

3/4 --

C. REMUNERATION & COMPENSATION

BOARD OF DIRECTORS

With effect from the second half of 2015, a fixed sum of SAR 50,000 per year for each Director spread over the

number of meetings in a calendar year. The allowance is payable to a Director that attends the meeting either

physically or via telephone conference call.

However, for Non-Independent Directors an affirmative approval during a properly convened shareholders’

General Assembly with sufficient quorum is required before any payment shall be made.

No remunerations have been paid to Board Members for the financial year 2015, save the meeting allowance

and reimbursed expenses as disclosed in the following table.

TOTAL ANNUAL COMPENSATION PAID FOR FIVE TOP EXECUTIVES INCLUDING CEO AND HEAD OF FINANCE

DURING THE FINANCIAL YEAR

The total annual compensation paid for the five top executives including the CEO and the Head of Finance

during the financial year are also disclosed the following table:

Description Five senior executives including the CEO and CFO

Non-Executive and Independent Directors

Salaries and compensation SAR 3,812,280 -- Allowances ** -- SAR 264,135 Discretionary Bonus * SAR 234,300 -- Motivational plans -- -- Any compensation and other benefits in kind paid on a monthly or yearly basis

-- --

Total Payment SAR 4,046,580 SAR 264,135 Note: * Bonus paid in 2015 is in relation to the 2014 financial year; ** including reimbursed expenses claims


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D. PUNISHMENT OR PENALTY IMPOSED BY THE CMA OR ANY OTHER SUPERVISORY, JUDICIAL

OR REGULATORY AUTHORITY IN SAUDI ARABIA OR IN OTHER JURISDICTIONS

The Company has not been imposed any penalty or any punishment by the Capital Market Authority or any

other supervisory, judicial or regulatory authority in Saudi Arabia or in other jurisdictions.

E. CODE OF CONDUCT

Anfaal’s present Code of Conduct (the “Code”) is a statement of Anfaal’s values and ethical standards and

provides the framework for maintaining the highest possible standards of professional conduct. It embodies

not only legal and regulatory requirements, but also the values and ethical standards and Sharia rules to which

Anfaal requires all staff and Directors to adhere.

The foundation of the Code consist of the following basic standards of business and personal conduct:

Honesty and candor in all activities, including observance of the spirit as well the letter of the law;

Avoidance of conflict of interest or even the appearance of conflict of interest between personal interest

and the interests of the Company;

Respect and maintain confidential information obtained in the course of the business;

Maintain reputation and avoid activities which may reflect adversely on Anfaal.

All staff and Directors shall:

Act with integrity, competence, dignity and in an ethical manner when dealing with the public, clients,

prospects, employers, employees and fellow members of the profession;

Practice and encourage others to practice in a professional and ethical manner that will reflect credit on

colleagues and their profession;

Strive to maintain and improve their competence and competence of others in the profession;

Use reasonable care and exercise independent professional judgement.

The Code is accessible by all of Anfaal’s staff. The Code will be distributed to each employee and Director in

booklet form. The Code will be reviewed annually and if required, updates will be made to the Code.

F. THE RESULTS OF THE ANNUAL AUDIT REVIEW OF THE ADEQUACY AND EFFECTIVENESS OF

INTERNAL CONTROL PROCEDURES OF THE COMPANY

The Board is responsible for internal control in Anfaal Capital and for reviewing the adequacy and integrity of

the control system, and its effectiveness. The Board ensures that the Company has appropriate policies and

procedures, financial authority limits, a risk management system, as well as internal audit generally designed

for safeguarding the shareholders’ investment and the Company’s assets against unauthorized use; for

maintaining proper accounting records; and for the reliability and usefulness of financial information used

within the business or for publication. The Board reviews the adequacy and effectiveness of the system of

internal controls through the Audit Committee which oversees the work of the internal auditors and comments

made by the external auditors in their management letter and internal audit reports.

During 2015, a follow up review on the findings from the internal audit work performed by KPMG in 2014 was

done internally to check on the progress whether the internal audit issues found by the internal auditor have

been properly resolved. The findings have been presented to ARCO over the course of 2015 and subsequently

reported to the Board.


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G. DIRECTORS’ RESPONSIBILITY STATEMENT

The Board of Directors of the Company confirms:

That in the preparation of the annual accounts, the applicable accounting standards have been followed

and there has been no material departure;

That the financial statement has been prepared correctly in accordance with recognized accounting

standards and in accordance with the Company’s circumstances in conformity with the Company’s

regulations and the Company’s Articles of Association. Also the internal control system has been prepared

on sound principles which were effectively implemented and there is no reasonable doubt regarding the

Company’s capability to carry out its activities;

That the external auditor has given an unqualified opinion on the financial statements; and

That the annual accounts have been prepared on a going concern basis.

The audited financial statements for the year ended 31 December 2015 begins from page 15 and the

independent auditors’ report are on page 16.

H. SHARIAH GOVERNANCE

The Board is aware of the importance of giving comfort to the shareholders and the public that all the business

practices and activities of Anfaal are in compliance with the Sharia at all times. The existence of non-Sharia

compliant element would not just affect the confidence of the shareholders and the public towards Anfaal, but

would also ruin the reputation of Anfaal in the market. The Board is of the opinion that appropriate mechanism

must be in place to ensure the compliance with the Sharia principles. Therefore, the Board has decided to have

a supervisory body to ensure that Anfaal adhere to the Sharia principles and remain at all times Sharia

compliant in all its business deals and activities.

Anfaal has engaged Shariyah Review Bureau W.L.L. (“SRB”), incorporated under the laws of the Kingdom of

Bahrain with Commercial Registration No. 56329 and licensed by the Central Bank of Bahrain under License No

ANC/008, to perform the role of Sharia Advisor. SRB scope of engagement was to provide Sharia consultation,

advisory and Sharia audit services to Anfaal.


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SHARIAH SUPERVISORY ANNUAL STATEMENT

This annual statement reflects the compliance of Anfaal Capital with the Shariah principles and guidelines.


