Our Value Creation Journey · 2020. 7. 20. · 1 Our Value Creation Journey MI holds a solid competitive position in the finance industry of Sri Lanka as one of the most trustworthy

1

Our Value Creation Journey

MI holds a solid competitive position in the finance industry of Sri

Lanka as one of the most trustworthy financial service providers,

with a history that spans over five decades. MI’s operations are

spread over seven provinces across the country to deliver

exceptional value for our stakeholders, economy and the

environment.

We have remained committed to generating sustainable and

consistent returns for our stakeholders, as promised in our strategy

formulation process. We offer our customers attractive returns and

funding, in tandem with an unparalleled customer experience.

Moreover, as a tax payer and employer, MI plays a vital role in

the society and economy by creating, a wider impact. Our

accelerated growth offers employment opportunities while we

contribute towards the economy, society and environment through

our products, operations and corporate social initiatives.

Our Business Model represents the integration of vision, mission

and corporate strategy towards achieving goals and objectives

influenced by the challenging internal environment and external

environmental factors, maximizing shareholder’s wealth. We

uphold an effective model, utilizing various inputs and

relationships derived from capitals to deliver stakeholder value

that is enhanced over time.

In this value enhancement journey, we deploy key capital

resources, which include financial wealth, infrastructure,

alliances, intellect, human strength and nature, unique to our

business success. We have carefully selected and engaged the

identified set of input capitals as drivers of our value creation

process. The integration of each resource component through

various business functions enables us to generate intrinsic and

extrinsic value to the company with a sustainable long-term

perspective in mind.

“The win-win and

shared approach is

a central strategy

intrinsic to our

success story. We

consider our

business as an

avenue for wealth

creation and

financial

inclusion, which is

vital for the long-

term progress of

the nation…”

2

Outlining Value Creation Process

The needs and aspirations of our stakeholders are driven through our unique value creation process

which allocates, manages and utilizes the capital inputs efficiently and effectively in order to derive

the optimum value to meet stakeholder expectations that we identify through various engagement

methods. After understanding and analyzing market information and stakeholder preferences, we

follow a systematic approach from strategy formulation, to resource allocation, to ultimate value

creation and as post action initiatives, a thorough impact assessment, to evaluate effectiveness and

corrections needed. We endorse strategies continuously by adopting feedback control mechanisms

and feed forward control mechanisms to meet our desired outcomes, keeping our stakeholders

content and loyal.

3

Our Business Model Dynamics

Capital Management Report

Primary Work Process (Refer Pages xx to

xx)

Capital Input

MI’s Value Creation Journey

Financial Wealth

Shareholder funds – Rs. 8.9 Billion

Deposit Base Fixed Deposits – Rs. 23 Billion Savings – Rs. 243 Million

Borrowings Institutional Borrowings – Rs.9.1 Billion

Alliances

Clientele > 65,000

Relationship Management Team Employees > 600

Social Investment – Rs. 1.8 Million

Human Strength

Number of employees - 1,094

Investment on training – Rs. 7.7 Million

Work life balance spending – Rs. 2.9 Million

Intellect

Industry expertise - 56 years

Financial professionals with over 10 years of experience – 14%

Credit rating - BBB-(lka) negative outlook

Infrastructure

Branch network – 39 branches

Total property, plant and equipment – Rs.3.1 Billion

Nature

Water Consumption – 12,487 m3

Energy Consumption – 1,443,926 kWh

Stakeholder

Engagement

Corporate

Goals/Targets

Strategy and

Resource

Distribution

Funding Customer Intelligence and

Product Design

Evaluation and Executions

Collections

Customer Relationship

Management

After Sales Support

Vision, Mission and Values

Support Functions

| Corporate Planning and Monitoring| Human

Resource Management | Marketing and

Communications | Information Technology Services |

Audit and Control | Sustainability Management |

Finance and Accounting | Administration |

Governance and Risk Management

4

MI’s Value Creation Journey Capital Management Report

Output

Impacts

Lending

Lease Granted – Rs. 7.2 Billion

Hire purchases granted – Rs. 25 Million

Loans and other advances granted – Rs. 12.5 Billion

Deposit Mobilization

Deposits mobilized – Rs. 5.4 Billion

New deposit customers > 300

Investments

Investment Revenue – Rs. 209 Million

Other Ancillary Business

No. of Insurance policies referred – 36,601

Insurance Commission income – Rs. 82.9 Million

No. of customers/partnerships > 600

Workshop revenue – Rs. 68.7 Million

Capital Outcomes

Shareholders

Clients

Staff

Regulators

Society

Financial Wealth

Net interest income – Rs. 3.6 Billion

Profit after tax- Rs. 372 million

Return on Equity – 4.17%

Alliances

New customers – >19,000

No of beneficiaries of social initiatives – 2,217

Customer survey score 92% satisfied customers

Human Strength

Employee training - 9,553 hours

Attrition Rate – 27.37%

Diversity profile – 21% women:79% men

Employee volunteerism – 796 hours

Intellect

New policies and procedures developed and adopted

Business process re-engineering including automation of existing systems

Infrastructure

Investment in fixed assets – Rs. 58 Million

Return on physical infrastructure – 11%

Nature

Green lending

Impact

Report

5

Strategy in Action

In pursuing our vision to be the top of the mind financial services provider, while simultaneously

blending this with our corporate values, we aligned our strategic direction towards developing our

core competencies for the future and building a performance oriented culture. Whilst governing

principles and stakeholder expectations form the foundation of all our strategies and initiatives, we

carried out a thorough business environment review and internal assessment and thereafter devised

our strategy with an integrated thinking process, addressing all the material concerns identified by

setting short, medium and long term objectives with the ultimate aim of maximizing stakeholder

value. We analyzed our internal strengths and weaknesses, focusing on maximizing opportunities

prevalent in the external environment, whilst taking measures to counter possible challenges, risks

and negative impacts. The Strategic Planning process for us is an ongoing exercise especially in the

current context where market changes are unprecedentedly changing with the Easter Sunday attacks

and moreover COVID-19 threats. Thus, we periodically reviewed our strategic objectives, along with

performance reviews and incorporated necessary amendments to address any challenging risks and

opportunities.

During the year, with the volatile and fragile market conditions that prevailed due to the Easter

Sunday events and the COVID-19 pandemic, we had to prioritize mitigating our credit risk, which

occurred as a result of the deterioration in borrower repayments and credit quality. In light of this, we

strengthened our recoveries to manage rising non performing lending levels and unexpected

impairment charges to the company, like others in the industry. Furthermore, we revisited our

strategic goals and objectives, and made necessary revisions to pursue more realistic targets, while

staying committed to improving competency levels of our human resources to effectively face market

challenges, improving product value and enhancing overall quality of our services to gain the needed

competitive edge in turbulent market conditions.

6

Strategy Formulation

Creating

Stakeholder

Value

Addressing of

material

concerns

Minimizing

economic social

and

environmental

negative impacts

and optimize

positive impacts

Ser

vic

e V

alu

e C

hai

n O

per

atio

ns

Strategic planning

process

Core strategies

deployed

Internal

Assessment

Objective setting

(Short, medium

and long term)

Level 1– MI Board’s

Role – Provide

strategic direction

Level 2– Corporate

Management’s Role

– Assist strategy

formulation and

implementation with

operational

management

Level 3– Operational

Management’s Role –

Develop and

implements

operational plans

Mo

nit

ori

ng

& S

tra

teg

y R

evis

ion

Optimizing

Customer Value

Proposition

Enhancing

Productivity

Cementing Lasting

Relationships

Effective Risk Control

and Mitigation

Technique Application

Strategic Outcomes

Envisaged

Business

Environment

Review

Res

ourc

e D

istr

ibuti

on

7

Our Approach to Strengths & Weaknesses

Key Strengths

Key Strengths of MI How we Leveraged our Strengths

MI’s unblemished track record and

reputation as a successful finance company

for over five decades

having a capital base above Rs. 8.9 billion

as at 31st March 2020

Enhanced customer base and customer value

proposition by building mutually beneficial

rewarding relationships

Accessed low cost funding capitalizing on strong

financial strength and reputation.

Demonstrated strong resilience despite the adverse

impacts of the unprecedented Easter Sunday events

and COVID 19 outbreak.

