CONTANNUAL REPORT AND FINANCIAL STATEMENTSFOR THE YEAR ENDED 31ST DECEMBER 2007CONTENTSPAGECORPORATE INFORMATION2REPORT OF THE DIRECTORS3STATEMENT OF DIRECTORS' RESPONSIBILITIES4REPORT OF THE INDEPENDENT AUDITOR5FINANCIAL STATEMENTS:INCOME STATEMENT6BALANCE SHEET7STATEMENT OF CHANGES IN CAPITAL FUNDS8CASHFLOW STATEMENT9NOTES TO THE FINANCIAL STATEMENTS10 -17

Co InfoANNUAL REPORT AND FINANCIAL STATEMENTSFOR THE YEAR ENDED 31ST DECEMBER 2007CORPORATE INFORMATIONDIRECTORS:Ms. Miriam Cherogony:ChairpersonMr. Austin T. Menya:Vice- ChairpersonMr. Stephen M. Mirero :TreasurerMrs. Gladys N. TarayiaMr. John S. KimathiMrs. Mwanjuma A. AbokDr. Roselyne GakureMr. Henry IkatukhuMs. Lillian A OwitiREGISTERED OFFICE:Ngong Lane, off Ngong Road,P.O. Box 76622-00508, NAIROBIPhone: +254-20-3870280, 3864901Fax: + 254-20-3871531Cell: +254-722-200083, 736-175004Email: sisdo@sisdo.orgWebsite: http\\:www.sisdo.orgAUDITORS:Wachira Irungu & AssociatesDominion House, WestlandsP.O. Box 46671 - 00100Nairobi, KenyaBANKERS:Co-operative Bank of KenyaCo-operative Bank of KenyaNairobi Business Centre,P.O. Box 1250-90100,P.O. Box 19555-00202.MACHAKOS.NAIROBI.Co-operative Bank of KenyaKenya Commercial BankP.O. Box 12253-10100,P.O. Box 7014,NYERI.CHUKA.Co-operative Bank of KenyaNational Bank of KenyaP.O. Box 101-60400,P.O. Box 240CHUKA.LIMURU.Kenya Commercial BankP.O. Box 65659-00400,MILIMANI, NAIROBI.

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Drcts RptANNUAL REPORT AND FINANCIAL STATEMENTSFOR THE YEAR ENDED 31ST DECEMBER 2007REPORT OF THE DIRECTORS1FINANCIAL STATEMENTSThe directors have the pleasure in presenting their report together with the audited Financial Statements for the yearended 31st December 2007.2PRINCIPAL ACTIVITYThe principal activity of the organisation is lending to small-income earners two major types of loans, namely business andagriculture loans both of which are based on the group lending methodology. Existing borrowers are entitled to add-onloans to cover school fees, emergencies and asset financing.3RESULTSThe results for the year are set out on page 6.4DIRECTORSThe directors who held office during the year are shown on page 2.6AUDITORSM/s Wachira Irungu & Associates were appointed during the year and have expressed their willingness to continue inoffice in accordance with section 159(2) of the Kenyan Companies Act (Cap 486).BY THE ORDER OF THE BOARDSECRETARY----------------------------------------DATE---------------------------------------

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Drcts RespANNUAL REPORT AND FINANCIAL STATEMENTSFOR THE YEAR ENDED 31ST DECEMBER 2007STATEMENT OF THE DIRECTORS' RESPONSIBILITIESThe Non-Governmental Organisation (NGO) Coordination Act requires the directors to prepare financialstatements for each financial year, which give a true and fair view of the state of the financial affairs of thecompany as at the end of the financial year and of its operating results for that year.It also requires the directorsto ensure that the company keeps proper accounting records which disclose with reasonable accuracy at anytime, the financial position of the company.They are also responsible for safeguarding the assets of theorganisation.The directors are responsible for the preparation of these financial statements in accordance with InternationalFinancial Reporting Standards. This responsibility includes: designing, implementing and maintaining internalcontrols relevant to the preparation and fair presentation of financial statements that are free from materialmisstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, andmaking accounting estimates that are reasonable in the circumstances.The directors accept responsibility for the annual financial statements, which have been prepared usingappropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformitywith International Financial Reporting Standards and the requirements of the NGO Coordination Act. Thedirectors are of the opinion that the financial statements give a true and fair view of the state of the financialaffairs of theorganisation and of its operating results. The directors further accept responsibility for themaintenance of accounting records which may be relied upon in the preparation of financial statements, aswell as adequate systems of internal financial control.Nothing has come to the attention of the directors to indicate that the organisation will not remain a goingconcern for at least twelve months from the date of this statement.DIRECTOR.DATE.DIRECTOR.DATE.

