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					                         MFI Appraisal and Recommendation Report

       Name of MFI :                                                            Telephone: (0343) 499303
       KOPERASI KREDIT SAWIRAN                                                  Fax: ; Mobile Phone:
       Address : KM 6 Nongko Jajar, Kabupaten Pasuruan                          e-mail:
                                                                                Contact Person: Kokok Budianto
      MFI at a Glance
      Legal Status       : Cooperative
      Years in Operation : Since 1997
      Vision and Mission : Vision: To create a financial services institution that is professionally managed in accordance
                           with the values and principles of the cooperative. Mission: To improve the quality of life and welfare of

                                                                                  Year                           Projected
                                          Year                   Des-03           Des-04          Des-05            2006
                                       # of Staff                  15               15              16               18
                                   # of Loan Officer                5                5               5                7
                                 # of Active Borrowers                 925             1.054           1.365        1977
                                     # of Branches                  5                5               5                6
                                          ROA                    0,09%            1,19%           2,04%            1,64%
                                          ROE                    0,48%            5,93%           9,62%            9,17%
                                Total Assets (IDR '000)         10.145.847       12.996.723      20.177.089       29.910.952

                  Grade                       Key Strengths                                                    Key Weaknesses
                             1. Saving and loans insured by Daperma, an             1. Accounting manual is outdated and some inconsistencies in accounting
                             internal Credit Union                                  methods exist
                                                                                    2. Standard Operating Procedures for Loan Operations are not available
                             2. Supported by Asian Cooperative Credit Union,        3. MIS does not have the capabilities to produce reports to support future
                             Bangkok                                                growth or back up data; Some reports prepared manually
                   28 %                                                             4. No disaster contingency plan has been established
(Max 40%)                                                                           5. Weak control over documents pertaining important customers
                                                                                    information and no proper security measurement for use of computers
                                                                                    6. No internal control function or audit program
                                                                                    7. Weak supervisory board

                             1. Fast increase in cooperative members resulting in   1. 50% of loan portfolio disbursed to corporations
                             ongoing increase of equity                             2. Credit analysis methods very simple, lacking sufficient information
                             2. Administrative and financial support from the       3. Loan loss reserve is inadequate and not in accordance with BI or CGAP
  Financial                  Pusat Koperasi Kredit (secondary cooperative),         standards
Performanc                   Jawa Timur East, Malang                                4. System to allocate certain expenses to TP (branch-service point) and
      e            31 %                                                             cost of funds borrowed by TP have not been established. This has resulted
                             3. Low non-performing loans; high capital              in an inaccurate presentation of TP’s profit and loss account report
                             adequacy ratio, good structure of assets; high
 (Max 50%)                                                                          5. High yield gap
                             percentage of loan portfolio compared to total
                             4. Good profit trends, and high return on equity
Strategy and                1. Cooperative continues to develop business, to         1. Cooperative does not have a medium term (3-5 year) business plan
                            increase total members and equity
   needed          6%        2. Cooperative regarded as model to other MFIs

 (Max 10%)

                  Composite Grade                                Comment of the result:                    Loan
                                                                 Adequate institutional performance, with  Recommendation:
                               C                                 some institutional deficiencies           IDR 2,5 billion;
                             (65 %)                                                                        terms : 3 Years,
                                                                                                           installment every
                                                                                                           3 months
                                                                  Appraisal team and date: MHA,WH, RNM, 26 May 2006

                Jl. Kemang Selatan I No.3, Bangka | Jakarta Selatan 12730, Indonesia | tel 62.021.719.4948 | fax 62.021.7179.0907
                                                                                                                   Version 3.2 as 7/15/2011
                      MFI Appraisal and Recommendation Report

                           I.             KEY PERFORMANCE INDICATOR HIGHLIGHTS

1.   Operational Performance

2.   Financial Performance
     A. Profitability Ratios                                                                       B. Asset/Liability Management

(* Adjusted figure: see table 2.3.)

C. Portfolio Quality                                                                                                                    D. Efficiency Ratio

                                                              Year                                                                                                      Year
                                                                                                                    Ratio                               Des-03         Des-04          Des-05
                    Ratio                        Des-03      Des-04          Des-05
                                                                                                    Financial and Operating Expense Ratio                 25,40%         23,45%          23,78%
                 PAR (>30)                         16,27%      12,65%          14,15%                     Operating Expense Ratio                          7,27%          7,07%           6,72%
                    NPL                             4,21%       2,69%           2,07%                     Loan Officer productivity                           185            211             273
              Loan Loss Reserve                     0,00%       0,81%           1,42%              Total portfolio per loan officer (IDR '000)          1.521.123      2.097.081       3.532.728

         Capital Adequacy, Cost of Funds,                                                                                 Portfolio at Risk
     Debt to Total Asset & Debt to Total Equity                                                                          Aging Distribution

     90,00%                                                                  5,00


     70,00%                                                                                             10,00%
                                                                                  Debt to Equity

                                                                             2,50                         6,00%
     30,00%                                                                                               4,00%

                                                                             1,00                         2,00%
     10,00%                                                                  0,50
      0,00%                                                                  -
                       2003               2004              2005                                                          2003                   2004               2005
                 Capital Adequacy Ratio                     Cost of Funds Ratio

                Debt to Total Asset                         Debt to Equity                             1 - 30 days        31 - 60 days       61 - 90 days           91 - 120 days       > 120 days

Koperasi Kredit (Credit Union) SAWIRAN                                                                                                                                             2
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                    PAR, Write-off Ratio, Rescheduling and
                                     Refinancing per Outstanding Portfolio                                                                                      Yield Gap, ROA, ROE, OSS

                                                                                                                                             12,00%                                                           120,00%
                                    7,00%                                                     18,00%
      Recheduling per Outstanding

                                    6,00%                                                     16,00%                                         10,00%                                                           100,00%

                                                                                                       PAR>30 DAYS
                                                                                                                                              8,00%                                                           80,00%

                                                                                                                                  ROA, ROE

                                    4,00%                                                     10,00%
                                                                                                                                              6,00%                                                           60,00%
                                    3,00%                                                     8,00%
                                                                                              6,00%                                           4,00%                                                           40,00%
                                                                                              4,00%                                                                                             2,04%
                                    1,00%                                                                                                     2,00%                           1,19%                           20,00%
                                                                                              2,00%                                                         0,48%
                                    0,00%                                                     0,00%                                           0,00%                                                           0,00%
                                                2003            2004            2005
                                                                                                                                                              2003               2004             2005
                                               Adjusted Write-off Ratio
                                               Rescheduling per Outstanding Portfolio
                                               PAR > 30 days                                                                                              ROA              ROE             Yield Gap         OSS

                                      Income and Expense Distribution                                                              Clients per Staff, Client per Loan Officer
                                                                                                                                            Portfolio per Loan Officer

     80%                                                                                                              300                                                                                   4,000,000
                                                                                                                      250                                                                                   3,500,000
     40%                                                                                                              200                                                                                   2,500,000
     20%                                                                                                              150                                                                                   2,000,000
                                                                                                                      100                                                                                   1,500,000
                                        2003                 2004                 2005
                                                                                                                           50                                                                               500,000
    Interest and fee income                                 Banks' loan interest expense
                                                                                                                       -                                                                                    -
    from loans                                              Interest and fee expense
                                                            Loan loss provision expense                                                        Dec-03                Dec-04                 Dec-05
    Income from investments
                                                            Salaries & benefit expense
    Income from other                                       General & Administrative Expense                                                            Personnel productivity
    finance-related services                                Other Expense                                                                               Loan Officer productivity
                                                                                                                                                        T otal portfolio per Loan Officer (Rp000)

                                                     Asset Composition                                                                           Liability and Equity Composition

                                                           Net Fixed                                                                                                             Current year
          Other long-                                                                                                                                         Additional                                     Savings
                                                            assets                                                                                                                  surplus
                                                                                                                                                               capital                                      Accounts:
          term assets                                         8%                                                                                                                   (deficit)
                                                                                                                                                                 5%                                        compulsary
              0%                                                                                                                                                                      2%
Other short-                                                                                                                                                                                                   0%
                                                                                                                                             Paid-in equity
term assets                                                                     Cash and due
    0%                                                                           from banks                                                                                                                 Savings
                                                                                    5%                                                            14%                                                      Accounts:
(Loan loss                                                                                                                                                                                                 voluntary
                                                                                                                      Other short-                                                                           22%
                                                                                                                     term liabilities

                                                                                         T otal loan                               0%
                                                                                          portfolio                                                 banks                                T ime deposits
                                                                                            86%                                                      24%                                     31%

                    Koperasi Kredit (Credit Union) SAWIRAN                                                                                                                                                     3
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                 MFI Appraisal and Recommendation Report

                                             II. BACKGROUND
The Credit Cooperative, Sawiran (Kopdit Sawiran), hereafter called Kopdit, is located 6 km from Nongkojajar.
Kopdit was established in 1989 as a cooperative for the employees of Sawiran Retret House and sponsored by
Father (Romo) Willy CDD, the Leader of Sawiran Retret House. Initially, the formation of the cooperative was
only to serve the employees of the Retret House and was established by 20 founding members. In 1998, Kopdit
began accepting people from outside the Retret House as members.
The Kopdit Sawiran is a cooperative with the overall goal of strengthening the local economy, improving the
peoples’ small businesses through the membership of a cooperative, building a collective saving fund, and
disbursing financial assistance thereby improving the welfare of the members. The cooperative was founded in the
community and eventually gained the support of the Santo Yoseph College Foundation, Malang chaired by Father
(Romo) Willy CDD. Father Willy is now appointed as the Senior Advisor.
At the early stages of the formation of the cooperative, Santo Yoseph College provided assistance in the form of
funds for pre-opening expenses, human resources and other utilities.
Based on the articles of incorporation of the Kopdit, the Board of Governance will be appointed in the annual
members meeting for a term of 3 years. As of March 2006, a new Board of Governance and Board of Supervisors
was just appointed. To date, Kopdit has expanded their activities through establishing 4 additional branches (TP-
Tempat Pelayanan).