Over 1,000 skillful ,talented and agile

workforce with accumulated business

knowledge and intelligence

Introduced innovative financial solutions to meet

evolving customer demands and broad based

platforms for wider customer payment choices

Offered personalized legendary customer service to

enhance customer satisfaction and loyalty

Increased productivity through employee

engagement, business process reengineering , lean

management and introducing new performance

management system

Intensified internal infrastructure to accelerate future

business expansion

Heightened governance and risk and review

framework

Having recognized as one of the

top 100 companies to work for in Sri Lanka

Attracted and retained experienced and skilled

individuals

Enhanced productivity through increased employee

motivation and value proposition.

A wide branch network in catering

convenient customer service

Expanded our retail customer base through reach in

radius and convenience

Higher branch volumes contributed to sustained

business growth, while retaining market share.

Use of state of the art technologies and

advancements to pace with technological

boom

Utilized technology in gaining operational

excellence in tandem with process enhancements

Continued implementing Fintech developments to

increase the value generated and product experience

8

Key Weaknesses

Key Weaknesses of MI How we Countered Key Weaknesses

Traditional lease financing business remained

the uppermost contribution to revenue

Diversified product portfolio to maintain yields

while controlling credit risks

Newly introduced MI’s micro auto leasing

towards broad basing product mix

Fixed deposit remain as the primary deposit

product

Introduced Micro Savings deposit and

migrated to a new system solution with ability

to couple ATM services to promote savings

products.

Funding mismatches due to the inherent nature

of lending and deposit mobilization

Promoted long term deposits and encouraged

deposit retention

Eased external funding composition by

maintaining higher long term borrowings

Centralized Core Operations Enhanced use of digital platform to smoothen

the business operations and decentralize key

processes.

Introduced wider payment platform choices to

enhance customer convenience

9

Operating Environment

Calendar Year 2019 Performance

Financial Year 2019/20 Performance

Global Economy

The global economy further weakened during 2019 calendar year with the subdued global

economic growth of 2.9% recorded as against the 3.6% recorded in 2018. Heightened trade

tensions among the major economies, geopolitical tensions and dampened domestic demand in key

emerging market economies impacted on the deteriorated global economy. Growth of advanced

economies deteriorated due to subdued growth in the United States and the Euro area, despite the

improved growth performance in economies such as the United Kingdom and Japan. Meanwhile,

growth across emerging market and developing economies moderated largely due to country

specific shocks that weighed on domestic demand.

While several key economies had begun to adopt an accommodative monetary policy stance from

mid-2019 amidst escalating trade tensions, the spillover effects of the COVID-19 outbreak have

warranted a more rapid pace of monetary policy easing alongside increasingly important fiscal

stimulus.

3.80% 3.60% 2.90%

-3.00%

5.80%

2.30% 2.20% 1.70%

-6.10%

4.50% 4.80% 4.50% 3.70%

-1.00%

6.60% 6.50% 6.30% 5.50%

1.00%

8.50%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2017 2018 2019* 2020* 2021*

Growth Trajectory of the Global Economy

World Output

Advanced

Economies

Emerging Markets

& Developing

Economies

Emerging &

Developing Asia

Interest Rate Exchange Rate Inflation

175 basis points

Policy Rate Reduction

2.94%

AWPLR Reduction

7.44%

Rupee Depreciation

4.7%

Annual average CCPI change

World Economic Growth 2.9% Sri Lankan Economic Growth 2.3%

10

Impact to MI

Deteriorated world economic growth further aggravated by the COVID outbreak directly

affected the local economy, primarily having drastic consequences to tourism and export

sectors which had a negative impact to LFC sector credit demand. As FDIs were limited,

the country’s optimistic projections did not materialize to expectations and this had a ripple

effect to the finance industry. With the impact of COVID-19 pandemic, global economic

downturn has heightened adversely affecting the local economy which is bound to impact

the finance sector. Therefore, MI will need to re-strategize to fit into the new normal

conditions while facing the global and local challenges to sustain within the operating

environment.

11

Sri Lankan Macro Economy

National Output

Despite graduating to an upper middle income country status, the Sri Lankan economy reflected

sluggish economic growth of 2.3% in 2019, compared to the growth of 3.3% in the last year, This

under par performance stemmed from the uncertainty caused by the Easter Sunday attacks coupled

with the political instability which prevailed during the year. The Easter Sunday attacks had a severe

impact on the tourism sector, and their adverse spillover effects were felt across the economy,

worsening the sluggish growth of the economy and further dampening business confidence.

Despite the domestic economic activity being propelled to reflect positive sentiments with the policy

measures taken to revive the economy at the beginning of the year 2020, the outbreak of the

COVID-19 pandemic triggered further uncertainties regarding the country’s economic performance

in 2020.

In 2019, the service sector consisting of wholesale and retail trade and financial sector activities

continued to contribute to the national economy as the main sector contributor. All major sectors of

the economy recorded positive growth though the growth rates were modest.

Industries sector recorded the highest growth of 2.7% followed by a 2.3% growth in services sector

in supporting the overall economy. A subdued growth of 0.6% was recorded in agriculture sector

compared to the growth of 6.5% in 2018 mainly because of the deteriorated fishing activities and

agricultural setbacks due to prevailed adverse weather conditions throughout the year. GDP per

capita was estimated at Rs. 688,719 in 2019, compared to Rs. 662,949 in 2018, which is an increase

of 3.9% in 2019 in comparison to the increase of 6.7% in 2018. The slower growth in GDP per

capita in rupee terms was mainly on account of the slowdown in GDP at current prices.

Employment

In the backdrop of a subdued economy, the unemployment rate increased to 4.8 per cent in 2019 from

4.4 per cent in 2018. Despite the increase in the unemployment rate, the employed population

increased by 2.1% to Rs. 8.181 million in 2019 along with a higher Labour Force Participation Rate

(LFPR). With the disruption of global supply chain and slowdown of the global economy since the

aftermath of the COVID 19 outbreak, employment opportunities have contracted with severe job

insecurity, where export oriented manufacturing and apparel sectors being the most affected with the

contraction of future orders, non-availability of input materials while tourism sector is at a complete

standstill with restrictions on global travel and lockdowns. Thus, it is expected that the

unemployment rate will further increase in 2020.

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

2015 2016 2017 2018 2019*

GDP and Sectorial Growth

Agriculture

Industry

Services

GDP Growth Rate

12

Inflation

Despite the temporary supply side disturbances, both headline and core inflation moved broadly in

the desired range of 4-6% during 2019, mainly as a result of subdued demand conditions and well

anchored inflation expectations. The Colombo Consumer Price Index (CCPI, 2013=100) based year-

on-year headline inflation increased and stood at 4.8% in December 2019, in comparison to 2.8% in

December 2018. Meanwhile, the annual average CCPI based headline inflation remained steady

during 2019 at 4.3% in December 2019.

.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2015 2016 2017 2018 2019*

GDP Per Capita & Unemployment Rate

GDP Per Capita in Rupee

Terms Growth rate

Unemployement rate % (per

cent of labour force)

0%

1%

2%

3%

4%

5%

6%

7%

8%

2015 2016 2017 2018 2019*

Changes in Colombo Consumer Price Index

Colombo

Consumer Price

Index %

(Annual average)

Colombo

Consumer Price

Index % (YOY

period end)

Impact to MI

As this financial year was a challenging period for NBFIs sector, MI’s business growth

trajectory was pegged back by the sluggish economic conditions due to the unprecedented

Easter Sunday attacks in April 2019 and the political uncertainty surrounding the

Presidential election in November 2019 and further aggravated by the pandemic outbreak

of COVID 19 which resulted in a negative credit growth and only a marginal asset growth

for the sector.

Disturbed individual income levels hampered repayment ability and consequently increased

the non-performing lending of finance sector including MI. Nevertheless, deposit growth of

MI improved during the year and stood at 7.7% compared to the growth of 5.5% in the

previous year. Inflationary effects and expanded operations escalated personal costs and the

overhead costs by 8.2%.

13

External Sector

International Trade and Exchange Rate

Up until the end of 2019, a notable improvement in the trade and current account balances was

observed due to the policies to curtail import expenditure, which, along with significant inflows to

the financial account, helped strengthen gross official reserves and stabilize the exchange rate.

