I am very grateful and honored to present the Annual report and Audited financial statements for the year ended 31st December 2015. This was our sixth year of operations and for sure we have every reason to celebrate together the milestones we have achieved. We are proud to have contributed to the socio and economic progress of our Nation through microfinance products and insurance services offered by our company, VFP. In this report today, I will highlight some of operating business environment, key performance results, challenges and our focus going forward.
The business environment in Tanzania continues to favor investors as both macroeconomic and microeconomic fundamentals performed relatively well. GDP grew at 7.1%, inflation closed at 6.3% at the year end, while credit expansion to private sector recorded a significant growth of 24.5% compared to 20.1% in 2014.
Despite the fact that we have new political leadership in the country, we still assume that there will be no major policy shifts in 2016 and hence business will grow to its projected trajectory. VFP is likely to benefit more on the improved business environment and especially on efficient and effective Government as we continue to witness early vibrancy of the new initiatives undertaken by the new Government. There are so much opportunities coming with focus on agriculture, infrastructure, power, education, health and new vigor for industrialization. Microfinance industry will have a space to play in the coming years as demand for micro-credits expands.
The overall financial performance last year recorded a growth when compared with 2014’s performance. Profits before tax closed slightly higher than previous year at TZS 338million compared with TZS 332million.The net profit increased to TZS 224million from TZS 207million recorded in previous year. This is an increase of 9% which has been attributed to increase in non- interest income and containment of overall operating costs. Staff cost were higher than 2014 by 30% caused by salary increase during the year and additional staff. The provisions for loan loss was lower than 2014 on the account of improvement of collections. Both net interest income and fee income remained flat during the year on the account of lower loan bookings than anticipated.
The balance Sheet improved from TZS 2,124 million to TZS 2,400 million recorded in the previous years due to improved portfolio and increased funding. The gross portfolio increased by 35% when compared to 2014 on account of increased disbursement especially in last two quarters. Notable decrease was on group loans which reduced significantly as more focus shifted to other products such as guaranteed salaried loans and business loans. The newly introduced salary guaranteed loans performed well during the year, witnessing growth from zero to TZS400million loan portfolio. The PAR90 at the end of year stood at 8%, slightly higher than sector benchmark at 5%.
The return on shareholders’ equity during the period stood at 14%, the Board expect to see more improvement in the near future. On the other hand, the book value per share increased by 15% to TZS 365.9, from TZS 318.4 the previous year.
VFP continued to face many challenges which had negative impact on the business growth. Some of challenges are highlighted hereunder;
Lack of repayment culture among borrowers made some of loans remain unpaid and some of them not traceable. At present, we have strengthened our customer vetting procedures to manage the risk.
Lack of adequate funding reduced ability to extend loans on time and meet budgets. At the moment, we have entered into credit facility arrangement with some financial institutions, as a precautionary measure.
The impact of election year on salaried staff, contractors and petty traders in the municipality caused delays in repayment of the loans and some of them went bad. At present, our recovery system has been strengthened.
The key strategic objectives for year 2016 are underpinned by the drive towards consolidation of the gains achieved in the past and growth trajectory. There has been two major directions of the business; driving the microfinance business and conversion path towards a community bank. As the latter continues to delay due to lack of enough capital to meet the regulatory and business requirements, the former will continue to be pursued, you would realize that the two are not on opposing sides. The year ahead is full of hope and both Board and management team are ready to take on the new challenge of the business.
On behalf of the Board, I would like to extend my appreciation to shareholders, our customers and Victoria Group for their continued support to the cause of VFP. We are grateful to management and staff of our company for their hardworking and commitment to ensure we serve and exceed our customers’ expectations. Special thanks go to the Acting Chief Executive Officer during the year, Ms. Verdiana Masanja for her strong leadership and holding the company together during the past year. Many companies would wish to have Verdiana in their teams, fortunately she is with us. Last but not least, I would like to thank our Interim CEO, Mr. Julius Mcharo, at this challenging but opportune moment, by accepting and offering his exceptional experience and services to VFP. Within the past three months that he has been with us and at less than a quarter of what he is worth, we have noted with gladness, significant improvements in the company performance. With Julius at the lead, our dream for the company will be realized sooner than later. But…, shareholders would need to play their part whenever called; we are all in this together!
To my fellow directors, William, Raymond, Sylvester, Exavery, Robert and our exemplary Company secretary Frank, you are a great people and I am proud to be associated with you. Thank you for your hard work, skills, sacrifice of your personal and family time and resources to ensuring that VFP responds to the shareholders high but realistic expectations, you are the reason VFP is still there and moves forward, thank you.