BUILDING BEIRUT BUSINESSES BACK AND BETTER PROJECT "B5 FUND" FINANCIAL STATEMENT AND INDEPENDENT AUDITOR'S REPORT FOR THE YEAR ENDED DECEMBER 31, 2023 BUILDING BEIRUT BUSINESSES BACK AND BETTER PROJECT OBS FUND" FINANCIAL STATEMENT AND INDEPENDENT AUDITOR'S REPORT FOR THE YEAR ENDED DECEMBER 31, 2023 TABLE OF CONTENTS Independent Auditor's Report 1-2 Statement of Cash Receipts and Payments 3 Statement of Uses of Funds by Project Activities 4 Notes to the Financial Statements 5-10 Deloitte & Touche Arabia House D I tte 131 Phmnicla Street Aln Mrelsseh, Beirut P.O.Box 11-951 Lebanon Tel +961 (0) 1 364 700 Tel +961 (0) 1 364 701 Fax: +961 (0) 1 367 087 Fax: +961 (0) 1 369 820 BT 30647/2/DTT www.deloitte.com INDEPENDENT AUDITOR'S REPORT To Fund Manager Kafalat S.A.L. Beirut, Lebanon Opinion We have audited the financial statements of Building Beirut Businesses Back and Better Project "85 Fund" (the "Fund"), which comprise the statement of cash receipts and payments and the statement of uses of funds by project activities for the year ended December 31, 2023, and notes to the financial statements, including material accounting policy information. In our opinion, the accompanying financial statements present fairly, in all material respects, the cash balance of Building Beirut Businesses Back and Better Project "B5 FUND" as of December 31, 2023 and the cash received and payments for the year ended December 31, 2023, in accordance with the International Public Sector of Accounting Standards ("IPSAS") "Financial Reporting Under the Cash Basis of Accounting" issued by the International Public Sector Accounting Board of the International Federation of Accountants. 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 Financial Statements section of our report. We are independent of the Fund in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the Code of Ethics of the Lebanese Association of Certified Public Accountants that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the IPSAS "Financial Reporting Under the Cash Basis of Accounting" issued by the International Public Sector Accounting Board of the International Federation of Accountants, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Deloitte. INDEPENDENT AUDITOR'S REPORT (Contfnued) In preparing the financial statements, the management is responsible for assessing B5 Fund's 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 BS Fund or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing B5 Fund's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements 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. Misstatements 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 financial statements. 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 financial statements, 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 Fund's 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 Fund's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements 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 B5 Fund to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 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. Beirut, Lebanon July 25, 2024 Deloitte & Touche 2 BUILDING BEIRUT BUSINESSES BACK AND BETTER PROJECT "B5 FUND- STATEMENT OF CASH RECEIPTS AND PAYMENTS Period from Year Ended November 1, 2021 December 31, (Inception Date) to Notes 2023 December 31. 2022 USD USD Cash Receipts: Funds Received from the World Bank to: Designated accounts 6,238,230 10,200,715 Direct payments to microfinance entitles (MFI) 3 233 9/2 387004 Total cash received 9472 202 10 587 719 Cash Payments: Grants: Middle and small entities (MSE) - Component 1: Wholesale ( 5,024,222) ( 3,728,159) Retail ( 1,840,000) ( 2,646,500) Operating costs related to grants ( 277 687) (_128 727) L 7,141,909) ( 6.503i86) M icrofinance entities (M FI) - Com ponent 2 (33323.972) ( _ 387,004) 3,233,972) (387,004) Project Management and Gender Support - Component 3: Capital expenditures ( 1,326) ( 5,916) Consultancy fees ( 360,235) ( 492,969) Bank charges ( 578) ( 748) Operating costs ( 14,652) ( 761) 376,791) ( 500, 94) Total cash payments ( 10 7S2,672) ( 7,390 784 Net (decrease)/Increase In cash ( 1,280,470) 3,196,935 Cash at beginning