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ANFAAL CAPITAL (A Closed Joint Stock Company) FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2015 AND INDEPENDENT AUDITORS' REPORT


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ANFAAL CAPITAL (A Closed Joint Stock Company) Balance sheet


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(All amounts in Saudi Riyals unless otherwise stated)

As at December 31,

Note 2015 2014

Assets

Current assets

Cash and cash equivalents 4 15,660,269 27,800,617

Accounts receivable 5 5,545,206 16,590,067

Short-term investments (murabaha investments) 15 445,725 -

Investment - held for trading 38,196 -

Prepayments and other receivables 6 885,868 1,351,299

22,575,264 45,741,983

Non-current assets

Available-for-sale investment 7 19,127,300 -

Property and equipment 8 963,494 1,159,347

Intangible assets (software) 9 50,934 4,093

20,141,728 1,163,440

Total assets 42,716,992 46,905,423

Liabilities

Current liabilities

Subordinated loans 15 - 10,000,000

Accounts payable 52,228 94,271

Accrued and other liabilities 10 1,925,986 1,250,881

Zakat and income tax payable 11 487,104 868,979

2,465,318 12,214,131

Non-current liabilities

Employee termination benefits 12 1,065,117 809,266

Total liabilities 3,530,435 13,023,397

Shareholders’ equity

Share capital 13 61,499,950 50,000,000

Shareholders’ funding account 15 - 1,499,950

Fair value reserve 7 36,121 -

Accumulated losses (22,349,514) (17,617,924)

Total shareholders’ equity 39,186,557 33,882,026

Total liabilities and shareholders’ equity 42,716,992 46,905,423

Commitments 21

The notes on pages 21 to 32 form an integral part of these financial statements.


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ANFAAL CAPITAL (A Closed Joint Stock Company) Income statement


Year ended December 31,

Note 2015 2014

Revenues

Management and other related fees 15 11,006,466 11,000,000

Arrangement fee and advisory services 60,000 1,725,000

Total revenues

11,066,466 12,725,000

Expenses

Salaries and other benefits

10,364,305 9,514,462

Rent 21 567,730 476,667

Professional and consultant fees 15 2,740,647 1,725,363

Travel

682,348 700,593

Depreciation and amortization 8, 9 321,541 275,240

Provision for doubtful debts 5, 6 534,109 -

Other expenses 16 782,341 871,151

Total expenses

15,993,021 13,563,476

Loss from operations

(4,926,555) (838,476)

Other income

Investment income 15 319,719 -

Financial income

53,822 181,061

Other

71,314 -

Net loss for the year

(4,481,700) (657,415)

Loss per share: 18

From operating loss

(0.80) (0.14)

From net loss

(0.73) (0.11)



- 20 -

ANFAAL CAPITAL (A Closed Joint Stock Company) Cash flow statement


Year ended December 31,

Note 2015 2014

Cash flow from operating activities

Net loss for the year (4,481,700) (657,415)

Adjustments for non-cash items

Provision for doubtful debts 5, 6 534,109 -

Depreciation and amortization 8, 9 321,541 275,240

Employee termination benefits provision 12 368,554 362,410

Accrued income on short-term investment (26,598) -

Management fee earned in form of units of a fund 7 (6,460) -

Changes in working capital

Accounts receivable 10,982,361 (11,417,371)

Prepayments and other receivables 20,420 (507,970)

Accounts payable (42,043) (18,701)

Accrued and other liabilities 675,105 448,975

Employee termination benefits paid 12 (112,703) (50,000)

Net cash generated from / (utilized in) operating activities 8,232,586 (11,564,832)

Cash flow from investing activities

Available-for-sale investment 7 (19,084,719) -

Short-term investment (445,725) 30,000,000

Accrued income on short-term investment - 1,099,268

Investment - held for trading (38,196) -

Purchase of property and equipment 8 (105,729) (128,732)

Additions to intangible assets 9 (66,800) (4,210)

Net cash (utilized in) / generated from investing activities (19,741,169) 30,966,326

Cash flow from financing activity

Zakat and income tax paid 11 (631,765) (808,294)

Cash utilized in financing activity (631,765) (808,294)

Net change in cash and cash equivalents (12,140,348) 18,593,200

Cash and cash equivalents at beginning of the year 27,800,617 9,207,417

Cash and cash equivalents at end of the year 4 15,660,269 27,800,617

Supplementary information for non-cash transactions

Subordinated loan converted to share capital 13, 15 10,000,000 -

Shareholders’ funding account converted to share capital 13, 15 1,499,950 -

Unrealized gain on available-for-sale investment 7 36,121 -

Zakat and income tax charged to shareholders’ equity accounts

11

249,890

631,765



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ANFAAL CAPITAL (A Closed Joint Stock Company) Statement of changes in shareholders’ equity

(All amounts in Saudi Riyals unless otherwise stated) Saudi

shareholders Foreign

shareholder

Total

Note

Share capital

January 1, 2014 and December 31, 2014 32,415,010 17,584,990 50,000,000

Conversion of subordinated loans to share capital

6,400,000 3,600,000 10,000,000

Conversion of shareholders' funding account to share capital

959,950 540,000 1,499,950

December 31, 2015 13 39,774,960 21,724,990 61,499,950

Shareholders’ funding account

January 1, 2014 and December 31, 2014 959,950 540,000 1,499,950

Conversion of shareholders' funding account to share capital

(959,950) (540,000) (1,499,950)

December 31, 2015 15 - - -

Fair value reserve

January 1, 2014 and December 31, 2014 - - -

Unrealized gain during the year 23,361 12,760 36,121

December 31, 2015 7 23,361 12,760 36,121

Accumulated losses

January 1, 2014 (14,098,134) (2,230,610) (16,328,744)

Net loss for the year (426,202) (231,213) (657,415)

Zakat 11.2 (631,765) - (631,765)

December 31, 2014 (15,156,101) (2,461,823) (17,617,924)

Net loss for the year (2,903,514) (1,578,186) (4,481,700)

Zakat 11.2 (249,890) - (249,890)

December 31, 2015 (18,309,505) (4,040,009) (22,349,514)

Total shareholders’ equity

December 31, 2015 21,488,816 17,697,741 39,186,557

December 31, 2014 18,218,859 15,663,167 33,882,026



- 22 -

1 General information

Anfaal Capital (the "Company") is a Closed Joint Stock Company incorporated on February 24, 2010 through ministerial resolution and commenced its business from the date of ministerial resolution No.122 dated March 23, 2010 announcing the incorporation of the Company. The Company is involved in the business of Managing, Custody, Advising and Arranging of securities. The Company is an Authorized Person by Capital Market Authority (“CMA”) of Saudi Arabia (License No. 09140-36) and the Saudi Arabian General Investment Authority (License No. 112031016038-01). During the year 2014, the Company obtained a conditional approval from CMA to add Dealing as Principal as part of its licensed activities. The Company was in the process of completing all the conditions to get the final license from CMA. During the year 2015, the Company obtained the final license from CMA. The registered address of the Company is P.O. Box 126575, 1

st floor Aster Center, Al Khaldiyah District,

Prince Mohammed bin Abdulaziz Road, Jeddah 21352, Kingdom of Saudi Arabia. As explained in Note 3.6 to the financial statements, the Company is a fund manager of Alfareeda Residential Fund (the “Fund”) and majority of the Company's revenue for the years ended December 31, 2015 and 2014 by way of management and other related fees are from the Fund. Accordingly, the Company’s operations currently are largely dependent on the Fund.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. 2.1 Basis of preparation

