Asa Int Regulatory News (ASAI)

16 April 2019

ASA International Group plc reports full year results for the year ended 31 December 2018

Strong underlying performance, with good branch, client and high-quality portfolio growth

ASA International Group plc (LSE: ASAI), one of the world's largest international microfinance institutions, today announces its full year results for the twelve-month period from 1 January to 31 December 2018.

Key performance indicators

Highlights

· Number of clients up by 17% to 2.2m and number of branches up by 20% reaching 1,665

· OLP grew to USD 378.5m up by 21% (34% up on constant currency basis)

· OLP/client averaged USD 174, up by 3% despite substantial currency depreciation in Pakistan, India, Sri Lanka and Myanmar (OLP/client up 14% in constant currency)

· Normalised net profit up by 20% at USD 32.4m (30% up on a constant currency basis), with reported net profit down by 17% at USD 24.5m, mainly due to one-off IPO costs

· Asian operations delivered strong local currency operating and financial performance, however as previously noted USD loan growth and net profits were impacted by higher than previously expected currency depreciation

· West and East Africa delivered higher than expected operational and financial performance in both local currency and USD, reaffirming our confidence in these regions and, in particular, in East Africa as a major future profit generator for the Group

· Continued investment in the IT infrastructure in preparation for the gradual introduction of digital financial services and rollout of proprietary ASA Microfinance Banking System

· Operations in Zambia started in January 2019, in-line with our strategy as we continue to assess new countries to expand into

· Proposed dividend of US¢ 7.3 per share, in line with our dividend policy

Outlook

· As stated in our Year-End Trading update on 26 February 2019, we continue to expect:

o A strong underlying performance in 2019

o Given the significant currency depreciation in some of the Company's major countries during the second half of 2018, 2019 USD earnings growth is expected to be materially below our medium-term target.

o Over the medium term we continue to target earnings growth of 20-25% per annum in USD.

Dirk Brouwer, Chief Executive Officer of ASA International, commented:

"We made good progress during the year, with strong operating and underlying financial performance. In particular, we've seen continued strong branch, client and portfolio growth across almost all our markets in 2018. Encouragingly, West and East Africa performed ahead of expectations, in both local currency and USD. We also maintained a high portfolio quality with PAR>30 at 0.6%, demonstrating the ongoing strength of our responsible ASA business model.

While many of the Asian currencies impacted in 2018 appear more or less to have stabilised, the effect of the unprecedented level of currency depreciation in 2018 will be felt throughout 2019 as well, particularly because the bulk of the currency depreciation occurred during the second half of 2018. As previously stated, we expect 2019 USD earnings growth to be materially below our medium-term target of 20-25% per annum. However, due to our strong underlying growth rates, we continue to target earnings growth of 20-25% per annum in USD over the medium-term."

Webcast and Conference Call

Management will be hosting a live audio webcast and conference call today at 15:30 (BST).

To access the audio webcast, please use the following link: http://webcasting.brrmedia.co.uk/broadcast/5c9a4845ec650d01c34f4575

To dial into the conference call, please use the details below:

Dial in: +44 (0)330 336 9126

Confirmation Code: 6598662

If you have any further questions, please contact MHP Communications on 020 3128 8572 or ASAInternational@mhpc.com.

Enquiries:

ASA International Group plc  +31 20 846 3554

Investor Relations vschyns@asa-international.com

Véronique Schyns

MHP Communications +44 20 3128 8572

Charlie Barker ASAInternational@mhpc.com 

Simon Hockridge

Patrick Hanrahan

Florence Mayo

Cautionary statement

These Preliminary Results have been prepared solely to provide additional information to shareholders to assess the Group's performance in relation to its operations and growth potential. These Preliminary Results should not be relied upon by any other party or for any other reason. Any forward-looking statements made in this document are done so by the directors in good faith based on the information available to them up to the time of their approval of this report. However, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

The listing rules of the UK Listing Authority (LR 9.7A.1) require that preliminary statements of annual results must be agreed with the listed company's auditor prior to publication. In addition, the Listing Rules require such statements to give details of the nature of any likely modifications that may be contained in the auditor's report to be included with the Annual Report and whether any audit report has been issued on the statutory accounts. ASA International Group plc confirms that it has agreed with Ernst & Young LLP for the preliminary announcement to be notified to RNS. The audited financial statements will be delivered to the Registrar of Companies and a copy will also be available on the Company's website (www.asa-international.com) in due course. The financial information contained in this document does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.

This constitutes regulated information for the purposes of the Disclosure and Transparency Rules.

About ASA International

ASA International is one of the world's largest international microfinance institutions, with a strong and well-established commitment to improving financial inclusion and enabling socioeconomic progress. The company does this by providing small, responsible loans to low-income, financially underserved entrepreneurs and business owners, most of whom are women, across its operations in South Asia, South East Asia, West and East Africa. 

CHIEF EXECUTIVE OFFICER'S REVIEW

I am pleased to report a strong underlying performance in our first year as a listed company, demonstrating the strength and adaptability of the proven and replicable ASA microfinance model.

Our listing on the premium segment of the London Stock Exchange main market in July 2018 was an important landmark in the Group's development and we continue to benefit from our rich heritage in the microfinance sector - lending at competitive rates, maintaining a strong risk discipline and a low-cost structure to enable us to generate attractive returns, while continuing to pursue our mission to enhance financial inclusion among predominantly female micro-entrepreneurs across Asia and Africa.

Regional performance

We have been particularly pleased with the strong performance of the three largest East African operations. This bodes well for the future and increases the geographic diversification of the Company's earnings stream. In 2019, we commenced operations in Zambia and continue to assess new countries.

In 2018, the Company experienced unprecedented currency headwinds, with most of our major Asian operating currencies substantially depreciating against the USD: PKR fell by 26%, INR fell by 9%, LKR fell by 19% and MMK fell by 14%. Most of the depreciation occurred during the second half of 2018.

Investment in operations

During the year, we further strengthened our operations through major investments in IT. We almost doubled our IT development team in Dhaka in order to further strengthen systems, so that we are ready for the gradual introduction of digital financial services to our clients.

We also completed the global roll-out of tablets for each of our loan officers. Currently, we are rolling out our proprietary ASA Microfinance Banking System (AMBS), which is our real-time core banking system, to all our operating entities. AMBS gives us the ability to gradually introduce a wide range of digital financial services for our clients, including, amongst others, doorstep banking and digital disbursements and collections. While the required telecom infrastructure and regulatory framework for our client base is not yet established in many of our operating markets, we expect that our clients will gradually replace cash with digital money.

Dividend

In line with our dividend policy of a pay-out ratio of 30 per cent of net income, the Board is proposing a dividend per share of US¢ 7.3 to be paid on 28 June 2019 to shareholders on the register on 7 June 2019.

GROUP FINANCIAL PERFORMANCE

Regional performance

South Asia

Due to substantial currency depreciation in Pakistan (PKR down 26% against USD), India (INR down 9% against USD), and Sri Lanka (LKR down 19% against USD), South Asia's USD net profits were below expectations, with loan growth in USD terms reduced from 2017.