of year/period 3,196.935 - Cash at end of year/period 1,1M.4O5 3.9.935 The statement of cash receipt and payments for the year ended December 31, 2023 were approved on July 2024 by: Dr. Khater Abi Habib Mary Farah Madbak Chairman General Manager Chief Financial Officer Kafalat S.A.L. - Fund Manager THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE FINANCIAL STATEMENTS 3 BUILDING BEIRUT BUSINESSES BACK AND BETTER PROJECT "BS FUND" STATEMENT OF USES OF FUNDS BY PROJECT ACTIVITIES Dlsburmments Disbursements for for the Period from Cumulative the Year Ended November 1, 2021 Disbursements Budgeted December 31, (inception date) to as of December N Prolect Cost 292j December 31. 2022 31, 2023 USD USD USD USD Middle and small entitles (MSE) 18,500,000 ( 7,141,909) ( 6,503,791) ( 13,645,700) Microfinance entities (MFI) 5,000,000 ( 3,233,972) ( 387,004) ( 3,620,976) Project Management 1500.000 376 791) 499 990) 876,711 5 0 r 10.752.6721 7390,78) L 18.43.457 Fund's received up to December 31, 2023 5 1 9.472.2021 Remaining undrawn as at December 31, 2023 -ILULM The statement of uses of funds by project activities for the year ended December 31, 2023 were approved on July ,2024 by: Dr. Khater Abi Habib Mary Farah Madbak Chairman General Manager Chief Financial Officer Kafalat S.A.L. - Fund Manager THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THE FINANCIAL STATEMENTS 4 BUILDING BEIRUT BUSINESSES BACK AND BETTER PROJECT "B5 FUND" NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2023 1. GENERAL INFORMATION The Building Beirut Businesses Back and Better Project (BS) Fund is a USD25million grant financed by the Lebanon Financing Facility (LFF), a multi-donor trust fund established in December 2020 and managed by the World Bank to pool and coordinate grants resources from donors in support of the immediate socio-economic recovery of vulnerable people and businesses impacted by the Port of Beirut explosion of August 4, 2020. The objective of the B5 Fund is to support the recovery of targeted Micro and Small Enterprises (MSEs) damaged by the explosion and sustain the operations of eligible Microfinance Institutions (MFIs). The B5 Fund would also help preserve private sector jobs and reduce business closure and layoffs. Project components and activities are as follows: Component I - Grants to MSEs (USD18.Smillion): Provision of grants to eligible MSEs impacted by the explosion to support their rehabilitation and recovery. These grants can cover the hard and soft costs (works, equipment, and working capital). Four out of the eight MFI's who expressed interest in participating were selected by a third-party assessment firm to channel grants to MSE's under the Wholesale part of the project. Grants to MSEs will be implemented through two approaches: 1- Wholesale approach through MFIs and 2- Retail approach through Kafalat following defined selection criteria. Eligible MSEs will be prioritized based on their proximity to the explosion site. Component 2 - Grants to MFIs (USD4.9million): Provision of self-sustainability grants to MFIs to preserve the microfinance sector and its capacity. The four selected MFI's under Component one have been screened by the Third Party Assessment firm with particular focus on institutional, financial & accounting criteria. Component 3 - Project Management and Gender Support (USD1.6mlillion): This component will finance project management costs over the project life. It will also support training and capacity building activities to beneficiary women and disabled led or owned MSEs, focusing on financial management and sales. To a methodology approved by the WB, 3 MFI's were found eligible to benefit from grants under component 2, namely Al Majmoua, Vitas and lbdaa 5 Established in December 2020 in the aftermath of the August 4 Port of Beirut explosion disaster and following the launch of the Reform, Recovery and Reconstruction Framework (3RF), the Lebanon financing Facility (LFF) Is a 5 year multi-donor trust fund, managed by the World Bank, that will pool grant resources and strengthen the coherence and coordination of financing In support of the immediate socio-economic recovery of vulnerable people and businesses impacted by the explosion. To date, the LFF has received contributions and pledges from the governments of Canada, Denmark, France, Germany, Italy and Norway and from the EU. Subject to the commitment of all Lebanese stakeholders to critical reforms, the LFF will build the foundation for medium-term recovery and the sustainable reconstruction of the Port of Beirut and affected neighborhoods. The LFF prioritizes three focus areas of interventions: 1. Socioeconomic and business recovery. 