The financial statements have been prepared under the historical cost convention on the accrual basis of accounting, as modified by the revaluation of available-for-sale investment and held for trading investment to fair value and in compliance with accounting standards promulgated by Saudi Organization for Certified Public Accountants. 2.2 Critical accounting estimates and judgments

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of certain critical estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the reporting date and the reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. 2.3 Foreign currency translations

(a) Reporting currency

The financial statements of the Company are presented in Saudi Riyals which is the reporting currency of the Company. (b) Transactions and balances

Foreign currency transactions are translated into Saudi Riyals using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Such exchange adjustments were not significant for the years presented. 2.4 Cash and cash equivalents

Cash and cash equivalents include cash in hand and with banks and other short-term highly liquid investments with maturities of three months or less from the purchase date. 2.5 Short-term investment

Short-term investment represents placements (murabaha investments) with original maturities of more than three months but not more than one year from the purchase date.


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2 Summary of significant accounting policies (continued) 2.6 Accounts receivable

Accounts receivable are carried at original invoice amount less provision for doubtful accounts. A provision against doubtful accounts is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Such provisions are charged to income statement. When an account receivable is uncollectible, it is written-off against the provision for doubtful accounts. Any subsequent recoveries of amounts previously written-off are credited in the income statement. 2.7 Investments

(a) Available-for-sale investment Available-for-sale investments principally consist of equity investments in certain quoted/unquoted investments. The investments are classified in available-for-sale category when the Company does not have control or significant influence over the investee and the investments are not held for regular sale and purchase. These investments are included in non-current assets unless management intends to sell such investments within twelve months from the balance sheet date. These investments are initially recognized at cost and are subsequently re-measured at fair value at each reporting date as follows: (i) Fair values of quoted securities are based on available market prices at the reporting date adjusted for any

restriction on the transfer or sale of such investments; and (ii) Fair values of unquoted securities are based on a reasonable estimate determined by reference to the

current market value of other similar quoted investment securities or is based on the expected discounted cash flows. In the absence of such information and indication of impairment, cost is deemed to be the fair value.

(iii) Fair value of investment in mutual funds is based on net assets value determined by the Fund Manager. Cumulative adjustments arising from revaluation of these investments are reported as separate component of equity as fair value reserve until the investment is disposed. (b) Held for trading Held for trading investments are initially measured at fair value, with transaction costs directly recognized in the income statement. They are subsequently measured at fair value with changes in fair value directly recognized in the income statement. 2.8 Property and equipment

Property and equipment are carried at cost less accumulated depreciation. Depreciation is charged to the income statement, using the straight-line method, to allocate the costs of the related assets to their residual values over the following estimated useful lives: Number of years

Furniture and fixtures 5

Leasehold improvements 7

Computers and accessories 3

Office equipment 5

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement. Maintenance and normal repairs which do not materially extend the estimated useful life of an asset are charged to the income statement as and when incurred. Major renewals and improvements, if any, are capitalized and the assets so replaced are retired. 2.9 Intangible assets

Intangible assets are carried at cost less accumulated amortization. Expenditure to acquire intangible assets having future benefits is capitalized and amortized using the straight-line method over their useful lives. The Company’s intangible assets comprise of computer software that is amortised over 3 years.


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2 Summary of significant accounting policies (continued)

2.10 Impairment

(a) Financial assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognized in the income statement. Impairment is determined as follows: (i) For available-for-sale financial assets carried at fair value, other than temporary decline in the fair value

below cost less any impairment loss on that financial asset previously recognised in profit or loss is removed from equity and recognised in the income statement.

(ii) For assets carried at cost or amortized cost, impairment is the difference between carrying value and the present value of future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate.

b) Non-financial assets

Non-financial assets (other than goodwill) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill, if any, is tested for impairment annually. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s fair value less cost to sell and value in use. For the purpose of assessing impairment, assets are grouped at lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than intangible assets (goodwill) that suffered impairment are reviewed for possible reversal of impairment at each reporting date. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but the increased carrying amount should not exceed the carrying amount that would have been determined, had no impairment loss been recognized for the assets or cash-generating unit in prior years. A reversal of an impairment loss is recognized as income immediately in the income statement. Impairment losses recognized on intangible assets (goodwill) are not reversible. 2.11 Accounts payable and accruals

Liabilities are recognized for amounts to be paid for goods and services received, whether or not billed to the Company. 2.12 Provisions

Provisions are recognized when; the Company has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. 2.13 Zakat and taxes

In accordance with the regulations of the Department of Zakat and Income Tax (“DZIT”), the Company is subject to zakat attributable to the Saudi shareholders and to income taxes attributable to the foreign shareholder. Provisions for zakat and income taxes are charged to the equity accounts of the Saudi and the foreign shareholders, respectively. Additional amounts payable, if any, at the finalization of final assessments are accounted for when such amounts are determined. Deferred income taxes are recognized on all major temporary differences between financial income and taxable income during the period in which such differences arise, and are adjusted when related temporary differences are reversed. Deferred income tax assets on carry forward losses are recognized to the extent that it is probable that future taxable income will be available against which such carry-forward tax losses can be utilized. Deferred income taxes are determined using tax rates which have been enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax asset arising out of such temporary differences and on carry forward tax losses were not recorded as of December 31, 2015 and 2014 as the recovery of such asset is not probable in the near future. The Company withholds taxes on certain transactions with non-resident parties in the Kingdom of Saudi Arabia as required under Saudi Arabian Income Tax Law.


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2 Summary of significant accounting policies (continued)

2.14 Employee termination benefits Employee termination benefits required by Saudi Labor and Workman Law are accrued by the Company and charged to the income statement. The liability is calculated at the current value of the vested benefits to which the employee is entitled, should the employee leave at the balance sheet date. Termination payments are based on employees’ final salaries and allowances and their cumulative years of service, as stated in the laws of Saudi Arabia. 2.15 Borrowings Borrowings are recognized at the proceeds received, net of transaction costs incurred, if any. Borrowing costs are charged to the income statement. 2.16 Revenues Revenues are recognized on the performance of the service based on the contractual terms. Arrangement and management fee is recognized based on contractual terms and conditions as agreed with counter parties. 2.17 General and administrative expenses

General and administrative expenses include direct and indirect costs not specifically part of costs of revenues as required under generally accepted accounting principles. 2.18 Operating leases

Rental expenses under operating leases are charged to income statement over the period of the respective lease. 2.19 Segment reporting

The Company does not have any business or other geographical segments. Accordingly, the disclosures related to segment reporting are not required.