                        III.     FINDINGS: OPERATIONAL PERFORMANCE

1. Institutional Analysis.                                                            Inst:    4       Max :     5

   Officially, Kopdit Sawiran is a cooperative based on the Revised Cooperative Deed and approved by the
   Department of Cooperatives, Small and Medium Enterprises of the Republic of Indonesia, no
   2/PAD/KDK.13.14./VIII/2000 dated August 10, 2000. Kopdit currently has 387 members divided into 12
   groups. Father Willy continues to play a major role as the generator and advisor in the Kopdit.
   Membership of the Kopdit is open for everybody regardless of economic and social status, ethnic group,
   religion, race and gender, even though the Kopdit was initially formed by the Catholic community.
   Neither the Kopdit Basic Rules and Regulations nor the Institutional Policies mention a vision or mission for the
   institution. Only the Articles of Incorporation state that the objective of the Kopdit is to improve the welfare of
   the members and the families, to strengthen the economy and businesses of the members, and to conduct the
   Kopdit activities in line with sound economic principles.
   Since 1998, Kopdit has had a relationship with Puskopdit (secondary cooperative). Puskopdit provides and
   coordinates training and technical assistance, short term financing assistance and facilitates intercooperative
   financial assistance for cooperative members.
   The relationship between Kopdit and other cooperatives and credit unions in East Java has been excellent.
   Kopdit is regarded as a model cooperative.
   Currently, the Kopdit is helping to develop and improve itself as an advisor to the 25 other credit unions and
   Cooperatives, including Credit Union Paroki Nganjuk, Credit Union Paroki Rembang, Credit Union Keuskupan
   Banjarmasin, Credit Union Lestari Wonosobo dan Credit Union Sapu Lidi Yogyakarta.
   Kopdit has not developed relationships with any international NGO outside the existing affiliation (ACCU).

                                                                                      Inst:    3       Max :     5
2. Governance
   As a Kopdit, full authority and ownership lies with the members and decisions are made at members meetings.
   The members meeting is conducted minimum once a year or if the situation dictates, the meeting may be held
   more than once. The members meeting exists to appoint, assign, elect and terminate one or all members of
   Board of Supervision (BOS) and Board of Governance (BOG), in accordance with the Kopdit basic rules and

Koperasi Kredit (Credit Union) SAWIRAN                                                                               4
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   The basic function of the Board of Supervision is to exercise supervision of the implementation and to ensure
   that the policies and management of the Kopdit are appropriately carried out. The function of the Board of
   Governance is to manage the institution and business, representing the institution externally, including legal
   proceedings, on behalf of the institution in a court of law and be responsible to the members through the General
   Annual Members Meeting.
   The Board of Governance delegates the day-to-day management of the institution to the General Manager, who
   is appointed by the Board.
   The Board of Governance and Board of Supervision are listed below:
      No.                   Name                     Position                        Qualifications
       1.        Drs. Sugeng S                Chairman (Ketua)            University    Graduated,     Lecturer.
                                                                          (Sarjana, Pengajar)
       2.        Sugondo                      Vice Chairman (Wakil        Lecturer (Pengajar)
       3.        Susilo Mukti                 Secretary (Sekretaris)      Lecturer (Pengajar)
       4.        Maria Tatik                  Treasurer (Bendahara)        Business (Pengusaha)
       5.        Haji m. Iksan S.Pd            Chairman of the Board      University graduated and Lecturer
                                              of           Supervision    (Sarjana, Pengajar)
                                              (BOS)(Ketua Pengawas)
       6.        Drs. Sutikno                 Secretary     (Sekretaris   University graduated and Lecturer
                                              Pengawas)                   (Sarjana, Pengajar)
       7.        Devi Ika                     Member of the BOS           University graduated and civil servant
                                              (Anggota Pengawas)          (Sarjana, Pegawai Negeri)

   Management meetings between the Board of Governance and the management are conducted once a month. In
   general, the meetings’ agendas include discussions on the policies of Kopdit, the progress of the institution,
   problem loans, and legal and human resources issues. Minutes of meetings are prepared.
   The General Meeting of Board of Governance (BOG), Board of Supervision (BOS) and Management are
   conducted once every 3 months to discuss the progress of Kopdit, problem loans, issues and the findings of BOS
   Most of the members of BOG have backgrounds in education; the members do not have any experience or
   capability in the field of finance, banking or law. Even so, they have a strong commitment to improve and to
   develop Kopdit as an independent institution. The BOG does not interfere the day-to-day operations of Kopdit.
   The members of BOS, in general, do not have sufficient knowledge and experience in this field. The BOS
   prepared a one-year working plan and schedules for inspection which were approved by the Annual Members
   The application and distribution of SHU Funds (Sisa Hasil Usaha–Net Profit) is decided in the Annual Members
   Meeting. A certain amount of the Net Profit (SHU) is allocated to the general reserve account to strengthen the
   equity and to the reserve account as a provision for credit risk.
                                                                                         Inst:     4         Max :   5
3. Management Team
   The Kopdit Sawiran management team is:
            No.            Name                          Position                                 Qualification
            1.        K. Budianto        General Manager –Kopdit Sawiran                  Sarjana Filsafat
            2.        Setya Edi          Manager TP(Branch) Sawiran
            3.        Heri Susanto       Manager TP(Branch) Tosari
            4.        Widi Hatmanto      Manager TP(Branch) Kepanjen
            5.        Suharianto         Manager TP (Branch)Capang
            6.        Budi               Manager TP(Branch) Pakis
            7.        Daniel             Assistant for Internal Audit (Main
                                         function is as Loan Officer in Kepanjen
                                         Branch (TP)

Koperasi Kredit (Credit Union) SAWIRAN                                                                                   5
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                 MFI Appraisal and Recommendation Report

   The management team is headed by Kokok Budianto, General Manager, a university graduate with extensive
   experience attending various cooperative programs and trainings. The other members of management team were
   educated in local universities and have been working with the Kopdit for more than 5 years. The team is strong,
   solid, and fully understands financial and operational conditions, challenges and opportunities facing Kopdit.
   These matters are routinely discussed in the monthly management team meeting.
   The composition of the team is quite complete, with clear accountability and control, and the capacity to support
   growth in the future. There also a small management team in every TP (Tempat Pelayanan – Branch), which
   serves as a back up to implement the policies defined by the management team at the Kopdit level.
   Any policy decision will be made in accordance with the written policy & procedures and all decisions made are

4. Organizational Structures
                                                                                        Inst:    3        Max :    5
   The structure of organization is quite complete and shows a clear line of accountability, responsibility and
   authority as well as defined position descriptions. The locations of the TPs are quite strategic and effective and
   Kopdit has a plan to open a new TP in Dinoyo, Malang and Ngadisari, Pasuruan.
   Officially, the office of the General Manager is in Sawiran, and he supervises five TPs. Each TP is headed by a
   manager. The General Manager is assisted by three assistants for handling internal audit, promotion & training
   and credit. Under the TP’s manager, there are two functions, i.e. credit & marketing and opperations.
   From January 2006 to May 2006, Kopdit recruited an additional 7 staff, making the total number of staff,
   including the General Manager, 22. Seven of them are assigned as Loan Officers.
   The delegation of authority to the managers are related to credit approvals, while the authority to approve
   expenses is limited to and in line with the needs and approved budget.
   Each TP is treated as a profit center unit and maintains a separate balance sheet and income statement which are
   consolidated monthly. The policies and procedures are standardized and applied throughout the TPs.

                                                                                        Inst:    4        Max :    5
5. Product and Services Savings
   Kopdit has two main products, saving and loans. Each product has a variety of sub products.
   The types of savings are as follows:
     1.    Basic saving and compulsory saving (monthly dues): These saving accounts are considered as equity.
     2.    Daily interest savings A (Sibuhar A): Non Kopdit member saving account – may be deposited and
           withdrawn any time.
     3.    Daily Interest saving B (Sibuhar B): Kopdit member saving account – may be deposited and withdrawn.
          If the account holder has a loan with Kopdit, this saving account will be treated as collateral & non-interest
          bearing, and may not be withdrawn until loan is fully paid.
     4.   Daily interest saving D (Sibuhar D): Non-member saving account.
     5.   Siaga Saving: This is a long term saving account (5 to 25 Years), and may not be withdrawn until maturity.
          Treated as equity.
     6.   Time saving /Deposit Time: Deposit for 1, 3, 6 and 12 months.

