AKAM - Syria - MicroFinanza Rating Syria Institutional... · as a microcredit programme of the Aga...

October 2006

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DRAFTINSTITUTIONAL EVALUATION

AKAM - Syria

AKAM Syria started its operations in 2003 as a microcredit programme of the Aga Khan Development Network (AKDN). The programme, currently working in seven provinces of the country, is aimed at stimulating income-generation in low-income areas and promoting small-scale agricultural and industrial enterprises. AKAM-Syria provides mainly individual loans for retail, trade and agricultural purposes but offers social loans (education, health and house renovation) as well. AKAM-Syria is currently exclusively supported by funds from AKAM-Geneva, and is not at the moment an independent legal entity, but a program run under a cooperation agreement with the Syrian government. The program is in the process of being transformed into a formal regulated financial institution. As of August 2006, AKAM-Syria served 10.146 borrowers, with an outstanding loan portfolio of US$ 8.3 ml.

Headqua

Legal Form Year of inception Area of intervention Credit methodology

MASYAF

SALAMIEH

AKAM SYRIA MicroCredit Facility Fayez Alshaar Street Almaham Alley Salamieh – Hama - SYRIA Tel: + 963 33 828 350

rters Branches

Program 2003

Urban and rural Individual

AKAM-Syria – Syria – October 2006

Final opinion AKAM-Syria is a quite young program, but has demonstrated, in its first three years and half of operations, to be able to achieve very good results in terms of growth, sustainability, productivity and efficiency ratios. The quality of its portfolio is also very good, even if it would have to be confirmed by more reliable data. However it is evident that AKAM-Syria has still many crucial challenges to face, and its institutionalisation is an important step for addressing them correctly. Priority number one is the shifting from the current project-focus approach towards an institution building approach and the definition of a clear and strong corporate governance, resulting in a better definition of institutional strategy. Other high priorities include the formalisation of policies and procedures, the enhancement of dedicated internal control systems and the functional re-organization of the management structure.

Strengths Opportunities

High portfolio quality Good level of sustainability Efficient structure in terms of operating expenses Strong support from the international donor AKAM

Geneva Good level of product and target diversification Good knowledge of the Syrian market

Institutionalization of the program Huge potential microfinance market Expansion in new geographic areas Adoption (development) of a new MIS

Microfinanza Rating 2


Benchmarking

All figures are referred to the MicroBanking Bulletin (MBB) database updated as of December 2005. AKAM-Syria’s financial ratios indicated here refer to August 2006 do not fully correspond to the ratios presented in the report as they are calculated according to the MicroBanking Bullettin (MBB) methodology1.

Key issues of the benchmarking

- The gross loan portfolio pf AKAM-Syria is around the average of the portfolio of MENA Large and MENA Medium.

- The average loan balance per borrowers on per capita GDP is higher than all other peer groups. - AKAM-Syria performs better than the peer groups in terms of efficiency and loan officers productivity. On

the other hand, it presents a lower portfolio yield than the peer groups. - MFIs in the MENA countries do not leverage their own capital, which reflects the early stage of

development of the microfinance market.

1 The MBB adjusts the financial data to produce a common treatment for the effect of: a) inflation, b)subsidies, and c)loan loss provisioning and write-off (see MBB , Appendix I: Notes to Adjustments and Statistical Issues).



INDEX I. Institutional presentation and country context......................................................................... 5

Institutional presentation ............................................................................................................... 5 Country context ............................................................................................................................. 5 Microfinance Sector and AKAM-Syria positioning......................................................................... 6 Regulatory environment ................................................................................................................ 6

II. Governance and strategy........................................................................................................... 8 Governance and ownership .......................................................................................................... 8 Strategy......................................................................................................................................... 8

III. Organisational Structure and Operational management ..................................................... 10 Organisation and management structure.................................................................................... 10 Human Resources ...................................................................................................................... 12 Risk management, internal control and internal audit ................................................................. 14 Accounting and External Audit .................................................................................................... 15 Financial Management................................................................................................................ 15 Management Information System ............................................................................................... 15

IV. Loan products, procedures and loan portfolio analysis...................................................... 17 Credit products and policies........................................................................................................ 17 Portfolio structure........................................................................................................................ 19 Loan Portfolio Quality.................................................................................................................. 20

V. Financial and Operational Results.......................................................................................... 22 Profitability and Sustainability: .................................................................................................... 22 Efficiency and productivity:.......................................................................................................... 22 Financial structure and ALM: ...................................................................................................... 23

VI. Details of weaknesses and risk factors................................................................................. 24


AKAM-Syria – Syria – October 2006 Chapter I

I. Institutional presentation and country context Institutional presentation The AKAM program, also called Microcredit Facility Syria, started its operation in Syria in March 2003, aiming at stimulating income-generation in low-income areas and at promoting micro and small-scale agricultural and industrial enterprises. The programme was launched by the Aga Khan Development Network (AKDN) and taken over by AKAM (Aga Khan Agency for microfinance) when it was created in 2005. The program, currently working in the rural and urban areas of seven provinces of the country, experienced a rapid growth in its first three years of operations and is nowadays the largest micro finance program in Syria with an outstanding portfolio of almost US$ 8.4 millions and 10.156 active clients, as of August 2006. AKAM-Syria offers to its clients a broad range of different credit products, both individual and group loans. It provides income generating loans (for agriculture, livestock, trade and other entrepreneurial activities), social loans (for education, health and housing) and loans for ultra-poor people, especially dedicated to the low end of the market. Loan size generally ranges from US$ 50 to US$ 3.000 and the maximum term is 24 months. The program is highly mission-oriented, but at the same time its promoters and managers have always recognised the importance to achieve long term sustainability, ensuring longevity and viability of the program and expanding outreach. In this framework, and considering the rapid growth and important dimension of operations reached by the Program, AKAM has decided to transform the program into a formal microfinance institution, possibly a full-fledged microfinance Bank. Uncertainty is however related to the fact that there is no regulation for microfinance institutions in Syria and the process to obtain a license to establish a formal financial institution could be lengthy.