3 Financial instruments and risk management The Company’s activities expose it to a variety of financial risks: market risk (including currency risk and cash flow interest rate risks and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. Risk management is carried out by senior management under policies approved by the board of directors. The most important types of risk is credit risk. Financial instruments carried on the balance sheet include cash and cash equivalents, short-term investment, accounts receivable, investment - held for trading, accrued income, other receivable, available-for-sale investment, accounts payable, accrued and other liabilities and subordinated loans from shareholders. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Financial asset and liability are offset and net amounts reported in the financial statements, when the Company has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and liability simultaneously. 3.1 Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company’s transactions are principally in Saudi Riyals and US Dollars. Since Saudi Riyal is pegged with US Dollar, there is no significant currency exchange exposure to the Company. 3.2 Cash flow interest rate risks Cash flow interest rate risk is the exposure to various risks associated with the effect of fluctuations in the prevailing interest rates on the Company’s financial positions and cash flows. The Company’s management monitors such exposures and believes the exposure is not significant to the Company. As of December 31, 2015 the Company is not exposed to cash flow interest rate risk.


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3 Financial instruments and risk management (continued)

3.3 Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Cash is placed with banks with sound credit ratings. Accounts receivable, principally due from related parties are carried net of provision for doubtful accounts. 3.4 Liquidity risk

Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis that sufficient funds are available to meet any future commitments. 3.5 Price risk

The risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The Company is not exposed to any significant equity securities price risk. 3.6 Client risk The Company is a fund manager of Alfareeda Residential Fund (the “Fund”) and majority of the Company's revenue for the years ended December 31, 2015 and 2014 by way of management and other related fees and receivable balances at December 31, 2015 and 2014, are from the Fund. Accordingly, the Company’s operations currently are largely dependent on the Fund. 3.7 Fair value

Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm’s length transaction. Management believes that the fair values of the Company’s financial assets and liabilities are not materially different from their carrying values.

4 Cash and cash equivalents 2015 2014

Cash at bank 5,660,269 27,800,617

Short-term investment (Time deposit) 10,000,000 -

15,660,269 27,800,617

Short-term investment earn profit at prevailing market rates.

5 Accounts receivable

Note 2015 2014

Related parties 15.2 5,607,706 16,360,067

Others - 230,000

5,607,706 16,590,067

Less: provision for doubtful debts (62,500) -

5,545,206 16,590,067

Movement in provision for doubtful debts is as follows:

2015 2014

January 1 - -

Addition 62,500 -

December 31 62,500 -


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6 Prepayments and other receivables

Note 2015 2014

Security deposits 239,930 246,180

Prepaid insurance 110,761 105,729

Cost recoverable from funds under incorporation 15.2 481,609 481,609

Other prepayments 174,012 138,746

Advances to employees 199,359 298,369

Prepaid rent 80,667 80,666

Accrued income 26,598 -

Other receivable 44,541 -

1,357,477 1,351,299

Less: Provision against cost recoverable from funds under

incorporation

(471,609)

-

885,868 1,351,299

7 Available-for-sale investment

During October 2015, the Company launched Maysarah Money Market Fund (Fund). The Company is the manager and custodian of the Fund. See also Note 17. The Fund is a Shariah compliant open-ended money market fund. As at December 31, 2015, it represents 100% (2014: Nil) ownership interest in the Fund. The target capitalization of the Fund is US Dollars 100 million (equivalent to Saudi Riyals 375 million). The above capital will be raised by the Company in its capacity as the Fund Manager by issuing units to the new investors.

The movement in available-for-sale investment for the year ended December 31 is as follows:

2015

January 1 -

Addition 19,084,719

Unrealised gain recognized 36,121

Fee earned in form of units 6,460

December 31 19,127,300

8 Property and equipment

January 1,

2015 Additions December 31,

2015

Cost

Furniture and fixtures 416,242 4,500 420,742

Leasehold improvements 955,165 8,700 963,865

Computers and accessories 1,032,236 82,529 1,114,765

Office equipment 45,366 10,000 55,366

2,449,009 105,729 2,554,738

Accumulated depreciation

Furniture and fixtures (130,803) (83,847) (214,650)

Leasehold improvements (216,050) (137,281) (353,331)

Computers and accessories (905,429) (74,987) (980,416)

Office equipment (37,380) (5,467) (42,847)

(1,289,662) (301,582) (1,591,244)

1,159,347 963,494


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8 Property and equipment (continued)

January 1,

2014 Additions

December 31, 2014

Cost

Furniture and fixtures 416,242 - 416,242

Leasehold improvements 955,165 - 955,165

Computers and accessories 903,504 128,732 1,032,236

Office equipment 45,366 - 45,366

2,320,277 128,732 2,449,009

Accumulated depreciation

Furniture and fixtures (47,554) (83,249) (130,803)

Leasehold improvements (79,598) (136,452) (216,050)

Computers and accessories (861,481) (43,948) (905,429)

Office equipment (28,307) (9,073) (37,380)

(1,016,940) (272,722) (1,289,662)

1,303,337 1,159,347

9 Intangible assets (software)

2015 2014

Cost

January 1 410,939 406,729

Additions 66,800 4,210

December 31 477,739 410,939

Accumulated amortization

January 1 (406,846) (404,328)

Additions (19,959) (2,518)

December 31 (426,805) (406,846)

Net book value at December 31 50,934 4,093

10 Accrued and other liabilities

Note 2015 2014

Employee payables 643,423 593,946

Service level agreements 15.2 876,000 -

Accrued expenses 406,563 296,935

Commission - 360,000

1,925,986 1,250,881

11 Zakat and income tax matters

11.1 Components of zakat base

The significant components of the zakat base of the Company attributable to the Saudi shareholders, which are subject to adjustment under zakat and income tax regulations, are as follows:

2015 2014

Share capital at beginning of the year 50,000,000 50,000,000

Increase in share capital 11,499,950 -

Available-for-sale investment (19,127,300) -

Fair value reserve 36,121 -

Provisions at beginning of the year less paid 696,563 496,856

Property and equipment, as adjusted (1,112,346) (1,148,394)

Zakat base of the Company 41,992,988 49,348,462

Saudi shareholders share of zakat base at 64.67478% 27,158,873 31,992,618

Adjusted net loss for the year attributable to Saudi shareholders (2,243,521) (220,176)

Subordinated loans from Saudi shareholders - 6,400,000

Saudi shareholders' funding account - 959,950

Saudi shareholders share in beginning accumulated loss (15,156,101) (14,098,134)