   Each member must have basic and compulsory (monthly dues) saving accounts. Those are the Kopdit’s capital
   accounts. Beside these, Kopdit has other saving accounts which are also treated as equity accounts, the basic
   saving and compulsory savings (monthly dues) accounts for extraordinary members (member below 15 years of
   Loan types are as follows:
    1.    General type of loans :   For business/working capital.
    2.    Emergency loans       :   For emergencies such as school fees
    3     Productive loans      :
    4.    Vehicle loan          :   For purchasing car or motorcycle
    5     Korporasi loan        :   Loan disbursed to other cooperatives and corporations, larger loans
    6.    Housing loan          :   For purchasing houses

Koperasi Kredit (Credit Union) SAWIRAN                                                                                 6
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    7.     Siaga Loan
    8.     Multi purpose loan      :
    9.     Other party loan        :

    Kopdit provides loans not only to members but also to non-members. Interest rates charged to non-member are
    higher than those to members. Non-members do not have the right to receive profit sharing (SHU).
    In accordance with the articles of incorporation of Kopdit and the regulations issued by the Department of
    Cooperatives, Small and Medium Enterprises, Kopdit is only allowed to provide loans to members and
    candidate member or member of other cooperatives.
    The services rendered to customers are of good quality. The loan process is fairly fast. Decisions on loans can
    be obtained within 2 days to one week. Kopdit also provides pick-up cash and delivery, not only for saving
    transactions but also for loans office hours is flexible. Customers may deposit or withdraw cash any time, as
    long as the employees are available, or by appointment.

  Savings and Loan products are described below in the following table:
                                                      Average           Effective                  % of Total
            Name of         Active       Average                                        % of
                                                       Balance          Interest                   Savings and
            Product         savers        Term                                         Clients
                                                     (IDR’000)            Rate                      Deposits
         Sibuhar A         1006          Daily      1,209,543              8%              47           11
         Sibuhar D         1089          Daily        281,729              8%              51           25
         Sisuka              28          Monthly      226,000             12%               1           60

                                 # of    Amount (IDR’000)        Effective
                                                                                                   Days to    % of      %of
      Name of Product           Active                          Interest      Required Guarantee
                                                                                                   Receive   Clients   Portfolio
                                Client   Average     Max         Rate
                                                                             Motor vehicle,
     General loans            892          8,430    185,000    27% p.a.                            7 days     75         42
                                                                             Land & Building
     Korporasi loans             13      542,231   1,000,000   27% p.a.      Land & Building       7 days       1        40
     Housing loans               38       38,577     150,000   27% p.a.      Land & Building       7 days       3         8

   The total amount of General Loans is Rp.8 billion, or 41.9% of the total portfolio in April 2006. The loans were
   extended for working capital, trading, service industries, home appliances, house renovation, education,
   agriculture, chicken breeding and poultry etc. The tenor of the loans is up to 48 months. Loans extended to
   finance agriculture businesses and chicken breeding & poultry are paid at the harvest time. The management is
   aware of the risks related to loans extended to farmers; therefore Kopdit requires additional collateral from the
   Kopdit also extended large amount of loans to Korporasi (cooperatives & companies), up to Rp.8.2 billion or
   42.5% of the total portfolio as of April 2006. All large loans are secured with collateral in the form of land or
   buildings. These loans were booked with approvals from BOG and BOS and reported in the Annual Members
   ACCU introduced a program to empower low-income people called CUMI (Credit Union Microfinance). In this
   program, ACCU provided financing for the costs of training, administration and staff to monitor the progress of
   the program while Kopdit extended loan funds from its own sources. This program was discontinued due to the
   high cost involved.
   For customers located in more remote areas, Kopdit provides a transfer and clearing service through Bank
   Central Asia (BCA) E-banking.
   Kopdit joined the Dana Perlindungan Bersama (Daperma), a kind of internal credit union for life insurance, for
   which it secured a loan with maximum refund of Rp.35 million which also provides benefits of maximum Rp.20
   million for savers.

Koperasi Kredit (Credit Union) SAWIRAN                                                                                   7
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                                                                                      Inst:    3       Max :     5
6. Clients and Social Performance
    As of April 2006, Kopdit had1463 members and 1262 candidates for membership spread across 5 TPs. All
   were located in the District of Pasuruan and the District of Malang and is surrounding areas. Total borrowers
   are 1365, consisting of members and non-members located in the villages areas and/or in the vicinity of
   Pasuruan and Malang. Average loan amount per member is around Rp.12 million, distributed in the economic
   sectors of home industries, dairy farms, local transportation services and vegetables growing farmers. In TP
   Tosari, 90% of the borrowers are vegetables farmers. The biggest number of savers and borrowers of these
   sectors are micro entrepreneurs. It is the Kopdit’s intention to penetrate into the market where the biggest
   number of small and micro businesses are and, at the same time, attract new members. Kopdit is also very
   active in initiating and sponsoring the social activities in the villages within the districts to increase members.
   Although Kopdit has discontinued the CUMI (Credit Union Microfinance) program sponsored by ACCU,
   Kopdit still continues to provide loan for amounts smaller than Rp.1 million.

                                                                                      Inst:    4       Max :     5
7. Market Trends and Competition

               Name of Institution             Key         Interest +     Est. Market               Location
                                             Products*        Fees           Share
      Commercial banks
      1 Bank Rakyat Indonesia                Loan          21(effect)          n/a         All Districts
      2 BPD Jatim                            Loan          21(effect)          n/a         Nongko Jajar and Malang
      3. Danamon Simpan Pinjam               Loan          21 (flat)           n/a         Nongkojajar and Malang
      4 BPR-BPR                              Loan          23 (Flat)           n/a         Surrounding Malang dan
                                                                                           District of Pasuruan
      Cooperatives, NGOs, etc.
      5 Koperasi Susu Indonesia              Loan          24(Effect)          n/a         Nongko Jajar
      6 More or less 20 units of             Loan          24 (flat)           n/a         All Districts
          Koperasi Simpan Pinjam

    The Kopdit’s market is the area surrounding the district of Pasuruan and Malang and dominated by
    agribusinesses, trading, services, home industries, and micro entrepreneurs. Residents of the area are
    economically active. Although the Kopdit has a strong position in the 3 TPs and the others are developing,
    there are still many areas that have not been tapped by Kopdit. A few of them do not have any financial
    institutions, like cooperatives, BPR, BMT or commercial banks. Kopdit is now concentrating on areas that have
    less financial institutions to increase market shares and the number of members. Potential areas for Kopdit to
    expand include Nongkojajar, District of Tutur, Gunung Kawi, Kepanjen, Turen, Kalipare and Pakis. The area
    that Kopdit maintains a major share of the villages surrounding the TP Tosari, in which there are no other
    financial institutions available. In addition, by end of 2006, Kopdit plans to open a new TP in Ngadisari.
   Surrounding the Kopdit TPs, there are more or less 20 Simpan Pinjam Cooperatives, BPRs, Bank Rakyat
   Indonesia Bank Pembangunan Daerah Jatim and commercial banks.
   Kopdit is now focusing their operations on increasing the economic power of low-income people. The Santo
   Yoseph College Foundation, which has a strong and high commitment to improve the economy of the lower
   economic strata, supports the activities of Kopdit.
   The products of Kopdit meet the demands of the members and customers. The interest rate on savings products
   is higher (loan is lower) than other financial institutions. At the end of the year every member will receive a
   profit sharing (Divident-SHU). In addition, Kopdit also provides cash pick-up and delivery services, not only
   for saving accounts but also for loan repayment. Currently, no competitors can compete with these advantages.

Koperasi Kredit (Credit Union) SAWIRAN                                                                               8
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8. Human Resources Management:                                                           Inst:    4        Max :   5

    As of April 2006, the Kopdit had 22 staff, including the General Manager and 5 TP Managers. Seven people
    are fully dedicated to the Loan Officer function. In each TP, at least 3 people are assigned to manage the TP,
    the General Manager, the Loan Officer and administration staff. Most of the Kopdit Staff are educated from
    the local university and have been working with the Kopdit for more than five years.
    The standard salary, benefits and facilities for staff in Kopdit are higher than other similar institutions.
    The lowest staff salary is bigger than UMR (regional minimum wage set by Provincial Government-
    Rp.700.000. - per month) and get a meal allowance. In addition staff also receive a variety of allowances,
    depending on their position and time the staff have been working with the Kopdit. These extra benefits include
    allowances for medical, retirement, food for the family.
    The current staff structure is considered sufficient to support the development and possible growth in the near
    The Standard Operating Procedures for Human Resources Management are already in place and being used for
    day-to-day activities. Job descriptions for each function have been made and have been widely communicated
    to the person holding the position. Periodically, performance appraisals for each individual are conducted and
    are being used for the basis of salary increases.
    Staff recruitment is done through advertisement in the local newspaper, with minimum educational background
    of the applicant as university graduates (S1). Candidates undergo several tests and a probationary period for 3
    months and if passed, will be extended for another 1 year then becoming a permanent employee. Decisions to
    change the employment status are made by the General Manager.
    Staff training is coordinated by Inkopdit (tertiary cooperative). Kopdit allocates funds for staff training, around
    5-8% of the total staff expenses, every year. Furthermore, from time to time, Kopdit continues sending their
    staff to other credit unions and cooperatives in Java and Kalimantan for survey and training.
    The working environment and conditions in the Kopdit is quite good. Morale of the staff is high and there is
    open management and communication among the staff and the managers. Good relationships with other
    members and customers are maintained.