· Normalised net profit up 27% (40% up on a constant currency basis)

· OLP up 16% (34% up on a constant currency basis), which is lower than expected due to higher than expected depreciation of this segment's operating currencies relative to the USD

· Number of clients crossed one million, up 18%

· Number of branches up 23%

· OLP/Client in USD down by 2%, primarily due to PKR, INR and LKR depreciation

· The quality of the loan portfolio slightly declined with PAR>30 increasing from 0.7% to 0.8%

· Cost/Income ratio increased by 160 bps to 45% due to increased operating expenses related to the upgrading of the operating licenses in Pakistan and Sri Lanka to deposit taking licenses, rapid branch expansion undertaken in India in the last half of 2018, and increased funding costs in Pakistan due to currency depreciation as well as an increase in benchmark interest rates

· Return on average assets was down 50 bps to 7.1% due to (i) the higher proportionate growth of the Indian operations, (ii) temporary over-capitalization and excess liquidity in Pakistan related to the microfinance bank application and iii) reduced USD profitability in Pakistan due to the combination of the increased cost of hedging USD-denominated debt, and a substantial increase in the Kibor rate

· Return on average equity down by 160 bps to 35.3%

India

ASA India continued to rapidly expand its operations:

· Number of clients from 466k to 564k (up 21%)

· Number of branches from 217 to 300 (up 38%), which is expected to fuel continuing high growth in 2019

· OLP from INR 5.8bn (USD 92m) to INR 6.9bn (USD 99m) (up 18% in INR)

· Off-book portfolio from INR 1bn (USD 15.3m) to INR 2.6bn (USD 36.7m) (up 162% in INR)

· OLP/Client from INR 15K to INR 17K (up 13.8% in INR), while PAR>30 improved from 1.2% to 0.7%, which is an excellent achievement in this relatively competitive market

· ASA India continues to benefit from its strong business correspondent relationship with IDFC First Bank and the ongoing support of its many local and international lenders

· Following the receipt of the MFI registration, the Group injected USD 5 million of additional equity capital to further expand the loan portfolio

Pakistan

ASA Pakistan continued to expand its operations:

· Number of clients from 364k to 419k (up 15%)

· Number of branches from 245 to 270 (up 10%)

· OLP from PKR 7.5bn (USD 67.3m) to PKR 9.3bn (USD 66.9m) (up 25% in PKR)

· OLP/Client from PKR 20K (USD 186) to PKR 22K (USD 160) (up 10% in PKR)

· PAR>30 increased slightly from 0.2% to 0.3%

· Despite the substantial devaluation of the PKR (down 26%), ASA Pakistan's operating and financial performance in PKR was in line with expectations in terms of interest income and operating expenses, with the exception of funding costs, which increased due to a substantial increase in the KIBOR rate and higher hedging cost

Sri Lanka

Lak Jaya Micro Finance continued to expand its operations, despite an increasingly challenging environment:

· Number of clients from 65k to 71k (up 9%)

· Number of branches from 59 to 68 (up 15%)

· OLP from LKR 1.3bn (USD 8.5m) to LKR 1.7bn (USD 9.2m) (up 29% in LKR)

· OLP/Client from LKR 20K (USD 133) to LKR 24K (USD 134) (up 20% in LKR)

· PAR>30 materially increased from 1.6% to 4.1%

· The recent introduction of a debt relief program in response to a few droughts affected districts. Combined with political activism to extend this program across the country, this eroded clients' repayment habits and discipline with, as a result, a substantial increase in PAR>30

· In addition, the potential introduction of an interest rate cap for finance companies as described in the regulatory section below, has led to uncertainty in the Sri Lankan microfinance sector

· As a result, management temporarily halted the planned expansion of the operations in Sri Lanka in order to exclusively focus on managing its existing clients and prepare for an operating environment with a possible interest rate cap

South East Asia

Higher than expected currency depreciation in Myanmar (down 13.8% against USD) and lower than expected loan growth also in Myanmar contributed to South East Asia's net profits being slightly lower than expected:

· Net profit up 10% (19% up on a constant currency basis)

· OLP up 17% (26% up on a constant currency basis), which was lower growth in USD terms than expected due to (i) higher than expected depreciation of the Myanmar kyat (MMK down 13.8%), and (ii) lower than expected loan per client growth in Myanmar

· Number of clients up 9%

· Number of branches up 14%

· OLP/Client in USD up by 7%

· PAR>30 up slightly from 0.3% to 0.5%

· Cost/Income ratio stable at 75%

· Return on average assets is unchanged at 4.4%

· Return on average equity increased to 25.2%

The Philippines

Pagasa Philippines Finance Company, Inc. ("PPFCI") continued to gradually expand:

· Number of clients from 301k to 314k (up 4%)

· Number of branches from 265 to 288 (up 9%)

· OLP from PHP 1.8bn (USD 36.1m) to PHP 2.1bn (USD 40.7m) (up 19% in PHP)

· OLP/Client from PHP 6K (USD 120) to PHP 7K (USD 130) (up 14% in PHP)

· PAR>30 slightly increased to 0.4%

· PPFCI succeeded in upgrading is lending company license to a finance company license. As a result, PPFI should be able to realize a 5% higher return on gross interest income

Myanmar

ASA Myanmar achieved strong client and branch growth, increasing:

· Number of clients from 104k to 128k (up 22%)

· Number of branches from 60 to 81 (up 35%)

· OLP from MMK 23.3bn (USD 17.2m) to MMK 33.0bn (USD 21.3m) (up 41% in MMK)

· OLP/Client from MMK 224K (USD 165) to MMK 259K (USD 168) (up 16% in MMK)

· PAR>30 from 0.1% to 0.3%

· The operations were affected by damage from severe monsoons in June and July

· Profitability was adversely affected by (i) long delays for regulatory approval to commence lending from newly-opened branches, (ii) higher cost of funding, and (iii) increased competition

West Africa

Benefiting from lower than expected currency depreciation vis-à-vis the USD, West Africa's net profit growth was higher than expected.

· Net profit 2018 up 40% and normalised net profit up 29% (34% up on a constant currency basis)

· OLP up 23% (29% on a constant currency basis), which is higher growth in USD terms than expected due to (i) lower than expected depreciation of this segment's operating currencies relative to the USD in 2018 (NGN down 1%, GHS down 7%, and SLL down 12%), and (ii) faster growth of OLP in all countries with a higher average OLP per client across the segment

· Number of clients up by 12%

· Number of branches up 16%

· OLP/Client in USD up by 10%

· PAR>30 increased to 0.4%

· Cost/Income ratio improved by 280bps to 38%

· Return on average assets up 20 bps to 20.4%

· Return on average equity up by 30 bps to 56.6%

Ghana

ASA Savings & Loans Ltd ("ASA S&L Ghana") continues to successfully expand, while maintaining a high portfolio quality and increasing:

· Number of clients from 137k to 149k (up 9%)

· Number of branches from 108 to 120 (up 11%)

· OLP from GHS 151.6m (USD 33m) to GHS 185.3m (USD 38m) (up 22% in GHS)

· OLP/Client to GHS 1.2K (USD 256) (up 12% in GHS)

· PAR>30 remained low at 0.1%

· ASA S&L Ghana received approval for opening 15 branches, despite the ongoing restructuring of the Ghanaian banking and microfinance sector, which made the Central Bank initially reluctant to approve further branch expansion in 2018

· Despite all the financial problems faced by banks and other microfinance institutions, ASA S&L Ghana's operational and financial performance continues to be excellent 

Nigeria

ASHA Microfinance Bank Ltd. (ASA Nigeria) and ASIEA performed well, growing:

· Number of clients from 236k to 259k (up 9%)

· Number of branches from 230 to 262 (up 14%)

· OLP from NGN 8.5bn (USD 23.6m) to NGN 11.5bn (USD 31.7m) (up 36% in NGN)

· OLP/Client increased from NGN 36.1 (USD 100) to NGN 44.8 (USD 123) (up 23%)

· PAR>30 increased to 0.9%

· The Central Bank of Nigeria approved the opening of an additional 20 branches by ASA Nigeria

· ASA Nigeria awaits the final approval for the merger with ASIEA

Sierra Leone

ASA Sierra Leone continues to expand rapidly with high client and branch growth, with expansion in:

· Number of clients from 16k to 28k (up 67%)

· Number of branches from 20 to 32 (up 60%)

· OLP from SLL 9.26bn (USD 1.2m) to SLL 17.40bn (USD 2.0m) (up 88% in SLL)

· OLP/Client from SLL 555K (USD 72) to GHS 625K (USD 73) (up 12.7% in SLL)

· PAR>30 increased from 0.2% to 1.1%

· ASA Sierra Leone retains a high-quality loan portfolio and operating costs are at acceptable levels, which puts it on track to realise positive returns in 2019, which would be three years after inception

East Africa

East Africa's net profit was higher than expected with significantly higher return on assets and an improved quality of the loan portfolio with PAR>30 down from 1.4% to 0.4%.