Zakat provision 236,332 236,332

Adjusted zakat base attributable to Saudi shareholders 9,995,583 25,270,590


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11 Zakat and income tax matters (continued)

Zakat is payable at 2.5 percent of the zakat base attributable to the Saudi shareholders. Certain adjustments under income tax and zakat regulations are made to arrive at the adjusted net loss for the year. 11.2 Provision for zakat and income taxes

Zakat Income

taxes Total

January 1, 2015 868,097 882 868,979

Provision 249,890 - 249,890

Payments (631,765) - (631,765)

December 31, 2015 486,222 882 487,104

January 1, 2014 891,961 153,547 1,045,508

Provision 631,765 - 631,765

Payments (655,629) (152,665) (808,294)

December 31, 2014 868,097 882 868,979

Income tax is calculated at 20% of the adjusted net income attributable to the foreign shareholder adjusted for carry forward losses to the extent of 25% of adjusted net income attributable to the foreign shareholder. No provision for income tax is made as the Company has adjusted net loss for the year. 11.3 Status of final assessments

The Company filed the zakat and tax return for the long period ended December 31, 2011 and for each of the years ended December 31, 2012 to 2015, and obtained the unrestricted zakat and tax certificates. The Company has not received any assessment from DZIT for such period / years. 11.4 Temporary and permanent differences

2015 2014

Net loss for the year (4,481,700) (657,415)

Temporary differences:

- Provision for doubtful debts 534,109 -

- Depreciation 38,001 (28,105)

- Employee termination benefits 368,554 312,410

Permanent differences:

- Repairs and maintenance 59,916 13,060

- Other 20,000 20,429

Adjusted net loss for the year (3,461,120) (339,621)

12 Employee termination benefits

2015 2014

January 1 809,266 496,856

Provision 368,554 362,410

Payments (112,703) (50,000)

December 31 1,065,117 809,266


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13 Share capital

The share capital of the Company as of December 31, 2015 was comprised of 6,149,995 (2014: 5,000,000) shares stated at Saudi Riyals 10 per share owned as follows:

Shareholder Nationality 2015 2014

Islamic Corporation for the Development of Private Sector (ICD)

Saudi Arabia

37.67481%

37.82998%

Maybank Investment Bank Berhad (MIB) Malaysia 35.32522% 35.16998%

Alnumu Real Estate Company Limited (AREC) Saudi Arabia 0.00003% 0.00004%

Mr. Abed Abdulrasool Abdulnabi AlZeera Bahrain 17.99993% 18.00000%

Mr. Khalid Mohamed Nasser Al-Aboodi Saudi Arabia 9.00001% 9.00000%

100% 100%

During 2015, subordinated loans and shareholders’ funding account totaling to Saudi Riyals 11,499,950 were converted into share capital (see Note 15.2). Legal formalities for such transfers were completed during 2015.

14 Statutory reserve

In accordance with the Regulations for Companies in the Kingdom of Saudi Arabia, the Company transfer 10% of the net income for the year to a statutory reserve, after absorbing the accumulated losses, until such reserve equals 50% of its share capital. No transfer has been made to the statutory reserve due to accumulated losses.

15 Related party matters

15.1 Related party transactions

Significant transactions with related parties in the ordinary course of business included in the financial statements are summarized below: 2015 2014

Management and other related fees 11,006,466 11,000,000

Professional and consultant fees 876,000 -

Arrangement fee and advisory services - 1,062,500

Financial income - 56,436

Investment income 319,719 -

15.2 Related party balances

Significant year end balances arising from transactions with related parties are as follows: (i) Receivable from related parties 2015 2014

ICD (for services rendered) - 2,400,000

Alfareeda Residential Fund 5,545,206 13,772,567

Ewaan Global Residential Company (“Ewaan Global”) 62,500 187,500

5,607,706 16,360,067

(ii) Prepayments and other receivables 2015 2014

Costs recoverable from funds under incorporation include:

- Sawari Real Estate Company 287,634 287,634

- Ewaan Global 183,975 183,975

471,609 471,609


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15 Related party matters (continued)

(iii) Subordinated loans from shareholders 2015 2014

ICD - 3,700,000

MIB - 3,600,000

Mr. Abed Abdulrasool Abdulnabi AlZeera - 1,800,000

Mr. Khalid Mohamed Nasser Al-Aboodi - 900,000

- 10,000,000

(iv) Shareholders’ funding account

2015 2014

ICD - 555,000

MIB - 540,000

Mr. Abed Abdulrasool Abdulnabi AlZeera - 269,950

Mr. Khalid Mohamed Nasser Al-Aboodi - 135,000

- 1,499,950

(v) Accrued and other liabilities

2015 2014

ICD 444,000 -

MIB 432,000 -

876,000 -

These are payable for various consultancy services obtained from the shareholders or their affiliated entities during the year. These are included in professional expenses.

16 Other expenses

Note 2015 2014

Subscription and registration fees 288,545 324,035

Information technology 200,932 103,027

Insurance 63,520 -

Utilities 63,127 60,671

Printing and publication 32,683 27,842

Cleaning and refreshments 28,750 28,450

Repairs and maintenance 13,984 9,974

Equipment rent 13,197 13,374

Marketing - 131,280

Miscellaneous 77,603 172,498

782,341 871,151

17 Assets under management

Assets held in trust or in a fiduciary capacity are not treated as assets of the Company and, accordingly, are not included in the Company’s financial statements. a) Alfareeda Residential Fund

The assets under management outstanding at the end of the year for a real estate mutual fund amounted to Saudi Riyals 462.7 million (2014: Saudi Riyals 496.4 million) and market value at December 31, 2015 amounted to Saudi Riyals 612.7 million (2014: Saudi Riyals 668.83 million). b) Maysarah Money Market Fund

The assets under management outstanding at the end of the year for a money market fund amounted to Saudi Riyals 19.1 million (2014: Nil).


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18 Loss per share

Loss per share for the year ended December 31, 2015 have been computed by dividing the operating and net loss by weighted average number of shares outstanding during the year. Loss per share for the year ended December 31, 2014 have been computed by dividing the operating and net loss by 6,149,995 shares to give a retrospective effect of the change in the number of shares which increased as a result of increase in share capital as described in Note 13.