Country context Syria has an elected parliament and a government appointed by the president Bashar al-Assad who is in power since June 2000. Nowadays the most political uncertainties are linked to the recent developments in Lebanon and in the Middle East region. Although a significant portion of economic activity in Syria is still controlled by the Government, recent economic policy developments have moved Syria towards a gradual opening from its centrally-planned economy to a market-oriented one. A five-year plan has been approved at the beginning of 2006, focusing on a set of structural reforms including the development of the financial sector, the improvement of the business environment and trade liberalization as a basis for a greater propulsion to the economic growth. Nevertheless, the reforms implemented so far are insufficient and efforts have to be continued to modernize and transform the inefficient centralised economy and support the private sector, which could become the main engine of growth. Since the second half of 1990s, the economic growth has slowed down mainly because of a reduction in oil production. The annual average economic growth rate in 2001-2005 was 3.3% (2.6% in 2005) and for 2006-2007 it is expected to continue to be quite modest (2.5%)2. Since 2000, average inflation has maintained at a high level (7%, in 2005) as a result of the increase in public sector wages, the weaker exchange rate, the looser credit controls and the larger inflow of funds from the Gulf countries. The Syrian banking system is poor, unsophisticated and constitutes a serious obstacle to economic development. Along with the Central Bank of Syria, the other specialized banks are: the Commercial Bank of Syria (CBS), the Agricultural Co-operative Bank, the Industrial Bank, the Popular Credit Bank and the Real Estate Bank. The banking sector has been exclusively state-owned for more than 40 years, until 2004, when the first three private banks were established, after the enacting of the laws allowing foreign banks to operate in Syria, in the early 00s’. The private banks are currently seven, but they are subject to very strict rules as for example the requirement that at least 51% must be owned by Syrian identities and the minimum capital requirement of US$

2 Source of data: Economic Intelligence Unit (EIU).



30 million. Despite the fact that some state banks are channeling some government funds to small-scale businesses, the main bottleneck to an effective downscaling of banks is the interest ceiling (8,5%) imposed on public banks by the Monetary and Banking Committee3. Microfinance Sector and AKAM-Syria positioning The microfinance sector in Syria is still at an initial stage of development, with the first intervention launched by UNDP at the end of 2000. Despite the relative young age of the microfinance sector, its growth in terms of active clients has been fast; however, according to a UN report, in 2003 only the 8% of the demand had been satisfied.. The potential market is therefore still really huge while competition is currently rather low in Syria. A high proportion of active clients are served by the government and by a number of subsidized programs which jeopardize the healthy growth of the industry and create distortions in the microfinance market. Among them, the most important is the program implemented by the Agency Combating Unemployment (ACU), created in December 2001 as a multisector agency within the Ministry of Social Affairs to combat unemployment and to create job opportunities. ACU is operating all over Syria through the network of agencies of several public banks. It is offering both credit for microenterprises (up to US$ 2.000) and credit for small and medium enterprises (up to US$100.000), mainly in the agricultural sector. The loan term is three years with one year of grace period. The interest rate applied is highly subsidized and equal to 4% annually. Other programs are those conducted by UNRWA, FIRDOS and UNDP. UNRWA is a UN program which began its operations in June 2003 in Yarmouk to lend to Palestinian refugees as well as non-refugees. It is currently operating also in Damascus and Aleppo, offering loans ranging from 100 to 5.000 US$ with an annual interest rate of 6%. FIRDOS is a non governmental organization created in 2001 under the initiative of the first lady, Asma Al-Assad. It has been supported by ACU, the Syrian Planning Commission4, World Health Organization (WHO) and other donors. It provides, through Village Committees, individual and group loans free of charges, ranging between 300 and 20.000 US$. FIRDOS is currently affected by some problems that led to a big reduction of its outstanding portfolio. The UNDP program operates exclusively in the Jabal Al Hoss region, in the North of the Aleppo province, offering loans whose size ranges from US$ 500 to 1.000, with an interest rate of 2,5% per month and an average term of 6-9 months. The AKAM-Syria program is among the few really committed to providing financial services to the poor on a sustainable basis. This is reflected in its practice of charging fees and interest rates that cover all operational costs. According to its management, AKAM-Syria is practically facing no competition and its branches often need to create waiting lists in order to manage the high demand of credit. However in the view of a growing competition, it would be a good practice to undertake some market analysis and to monitor systematically the microfinance sector. Regulatory environment AKAM Syria is not yet an independent institution with its own legal entity, but a program run thanks to a Protocol Agreement of Cooperation between AKDN and the Syrian government. Even if, so far, the Central Bank of Syria has given a tacit consent to the operation of microfinance programs, it did not provide any official authorization which would guarantee continuity in their operations. The lack of a proper legal status of the program, arises uncertainty and make it very difficult for AKAM-Syria to establish relations with potential commercial lenders and investors, thus undermining its possibility of growth. In this context, it is highly desirable for AKAM-Syria to be formalised with the status of a regulated financial institution as soon as possible in order to consolidate its position and be able to access to new funds (ability to capture deposits, make investments, and attract shareholder equity). Unfortunately, Syrian legislation does not currently provide any particular regulation for microfinance providers. Moreover the banking law requirements are very strict (US$ 30 ml. as 3 The Credit and Monetary Council was established in 2002, to take over some responsibility for monetary policy from the Central Bank. 4 A governmental institution.



minimum capital, the banks must be at least 51% Syrian owned, etc.) and do not make it convenient (possible) for AKAM-Syria to transform itself into a commercial bank. For those reasons and given the strong willingness of AKAM-Geneva to transform the ongoing program into a formalised institution, AKAM-Geneva and AKDN have exercised pressure on the Government to create the conditions for an institutionalisation of the program. Initially they have tried, unsuccessfully, to negotiate with the Government a special agreement, authorising the creation of a Microfinance Bank that could operate without the fulfilment of the strict banking requirements. Then, they have been assisting the regulatory authorities to draft a specific decree to regulate the operations of MFIs in Syria. This would allow microfinance providers to offer a wider range of services, including savings, payments services and microinsurances. The minimum capital requirement for regulated microfinance institutions would be less stringent than those for commercial banks (US$ 5 ml), and the decree would require microfinance institutions to follow international accounting standards and guidelines and to operate within a prudential framework consistent with the best international practice as stated in the “Key Principles of Microfinance” approved in 2004 by the G8, and according to the “Guiding Principles on Regulation and Supervision of Microfinance” adopted by CGAP in September 2003. Nowadays the legislative procedure stands at a revision stage in the Credit and Monetary Council and, after this, will enter in the parliament decision phase. According to the AKAM management, once the parliament will have approved the law other 3/6 months will be necessary in order to obtain the license to operate. The process of approval seems very long and complex and makes it difficult to estimate when the authorisation to operate will be available.