· Net profit up 262% (270% up on a constant currency basis)

· OLP increased by 61% compared with previous period (63% on a constant currency basis), due to the continued expansion of operations in all countries across the segment

· Number of clients up 51%

· Number of branches up 33%

· OLP/Client up in USD by 6%

· PAR>30 improved from 1.4% to 0.4%

· Cost/Income ratio improved by 1,570 bps to 64%

· Return on average assets up 640 bps to 11.5%

· Return on average equity up 3100 bps to 47.9%

Kenya

ASA Kenya substantially increased its operations, while improving the quality of the portfolio:

· Number of clients from 47k to 74k (up 58%)

· Number of branches from 50 to 70 (up 40%)

· OLP from KES 0.8bn (USD 7.3m) to KES 1.2bn (USD 12.1m) (up 64% in KES)

· OLP/Client slightly increased from KES 16K (USD 158) to KES 17K (USD 165) (up 3% in KES)

· PAR>30 improved from 1.2% to 0.7%

· Since inception in 2013, ASA Kenya has become one of the top five non-deposit and deposit-taking Kenyan microfinance institutions in a crowded Kenyan microfinance market

Tanzania

ASA Tanzania is performing as expected with high branch, client and OLP growth while improving the quality of the loan portfolio:

· Number of clients up from 56k to 79k (up 42%)

· Number of branches up from 60 to 76 (up 27%)

· OLP up from TZS 17.0 bn (USD 7.6m) to TZS 28.0bn (USD 12.2m) (up 64% in TZS)

· OLP/Client up from TZS 310K (USD 138) to TZS 355K (USD 155) (up 15% in TZS)

· PAR>30 went down from 0.7% to 0.1%

· ASA Tanzania's operations are very solid and are expected to stay on a high growth path

Uganda

ASA Uganda's growth has been higher than expected in terms of branches, clients and OLP combined with a substantial improvement of the quality of the loan portfolio:

· Number of clients from 51k to 77k (up 51%)

· Number of branches from 57 to 72 (up 26%)

· OLP from UGX 16.3bn (USD 4.5m) to UGX 25.9bn (USD 7.0m) (up 59% in UGX)

· OLP/Client from UGX 325K (USD 89) to UGX 340K (USD 91) (up 5% in UGX), which are expected to remain lower than in Kenya and Tanzania due to generally lower income levels in Uganda

· PAR>30 improved from 0.9% to 0.1%

· ASA Uganda received its microfinance license from UMRA in 2018

Rwanda

ASA Rwanda successfully increased its operations:

· Number of clients from 8k to 13k (up 67%)

· Number of branches from 16 to 26 (up 63%)

· OLP from RWF 1.0bn (USD 1.2m) to RWF 1.6bn (USD 1.8m) (up 64% in RWF)

· OLP/Client from RWF 124K (USD 147) to RWF 122K (USD 138) (down 2%)

· PAR>30 went from 0.4% to 0.7%

· The market environment in Rwanda is quite favourable with limited competition

· ASA Rwanda is gradually expanding and is expected to cross break-even in 2019, three years after inception

Regulatory Environment

ASA International operates in a wide range of jurisdictions each with their own regulatory regimes applicable to microfinance institutions. At this time, the Company is active in upgrading its licenses from non-deposit taking MFIs to deposit-taking MFIs or microfinance banks, or merging non-regulated activities into its regulated activities, where possible and if considered appropriate.

Key Events

India

· ASAI India received its highly coveted NBFC-MFI registration by the Reserve Bank of India, which will enable the Company to further capitalise ASAI India and ASA India to attract lower-cost debt funding.

Pakistan

· ASA Pakistan submitted its updated application for transforming its non-deposit taking microfinance company into a microfinance bank, which is now under review by the State Bank of Pakistan.

Sri Lanka

· In August 2018, the government of Sri Lanka announced a debt relief program for microfinance loans of less than the equivalent of approximately USD 650 in drought relief affected districts of Sri Lanka. The direct impact of this measure on Lak Jaya was limited: less than 3,000 out of its approximately 16,000 clients in these districts with outstanding loans of approximately USD 280k. The government committed to repay the principal amount of these loans with the lenders expected to write-off the interest.

· However, political activists have tried to extend the debt relief program to other districts across the country, which substantially eroded the repayment discipline of clients with an associated substantial increase in overdue payments across the country.

· In December 2018, the government of Sri Lanka introduced an interest rate cap of 35% per annum on microfinance loans disbursed by licensed finance companies. It is expected that an interest rate cap may be introduced for licenced MFIs, such as Lak Jaya. If an interest rate cap comes into force, this will have an adverse impact on the profitability of Lak Jaya.

Philippines

· Pagasa Philippines received a finance company license. As a result, there is no longer a requirement to charge VAT on interest income but only the lower GRT (Gross Receipt Tax). As a result, PPFI should be able to realise a 5% higher return on gross interest income. 

Myanmar

· In 2019, it is expected that the Central Bank of Myanmar will give ASA Myanmar permission to mobilise voluntary savings from its clients (as opposed to mandatory savings presently).

Nigeria

· ASA Nigeria (i.e. ASHA Microfinance Bank Ltd.) received confirmation by the Central Bank of Nigeria that the application for a nationwide license was approved. The final approval for the merger between ASA Nigeria and ASIEA NGO is still pending.

Uganda

· ASA Microfinance (Uganda) Ltd. ("ASA Uganda") received its non-deposit taking microfinance institution license from the new microfinance regulatory entity, Uganda Microfinance Regulatory Authority ("UMRA"). The license, to be renewed annually, is required for future branch openings.

Key events after 31 December 2018

· On 3 April 2019, Lak Jaya became a Licensed Microfinance Company, which will allow it to accept deposits from clients. The license was granted subject to certain conditions the company has to fulfil.

Regulatory Capital

Many of the Group's operating subsidiaries are regulated and subject to minimum regulatory capital requirements. As of 31 December 2018, the Group and its subsidiaries were in full compliance with minimum regulatory capital requirements.

Asset/Liability and Risk Management

ASA International has strict policies and procedures for the management of its assets and liabilities as well as various non-operational risks to ensure that:

· The average tenor of loans to customers is substantially shorter than the average tenor of debt provided by third party banks and other third-party lenders to the Group and any of its subsidiaries

· Foreign exchange losses are minimized by having all loans to any of the Group's operating subsidiaries denominated or properly hedged in the local operating currency and all loans to any of the Group's subsidiaries denominated in local currency are hedged in US dollars

· Foreign translation losses affecting the Group's balance sheet are minimised by preventing over-capitalisation of any of the Group's subsidiaries by distributing dividends and/or repaying capital as soon as reasonably possible

Nevertheless, the Group will always be exposed to currency movements in both (i) the profit & loss statement, which will affect the translation into USD of local currencies of its local operating subsidiaries and (ii) the balance sheet, due to gradual erosion of capital of each of its operating subsidiaries translated in USD, in case the US dollar strengthens against the currency of any of its operating subsidiaries.