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Aud RptANNUAL REPORT AND FINANCIAL STATEMENTSFOR THE YEAR ENDED 31ST DECEMBER 2007REPORT OF THE INDEPENDENT AUDITORS TO MEMBERS OF SISDOREPORT ON FINANCIAL STATEMENTSWe have audited the accompanying financial statements of Smallholder Irrigation Scheme Development Organisation (SISDO) set out on pages 6 to 17 which comprise the balance sheet as at 31st December 2007, and the income statement, the statement of changes in capital funds and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes and have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.DIRECTORS' RESPONSIBILITY FOR THE FINANCIAL STATEMENTSThe directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the NGO Coordination Act. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. The NGO Coordination Act also requires the directors to ensure that the organisation maintains proper books of accounts which are in agreement with the balance sheet and profit and loss account.AUDITOR'S RESPONSIBILITYOur responsibility is to express an independent opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, we considered the internal control relevant to the organisation's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of organisation's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors,as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our audit opinion.OPINIONIn our opinion, the financial statements give a true and fair view of the state of financial affairs of the organisation at 31st December 2007 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the NGO Coordination Act.CERTIFIED PUBLIC ACCOUNTANTSDOMINION HOUSE, MUTHITHI ROADP.O. BOX 46671 - 00100NAIROBIDATE:....

&C&PWachira Irungu & Associates

Inc StmntFINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007INCOME STATEMENT20072006RestatedNoteKshsKshsIncome261,915,71333,592,944Operating Expenses369,227,48642,883,456Operating Loss(7,311,773)(9,290,512)Grants Received73,098,7366,107,785Finance Costs47,226,9063,633,143Net Loss for the Year(11,439,943)(6,815,870)

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BsheetFINANCIAL STATEMENTS FOR THE YEAR ENDED31ST DECEMBER 2007BALANCE SHEET20072006RestatedNoteKshsKshsASSETSNon Current AssetsProperty, Equipment & Software1 (d) & 523,319,48820,951,068Intangible Assets1 (e) & 62,645,265109,39625,964,75221,060,464Current AssetsNet Outstanding Loans8215,985,108135,451,49180,533,618Other Receivables and Prepayments92,684,6091,534,08480,533,617Cash & Cash Equivalents1032,164,63344,427,3781250,834,350181,412,953TOTAL ASSETS276,799,102202,473,417FUNDS AND LIABILITIESCapital FundsRevolving Loan Fund1153,723,17353,723,173173532General Fund12(6,656,767)4,783,17647,066,40658,506,349Non-Current LiabilitiesLong-term loans1361,000,00031,000,00061,000,00031,000,000Current LiabilitiesShort-term loans146,200,0009,033,335Collateral Deposits15155,476,880102,894,832Trade and Other Payables167,055,8161,038,901168,732,696112,967,068TOTAL EQUITY AND LIABILITIES276,799,102202,473,417The Financial Statements on pages 6 to 17 were approved for issue by the directorson__________________ and signed on their behalf by:DIRECTOR: ________________________DIRECTOR: ________________________0.7700

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StmntFINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007STATEMENT OF CHANGES IN CAPITAL FUNDSRevolving Loan FundProperty & Equipment FundVehicle FundAccumulated FundTotalKshsKshsKshsKshsKshsAt 01/01/200653,723,1731,299,1812,621,4267,506,74765,150,527Deficit for the Year- Restated0.00.00.0(6,815,870)(6,815,870)Transfer to Property Fund0.07,000,0000.0(7,000,000)0.0Prior Year Items0.00.00.0171,692171,692Transfer to/(from) Accumulated Fund0.0819,36117,174(836,535)0.0At 31/12/200653,723,1739,118,5422,638,600(6,973,966)58,506,349At 01/01/200753,723,1730.09,118,5420.02,638,6000.0(6,973,966)0.058,506,349Deficit for the Year0.00.00.0$(11,439,943)$(11,439,943)Transfer to/ (from) Accumulated Fund0.0$2,858,306$13,406$(2,871,712)0.0At 31/12/2007$53,723,1730.0$11,976,8480.0$2,652,0060.0$(21,285,622)$47,066,406