The improvement in the trade balance was mainly due to the reduction in import expenditure

amidst the policy induced contraction in merchandise imports, while the modest growth of export

earnings also contributed to a lower trade deficit in 2019 resulted in a notable improvement in the

trade deficit in 2019.

Personal vehicle imports were declined by 48.2% in 2019, supported by the policy measures

implemented during the latter part of 2018 and the increased tax structure on most categories of

personal vehicle imports in the government Budget 2019.

The Sri Lankan rupee recorded a marginal appreciation of 0.6% against the US dollar in 2019,

compared to the significant depreciation recorded in 2018. This appreciation of the currency

mainly reflected the impact of the notable contraction in the trade deficit, in spite of pressure

witnessed in the domestic foreign exchange market in the aftermath of the Easter Sunday attacks

and amidst outflows of foreign investment from the government securities market during the

second half of 2019.

However, with the outbreak of COVID-19, the tourism industry was adversely affected again

while foreign investment in the government securities market and the Colombo Stock Exchange

(CSE) recorded net outflows .The Sri Lankan rupee, which remained relatively stable up to the

second week of March 2020 depreciated significantly in the latter part of March 2020. This led to

a further increase in the trade deficit.

Foreign Direct Investment (FDI)

FDI inflows, which include foreign borrowings of companies registered with the Board of

Investment (BOI), declined significantly in 2019 due to the weakened investor sentiments with

increased uncertainties in the aftermath of the Easter Sunday attacks and political developments.

FDI inflows, excluding foreign loans to BOI companies recorded a reduction in 2019, which

amounted to US dollars 758 million from US dollars 1,614 million in 2018.

16

16

17

17

18

18

19

-

100

200

300

400

500

600

700

800

2015 2016 2017 2018 2019

Rs.

Bil

lio

ns

No

. '

00

0

Vehicle Registrations Vs MI's Vehicle Backed Lending

New Vehicle

Registrations in the

Market

MI's Vehicle backed

Lending

Impact to MI

Policies to curtail vehicles importation and loan to value restrictions hampered demand for

lease financing while decreased FDIs, sluggish tourism and related business activities

indirectly led to subdued credit growth, led to marginal loan book growth, deteriorated asset

quality and modest profitability levels.

14

Monetary Policy

Interest Rates

A notable decline in deposit interest rates of Licensed Commercial Banks (LCBs) was observed

since May 2019, in response to policy and regulatory measures taken by the Central Bank during

the year. Accordingly, the Average Weighted Deposit Rate (AWDR) declined by 77 basis points to

8.20% by end 2019. Lending rates of commercial banks, which remained downward rigid despite

the accommodative monetary policy measures of the Central Bank, declined notably with the

imposition of caps on lending interest rates in September 2019 and the weekly Average Weighted

Prime Lending Rate (AWPR) declined by 235 basis points to 9.74% by end 2019 from 12.09%

recorded at end 2018.

0%

2%

4%

6%

8%

10%

12%

14%

16%

2015 2016 2017 2018 2019*

Market Interest Rates

Standing Deposit Facility Rate

%

Treasury Bill Yields 364 days

%

Commercial Banks' Average

Weighted Lending Rate %

Commercial Banks' Average

Weighted Deposit Rate %

Impact to MI

The ceilings on deposit interest rates and decline in the lending rates reduced our cost of funding

in both deposits and borrowings while contracting our portfolio yield. However, we maintained

borrowing and lending rates were maintained at optimum levels to attract a steady customer

base targeting our growth potential. Though we enjoyed satisfactory margins, there was a 0.2%

year-on-year decline in Net Interest Margin (NIM).

15

Fiscal Policy

A weak fiscal performance was observed amidst a notable decline in government revenue, resulting

mainly from the large import contraction particularly of motor vehicles, and subdued economic

activity exacerbated by the Easter Sunday attacks in April 2019. Same time the rise in recurrent

expenditure mainly on account of subsidies and transfers, and salaries and wages impacted the budget

deficit.

Government revenue declined to 12.6 per cent of GDP in 2019 from 13.4% of GDP in 2018, mainly

due to the reduction in tax revenue from excise duties on motor vehicle imports, while a lower

revenue collection was recorded from Value Added Tax (VAT), Cess and Ports and Airports

Development Levy (PAL) as well. In nominal terms, total revenue declined to Rs. 1,890.9 billion in

2019 from Rs. 1,920.0 billion in 2018 while in nominal terms VAT revenue declined by 3.9% to Rs.

443.9 billion in 2019.

Impact to MI

Removal of 2% Nation Building Tax and the debt repayment levy of 7% during the latter part of

the financial year brought down the effective tax rate, though there was no change in VAT on

financial services taxes. From 1st January 2020, corporate tax rate reduction of 4% to 24% also

positively impacted post tax profit of the company.

16

Colombo Stock Market

Prior to the COVID 19 outbreak, the Colombo Stock Exchange (CSE) recorded mixed performance

during 2019 amidst adverse developments in the domestic and global environment. The ASPI grew

by 1.3% in 2019 against the 5.0% decline reported in 2018 while S&P SL20 index declined by

6.3% in 2019 compared to the 14.6% decline reported in 2018. Foreign outflows from CSE

continued during 2019, though some improvements were observed in terms of net foreign outflows

when compared to 2018.

Price indices of the CSE started to rapidly decline with the COVID outbreak in early March 2020 in

line with the downturn in the Asian stock market. A net market foreign outflow of US dollars 12.4

million was recorded from CSE from 01 February 2020 to 20 March 2020.

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Rs.

Mil

lio

ns

Ind

ex P

oin

ts

MI's Equity Investment Value Vs All Share Price Index

All share price Index (LHS) MI's Equity Investment Value (RHS)

Impact to MI

During the upward indices period, MI traded its equity investments but recorded subdued returns

as dividends and trading gains in the backdrop on a sluggish volatile market. During the year, as a

whole, market value of the equity investments declined by Rs. 252 million, adjusting to the

Statement of other Comprehensive Income.

17

Finance Sector Performance

The financial sector expansion and performance slowed down during the year 2019 compared to

the previous year mainly due to subdued economic activities and the uncertainty caused by the

Easter Sunday attacks and the political instability which prevailed during the year.

Non-Bank Financial Institutions (NBFI)

In this challenging environment, the Licensed Finance Companies (LFCs) and Specialized Leasing

Companies (SLCs) sector performance deteriorated during the year, with negative credit growth,

declining profitability and increase in NPLs. The industry was further challenged with the

immergence of COVID19 impacting specially collection and revenue.

At end of 2019, the sector comprised 42 LFCs and 4 SLCs and there were 1,432 branches and 599

other outlets including service centers, collection centers and pawning centers.

Credit Growth

LFCs sector loan book growth stalled in response to macro prudential policy measures to curtail

importation of motor vehicles and lending towards vehicles such as the directions of LTV ratios

for credit facilities granted in respect of motor vehicles, prevailed higher market interest rates on

lending, sluggish economic and commercial activities due to loss of business confidence which

resulted from political instability in the run up to the presidential election and negative sentiments

caused by the Easter Sunday attacks. Credit provided by the LFCs and SLCs sector declined by

3.0% (Rs. 34.3 billion) to Rs. 1,102.7 billion, compared to the growth of 7.6% in the

corresponding period of 2018.

Assets and Liabilities

Total asset base of the sector stood at Rs. 1,432.7 billion, which reflected only a marginal 0.1%

increase during the year, compared to 5.6% growth reported in 2018.

Customer deposits still dominated the major portion of liabilities, and increased assets were mainly

funded through deposits, which accounted for 52.8 per cent of the total liabilities of the sector. The

deposit growth accelerated to 5.6%, while borrowings declined by 12.6% in 2019.