Funding

The funding profile of the Group has not materially changed during 2018:

In USD millions

The Group maintains a favourable maturity profile with the average tenor of all funding from third parties being substantially longer than the average tenor at issuance of loans to customers which ranges from 6-12 months.

The Group and its subsidiaries have existing credit relationships with more than 50 lenders throughout the world, which has provided reliable access to competitively-priced funding for the growth of its loan portfolio.

Impact of foreign exchange rates

As a USD reporting company with operations in twelve different currencies, currency movements can have a major effect on the Group's USD financial performance and reporting.

During the second half of 2018, the US dollar strengthened more than expected, particularly vis-à-vis a number of Asian currencies where the Group has major operations. The effect of this is (i) existing and future local currency earnings translate into less US dollar earnings, and (ii) local currency capital of any of the operating subsidiaries will translate into less US dollar capital.

The currency depreciation of, in particular, the PKR, LKR and MM were substantially higher than expected which had an adverse impact on the US dollar net profit growth of these affected subsidiaries.

It also led to a substantial increase in foreign exchange translation losses due to ASA Pakistan's relatively high capital base related to its microfinance bank license application. The total contribution to the foreign exchange loss reserve during 2018 amounted to USD 10.4m of which USD 5.9m related to the depreciation of the PKR.

 Impact of implementation of IFRS 9

ASA International implemented IFRS 9 'Financial instruments' on 1 January 2018. For ASA International IFRS 9 changes the classification and impairment of customer receivables. The implementation had no impact on the classification since the loan products of ASA International mainly consist of repayment of principal and interest. The impairment of loans under IFRS 9 changes from the incurred loss model of IAS 39 to an expected loss model. The Company continues to apply a loss rate approach for determining its loan loss provision given the small loan sizes and short-term nature of the loan products. The new element of expected credit losses in the loan loss provision are determined by the increase in default risk by calculating the incremental trend in write-offs during the last two years in order to update the historical loss rate for forward looking expectation. In addition, the Company considers on each reporting date any significant socio-economic events and natural disasters which are expected to have an impact on the future credit losses for the markets in which it operates.

The impact net of tax of the implementation of IFRS 9 by adding the expected credit losses to the loan loss provisions of the Company amounted to USD 0.3 million and is presented as an adjustment of the opening balances of the loan loss provision, deferred tax and retained earnings.

ASA International has elected to continue the same accounting policy for Hedge Accounting which it previously applied under IAS 39, which is allowed upon implementation of IFRS 9.

ASA INTERNATIONAL GROUP PLC

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 DECEMBER 2018

ASA INTERNATIONAL GROUP PLCGENERAL INFORMATION

DIRECTORS: APPOINTED ON

Md. Shafiqual Haque Choudhury 28 June 2018

Dirk Brouwer 16 May 2018

Aminur Rashid 28 June 2018

Gavin Laws 28 June 2018

Guy Dawson 16 May 2018

Praful Patel 28 June 2018

Johanna Kemna 28 June 2018

REGISTRATION: ASA International Group plc is a company registered in England & Wales. Registered number: 11361159

COMPANY SECRETARY: Prism Cosec Limited

Elder House, St Georges Business Park

207 Brooklands Road, Weybridge, Surrey KT13 0TS

United Kingdom

REGISTERED OFFICE: Elder House, St Georges Business Park

207 Brooklands Road, Weybridge, Surrey KT13 0TS

United Kingdom

OFFICE ADDRESSES: ASA Tower, 12th Floor 23/3, Bir Uttam A.N.M. Nuruzzaman Sarak

Shyamoli, Dhaka-1207, Bangladesh

Tel: +880 2 8119828, 8110934-35

Rembrandt Tower, 35th floor, Amstelplein 1

1096 HA Amsterdam, The Netherlands

Tel: +31 20 846 3554

WEBSITE: www.asa-international.com 

EMAIL ADDRESS: info@asa-international.com 

AUDITOR: Ernst & Young

25 Churchill Place

Canary WharfLondon E14 5EYUnited Kingdom

ASA INTERNATIONAL GROUP PLC

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018

The notes 1 to 31 form an integral part of these financial statements.

* The comparative figures are for ASAIH consolidated as the Company was incorporated on 14 May 2018. More

information can be found in note 1.

The notes 1 to 31 form an integral part of these financial statements.

* The comparative figures are for ASAIH consolidated as the Company was incorporated on 14 May 2018. More information can be

found in note 1.

The notes 1 to 31 form an integral part of these financial statements.

* The comparative figures are for ASAIH consolidated as the Company was incorporated on 14 May 2018. More information can be found in note 1.

ASA INTERNATIONAL GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2018

The notes 1 to 31 form an integral part of these financial statements.

* The comparative figures are for ASAIH consolidated as the Company was incorporated on 14 May 2018. More information

can be found in note 1.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

1. CORPORATE INFORMATION

ASA International Group plc ("ASA International", the "Group" or the "Company") is a publicly listed company which was incorporated by Catalyst Microfinance Investors ("CMI") in England and Wales on 14 May 2018 for the purpose of the initial public offer of ASA International Holding.

CMI was ultimate parent until 13 July 2018, after which shareholding was reduced to 41%. 15% was transferred to Catalyst Continuity and 44% was sold to new shareholders through the London Stock Exchange.

The Group had no activities until it acquired the shares in ASA International Holding and its subsidiaries on 13 July 2018. Subsequently, ASA International Group plc became an international microfinance holding company that owns and operates microfinance institutions ("MFI") in various countries throughout Asia and Africa. ASA International Group plc was admitted to the Main Market of the London Stock Exchange on 18 July 2018.

ASA International Holding is a private company limited by shares incorporated on the sixth day of April 2007 under the laws of Mauritius, holding a Category 1 Global Business Licence issued by the Financial Services Commission in Mauritius.

ASA International Group plc acquired 100% of the shares in ASA International Holding and all its subsidiaries on 13 July 2018 in exchange for the issue of 100 million shares in ASA International Group plc with a nominal value of GBP 1.00 each. The fair value of the acquired shares amounted to GBP 313 million based on the initial offer price of GBP 3.13 per share. This acquisition was accounted for as a continuation of the existing Group because it was a transaction under common control for which no goodwill was identified.

Investment strategy

ASA International Group plc is an international microfinance holding company with operations in various

countries throughout Asia and Africa.

1. CORPORATE INFORMATION (Continued)

2. ACCOUNTING POLICIES2.1 Basis of preparation

The consolidated financial statements of ASA International Group plc have been prepared on a historical cost basis, except for available for sale and derivative instruments, which have been kept at fair value.

As from 13 July 2018 the functional currency of the Company changed from Pound Sterling to United States Dollar ("USD") because of the acquisition of ASA International Holding and its subsidiaries which caused a significant change in its underlying transactions, events and conditions. The Company is an extension of the existing group it acquired which uses USD as its main operational currency. The presentation currency remained USD. All values are rounded to the nearest USD except where otherwise indicated.

The 2018 consolidated results for the Group comprise the results of the ASAIH and its subsidiaries from 1 January 2018 to 13 May 2018 and of the ASAIG and its subsidiaries from 14 May 2018 to 31 December 2018. The comparative figures provided for these results are those of the consolidated ASAIH and its subsidiaries for the year ending 31 December 2017.

The Company applied IAS 39 in the comparative figures and IFRS 9 in the current year accounts.

After the issue of financial statements, the Company's owners or others do not have the power to amend the financial statements.

2.1.1 Statement of compliance

The financial statements are prepared in accordance with and comply with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.

2.1.2 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December for each year. The financial statements of subsidiaries are similarly prepared for the year ended 31 December 2018 applying similar accounting policies.

