1. Developed by Gilbert & Samuels Company Limited Suva, Fiji Email : gilbert@gilbert.com.fj August – October 2013 1 Association of Development Financing Institutions in the Pacific

2. What are your Expectations? Where do you see the ADFIP in 5 years? What is the Vision?What is the Mission?What are the Strategic Goals? What are the actions to deliver Strategic Goals? Methodology 2 Association of Development Financing Institutions in the Pacific Environment : Internal External Trends

3. View of ADFIP As Is 3 Key : Very Poor Adequate Excellent 1 2 3 4 5 Association of Development Financing Institutions in the Pacific

4. Expectations State : Need to grow (and be more like ADFIAP) or lose relevancy. Need for raise capacity and increase resources Function/Purpose : Increased assistance to members ADFIP to justify existence and prove its relevance by assisting in the advancement of member DFIs Improve things such as training for staff Increased knowledge sharing and experience among members DFIs to improve networking amongst themselves and share more experience to optimize costs Develop training modules and programs relevant to members’ training needs and requirements Assist members with securing additional capital and funding 4 Association of Development Financing Institutions in the Pacific

5. Expectations Function/Purpose (cont.d) : Harmonise member efforts on common strategic activities: eg financing for renewable energy and energy efficiency programs. Work more closely as a team to address issues of global warming and renewable energy Complete and keep ongoing member benchmarking Regularly update members on office matters/member news Act as member representatives to regional meets/conferences/ events Grow partnership organisations and advocate for ADFIP members Enhance coordination with members and strategic partners/donors Be a stronger spokesman and player within the financial sector of the Pacific region 5 Association of Development Financing Institutions in the Pacific

6. Expectations (cont.d) Given borrowing constraints/capacity of individual members and limitations to operate on a regional basis, consider studying development of a regional public/private financial institution, such as a Pacific Investment Bank Learn from experience of PIPSO 6 Association of Development Financing Institutions in the Pacific

7. Where do you see ADFIP in the next 5 years? Depends on the strategic plan members will put in place and how effective it will be An organization with more resources and capacity to be able to deliver on its mission and assist individual members with their unique and respective needs More important role and spokesman Stronger links to development partners and regional organisations Stronger and more frequent governance system Doing things that ADFIP normally do but not doing now ADFIP to grow and be more active in partnering with other international organisations to attract assistance of international organizations for ADFIP members Particularly, members who are too small to deal with the international organisation themselves 7 Association of Development Financing Institutions in the Pacific

8. Where do you see ADFIP in the next 5 years? ADFIP to remain as a body. Relevance in the changing landscape of Pacific Islands region is a concern ADFIP is seen not just as a central body, but also as a trusted advisor to members as outlined in the words of the vision: anticipate; respond; create. Unless members are serious and committed in bringing about major change in the role of ADFIP, things may not progress too far ahead from they are at present ADFIP to be developed to a much closer and stronger network of DFIs providing relevant banking solutions for Pacific Island nations ADFIP can develop a data base of DFIs’ information/data that members can access ADFIP should stress the role of Development Bank for the financing of renewable energy and energy efficiency projects. More strategic alliances with commercial banks 8 Association of Development Financing Institutions in the Pacific

9. Suggested Vision Suggested Vision after Phase 1 Survey : “To provide premier services to our members that will bring about increased prosperity for their customers while contributing to the economic development of Pacific Island Countries” 9 Association of Development Financing Institutions in the Pacific

10. Suggested Vision (cont.d) Comments from Survey Phase 2 : “To be the ultimate resource for development finance services and be the most influential advocate for financial inclusion … effectively collaborating for regional solutions.” “To be the pre-eminent knowledge and advocacy focal point of financing sustainable development in the Pacific region.” Revision 1: Successfully serve our members to sustain prosperous economies for all our people in the Pacific. Revision 2:Serve our members to sustain prosperous economies for all our people in the Pacific. Revision 3: Serve our members to sustain prosperous economies for our people in all Pacific Island Countries. 10 Association of Development Financing Institutions in the Pacific

11. Suggested Vision (cont.d) Comments from Survey Phase 2 : Setting high expectations with the formulation of “premier” services especially in consideration of staff and organisational constraints of the ADFIP Secretariat and the governance system It should not only include economic development but also mention social development and combat of impacts caused by climate change. Perhaps include the words “effectively” and “efficiently” to stress the aim of enhancing the member’s financial sustainability and capacity. The “visions” should to be linked to the particular challenges their members face, be they regulatory, funding, sectoral in promoting development finance. 11 Association of Development Financing Institutions in the Pacific

12. Suggested Vision (cont.d) Revised Vision Suggested : 12 “To be the premier knowledge and advocacy focal point in the financing of sustainable economic and social development within the Pacific Islands region.” Association of Development Financing Institutions in the Pacific

13. Suggested Mission Suggested Mission after Phase 1 Survey : “We contribute to development finance initiatives in Pacific Island Countries by enhancing the capacity of our members through : advocating development finance and its benefits training and capacity development building and coordinating relationships with other providers of similar services and donor agencies, and providing other advisory services that our members need.” 13 Association of Development Financing Institutions in the Pacific