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CFLOWFINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007CASHFLOW STATEMENT20072006RestatedNoteKshsKshsNet Cash Used in Operations17(27,935,717)(13,390,341)Investing ActivitiesInvestment Income397,324-Interest received-1,260,142Purchase of Property & Equipment5(3,904,346)(20,479,495)Acquisition of computer software6(3,858,501)(164,094)Net cash used in investing activities(7,365,523)(19,383,447)Financing ActivitiesBank loans received30,000,00037,200,000Bank loan repayment(2,833,336)(4,761,904)Interest on borrowings paid(4,376,778)(1,929,407)Interest on collateral deposits(2,297,687)(1,703,736)Loan processing fees(552,440)-Grants received3,098,7366,107,785Net cash generated from financing Activities23,038,49534,912,738Net (Decrease)/ Increase in Cash and Cash Equivalents(12,262,745)2,138,950Cash and cash equivalents at the beginning of the year44,427,37842,288,428Cash and Cash Equivalents at the End of the Year932,164,63344,427,37800

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Note1(a-f)FINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007NOTES TO THE FINANCIAL STATEMENTS1Summary of significant accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below.a)Basis of PreparationThe financial statements are prepared in accordance with International Financial Reporting Standards(IFRS). The financialstatements are presented in Kenya Shillings (Kshs) and are prepared under the historical cost basis of accounting.The preparation of financial statements in conformity with IFRS requires the use of assumptions that affect the reportedamounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expensesduring the reported period. It also requires the directors to exercise judgement in the process of applying the company'saccounting policies. These policies have been consistently applied during the year unless otherwise stated.(25,655,000)b)Revenue RecognitionInterest on loans is recognised when the amount is received with effect from 1st January 2007. Prior to this date, interest wasbeing recognised on accrual basis.c)Change of an accounting policyDuring the year under review, the management considered it more prudent to recognise as income interest on loans only whenthis is actually received by the organisation. This is a major departure from prior reported periods whereby interest on loanearned but not yet received was recognised as income receiveable for the period. The decision was informed by the experiencethat much of this interest receiveable is not subsequently collected. The effect of this change was to write off the deferredinterest income amounting to Kshs 25,655,000 against the loans receivable as on 31/12/2007.d)Property & EquipmentProperty & Equipment are stated at historical cost less accumulated depreciation. Depreciation is calculated on a reducingbalance method to write down their cost or revalued amounts to their residual values over their estimated useful lives usingthe following annual rates:RateLandNilBuildings2.5%Office equipment, furniture & fittings12.5%Computers33%Gains and losses on disposal of property & equipment are determined by reference to their carrying amounts and are takeninto account in determining operating profit.e)Intangible AssetsIntangible Assets comprise the cost of purchased computer software programs. Costs incurred on computer software areinitially accounted for at cost as intangible assets and subsequently at cost less any accumulated amortisation and accumulatedimpairment losses. Intangible assets are amortised on a reducing balance basis over their expected useful life of 3 years.f)Employee BenefitsThe organisation and all its employees contribute to the National Social Securiy Fund (NSSF), which is a defined contributionscheme registered under the National Social Security Act. The company's obligations under the scheme are limited tospecific contributions legislated from time to time and are currently limited to a maximum of Kshs 200 per employee permonth. The company's obligations are recognised in the income statement as they fall due.