9. Management Information Systems                                                        Inst:    3        Max :   5

   Kopdit is using the Sikopdit system for Accounting and their Management Information System developed by
   Inkopdit. The system is quite adequate for booking loan and saving transactions. It has the capability to produce
   loan tracking reports and aging schedule reports as well as a listing of the borrowers and savers. However, the
   system only produces loans in arrears for a period 1-12 months and 1 year and above (in line with PEARLS
   requirements). The system is not able to produce reports of unpaid loans of 1 month, and/or two and /or three
   month. This has caused information regarding the period of delayed payment of the obligated amount to not be
   precisely determinable and the total amount of reserve for loan losses will be different from amount it should be.
   The information related to loan in arrears for a period of 1, 2, and 3 months are made manually.

   The security system of the MIS is not properly designed and exercised. Kopdit applied the User ID and
   password for each operator, but control over the security level is not implemented. As the result, all staff may
   have access to all data and information without regard to the function and level of the staff involved.
   The system is unable to back-up data and information through the system. Data and information back up is done
   manually by copying and transferring to flashdisk which is then kept by the General Manager. In addition,
   Kopdit maintains a hard copy backup. Kopdit does not have an MIS operation manual or user guide.
   However, Kopdit realizes that the current MIS is not flexible and may not be able to support the development
   and growth of Kopdit. Therefore, Kopdit has made an arrangement with local provider, Global Net, to install a
   new MIS, which will fulfill the needs of Kopdit in order to support the development and growth. The process of
   conversion have been started.
   Kopdit does not have a Disaster Contingency Plan to handle any problem that may occur in the hardware or
   software. Dependency toward the system programmer is too high. Kopdit has to call the Sikopdit programmer
   in the case of emergency, program revision, recovery, and corrective action, all situations that are frequently time

Koperasi Kredit (Credit Union) SAWIRAN                                                                                 9
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                                                                                       Inst:    3       Max :     5
10.   Internal Control Systems
   In accordance with the structure of organization of the Kopdit, it is the Board of Supervision’s (BOS)
   responsibility to carry out the overall internal control functions independently. However, the quality and the
   coverage of the audits is very limited, and is not covering the key and important aspects of the Kopdit operations,
   such as strategic issues and policies, problem loans, amount of loans made, and the limited capabilities of MIS.
   The audits are not in-depth or conducted in very perfunctory manner. The methods of the audit needs to be
   In addition to the above, the General Manager assigned one of the senior staff to do the internal control function
   covering all the TPs. The findings of the internal control report to the management and corrective actions are
   taken on the spot. The designation of the staff may help the management but considered not independent. With
   the size and total number of TPs, the Kopdit would be in a better position if they appointed a specific unit or a
   senior individual to carry out the overall internal control functions in an independent manner. Furthermore, a
   written manual for internal control/audit and a periodic audit program have not been set up as per the guidance of
   the BOS.
   All loans must be approved by the credit committee before disbursement. The credit committee at the TP level
   consists of TP’s Branch Manager and Loan Officer. They are able to approve loans of IDR 10 million and
   under. For loans from IDR 10 million to 75 million, the TP’s credit committee and the General Manager must
   approve. For loans over IDR 75 million, the TP’s credit committee, the General Manager and General Board of
   Governance (assembly) Meeting must approve.
   The Kopdit already has an accounting manual which was written by INKOPDIT (tertiary Cooperative) in 1994
   and it’s widely used as a standard for credit unions and cooperatives. Even though the manual has covered the
   basic control system in processing accounting transactions (built-in control), several important aspects are not yet
   In general, the awareness of staff toward the control is low and weak. The control over the customer documents
   which are sensitive to forgery are not maintained or placed in a locked filing cabinet.
   The process of analyzing the credit proposals is considered not comprehensive. The analysis of customers’
   businesses, financial condition and performance, the appraisal of the collateral and the customer capability for
   the repayment of loans were not thoroughly done.

Koperasi Kredit (Credit Union) SAWIRAN                                                                                10
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                                      IV.    FINDINGS: FINANCIAL PERFORMANCE
 1. Quality of Information and Analytical Adjustments                                                                   Inst:         3              Max :       5

   Overall quality of information presented in the Kopdit balance sheet and income statement is reliable and
   accurate. The financial reports are made in accordance with the Indonesian accounting standards. The database
   is able to produce a balance sheet and income statements on a dailly basis. But, the monthly consolidation of the
   balance sheet and income statements from all TPs is done manually.
   The financial reports are reviewed by the managers daily. All transactions are done on a cash basis with the
   exception of depreciation of fixed assets and inventories, which is done on a monthly basis. The reserve for loan
   losses is booked annually and coincides with the disbursement of profit (SHU). The Kopdit allocates funds for
   reserves for credit risks, and general reserves first from SHU then the remaining balance is distributed to
   The MIS does not have the capability to produce portfolio reports in the form of separate groups of loans in
   arrears together with the respective oustanding balances. To get information on the loans in arrears on a month
   by month basis, the credit administration unit prepares a list of unpaid loans and the respective outstanding
   balances. Now Kopdit is doing this on a daily basis, manually.
   Although manually, through the customers loan cards, the history of each loan could be tracked from the day of
   disbursement or the first day the loan was classified to the time the loan was fully repaid, or written-off.
   The allocation of Head Office Expenses, Human Resources expenses and Cost of Funds used by TPs have not
   been implemented and charged to TPs books. This has resulted in the inaccurate view of the profit and loss of
   each TPs.
   Kopdit is consistently using the accounting manual written by Induk Koperasi Kredit Credit Union (tertiary
   cooperative) as the Standard of Operating Procedures (SOP) for daily operational activities.
   As part of this rating, an analytical adjusment based on the international standards and best practices was made.
   As a result of an adjusment of the reserves for loan losses, the ratio of AROA and AROE showing a negative
   figures (see Attach 2.3 for details ).

                                                                                                                          Inst:        3             Max :        5
2. Portfolio Quality
                                                         Position                      Trend
                 Portfolio Quality           Dec-03      Dec-04      Dec-05       03-04     04-05                                   Sources of ratios
    Average gross portfolio (IDR '000)       7,605,615   9,045,511   14,074,524    19%         56%
    NPL                                      4.21%       2.69%        2.07%       -36%        -23% Non performing loan based on BI standard
    PAR (>1)                                    20.21%      17.65%       20.79%   -13%         18%
    PAR (>30)                                   16.27%      12.65%       14.15%   -22%         12%
    Write-off Ratio                              0.00%       0.33%        0.00%     0%          0% Write off recorded by client / average gross outstanding portfolio
                                                                                                   (Write off based on CGAP standard + Write off recorded by client) / average
    Adjusted Write-off Ratio                    5.78%       2.82%        2.42%    -51%        -14%
                                                                                                   gross outstanding portfolio
    Adequacy of reserve (to BI regulation-
                                                0.00%     110.72%      207.38%     NA           87% Loan loss provision / provision required by BI
    excluded collateral calculation)
    Adequacy of reserve (to CGAP)               0.00%       9.02%       13.53%     NA           50% Loan loss provision / provision required by CGAP
    Risk Coverage Ratio                         0.00%       6.41%       10.05%     NA        56.82% Loan loss provision / outstanding loan with PAR > 30 days
    Adjusted Risk Coverage Ratio               83.97%      71.02%       74.23%    -15%        4.51% Loan loss provision based on CGAP / outstanding loan with PAR > 30 days
    Loan Loss Reserve                           0.00%       0.81%        1.42%     NA        75.47% Loan loss provision / gross outstanding loan
    BI LLR Requirement                          74,546      76,732      121,093    2.93%     57.81% Loan loss provision based on BI standard

   The Quality of Portfolio is considered acceptable. NPL or Portfolio at Risks is considerably low.
   To date, there is no standard for measuring Non Performing Loans (NPL) issued by the Department of
   Cooperatives to be used by all cooperatives in Indonesia. Kopdit is using the standard of PEARLS to measure
   Follow up on the collection of the loans in arrears is done minimally. Kopdit provides a one-month period
   allowance for any loan in arrears until the process of collection is made. The system will produce a report when
   loan is unpaid after a period of one month to more than one year. Loans in arrear less that one month are not
   reported. Currently, the status of Portfolio at Risks (using CGAP method) showing a PAR > 1day is as high as
   20 % and PAR >30 as high as 14%

Koperasi Kredit (Credit Union) SAWIRAN                                                                                                                                11
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   In accordance with the PEARLS method of calculation for reserve for loan losses, the reserve is 35% of the total
   outstanding loan in arrears of one day to one year. For unpaid obligations of more than one year the reserve
   should be 100% of the total amount of unpaid loans. Kopdit has complied with this requirement, following the
   PEARLS method. However, when calulating NPL in accordance with Bank Indonesia regulation and/or PAR
   (International Best Practice–CGAP), the current amount of reserves is far less than sufficient. The total amount
   of all reserves (adding up all balance in the accounts of Reserve for Loan Losses, Reserve for Credit Risks, and
   General Reserve) as of December 2005, only covered 10% of the required amount of reserves for Loan Losses.
   In May 2006, Kopdit wrote-off loans which had been unpaid for more than one year, for an amount of Rp. 250
   million. The write-off brought down the PAR >30 to the level of 12.22%.
   The trend of problem loans for the last three years tended to be stable (PAR>30 : 16% ; 13% and 14%) The
   economy surrounding the area of operation has not fully recovered, especially with the increased of oil price in
   The SOP for the loan booking and processing has not been set up by Kopdit. Only recently Kopdit issued a
   procedure memo regarding the loan refinancing, reschedulling and write-off.