14. Suggested Mission (cont.d) Comments from Survey Phase 2 : Sounds OK except that you need to also mention something about ‘sustaining membership’ Revision: ADFIP will contribute in an efficient, responsive and collaborative manner to development finance initiatives that enhance the capacity of our members through: advocating development finance issues and their benefits (suggest a verb to start the sentence as with the other points) training and capacity development building and coordinating relationships between members, other providers of similar services and donor agencies, and providing other advisory services that our members need.” 14 Association of Development Financing Institutions in the Pacific

15. Suggested Mission (cont.d) Comments from Survey Phase 2 : “To contribute to the sustainable development of the Pacific by advancing development finance programs and practices through knowledge-sharing, training and capacity enhancement, advisory support, building partnerships and advocacy work.” Suggest rewording to: “advocating development finance benefits and possible issues in the policy dialogue with Governments and the dialogue with other stakeholders” It should also include something on “sustaining membership” or membership care and support in order to maintain level of members Proposal of a three-fold mission; (i) promoting training and development amongst its members, (ii) influencing development of national and regional policies and legal frameworks and (iii) facilitating access and integration with regional and international financial institutions such as the EIB. 15 Association of Development Financing Institutions in the Pacific

16. Suggested Mission (cont.d) Revised Mission Suggested : 16 “We contribute in an efficient, responsive and collaborative manner that sustains our membership, to the sustainable development of Pacific Island Countries by : advocating development finance benefits and practices facilitating training and capacity development of our members building partnerships between members, with Governments, providers of similar services, donor agencies and other stakeholders providing other advisory services that our members need.” Association of Development Financing Institutions in the Pacific

17. External Trends – Current Political/financial relationship with the (US) government Long-term funding sources Mobilising and leveraging affordable funds Declining level of funding under the Compact with (US) government Competition in the financial sector Rapid technological changes, especially those connecting the islands (telecommunication and transportation) Roles, responsibilities, and priorities of donor countries Limited market prospects for products developed that hinder prospect of new developments within a country Climate changes affecting small island countries 17 Association of Development Financing Institutions in the Pacific

18. External Trends – Current Ongoing threat of commercial banks stealing good clients after development banks helped establish and set up clients Note : A client’s move to a commercial bank is usually a commercial decision e.g. lower interest rates. This is a good indicator that Development Banks are successfully fulfilling their role i.e. assisting business clients establish themselves to a level that they are sufficiently strong to venture into a more competitive financial market. Present trends towards financial literacy and inclusion to reduce poverty ADB’s move away from advocating the Development Bank model Members strategic alignment with National Development plans Regional recognition / alignment / perception of ADFIP and member development banks (financial institutions) and bank model in terms of financial performance and governance 18 Association of Development Financing Institutions in the Pacific

19. External Trends – Current (cont.d) Members own recognition in-country by Government, business community, general community ADFIP lacks the level of recognition it deserves from the respective Governments of each member country Although majority of member countries have small economies and are geographically scattered, they face similar challenges and have common needs Members individual efforts to resolve economic issues may not be as effective as that of a consolidated regional approach through ADFIP Current economic conditions likely to continue for the duration of the planned period Continuing low interest on deposits leading to reduced cost of funding for DFIs Pressure to reduce lending rates so that benefits of reducing cost of funds can be shared with the customers 19 Association of Development Financing Institutions in the Pacific

20. External Trends – Current (cont.d) DFIs need to know how to align their operations and services in order to address the impact these external factors (e.g. regional/global issues including Climate Change, Renewable Energy, Environment and Social Impact Assessments, Carbon Credits, etc) may have in the respective economies in which they serve ADFIP should access appropriate resources and expertise on behalf of member DFIs to assist them facilitate necessary adjustments in response to these external factors. DFIs have evolved to meet the challenges in the financial markets Greed of players in the financial systems (banks, investment banks, mortgage brokers, financial planners etc) blamed for current global economic and financial difficulties Strategies developed not to lose sight of global trends and identify means to mitigate the trends for island economies 20 Association of Development Financing Institutions in the Pacific

21. External Trends – Future Environmentally friendly projects Change in potential membership organisations i.e. Housing Finance, Micro Finance, etc Source of funds for members’ portfolio growth Technology and how member organisations interact with their clients Changing and evolving client expectations Member countries regulatory environments : Anti Money Laundering etc DFIs to consolidate efforts towards promoting the use of renewal energy i.e. move towards use of wind and solar power and away from fossil fuels Ongoing improvement in the use of technology to provide banking services ADFIP Secretariat to build relationships with appropriate bodies and be abreast with developing trends to be able to advise members 21 Association of Development Financing Institutions in the Pacific

22. External Trends – Future (cont.d) Impact of global warming in the Pacific Islands nations to continue to be a reality and will become a major threat to DFIs way of doing business, especially in small land low lying islands Government support & relationship Expiring political/financial relationship with US government Enabling policies and incentives “Arms length” relationship Performance & impact measurement To include options to support ADFIP members seek more commercial activities Role in the financial system Capital market catalyst Complementarity and additionality 22 Association of Development Financing Institutions in the Pacific