All intra-Group balances, transactions, income and expenses and profits and losses resulting from intra-Group transactions are eliminated in full.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)2.1.2 Basis of consolidation (continued)

Subsidiaries are fully consolidated from the date on which control is transferred to the Company. The Company has control over a subsidiary when it is exposed, or has rights to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date of acquisition or up to the date of disposal, as appropriate.

Non-controlling interests represent the portion of profit or loss and net assets not owned, directly or indirectly, by the Group and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from the equity attributable to equity holders of the parent.

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquire. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

2.2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below:

2.2.1 Foreign currency translation

The consolidated financial statements are presented in USD, which also is the Group's presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

(1) Transactions and balances - Transactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to 'Exchange rate differences' in the statement of profit or loss and other comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(2) Group companies - As at the reporting date, the assets and liabilities of subsidiaries and overseas branches are translated into the Company's presentation currency (USD) at the rate of exchange ruling at the reporting date except investment in subsidiaries and issued capital which are translated at historical rate, and their statement of profit or loss and other comprehensive income are translated at the weighted average exchange rates for the year. Currency translation differences have been recorded in the Company's consolidated statement of financial position as foreign currency translation reserve through other comprehensive income.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.2.2 Financial instruments - initial recognition and subsequent measurement

(1) Date of recognition

Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset.

(2) Initial recognition of financial instruments

The Company recognises a financial asset and financial liability in its statement of financial position when and only when, the entity becomes a party to the contractual provisions of the instrument. The classification of financial instruments at initial recognition depends on the purpose for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus, in the case of financial assets and financial liabilities not at fair value through profit or loss, any directly attributable costs of acquisition or issue.

(3) Loans and advances to customers, other loans and receivables, cash and cash equivalents and due from banks

'Loans and advances to customers', 'Other loans and receivables', 'Cash and cash equivalents' and 'Due from banks' are financial instruments with fixed or determined payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale; they are not, upon initial recognition, designated at fair value through profit or loss; and are not designated as 'Financial investment - available-for-sale'.

After initial measurement, amounts due from banks, loans and advances to customers and other loans and receivables are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortisation is included in 'Interest and similar income' in the statement of profit and loss and other comprehensive income. The losses arising from impairment are recognised in the statement of profit or loss and other comprehensive income in 'Credit loss expense'.

Cash and cash equivalents comprise cash in bank and on hand, and are subsequently measured at amortised cost.

(4) Debt issued and other borrowed funds, other liabilities and due to customers

'Debt issued and other borrowed funds', 'Other liabilities' and 'Due to customers' are financial instruments which are not designated at fair value through profit or loss. These instruments are classified as liabilities where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

After initial measurement, debt issued and other borrowings including 'Due to customers' are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the effective interest rate.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.2.2 Financial instruments - initial recognition and subsequent measurement (continued)

(5) Forward contracts and hedge accounting

The Company applies hedge accounting for USD loans for which forward contracts have been agreed to mitigate the foreign currency risk exposure of its subsidiaries. The Company documents the relationship between the hedged item and the hedging instrument, the risk management objective and the method that will be used to assess effectiveness of the hedging relationship at inception and at each reporting date. The forward method is applied, whereby the forward points are amortised from 'Other comprehensive income' ("OCI") to interest expenses during the term of the contract. The fair value of the forward contract is recognized on the statement of financial position and the changes in the fair value are reported in OCI.

The foreign currency exchange results on the USD loans are reported as exchange rate results and the same opposite amount is recycled from OCI to the same currency exchange results.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in OCI and later reclassified to profit or loss when the hedge item affects profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the statement of profit or loss.

The terms of the foreign currency forward contracts match the terms of the expected highly probable forecast transactions. As a result, there is no hedge ineffectiveness to be recognised in the statement of profit or loss.

(6) Investments at FVOCI

Investments at FVOCI financial assets include equity investments and debt securities. Equity investments classified at FVOCI are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in market conditions. After initial measurement, Investments at FVOCI financial assets are subsequently measured at fair value with unrealised gains or losses recognised in OCI and credited to the Investments at FVOCI reserve until the investment is derecognised, at which time, the cumulative gain or loss is recognised in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the investments at FVOCI reserve to the statement of profit or loss in finance costs.

The Group evaluates whether the ability and intention to sell its investments at FVOCI in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.

For a financial asset reclassified from Investments at FVOCI category, the fair value at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of profit or loss.

Impairment is only relevant under IAS 39 as Under IFRS 9, there is no impairment for equities under FVOCI.

(7) Definition of fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.2.3. Derecognition of financial assets and financial liabilities

(1) Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where:

- the right to receive cash flows from the asset has expired; or

- the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and

- either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company's continuing involvement in the asset.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

(2) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

2.2.4 Impairment of financial assets

Loans and advances to customers, Other loans and receivables, and Due from banks

For the amounts carried at amortised cost, the Company first assesses whether objective evidence of impairment exists individually (for financial assets that are individually significant), or collectively (for financial assets that are not individually significant). If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The objective evidence consists of internal management information on the development of relative size of the loan portfolio at risk as well as significant changes to the economic and legal environment in which the microfinance institutions ("MFIs") operate, including sector interest rates, development in sectors in which many of our borrowers generate their income and changes in legislation.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income. Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.2.4 Impairment of financial assets (continued)

Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. Reference is made to paragraph 2.4 which discusses the provision for credit loss.

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to 'Credit loss expense'.

The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Company's internal credit grading system that considers credit risk characteristics such as asset type, geographical location, past-due status and other relevant factors.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Investments at FVOCI

For Investments at FVOCI, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as Investments at FVOCI, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. 'Significant' is evaluated against the original cost of the investment and 'prolonged' against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss - is removed from OCI and recognised in the statement of profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognised in OCI.

The determination of what is 'significant' or 'prolonged' requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

2.2.5 Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the statement of financial position.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.2.6 Recognition of income and expenses (continued)

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties. The Company has concluded that it is principal in all of its revenue arrangements.

The following specific recognition criteria must also be met before revenue is recognised:

(1) Interest and similar income and expense

Interest income and expense are recognised in the statement of comprehensive income based on the effective interest rate method.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company shall estimate cash flows considering all contractual terms of the financial instrument but shall not consider future credit losses. The calculation includes all amounts paid or received between parties to the contract that are an integral part of the effective interest rate of a financial instrument including transaction costs, and all other premiums or discounts. For national holidays no interest income is considered, which means that clients are not required to pay instalments.

(2) Dividend income

Revenue is recognised when the Company's right to receive the payment is established.

(3) Other income

Admission fees, processing fees and other income are recognised on accrual basis in the period to which they relate. Government grants are recognized when there is reasonable assurance that the entity will comply with the conditions attached to it, and that the grant will be received.

The Company collects fees for Death Risk Fund or Multipurpose Risk Fund in the Philippines, Ghana, Sri Lanka, Kenya, Uganda, Myanmar and Tanzania. These fees cover settlement of the outstanding loan amount and other financial assistance when the borrower dies or is affected by natural calamities. The collected amounts are recognised upfront as income and a liability is recognised in the statement of financial position for the claims resulting from these funds.

2.2.7 Cash and cash equivalents

Cash and cash equivalents as referred to in the statement of cash flows comprises cash in hand, current accounts with various commercial banks and amounts due from banks on demand or term deposits with an original maturity of three months or less. The cash flows from operating activities are presented using the indirect method, whereby profit or loss is adjusted for the effects of non-cash transactions, accruals and deferrals, and items of income or expense associated with investing or financing cash flows.