19 Capital base, minimum capital and capital adequacy

The Capital Base, Minimum Capital and Capital Adequacy of the Company as per Pillar I of the Prudential Rules are as follows: As at December 31,

2015 2014 Capital Base: Tier 1 Capital 39,099,502 33,877,933 Tier 2 Capital - -

Total Capital Base 39,099,502 33,877,933

Minimum Capital Requirement: Market Risk 7,000 - Credit Risk 15,326,000 18,042,000 Operational Risk 3,998,255 3,390,869

Total Minimum Capital Required 19,331,255 21,432,869

Capital Adequacy Ratio: Total Capital Ratio (time) 2.02 1.6 Tier 1 Capital Ratio (time) 2.02 1.6 Surplus in Capital 19,768,247 12,445,064 i) The Capital Base consists of Tier 1 Capital (which includes share capital, Shareholders’ funding account

and accumulated losses) as per Article 4 and 5 of the Prudential Rules. The minimum capital requirements for market, credit and operational risk are calculated as per the requirements specified in Part 3 of the Prudential Rules.

ii) The Company manages the capital base in the light of Pillar I of the Prudential Rules - the capital base

should not be less than minimum capital requirement and company internal capital adequacy assessment process.

iii) The Company’s business objectives when managing capital adequacy is to comply with the capital

requirements set forth by the CMA to safeguard the Company’s ability to continue as a going concern, and to maintain a strong capital base.

20 Application of authorized persons regulations

At December 31, 2015, the Company was not holding any of the clients’ cash accounts. Accordingly, Part Seven "Client Money and Assets", Chapter Two "Client Money Rules" of the Authorized Persons Regulations issued by the Capital Market Authority is not applicable to the Company.


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21 Operating leases

The Company has its office space under an operating lease. Rental expense for the year ended December 31, 2015 amounted to Saudi Riyals 567,730 (2014: Saudi Riyals 476,667). Future rental commitments at December 31 are as follows:

Years ending December 31: 2015 2014

2015 - 403,333

2016 564,667 80,667

2017 580,800 -

2018 580,800 -

2019 580,800 -

2020 580,800 -

2021 96,800 -

2,984,667 484,000

22 Approval of financial statements

The financial statements were authorized for issue by the Company’s Board of Directors on _________, 2016.


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PILLAR-3 DISCLOSURE

As at 31 December 2015

CONTENTS Page

OVERVIEW 34

SPECIFIC DISCLOSURE REQUIREMENT 35

1. SCOPE OF APPLICATION 35

2. CAPITAL STRUCTURE 35

2.1 Overview of Capital Structure

2.2 Disclosure of Capital Base

3. CAPITAL ADEQUACY 36

3.1 Capital Management Strategy

3.2 Overview of ICAAP

3.2.1 Governance and Oversight

3.2.2 Sound Capital Management

3.2.3 Comprehensive Assessment of Risk

3.2.4 Monitoring and Reporting

3.2.5 Internal Control Review

4. RISK MANAGEMENT 40

4.1 Risk Management Framework

4.2 Credit Risk Disclosure

4.2.1 Credit Risk Mitigation

4.2.2 Credit Risk Disclosure and Credit Risk Concentration

4.3 Counterparty Credit Risk (“CCR”) and Off Balance Sheet Disclosure

4.4 Market Risk Disclosure

4.5 Operational Risk Disclosure

4.6 Liquidity Risk Disclosure


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OVERVIEW

1 The Pillar-3 Disclosure is the annual market disclosure of information as referred to by the Article 68 of

the Prudential Rules (“PR”) to be published by all the Authorised Persons (“AP”) licensed for the

Dealing, Managing and or Custody activities.

2 The purpose of Pillar-3 Disclosure is for the market participants to assess the key pieces of information

on the scope of application, capital, risk exposures, risk assessment processes, and hence the capital

adequacy of the AP.

3 Pillar-3 Disclosure comprises both qualitative and quantitative disclosures.

4 The Pillar-3 Disclosures contained herein relate to the Audited Financial Statement of Anfaal Capital

for the year ended 31 December 2015.

5 The information provided herein has been reviewed by the Audit, Risk & Compliance Committee

(“ARCO”) of Anfaal Capital, hereafter referred to “Anfaal” or “the Company”, and approved for public

disclosure by the Board of Directors (“BOD”) of the Company.


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SPECIFIC DISCLOSURE REQUIREMENTS

1. SCOPE OF APPLICATION

The Pillar-3 Disclosure is prepared for Anfaal, a Closed Joint Stock Company incorporated on 24 February

2010. Anfaal is an Authorised Person licensed by the Capital Market Authority of Saudi Arabia (License No.

14180-37) and the Saudi Arabian General Investment Authority (License No. 112031016038-01). General

information about Anfaal is available in Note 1 to the Audited Financial Statement.

Anfaal is not part of a financial group as defined in the Prudential Rules. Hence, the requirement to

disclose if there were any current or foreseen material, or, legal impediments to the prompt transfer of

capital or repayment of liabilities for AP that is part of a financial group is not applicable.

2. CAPITAL STRUCTURE

2.1 OVERVIEW OF CAPITAL STRUCTURE

The capital items and component of Anfaal are disclosed in the Balance Sheet and the accompanying

notes to the Audited Financial Statements.

2.2 DISCLOSURE ON CAPITAL BASE

The following Table 1 presents the Capital Base of the Company as at 31 December 2015.

Table 1: Capital Base SAR '000

Tier-1 Capital

Paid-Up Capital 61,500

Audited Retained Earnings (17,618)

Share Premium -

Reserves (Other Than Revaluation Reserves) -

Tier-1 Capital Contribution -

Deductions From Tier-1 Capital (4,782)

Total Tier-1 Capital 39,100

Tier-2 Capital

Subordinated Loans -

Cumulative Preference Shares -

Revaluation Reserves -

Other Deductions From Tier-2 (-) -

Deduction To Meet Tier-2 Capital Limit (-) -

Total Tier-2 Capital -

TOTAL CAPITAL BASE 39,100


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3. CAPITAL ADEQUACY

3.1 Capital Management Strategy

Capital management is an integral part of the decision making processes, in which capital adequacy

among others is being considered.

Capital management entails evaluation of options and strategies to implement the capital adequacy

plan. This would involve evaluating options and proposing initiatives, methodologies, tools and

instruments that will achieve the following objectives:

a) optimize capital levels

b) reduce capital wastages

c) minimize cost of capital

The Management has put in place a capital management strategy that has been defined by the BOD

and planned at the business sectors, taking into account the planned strategies, regulatory capital

requirements, internal capital requirements, management actions on capital raising or capital

optimization (if applicable), dividend payout strategy (if applicable), Internal Capital Adequacy

Assessment Process (“ICAAP”), and stress testing.

3.2 Overview of ICAAP

ICAAP describes the process for assessing overall capital adequacy in relation to the Company’s risk

profile and business environment, and a strategy for maintaining its internal capital targets.