23. Internal Trends Governance & Management Dimensions Strategic visioning and direction: balancing between mission & sustainability Board-Management structure & processes Financial discipline & risk management Corporate culture & human capital strengthening Reputation & brand building 23 Association of Development Financing Institutions in the Pacific

24. Operational Challenges of DFIs – World Bank/World Federation of DFIs Survey Based on the World Bank & World Federation of DFIs survey, with the assistance of ADFIAP as WFDFI Secretariat, the following are key operational challenges of DFIs: What are the most important challenges faced by your institution going forward? % of DFIs Improve loan recovery ratio83% Improve risk-management capacity76% Become financially self-sustainable71% Diversify business operations63% Improve corporate governance and transparency50% Acquire more flexibility to hire and retain highly qualified staff 45% Reduce undue political interference38% 24 Association of Development Financing Institutions in the Pacific

25. Strategic Goals for the next 5 years Comments from Phase 2 Survey : The acronym is SPARK which stands for the following: Sustaining Membership Promoting Advocacy Advancing Human Capital development Revving up resources Keeping alliance Strategic Goal 1: Advocate development finance issues and their benefits Strategic Goal 2: training and capacity development Strategic Goal 3: building and coordinating relationships with other providers of similar services and donor agencies Strategic Goal 4: providing other advisory services that our members need 25 Association of Development Financing Institutions in the Pacific

26. Strategic Goals for the next 5 years Comments from Phase 2 Survey (cont.d) : 1. To establish a formal relationship with the Forum Secretariat as the agency that Forum members acknowledge as the conduit for financial assistance from the international financial institutions and other donor agencies of the world 2. To establish formal relations with all donor agencies to be the conduit for assistance to the various members of ADFIP. 3. To raise funding by organizing relevant trainings programs in Fiji. 4. To solicit donor contribution to the activities of ADFIP. 5. To make ADFIP relevant to the changes conditions of the world, in terms of technology, climate change, financial literacy, improvement of women’s participation in economic development and food security. 26 Association of Development Financing Institutions in the Pacific

27. Strategic Goals for the next 5 years Comments from Phase 2 Survey (cont.d) : L – iven up membership: this means increasing both members’ base and benefits, engaging more with its members, partners and donors as well as enhancing business model growth and brand equity I – mprove people and institutional capacities: this connotes enhancing knowledge access through training and capacity-building as well as consulting and advisory services through pooling of expertise and partnerships N – urture advocacy work and partnerships: this appertains to leveraging the avowed mission of DFIs as development catalysts and trailblazers and promoting the same to its constituencies and to the public-at-large through alliances and cooperation with like-minded organizations, partners and donors. K – eep enhancing financial capacity: this relates to increasing and sustaining financial resources needed to operate the association effectively and efficiency 27 Association of Development Financing Institutions in the Pacific

28. Strategic Goals for the next 5 years Comments from Phase 2 Survey (cont.d) : Increase members and strategic alliances with external parties and organisations Enhance reputation and brand image Increase financial resources and sources of funding Improve marketing and develop/implement a communication plan 28 Association of Development Financing Institutions in the Pacific

29. Strategic Goals for the next 5 years [This covers all suggestions provided by other respondents to Phase 2 Survey.] 29 C develop Capacity and human resources R rev utilisation of Resources E Establish alliances A Advocate development finance issues and benefits M strengthen Membership Association of Development Financing Institutions in the Pacific

30. Strategic Goals for the next 5 years CREAM Association of Development Financing Institutions in the Pacific 30

31. Actions to achieve Strategic Goals Comments from Phase 2 Survey : Present a proposal to Forum Secretariat seek endorsement from the Forum member countries to recognize ADFIP and its roles. Establish formal relations with ADFIAP, ADFIM and other similar regional organization to learn from them. Establish relations with the multilateral development organizations, like ADB, World Bank, European Investment Bank, Japan Development Bank and related organizations that could provide both financial and technical assistance to the small Pacific Island DFIs. More frequent membership consultations and improve membership benefits Knowledge sharing and hub (e.g. via website) 31 Association of Development Financing Institutions in the Pacific

32. Actions to achieve Strategic Goals Comments from Phase 2 Survey (cont.d): Issue awareness programme by sharing problems and experiences amongst members, e.g. semi- or annual consultations also by email Quarterly newsletter also for external audience to promote the brand “ADFIP” as well as its members through coverage of major events and achievements Increase in financial resources but also sources (grant financing or support for SME financing) and identification should also be carried out by members of the Management Committee Enhance ADFIP’s financial sustainability to ensure objectives and programmes to be carried out Communication Plan with ADFIP website Realistic and fundable training plan for ADFIP members that could also include e-learning programmes 32 Association of Development Financing Institutions in the Pacific

33. Actions to achieve Strategic Goals 33 Association of Development Financing Institutions in the Pacific Comments from Phase 2 Survey (cont.d):