AKAM-Syria – Syria – October 2006 Chapter II

II. Governance and strategy Governance and ownership Currently, AKAM-Syria is not an independent legal entity, but a program of AKAM Geneva, which provides a constant inflow of capital to allow the growth of the operations. AKAM-Geneva can therefore be considered as the only “owner” of the program. As a program, it does not have a proper corporate governance and a formal governing board (BoD), taking care of supervision and strategic directions and supporting the management in activities such as business planning, projections and institutional relations, is currently missing. This lack of guidance and systematic supervision is mitigated by the monitoring activities undertaken by AKAM-Geneva. However, given the current level of operations and the potential to grow fast in the Syrian market in the next future, an institutionalisation of the program is desirable in order to increase the level of formalisation and come up with the creation of an official Board of Directors and a clear definition of the governance structure. This would help in giving clearer and consistent strategic directions to the management team and avoiding governance confusion and misunderstanding. Moreover, this would help in shifting from the current project-oriented approach, whereby the management team sometime seems “passively” applies top-down directions received from Geneva, towards an institution building approach with formalized consultations of the management for the definition of strategic orientations. Concretely, the main strategic directions come from the management team in AKAM-Geneva, but it is not precisely clear which are the roles and responsibilities in this process. Even if the management team frequently communicates with the team in Geneva there are not formal periodic meetings. However, every month the program management has to deliver financial and portfolio reports, in a standard format pre-established by AKAM-Geneva. Strategy AKAM does not have a formal business plan5 including a strategic and an operational plan. The only document that presents some planning elements is the budget which is prepared annually for a three years period and sent to AKAM-Geneva for approval. However, this document only consists of estimated figures and lacks of recommendations, notes and remarks. The function of such a strategic plan should be to define the goals and objectives of the program on the basis of an analysis of the external context and potential of the market and of an assessment of the institutional capacity. An operational plan should indicate the actions to be taken to achieve the identified objectives, indicating priorities (size of the staff and necessary knowledge and skills, technologies and information, organisational structure and decentralisation, financial products etc.) and responsibilities for each action.. In general, it has to be said that, the strategy of AKAM-Syria does not seem always driven by an in-depth analysis of the market and a detailed assessment of the internal institutional capacity, while it seems to be often influenced by directions provided by the government or the AKDN local

5 Business Plan normally includes a strategic planning, an operational planning and financial projections (business case). •Strategic Planning: identification of a mission and a vision; analysis of the external (market size, demand and target client, etc.) and internal (institutional assessment identifying operational and financial weaknesses) context; definition of the overall goals and of a strategy to achieve them. •Operational plan: action plan to implement the strategy (number of staff, training, information technology, organisational structure and decentralisation, financial products, etc.) and identification of people responsible for the implementation of each specific goal. •Business case: financial projections and financial analysis (determination of the break even point and of the pay back period, cash flow projections and identification of the necessary financial resources, projections for each cost centre, etc.)


AKAM-Syria – Syria – October 2006 Chapter II

office pro-poor policy6. The allocation of credit should be more oriented to a business approach (market-led approach). The last budget available at the time of our mission was the one prepared at the end of 2005, for the years 2006, 2007 and 2008. In the table below the main figures are reported.

Budget August 2006 (actual)

2006 2007 2008

Gross Outstanding portfolio (US$) 8.366.576 7.909.685 10.464.986 12.887.314 Number of active clients 10.156 8.982 10.642 13.830 Number of branches 7 7 7 8 Number of staff 71 67 85 115 Operational Self-Sufficiency 168,4% 172% 185% 185%

As it can be noticed from the table, the objectives in terms of growth by December 2006, were already achieved in August, being the outstanding portfolio in August 2006 US$ 8,4 millions and 10.156 the number of active clients. This was possible thanks to the good profitability of the program and the reinvestment of retained earning in credit portfolio. The institution has not yet defined a clear strategy concerning institutional transformation in the next future and the budget seems to be limited to the implementation of the program. A new budget (for the period 2007-2009) has been recently prepared and submitted to AKAM-Geneva, but, as the previous ones, it does not include considerations on the institutional transformation process (higher costs for additional investment, introduction of new products, faster geographical expansion, etc.) and therefore it is very difficult to understand which will be the true evolution of the program7. According to the top management, it was a directive from Geneva to prepare just a simple budget instead of a more complete evolution plan document. Indeed, the institutionalisation strategy seems to be completely managed by AKAM-Geneva without a strong involvement of the project staff, and the weak communication between Geneva and AKAM-Syria on this topic gives the impression to have a negative impact on the morale of the staff. The staff seems to be confused about the future of the programme and is uncertain about the way this is going to affect them. During this delicate phase of institutional transformation, a clear and adequate communication plan should be put in place , in order to guide the program and its staff through a smooth transition.

6 For example it is the government, through AKDN, that indicates to AKAM-Syria which are the areas where it would be necessary to operate through the Healthy Village Committee (see chapter IV), and it is AKDN that pushed AKAM-Syria to increase the number of credit for ultra-poor, often also identifying the potential clients. 7 However, Microfinanza Rating’s analysts were not provided with this new budget and did not had the possibility to take a look of it, because it was not approved yet.


AKAM-Syria – Syria – October 2006 Chapter III

III. Organisational Structure and Operational management Organisation and management structure Giving the size achieved by the program and its fast growth, the management structure of AKAM-Syria is not adequate and the management team at the head office is undersized. A complete organisational chart is missing and some crucial dedicated functions as for example, the Credit Manager, the Financial Manager, the Logistic and Administration and MIS Manager are absent or currently vacant. The management team is composed of the Program Manager, his Deputy, the Chief Accountant, the HR Manager, recently hired, and the Internal Auditor; the first three constitute the top management. The Program Manager, previously also in charge of management and supervision of other AKAM programs in Africa, is currently (since May 2006) working for AKAM Syria on a full time basis. He is responsible for the general management of the program and in charge of defining the annual budget and constantly maintaining the communication with AKAM Geneva. In 2005 and until May 2006, his Deputy and the Chief accountant have partially covered this role and in general they have been representing the program in his absence.