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Note g-kFINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007NOTES TO THE FINANCIAL STATEMENTS (CONT'D)g)Financial InstrumentsFinancial assets and financial liabilities are recognised on the entity's balance sheet when the institution has become a party to the contractualprovisions of the instrument.Loans and receivables originated by the organisationLoans and receivables are carried at anticipated realisable value. An estimate is made for doubtful receivables based on the review of all outstandingamounts at the year end. In addition, general provisions are maintained based on managements evaluation of the portfolio of loans to SISDO's customersand other exposures in respect of losses which, although not specifically identified, are known from experience to be present in any such portfolio.When a loan is deemed uncollectable it is written off against the related bad debt provision and/ collateral deposits from the customer held by the organisation.Subsequent recoveries of loans that have been written off are credited to the income statement.Trade and Other PayablesTrade and other payables are stated at their nominal value.BorrowingsInterest-bearing loans and bank overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are notsettled in the period in which they arise. Borrowing costs are charged to the income statement when incurred.h)ImpairmentAt each balance sheet date, the company reviews the carrying amounts of its financial assets, tangible and intangible assets to determine whether there isany indication that those assets have suffered an impairement loss. If any such indications exists, the recoverable amounts of the assets are estimated andan impairment loss is recognised in the income statement whenever the carrying amount of the asset exceeds its recoverable amount.i)Critical Judgements and EstimatesIn the process of applying the company's accounting policies, management has made estimates and assumptions that affect the reported amounts ofassets and liabilities within the next financial period. Estimates and judgements are continually evaluated and are based on historical experience and otherfactors including expectations of future events that are believed to be reasonable under the circumstances. These are dealt with below:EquipmentCritical estimates are made by the directors in determining the useful lives and depreciation rates for equipment.ImpairementIf an indication exists that the company's assets have suffered an impairement loss at the balance sheet date, the directors estimate the asset'srecoverable amount.j)Cash & Cash EquivalentsFor the purpose of the cashflow statement, cash and cash equivalents comprise cash in hand and bank balances.k)ComparativesWhere necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. In particular, comparative figureshave been adjusted to comply with the presentation as per the International Financial Reporting Standards.

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Note 2-3FINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007NOTES TO THE FINANCIAL STATEMENTS (CONT'D)20072006RestatedKshsKshs2Incomea)Interest on loans54,698,08528,295,089b)Other incomeLoan application fees4,496,7912,201,873Bank interest-954,052Registration fees964,410760,320Passbook fees790,166643,501Bad debts recovered336,564383,530Investment income397,325306,090Penalties and exit fees232,37248,4897,217,6285,297,85561,915,71333,592,9443Operating ExpensesPersonnel29,717,10122,410,983Bad debts written off3,232,5151,576,936Transport and travel4,844,7552,762,205Rent & rates1,101,7851,749,524Board travel1,514,6281,646,184Stationery and printing1,643,0351,309,331Communication1,873,0361,219,490Training1,185,3861,122,108Office expenses700,840534,229Bank charges1,069,311501,400Advertisement & publicity498,405442,705Licenses and permits486,590291,500Client mobilization & market research125,100228,350Electricity and water242,511190,603Provision for audit fees200,000196,040Security144,000195,024Legal fees37,450183,850Repairs & Maintenance314,281175,471Subscription84,800147,300Consultancy121,429607,470Insurance54,12652,513Transformation costs210,809-Performance incentives and awards378,107208,788Foreign exchange loss577,970-Evaluation costs876,288-Provision for bad and doubtful debts15,134,6684,249,146Provision for depreciation1,535,927827,608Amortisation of intangible assets1,322,63254,69869,227,48642,883,456

&C&PThomas: Include a diff. 253 notes in the depreciation charge.Thomas: RestatedThomas: Restated