34. Actions to achieve Key Strategies Strategies : C R E A M Actions suggested for C – develop Capacity and human resources 34 Review and enhance human resource numbers and capacity of ADFIP Secretariat Enhance knowledge access through training and capacity building Identify training needs of members’ Develop and offer training modules and programs relevant to members’ needs Facilitate the provision of other technical training for which the ADFIP does not have expertise Offer or coordinate consulting and advisory services through pooling of expertise and partnerships develop C apacity and human resources Association of Development Financing Institutions in the Pacific

35. Actions to achieve Key Strategies Strategies : C R E A M Actions suggested for R – rev utilisation of Resources 35 Increase capacity and resources of ADFIP Harmonise member efforts on strategic activities/needs e.g. financing for renewable energy and climate change Coordinate the search for, and disbursement of, financing from external donors for common activities e.g. renewal energy and climate change or development finance, in general Coordinate access and provision of technical expertise to members on issues of common concern Develop, implement and monitor member benchmarking Develop a database of information/data of technical information for members’ use Strengthen corporate governance frameworks and policies of each member rev utilisation of R esources Association of Development Financing Institutions in the Pacific

36. Actions to achieve Key Strategies Strategies : C R E A M Actions suggested for E – Establish alliances 36 Identify, seek and establish strategic alliances with regional or international stakeholders including international financial institutions Strengthen links with development partners Establish and/or strengthen links with funding organisations and donors e.g EIB, ADB, IFC, JBIC, CDE Update these stakeholders regularly on activities of ADFIP and DFIs in the Pacific, especially when funds have been obtained from them E stablish alliances Association of Development Financing Institutions in the Pacific

37. Actions to achieve Key Strategies Strategies : C R E A M Actions suggested for A – Advocate development finance issues and benefits : 37 Develop and carry out advocacy of development finance issues and benefits Advise and advocate for appropriate legal frameworks for development finance in Pacific Island Countries Coordinate collaboration of technical issues with Governments and other stakeholders for members’ Be a better spokesman on the role of development banks within the financial sector of Pacific Island Countries Promote a stronger network for DFIs to provide relevant banking solutions to Pacific Island Countries A dvocate development finance issues and benefits Association of Development Financing Institutions in the Pacific

38. Actions to achieve Strategic Goals Strategies : C R E A M Actions suggested for M – strengthen Membership : 38 Increase membership base and benefits Improve networking among members Initiate and organise members’ activities for interaction and sharing of knowledge and ideas Up date members regularly on ADFIP and other technical matters of importance to DFIs strengthen M embership Association of Development Financing Institutions in the Pacific

39. Prioritising actions to achieve Key Strategies 39 Association of Development Financing Institutions in the Pacific ActionsHML Review and enhance human resource numbers and capacity of ADFIP Secretariat √ Enhance knowledge access through training and capacity building √ Identify training needs of members’√ Develop and offer training modules and programs relevant to members’ needs √ Facilitate the provision of other technical training for which the ADFIP does not have expertise √ Offer or coordinate consulting and advisory services through pooling of expertise and partnerships √ Actions for “develop Capacity and human resources”

40. Prioritising actions to achieve Key Strategies 40 Association of Development Financing Institutions in the Pacific ActionsHML Increase capacity and resources of ADFIP√ Harmonise member efforts on strategic activities/needs e.g. financing for renewable energy and climate change √ Coordinate the search for, and disbursement of, financing from external donors for common activities e.g. renewal energy and climate change or development finance, in general √ Coordinate access and provision of technical expertise to members on issues of common concern √ Develop, implement and monitor member benchmarking √ Develop a database of information/data of technical information for members’ use √√ Strengthen corporate governance frameworks and policies of each member √√ Actions for “rev utilisation of Resources”

41. Prioritising actions to achieve Key Strategies 41 Association of Development Financing Institutions in the Pacific ActionsHML Identify, seek and establish strategic alliances with regional or international stakeholders including international financial institutions √ Strengthen links with development partners√ Establish and/or strengthen links with funding organisations and donors e.g EIB, ADB, IFC, JBIC, CDE √ Update these stakeholders regularly on activities of ADFIP and DFIs in the Pacific, especially when funds have been obtained from them Ongoing Actions for “Establish alliances”

42. Prioritising actions to achieve Key Strategies 42 Association of Development Financing Institutions in the Pacific ActionsHML Develop and carry out advocacy of development finance issues and benefits √ Advise and advocate for appropriate legal frameworks for development finance in Pacific Island Countries √√ Coordinate collaboration of technical issues with Governments and other stakeholders for members’ √ Be a better spokesman on the role of development banks within the financial sector of Pacific Island Countries √ Promote a stronger network for DFIs to provide relevant banking solutions to Pacific Island Countries √ Actions for “Advocate development finance issues and benefits”

43. Prioritising actions to achieve Key Strategies 43 Association of Development Financing Institutions in the Pacific ActionsHML Increase membership base and benefits√ Improve networking among members√ Initiate and organise members’ activities for interaction and sharing of knowledge and ideas √ Up date members regularly on ADFIP and other technical matters of importance to DFIs √ Actions for strengthening Membership

