LOAN AGREEMENT BETWEEN HASHEMITE KINGDOM OF JORDAN AND WORLD BANK FOR RECONSTRUCTION AND DEVELOPMENT ADDITIONAL FINANCING (MICRO, SMALL, AND MEDIUM ENTERPRISE DEVELOPMENT FOR INCLUSIVE GROWTH PROJECT) PROJECT FINANCIAL STATEMENTS 31 DECEMBER 2020 Ernst & Young Jordan P.O. Box 1140 300 King Abdulla Street Amman 11118 Jordan Tel:00962 6 580 0777 /00962 6552 6111 Fax:00962 6 5538 300 www.ey.com INDEPENDENT AUDITOR’S REPORT LOAN AGREEMENT BETWEEN HASHEMITE KINGDOM OF JORDAN AND WORLD BANK FOR RECONSTRUCTION AND DEVELOPMENT ADDITIONAL FINANCING (MICRO, SMALL, AND MEDIUM ENTERPRISE DEVELOPMENT FOR INCLUSIVE GROWTH PROJECT) AMMAN – JORDAN Opinion We have audited the accompanying project statement of cash receipts and disbursements of the loan agreement between the Hashemite Kingdom of Jordan and The World Bank for Reconstruction and Development additional financing for Micro, Small and Medium Enterprise Development for inclusive Project, which comprise the statement of cash receipts and cash disbursements for the year ended 31 December 2020, and a summary of significant accounting policies and other explanatory information. In our opinion, the project’s statement of cash receipts and cash disbursements for the year ended 31 December 2020 has been prepared, in all material respects, in accordance with the accounting policies set out in Note (3). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards, are further described in the Auditor’s Responsibilities for the Audit of the Statement section of our report. We are independent of the Project’s in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the statement in Jordan, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Ernst & Young Jordan P.O. Box 1140 300 King Abdulla Street Amman 11118 Jordan Tel:00962 6 580 0777 /00962 6552 6111 Fax:00962 6 5538 300 www.ey.com Emphasis of Matter - Basis of Accounting and Restriction of Use We draw attention to note (3) to the statement which describes the basis of accounting. The statement is prepared to assist the Project in complying with the financial reporting requirement of the Project and the regulatory requirements. As a result, the statement may not be suitable for other purpose. Our report is intended solely for the information and use of Management and World Bank for Reconstruction and Development and should not be used by parties other than Management or World Bank for Reconstruction and Development. Our opinion is not modified in respect of this matter. Responsibilities of Management and Those Charged with Governance for the Statement Management is responsible for the preparation of the statement in accordance with the accounting policies set out in Note (3), and for such internal control as management determines is necessary to enable the preparation of statement that is free from material misstatement, whether due to fraud or error. In preparing the statement, management is responsible for assessing the Project ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Project or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Project’s financial reporting process. Auditor’s Responsibilities for the Audit of the Statement Our objectives are to obtain reasonable assurance about whether the statement as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatement can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these statement. Ernst & Young Jordan P.O. Box 1140 300 King Abdulla Street Amman 11118 Jordan Tel:00962 6 580 0777 /00962 6552 6111 Fax:00962 6 5538 300 www.ey.com As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the statement, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project ability to continue as a going concern. If we conclude that a material uncertainty exist, we are required to draw attention in our auditor’s report to the related disclosures in the statement or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However future events or conditions may cause the Project to cease to continue as a going concern. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Amman - Jordan 11 August 2021 LOAN AGREEMENT BETWEEN HASHEMITE KINGDOM OF JORDAN AND WORLD BANK FOR RECONSTRUCTION AND DEVELOPMENT ADDITIONAL FINANCING (MICRO, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT FOR INCLUSIVE GROWTH PROJECT) STATEMENT OF CASH RECEIPTS AND DISBURSEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 Since inception on 12 April 2020 2019 2016 Cash Receipts USD USD USD Funds received from the world Bank - - 49,875,000 Interests received from banks Cairo Amman Bank 479,707 260,539 983,965 Jordan Kuwait Bank 545,639 296,603 1,068,345 Blom Bank 397,807 215,739 816,064 Arab Bank 421,207 228,539 787,635 Ahli Bank 269,690 145,658 553,413 Capital Bank 456,307 247,739 935,994 Housing Bank for Trade and Finance 465,068 252,531 907,401 Arab International Islamic Bank 532,303 193,191 860,917 Jordan Islamic Bank 253,097 53,715 197,348 Transfer from the main loan - - 33,514 Total Receipts 3,820,825 1,894,254 57,019,596 Cash Disbursements Interest paid to the world Bank 2,342,722 1,964,639 6,854,790 Loans distributed to banks Cairo Amman Bank - - 5,782,793 Jordan Kuwait Bank - - 6,577,574 Blom Bank - - 4,795,487 Arab Bank - - 5,077,574 Ahli Bank - - 3,251,058 Capital Bank - - 5,500,705 Housing Bank for Trade