Actual Overall

31- Dec-2019

Rs Billion

Actual Overall

31-Dec-2018

Rs Billion

MI's Actual

31- Dec-2019

(as a % of Sector)

Assets

Accommodation 1,102.74 1,137.00 2.9%

Finance Leasing 631.80 636.00 2.1%

Hire Purchase 14.82 19.00 12.9%

Other Lending 456.12 482.00 3.7%

Investments 132.15 109.70 2.2%

Others 197.79 184.60 3.0%

Liabilities

Total Deposits 756.69 716.80 2.8%

Total Borrowings 405.59 463.80 2.2%

Capital Elements 203.22 183.70 4.5%

Total Funds 1,365.50 1,364.30 2.9%

Others 67.18 67.00 3.0%

Total Assets/Liabilities 1,432.68 1,431.30 2.9%

18

Business Risks

The gross non-performing advances (NPA) ratio increased to 10.6% in 2019 compared to 7.7%

reported in 2018, reflecting deterioration in the asset quality of the sector. This was mainly due to

the slowing down in economic activities due to the Easter Sunday attacks, declined lending

activities of the sector and spillover effects of the Debt Relief Program. The sector continued to

experience minimum equity risk but was exposed to interest rate risk due to market volatility and

policy changes. During 2019 the sector maintained adequate liquidity buffers well above the

regulatory minimum levels recording a surplus of Rs. 41.6 billion against the stipulated minimum

requirement of Rs. 89.8 billion.

Profitability

The sector posted a profit after tax of Rs. 14.5 billion, a decline of 31.9% compared to the profit

recorded in year 2018, mainly due to increased non-interest expenses and higher loan loss

provisions. However, net interest income of the sector during the year increased by 7.9% resulting

from increased interest income of 7.6% whereas interest expenses increased at a relatively slower

pace of 7.4%. Net interest margin of the sector also increased to 7.7% in 2019 from 7.4% due to the

combined effects of increased net interest income and increased (gross) average assets.

Actual Overall

31- Dec-2019

Rs Billion

Actual Overall

31-Dec-2018

Rs Billion

MI's Actual

31- Dec-2019

(as a % of Sector)

Interest Income 259.8 241.5 2.2%

Interest Expense 142.4 132.6 2.0%

Net Interest Income 117.4 108.8 2.4%

Non-Interest Income 39.4 38.1 0.3%

Non-Interest Expense 93.8 81.2 1.7%

Loan loss Provisions (Net) 30.2 25.9 0.9%

Profit Before Tax 32.8 39.7 3.0%

Tax 18.3 18.3 3.7%

Profit After Tax 14.5 21.4 2.1%

Capital Adequacy

Finance sector remained resilient with capital maintained at healthy levels during the year. The

sector’s core capital and total Risk Weighted Capital Adequacy Ratio (RWCAR) stood at 11.1%

and 12.5% respectively, in 2019 which increased by 1.3% and 1.4% compared to 2018.

19

Impact to MI

MI continuously contributed to the growth and stability of the finance sector, thereby securing

its market share at 2.9% in terms of total assets of the finance sector. MI’s total assets grew by

4.4%, above the industry average of 0.1% while observing 3% contraction in net loan book in

the sector; the company too faced a challenging environment, thereby restricting growth levels

to a marginal 2.6% increase.

Our revenue and net interest income were satisfactory, though our profitability level fell behind

optimistic targets. Despite the challenging operating environment, MI maintained a strong and

healthy capital base, well above the regulatory requirements in terms of Tier 1 capital adequacy

ratio and total capital ratio which stood at 13.56% and 15.25% respectively.

0%

5%

10%

15%

20%

25%

15/16 16/17 17/18 18/19 19/20

MI Capital Adequacy Ratio Vs Regulatory Requirement

CBSL Tier 1 Core Capital

Ratio

CBSL Total Risk Weighted

Capital Ratio

MI Tier 1 Core Capital Ratio

MI Total Risk Weighted

Capital Ratio

20

How We Managed Risks & Challenges

Factor Impact on the LFC Sector MI’s Approach

Political Political instability and changing

political environment negatively

affected macroeconomic policies

during the first half of the year

Positive sentiments and stabilized

political environment with new

President reflecting future growth

prospects during the latter part of

the year

Since Easter Sunday attack and

COVID-19 outbreak, industry-

wide policy changes, including

moratoriums offered

Tax concessions introduced in

the latter part of the year, uplifted

market sentiments including

purchasing power of society

Despite the challenging and volatile business

context, MI’s proactive strategic approach

empowered successful confronting of short,

medium and long term challenges, while adhering

to heightened regulatory requirements

Economic Easter Sunday attack and

COVID-19 outbreak strained the

financial sector, slowing the

growth trajectory of the economy

Economic slowdown, over

indebtedness and multiple

borrowing deteriorated the

repayment capacity of borrowers

Downward trend in market

interest rates, in response to

monetary and regulatory

measures introduced in last

quarter. (AWPR declined to

single-digit levels)

Reduction in cost of funding and

deposit interest rates

Depreciation in rupee value by

7.44% with export decline as a

result of the lockdown

Repatriation of foreign

investments due to adverse

political and economic conditions

of the country

MI followed a conservative lending approach to

minimize credit risk by curtailing riskier products

and strengthening the credit evaluation process to

mitigate the impact from deterioration in asset

quality

Introduced an internal rating scheme to manage the

customer risk profiles and expanded the product

categories which were closely monitored by the

Credit Risk Division

The Credit Committee was expanded to further

strengthen the credit risk monitoring and initiated

sending “Early Warning Signal Reports” to branch

heads monthly, for proactive remedial actions

To manage the rising NPL levels and the

impairment charges, strengthened the recovery

process and expanded the dedicated recovery team

while recruiting an AGM for Recoveries

Offered competitive rates to attract and expand the

deposit base while focusing more on branch deposit

mobilization

Introduction of new products such as the Draft

Over Property (DPI) to meet evolving customer

demands and enhance customer convenience

Social Few LFC failures continued to

impact investor confidence and

trust

Widened financial literacy

heightened market competition

with evolving customer

requirements and greater demand

for social consciousness when

doing business

With the economic slowdown

MI continued to cement trust and confidence

among customers and the general public

Through business process reengineering and

continuous training, MI continued to differentiate

its customer focused service

MI’s distinctive product range and competitive

price differentiations throughout each segment,

expanded services for an inclusive customer base.

While investing in social welfare, MI offered

special rates and rewards for senior citizens

21

after the Easter Sunday events,

declining per capita income

reduced living standards

Health threats due to the fast

spreading COVID-19 negatively

influenced people’s movements

MI’s growing market network supported credit

needy individuals who lacked access to funding

Despite the COVID-19 pandemic, MI continued to

focus on the well-being of employees and their

families, and continued to support customers and

other stakeholders and manage new challenges with

resilience.

Technological Use of Robotic Process

Automation (RPA) to automate

transactional activities to

enhance accuracy, efficiency, and

speed of critical business

processes while also freeing up

people to focus on more strategic

work

Capitalizing on artificial

intelligence and smart financing

as a competitive advantage

Expansion of electronic payment

methods and fund transfer

systems

Increase in risk of cyber security

threats due to technological

sophistication and increase

computer usage due to COVID-

19

Formed a “Digitization Committee” to identify and

recommend the core business and operational

processes to be digitized to improve process

efficiency and customer convenience

Automated several core business and operational

functions through a Business Process Re-

engineering drive

Expedited the migration process of selected core

functions to a new IT system, which supported the

expansion of the payment platforms, improving the

process efficiency and overall productivity

Upgraded IT security systems reduced the risk of

cyber security threats

Legal Increased impairment effect from

SLFRS 9, reduced the bottom

line of the sector

Annual enhancement of the risk

weighted regulatory capital ratio

required solid capital base with

close monitoring

New directions applicable from

the next financial year on

classification and measurement

of advances, required stringent

monitoring and controlling of

non-performing assets

Implementation of SLFRS 16 –

Leases, with single accounting

model for all leases

By deploying an effective risk control mechanism,

we continuously monitored and upgraded the risk

management framework, while welcoming new

regulatory and statutory changes

With the introduction of the risk register for core

departments, maintained focused proactive

measures towards risk mitigation

The three-year corporate plan was revisited and

being revised incorporating necessary adjustments

based on current market conditions, emerging risks

and regulatory environment

Environmental Increasing need for sound

environmental protection due to

global natural disasters

Continuous attention on financial

and non-financial disclosures of

environmental impacts on

business activities

Evolving demand for greener

environmental practices towards

social sustenance

Continued to reduce GHG emissions to minimize

adverse effects of operations on the environment

while focusing on becoming carbon neutral by

2022

Carried out CSR activities on environmental

conservation, including beach cleaning programs

and awareness sessions on environmental protection

22

Overall Objectives Achieved

Short Term Target Medium Term Objective Long Term Goals

Gross

Revenue

Growth

> 20%

Net Interest

Margin

(NIM)

> 8%

Asset

Quality

(NPL)

<7 %

Net Profit

After Tax

> 600

Million

Growth in

Customer

Base >

15%

Market

Share

> 3%

Asset

Base

> 10%

Current Year

Performance -0.37% 9.85% 11.69% 371

Approx.