44. Review of the Strategic Plan 44 Association of Development Financing Institutions in the Pacific Implement actions relevant to current year from Strategic Plan Review environment Review strategic goals Review actions to be implemented over next calendar year and priorities Third quarter of calendar year

45. Proposed Organisation Structure Justifications for changes to organisation structure : Staff numbers and capacity identified as areas needing improvement Structure to be in place should suit mission/goals/ strategies/work set out in the Strategic Plan Need to combine trustee and ADFIP Secretariat – avoid confusion and bureaucracy through additional organisation/layers to deal with Having a good structure in place with appropriate oversight by a “Board” a step in the right direction to a stronger institution Association of Development Financing Institutions in the Pacific 45

46. Proposed Organisation Structure (cont.d) Justifications for changes to organisation structure : (cont.d) Strong organisation (supported by a good/robust structure) better able to advocate issues and collaborate with stakeholders and donors Strong and “independent” organisation (i.e. able to make its own decisions through its Board and implement strategies identified) will enable the organisation to push through its work and serve members At the moment most decisions and actions are only discussed/passed at annual meetings [Structure proposed to be implemented over a 3 year period to enable organisation to deliver strategies identified in the Strategic Plan and justify changes] Association of Development Financing Institutions in the Pacific 46

47. Proposed Organisation Structure (cont.d) 47 Association of Development Financing Institutions in the Pacific Management Committee Executive Officer Accounts Officer Organisation Structure in Year 1 of Strategic Plan Notes : 1) Minimum qualifications for a Accounts Officer is a degree in a relevant discipline with 2 years relevant work experience

48. Proposed Organisation Structure (cont.d) 48 Association of Development Financing Institutions in the Pacific Board of Directors Chief Executive Officer Project Officer Accounts Officer Organisation Structure towards end of Year 2 of Strategic Plan Notes : 1) Minimum qualifications for a Project Officer is a degree in a relevant discipline with 2 years relevant work experience

49. Proposed Organisation Structure (cont.d) 49 Association of Development Financing Institutions in the Pacific Board of DirectorsChief Executive Officer Project Officer (Advocacy, Strategic Alliances and Stakeholder and Donor Issues) Project Officer (Training/Capacity Building and Members’ Issues) Accounts Officer Organisation Structure for Year 3 of Strategic Plan Notes : 1) Minimum qualifications for a Project Officer is a degree in a relevant discipline with 2 years relevant work experience

50. Proposed Organisation Structure (cont.d) 50 Association of Development Financing Institutions in the Pacific Board of DirectorsChief Executive Officer Project Officer (Advocacy, Strategic Alliances and Stakeholder and Donor Issues) Project Officer (Training/Capacity Building and Members’ Issues) Project Officer (if justified) Accounts Officer Organisation Structure in Year 4 of Strategic Plan Notes : 1)Minimum qualifications for a Project Officer is a degree in a relevant discipline with 2 years relevant work experience

51. Developed by Gilbert & Samuels Company Limited Suva, Fiji Email : gilbert@gilbert.com.fj August – October 2013 51 Association of Development Financing Institutions in the Pacific

52. Methodology Source Documents : Financial reports/information, Draft Strategic Plan Analyse ADFIP’s current structure, staffing, financing and costs for the last five years. Identify and evaluate current financial and operational issues. Review and develop an in-depth understanding of the strategies, operations, processes, policies, procedures, organisation structure and more importantly the financial affairs of the business. As part of this, we review the actions identified in the draft Strategic Plan to be implemented over the next five years. Analyse and evaluate the information provided and develop a financial model for financial forecasting over five years. Update and validate data/information onto the financial model. This includes updating the financial model including linking of the profit and loss and balance sheet. Cash flows forecasts for the next five years are summarised in the movement in the cash account on the Balance Sheet. Association of Development Financing Institutions in the Pacific 52

53. Methodology (cont.d) Evaluate the financial viability of the ADFIP Secretariat as a stand-alone entity with current and potential forecasts. In assessing viability, we consider options for the organisational structure in terms of operations and human resources requirements. Identify key financial and operational issues, threats and weaknesses from the financial analyses and identify strategies for mitigating these issues. Identify and suggest practical options for the structure and operations of ADFIP, particularly its effectiveness, in view of the entity’s objective to becoming a viable stand-alone operation. Association of Development Financing Institutions in the Pacific 53

54. Profit & Loss Profit and Loss for the years ended 31 December 2014 to 31 December 2018 is prepared in conjunction with the 5 Year Strategic Plan from 2014 – 2018. Certain key assumptions adopted and it is critical that key assumptions are fulfilled to ensure the entity achieves the forecasted results for the 5 years as per strategic plan. Association of Development Financing Institutions in the Pacific 54

55. Profit & Loss (cont.d) Assumptions : Subscription income – Assumed to increase to by 50% in 2014 to $37,113 and a further 50% in 2015 to $55,670. Subscription income will be maintained at $55,670 in 2016 and 2017. 2018 subscription income will increase be an additional 50% to $83,505. Currently, allocation is consistent across all members and there is no due consideration of the level of activities and operations, financial performance and balance sheet size and staffing structure. To increase the subscription, it is recommended that a more equitable allocation be implemented that takes into consideration these factors. For example, Fiji Development Bank and National Development in PNG could be levied a higher subscription as they are the larger development bank in the region in comparison to Development Banks in Tuvalu and Kiribati. Association of Development Financing Institutions in the Pacific 55