Note 4-5FINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007NOTES TO THE FINANCIAL STATEMENTS (CONT'D)20072006KshsKshs4Finance CostsInterest on borrowings4,376,7781,929,407Loan processing fees552,440-Interest on collateral deposits2,297,6881,703,7367,226,9063,633,1435Property & EquipmentCOST/VALUATIONLandBuildingOffice Equipment, Furniture & FittingsComputersTotalsKshs.Kshs.Kshs.KshsKshs.At 01/01/20060.00.0$1,007,755$1,062,741$2,070,496Additions$14,720,010$4,000,000$669,755$1,253,824$20,643,589At 31/12/2006$14,720,010$4,000,0000.0$1,677,510$2,316,565$22,714,085At 01/01/2007$14,720,010$4,000,000$1,677,510$2,316,565$22,714,085Transfers to Intangible assets ( Note 6)0.00.00.0$(164,094)$(164,094)Additions0.0962,002422,2542,520,090$3,904,346At 31/12/2007$14,720,010$4,962,002$2,099,764$4,672,561$26,454,337DEPRECIATIONAt 01/01/20060.00.0$276,163$495,152$771,315Charge for the year0.0$100,000$175,168$607,138$882,306On transfers0.00.00.0$(54,698)$(54,698)At 31/12/20060.0$100,0000.0$451,331$1,047,592$1,598,923At 01/01/20070.0$100,000$451,331$1,047,592$1,598,923Charge for the year0.0$121,550$206,054$1,208,323$1,535,927At 31/12/20070.0$221,550$657,385$2,255,915$3,134,850NET BOOK VALUEAt 31/12/2007$14,720,010$4,740,4520.0$1,442,379$2,416,646$23,319,487At 31/12/2006$14,720,0100.0$3,900,0000.0$1,226,179$1,104,879$20,951,068During the year, computer software was re-categorised as an intangible asset (Note 6) so as to complywith IAS 38.

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NOTE 6-11FINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007NOTES TO THE FINANCIAL STATEMENTS (CONT'D)20072006RestatedKshsKshs6Intangible AssetsCostAt 1st January164,094-Additions3,858,501164,094At 31st December4,022,595164,094AmortisationAt 1st January54,698-Charge for the year1,322,63254,698At 31st December1,377,33054,698Net Book ValueAt 31st December2,645,265109,3967Grants ReceivedOxfam Novib2,767,2366,107,785Oxfam International331,500-3,098,7366,107,7858Net Outstanding LoansMicro-entreprise198,637,019121,417,101Agriculture29,426,14238,758,583Agri-business6,713,5565,868,921Other products4,588,5563,307,383Gross loans receivable239,365,273169,351,988Deferred interest income derecognised (Note 1(c ).-(25,655,000)Loan loss provision(23,380,165)(8,245,497)215,985,108135,451,4919Other Receivables and PrepaymentsStaff car-loans1,070,676428,722Rent deposits384,156347,656Prepayments1,081,214714,873Sundry debtors64,94432,204Field staff travel imprest83,61910,6292,684,6091,534,08410Cash and Cash EquivalentsFor purposes of the cashflow statement, cash and cash equivalents compriseof the following:Bank balances32,149,8536,171,288Fixed deposits-27,950,000Money market fund-10,306,090Petty cash in hand14,780-32,164,63344,427,37811Revolving FundBalance at 31st December53,723,17353,723,173This represents funds received from donors for on-lending.

&C&PThomas: RestatedThomas: Restated

Note 12-16FINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007NOTES TO THE FINANCIAL STATEMENTS (CONT'D)20072006RestatedKshsKshs12General FundBalance brought forward4,783,17611,427,354Prior year adjustment-171,692Net loss for the year(11,439,943)(6,815,870)Balance at 31st December(6,656,767)4,783,17613Long-term LoansOxfam Novib- Long term loan31,000,00031,000,000MESPT loan30,000,000-61,000,00031,000,000Oxfam Novib loan is secured by SISDO's portfolio for a total amount of 150% of the outstanding loan plus interestdue in favour of the lender. The loan is repayable in six equal capital instalments, commencing 31/12/2007.Interest is charged at a rate of 6% plus the yearly rate of inflation in Kenya; but the maximum rate is fixed at 11%per annum.MESPT loan is secured by a floating debenture over all of SISDO's assets, book debts and property. The loan isrepayable in 3 years from the date of disbursement. Interest is charged at a flat rate of 5% per annum subject tochange depending on the prevailing market conditions.20072006KshsKshs14Short-term LoansOxfam Novib- Short term loan6,200,0006,200,000Jitegemee trust loan-2,833,3356,200,0009,033,33515Collateral DepositsBalance at 31st December153,179,192101,191,096Provision for interest payable on the deposits2,297,6881,703,736155,476,880102,894,83216Trade and Other PayablesTrade payables401,045-Accrued expenses2,819,837781,051Other payables3,577,084-Contingent liability (Note 20)257,850257,8507,055,8161,038,901