Although a HR manager has been recently hired, she is currently mainly involved in

administrative aspects and not yet invested with all the

responsibilities concerning HR supervision and

development; these are still the prerogatives of the top management. At the moment, the

position of MIS Manager is vacant and the function is partially covered by the Deputy Program Manager with the support of the MIS officer of the Salamieh branch. Moreover, even if the current level of competition does not make a priority of it, a more dynamic and business approach to market research and products development will be needed in the future, possibly including the creation of a position dedicated to marketing and the development of training on these topics. The current management structure at the Head Office implies a concentration of functions in the top management, who seems significantly overloaded, mainly with the demanding activity of monthly consolidation and reporting to AKAM-Geneva. Considering AKAM-Syria’s dimension and growth prospective, this concentration of functions and skills represents a rather important risk factor, as it might undermine the ability to perform activities at central level which are essential for the effective management of MFIs, such as control, supervision, financial analysis, risk management and operational and strategic guidance. Moreover, job descriptions are weak and are not tailored to a functional organization structure and this makes the definition of tasks and responsibilities not always clear. A better sharing of duties and responsibilities would therefore be recommendable.



Thanks to the fact that their professional growth took place within the organization, the Deputy Manager and the Chief Accountant, who should ideally also respectively cover the function of Credit Manager and Financial Manager, have an in-depth knowledge of operations but lack of specific skills on strategic and financial management. Moreover, the lack of some other important positions and a certain degree of work overload is forcing them to be deeply involved in operations, limiting the time to be dedicated to management and strategic issues. Indeed the deputy manager devotes most of his time to the consolidation of portfolio data of each branch and to preparing all the required reports for AKAM-Geneva, and this is the same for the chief accountant who is mainly dealing with the consolidation of the financial statements/budget of each branch and the supervision of their accounting. Indeed, strategic, financial and risk management are very important aspects for institutional development and the top management should focus more on these. A strengthening of their decisional capacity, through the provision of training on financial analysis and strategic management is highly recommended. The communication flow between the top management and the rest of the staff needs to be strengthened. The occasion of meeting within all the management at head office level are not frequent enough and a formalisation of some sort of management committees and meetings would allow a higher level of coordination among the different functions, improving the communication flow, the decision making process and the overall management of the program. As far as the formalisation of procedures and manuals are concerned, AKAM-Syria is still at an early stage. Specific manuals for each function are currently missing and are highly recommended. An overall operational manual is available, but it is not completely detailed and not really up to date. Moreover, it is not disseminated among staff, which is not even always aware of its existence. In general, the internal policies and procedures should be completed in order to formalize the operations of the program and reduce the risk of errors and non homogeneous implementation. AKAM-Syria operates through a network of seven branches. Its headquarters (HQ) is based in Salamieh, in the same premises of the local branch. The other six branches are located in Lattakia, Tartus, Aleppo, Masyaf, Damascus and Al Sweida, the latter two opened in 2005. The team of each branch is composed of a branch manager, an accountant, a cashier (sometimes the two functions are under one person), a MIS officer, a number of loan officers, according to the volume of operations, and some support staff. Branch managers are particularly involved in the monthly reporting activity to HQ (portfolio data and financial statement). Branch managers should strengthen their supervisory and monitoring functions and sharing of duties in each branch should be better defined. AKAM-Syria presents a very high degree of decentralization, both financially and in terms of credit decisions. The branch credit committee has the right to approve loans up to US$ 2.000; amounts larger than US$ 2.000 require the additional approval of the deputy manager at HQ. However, while this is easily applicable in Salamieh, it does not seem to be applied in the other branches and no reference about it is mentioned in the current operational manual. Administrative and accounting tasks are carried out at branch level, where the whole information flow is also managed and processed. Branches are treated as cost and profit-centers, and branch managers can take decisions on expenses within the limit of the approved budget. Each branch is responsible for the preparation of its financial statements, which are monthly reconciled and consolidated by the chief accountant at head office level. All the receipts and vouchers are kept in the branch and no copy is provided to HQ. This aspect, combined to a consistent cash handling, an improvable internal control and an inadequate MIS, might undermine the overall monitoring activity and, in particular, the capacity to promptly detect potential anomalies which might occur during the recording process. The involvement of the branch managers in the budgeting process is still limited. Since October 2006, branch managers participate in the preparation of the annual budgets to be approved by HQ and then by AKAM-Geneva. Indeed, at the end of each year, the top



management, after collecting suggestions from the branch managers, submits a three-years budget proposal to AKAM Geneva on the basis of a pre-defined format provided by AKAM-Geneva. Although involvement of branch managers has increased, there is still a top-down logic in the decision-making process rather than a participatory approach. Moreover, the rationale behind the elaboration of the projections in terms of expenses and credit issues is characterized by indications drawn by AKAM Geneva on the one side and, on the other, by general perceptions obtained from the market, but no market studies have been realized since the inception of the program. In particular, as for credit activities the main pre-settled assumption is represented by a monthly growth of 3% per product offered, while as for expenses, the previous trends are taken into account in order to charge annual costs for each typology of expenses. Once the budget is approved by Geneva, funds are provided in monthly installments (on average US$ 200,000). The ability of AKAM-Syria to project cash flows and perform cash flow analysis should also be strengthened in order to better foresee needs of funds at branch level and rationalize their allocation among branches. The Chief Accountant is working at the development of a basic tool to do it, but the poor MIS available does not facilitate this task. Although some branches dispose of bank accounts, this is currently only a formality and – in practice - they are not used. According to the budget and upon request from the branch managers, the chief accountant transfers cash to the branch via money transfer agencies8, that manage to deliver it the same day, or, more rarely, cash is delivered by a staff of the agency by car. All credit disbursements, repayments and payment of expenses (salaries, furniture, etc.) are made in cash (or processed in cash). All this implies security risks that are accentuated by the fact that there is not a strict and formalized policy about the maximum amount of cash to be present in a branch at any point in time. At the end of each day, the cashier and the accountant, under the supervision of the branch manager, are supposed to perform cash counting and reconciliation, balancing the daily transactions with the account entries. Even if, in most cases9, this rule seems respected, the HQ does not have the possibility to check it on a daily basis, since the reconciliation document is not sent to the head office. However, this check is made monthly by the internal auditor, during his visit to the branch. Cash is stored in safes, which in most cases are not fireproof and waterproof; one of the keys is with the branch manager, who is also responsible for the office keys, while the other is kept by the cashier. In general, even if the Syrian context seems very safe and robbery and fraud attitude are not common, the level of security is improvable. Each month, all the branch managers meet with the top management to discuss about monthly reporting and possible problems, however these monthly meetings do not seem enough to ensure an effective communication flow between HQ and branches and a proper monitoring by the head office. Moreover, the flow of financial and portfolio information between branches and HQ is quite poor and may hinder the ability of the top management to timely detect potential problems and promptly react to them. With a view to enhance the monitoring activity, at least a well detailed portfolio report should be provided to the HQ with a higher frequency (at least weekly). Human Resources As of August 2006, AKAM Syria counts 71 employees, out of which 34 are loan officers. AKAM presents a motivated management team and a staff sharing the institution’s goals. The staff allocation ratio (47,9%) shows a decreasing tendency and is not particularly high, reflecting an organizational structure where the size of the back-office at branch level is quite high, mainly due to the inefficient MIS and the complicate recording process, involving different persons.