56. Profit & Loss (cont.d) Assumptions (cont.d) : Interest income – Derived from Term Deposits held with commercial banks and financial institutions. Interest income for 2013 has been increased by 5% from 2012 based on the assumption that the level of investment in term deposits in 2013 is the same level as 2012 at $911,611. From 2014, term deposit will reduce to $681,611 and this is consistent across the 2 years to 2016. Major factor driving the reduction is the withdrawal of $230,000 for purchase of fixed assets in 2014. We have assumed an interest rate of 3% per annum. This has resulted in interest income of $20,448 for 2014 and 2015. From 2017, the term deposit increases to $811,611 due to improvement in cash flows and available of surplus funds for investments. The additional investment in term deposit of $200,000 increases interest income to $26,448 at 3% for annum. The interest income is consistent for 2017 and 2018. Association of Development Financing Institutions in the Pacific 56

57. Profit & Loss (cont.d) Assumptions (cont.d) : Grant income – A grant in 2011 was provided by the Centre for Development Enterprise (CDE) being for training of Chief Executive Officers’ of member countries. ADFIP should attract donor agencies that will provide financial for projects that are aligned to the strategies of ADFIP. This will help with recruitment of project officers who will assist with implementing Strategic Plan. There should be a portion to cover general administration of the ADFIP, which should assist in meeting the administration and operating expenses. The amount recognized in the profit and loss relates to the portion that should be released to income on a yearly basis. The assumption for annual grant income expected to be received are: Association of Development Financing Institutions in the Pacific 57

58. Profit & Loss (cont.d) Assumptions (cont.d) : Other income – Based on the averages for the past 4 years. For example, 2014 other income is based on averages of 2010 to 2013 financial years, and so forth. Other income is not a significant revenue stream, which is appropriate considering ADFIP’s operations. Fair value gains/(losses) – Relates to the unrealised gain and loss from the movements in the investments in Unit Trust of Fiji. Based on the averages for the past 4 years. For example, 2014 fair value gain is based on averages of 2010 to 2013 financial years, and so forth. Association of Development Financing Institutions in the Pacific 58

59. Profit & Loss (cont.d) Assumptions (cont.d) : Audit fees – Assumed at $5,000 for 2014. We have applied the inflation rate of 3% from 2015 and thereafter. Bank fees – Assumed as the averages for the past 4 years. For example, 2014 bank fees are based on averages of 2010 to 2013 financial years, and so forth. Consultancy fees – Expected to be funded from grant monies. Assumed as the averages for the past 4 years. For example, 2014 consultancy fees are based on averages of 2010 to 2013 financial years, and so forth. Association of Development Financing Institutions in the Pacific 59

60. Profit & Loss (cont.d) Assumptions (cont.d) : Rental expenses – For 2014, ADFIP assumed to continue to operate from the FDB office paying $300 a month in rental. However, from 2015 with 3 staff, it is assumed that they will relocate to a new office paying $4,000 per month. Telephone expenses – Assumed to increase in line with the level of activities and staffing. The monthly rates for each year are as follows: 2014 - $200; 2015 - $500; 2016 - $800; and 2017/2018 - $1000. Electricity expenses – Assumed to increase in line with the level of activities and staffing. The monthly rates for each year are as follows: 2014 - $200; 2015 - $500; 2016 - $800; and 2017/2018 - $1000 Association of Development Financing Institutions in the Pacific 60

61. Profit & Loss (cont.d) Assumptions (cont.d) : Salaries and Wages – Assumed that salaries for positions will be as follows: Association of Development Financing Institutions in the Pacific 61

62. Profit & Loss (cont.d) Assumptions (cont.d) : Salaries and Wages (cont.d) – Based on the proposed structure in the strategic plan the breakdown of salaries and wages are as follows: (Refer Organisation Structure by Year shown earlier) Association of Development Financing Institutions in the Pacific 62

63. Profit & Loss (cont.d) Assumptions (cont.d) : FNPF/Superannuation expenses – FNPF expense relates to the employer’s contribution of 8% on the gross salaries and wages. Training and development – Assumed significant investments in training development at $50,000 in 2014 and $100,000 for 2015 to 2018. With the restructure of the entity and increases in members’ subscriptions and donor grants, there will be higher expectation in the provision of training and developments. Training programs will focus both on internal staff and for staff in member organisations. In accordance with the Strategic Plan, ADFIP and members will training needs for members. Association of Development Financing Institutions in the Pacific 63

64. Profit & Loss (cont.d) Assumptions (cont.d) : Travel and accommodation – Travel and accommodation has been assumed at $40,000 for 2014 and $60,000 thereafter. Other expenses – Other expenses have been assumed as the averages for the past 4 years. For example, 2014 other expenses are based on averages of 2010 to 2013 financial years, and so forth. Association of Development Financing Institutions in the Pacific 64