3. Asset and Liquidity Management                                                                              Inst:        3              Max :        5

                                                       Position                 Trend
                                             Des-03    Des-04     Des-05    03-04   04-05                              Sources of ratios
                 Asset composition
   Total liquidity reserves                   18,67%    12,23%      5,06%     -35%    -59% Cash and cash equivalents / total assets
   Long term assets to total assets            6,20%     7,73%      8,61%      25%     11% Other long term assets and net fixed assets / total assets
   Capacity ratio                             74,96%    80,02%     86,30%       7%      8% Net portfolio loan / total assets
   Other short term assets to total assets     0,17%     0,02%      0,03%     -86%     25% Other short term assets / total assets
              Financing for Portfolio
   Loan to Deposit ratio                      93,72%   119,61%    165,32%     28%      38% Gross loan portfolio / savings, deposits, interbank liabilities
   Purchased funds dependence                  0,00%     9,40%     27,74%      NA     195% Interest bearing borrowings/net outstanding loan
   Commercial portion to loan                  0,00%     9,40%     27,74%      NA     195% Commercial interest bearing borrowings/net outstanding loan
   Subsidized portion to loan                  0,00%     0,00%      0,00%      0%       0% Subsidized interest bearing borrowings/net outstanding loan
              Liquidity Management
   Cash Position Indicator                    18,67%    15,05%      7,87%    -19%     -48% Average cash and cash equivalents/average total assets
   Liquid Ratio                              114,06%   130,91%    164,87%     15%      26% Current assets / current liabilities
   Quick Ratio                                22,71%    17,35%      9,13%    -24%     -47% Cash and cash equivalents / current liabilities

   The management’s handling of the assets is fairly acceptable. Large loans are properly secured. Although still
   in manual fashion, Kopdit is able to maintain day-to-day liquidity needs accordingly. Procedures for liquidity
   management have not been written-off and no cashflow projection has been prepared. Kopdit only prepares the
   day-to-day liquidity needs based on the customers loan cards and the certificate of deposits issued, manually.
   To fulfill the liquidity needs, Kopdit borrowed funds from Puskopdit, other financial institutions, and the
   cooperatives, Koperasi Serba Usaha Pointer, Server Finance, Bintang Samudra and Yayasan Kosayu. Total
   borrowing to third parties as of April 2006 was Rp.4 billion. This amount represents 30,5% of the Kopdit’s
   overall short-term third party funds.
   Kopdit made a reserve in the form of cash with a minimum of Rp.1 billion, The quick ratio tended to reduce the
   figure down from 22.71% in 2003, 17.35% in 2004 to 9.13% in 2005. With a good liquidity monitoring system,
   the cash may be invested in a more productive ways, or be used to make a partial repayment to the high interest
   loan to third parties.
   The loan to deposit ratio for the last three years indicates a upward trend from 93.72% in 2003, 119.61 % in
   2004 to 165.32% in 2005. The increase of loans booked was not followed by a similar increase in savings and
   deposits. The loans booked were financed by the commercial borrowing funds from third parties (27.74% of total
   assets). The interest rate of commercial funds is more expensive than the interest paid to savings and deposit
   No policy and procedures of assets management is available. The loan accounts are dominant, having increased
   from 75% in 2003, 82% in 2004 to 86% in 2005, of total assets, with an average loan period of 24 months. Fixed
   assets represent 9% and cash 5% of total assets.

Koperasi Kredit (Credit Union) SAWIRAN                                                                                                                       12
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4 Liabilities and Equity                                                                                                                               Inst:         4             Max :          5

                                                                                                                   Position                                 Trend
                                           Equity                                             Dec-03               Dec-04                     Dec-05    03-04   04-05
      Debt to Equity                                                                              4.63                   3.55                     3.85    -23%      8%
      Savings and Deposits to total debt                                                        97.26%                86.47%                    66.72%    -11%    -23%
      Purchased funds to total debt                                                              0.00%                  9.64%                   30.16% NA         213%
      Capital Adequacy Ratio                                                                    22.66%                26.17%                    22.74%     15%    -13%
      Debt to Total Assets

      Equity: Shares                                                                          1,260,418            1,955,998                  2,725,069     55%     39%
      Equity: Donations                                                                           9,189                9,189                      9,189      0%      0%
      Equity: Retained earnings/losses                                                            8,682              138,189                    337,619   1492%    144%
      Equity: Other sources (specify)                                                                 -                    -                          - NA      NA
      Subsidized Commercial Funding                                                               0.00%                0.00%                      0.00% NA      NA
      Liabilities Ratio*
                        Commercial Liabilities                                                         -             977,603                  4,830,914 NA                                 394%
                   Non-Commercial Liabilities                                                          -                   -                          - NA                          NA
      Portfolio to Total Assets                                                                   74.96%              80.68%                     87.54%                    8%                 9%
      Deposits to Total Assets                                                                    79.99%              67.45%                     52.95%                  -16%               -21%
      Cost of Funds Ratio                                                                         17.00%              16.59%                     19.01%                   -2%                15%
      Adjusted Debt to Equity                                                                      11.88                7.87                       7.96                  -34%                 1%
                                                                                                   8.83%              17.15%                     11.76%                   94%               -31%
      Adjusted CAR (after weighted assets)
      Funding Expense Ratio                                                                       18.14%               16.38%                     17.06%                 -10%                  4%
      Equity Multiplier                                                                            11.32                 5.83                       8.50                 -49%                 46%

                                                                                                               The growth of saving accounts and time deposits
                                            Financing structure
                                                                                                               funds in 2005 was 21%. The growth of basic &
                    14.000.000                                                                                 compulsory savings was around 45%, and retained
                                                                                                               earnings booked as general reserve accounts was

                                                                                                  2004         140%, making the total growth of equity 41%. Even
                                                                                                               so, there is a wide difference between funds for loan

                                                                                                               disbursement and funds received from savings and


                                                                                                               deposits. To fill the gap, Kopdit has to borrow funds
                                                                                                               from third parties at a high interest rate (21% p.a.)
                                                Financing sources
                                                             As presently run, the borrowed funds comprise
                                                             27.74% of total assets. As a result, the cost of funds
   rose from 15% in 2005, to 19% by April 2006. Kopdit plans to borrow from a commercial bank at the
   commercial bank rate for replacing the funds borrowed to third parties and for working capital.
   Each year, Kopdit extends profit sharing to members. In December 2005, Kopdit paid profit sharing (SHU)
   totaling Rp.837 million. The Capital Adequacy Ratio of Kopdit as of April 2006 was 22.7%.
   The ratio between portfolio and equity is 3.79 times or 379%. And the ratio between problem loans and equity is
   37.29%. With the current capital structure, Kopdit has sufficient capacity to support the current business risks.
   Especially with the opening of the new TPs in Dinoyo and Ngadisari. The new TPs may register new additional
   members, and will increase basic and compulsory savings. This will help to increase the equity.

5. Profitability                                                                                                                                       Inst:         2             Max :          5

                                                                                   Position                                 Trend
                 Profitability                                 Dec-03              Dec-04           Dec-05          03-04           04-05                   Sources of ratios
 Operational Sustainability (OSS)                               100.45%              106.52%          110.09%               6%           3% Operating income / operating expense
 Adjusted Return on Assets (AROA)                                   -10.75%              -7.32%          -10.07%        32%            -38% Adjusted net income / average total assets
 Adjusted Return on Equity (AROE)                                   -60.55%           -36.37%            -47.61%        40%            -31% Adjusted net income / average equity
 Return on Assets (ROA)                                              0.09%                1.19%            2.04%     1296%              70% Net income / average total assets
 Return on Equity (ROE)                                              0.48%                5.93%            9.62%     1131%              62% Net income / average equity

                                                                                                                                              Interest income from loan and provision, commission
 Yield on gross loan portfolio                                      25.11%              24.52%            23.83%        -2%             -3%
                                                                                                                                              income/ average gross loan portfolio

 Theoritical interest rate                                          42.57%              43.58%            37.87%            2%         -13%
                                                                                                                                              1-(yield on gross loan portfolio/theoritical interest
 Yield gap ratio                                                    41.02%              43.73%            37.08%            7%         -15%
 Net Income/loss (IDR '000)                                          8,682          138,189              337,619   1491.64%         144.32%
 Total value of loans disbursed during the
                                                               4,427,004           7,001,626        14,458,480       58.16%         106.50%
 period (IDR '000)
 Value of repayments received (IDR '000)                       3,659,627           5,664,588         7,775,566       54.79%          37.27%
 Net Profit Margin                                                 0.45%               6.12%             9.16%        1267%             50% Operating profit / operating income
 Financial and Operating Expense Ratio                            25.40%              23.45%            23.78%          -8%              1%
 Financial Expense Ratio                                          18.14%              16.38%            17.06%         -10%              4%
 Financial Sustainability (FSS)                                   64.01%              72.72%            68.79%          14%             -5%
 BOPO                                                             99.55%              93.88%            90.84%          -6%             -3%
 Financial Cost Ratio                                             14.52%              13.73%            15.61%          -5%             14% Interest expenses / average performing assets
 Total expense to average total assets                            19.04%              18.33%            20.17%       -3.75%          10.07%

Koperasi Kredit (Credit Union) SAWIRAN                                                                                                                                                                13
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Note: see annex 2.3 for detailed adjustments
   For the last three years, Kopdit has been able to increase profits from operational activities. However, the
   yield’s trend are decreasing slightly due to Kopdit’s need to pay a high interest expenses on commercial loans.
   The net profit booked in nominal amounts is continues to climb upwards.
   At month-end, Kopdit allocated a certain percentage of operational profits to the general reserve account,
   reserves for credit risks account, and expense payables account. At year-end, the balance of net profit account
   added up with the balance of expense payables account, and was then distributed to pay/ reimburse a certain
   activities of Kopdit including honorariums for the governing board members, expenses for annual members
   meeting, and profit sharing for Kopdit members. In fact, the profit generated from operational activities is bigger
   than it shown in the net profit account (SHU).
   The profit generated by Kopdit is more than the amount recorded on their balance sheet. Every month, for
   unknown reasons, a certain amount of the profit is transfred to the expense payable account and other reserve
   accounts. Furthermore, Kopdit still has the prospect of increasing their revenue by intensifying the effectiveness
   of collection of unpaid borrowers’ obligations.