2.2.8 Property and equipment

Except for land which is measured at fair value, property and equipment is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)2.2.8 Property and equipment (continued)

Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over their estimated useful lives.

The recommended estimated useful lives are as follows:

An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in 'Other operating income' or 'Other operating expenses' in the statement of profit or loss and other comprehensive income in the year the asset is derecognised. Land has an indefinite useful life thus is not amortised, but is tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable.

2.2.9 Taxes

(1) Current tax

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date.

(2) Deferred tax

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: (i) where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss, and (ii) in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except: (i) where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss, and (ii) in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it becomes probable that future taxable profit will allow the deferred tax asset to be recovered.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)(2) Deferred tax (continued)

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

2.2.10 Dividend distribution on ordinary shares

Dividends on ordinary shares will be recognised as a liability and deducted from equity when they are approved by the Company's shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Company. Dividends for the year that were approved after the reporting date will be disclosed as an event after the reporting date.

2.2.11 Short-term employee benefits

Short-term benefits typically relate to the payment of salaries, wages and bonuses. The standard requires that these be recorded on an accrual basis, so that at period end, if the employee has provided service to the Company, but has not yet received payment for that service, the Company should record a liability.

2.2.12 Post-employment benefits2.2.12.1 Defined benefit plan

In some subsidiaries of the Company a defined benefit plan exists, which leads to retirement benefit obligations. The defined benefit obligation and the related charge for the year are determined using assumptions required under actuarial valuation techniques. The valuation involves making assumptions about future events. Due to the long-term nature of such obligations these estimates are subject to significant uncertainty. Defined benefit plans are post-employment benefit plans other than defined contribution plans. Defined benefit plans exist in Lak Jaya, ASA Pakistan, ASAI India and PPFCI. The present value of the retirement employee benefits is measured annually using the projected unit credit method as discussed in the relevant accounting standard.

This method of measurement is compliant with IAS 19. Actuarial assumptions are used in this valuation technique. This gratuity liability is stated under Retirement Benefit Liability in the statement of financial position. The expenses of the defined benefit plan are incurred by the employers: Lak Jaya, ASA Pakistan, ASAI India and PPFC. The employees who have completed five years of service in the Company will benefit in accordance with their service years at the time of cessation. At the moment of cessation, the amount must be paid out to the employee within 30 days, as a one-time payment. The liability is presented in the statement of financial position only. No funds are actually held on an account. The assumptions used in the projected unit credit method are the following:

2018 2017

Remeasurements, comprising actuarial gains and losses, the effect of the asset ceiling, excluding an amount included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability) are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognised in profit or loss on the earlier of (i) the date of the plan amendment or curtailment, and (ii) the date that the Group recognises related restructuring costs.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.2.12 Post-employment benefits (Continued)

2.2.12.1 Defined contribution plan (Continued)

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under 'Operating expenses in the consolidated statement of comprehensive income (i) service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements and (ii) net interest expense or income.

2.2.12.2 Defined contribution plan

Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

Similar to accounting for short-term employee benefits, defined contribution employee benefits are expensed as they are paid, with an accrual recorded for any benefits owed, but not yet paid. The expenses of the defined contribution plan are incurred by the employer. The contributions are to be remitted by the entities to the fund on a monthly basis. Employees are allowed to withdraw the accumulated contribution in their accounts from this fund as per the terms and conditions specified in the fund acts.

2.2.13 Goodwill

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, the Company measures goodwill at cost less any accumulated impairment losses. The Company tests goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, in accordance with IAS 36 Impairment Assets. Impairment for goodwill is determined by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

2.2.14 Impairment of non-financial assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or CGU's fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.2.14 Impairment of non-financial assets (continued)

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre--tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

Impairment losses of continuing operations are recognised in the statement of comprehensive income in expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

2.2.15 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of comprehensive income net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

2.2.16 Liability for death and multipurpose risk funds

The Company collects 1-2% of disbursed loan amounts for Death Risk Funds or Multipurpose Risk Funds in certain markets (Philippines, Myanmar, Ghana, Tanzania, Uganda, Kenya and Sri Lanka). These funds cover settlement of the outstanding loan amount and other financial assistance when the borrower dies or is affected by natural calamities. The collected amounts are recognised upfront as income and a liability is recognised in the statement of financial position for the claims resulting from these funds.

At the end of each period, management reassesses the adequacy of the liability by applying the following

criteria:

- Estimated number of borrowers' deaths among the total number of borrowers by applying the local

mortality rates at the end of the period;

- Mortality rates of 0.70% in Sri Lanka, 0.20% in PPFCI, 0.18% in Myanmar, 0.23% in Ghana, 0.16% in

Uganda, 0.26% in Tanzania and 0.35% in Kenya as at 31 December 2018;

- Outstanding loan amount per borrower; and

- Other financial assistance to the family members where applicable.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.3.1 New and amended standards and interpretation

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with the ASAIH's annual consolidated financial statements for the year ended 31 December 2017, except for the adoption of the new standards of IFRS 9 and IFRS 15 effective as of 1 January 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The nature and the effect of these changes are disclosed below. These amendments apply for the first time in 2018. The nature and the impact of each amendment on the interim condensed consolidated financial statements of the Group is described below:

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. It replaces IAS 39 Financial Instruments: Recognition and Measurement.

In October 2017, the IASB issued Prepayment Features with Negative Compensation (Amendments to IFRS 9). The amendments are effective for annual periods beginning on or after 1 January 2019, with early adoption permitted.

The Company has applied IFRS 9 as issued in July 2014 initially on 1 January 2018 and has early adopted the amendments to IFRS 9 on the same date. Based on assessments undertaken, the total adjustment (net of tax) of the adoption of IFRS 9 on the opening balance of the Group's equity at 1 January 2018 is USD 0.3 million, representing:

- an increase of USD 0.4 million related to impairment requirements; and- a decrease of USD 0.1 million to deferred tax impacts.

Classification - financial assets

IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. IFRS 9 includes three principal classification categories for financial assets: measured at amortised cost, FVOCI and FVTPL. It eliminates the existing IAS 39 categories of held to maturity, loans and receivables and equity investments.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in fair value in OCI. This election was made for the only current equity investment. Applying fair value through OCI for equity investments has no P&L recycling.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. In addition, on initial recognition the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

A financial asset is classified into one of these categories on initial recognition. The transition requirements relating to classification of financial assets are discussed below.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.3.1 New and amended standards and interpretations (continued)

Business model assessment

The Group has made an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management.

Assessment of whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Company has considered the contractual terms of the instrument. This included assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Company has considered:

- contingent events that would change the amount and timing of cash flows;

- leverage features;

- prepayment and extension terms;

- terms that limit the Group's claim to cash flows from specified assets - e.g. non-recourse asset arrangements; and features that modify consideration for the time value of money - e.g. periodic reset of interest rates.

Most of the Group's microfinance loans contain prepayment features. A prepayment feature is consistent with the SPPI criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract.

Impact assessment

The standard affected the classification and measurement of financial assets held at 1 January 2018 as follows:

- Loans and advances to customers and due from banks that are classified as loans and receivables and measured at amortised cost under IAS 39 are still measured at amortised cost under IFRS 9.

- Held-to-maturity investment securities measured at amortised cost under IAS 39 and are still measured at amortised cost under IFRS 9.

- Equity investments are being presented at fair value through OCI. Applying fair value through OCI for equity investments has no P&L recycling.

The Company has concluded that, on the adoption of IFRS 9 at 1 January 2018, these changes have no material impact on the Company's equity.