and Finance - - 5,606,312 Arab International Islamic Bank - - 9,052,186 Jordan Islamic Bank - - 4,231,311 Other Operational Disbursements Bank Commissions and other disbursements 1,963 - 1,641 Total Disbursements 2,344,685 1,964,639 56,731,431 Net surplus (shortage) as of 31 December 1,476,140 (70,385) 288,165 -1- LOAN AGREEMENT BETWEEN HASHEMITE KINGDOM OF JORDAN AND WORLD BANK FOR RECONSTRUCTION AND DEVELOPMENT ADDITIONAL FINANCING (MICRO, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT FOR INCLUSIVE GROWTH PROJECT) NOTES TO THE PROJECT STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020 (1) GENERAL On 12 April 2015, The World Bank for Reconstruction and Development agreed to lend the Hashemite Kingdom of Jordan the amount of fifty million United States Dollars “USD 50,000,000” to contribute to the improvement of access to finance for Micro, Small and Medium enterprises and to the Micro Finance Institutions in the Hashemite Kingdom of Jordan and cash received on February 2016 and March 2017, the loan matures on 15 Macrh 2045. The World Bank for Reconstruction and Development signed a project agreement with the Central Bank of Jordan as a project implementing entity in connection with the loan agreement of same date between the Hashemite Kingdom of Jordan and the World Bank for Reconstruction and Development. As the representative of the Hashemite Kingdom of Jordan is the Minister in charge of Planning and International Cooperation, the Ministry of Planning and International Cooperation signed a subsidiary agreement with the Central Bank of Jordan to lend the loan received from the World Bank amounted to USD 50,000,000. The principal payments dates on each 15 September and 15 March beginning 15 September 2020 through 15 March 2045, details as follows: USD 2021 2,000,000 2022 2,000,000 2023 2,000,000 2024 2,000,000 Thereafter 41,000,000 49,000,000 The front-end fee payable by the Hashemite Kingdom of Jordan is equal to 0.25% of the loan amount, details as follows: USD Loan amount 50,000,000 Front-end fee (125,000) Available amount to lend 49,875,000 Available withdrawals by the operating Banks in Jordan 49,875,000 Disbursed amount to the operating Banks in Jordan 49,875,000 Net cash available to be withdrawn by the banks - -2- LOAN AGREEMENT BETWEEN HASHEMITE KINGDOM OF JORDAN AND WORLD BANK FOR RECONSTRUCTION AND DEVELOPMENT ADDITIONAL FINANCING (MICRO, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT FOR INCLUSIVE GROWTH PROJECT) NOTES TO THE PROJECT STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020 (1) GENERAL (CONTINUED) The Central Bank of Jordan signed a subsidiary loan agreements with nine operating banks in Jordan to benefit from the proceeds of the World Bank for Reconstruction and Development loan by which the available amount to lend is USD 49,875,000 out of the loan amount of USD 50,000,000 was channeled to banks to re-lend the funding to Micro, Small, and Medium enterprises. The nine operating banks are detailed as follows: Amount of Disbursed loan amount USD USD Cairo Amman Bank 5,782,793 5,782,793 Jordan Kuwait Bank 6,577,574 6,577,574 Blom Bank 4,795,487 4,795,487 Arab Bank 5,077,574 5,077,574 Ahli Bank 3,251,058 3,251,058 Capital Bank 5,500,705 5,500,705 Housing Bank for Trade and Finance 5,606,312 5,606,312 Arab International Islamic Bank 9,052,186 9,052,186 Jordan Islamic Bank 4,231,311 4,231,311 49,875,000 49,875,000 These loans are repayable over a period not exceeding fifteen years from the date of disbursement with a grace period of five years. These facilities bear semi-annual LIBOR USD six months interest rate plus 1.85%. (2) GENERAL POLICIES The financial information for the loan agreement has been prepared in accordance with standard and accounting policies described in Note (3). Receipts, disbursements and closing account The procedures necessary for managing, maintaining and setting the polices for receipts, disbursements, bookkeeping and the closing account and other related matters, are organized by the Central Bank of Jordan. -3- LOAN AGREEMENT BETWEEN HASHEMITE KINGDOM OF JORDAN AND WORLD BANK FOR RECONSTRUCTION AND DEVELOPMENT ADDITIONAL FINANCING (MICRO, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT FOR INCLUSIVE GROWTH PROJECT) NOTES TO THE PROJECT STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020 (2) GENERAL POLICIES (CONTINUED) Receipts The receipts of the loan agreement consist of the fund received from the World Bank for Reconstruction and Development and interest payments from operating banks in Jordan. Disbursements Cash disbursements are paid to the operating banks in Jordan as per the subsidiary loan agreements. Functional currency The project financial statements has been presented in United States Dollars “USD” which is the functional currency of the loan agreement. (3) SIGNIFICANT ACCOUNTING POLICIES Below are the significant accounting policies used with preparation of these financial statements: Receipts The receipts are recognized when cash is received and recorded under the receipts item. Disbursements The disbursements are recognized when they are paid. Interest expense Interest expense is recognized at the time physical cash is paid. Interest income Interest income is recognized at the time physical cash is received. -4-