The 5 elements of ICAAP and the processes under each elements are summarized below:

3.2.1 Governance and Oversight

a) Board of Directors

The Board of Directors of Anfaal is responsible in ensuring that the Company maintains

an appropriate level of quality capital for its risk profile and operating environment.

b) Audit, Risk and Compliance Committee (“ARCO”)

ARCO shall review Anfaal’s ICAAP implementation and reporting, as delegated from the

BOD.

Internal Capital Adequacy Assessment Process

Governance and Oversight

Sound Capital Assessment

Comprehensive Assessment of

Risk

Monitoring and Reporting

Internal Control Review


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c) The Management of Anfaal

The Management is responsible for the development, documentation and effective

implementation of ICAAP as approved by the BOD.

3.2.2 Sound Capital Assessment

In order to do the assessment, Anfaal needs to have a comprehensive Capital Management

Strategy which has been briefly described in the previous section. A Capital Management Plan

shall be formulated and shall consist of the information below:

a) Objectives of capital management and planning;

b) Key capital drivers;

c) Regulatory updates on capital related matters;

d) Business plan/capital projection for at least 3 years horizon

e) Projected capital requirement for at least 3 years horizon;

f) Stress testing;

g) Internal capital targets and basis;

h) Results of the latest ICAAP report; and

i) Results of the latest Stress Test report.

3.2.3 Comprehensive Assessment of Risk

Anfaal’s scope of risk covers the quantifiable risks captured under Pillar 1 (specifically credit

risks, market risks and operational risks) and non-quantifiable risks captured under Pillar 2

(such as concentration risks, liquidity risks, reputation risks and business/strategic risks.

Furthermore, the risk assessment also covers risk factors external to Anfaal i.e. the risks that

may arise from regulatory, economic or business environment and incorporated under

business/strategic risks.

Anfaal is only concerned with material risk. Material risk is defined as “risk that would

materially impact the financial performance of Anfaal should the risk occur”. The material

risks faced by Anfaal are identified through discussion between the Management, Executive

Committee (“EXCOM”) and the BOD and compliance reporting to ARCO.

3.2.4 Monitoring and Reporting

Key assessment results of ICAAP are reported to the EXCOM, ARCO and eventually to the BOD

for final approval.

The Management of Anfaal shall include the following:

a) Communicate the ICAAP effectively throughout the organization;

b) All elements of ICAAP are established and functioning effectively, supported by sufficient

authorities and resources;

c) Capital planning and management policies are integrated into the overall risk

management framework;

d) Comprehensive assessment of capital adequacy through annual capital planning process

with a view to ascertain the appropriate internal capital target;

e) Establish method for monitoring ICAAP compliance through regular ICAAP reporting; and

f) Strategies, policies and procedures of the ICAAP and internal capital targets are reviewed

annually.


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3.2.5 Internal Control Review

An independent review on the ICAAP shall be performed annually to ensure the continued

effectiveness of the ICAAP. Where required, an external third party maybe engaged to

provide an independent review of the ICAAP.

The ICAAP shall be revised to incorporate the appropriate adjustment should there be

changes on the following:

a) Whether the ICAAP is proportionate to the size, nature of business, operating

environment and complexity of business;

b) Any factors that materially affect the reasonableness and validity of methodologies and

assumptions; and

c) Robustness of the ICAAP-related risk monitoring.

Any new risks that occur in the business of Anfaal should be identified and incorporated into

the ICAAP.


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Table 2: Minimum Regulatory Capital Requirements for Credit Risk and Market Risks

Table below shows Anfaal has met the minimum regulatory capital requirement for the year under review.

Exposure Class Exposure

before CRM SAR '000

Net Exposures after CRM

SAR '000

Risk Weighted

Assets SR '000

Capital Requirement

SAR '000

1. CREDIT RISK

On-Balance Sheet Exposures

Governments and Central Banks

- - - -

Authorised Persons and Banks

16,106 16,106 3801 532

Corporates

- - - -

Retail

- - - -

Investments

24,673 24,673 45,327 6,346

Securitisation - - - -

Margin Financing - - - -

Other Assets

1,849 1,846 7,594 1,063

Total On-Balance sheet Exposures

42,628 42,628 56,722 8,041

Off-Balance Sheet Exposures

OTC/Credit Derivatives - - - -

Repurchase agreements

- - - -

Securities borrowing/lending

- - - -

Commitments

- - - -

Other off-balance sheet exposures

- - - -

Total Off-Balance sheet Exposures

- - - -

Total On and Off-Balance sheet Exposures

42,628 42,628 56,722 8,041

Prohibited Exposure Risk Requirement

19,127 19,127 55,748 7,385

Total Credit Risk Exposures

61,755 61,755 109,468 15,326

2. MARKET RISK Long

Position Short

Position

Interest rate risks - - -

Equity price risks 38 -

7

Risks related to investment funds - -

-

Securitisation/resecuritisation positions - -

-

Excess exposure risks - -

-

Settlement risks and counterparty risks - -

-

Foreign exchange rate risks - -

-

Commodities risks. - -

-

Total Market Risk Exposures - -

7

3. OPERATIONAL RISK 3,998

Minimum Capital Requirements

19,331

Surplus/(Deficit) in Capital

19,769

TOTAL CAPITAL RATIO (TIME)

2.02


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4. RISK MANAGEMENT

4.1 Risk Management Framework

The key elements of Anfaal’s Risk Management Framework are as follows:

a) Risk Governance

Anfaal’s BOD is ultimately responsible for the adequacy and effectiveness of risk management and

system of internal control. The BOD, through ARCO maintains overall responsibility for risk

oversight in Anfaal. ARCO assists the BOD in overseeing the effectiveness of Anfaal’s ICAAP and

approving risk policies and framework relating to ICAAP. ARCO also provides an independent

assessment on the adequacy and reliability of the risk management processes and system of

internal control, and compliance with approved risk policies and regulatory requirements.

b) Risk Appetite

Risk appetite is a guidepost in strategy setting. It is the type of risk that it is willing to accept in

pursuit of its strategic and business objectives. It is the acceptable balance of growth, risk and

return, or as risk-adjusted shareholder value added measures. Management allocates resources

across the Company based on the risk appetite. Risk appetite can be expressed in qualitative or

quantitative terms.

c) Risk Management Processes

Risk management seeks to monitor the business risks and to keep risks within acceptable limits.

Risk management helps ensure that risk exposures do not become excessive relative to Anfaal’s

capital position and its financial position.

In all circumstances, all activities giving rise to risk must be identified, measured, managed and

monitored.