6% 2.9%

4%

FY 2019/20

Past 3 Year Average 20% 8.74% 8.04% 391 Approx.

7% 2.9%

7%

FY 2016/17 - FY

2018/19

23

Strategy in Action Strategy Execution

Core Strategy Deployed : Optimizing Customer Value Proposition

GRI 102-15

As a company operating in a fiercely competitive market, we pursued our strategic objectives towards

maximizing customer value proposition, in the process of stakeholder value creation. Thus, more

emphasis was given on expanding our product offering, unparalleled service, regional presence and

brand image.

Strategic Actions towards Desired Results

Focus Area Action Towards Strategy How we Obtained a Competitive

Advantage

Product Mix Management

Strategic Priorities

Introduced

personalized

innovative

financial solutions

Optimized revenue

targets through

product mix

management

Expanded the MI product offering

tailoring to customer needs and budgets

E.g. Introduced Micro Leases

Maintained an optimal lending product

mix to achieve targeted yield levels.

Promoted cross selling between business

lines.

Offered total one-stop-shop experience.

Using training and development as a tool

to boost skills to sustain a productive

marketing force.

We have satisfied evolving

customer expectations through

innovative financial solutions

combining with a superlative

personalized customer service

from all our service points.

Extending Service Beyond Expectations


Creating value and

delightful customer

experiences that

exceed client

expectations to

become the

financial partner of

choice

Focus on a Customer Centric Business

Approach

Extending a closer personalized customer

service with special services for our loyal

and premium customers

Offering value accretive customer

propositions

Introduce service standards and inter

department service agreements to

streamline front end processes.

Ongoing migration to new IT system to

enhance facilities to our clients, which

include ATM services.

With the increased processing

time, broad based platforms

for wider customer payment

choices, we have been able to

enhance convenience and

customer satisfaction and

cement lasting bonds.

Expanding Regional Presence


Extend greater

accessibility &

convenience

Market

development

Expanded our branch network to afford

deposit mobilization by converting seven

service centers to branches.

Widened customer outreach by setting up

dedicated deposit mobilization teams

Expanded our retail customer

base through reach in radius

and convenience

Higher branch volumes

contributed to sustained

business growth.

Current Industry Trends Industry Opportunities/ Risks

With unprecedented events, challenging

slow paced vehicle sales market

Greater engagement of sophisticated

technology and transaction platforms

for the ease of doing business.

Constant changes to policy at macro

level

Stricter financial regulations

Increased credit risks and lowered

collections.

Evolving customer expectations

High price sensitivity

Increased competition from banking

sector.

Pressure exerted on maintaining core

business interest margins

24

Embracing Innovation & Leveraging Digital Transformation


Drive MI through

the Digital Fast

Lane to be more

digital, agile and

competitive.

Enhanced automation and simplified

operational processes.

Transformed and digitized part of the core

operations and plan to roll out more

solutions in next two years

Providing attractive business platforms and

right technology support to cater to varying

customer demands.

By transforming to an

advanced platform, MI would

be in a position to offer faster

and wider customer product

choices.

Brand Building


Reinforcing our

brand identity and

image

Sustaining top of

the mind brand

recall

Intensive brand building and customer

awareness through diverse marketing and

promotional campaigns.

Revamp of the corporate website to

enhance customer awareness and brand

image with unique youthful colors and logo

Elevated our brand to deliver confidence

Broad-based use of new technology, social

networks and multimedia, to widen target

audience, capturing the tech savvy market

segments.

An extensive promotional

campaign reinforced MI’s

brand across the island.

Eg: Extensive deposit and

lending promotional

campaigns

Core Strategy’s Contribution towards Corporate Goals

KPIs Achieved

Actual

FY 2019/20

Planned

FY 2019/20

Past

FY 2018/19

* Portfolio Growth

- Lending 2.5% >15% 3.1%

- Deposits 7.7% >12% 5%

* Growth in Total Customer Base >65,000 >65,000 >60,000

* New Branches opened/ Expansions - 1 3

* New Product Innovation 2 >1 2

*New Processes Automated 6 > 5 2

*Planned Investment in Automation >Rs. 44

million

> Rs. 50 million > Rs. 30

million

Enhanced financial returns

Facing intensifying competition

Embracing technology

Broad basing value partnerships

Material Concerns Addressed

25

Core Strategy Deployed : Enhancing Productivity

GRI 102-15

With people as the driving force of all our endeavors, we continued to deploy the right tools to harness

the best in people towards a more productive work force. We combined direct human resource

measures to boost productivity with business process changes, embracing technology and best in

industry practices, to iron out bottlenecks.


Focus Area Action Towards Strategy How we Obtained a

Competitive Advantage

Employee Productivity


Inspire our workforce

towards achieving

corporate vision and

mission

Closer Employee

Engagement

Made employees familiar with

corporate vision and mission and

reinforced significance of their

contribution towards achieving

corporate goals and objectives.

Promoted shared values and

synergized employee efforts.

Enhanced skills of the workforce to

manage change effectively.

Implemented transparent and objective

performance management system,

integrated with reward mechanism

Greater employee empowerment

Continuous training & development

focused on building an agile, efficient

and creative workforce

Provided continuous on time

performance feedback.

Promoted self-regulation through

values.

Offered career development and

advancement opportunities

Protected and promoted employee

well-being.

Refer employee productivity model below.

Created a pleasant and

opportunity driven workplace

to attract and retain the best

talent.

Maintained the needed

motivation with a

comprehensive Employee

Value Proposition( EVP)

Created a unique employee

brand

Sustained a unique culture

with a rich tapestry where

diversity and inclusiveness, is

core.

Created a work environment

that is agile to adapt to

lockdowns and apply work

from home techniques to meet

customer and regular needs.

Optimal Resource Allocation


Use of minimum

resources to maximize

desired outcomes

Built employee commitment towards a

cost-conscious culture through top

down and bottom up approaches.

Promoted lean management concepts

by eliminating waste, reducing non

value adding activities, while

encouraging value stream mapping.

Geared a right sustainable

platform with optimal

resources, to maximize our

future potential.

Effective Operational Changes

Clear Job roles and JD’s

Focused skill training

Current Industry Trends Opportunities/ Risks

Evolving employer expectations and industry

demands since COVID outbreak

Demand for supportive and transformational

leadership

Use of Emotional Intelligence (EI) to improve

productivity.

Minimize manual interventions and promote

digitization.

Competition to retain high skilled, experienced, more

agile, efficient and creative people. Use of work from home techniques, Artificial

Intelligence (AI) and robotic tools to improve

productivity Greater career opportunities for the skilled.

26

Limited branch expansion seeking

viable market segments.

Determined an optimal blend between

long-term funds and short-term funds

to optimize funding costs.

Decentralization of Operations


Improve efficiency

of the core business

processes through

decentralization

Identified the business/ operational

processes to be decentralized, to

improve efficiency.

Allocated required resources for the

decentralization.

Process mapping and improvements

Document retention standardization

to maximize space utilization

Having presence in all 9

provinces with 39 locations,

the decentralization of all core

activities will afford

customers major convenience,

with enhanced speed of

service delivery.