6. Operational Effectiveness                                                                                                                               Inst:       5            Max :        5

                                                                                                 Position                    Trend
              Efficiency and Productivity                            Des-03                      Des-04        Des-05    03-04   04-05                                Sources of ratios
   Financial and Operating Expense Ratio                               25,40%                      23,45%         23,78%    -8%      1% Financial & Operating expense / average gross loan portfolio
                                                                                                                                        Human resource, administration, depreciation expense / average gross
   Operating Expense Ratio                                                 7,27%                     7,07%         6,72%    -3%     -5%
                                                                                                                                        loan portfolio
                                                                                                                                        Interest income from loan and provision, commission income/ average
   Yield on Gross Portfolio                                               25,11%                     24,52%       23,83%    -2%     -3%
                                                                                                                                        gross loan portfolio
   Cost per Active Client (IDR '000)                                     2.089                     2.012           2.451    -4%     22% Operating and non-operating expense / active borrowers
   Loan Officer productivity                                               185                       211             273    14%     30% Active borrowers / loan officer
   Savers per Client Officer                                               532                       652             684    23%      5% Active savers / client officers
   Average Outstanding Loan Size (IDR '000)                              8.222                     9.948          12.940    21%     30% Gross outstanding loan / active borrowers
   F&OER to Yield on Gross Portfolio                                   101,17%                    95,62%          99,79%    -5%      4% Financial & Operating expense ratio / yield on gross portfolio
   Loan Disbursed per borrower (IDR '000)                                4.388                     4.597           6.928     5%     51% Loan disbursed / number of loan disbursed
   Loan disbursed per Loan Officer (IDR '000)                          885.401                 1.400.325       2.891.696    58%    107% Loan disbursed / number of loan officers
   Average Loan Disbursed (IDR '000)                                 4.427.004                 5.714.315      10.730.053    29%     88% Loan disbursed / number of loan disbursed
   Client Turnover                                                     NA                         13,95%          29,51% NA        112%

    Kopdit operations show a good, profitable trend. Loan Officers’ productivity is considerably high.
    The structure of Kopdit’s expenditures is considered proportionate. The interest expense is 72% of the total
    operation expenses. In order to enhance services rendered to customers, Kopdit has recruited three more staff
                                                           and assigned in TP Dinoyo and Sawiran as Loan
                        Expense distribution               Officers.
                                                           The management is aware of the limited capabilities of
       5.000.000                                           the previous MIS, and the new MIS has then been
       3.000.000                                    Des-04
                                                           installed. The programs are designed to meet the needs
                                                           of the Kopdit. Since the MIS is just newly used, it has
                                                           not yet been proven cost effective.
                                                           Considering several factors such as improving
                                     Loan loss

                                                  benefit expense
                                    Banks' loan



                                                                                     Other Expense
                 Interest and fee


                                                                      General &

                                                    Salaries &


                                                           management capacity with continuous training, new

                                                           recruitment of personnel with good basic educational
                                                           backgrounds, training and on the job training, an
                                                           increase loan officer productivity, entering new
    markets, developing existing markets, high capability and custom designed MIS, Kopdit may have sufficient
    capacity to support future growth.

Koperasi Kredit (Credit Union) SAWIRAN                                                                                                                                                               14
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                         V. FINDINGS: BUSINESS PLAN AND STRATEGY

1. Business Plan and Budgeting                                                        Inst:    3       Max :     5
    Kopdit has not made a business plan and budget for medium term, 3-5 years ahead. The work plan made by
    Kopdit only covers 2006. The plan only covers for organizational work plan and is very limited on the
    business side. Kopdit has not made any detailed written plan to develop its business on a month-by-month
    basis, to list the target markets to enter, to state branch opening, new recruitment, profit plan, or any action
    plan to reduce dependency on the high interest rate loans to third parties, and to reduce large loans. There is no
    budget to support the work plan, which should have been prepared on a month-by-month, account by account
    basis, with detailed revenue and expenditures to facilitate the monitoring process and analyze variance between
    actual versus budget.
    Similar to the above, The Board of Supervision prepared a very simple work plan for 2006. It is unstructured
    and not particularly detailed. A budget related to the work plan was not prepared. Kopdit’s focus has been
    concentrated on cooperatives’ activities and on the development and improvement of members, and lacking of
    business aspects.

2. Financial Projections                                                              Inst:    3       Max :     5

   Kopdit has no financial projections made for either 2006 or for the 3-5 years ahead. In their 2006 workplan,
   Kopdit made projections of revenue and expenditures in a very simple way, with no details or underlying
   assumptions. Revenue for 2006 was projected to achieve 160% of 2005 revenue, or and increase of 60% from
   2005 revenue. Expenditure for 2006 was projected at 165% of 2005 expenditure, or an increase of 65% from
   2005 expenditure.
    Growth of revenue and expenditure is as follows:
          Revenue in 2005 was Rp.3.385 million. Projection for 2006 is Rp.5.407 million.
          Expenditure in 2005 was Rp.3.024 million. Projection for 2006 is Rp.4.996 million.

   Assets were planned to grow to Rp.27 billion by the end of 2006. As of April 2006 the total assets were Rp.21,2
   Revenue as of April 2006 was Rp.1.542 million or 42% of the 2006 budgeted figure. Expenditure as of April
   2006 was Rp.1.398 million or 42% of the 2006 budgeted figure.
   Kopdit does not make any projections in the growth of members, total savings, total loans, total value of bad
   loans, value of bad loans that have been successfully collected, or total write-offs.
   Kopdit has not projected total loans from a third party or commercial bank, interest rate charged, interoffice
   loans or interoffice interest rate.

                                         Plan 2005    Actual 2005                  Plan 2006
                        Category                                    against Plan
                                         IDR (000)    IDR (000)                    IDR (000)
                        Income           3.385.566    3.683.898     8,81%          5.407.404
                        Expense          3.024.043    3.346.279     10,66%         4.995.742
                        Saving           4.964.750    4.356.232     -12,26%        10.065.670
                        Deposit          6.593.618    6.328.473     -4,02%         7.372.772
                        Loan             18.916.959   17.663.640    -6,63%         25.583.886
                        Equity           3.958.031    4.161.939     5,15%          4.409.036

Koperasi Kredit (Credit Union) SAWIRAN                                                                               15
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                                                 VI. SUMMARY


         Risk Areas          Risk Level                  Planned Steps to Address Medium to High Risk
Institutional Risk               Low
Management /                              The BOD does not have enough experience in finance and legal affairs. It is
Governance                                recommended to take courses and training on Financial Analysis, Business
                                          Plan, Accounting, & Cooperative Law, or recruit personnel that have thorough
                                          knowledge of such issues as advisors to the BOD.
Product and Service                       Most loans extended were company loans. Credit analysis procedures and
                                          process to determine creditworthiness, very large loan nominal, and evaluation
                                 High     of collateral do not meet best practice standards. It is recommended that Kopdit
                                          staff take training on Credit Analysis, Collateral Evaluation, and limit the value
                                          of loans that could be extended by Kopdit.
Management Team                 Low
Accounting/Finance Mgt         Medium     The Kopdit accounting system should fully implement Indonesian PSAK.
Management Information                    The system currently in use is not flexible enough and has limited capability to
system                         Medium     generate modified report. Kopdit was in the process of changing its information
                                          systems with provider, Global Net Malang.
Administration/HR                Low
Fraud/Internal Control                    Kopdit has no independent officer that implements the internal control function
                               Medium     and internal audit function. It is recommended to take training on “internal
Competition/Market               Low

Information Quality                       Kopdit has not implemented inter office charges such as human resources
                                          expenditures and cost of funds. SHU for each TPU did not reveal the accurate
                                          figure. It is recommended to get staff trained in accounting and set a “Base
                                          Rate” as cost of internal fund.
Portfolio Quality                         PAR has been relative high (14%); no definite staff has been assigned to take
                               Medium     care of troubled loans. It is recommended to take “Delinquency Management”
Capital Adequacy                 Low
Liquidity                                 Kopdit has not had any control tools to monitor liquidity requirement for a
                                          month ahead, reducing deposit and loan gap, to lessen dependency toward
                                          commercial fund with high interest rate. It is recommended to take “Liquidity
                                          Management” training.
Asset Liability                           Loan to Deposit Ratio was relatively high (165%). Increasing third party funds
Management                                by increasing the number of new member and expanding to new market.
Liability Structure                       Commercial loans with relatively high interest rate of up to 45% of the total
                               Medium     third party liabilities. It is recommended to mobilize funds or to look for low
                                          cost funds as a substitute.
Tax/Legal                          -

Donor Dependency                  -
Collateral/Guarantee             Low
Projections                               Kopdit has not made any business plan & financial projection for mid term
                                          period (3-5 years). The annual workplan does not detail their business plan,
                                          revenue and expenditure projections. It is recommended to get business,
                                          strategy and financial planning training.
Inability to invest               -
Lack of growth                   Low
Inability to increase                     Kopdit has not made any business plan & financial projections for the mid term
Equity                                    period (3-5 years). The annual work plan does not detail their business plan,
                                          revenue and expenditure projection. It is recommended to get business, strategy
                                          and financial planning training.