65. Association of Development Financing Institutions in the Pacific 65

66. Balance Sheet Assumptions : The Balance Sheet consolidates the information for The Association of Development Financing Institutions in the Pacific and The Association of Development Financing Institutions in the Pacific Trustee Limited. The balance sheet figures disclosed from 31 December 2009 and 31 December 2012 is based on the audited financial statements. Balance sheet for years ended 31 December 2014 to 31 December 2018 is prepared in conjunction with the 5 Year Strategic Plan from 2014 – 2018. Certain key assumptions adopted and it is critical that these key assumptions are fulfilled to ensure the entity achieves the forecasted results for the 5 years as per strategic plan. The key assumptions are set out below. Association of Development Financing Institutions in the Pacific 66

67. Balance Sheet (cont.d) Assumptions (cont.d) : Cash at bank – Taken as the balancing figure in the balance sheet taking into consideration the net movements of all liabilities, assets, and equity accounts. Fixed assets – Assumed that the entity will invest in fixed assets in 2014 to the amount of $230,000. Also assumed that the motor vehicle will be replaced in 2018 after being fully written down. The breakdown is as follows: Association of Development Financing Institutions in the Pacific 67

68. Balance Sheet (cont.d) Assumptions (cont.d) : Short term investments – Consists of term deposits held with commercial banks and financial institutions. In 2014, assumed that the $230,000 acquisition of fixed assets will be funded from the term deposits. Accordingly, term deposit is reduced by this amount in 2014. In 2016, an additional $200,000 is injected to the term deposits due to improved cash flows during the year. Long term investments – Consists of investments in Unit Trust of Fiji. Assumed as the averages for the past 4 years. For example, 2014 other expenses are based on averages of 2010 to 2013 financial years, and so forth. Association of Development Financing Institutions in the Pacific 68

69. Balance Sheet (cont.d) Assumptions (cont.d) : Other receivables – Assumed as opening balance plus 10% of the subscription income in the Profit and Loss for the current year. This means that it is assumed that 90% of the subscription income would be collected in cash during the year. For example, other receivables for 2013 include the 2012 closing balance of $106,735 and 10% of the subscription income in 2013 of $24,742. Therefore its $106,735 + 2,474 = $109,209. Assumed that the opening balance is not recoverable as the audited financial statements indicates a high other receivables balance for 2011 and 2012. This may indicate recoverability of opening balance of other receivables. Although ageing of debtors has not been considered, this assumption is appropriate for regional institutions. Association of Development Financing Institutions in the Pacific 69

70. Balance Sheet (cont.d) Assumptions (cont.d) : Trade payables – Assumptions for trade payables include : 90% of prior year balance to be paid in current year. This means that 10% remains unpaid in current year. For example, 90% of the $81,981 in 2012 is assumed to be paid in 2013. Audit fees is fully accrued at 100% Salaries and wages be accrued for one fortnight (last pay period at the end of the financial year) Travel and accommodation accrued at 10% of profit and loss amount Other expenses accrued at 10% of profit and loss amount Association of Development Financing Institutions in the Pacific 70

71. Balance Sheet (cont.d) Assumptions (cont.d) : Trade payables – For example, in 2013 the breakdown of trade payables is as follows: Remaining expenditure lines including consultancy, rental expenses, telephone expenses, electricity expenses and training and development are assumed to be settled on a cash basis. Association of Development Financing Institutions in the Pacific 71

72. Association of Development Financing Institutions in the Pacific 72

73. Key commentaries Financial viability of ADFIP largely dependent on two major strategic achievements : an increase in members’ subscriptions based on the forecasted profit and loss. ability of the organisation to attract funding from donor agencies to fund activities and projects and that aligned to the strategies of the organisation and member countries. If ADFIP fails to achieve the two outcomes, the restructured organisation will not be financially viable. It will continue to incur significant losses and severe deficiencies in cash flows. Association of Development Financing Institutions in the Pacific 73

74. Key commentaries Strategic Plan highlights a number of critical strategic initiatives. Implementing these initiatives will positively enhance the issues highlighted in the key commentaries. An increase in members’ subscription can be implemented quickly as it requires agreement of a proper subscription policy by the member countries. Based on the increase of 50% in 2014, our assessment is that this could be easily achieved and consented to by members. However, the donor grant, which is more significant, is more critical as it will involve meeting the expectations of the donors and developing an effective and robust strategy. Association of Development Financing Institutions in the Pacific 74

75. Key commentaries Organization structure as a key driver Need for the ADFIP to strengthen human resources capacity as outlined in the Strategic Plan. It is highly critical that ADFIP attracts the people with the right level of qualification, experience and technical expertise. The strategic plan sets out the proposed organization structure from Year 1 to Year 4. Association of Development Financing Institutions in the Pacific 75

76. Key commentaries Organization structure as a key driver (cont.d) Key positions for the entity will include: A suitably qualified CEO who is able to develop a strategic relationship with key stakeholders including potential donor agencies and member countries. CEO to identify relevant projects that donor agencies would support and provide the required funding. required to be a strong advocate for development finance issues and benefits. Position is suitable for a person with experience in senior management roles and has an in-depth knowledge of development banks including the environment, culture, operations, activities, people, challenges and issues. Association of Development Financing Institutions in the Pacific 76