&C&PThomas: RestatedThomas: Restated

Note 17-18FINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007NOTES TO THE FINANCIAL STATEMENTS (CONT'D)20072006RestatedKshsKshs17Cash Generated From OperationsOperating loss(7,311,773)(9,290,512)Adjustments for:Depreciation1,535,927827,608Amortisation1,322,63254,698Investment Income(397,324)(306,090)Interest income-(954,042)Prior year adjustment-171,692Operating Loss Before Working Capital Changes(4,850,538)(9,496,646)Increase in loans to customers(80,533,617)(46,693,882)(Increase)/decrease in other receivables & prepayments(1,150,525)694,744Increase in trade and other payables6,016,915385,552Increase in deferred interest income-6,202,793Increase in collateral deposits52,582,04835,517,098Net Cash Used in Operations(27,935,717)(13,390,341)32647218Financial Risk Management Objectives and PoliciesThe organisation's activities expose it to a variety of financial risks, including credit risk and the effects ofchanges in foreign currency exchange rates and interest rates. The organisations overall risk managementprogramme focuses on the unpredictability of financial markets and seeks to minimise potential adverseeffects on its financial performance, but the organisation does not hedge any risks.Risk management is carried out by the management of the organisation in accordance with policies approvedby the Board of Directors.Foreign exchange riskThe organisation's operations are predominantly in Kenya, where the currency has remained relatively stableagainst major convertible currencies.A significant portion of the organisations borrowings and grants aredenominated in foreign currencies, and is therefore exposed to foreign exchange risk arising from variouscurrency exposures, primarily with respect to the US dollar and Euro. Foreign exchange risk arises from futurecommercial transactions, and recognised assets and liabilities.Credit riskThe organisation takes on exposure to credit risk, which is the risk that a counter party will be unable to payamounts in full, when due. The organisation structures the levels of credit risk it undertakes by placing limitson amounts of risk accepted in relation to one borrower or group of borrowers. Such risks are monitored on arevolving basis and subject to annual or more frequent review.The organisation's credit risk is concentrated on low-income earners of the economy engaged in smallholdercrop and dairy farming, agribusiness and other micro-enterprises. Exposure to credit risk is managedthrough regular analysis of the ability of borrowers and potential borrowers to meet interest and capitalrepayment obligations and by changing lending limits where appropriate. Exposure to credit risk is alsomanaged in part by obtaining collateral and group guarantees.

&C&PThomas: the diff. of 252 noted and put under repairs in the P&L minused here.Thomas: RestatedThomas: Restated

Note18-23FINANCIAL STATEMENTS FOR THE YEARENDED 31ST DECEMBER 2007NOTES TO THE FINANCIAL STATEMENTS (CONT'D)18Financial Risk Management Objectives and Policies (cont'd)Liquidity riskPrudent liquidity risk management includes maintaining sufficient cash balances to cover anticipated depositrefunds to exiting customers and loan repayment instalments that fall due. Excess liquid funds are investedin assets that can be easily liquidated.Operational RiskThe company is exposed to operational risk which is associated with human error, system failures andinadequate procedures and controls. The company ensures that there is an effective, integratedoperational risk management framework that incorporates a clearly defined organizational structure, withdefined roles and responsibilities for all aspects of operational risk.19Restatement of prior year comparativesThis relates to corrections made to opening balances of various items so as to fairly state them in thecurrent year.20Contingent LiabilitiesA former employee sued the organisation fpr alleged wrong computation of his terminal benefits. The matteris pending in court and the expected contingent liability of Kshs. 257,850, has been provided for.(2006: Kshs. 257,850)21Foreign CurrencyTransactions during the year in foreign currencies are translated at the rates ruling at the dates of thetransactions. Assets and liabilities denominated in foreign currencies at the end of the year are translatedat the rates of exchange ruling at the balance sheet date. Gains and losses on exchange are dealt with inthe income statement in the year in which they arise.22IncorporationThe organisation is domiciled and registered in Kenya as a Non Governmental Organisation (NGO) underthe Non- Governmental Organisations Coordination Act, 1990.23CurrencyThe financial statements are expressed in Kenya Shillings(Kshs).

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