Employee Productivity Model


KPIs Achieved

Actual

FY 2019/20

Planned

FY 2019/20

Past

FY 2018/19

Training hours per employee 8 hours >10 hours 10 Hrs

Attrition rate 27% <25% 35%

Total employee benefits Rs.990 Million >Rs. 950 Million Rs.923 Million

Return on Assets 0.88% >1% 1.12%

Cost to Income ratio 69% <60% 63%

Grooming a productive workforce

Employee motivation and welfare

Embracing technology


Recruitment & Retention

Talent Management

Thriving and inclusive

community (culture)

Reward

PEOPLE STRATEGY

Performance Drivers

Right People

Right Place

Capability

Development

Seen as Valued Employee

Engagement

High Performance Work Culture Engaged Workforce

Positive Employee Value Proposition Our People – Our Pride

27

Core Strategy Deployed: Effective Risk Control and Mitigation Technique

Application GRI 102-15

With market uncertainty and evolving risks, we understood the importance of having a robust,

resilient and an agile risk management framework to face unprecedented risks and challenges

successfully. During the year, with the challenging economic conditions, deterioration in borrower

repayment capacity and adverse impacts resulting from the Easter Sunday events and COVID-19

outbreak, we strengthened our risk management controls to effectively manage the adverse impacts

and challenges successfully. While incorporating risk management in every aspect of our business,

we ensured that the risk profiles are regularly assessed and managed proactively, to minimize chances

of losses and simultaneously to gain a competitive advantage in an ever-shifting internal and external

environment. This enabled us to design and implement the most appropriate risk management

strategy for the company and maintain a healthy balance between risks and returns, without hindering

any business opportunities.


Focus Area Action Towards Strategy How we Obtained a

Competitive Advantage

Embed Risk Management Culture within the Organization


Deploying an effective

risk management

framework that

supports business

requirements to

identify and manage

risk proactively.

Strengthened the risk management

framework and reporting.

Maintained a strategic fit between the

business strategies and the Risk

Management Framework, towards

sustainable returns.

Introduced new policies and

procedures to comply with the

emerging regulatory needs and best

practices.

Introduction of risk register for core

departments

Was able to remain

resilient in the face of

volatilities and disruptions

to meet customer demands.

Increased regulatory

compliance

Continuous Board

feedback on risk and

counter strategies and

compliance with changing

regulations, helped to

strengthen business

governance

Asset Quality Sustenance


Strong credit policy,

credit risk review and

recovery drive, to

maintain satisfactory

collection levels and

Strengthened the Credit Risk Division

with more resources to improve credit

evaluation process.

Introduced an Internal rating scheme

to manage customer risk profiles.

Expanded the dedicated recovery

Through Easter Sunday

attack and COVID 19

outbreak fuelled credit

deterioration, we were able

to follow up collections

and control the rise of

Current Trends Opportunities/ Risks

Changing industry landscape coupled with

macro changes has fueled potential risks.

Convergence of risk oversight with strategic

planning

Increasing role of Board in defining risk

management strategy

Evolution of risk management as a competitive

strategy to gain market share and growth in

profitability.

Increasing risks with deteriorating credit

quality and market sentiments, due to the

Easter Sunday events and COVID 19

outbreak

Technology has led to dependence and wider

risks, while at the same time acting as an

enabler for effective risk management and

performance.

Stringent regulatory controls over

deteriorated asset quality.

Reputational risks accelerate and amplify

with wider market presence.

28

control bad debts

Handling and arresting

90-day arrears in

contracts

team, recruiting industry specialists

while strengthening the recovery

process.

Formation of a fully-fledged “Call

Centre” to closely follow up on

recoveries.

Forming new reporting tools to

monitor and follow up change in risk

profiles, and assess KRI’s against risk

appetites, and due reporting and

actions.

Implemented an Integrated Recovery

Management process, to synergize

divisional support, to strengthen the

recovery process.

Introduced short, medium and long

term goals and objectives and gave

greater emphasis to asset quality

when rewarding staff.

NPLs.

Stringent credit review and

efficient resuscitation and

recovery enabled us to

minimize our credit risk.

Adaptation to Market Dynamism and Sophistication


Leverage on

technological

innovations in risk

management

Use of smarter and effective tools for

risk tracking and reporting purposes.

Eg: Risk register

Use of data integration and analytic

tools for risk management.

Predictive risk information

supported us in our

decision making process to

make better-informed

decisions and actions that

produce outcomes that are

more reliable.


KPIs Achieved

Actual

FY 2019/20

Planned

FY 2019/20

Past

FY 2018/19

New initiatives on risk management 7 9 9

One year maturity mismatch Rs.(6.8) Billion < Rs. 6 Billion Rs. (5.7) Billion

Collection ratio >70% >80% >90%

NPL ratio 11.69% <8% 9.62%

Repossessions <1,200 <1,000 <900

Managing risks with the evolving

industry landscape

Regulatory challenges

Maintaining standards of governance


29

Core Strategy Deployed: Cementing Lasting Relationships

GRI 102-15

In today’s dynamic and competitive business environment, corporate sustainability hinges on the social

license and strength of stakeholder relationships. Having identified lasting relationships with stakeholders

as a strategic pillar in our value creation journey, we increased our efforts to build strong and mutually

beneficial relationships with our stakeholders, offering “shared growth opportunities”. As a five

decade business, built on trust and loyalty, we continued to cultivate new relationships, and nurture

existing ones towards a more lasting bonding.

Strategic Actions towards desired results

Focus Area Action Towards Strategy How we Obtained a Competitive

Advantage

Customer Acquisition & Retention


Deploying new ways of

doing business to delight

customers

Focus on a customer centric

business approach

Offering a greater personalized

customer service by expanding

the mobile sales team

Offering value accretive

customer propositions by

expanding product portfolio,

payment platforms and expediting

service delivery

Safeguarding customer privacy by

obtaining protection against cyber

security threats

Maintaining a personalized touch

helped sustain loyalty and

retention levels, even in turbulent

market conditions

Stability and a sound reputation

and resulting loyalty, remained an

overriding factor for customer

attraction and retention.

Create Win-Win Business Relationships


Identifying growth

opportunities on a long

term partnership basis

Extended shared growth

opportunities beyond just existing

business

Encouraged and promoted ethical

business practices

Strong and mutually beneficial

relationships have been a key

factor in our business success

Trust and reputation built over

time continues to create

bargaining power for us during

business negotiations

Creating Sustainable Communities


To be one of the most

admired socially-

responsible finance

companies.

Building a strong legacy

as a company committed

to development of society

Extending financial support to

satisfy unmet needs of the poor

and less privileged.

Supporting small businesses and

entrepreneurship

Social assistance beyond business.

Inculcating cultural and ethical

attributes

Deep sense of corporate

acceptance and bonding has

enriched our brand image and

contributed towards sustainable

business growth.

Current Trends Opportunities/ Risks

Business sustenance revolves around

keeping customers content and this

involves having lasting stakeholder

relationships.

Finance business hinged on trust, reputation

and loyalty.

Technology and information utilized heavily

to build trust and loyalty.

Those having adequate capital and know-how

and capabilities, are able to yield better results

and repeat business.

30


KPIs Achieved

Actual

FY 2019/20

Planned

FY 2019/20

Past

FY 2018/19

Deposit retention >70% >75% 74%

Growth in customer base >65,000 >60,000 >60,000

Social investment Rs.1.8 Million Rs. 1 Million Rs.1.3 Million

Creating sustainable communities

Broad basing value partnerships


31

Resource Distribution

Our resources, which mainly comprise of the six capitals we deploy are allocated and distributed among the

main business lines in an optimum way, delivering anticipated value enhancing outcomes to our stakeholders.

We directed resources based on the need and criticality, which was mainly driven by strategies we followed to

develop and nurture each revenue generating business lines.

We articulate below how the resources were utilized this year to the critical functions, towards improving

service delivery, customer reach and satisfaction and eventually improved revenue and bottom line growth.

32

33

MI’s Service Value Chain

The process of attaining competitive advantage for our business outputs geared through service

delivery mechanisms specified in product differentiation enabled us in sustaining ferocious rivalry

within the industry. Hence, in optimizing customer value proposition we affirmed to maintain

close integration between core business segments, treasury unit, deposits and all other supporting

functions to maximize while efficiently utilizing the funding supply. Cost effective funding supply

management was prominent and accordingly acquiring funds and timely sourcing of funds to each

segment were carried out effectively based on prioritization. Key players in the value chain

including fund providers, agents and suppliers together with internal back office functions such as

product designing, branding, recovery, legal, human resource management and finance played

alike in mounting value generated. The process of refining and enhancing our service value chain

will be continued towards goal congruence by taking in to consideration the evolving market

changes and customer requirements.