77. Key commentaries Organization structure as a key driver (cont.d) Key positions for the entity will include (cont.d) : A qualified and experienced finance officer to manage the accounting system and financial reporting structure of ADFIP. With the planned increased in activities and donor agencies being involved, the requirement for effective, timely and accurate financial reports is crucial. Experienced project officers need excellent project planning, monitoring and reporting techniques that will ensure proper allocation of donor’s funds and a reporting framework that meets stakeholders’ requirements. should the projects require auditing, the project officers should be accountable in maintaining and providing the required information that will ensure an unqualified audit report. Association of Development Financing Institutions in the Pacific 77

78. Key commentaries Organization structure as a key driver (cont.d) Note that the proposed salary scale factored into the financial forecasts reflects the market value in order to get the right people for each position. These include: Note also that the above salaries do not include the 8% FNPF employer’s contribution and that have included a motor vehicle for the Chief Executive Officer. Association of Development Financing Institutions in the Pacific 78

79. Key commentaries Capacity building for members as a key driver Capacity building for members is a critical part of the ADFIP restructure. ADFIP should clearly understand the various challenges and issues experienced by development banks in the Pacific Islands region. There should be a collective effort to draw together these issues and consolidating this in one database. This is the first phase of this process. Common capacity building issues need to be identified. Following this, ADFIP can put in place a roadmap to resolve these key issues with practical and effective action plans. Association of Development Financing Institutions in the Pacific 79

80. Key commentaries Capacity building for members as a key driver (cont.d) Some of the preliminary options for capacity building include: building/facilitating capacity through technical training for members on various topics from finance, credit approval, credit assessment, credit recovery and arrears management. building/facilitating capacity through training in the area of corporate governance, financial reporting, budgeting, strategic planning, managing ethics and conflict of interests provide capacity to assist in improving the IT platform of small development banks. IT is core to any financial institution. building/facilitating capacity for development and update of key policies to best industry practice including credit, finance, IT, HR and corporate governance. facilitate secondment of staff of small development banks to the larger development banks to further improve their experience and skills. facilitate secondment of staff of member institutions to development banks in Asia, Australia, NZ where ADFIP could develop strategic partnership with in the medium to long term. Association of Development Financing Institutions in the Pacific 80

81. Key commentaries Allocation of members levies Current members’ subscription levies an equal amount of F$1,000 for each member countries to contribute. Current subscription policy does not take into account the level of operations, activities, loan portfolio, and financial performance in the various development banks. The Fiji Development Bank and National Development Bank (PNG) activities are significantly larger than the development banks in Tuvalu and Kiribati. Association of Development Financing Institutions in the Pacific 81

82. Key commentaries Investments to be maintained Two forms of investments held are term deposits and unit trust investments. Term deposit investments provide interest income as illustrated in the forecasted Profit and Loss. Term deposits will be also be utilised to acquire fixed assets in light of the growth in operations of ADFIP. Important that ADFIP maintains these investments and ensure that it can be diverted to the purchase of fixed assets or fund any shortfalls in cash flow in future. Association of Development Financing Institutions in the Pacific 82

83. Key commentaries Investment restructure With the proposed restructure of the organisation, it is appropriate to review and formalise the investment policy for the organisation. While the previous commentary highlights the importance of maintaining investments, this commentary highlights the need to have the best investment option that will provide the highest and consistent returns to ADFIP. Does the investment in term deposit and unit trust provide the best returns to ADFIP? Are there any other investment opportunities that should be considered? Association of Development Financing Institutions in the Pacific 83

84. Key commentaries Finance function to be strengthened Finance function of ADFIP has been effective over the years taking into account the relative size of the operations and activities. With the proposed restructure, efficiency of Finance and ability to produce accurate, reliable and timely reports is critical. There will be increased expectations for accountability and governance. Association of Development Financing Institutions in the Pacific 84

85. Conclusion Strategic Plan has set a substantial benchmark for growth in ADFIP so that it is able to provide the services that are required of it, to members/non- members. Given that the Strategic Plan has been developed from feedback received from members/non-members, it is evident that members/non-members still recognise the need for an organisation such as ADFIP. While the organisation may not have been able to carry out its functions effectively in the past, some inhibiting factors have been inadequate capacity and staffing, and funding. Association of Development Financing Institutions in the Pacific 85

86. Conclusion Critical to achievement of the Mission, strategic goals and actions identified in the Strategic Plan is the review of key aspects of the administration of ADFIP i.e. subscriptions that members/non-members pay, search for and receipt of donor funding to fund capacity building for ADFIP itself and for members/non-members, through ADFIP. Feasibility Study provides more details on the issues that are critical for ADFIP to be a viable/self sustainable institution. Working on the issues identified in the Feasibility Study will enable ADFIP to be able to then deliver on the very optimistic outlook, strategic goals and actions that it has identified for delivery over the planning period. Association of Development Financing Institutions in the Pacific 86

87. end Association of Development Financing Institutions in the Pacific 87