Impairment-financial assetsBackground  

The previous 'incurred loss' model under IAS 39 delayed the recognition of credit losses until there was a trigger event which resulted in a mismatch in timing of the recognition of interest income and charge of credit loss of a particular financial instrument. IFRS 9 adopts an expected loss model for impairment of financial assets which provides users of financial statements with more useful information about an entity's expected credit losses on financial instruments.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.3.1 New and amended standards and interpretations (continued)

Impairment - financial assets (continued)

Background (continued)

The model requires an entity to recognise expected credit losses ("ECL") at all times and to update the amount of expected credit losses recognised at each reporting date to reflect changes in the credit risk of financial instruments.

Measurement of expected credit loss- loan loss provision

IFRS 9 does not prescribe particular measurement methods. Also, an entity may use various sources of data that may be internal (entity-specific) and external. For the measurement of ECL, IFRS 9 distinguishes between three impairment stages. All loans need to be allocated to one of these stages. Stage 1 loans are loans where since inception no significant increase in credit risk occurred (12M ECL), while stage 2 loans are those loans where since inception credit risk has significantly increased (lifetime ECL). Stage 3 loans are so-called credit-impaired loans.

Approach taken by the Company

The Company has calculated ECL for its loan portfolios following the below described approach in sections A-C:

A. Calculating ECL for stage 1-2 loans

An entity is generally required to monitor the changes in credit risk in order to allocate the exposure to the correct staging bucket. Given the nature of the Company's loan exposures (generally short-term exposures,

For avoiding complexity of calculating separate probability of default and loss given default, the Company uses a 'loss rate approach' for the measurement of ECLs.

Loss rate approach: the Group does not calculate a separate probability of default and a loss given default for each entity, but instead uses a 'loss rate approach'. Using this approach, the entity develops loss rate statistics on the basis of the amount written off over the life of the financial assets. It then must adjust these historical credit loss trends for current conditions and expectations about the future.

Increase in default risk overlay: Entities using the historic loss rate approach (rate of provisioning) would need an overlay of measuring and forecasting the level of forecasted defaults. This overlay is applied by calculating an incremental trend in write-offs in the last two years in order to update the historical loss rate for forward-looking expectation.

B. Assessing the existence of stage 3 loans

At reporting date, the Company has assessed whether or not certain loans, or exposures in certain regions, needed to be considered to be defaulted (stage 3). This could be driven by very specific macroeconomic situations (existing at reporting date) or for example natural disasters. Portfolios which are assessed to be in default as at reporting date have been taken out of the calculation in (A) and provided for specifically based on expected recoverable cash flows, taking into account probability weighted scenarios and time value of money. All loans overdue for more than 90 days is considered as credit impaired.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.3.1 New and amended standards and interpretations (continued)

C. Incorporate forward-looking information on stage 1-2 loans

Note that in section (A), the Company already incorporates some forward-looking element in the ECL by looking at the write-offs trend in the most recent three-year period.

In addition, the Company considered which macroeconomic factors could have correlation with the level of write-offs (inflation, unemployment, GPD, interest rates, etc). The Company concluded that given the specific nature of their micro-loan portfolios no appropriate correlation could be identified with any of such elements (without undue cost or effort).

However, the Company considered significant socioeconomic events and natural disasters impacting the historical losses and how this compared to the expected impact of these and reasonably expected future events on the current portfolio.

Impact on the Company

ECLs based on historical default data

For determining ECLs as on 1 January 2018, the Company has calculated credit loss based on historical trend of default and collection efficiency since 2011, which period provides relevant, reasonable and supportable information.

Next 12 months ECLs based on annual change of write-off

The Company also considered the average annual changes in write-off over the last three years as an estimation of future expectation of default for the next 12 months.

Stage 3 loans and management overlay

The expected losses for overdue loans of more than 90 days are calculated as the proportionate percentage of loans overdue for more than 90 days compared to loans overdue for more than 180 days. The loss amount for these loans will therefore be the same as full loss for loans overdue for more than 180 days as per the reporting date of 31 December 2018 amounting to USD 0.8 million.

The assessment for other additional stage 3 loans and management overlay for future events in any specific markets as per 31 December 2018 did not reveal any material loans which should be considered as credit impaired.

Total expected credit loss

Based on the above measurement, total expected credit loss under IFRS 9 as on 31 December 2017 for the next 12 months amounts to USD 1.7 million after considering stage 3 loans and management overlay for future events. The provision under IAS 39 as per 31 December 2017 amounted to USD 1.3 million, which is net of collateral.

It should be noted that since most of the loans are within the maturity of 12 months and expected credit loss is measured for 12 months, the Company ignored the effect of time value of money.

Interest income for stage 3 loans should be calculated based on the net impaired amount. Due to the very low amount of stage 3 loans the impact is not material as per 31 December 2018 and 31 December 2017. Management will assess the materiality of loan portfolio in stage 3 and impact on interest income for every reporting date.

Impairment for bank accounts and due from banks

The requirement for impairment of bank accounts and term deposits at banks is assessed by external credit ratings of the related banks. ASA International uses a matrix of S&P showing the default rate per bank based on the credit rating of the bank and a probability of default for one year for bank accounts and for term deposits the tenor of the contract.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.3.1 New and amended standards and interpretations (continued)

Classification - financial liabilities

IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, under IAS 39 all fair value changes of financial liabilities designated as at FVTPL are recognised in profit or loss, whereas under IFRS 9 these fair value changes will generally be presented in OCI for the change which is attributable to changes in the entity's own credit risk and the remaining amount in profit or loss. This is not relevant for the Group.

Derecognition and contract modification

IFRS 9 incorporates the requirements of IAS 39 for the derecognition of financial assets and financial liabilities without substantive amendments. However, it contains specific guidance for the accounting when the modification of a financial instrument not measured at FVTPL does not result in derecognition. The Group concluded that the adoption of these new requirements has no material impact on the Company.

Hedge accounting

When initially applying IFRS 9, the Company may choose as its accounting policy to continue to apply the hedge accounting requirements of IAS 39 instead of the requirements in Chapter 6 of IFRS 9. The Company has elected to apply IFRS 9. The Company will also provide the expanded disclosures on hedge accounting introduced by IFRS 9's amendments to IFRS 7 Financial Instruments: Disclosures in the full year 2018 financial statements because the accounting policy election does not provide an exemption from these new disclosure requirements.

ASAIG therefore applies the qualitative approach for prospective testing effectiveness. The critical terms of the hedged items and hedging instruments are identical. The bank has assessed all existing hedge relationships using the criteria defined in IFRS 9 and no hedge relationships were cancelled as a result.

Transition

Changes in accounting policies resulting from the adoption of IFRS 9 will generally be applied retrospectively. However, the Company has taken advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes.

The following assessments have been made on the basis of the facts and circumstances that existed at the

date of initial application:

- the determination of the business model within which a financial asset is held; and

- the designation of certain investments in equity instruments not held for trading as at FVOCI.

Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves as at 1 January 2018.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and Related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.3.1 New and amended standards and interpretations (continued)

IFRS 15 Revenue from Contracts with Customers (continued)

Most of the revenue items of the Company are out-of-scope as these are subject to other standards like IFRS 9. Recognition of revenue for the remaining revenue items, which are in scope for IFRS 15, does not change when the five-step model is applied. Based on the assessment made, implementation of this standard has no material impact on the Company.

2.3.2 Standards issued but not yet effectiveIFRS 16 Leases

IFRS 16 specifies how a company will recognise, measure, present and disclose leases. The standard provides a single lease accounting model, requiring leases to recognise assets and liabilities for most leases with exceptions for leases with a term of 12 months or less or if the underlying asset has a low value. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.

The Group will elect not to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value.