MI’s Service Value Chain Components

Governance, Ethics, Corporate Planning and Risk Management

Human Resource Management

Marketing and Communication

Infrastructure Technology Services

Sustainability and Administration Management

Audit, Accounts and Control

Fund

Mobilization

and Supply

Customer

Intelligence

and Product

Designing

Evaluation

and

Execution

Collections

Customer

Relationship

Management

and After

Sales

Coordination

Value Generated Outputs

Deposit Mobilization

Lending

Investments

Other Ancillary Business

34

Stakeholder Participation

(GRI 102-42)

Value creation is an ongoing process at MI which commences and concludes through the close

engagement and participation of our key stakeholders and includes three phases of stakeholder

shortlisting and categorization, stakeholder engagement and material concerns management. At the

commencement stage, stakeholder primacy is at the heart of whatever we do and their expectations

are routed through the strategy formulation process leading to enhanced decision making. Proper

understanding of the stakeholder’s aspirations and expectations immensely influences the strategy

shaping and our future corporate actions.

Impact assessment and stakeholder feedback helps us refine the way we do things, and has helped

us evolve into a more effective enterprise.

35

Stakeholder Shortlisting and Categorization

(GRI 102-40,102-42)

A standard evaluation mechanism is applied to gauge our impacts on stakeholder groups that

have increasing interest in our operations over the last decade, in terms of economic, social and

environmental dynamics. This systematic approach of stakeholder shortlisting and categorization

enables MI to address emergent material concerns. As given in the diagram, our four

dimensional filtering approach allows us to prioritize the most relevant stakeholder groups under

five key groups, to focus on them and maintain necessary interaction, communication and

relations.

Accordingly, the five stakeholders are our

Shareholders

Clients

Staff

Regulators

Society

Stakeholder Engagement (GRI- 102-43,102-44)

Frequent dialogue and interaction with our stakeholders is an integral part of our integrated

business model and strategic planning and value creation process. Engagement with stakeholders

has resulted in a better understanding of their needs and aspirations. Through effective

communication and feedback, we address the material concerns that are key to us, as well as to

our stakeholders.

36

Five Key Stakeholder

Groups Engagement Style

Needs and Expectations

Expressed How value was created

Shareholders

Ordinary shareholders and

prospective investors

Shareholder

meetings/Annual

General Meeting –

Annual

Annual Report feedback

form – Annual

One-on-one meetings –

On a regular basis

Growth in Net Asset Value

Sustainable growth strategy

Experienced management

Sound governance

Transparent reporting and

disclosure

Maintaining a strong financial

position

Increasing Net Asset Value and

Return on Equity

Clients Over 65,000 customers Individuals from different

age categories and corporates

Our suppliers, including

banks, financial institutions

and depositors

Inquiries, discussions

and site visits

undertaken by either

party, as necessary,

usually once a year, with

key parties

Direct customer

feedback at MI’s

service points/

suggestion boxes

Customer surveys

Excellence in customer service

Competitive financial

solutions

Availability of sufficient

information on products and

pricing

Safety of deposits

Repayment of loans

Safeguarding deposits with

effective risk management and

strong capital base

Enabling financial inclusion

through geographical expansion

Developing financial solutions to

suit various customer needs

Supporting the economy through

provision of credit

Staff 1,094 Employees

‘Open Door Policy’ for

employees to freely

interact one-on-one with

the Managing Director,

other Directors of the

Board and senior

officers – On a regular

basis

Departmental review

meetings – Monthly

Management meetings –

Weekly

Employee recognition,

competitive remuneration and

benefits and fair performance

management

Career development

opportunities

An environment that embraces

diversity and inclusivity

Challenging work and clear

performance objectives

Rewarding staff with a fair

performance appraisal and

compensation system

Creating job opportunities as we

expand

Developing the skills of our

employees for increased

efficiency and quality whilst

enabling career progression

Facilitate employment equity and

gender equality

Regulators - Central Bank of Sri Lanka

- Inland Revenue Department

- Financial Intelligence Unit

- Colombo Stock Exchange

We also comply with various

other regulatory bodies to

ensure compliance with

labour regulations, human

rights and other

environmental and social

regulations

Issue of regulations and

directions by regulators

Training

programs/workshops

with regulatory bodies

On-site and off-site

reviews by CBSL and

other regulatory bodies –

Annual

Other discussions with

the Board and Senior

Management

Compliance with legal and

regulatory requirements

Active participation in the

industry

Fulfilment of tax obligations

Contributing to government

budgets through our tax

contributions

Adhering to regulatory

requirements which ultimately

enable a safe and stable financial

system for Sri Lanka

Society

Citizens of Sri Lanka and

Non-Governmental

Organisations.

The environment which

facilitates the wellbeing of

the citizens

Media

Public events

Interacting with

segments of society by

direct correspondence

and meetings

MI’s use of resources in

managing business

operations and building a

sustainable environment

Partnering on common social

and environmental issues

MI’s wider impact on society

and environment

Ensuring financial inclusivity

through our products and branch

network

Sustainable management of the

use and impact of natural and

human resources in our

operations

Contributing back to society

through various corporate social

initiatives

37

Material Concerns Management

(GRI 102-46,102-47,103-1,103-2 and 103-3)

The number and type of material concerns have remained unchanged from the previous financial year at

11. In identifying, managing and reporting on these key concerns, we followed the guidelines of the IIRC

(International Integrated Reporting Council), the GRI Standards (Global Reporting Initiative) and the UN

SDGs (Sustainability Development Goals).

These material concerns address how we have managed 23 GRI topics, while emphasizing matters

specific to MI, which extend beyond the GRI framework. The stewardship of this full exercise came

under the Sustainability Governance Committee, which reassessed 2018/19 concerns by evaluating

stakeholder feedback and comparing them with business, industry and country specific factors.

Furthermore, the Committee also considered the economic fluctuations and market uncertainties arising

from the Easter Sunday events and the COVID-19 outbreak, especially on the industry’s asset quality and

socio-economic repercussions. The material business concerns we cover may change in the future as per

future assessments, resulting in possible changes in the level of importance with material concerns being

added, adopted or eliminated.

The Materiality Gauge Matrix below summarizes the significance of the 11 key material concerns to both

the stakeholders and MI, derived from the final outcomes of our stakeholder participation process and

corporate strategy.

38

Why its Material? Level of

materiality

Stakeholde

r affected/

Topic

Boundary

(Navigatio

n icons)

Linke

d SDG

Linked GRI

Standard Materiality Considerations Management Approach Disclosure Reference

Enhancing financial

returns Having an asset base of over

Rs 43 billion, with a

competent workforce across

39 locations all over the

country, we strive to

enhance our stakeholder

wealth, constantly

contributing to the financial

sector and economic

growth.

Very High

Materiality

Investors

Staff

Society

201: Economic

Performance No change in Materiality

Despite the economic slowdown following the Easter Sunday

attack, we sustained revenue and profitability through an

effective corporate strategy. By posting positive returns, we

continued to maximize stakeholder value creation, while

contributing to the economic growth of the country

Economic Impact

Management (Refer

web content Impact

management report

pages 6 to 13)

203: Indirect

Economic

Impacts

No change in Materiality We generated employment opportunities in both urban and

rural areas through our branch network and upheld financial

inclusiveness in our business strategy, which benefited the

general society, the finance sector and the economy.

We converted our service centres into branches in line with

the expansion of our business, which has enhanced economic

returns.

Economic Impact

Management (Refer

web content Impact

management report

pages 6 to 13)

Material Concerns, Approach and Coverage

GRI 102-46, 102-47,103-1,103-2,103-3

We outline below the rationale for focusing on the said 11 material concerns and their association to GRI topics and SDG’s. The management approach towards these material concerns are summarized

below. Detailed disclosures are given in various reports within this integrated annual report.

39

Managing risks in the

evolving industry

landscape Political changes, coupled

with the Easter Sunday

event and the emergence of

COVID 19 issue, brought

uncertainty and market

volatility to the already

competitive finance

industry. Our stakeholders

are keen to know, how we

manage industry risks in this

volatile business

environment.

Managing the deterioration

of asset quality through

proactive risk mitigation

mechanisms generated

positive returns for our

shareholders, while

maintaining a healthy NPL

ratio.

Very High

Materiality

Investors

Clients

N/A No change in materiality

To counter emerging credit risks and depleting asset quality

we adopted measures to control the NPL rise and also provide

solutions to those in financial distress for their repayments.