Koperasi Kredit (Credit Union) SAWIRAN                                                                                         16
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       Total Amount                               IDR 2.5 billion
       Loan Type                                  Installment loan
       Term                                       3 years
       Grace Period                               -
       Repayment Schedule                         Every 3 months
       Interest Rate                              16% p.a.
       Guarantee provided by MFI                                     80%
       Guarantee provided by Mercy Corps                             20%

     Description of MFI Guarantee

     Additional Comments on Purpose Loan
         Kopdit requires fund of Rp,2,5 billion that would be used to fund as follows:
             1. To repay high interest rate commercial loan outstanding for the amount of Rp.1,5 billion.
             2. Working capital reserve of Rp.1.billion.
         To reduce down corporation loan (with nominal of more than Rp.200 million)

Koperasi Kredit (Credit Union) SAWIRAN                                                                      17
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                                                         VI.       ANNEXES

1.           Organizational Structure:

                                                     RAPAT ANGGOTA
                                                                                       Romo Willy CDD
                                                                                      Romo Sukamto CDD

          Ketua : Drs. Sugeng S.
             Wakil : Sugondo
         Sekretaris : Susilomurti                                                        PENGAWAS
         Bendahara : Maria Tatik                                                     Ketua : H.M.Iksan S.Pd
         Anggota : H. Samanhadi                                                      Wakil : Drs. Sutikno
             Anggota : Yovita                                                        Anggota : Devi Ika
         Anggota : Budi Cahyono

                                                          Manager Umum
                                                          Kokok Budianto

                                                                                     Asisten Internal Audit: Daniel
                                                                                     Asisten Promosi & pendidikan Suharianto
                                                                                     Asisten Kredit: Melina

Manajer TP Sawiran                Mgr TP Tosari           Mgr TP Kepanjen            Mgr TP Capang                Mgr TP Pakis
Setya Edi                         Heri Susanto            Widi Hatmanto              Suharianto                   Budi

Melina (Kantor)                   Alif K (Kantor)         Daniel (Kantor)            Wiwik (Kantor)               Ike (Kantor)
Tirto (LO)                        Jarot (LO)              Anton (LO)                 Gelar (LO)                   Suwarno (LO)
Bachtiar (LO)                                             Totok (Keamanan)                                        Diah Ika (LO)
Warsono (Keamanan)
Bawon (Keamanan)

             Jl. Kemang Selatan I No.3, Bangka | Jakarta Selatan 12730, Indonesia | tel 62.021.719.4948 | fax 62.021.7179.0907
                                                                                                                  Version 3.2 as 7/15/2011
                  MFI Appraisal and Recommendation Report

2.        Financial Statements
2.1.      Balance Sheet

ASSETS                                                   31-Dec-03             31-Dec-04          31-Dec-05
                                                         (IDR 000)             (IDR 000)          (IDR 000)
     Cash and due from banks                                 1,894,528             1,589,121          1,021,184
     Total loan portfolio                                    7,605,615            10,485,407         17,663,640
     (Loan loss reserve)                                           -                 (84,958)          (251,127)
     Other short-term assets                                    16,819                 3,006              5,830
     Other long-term assets
     Net Fixed assets                                          628,885             1,004,146           1,737,562
TOTAL ASSETS                                                10,145,847            12,996,723          20,177,089
     Savings Accounts: compulsary                                   -                    -                   -
     Savings Accounts: voluntary                              2,023,896            3,100,322           4,356,232
     Time deposits                                            6,091,260            5,665,920           6,328,473
     Interbank liabilities                                          -                    -                   -
     Loans: commercial banks                                        -                977,603           4,830,914
     Loans: subsidized                                              -                    -                   -
     Loans: Shareholders' Loan                                      -                    -                   -
     Other short-term liabilities                               228,787              394,452             499,531
     Other long-term liabilities                                    -                    -                   -
TOTAL LIABILITIES                                             8,343,943           10,138,296          16,015,150
     Paid-in equity from shareholders                        1,260,418             1,955,998           2,725,069
     Additional capital                                        523,615               755,050           1,090,062
     Donated equity -- prior years, cumulative                   9,189                 9,189               9,189
     Donated equity -- current year                                -                     -                   -
     Prior years retained earnings/losses-dividend                   (0)                   0                   0
     Current year surplus (deficit)                              8,682               138,189             337,619
     Other capital accounts                                        -                     -                   -
TOTAL EQUITY                                                 1,801,904             2,858,426           4,161,939
TOTAL LIABILITIES AND EQUITY                                10,145,847            12,996,723          20,177,089

2.2       Income Statement

OPERATING INCOME                                                          31-Dec-03     31-Dec-04     31-Dec-05
                                                                          (IDR 000)     (IDR 000)     (IDR 000)
     Interest and fee income from loans                                     1,909,622     2,217,964     3,353,392
     Income from investments                                                   30,493        23,341        16,192
     Income from other finance-related services                                   624        17,795       314,314
     Total Operating Income                                                 1,940,739     2,259,101     3,683,898
     Interest and fee expense                                              1,379,370     1,481,257      2,401,167
     Banks' loan interest expense                                                -             -              -
     Loan loss provision expense                                                 -             -              -
     Salaries & benefit expense                                               72,565        37,841         37,529
     General & Administrative Expense                                        398,718       595,287        887,108
     Other Expense                                                            81,403         6,527         20,475
     Total Operating Expenses                                              1,932,056     2,120,912      3,346,279
     NET OPERATING PROFIT (LOSS)                                               8,682       138,189        337,619
     Donation recorded as income                                                 -             -             -
     Other non-operational income                                                -             -             -
     Other non-operational expenses                                              -             -             -
     Total Non-Operating Income & Expense                                        -             -             -
     TOTAL CONSOLIDATED PROFIT/LOSS (BEFORE TAX)                               8,682       138,189       337,619
     Tax income                                                                  -             -             -
     TOTAL CONSOLIDATED PROFIT/LOSS                                            8,682       138,189       337,619
     Donation recorded as capital
     Donation for Loan Capital
     Donation for Operating Expenses
     Net Income after Donation

          Jl. Kemang Selatan I No.3, Bangka | Jakarta Selatan 12730, Indonesia | tel 62.021.719.4948 | fax 62.021.7179.0907
                                                                                                               Version 3.2 as 7/15/2011
                   MFI Appraisal and Recommendation Report

2.3.       Adjustment (IDR ‘000)

                   Adjustment Worksheet
                                                     31-Dec-03      31-Dec-04      31-Dec-05
                                                     (IDR 000)      (IDR 000)      (IDR 000)
       Unadjusted Operating Expenses                    1,932,056      2,120,912      3,346,279
       Inflation Adjustment
       a. Average equity                               1,801,904      2,330,165      3,510,183
       b. Average fixed assets                           628,885        816,516      1,370,854
       c. Inflation                                        5.16%          6.40%         17.11%
       Total Adjustment (a-b)*c                           60,528         96,874        366,039

       Subsidized Cost of Funds Adjusments
       a. Average subsidized loans                           -              -              -
       b. Commercial interest rate                        16.06%         14.31%         16.25%
       c. Commercial interest expense                        -              -              -
       d. Actual interest expense                            -              -           38,713
       Adjustment = c-d                                      -              -              -

       a1. Average savings                             2,023,896      2,562,109      3,728,277
       a2. Average deposits                            6,091,260      5,878,590      5,997,197
       b1. Commercial rate for equivalent savings          4.06%          2.31%          4.25%
       b2. Commercial rate for equivalent deposits        10.06%          8.31%         10.25%
       c. Commercial interest expense                    694,951        547,696        773,164
       d. Actual interest expense                      1,379,370      1,481,257      2,401,167
       Adjustment = c-d                                      -              -              -

       In-kind Donation Adjustment
       a. Personnel                                            0              0              0
       b. Other                                              -              -                0
       c. Commercial interest rate                           16%            14%            16%
       Adjustment = (a+b)*c                                  -              -              -

       Loan Loss Provision                               599,849        663,667      1,302,178
       Write off                                         439,430        225,030        340,484
       Other non-cash adjustment                       1,039,279        888,696      1,642,662

       Total adjustment                                1,099,807        985,570      2,008,702

       Adjusted Operating Expenses                     3,031,863      3,106,482      5,354,981
       Operating Income                                1,940,739      2,259,101      3,683,898
       Adjusted Net Operating Income (loss)           (1,091,124)      (847,381)    (1,671,082)

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4. Portfolio Information
                                                                                        Dec-03              Dec-04              Dec-05