2. Preparing for reform and reconstruction; and 3. Strengthening coordination, monitoring accountability, and oversight of the 3RF. The original amount of the fund is USD25,000,000. The World Bank approved the fund on July 28,2021. Effectiveness date was October 8, 2021. Closing date is July 31,2024 The LFF will benefit from the World Bank's high fiduciary standards, through the application of its fiduciary framework for financial management, procurement, and environmental and social safeguards. The LLF will also ensure that programs promote gender equality and community engagement that target women, youth and vulnerable populations. In addition, the Lebanon Financing Facility will hire a third-party Monitoring Agent to independently verify and confirm that the criteria, selection process, assessment and use of funds are in compliance with the Project Operations Manual. 2. FINANCIAL REP RING UNDER THE CASH BASIS OF ACCOUNTING ITHE CASH BASIS IPSAS) The International Public Sector Accounting Standards Board (IPSASB) has issued a revised IPSAS, Financial reporting under Cash Basis of Accounting. The amendments address same of the main barriers to adoption of this standard. This revised version of the Cash Basis IPSAS implements the proposals made in Exposure Draft 61, Amendments to Financial Reporting under the Cash Basis of Accounting. The revised version is effective starting January 1, 2019, with earlier adoption encouraged. The amendments are intended to: (a) Overcome the substantial obstacles to its adoption represented by the requirements relating to consolidation, external assistance and third-party payments; and (b) Ensure that requirements and encouragements in the standard are not contrary to those of the equivalent accrual IPSASs, expect where such differences are appropriate to reflect adoption of the cash basis; and (c) Clarify that the role the Cash Basis IPSAS is intended to play in the IPSASB's standards setting strategy is primarily as a step on the path to adoption of the accrual basis IPSASs, rather than an end in itself. The application of the above amendments did not have a significant effect on the financial statements. 6 3. MATERAL ACCOUNTING POLICY INFORMATION Accounting Framework The financial statements are prepared in accordance with Cash Basis IPSAS "Financial Reporting Under The Cash Statements Basis ofAccounting". Underthe cash basis, Assets and liabilities are recognized and derecognized when cash is received or paid rather than when earned or incurred and revenues and expenses are recognized when cashed or paid rather than when rights and obligations have occurred. Basis of Preparation The financial statements are presented in U.S. Dollars which is the presentational currency of the Fund. The primary currency economic environment in which the Fund operates (functional currency) is the Lebanese Pound. Since the year 2020, the economic environment in Lebanon experienced the acceleration of inflation indices, a three-year cumulative inflation rate exceeding 100%, and the significant devaluation of the Lebanese Pound. The material accounting policy information are set out below: A. ForeiRn Currencies: Transactions In currencies other than the U.S. Dollar (presentation currency) are recorded at the rates of exchange prevailing at the date of the transactions. B. Cash and Cash Equivalents: Cash and cash equivalents comprise current accounts deposited with a local bank in Lebanon. 4. CASH AT A BANK Cash at a bank represents a non-restricted current account denominated in U.S. Dollar. 