The MI Board identified and analysed risks on an on-going

basis and introduced proactive measures to mitigate risks.

Industry best practices were observed in risk mitigation.

Corporate Governance

Report

Risk Management Report

Grooming a productive

workforce Staff being our main asset,

their productivity is key to

MI’s future success.

Very High

Materiality

Staff

Society

401:Employm

ent

404: Training

and Education

No change in materiality We invested in training and development and also on an

effective performance management mechanism to develop

skills and capabilities to face ongoing business challenges.

Our Recruitment and Retention Strategies are aimed at

attracting, retaining and nurturing the right talent.

Capital Management – Refer

Human Strength web content

40

403:

Occupational

Health and

Safety

Materiality increased

With the Covid-19 outbreak, we initiated various customer

and staff health and safety measures at Head office and

branch premises to safeguard and protect both customers and

employees for any potential risks. In addition to this, we

adopted adequate safety standards to protect our workshop

staff from work hazards.



202:Market

Presence No change in materiality Through the HR Policy, we ensure non-discrimination in

remuneration, in line with labour regulations. Our hiring

approach places importance on people having local expertise

and we support employment within the community itself.



Embracing Technology

Technology plays a pivotal

role in driving innovation,

ease of doing business and

maintaining confidentiality

of data. Enhancing quality

of IT systems, data integrity

and cyber security are some

of the material concerns

during the year.

Very High

Materiality

Clients 418:Customer

Privacy Materiality increased We utilized available technology, such as SLIPS, to widen

convenient payment options. The MI Board continued to

facilitate the on-going migration to a renowned external IT

system for part of MI’s core operational and back office

functions, to safeguard data confidentiality. With the COVID

19 outbreak, we promoted remote access facilities and

continue to invest more on online solutions


Intellect web content

41

Broad basing partnership

value We strive to add value to

our products and business

relationships by upholding

lasting partnerships and a

“shared value “ philosophy

with our customers,

depositors, lenders, financial

intermediaries and suppliers

beyond their expectations,

thus retaining their trust and

loyalty.

High

Materiality

Clients N/A

204:

Procurement

Practices

No change in materiality


Greater emphasis was placed on building future partnerships

and strengthening the existing relationships, creating greater

value through innovation and making changes operationally

to enhance service delivery and customer convenience.

Through BPR strategies, we revisited and revamped the way

we do business to bridge gaps, improve lead times and

enhanced product delivery. Even with the Easter Sunday

events and COVID 19 outbreak, we extended our support to

serve the urgent financing needs of our customers while

ensuring their health and safety.

Clear policies and procedures were established for borrowing

and purchasing. We partnered with various funding providers

and consumable suppliers, based on the shared value concept,

to create a win-win position for all parties.

Capital Management –

Refer Alliances web

content


Refer Alliances web

content

417:

Marketing and

Labelling

No change in materiality As an organisation renowned for transparency, we stayed

committed to upholding effective and responsible

communication practices.


Refer Alliances web

content

Facing intensifying

competition Market differentiation and

brand strengthening are

necessary in crowded

markets and in a challenging

market environment.

High

Materiality

Investors

Clients

Regulators

N/A No change in Materiality Our business strategy was geared to take advantage of

evolving customer preferences and market dynamics. We

made prompt operational and technological enhancements and

geared the workforce to compete in the challenging business

environment. Simultaneously we invested in promoting the

MI brand across the country while diversifying the deposit

base.

We commenced a business re-engineering and restructuring

program, to improve the quality of outputs, reduce costs and

identify bottlenecks, in order to eliminate inefficiencies.


Refer Intellect web content


Refer Alliances web

content

42

Maintaining standards of

governance How we conduct our affairs

in the corporate circle and

society, is examined by our

clients and regulators to

assess our professionalism,

ethical conduct and our

direction.

High

Materiality

Clients

Regulators

N/A No change in materiality Through a strong Governance Framework, we maintained an

effective business enterprise and governance culture, with

constant high-level oversight and independent reviews. We

practiced both regulatory and also voluntary industry best

practices to safeguard stakeholder interests.

We made necessary governance changes and enhancements to

the Board structure, and to the corporate team, to broad base

capabilities in key business areas.

• Governance Report

205: Anti-

Corruption No change in materiality A zero tolerance approach against corruption was upheld with

the Fraud and Whistleblowing Policy, which provided the

foundation to manage malpractices, backed by effective

internal controls and audits, to detect and prevent related

concerns.


Alliances Refer Alliances web

content



Economic Impact Management

(Refer web content Impact

management report pages 6 to

13)

Employee motivation and

welfare As a people-driven

enterprise, we are mindful

of our obligations towards

our workforce. Our

recruitment strategy touches

the lives of people from

varying communities, and

hence, not only our

workforce but society in

general, is concerned about

how we groom, motivate

and manage our staff.

Moderate

Materiality

Staff

Clients

Society

402:Labour

Management

Relations

No change in materiality We adopted an Open Door Policy to ensure that there is

effective two-way communication between management and

the staff. Operational changes impacting employees were

carried out in line with the HR Policy, and business

requirements, at the management’s discretion.



405:Diversity

and Equal

Opportunity

406:Non

Discrimination

No change in materiality The HR Policy was designed to uphold workforce diversity

and allows employees equal opportunities, without being

biased. The reward mechanism reflected employee

performance and did not favour anyone based on gender, race,

religion, caste or creed.



Corporate Governance Report

410:Security

Practices Materiality increased We continued to adopt strong security practices to curtail

risks of theft and entry, and to ensure safety of people. The

security personnel from our outsourced partners are well

trained on treating our employees and customers in a humane

manner, without infringing on their human rights.



43

412:Human

rights

Assessment


We trained our staff to treat our employees and business

partners in a humane manner and obtained staff‘s

acknowledgment to abide by fair practices.



Regulatory challenges We operate in a highly-

regulated industry. . Recent

new regulations and

amendments to prevailing

laws, have impacted MI’s

business flexibility.

However, Our stakeholders,

including regulators, are

focused on how well we

adapt to these challenging

requirements while

maintaining our business

success momentum.

Moderate

Materiality

Investors

Clients

Staff

Society

Regulators

307:

Environmental

Compliance

419 : Socio

Economic

compliance

No change in materiality The compliance unit and the legal team, monitored and

advised on compliance status.

Core and support divisions were guided towards a smooth

transition to new regulations and changes to existing laws, as

intended by the regulatory bodies.


Nature web content

Corporate Governance Report

44

Creating sustainable

communities Our expanding presence and

vision to empower

communities to live

sustainable lives, have

brought us closer to people

than ever before. People too,

are interested in learning

about our plans.

Moderate

Materiality

Society

413:Local

Communities No change in materiality The Sustainability Governance Committee works closely with

the core business lines to identify unseen social needs. We

attempt to support those in need to bridge social disparities,

which ultimately creates sustainable communities.


Alliances web content

Social Impact Management

Refer Impact Management web

content pages 17 to 25)

Extending

environmental

interaction Having expanded our

presence, our exposure to

the environment and use of

resources is gradually

growing.

Moderate

Materiality

Society

Regulators

301:Material

302:Energy

303:Water

No change in materiality Being a service organisation, we consume fewer natural

resources. We also implement sustainable green

environmental practices to protect the environment, with the

assistance of the heads of departments and branches, through

our Sustainability Governance Framework.

Environmental Impact

Management - Refer

Impact Management web

content pages 26 to 35)

45

304:Bio

Diversity No change in materiality

To conserve bio-diversity, the Sustainability

Governance Committee contributes to safeguard wildlife

through the “Wildlife Fund”


Nature web content


Management - Refer Impact

Management web content pages

26 to 35)

306:Effluents

and Waste


We dispose and recycle the day-to-day garbage and e-waste in

a systematic and safe manner, with the assistance of the

Maintenance Department, using the best waste management

techniques that do not create a negative impact on the

environment, directly or indirectly.


Management - Refer Impact

Management web content pages

26 to 35)

46

Documents

Our Value Creation Journey · 2020. 7. 20. · 1 Our Value Creation Journey MI holds a solid competitive position in the finance industry of Sri Lanka as one of the most trustworthy