8 The most commonly used is called Al Quadmous. 9 Due to the workload of cashier and accountant in the branch, certain days they could be late in recording transaction.



A Human Resource (HR) Manager has been recently (May 2006) hired. She has no previous experience in human resource management and for the moment she is mainly involved in logistic and administrative functions, such as publication of job announcements, preparation of contracts and administration of staff vacations, while the main HR responsibilities are still with the top management. Given the dimension reached by the program and its future evolution, the consolidation of a well functioning HR department has to be considered a critical issue. As far as the manual of Human Resources policy is concerned, it is not clear whether an official manual currently exists. According to the HR manager, this is not the case. However she has received one HR handbook from AKDN and an HR manual with annexed job descriptions by AKAM-Geneva that she is currently reviewing with the perspective to adapt them to the Syrian Context. For the moment however, the formalization of HR policy and procedures seems very poor and clear and detailed job descriptions are missing. As for the selection and recruitment process, positions are generally advertised through the Jamati Institute; job announcements are very simple, indicating the position and main qualifications required, but do not include detailed job descriptions. In case of a position at branch level, the first interview is carried out by the branch manager and the HR officer who subsequently addresses the candidate to the top management at head office level. Even if the program manager de facto supervises the overall performance of the staff, a formal personnel assessment has never been carried out and precise staff evaluation systems and procedures do not exist. Furthermore, as the institution grows, a more explicit career development policy and succession plan will be necessary. Identification and implementation of career development plans for each staff would improve the capacity of the institution to manage appropriately the identification of internal staff to cover key management positions, in an environment where it is often very difficult to find skilled and qualified human resources. Although training has a dedicated budget, and, occasionally, internal and external training is provided to the staff10, there is no plan for systematic staff training and a regular assessment on specific training needs is missing. This would be useful in order to be able to establish an annual training planning and to better exploit the human resources. In a perspective of rapid growth, more attention and importance should be assigned to training and continuous updating of skills, of field staff in particular. New loan officers are trained for two to three weeks, before starting their 3 months probation period. During the training they are not paid and not clearly informed about the duration of the training period itself and about the salary conditions in case of confirmation. Their training mainly consists of one or two days of individual meetings with top management at HQ and training on the job, assisting and following a senior loan officer in the implementation of its daily duties. Even if AKAM-Syria has never conducted research on salaries provided by other financial institutions or microcredit program in the Country, the level of salaries seems to be in line with those provided by others and the level of staff satisfaction seems acceptable. This fact is also confirmed by a low turnover ratio standing at 1.4% as of August 2006. The establishment of an healthy insurance policy for staff, currently lacking, is under discussion. As regards the incentive scheme for loan officers, it has been modified in 2005 and it is now based on several parameters as for example the capacity of loan officers to timely collect loan repayments, the poverty level of clients, the loan duration, etc. The bonus allows credit staff to earn up to an additional 100% of their base salary, nevertheless there is a certain lack of awareness among the staff about the criteria adopted in the bonus system.

10 For example, the Deputy Manager and the branch manager of Lattakia has attended the Microfinance Training Course of the Boulder Institute in Turin and chief accountant, program manager and internal auditor have recently participate to a seminar on internal Control in Egypt.



Risk management, internal control and internal audit Starting from September 2005, an Internal Audit function has been introduced in the organizational chart of AKAM-Syria, with the designation of a full time internal audit manager (between November 2004 and September 2005, she was recovering both the cashier and auditor positions). The human resources capacity of the internal audit department has been recently enhanced thanks to the introduction of a new internal auditor. Moreover, a third person, previously in charge of accounting for the Salamieh branch, is currently being trained to become an internal auditor, who will further support the department11. The fact that, so far the department has been quite undersized did not allow an in-depth and complete implementation of the internal control and audit function. The internal audit function mainly consists of a checklist exercise implemented during a one-day monthly visit to each branch, with no in-depth analysis whatsoever. A complete reconciliation between existing assets stated in file records, and computer entries has never been performed so far and any kind of internal audit is carried out at head office level. To perform internal audit process of the branches, the department is using a tool initially provided by AKAM-Geneva and progressively improved with the assistance of a consultant who is also in charge of the external audit of AKAM-Syria. This tool consists of an Excel checklist to be filled in after all visits. The report is sent every month to AKAM-Geneva, after supervision of the program manager. These are the main checks included:

Cash reconciliation Review of a sample of credit applications and related documents (contracts, guarantee

documents, etc.) Review of loan committee minutes Loan balance reconciliation (Sage with Excel) Analysis of loan repayment for a sample of clients (correspondence between the calendar

and arrears report) Visit to the sampled clients (check of borrowers record and correspondence with data in the

MIS; verification of business activity and of physical assets) Review of expenses (correspondence between vouchers and registration in Sage)

Although the process is scrupulously applied by the internal audit manager and is a good starting point for a young program as AKAM, considering the growth and the high level of decentralization, the shortcomings in the MIS and the fact that all transactions are managed (handled) in cash, joint to the incomplete formalization of procedures, a further improvement of this function is strongly recommended. Besides, reporting directly to AKAM-Geneva, it would ensure a more transparent supervision of credit and financial operations. Moreover, the report (which only consist in some notes) provided to the branch manager to inform about the main problems emerged should be more detailed and clearer and specific recommendation should be provided. A more in depth and systematic discussion (through management meetings) with top managers about the main issues arise from audit activities and the corrective actions to be taken is also recommended. Furthermore, it is very difficult to implement internal control and audit, when a complete formalization of policies and procedures is still not in place. The first step to ensure an effective internal control is to establish sound and clearly formalized policies and procedures and operational guidelines, in order to be able to assess whether they are having the desired effect in terms of mitigation of risks and to monitor the adherence of the operations to them. Complete formalization of procedures is a critical necessary step in each MFI. It becomes even more important when an institution is growing fast. The effort of formalization needs to be continued. AKAM-Syria should develop and maintain operational manuals detailing the steps required for each type of transaction, explaining how to handle exceptions and delineating the line of authority. 11The internal auditor manager is currently pregnant and thus she will be on vacation for some months.