The Group's corporate headquarters, country head offices and branches (with the exception of the country head office in the Philippines) are leased and these leases are classified as operating leases, which under IFRS 16 will be required to be recognised on the Group's statement of financial position. The Group has performed a preliminary assessment of the potential impact of the adoption of IFRS 16 on its financial statements. The standard is expected to have an impact on the financial statements. The nature and timing of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right of use assets and interest expense on lease liabilities.

The Group will apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. The Company plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

Transition to IFRS 16

In summary the impact of IFRS 16 adoption is expected to be, as follows:

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.3.2 Standards issued but not yet effective (continued)

The above assessment is still ongoing because not all transition work has been finalised. The actual impact of adopting IFRS 16 on 1 January 2019 may change because the Group needs to revise its accounting processes and these are not yet complete. Further the Company is refining and finalising its models for the calculations for the right of use asset and the lease liability and the new accounting policies, assumptions, judgements and estimation techniques employed are subject to change until the Company finalises its first financial statements that include the date of initial application.

IFRS 17 Insurance Contracts

IFRS 17 replaces IFRS 4 Insurance Contracts for annual periods beginning on or after 1 January 2021. The Company is assessing the impact of implementing IFRS 17.

2.4 Significant accounting judgements and estimates

In the process of applying the Group's accounting policies, judgements and estimates are applied in determining the amounts recognised in the financial statements. Significant use of judgements and estimates are as follows:

Provision for credit loss

The Group reviews its non-performing loans at each reporting date to assess the adequacy of the allowance for credit loss as recorded in the statement of comprehensive income. In particular, judgement is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on certain assumptions such as the financial situation of the borrowers, types of loan, maturity of the loans, ageing of the portfolio, economic factors etc. Actual performance of loans may differ from such estimates resulting in future changes to the allowance. Due to the nature of the business, i.e. micro credit to low income clients, the loan portfolio consists of a very high number of individual customers with a relatively low number of individual outstanding exposures.

These characteristics of the Company's microfinance loan portfolio lead the Company to use a provisioning methodology based on a collective assessment of similar loans. The Company records a provision for credit loss based on a percentage of outstanding loans with percentages increasing as loans are outstanding for a longer period of time. The amount of collateral or security deposits received from the respective borrowers are deducted from the outstanding loan before applying the percentage of provision. The Company's management reviews the percentages applied to calculate the provision on a regular basis and makes adjustments as deemed necessary based on market circumstances.

The percentages applied at 31 December 2018 and 2017 are shown in the table below.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2. ACCOUNTING POLICIES (Continued)

2.4 Significant accounting judgments and estimates (continued)

The Company determined the loan loss provisioning for standard loans at 0.22% in 2018 on no past due loans for each of the MFIs for the following reasons:

- Portfolio at risk more than 30 days (PAR > 30) remained on comparable levels in all operating entities over the past year. Based on historical write-offs of loans, management has determined the provision rate for standard loans at 0.22%. The loan loss provision was further evaluated in 2018 in combination with the adoption of IFRS 9.

- ASA International has performed a thorough assessment of the actual portfolio at risk in each of the countries it invests in, and assessed a standard of 0.22% as reasonable.

- A small percentage of the loans that are not yet overdue based on ageing but are in fact doubtful loans. Reasons for this are death cases, natural disasters, sickness or job loss, all resulting in the loss of income and inability to repay the loan. The Group assesses a 0.22% provision on this part of the loan portfolio necessary to account for these credit losses.

- Having commenced operations in Asia and Africa since 2008, staff of the MFIs owned and controlled by the Company have gained knowledge and experience of their local operating markets.

In case of regulatory announcements from government bodies regarding incidental circumstances like rescheduling due to the impact of regulatory or political intervention or natural disasters, the loan loss provision will be calculated initially on the basis of normal ageing as explained above. Thereafter the loan loss provision can be adjusted on the basis of probable loss events or subsequent improvement in ageing while considering management judgement.

The provisioning rates for loan classification are determined based on the historical loss rates and an assessment of regulatory requirements and industry standards.

The Company writes off all loans for accounting purposes after 360 days overdue as there is no reasonable expectation of recovery based on historical losses. From an operational perspective overdue loans are still being monitored for recovery up to two years overdue.

The Company also has access to the knowledge and expertise of ASA Bangladesh, the Company's primary microfinance services provider, which has well over 30 years of experience in the microfinance industry. The credit methodologies and operating procedure developed by ASA are applied in the subsidiaries of the Company adjusted to local circumstances, if necessary, and these MFIs have access to the knowledge and data of ASA Bangladesh, including knowledge and experience on the assessment of the actual portfolio at risk.

Business Correspondence and Partnership Models

The portfolios under the Business Correspondence (BC) and Partnership models in ASAI India are recognised on the statement of financial position when the agreed exposure to credit risk on these portfolio's exceeds expected credit risk. The Company performs a sensitivity analysis to estimate the expected credit risk considering various adverse situations in India, probability of occurrence for these situations and three scenarios (optimistic, realistic and pessimistic) for the estimated write-offs for each situation. Based on this analysis the portfolios for MAS, Reliance and IDBI are recognised on the statement of financial position, while the portfolio for IDFC is not recognised on the balance sheet due to a limited credit risk. More information is available in note 12.

Securitization agreements

ASAI India has entered into several securitisation agreements during 2017 and 2018. The loans to customers under the securitisation agreements do not qualify for derecognition as ASAI India provides cash collateral for credit losses and thereby the credit risk is not substantially transferred. Hence, the loans to customers continue to be recognised on the balance sheet of ASAI India and the purchase consideration is presented as a financial liability. Interest income from the customers continues to be recognised as interest income and the related portion of the interest which is transferred to the counterparty is presented as interest expense. The outstanding loan portfolio as per end of 2018 under the securitisation agreements amounts to USD 5.6 million (31 December 2017: USD 2.8 million) and the related liability amounts to USD 6.7 million (31 December 2017: USD 4.0 million). The loan portfolio balance at the start date of the relevant securitisation agreements as per end of 2018 amounts to USD 16.4 million (31 December 2017: USD 4.9 million) and the related liability amounts to USD 16.4 million (31 December 2017: USD 4.9 million).

Going concern

Management has made an assessment of the Company's ability to continue as a going concern and is satisfied that the Company has access to resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

3 SEGMENT INFORMATION

For management purposes, the Group is organised into reportable segments based on its geographical

areas and has five reportable segments, as follows:

- West Africa, which includes Ghana, Nigeria and Sierra Leone.

- East Africa, which includes Kenya, Uganda, Tanzania and Rwanda.

- South Asia, which includes India, Pakistan and Sri Lanka.

- South East Asia, which includes Myanmar and the Philippines.

- Non-operating entities, which includes holding entities and other entities without microfinance

activities.

No operating segments have been aggregated to form the above reportable operating segments. The Company primarily provides only one type of service to its microfinance clients being small microfinance loans which are managed under the same ASA Model in all countries. The reportable operating segments have been identified on the basis of organisational overlap like common Board members, regional management structure and cultural and political similarity due to their geographical proximity to each other.

The Executive Committee is the Chief Operating Decision Maker (CODM) and monitors the operating results of its reportable segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operational profits and losses and is measured consistently with profit or loss in the consolidated financial statements. Transfer prices between operating and non-operating segments are on an arm's length basis in a manner similar to transactions with third parties and are based on the Group's transfer pricing framework.

Revenues and expenses as well as assets and liabilities of those entities that are not assigned to the four reportable operating segments are reported under 'Non-operating entities'. Inter-segment revenues, expenses and balance sheet items are eliminated on consolidation.

No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group's total revenue in 2018 and 2017.

ASA INTERNATIONAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

3. SEGMENT INFORMATION (continued)

The following tables present operating income and profit information for the Group's operating segments for 2018