7 5. FUNDS RECEIVED FROM THE WORLD BANK The Building Beirut Businesses Back and Better Project (B5) Fund is a USD25million grant financed by the Lebanon Financing Facility (LFF), a multi-donor trust fund established in December 2020 and managed by the World Bank to pool and coordinate grants resources from donors in support of the immediate socio-economic recovery of vulnerable people and businesses impacted by the Port of Beirut explosion of August 4, 2020. Year ended December 31, 2023 2022 USD USD Middle and Small entitles (MSE) - Component 1: Kafalat S.A.L. 7.141.90 ,6.503. Microfinance entitles (MFl) - Component 2: The Lebanese Association for Development (Al Majmoua) 1,911,977 226,047 IBDAA Microfinance 5.A.L. 522,073 63,449 VITAS S.A.L. 799,922 97.508 3.233.972 38.004 Project management and gender support - Component 3: 376.71 500.394: The total allocation for the entire period of the Fund is as follows: Project Project Cost Cost USD USD Component 1- Grants to MSEs 18,500,000 18,500,000 Component 2 - Grants to MFIs 5,000,000 5,000,000 Component 3- Project Management and Gender Support 1_;L500,0 _ 1 500 000 25,000000 250 0 6. PAYMENTS BY COMPONENT Budgeted for the Actual up to Actual up to Whole December 31, December 31, Remaining Proect_ 202 3 202 Unutilized USD Uso USD USD Middle and small entitles (MSE)-Component 1 Wholesale 10,959,100 5,024,222 3,728,159 2,206,719 Retail 6,930,000 1,840,000 2,646,500 2,443,500 Operating EoSt related to Grants 610.90. 277.687 128,727 204.486 18,500.000 7 141 909 6,503,386 4,854,705 Microfinance enities (MFI)-Component 2 Grants to MFls 4.90000 3,233,972 387,004 1.279,024 4,900,000 3,233,972 387.004 1279024 Project Management Component 3 Capital expenditures 7,200 1,326 5,916 ( 42) Consultancy fees 1,187,800 360,235 492,969 334,596 Finance costs 2,000 578 748 674 Operating costs 3,000 14,652 761 ( 12,413) Training and capacity building 400,000 - 400,0 1.600,000 500.394 8 7. PROJECT MANAGEMENT AND GENDER SUPPORT EXPENSES This component will finance project management costs over the project life. It will also support training and capacity building activities to beneficiary women and disabled led or owned MSEs, focusing on financial management and sales. Year Ended December 31, 2023 2022 USD USD Capital Expenditures 1,326 5,916 Consultancy Fees 360,235 492,969 Bank Charges 578 748 Operating Costs 14.652 761 376.7fl1 soo.394 8. GRANTS AWARDED B5 Fund supports the recovery of targeted Micro and Small Enterprises (MSEs) damaged by the explosion and sustain the operations of eligible Microfinance Institutions (MFIs). The B5 Fund would also help preserve private sector jobs and reduce business closure and layoffs. Year Ended Year Ended December 31, 2023 December 31, 2022 No. of No. of Amount Grants Amount Grants USD USD Wholesale (Max USD10,000) 5,024,222 1,425 3,728,159 1,305 Retail (Max USD25,000) 1,840,000 191 2,646,500 256 Microfinance 277 687 - 387004 - 7,141,909 1,61fi 6,761663 --- 1--56 9 9. STATEMENT OF FINANCIAL POSITION As described in Note 3, the policy of the Fund is to prepare the financial statements in accordance with Cash Basis IPSAS Financial Reporting Under the Cash Basis of Accounting. However, the Fund also has presented a separate statement of financial position as a disclosure encouraged under the Cash Basis IPSAS Financial Reporting Under the Cash Basis of Accounting. December 31 ASSETS Notes 2023 2022 USD USD Current assets: Cash at banks 1,916,465 3,196936 Total current assets 14 196.936 NET ASSETS Funds received from prior periods 10,587,719 - Funds received from current year 5 . 472,202 10,587.719 Total funds received _20O59921 10.587,719 Deficit In net assets arising from prior periods ( 7,390,784) - Deficit in net assets arising from current period ( 10752672 ( 7390784) Net deficit in net assets ( 18.143,456) (jL2 784) Net Assets 1.916fi465 312.935 10. RISK MANAGEMENT Currency Risk: Currency risk arises from the possibility that changes in exchange rates may adversely affect the value of financial assets and liabilities in case the Fund does not hedge its currency exposure by means of hedging Instruments. Management considers that currency risk Is minimal, and they have only bank accounts with a local bank non- restricted fund denominated in US Dollar. 11. AUTHORIZATION DATE The financial statements of the Fund were authorized for issuance by the Fund Manager on July 25, 2024. 10