Operational manuals can reduce confusion and conflict at branch level by ensuring standard application of policies and procedures. To be effective the manuals should be clearly written, regularly updated and accessible by each employee. A first draft of an Internal Audit Manual has been recently prepared by the IA Manager, with the support of the external auditor. Accounting and External Audit No dedicated and detailed manual has been elaborated so far for the accounting function, and the only existing manual (i.e. Operational Manual 2006) provides scarce information about financial and accounting procedures. Given the low level of automation of the system, the consequent complexity of the recording procedures and the high number of personnel involved in financial transactions, a clearly written financial and accounting manual, detailing steps required for each transaction, explaining how to handle with exceptions and delineating responsibilities is strongly advisable. In some branches (Al Sweida and Lattakia) the non-separation of the accounting and cashier function should be corrected; this is a good practice to avoid risks of fraud. In 2004 and 2005, AKAM-Syria’s financial statements were audited by a chartered accountant, whose firm, Salim Zulfikar Somani, C.A., C.P.A is based in Canada. According to the auditors’ opinion, AKAM-Syria’s financial statements give a true and fair view of its financial position and of the results of its operations, in accordance with the International Accounting Standards”. It is not very clear if his company is formally recognised as an audit firm, or whether he is just an expert accountant contracted by AKAM. He has also been providing AKAM-Syria with some assistance in the designing of the internal auditing system. Financial Management As already mentioned, the financial management of the program needs to be strengthened. As far as the financial analysis are concerned, AKAM-Geneva has recently introduced in its standard reporting format, the calculation of the main operational and financial ratios, that are calculated with monthly frequency. However, the implementation of a systematic and formalized financial analysis of the main financial and management indicators is missing. Management Information System The MIS represents the main critical area of improvement of AKAM-Syria. The absence of a structured MIS department and the current vacancy of the MIS manager position have to be considered quite seriously. Currently, the function is undertaken by the Deputy Program Manager in collaboration with the MIS Officer of the Salamieh Branch. At local level, all branches include a MIS officer and an accountant, respectively responsible for loan and financial data inputting and processing and for providing monthly reports to head office. The MIS of AKAM-Syria includes an accounting software, SAGE, and a home-built loan tracking system based on Excel spreadsheets. They are not integrated and do not refer to a common platform. In particular, the loan tracking system is very basic, presenting significant limitations. It is not settled for the automatic production of crucial systematic reports like complete portfolio quality reports, financial performance reports, liquidity reports, etc. Broken-down portfolio information is not systematically available and also its production upon request seems very complicated. Aging reports have to be produced manually, rising many possibilities of errors. Generally speaking, reporting is poor and does not facilitate to pinpoint the areas that need more attention. Although, each branch has both software installed, branches are not connected in a network. Data are sent monthly to HQ through CD-ROM or e-mail and cannot be consolidated through automatic upload at central level, but need a significant amount of manual working, with the related risk of mistakes and time wasting. Indeed, a unique corporate database, considering the consolidated situation is not set-up at HQ and the Chief Accountant, together with the MIS Officer manually consolidate the reports coming from the branches on a monthly basis.



Timely and good quality information is essential for an institution to perform effectively and efficiently. The MIS of AKAM-Syria is definitely not adequate for the current level of operations and the risk of loss of information through improper storage is still considerable. With a rapid increase of operations the current MIS risks to collapse. Indeed, the system is slow and needs too much labour-intensive in producing reports while the dimension reached by the program requires a higher level of automation of the MIS. Furthermore, the level of security granted by Excel spreadsheets is very low, since the system can not be structured through different levels of access, each of them protected by different passwords. To reduce the risk of data loss, the back-up procedures should also be improved. Incremental back-ups of SAGE and Excel are realized only on a monthly basis and the CD-ROMs of the back-up are generally stored at home or in a desk drawer, which does not guarantee an appropriate level of security of data storage. Considering the fragility of the overall MIS, a more frequent back-up activity would be crucial and the formalization of the back up policy and procedures would avoid the risk of a non-uniform application. AKAM-Syria does not have any manual of procedures for the MIS. Moreover, the procedures for data input seem complex and the fact that a user manual does not exist makes their dissemination difficult. MIS officers are not always well trained and there are differences in the interpretation of some critical processes. AKAM is aware of the risk associated with a weak management information system and during the first part of 2006 tried, unsuccessfully, to substitute the current system with a more performing one, Loan Performer. However the transition to a new MIS is something very delicate that has to be managed in an appropriate way and, in the case of AKAM-Syria, it would have required a more adequate external support in the form of training and technical assistance.


AKAM-Syria – Syria – October 2006 Chapter IV

IV. Loan products, procedures and loan portfolio analysis Credit products and policies AKAM Syria operates mostly through an individual lending methodology (98,6% of the total outstanding portfolio)12, serving urban, peri-urban and rural economically active population. The program is mainly providing income generating loans for trading, agriculture, livestock, and other entrepreneurial activities. According to its strong social mission, which is shared with the Aga Khan partners, AKAM-Syria also offers social loans for education, health and housing and income generating loans for ultra-poor, especially dedicated to the low end of the market. Furthermore, within a governmental initiative called Healthy Village Program (HVP), three of the AKAM Syria’s branches disburse individual loans through village committees which are mutually responsible in front of the program.

Loans are used to finance working capital as well as equipment. The majority of portfolio is invested in trade and service, followed by agricultural activity. Part of financed businesses are start-ups. Income generating loans generally range between US$ 60 and US$ 3.000 with an average duration of 7 months for agricultural credits and of 12 months for enterprise credits. As for housing credits, they can generally reach higher amounts and maturity, with an average maturity of 18 months.

12 As of now, group loans are offered to clients who participate to a common project as for example, the Drip Irrigation System project implemented by the Aga Khan Development Network. Farmers apply to a group loan from AKAM-Syria in order to be able to use the drip irrigation system .