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d) Risk Culture

Risk awareness culture is a key aspect of an effective enterprise wide risk management framework and

the following are key factors of risk cultures:

- Strong corporate governance;

- Organization structure with clearly defined roles and responsibilities;

- Effective communication and training;

- Commitment to compliance with laws, regulations and internal controls;

- Integrity in fiduciary responsibilities;

- Clear policies, procedures and guidelines.

4.2 Credit Risk Disclosure

Credit risk is the potential loss of revenue as a result of failure by the customers or counterparties to

meet their contractual financial obligations. Anfaal’s exposure to credit risk is primarily from its Trade

Receivables. The credit term given to all customers of Anfaal including related parties is 30 days.

Currently, 100% of Anfaal’s Trade Receivables as disclosed in the financial statement are amount due

from related parties. The aging analysis of Trade Receivables is as follows:

SR’000 Amount due Current < 180 days 181-365 days > 365 days

Related Parties 5,545 5,545 0 0 0

Non-Related Parties 0 0 0 0 0

Total 5,545 5,545 0 0 0

% 100% 100% 0 0 0

Management does not considered the receivable balances to be impaired since the amounts are owed

by Anfaal’s related parties and are less than 180 days.

Management will only impair an amount that is past due when Management feels that it is highly

likely that the amount would not be recoverable upon which a specific provision for doubtful debt

shall be provided in the financial statements.

4.2.1 Credit Risk Mitigation

Credit Risk Mitigation (“CRM”) is the employment of various methods to reduce the risks to

organization or lenders which offer credit. The methods can include risk based pricing, or

adjusting the cost of credit according to the credit strength of the borrower; credit tightening,

or reducing the amount of credit available to higher risk applicants; diversification, or

increasing the portfolio mix of borrowers and purchasing credit insurance. Examples are

collateral and netting.

Anfaal does not grant credit facilities to its customers. The credit term stated on invoices to

customers including related parties is 30 days. Outstanding balances are monitored via ageing

report at the end of month. Reminders are sent for all outstanding invoices.


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4.2.2 Credit Risk Disclosure and Credit Risk Concentration

Table 3 presents Anfaal’s total gross credit risk exposures, plus average gross exposure over the year under review, broken down by major types of credit exposure, according credit risk concentration. A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic and other conditions.


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Table 3: Illustrative Disclosure on Credit Risk's Risk Weight

Risk Weights

Exposures after Netting and Credit Risk Mitigation

Governments and Central

Banks

Administrative Bodies and NPO

Authorised Persons

and Banks

Margin Financing

Corporates Retail Past Due

Items Investments Securitisation

Other Assets

Off-Balance Sheet

Commitments

Total Exposure after netting and

Credit Risk Mitigation

Total Risk Weighted

Assets

0% 0 0

20% 15,660 15,660 3,132

50% 0

100% 0

150% 446 19,127 19,573 29,356

200% 0

300% 5,545 1,355 9,600 20,700

400% 0

500% 0

714% (include prohibited exposure)

9,353 494 10,154 56,275

Average Risk Weight

Deduction from Capital Base


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Table 4: Illustrative Disclosure on Credit Risk's Rated Exposure

Exposure Class

Long Term Ratings of Counterparties

Credit Quality Step 1 2 3 4 5 6 Unrated

S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B- CCC+ and below Unrated

Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B- CCC+ and below Unrated

Moody's Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to Ba3 B1 to B3 Caa1 and below Unrated

Capital Intelligence AAA AA to A BBB BB B C and below Unrated

On and Off-Balance-Sheet Exposures

Governments and Central Banks

Authorised Persons and Banks

15,660

446

Corporates

Retail

Investments

19,127

Securitisation

Margin Financing

Other Assets

1,849

Total

15,660

21,422


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Table 5: Illustrative Disclosure on Credit Risk Mitigation (CRM)

Exposure Class Exposures

before CRM

Exposures covered by Guarantees/

Credit Derivatives

Exposures covered by Financial

Collateral

Exposures covered by Netting

Agreement

Exposures covered by other eligible

collaterals

Exposures after CRM

Credit Risk

On-Balance Sheet Exposures

Governments and Central Banks - - - - - -

Authorised Persons and Banks 16,107 - - - - 16,107

Corporates 0 - - - - 0

Retail - - - - - -

Investments 24,672 - - - - 24,672

Securitisation - - - - - -

Margin Financing - - - - - -

Other Assets 1,849 - - - - 1,849

Total On-Balance sheet Exposures 42,628 - - - - 42,628

Off-Balance Sheet Exposures

OTC/Credit Derivatives - - - - - -

Exposure in the form of repurchase agreements - - - - - -

Exposure in the form of securities lending - - - - - -

Exposure in the form of commitments - - - - - -

*Other Off-Balance sheet Exposures - - - - - -

Total Off-Balance sheet Exposures - - - - - -

Total On and Off-Balance sheet Exposures 42,628 - - - - 42,628

*Refer to Table 2 of Section 3.


- 47 -

4.3 Counterparty Credit Risk (“CCR”) and Off Balance Sheet Disclosure

CCR is the risk that the counterparties and clients defaulting on their obligation towards Anfaal. Know

Your Client (“KYC”) is a process that Anfaal has put in place to obtain as much as information about

the background of potential clients (i.e. their business, management, shareholders etc.) at the

beginning of every deal. KYC process enables Anfaal to select quality clients which should minimize

any counterparty credit risk.

As at balance sheet date, Anfaal’s credit risks are mainly from deposit in local banks and receivables

from the our managed Alfareeda Fund.

Anfaal does not have any off balance sheet exposures for year under review.

4.4 Market Risk Disclosure

Market risk is the risk of loss arising from movements in market variables, such as interest rates, credit

spreads, commodity prices, equity prices, risks related to investment funds and foreign exchange

rates. Market risk can be segregated into traded market risk and non-traded market risk. Anfaal has

already in place the risk management processes over both type of market risk within Anfaal’s Risk

Management Framework, in order to mitigate these types of risks.

As at balance sheet date, Anfaal’s market risk is minimum.

4.5 Operational Risk Disclosure

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and

systems or from external events. Operational risk is unavoidable as it is inherent in all investment

banking businesses. The objective of the operational risk management of Anfaal is to manage its

operational risk within an acceptable level.

Table 2 presents the minimum regulatory capital requirements for the risks describe from 4.2 to 4.6 of

Anfaal.

4.6 Liquidity Risk Disclosure

Liquidity risk is the risk that Anfaal is unable to maintain sufficient liquid assets to meet its financial

commitments and obligations when they fall due or securing the funding requirements at excessive

rate.

annual report - anfaal capital€¦ · the pillar 3 disclosure comprises both qualitative and...

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