   1 T otal Nilai Pinjaman yang disalurkan selama periode ybs           (IDR '000)         4,427,004           7,001,626        14,458,480
     Total value of loans disbursed during the period
   2 T otal Jumlah pinjaman (akad) yang disalurkan selama periode ybs                          1,009                 1,523           2,087
     Total number of loans disbursed during the period
   3 Jumlah peminjam aktif sampai dengan akhir periode (orang)                                   925                 1,054           1,365
     Number of active borrowers (end of period)
   4 Saldo Pinjaman                                                     (IDR '000)         7,605,615          10,485,407        17,663,640
     Value of loans outstanding (end of period)
   5 Jumlah angsuran yang diterima selama periode tersebut                                 3,659,627           5,664,588         7,775,566
     Repayment Value
   6 Nilai pinjaman yang dihapuskan periode ini                         (IDR '000)                  0               29,642                0
     Value of loans written-off during the period
   7 T otal Nilai Pinjaman yang di rescheduling                         (IDR '000)                  0               31,791          38,394
     Value of Reschedulling (reported)
   8 Rata-rata jangka waktu pinjaman periode ini(Bulan)                                           23                   26                28
     Average loan term (months)
   9 T otal Jumlah Penabung Aktif                                                              2,662                 3,261           3,422
     Active Depositor
  10 T otal Saldo T abungan & Deposito                                  (IDR '000)         8,115,156           8,766,241        10,684,705
     Value of Client Savings & Deposits
  11 Jumlah Staff periode ini                                                                     15                   15                16
     number of Staff during the period
  12 Petugas lapangan periode ini (credit officer)                                                 5                        5             5
     number of credit officers during the period
  13 Jumlah Cabang (/ Kantor Kas Pembantu)                                                         5                        5             5
     Number of Branch

                      Resiko Atas Pinjaman Portofolio (Loan Portfolio at Risk) as of 31December 2005
                                                                                                        Jumlah cadangan
                                         Outstanding Portofolio (Baki   Portofolio Cadangan pinjaman      pinjaman tak
            Periode tunggakan                      Debet)                Beresiko     tak tertagih           tertagih
                                                                        Portfolio                       Loan loss reserve
              Days past due                 Outstanding Balance          at Risk    Loan loss reserve        amount
                                                                            (%)           (%)
   1   Current loan                                   13,991,043,179                       0%
   2   1-30                                            1,172,906,900       6.6%           10%             117,290,690.00
   3   31-60                                             602,965,200       3.4%           25%             150,741,300.00
   4   61-90                                             445,126,500       2.5%           50%             222,563,250.00
   5   91-120                                            347,192,300       2.0%           75%             260,394,225.00
   6   >120                                            1,104,406,202       6.3%          100%           1,104,406,202.00
                         T o t a l (T)                17,663,640,281      20.8%                         1,855,395,667.00

Koperasi Kredit (Credit Union) SAWIRAN                                                                                                   21
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5. Glossary

                  Ratio                                   Formula                                    Explanation

 AROE (Adjusted Return on Equity)                 Adjusted Income/(Loss)               Measures how well an MFI uses its
                                                                                       equities to generate returns that have
                                                       Average equity                  included CGAP analytical adjustments

                                                                                       Measures how well an MFI uses its total
 AROA (Adjusted Return on Assets)                 Adjusted Income/(Loss)
                                                                                       assets to generate returns that have
                                                   Average total assets                included CGAP analytical adjustments

                                           Loan loss provision recorded by MFI
 Adequacy of reserve in accordance       Loan loss provision that should be recorded
 to Bank Indonesia regulation            by MFI based on Bank Indonesia standard

                                           Loan loss provision recorded by MFI
 Adequacy of reserve in accordance       Loan loss provision that should be recorded
 to CGAP standard                            by MFI based on CGAP standard

                                              Human resource, administration,          Indicated the performance efficiency of
 Administrative expense ratio                     depreciation expense                 MFI to produce the existing portfolio
                                               Average gross loan portfolio

                                          Loan that should be written-off based on     To see the proportion of the written-off
 Adjusted write off ratio                             PAR calculation                  loan based on CGAP standard to the total
                                                  Gross outstanding loan               outstanding loan

 Average disbursed loan size                      Value of loans disbursed
                                           Total number of loans disbursed during

 Average outstanding loan size                     Gross loan portfolio
                                                Number of loans outstanding

 BOPO                                                Operating expense                 Measures the costs that used to generate
                                                     Operating revenue                 its related revenue

 Capacity ratio                                       Net portfolio loan               Measures the proportion of MFI’s net
                                                        Total assets                   portfolio loan out of its total assets

                                                                                       Indicates the efficiency of MFI’s
 Cost per borrower                                   Operating expense                 performance in term of the operating
                                                                                       costs that used to manage its existing
                                            Average number of active borrowers         borrowers

                                                                                       Measures how well an MFI matches the
 Current ratio/Liquid ratio                          Short term assets                 maturities of its current assets &
                                                    Short term liabilities             liabilities in general term

                                                                                       Shows the blended interest rate for all of
 Cost of Fund ratio                        Interest + fee exp on funding liabilities   an MFI’s funding liabilities (exclude
                                                 Average funding liabilities           interest payable or interest on loans to
                                                                                       finance fixed assets)

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 Capital Adequacy Ratio                                 Total equity
                                                     Average total assets

                                                                                       Indicates on how much MFI’s liabilities
 Debt to Equity (Leverage)                              Total Liability
                                                                                       outperform its equities in its financing
                                                         Total Equity                  structure

 Debt to Total Assets                                 Total Liability                  Measures the proportion of MFI’s
                                              Total Assets (Liability + Equity)        liabilities in its financing structure

                                                                                       Shows the blended interest rate an MFI is
                                                                                       paying to fund its financial assets. Can be
 Funding exp ratio                         Interest + fee exp on funding liabilities
                                                                                       compared with Yield on gross loan
                                                Average gross loan portfolio
                                                                                       portfolio to determine the interest

 Liquidity reserve                                Cash and cash equivalents
                                                         total assets

 Loan Loss Reserve                                  Loan loss provision                Indicates provisioning requirements on
                                                 Gross outstanding portfolio           loan portfolio for current period.

                                                                                       Measures how much MFI’s portfolio
 Loan to Deposit ratio                            Gross outstanding loan
                                                                                       financed by the third party’s liabilities,
                                          Savings + deposits + interbank liabilities   which generally cost relatively low

 Non-earning liquid assets to total      Net fixed assets and other long term assets
 assets                                                  Total assets

                                         Non-current loan based on Bank Indonesia’s
 Non-Performing Loan (NPL)                                standard
                                                  Gross outstanding loan

 Operating expense ratio                             Operating expense                 Key indicator of efficiency of lending
                                                Average gross loan portfolio

 OSS (Operational Self-sufficiency)                  Operating revenue                 Measures how well an MFI covers its
                                           (Financial exp + LLP + Operating exp)       costs through operating revenues.
                                                                                       LLP = Loan-loss Provision
                                                                                       Operating revenue = Financial income

                                            Liability financing other than savings,    Indicates how dependent a MFI is on
 Purchased fund dependence                     deposits and interbank liabilities      volatile sources to finance its portfolio
                                                    Gross outstanding loan

 Productivity of excess cash                Cash in banks+short term investments
                                              Interest income from investments

                                                                                       Measures what percentage of operating
 Profit Margin                                      Net operating income
                                                                                       revenue remains after all financial, LLP
                                                     Operating revenue                 & operating expenses are paid.

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 Loan officer productivity                       Number of active borrowers                Measures the average caseload of each
                                                  Number of loan officers                  loan officer.

 PAR ratio                                        Portfolio at risk (>x days)
                                                    Gross loan portfolio

 Personnel efficiency                            Number of active borrowers
                                                     Number of staffs

                                         Non-current loan based on CGAP standard, where all the delinquent loan that has passed due
 Portfolio at Risk                       its installment schedules, even if it is 1 day, should be categorized to Portfolio at Risk

 Portfolio per loan officer                         Outstanding portfolio                  Indicates potential financial productivity
                                                   Number of loan officers                 of loan officers.

 ROA (Return on Assets)                              Net Income / (Loss)                   Measures how well an MFI uses its total
                                                     Average total assets                  assets to generate returns.

 ROE (Return on Equity)                              Net Income / (Loss)                   Measures how well an MFI uses its
                                                       Average equity                      equities to generate returns

                                                                                           A rough indicator of how prepared an
 Risk coverage ratio                                  Loan-loss reserve
                                                                                           MFI is to absorb loan losses in the worst
                                                  Portfolio at risk (>x days)              case scenario.

 Yield on gross loan portfolio            Cash financial revenue from loan portfolio       Indicates the gross loan portfolio’s ability
                                                 Average gross loan portfolio              to generate actual cash financial revenue
                                                                                           from interest, fees & commissions.

                                                                                           Compares revenue actually received in
 Yield gap                          1-         Cash revenue from loan portfolio
                                                                                           cash with revenue expected from loan
                                         (Net loan portfolio x Expected annual yield)      based on its effective interest rates

 Write-of ratio                                  Value of loans written off                Represents the percentage of an MFI’s
                                                Average gross loan portfolio               bad loans that have been removed from
                                                                                           the balance of gross loan portfolio.

Koperasi Kredit (Credit Union) SAWIRAN                                                                                                    24
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