The common financial conditions foresee a monthly interest rate of 1% and an administration up-front fee of 1%. As for agricultural loans, interest rate is paid up-front, while 3% of the principal is reimbursed on a monthly basis, while the balance is paid back at the end of the loan maturity. Ultra-poor credits have generally more flexible conditions, both in terms of maturity and collateral requirements. Moreover, if the clients reimburse their loans on time, they can get back a consistent part of the interests and fee. Credits are generally backed by the guarantee of two individual guarantors, preferably salaried employees. When the guarantors are civil servants, the program seeks to obtain from the government the special permission to automatically deduct the installment due from the salary of the guarantor in case of default; but obtaining this permission is not always easy. For loans larger than US$ 1.500, AKAM-Syria also requires assets collaterals (e,g. valuables, car or mortgage on land/house) valued at about 150% of the loan amount. So far, the program has neither dedicated staff focused on collateral’s evaluation nor precise procedures to assess the value of collaterals. The application of the guarantees policy does not seem uniform among branches. In general, AKAM-Syria presents a good level of diversification in terms of products and target reached. Moreover, products show a good level of flexibility and seem to effectively respond to clients’ needs. In case of agricultural and livestock loans, for instance, the repayment schedule is flexible enough to adapt to the seasonality of these activities. Credit process The disbursement process generally takes 7-10 days for income generating loans and social loans. However, in some cases the disbursement process undergoes some delays – lengthening the time needed up to 40 days. This is mainly due to periodic lack of funds13, especially at the end of the month, which forces some branches to produce waiting lists. For ultra-poor loans, the disbursement process can last up to 2 months as the dedicated loan officer constantly assists the client in exploring suitable business ideas, preparing the required documents, and looking for reliable guarantors. The assessment of the clients’ repayment capacity is based on a strict analysis of the cash-flow of the entire household and a financial analysis of the business project (business plan). Moreover, the assessment also includes a scoring model which assigns points to the borrower according to different aspects, such as character, business experience, creditworthiness, type of business and loan security. The analysis is repeated for each loan cycle. The overall clients’ evaluation seems to be very detailed and complete even if for smallest loans it might burden the disbursement process. Concerning the loan approval policy, the decision-making process is quite decentralized, having the Credit Committee at branch level (Branch Manager, accountant, at least a senior loan officer plus the loan officer responsible for the application under analysis) the authority to approve loans up to US$ 2,000. The branch credit committee generally meets every week even if more frequent meetings are held according to specific needs, in particular in the biggest branches. Generally, repayments and disbursements are made in cash in the office, while, for the HVP, credit is disbursed and repayment is collected by the loan officers in the village where the committees are located. Even if the Syrian context seems quite safe and no fraud cases have ever been detected, there is a risk related to cash handling. This is even more the case if we consider that there is no formal policy on cash transportation and maximum amount to be kept in the safe. According to the internal audit manager, loan officers should visit clients systematically: ex ante to verify the reliability of information provided in the application form and assess property of assets and ex post to monitor effective utilization of loans and business evolution. This kind of visits are not always conducted by each loan officer for each client, mainly due to logistic constraints such as

13 AKAM-Syria receives every months from Geneva the budgeted funds. Sometimes these funds are late.



lack of adequate transportation (car is not always available) and to the fact that these procedures are not formally established. A higher standardization of procedures is recommended. Although on average, the credit operations seem to be adequately carried out by the staff thanks to its experience, credit procedures are not completely formalized and not properly disseminated among staff; a specific Credit Manual does not exist, but credit processes and policies are partially formalized within the operational manual, which however does not include detailed and complete instructions. The poor formalization of procedures associated to a growth context could negatively affect the performance of the entire program, causing a non homogenous sharing of information with new staff and a risk of non-uniform implementation of credit procedures. Portfolio structure As of August 2006, the total outstanding portfolio of AKAM Syria is equal to about US$ 8.3 millions out of which loans for income generating activities represent a consistent proportion

(89,1%). The number of active clients for the same period is 10.416. AKAM Syria has experienced a considerable growth since its inception, mainly thanks to a huge unsatisfied demand, in a market still not exploited and characterised by a very low level of competition. In particular, in 2004 the outstanding portfolio has increased at a rate of about 227% whereas in 2005 and in the period September 2005 - August 2006 the growth has slowed down, but still remaining considerable (98% and 81%). The growth path could have been even higher if more financial resources would have been available. In this regard, the

institutionalisation of the program, allowing the access to alternative sources of finance, is highly desirable. In order to effectively manage a consistent growth, AKAM-Syria should primarily focus on the consolidation of its organisational structure and on the complete formalisation and standardisation of procedures. The average disbursed loan amount of US$ 1.253 as of August 2006, has maintained quite stable over the last three years. Outreach in depth is improvable, as the average disbursed loan represents 112% of per capita GDP. This reflects, on the one side, AKAM Syria’s policy to initially offer credits to quite consolidated micro and small enterprises rather than to marginalized businesses and, on the other, the Syrian economic environment14. However, according to its

14 A survey conducted by UNCDF in 2004 shows that Syria has the highest loan balance as percentage of GDP per capita among the Arab States, reflecting the fact that Syria’s microfinance is not only concentrated among poor entrepreneurs but is also servicing a range of more structured businesses, which, being informal, are excluded from the formal financial sector.



Chapter IV


mission, once reached a

good sustainability

level, the program

planned to focus also on

more disadvantage

d people. It is within this framework that AKAM Syria has recently launched the ultra-poor loan product. So far, it counts only for 0.5% of the outstanding portfolio, but the program intends to enhance this area identifying dedicated loan officer to manage exclusively this product. As for portfolio structure by product, agriculture loans represent 27,6% of outstanding portfolio, while other income generating loans (for trade, production and services activities) represent 61%. The residual part includes social loans mainly focusing on housing needs (10,9%) and in minor part by loans for ultra-poor (0,5%). Although their overall quality seems very good (PAR30 equal to

0,3%15), agricultural loans, generally considered at a higher risk compared to others, should be kept under control. It has also to be said that that the portfolio share of agriculture loans is generally higher16 (it was around 43% as of December 2005) and that these loans are

used mainly for cattle-breeding and crop-finance activities which can be affected by external shocks, such as bad harvest or the outbreak of one cattle-disease. Moreover, sector limits on portfolio are not established and no specific policy exists on portfolio structure.

The geographical distribution of the portfolio shows a quite equilibrate diversification among branches, except for Damascus and Al Sweida branches which have recently started their operations, respectively since June 2005 and December 2005. Three branches of the program channel individual loans through the Healthy Village Program- Lattakia exclusively, while Salamieh and Aleppo partially –. Although specific statistics for this kind of methodology are not available, the peer pressure exercised by the HVC seems to work well in stimulating repayments. However, the high involvement of government entities 17 in this kind of methodology could hide some risks. Loan Portfolio Quality Since its origins AKAM-Syria has always managed to maintain a very good quality of portfolio and according to the figures provided as of August 2006, portfolio quality is excellent with a consolidated PAR30 of 0,51% and a consolidated PAR1 of 1,3%. Nevertheless, there are some

15 But PAR 30 in the Tartus branch amounted at 3% as of August 2006 16 This is mainly caused by the seasonality of the agricultural activities, for which loans are mainly demanded between October and December and reimbursed between June and July. 17 It is often the government that indicates to AKAM-Syria the areas where to operate through this methodology and a government agent is fully employed by AKAM for the supervision of the relations between the HVCs and AKAM-Syria.


concerns related to the accuracy and reliability of the data, given the limits in the loan tracking system, which is very rudimental and implies several manual operations potentially triggering errors in the calculation and reporting of information on portfolio quality. The internal audit manager, during her visits to the branches, detected many inconsistencies and mistakes in the processing of late repayments, reflecting delays in the manual recording process as well as mistakes due to a lack of standardization. For

example, partial repayments are causing misinterpretation and non-uniform application: some branches do not accept partial repayments from clients, preferring to reschedule their loans (if the clients experienced some serious problems), mainly because of the complexity of managing them and the uncertainty on how to record them in the MIS; others do accept the partial repayment but record them in an inappropriate way, since the remaining balance is not reported any more as being in arrears18 but as an on time repayment. Although, according to the internal auditor, the situation has improved, the causes of these errors do not seem to have been completely investigated and addressed. Moreover, to judge the overall quality of the portfolio it is very important to take into consideration the percentage of rescheduled portfolio. Although the data provided seem good, it is difficult to track them appropriately given the poor portfolio management system. Indeed, even if the final approval for rescheduling has to be provided by the HQ, the AKAM-Syria’s rescheduling policy does not seem to be sufficiently clear and formalised and it seems that MIS officers in the branch record rescheduled loans as new loans. These loans should be tracked separately and constantly monitored. As far as the recovery process19 is concerned, it seems rather effective and well known by the field staff, but there are some concerns related to its punctual application and the regularity of visits to insolvent clients. Indeed, even if in theory the loan officers should receive every day from the cashier a calendar, showing the updated situation on clients repayments, the cashier is often late in updating it and/or loan officers do not manage to monitor it on a daily basis.

18 Particularly when the partial repayment allows to cover at least the penalty and the interest rate. 19 Procedures followed in case of delays in loan repayment.


AKAM-Syria – Syria – October 2006 Chapter V

V. Financial and Operational Results Profitability and Sustainability: Since its inception, AKAM-Syria has been able to perform very good level of profitability. As of August 2006, ROE and ROA are 9,1% and 8,7% respectively. Even after financial adjustments, the ratios are positive: AROE is 3,6% and AROA 3,4%. The relevant effect of adjustment is mainly due to the quite high inflation rate and the strong capital base of AKAM-Syria. As of August 2006, the Operational Self Sufficiency (OSS) was 168,4%, with a Financial Self Sufficiency (FSS) standing at 119%, that is an evidence of good self-sustainability. The negative trend in profitability and sustainability ratios compared to 2005 is mainly due to an increase in operating expense ratio, consequence of the hiring of additional field staff to enhance geographical expansion and growth. Portfolio yield has maintained fairly stable along the last three years, slightly increasing from 18,5% in 2004, to 19,1% in 2005 and to 20,4% as of August 2006. So far, it allows AKAM-Syria to consolidate its sustainability, however it should be taken into consideration that AKAM-Syria is currently financing its assets exclusively through not remunerating equity and in the future the access to commercial funds and savings could put some pressure on its margin, increasing the cost of funds. Efficiency and productivity: Over the last three years AKAM Syria has reached a significant level of efficiency with operating expense ratio standing at the very good level of 11,7% as of August 2006. This is the result of a consistent growth of the portfolio outstanding which has increased the benefits from

economies of scales. Nevertheless other important reasons for the current limited incidence of operating expenses are the low salary level in Syria, a quite undersized organisational structure and basic equipments/premises which do not impose high administration costs.

The registered increase of the operating expense ratio, compared to 2005, is mainly due to the establishment of a new branch (Al Sweida) in December 2005 and the growth of staff, with the number of loan officers and other staff passing respectively from 26 and 25 in December 2005 to 34 and 37 in August 2006. Productivity ratios show an increasing trend over years. As of August 2006, the loan officer productivity is very good (298) but could be further improved, mainly considering the use in some branches of the HVC methodology and the fact that some loan officers hired during the last months are still not fully operational. The number of clients per staff, 143 as of August 2006, is improvable given the fact that the staff allocation ratio is rather low, effect of an organisational structure where the size of the back-office at branch level is quite heavy, mainly due to the inefficient MIS and the complicate recording process.


AKAM-Syria – Syria – October 2006 Chapter V

Financial structure and ALM: So far, AKAM-Syria has not borrowed funds and almost the totality of its assets is financed by equity provided by AKDN and AKAM-Geneva. Given this financial structure, the leverage is practically zero with wide room for increasing the level of indebtedness to feed growth. However the status of program does not facilitate the access of AKAM-Syria to other sources of funds. With such a financial structure, there is no maturity gap, no interest rate risk and no exchange rate risk and the need for sophisticated asset liabilities management tools is not perceived yet. However, the institutionalisation of the program should allow AKAM-Syria to highly diversify the sources of fund. Indeed, apart from the possibility to access to commercial sources of funds, the current draft of the law on Microfinance Bank envisages also the possibility to collect savings. Mainly in sight of further growth and institutionalization, AKAM-Syria needs to reinforce its capacity of liquidity management and to develop the skills to deal efficiently with eventual funding liabilities, as it currently has no concrete experience in tapping and managing different sources of funds.

As of August 2006, the total equity of AKAM-Syria is equal to US$ 8,1 millions out of which US$ 7,1 millions represent equity investments from AKAM Geneva and US$ 1 million represents retained earnings. Given the positive results of AKAM-Syria, net income constitutes a growing component of the equity, 3,3% in 2004, 10,6% in 2005 and 12,7% for the period September 2005 – August 2006. The good level of profitability so far has enabled AKAM-Syria to grow faster than what foreseen in the budget. As far as capitalisation is concerned,

according to the last budget available (prepared at the end of 2005 for the three years period 2006-2008), AKAM-Syria will continue to receive funds from AKAM-Geneva, in the amount of US$ 2 millions for 2007 and US$ 1.5 millions for 2008. However, in case of the institutionalisation the capital structure could change, since the ownership may be open to other international investors.


AKAM-Syria – Syria – October 2006 Chapter VI

VI. Details of weaknesses and risk factors

According to our analysis, the main weaknesses and risk factors of AKAM-Syria are the following:


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